<PAGE>
As filed with the Securities and Exchange Commission on
April 29, 1998
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 45 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 47 ( X )
(Check appropriate box or boxes)
__________
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-993-4400
____________
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Jeffrey A. Dalke, Esq.
85 Broad Street - 12th Floor Drinker Biddle & Reath LLP
New York, New York 10004 1345 Chestnut Street
Philadelphia, PA 19107
(Name and address of agent for service)
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
(X) On May 1, 1998 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2.
On January 26, 1998 Registrant filed a Rule 24f-2 notice on behalf of its fixed
income trusts for their fiscal year ended October 31, 1997.
On March 31, 1998 Registrant filed a Rule 24f-2 notice on behalf of its money
market funds for their fiscal year ended January 21, 1998.
On March 31, 1997 Registrant filed a Rule 24f-2 notice on behalf of its
equity funds for their fiscal year ended January 31, 1998.
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs Domestic Equity Funds
Class A, Class B and Class C Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs Domestic Equity Funds
- -----------------------------------
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Mid
Cap Equity Fund, and Goldman Sachs Small Cap Value Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Policies;
Description of Securities; Risk Factors;
Investment Techniques; Investment Restrictions;
Portfolio Turnover; Shares of the Trust;
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation;
7. Purchase of Securities How to Invest; Net Asset Value;
Being Offered Services Available to Shareholders; Distribution
and Authorized Dealer Service Plans;
8. Redemption or How to sell Shares of the Fund;
Repurchase Services Available to Shareholders; Distribution
and Authorized Dealer Service Plans;
9. Pending Legal Not Applicable
Proceedings
<PAGE>
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Introduction
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value;
and Pricing of Other Information; Other Information
Securities Being Regarding Maximum Sales Charge, Purchases,
Offered Redemptions, Exchanges and Dividends.
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs International Equity Funds
Class A, Class B and Class C Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs International Equity Funds
- ----------------------------------------
Goldman Sachs CORE International Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth
Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and
Policies; Description of Securities;
Risk Factors; Investment Techniques;
Investment Restrictions; Portfolio
Turnover; Shares of the Trust;
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation;
7. Purchase of Securities How to Invest; Net Asset Value;
Being Offered Services Available to Shareholders;
Distribution and Authorized Dealer
Service Plans;
8. Redemption or How to sell Shares of the Funds;
Repurchase Services Available to Shareholders;
Distribution and Authorized Dealer
Service Plans;
9. Pending Legal Not Applicable
Proceedings
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs Domestic Equity Funds
Institutional Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs Domestic Equity Funds
- -----------------------------------
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Mid
Cap Equity Fund, and Goldman Sachs Small Cap Value Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights; Investment
of Registrant Objective and Policies; Description of
Securities; Risk Factors; Investment Techniques;
Investment Restrictions; Portfolio Turn over;
Shares of the Trust;
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation
7. Purchase of Securities Purchase of Institutional Shares; Net
Being Offered Asset Value
8. Redemption or Redemption of Institutional Shares
Repurchase
9. Pending Legal Not Applicable
Proceedings
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs International Equity Funds
Institutional Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs International Equity Funds
- ----------------------------------------
Goldman Sachs CORE International Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth
Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights; Investment
of Registrant Objective and Policies; Description of
Securities; Risk Factors; Investment
Techniques; Investment Restrictions;
Portfolio Turnover; Shares of the Trust
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation
7. Purchase of Securities Purchase of Institutional Shares; Net
Being Offered Asset Value
8. Redemption or Redemption of Institutional Shares
Repurchase
9. Pending Legal Not Applicable
Proceedings
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs Domestic Equity Funds
Service Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs Domestic Equity Funds
- -----------------------------------
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Mid
Cap Equity Fund, and Goldman Sachs Small Cap Value Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights; Investment
of Registrant Objective and Policies; Description of
Securities; Risk Factors; Investment Techniques;
Investment Restrictions; Portfolio Turnover;
Shares of the Trust
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the
Other Securities Trust; Taxation
7. Purchase of Securities Purchase of Service
Being Offered Shares; Net Asset Value; Additional Services
8. Redemption or Redemption of Service Shares;
Repurchase Additional Services
9. Pending Legal Not Applicable
Proceedings
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs International Equity Funds
Service Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs International Equity Funds
- ----------------------------------------
Goldman Sachs CORE International Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth
Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights; Investment
of Registrant Objective and Policies; Description of
Securities; Risk Factors; Investment Techniques;
Investment Restrictions; Portfolio Turnover;
Shares of the Trust
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation
7. Purchase of Securities Purchase of Service
Being Offered Shares; Net Asset Value; Additional Services
8. Redemption or Redemption of Service Shares;
Repurchase Additional Services
9. Pending Legal Not Applicable
Proceedings
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1998
GOLDMAN SACHS DOMESTIC EQUITY FUNDS
CLASS A, B AND C SHARES
GOLDMAN SACHS BALANCED FUND
Seeks long-term capital growth and current income through investments in eq-
uity and fixed income securities.
GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and growth of income through investments
in equity securities that are considered to have favorable prospects for
capital appreciation and/or dividend paying ability.
GOLDMAN SACHS CORE U.S. EQUITY FUND
Seeks long-term growth of capital and dividend income through a broadly di-
versified portfolio of large cap and blue chip equity securities represent-
ing all major sectors of the U.S. economy.
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of U.S. issuers which are included in the Russell 2000 In-
dex at the time of investment.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital through diversified investments in equity
securities of companies that are considered to have long-term capital appre-
ciation potential.
GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term capital appreciation primarily through investments in equity
securities of companies with public stock market capitalizations within the
range of the market capitalization of companies constituting the Russell
Midcap Index at the time of investment (currentlybetween $400 million and
$16 billion).
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through investments in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, Mid Cap Equity and Small Cap Value (formerly "Small Cap
Equity") Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the CORE
U.S. Equity (formerly the "Select Equity Fund") and Capital Growth Funds. GSAM
and GSFM are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 12
Investment Objectives and Policies. 20
Description of Securities.......... 25
Investment Techniques.............. 30
Risk Factors....................... 35
Investment Restrictions............ 36
Portfolio Turnover................. 36
Management......................... 36
Expenses........................... 42
Reports to Shareholders............ 42
How to Invest...................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders. 48
Distribution and Authorized Dealer
Service Plans..................... 51
How to Sell Shares of the Funds.... 52
Dividends.......................... 54
Net Asset Value.................... 55
Performance Information............ 55
Shares of the Trust................ 56
Taxation........................... 57
Additional Information............. 58
Appendix .......................... A-1
Account Application
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in
this Prospectus.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment funds (commonly
known as mutual funds (the "Funds")). Each Fund pools the monies of
investors by selling its Shares to the public and investing these monies
in a portfolio of securities designed to achieve that Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ---------- ------------------
-------------------------
-----------------
BALANCED Long-term capital Between 45% and 65% of total Lehman Aggregate Bond
FUND growth and current assets in equity securities Index and the
income. and at least 25% in fixed- Standard & Poor's
income senior securities. Index of 500 Common
Stocks (the "S&P 500
Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth of At least 65% of total assets S&P 500 Index
INCOME FUND capital and growth of in equity securities that the
income. Investment Adviser considers
to have favorable prospects
for capital appreciation
and/or dividend-paying
ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total assets S&P 500 Index
EQUITY FUND capital and dividend in equity securities of U.S.
income. issuers. The Fund seeks to
achieve its objective through
a broadly diversified
portfolio of large cap
and blue chip equity
securities representing all
major sectors of
the U.S. economy. The Fund's
investments are selected using
both a variety of
quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and
industry characteristics
similar to the S&P 500 Index.
</TABLE>
(continued)
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ---------- ------------------
-------------------------
-----------------
CORE LARGE Long-term growth of At least 90% of total assets Russell 1000 Growth
CAP GROWTH capital. in equity securities of U.S. Index
FUND Dividend income is a issuers, including certain
secondary foreign issuers traded in the
consideration. U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of equity securities of large
cap U.S. issuers that are
expected to have better
prospects for earnings growth
than the growth rate of the
general domestic economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
Russell 1000 Growth Index.
- ---------------------------------------------------------------------------------------
CORE SMALL Long-term growth of At least 90% of total assets Russell 2000 Index
CAP EQUITY capital. in equity securities of U.S.
FUND issuers, including certain
foreign issuers traded in the
U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of equity securities of U.S.
issuers which are included in
the Russell 2000 Index at the
time of investment. The Fund's
investments are selected using
both a variety of quantitative
techniques and fundamental
research in seeking to
maximize the Fund's expected
return, while maintaining
risk, style, capitalization
and industry characteristics
similar to the Russell 2000
Index.
- ---------------------------------------------------------------------------------------
CAPITAL Long-term capital At least 90% of total assets S&P 500 Index
GROWTH FUND growth. in a diversified portfolio of
equity securities. The
Investment Adviser considers
long-term capital appreciation
potential in selecting
investments.
- ---------------------------------------------------------------------------------------
MID CAP Long-term capital At least 65% of total assets Russell Midcap Index
EQUITY FUND appreciation. in equity securities of
companies with public stock
market capitalizations within
the range of the market
capitalization of companies
constituting the Russell
Midcap Index at the time of
investment (currently between
$400 million and $16 billion)
("Mid-Cap Companies").
- ---------------------------------------------------------------------------------------
SMALL CAP Long-term capital At least 65% of total assets Russell 2000
VALUE FUND growth. in equity securities of
companies with public stock
market capitalizations of $1
billion or less at the time of
investment.
</TABLE>
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's Share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Other. A Fund's use of certain investment techniques, including derivatives,
forward contracts, options and futures, will subject the Fund to greater risk
than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, Mid Cap Equity
and Small Cap Value Funds. Goldman Sachs Funds Management, L.P. serves as
Investment Adviser to the CORE U.S. Equity and Capital Growth Funds. As of
March 23, 1998, the Investment Advisers, together with their affiliates, acted
as investment adviser or distributor for assets in excess of $153 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's Shares (the "Distributor").
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
- ---------------- -------- -----------
<S> <C> <C>
Regular Purchases......................................... $1,000 $50
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) and UGMA/UTMA Purchases.................. $ 250 $50
SIMPLE IRAs and Education IRAs............................ $ 50 $50
Automatic Investment Plan................................. $ 50 $50
403(b) Plans.............................................. $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 43.
HOW DO I PURCHASE SHARES?
You may purchase Shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
agreements with Goldman Sachs relating to the sale of Shares ("Authorized
Dealers"). See "How to Invest" on page 42.
5
<PAGE>
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer three classes of Shares through this Prospectus. These Shares
may be purchased, at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A Shares"); (ii) with a contingent deferred sales
charge ("CDSC") imposed on redemptions within six years of purchase ("Class B
Shares"); or (iii) without any initial sales charge or CDSC, as long as Shares
are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A Shares will be sold without an initial sales charge
and may be subject to a CDSC at the time of certain redemptions.
<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if Shares are redeemed within 12 months of purchase
</TABLE>
Over time, the CDSC and distribution fees attributable to Class B or Class C
Shares will exceed the initial sales charge and the distribution fees
attributable to Class A Shares. Class B Shares convert to Class A Shares, which
are subject to lower distribution fees, eight years after initial purchase.
Class C Shares, which are subject to the same distribution fees as Class B
Shares, do not convert to Class A Shares and are subject to the higher
distribution fees indefinitely. See "How to Invest--Alternative Purchase
Arrangements" on page 42.
HOW DO I SELL MY SHARES?
You may redeem Shares upon request on any Business Day, as defined under
"Additional Information," at the NAV next determined after receipt of such
request in proper form, subject to any applicable CDSC. See "How to Sell Shares
of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- --------------------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
Small Cap Value....................... Annually Annually
</TABLE>
You may receive dividends and distributions in additional Shares of the same
class of the Fund in which you have invested or you may elect to receive them
in cash, Shares of the same class of other mutual funds sponsored by Goldman
Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime Obligations
Portfolio or the Tax-Exempt Diversified Portfolio, if you hold Class A Shares
of a Fund, or ILA Class B or Class C Units of the Prime Obligations Portfolio,
if you hold Class B or Class C Shares of a Fund (the "ILA Portfolios"). For
further information concerning dividends and distributions, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
GROWTH
AND CORE U.S.
BALANCED INCOME EQUITY
FUND FUND FUND
-------------------------------- --------------------------------- ---------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A/5/ CLASS B CLASS C/5/ CLASS A/5/ CLASS B CLASS C/5/
------- ------- ---------- ---------- ------- ---------- ---------- ------- ----------
------- ------- ---------- ---------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none none none none
Exchange
Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
net assets)
Management Fees
(after
applicable
limitations)/6/. 0.65% 0.65% 0.65% 0.70% 0.70% 0.70% 0.59% 0.59% 0.59%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.09% 0.75% 0.75% 0.25% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.10% 0.11% 0.11% 0.23% 0.24% 0.24% 0.21% 0.20% 0.20%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/. 1.00% 1.76% 1.76% 1.27% 1.94% 1.94% 1.30% 1.79% 1.79%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
CORE CORE
LARGE CAP SMALL CAP
GROWTH FUND/5/ EQUITY FUND/5/
-------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none
Exchange
Fees/4/........ none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
net assets)
Management Fees
(after
applicable
limitations)/6/. 0.60% 0.60% 0.60% 0.75% 0.75% 0.75%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.05% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.05% 0.05% 0.05% 0.20% 0.20% 0.20%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/. 0.90% 1.65% 1.65% 1.25% 1.95% 1.95%
========== ========== ========== ========== ========== ==========
</TABLE>
7
<PAGE>
FEES AND EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
SMALL
CAPITAL MID CAP CAP
GROWTH EQUITY VALUE
FUND FUND/5/ FUND
-------------------------------- ----------------------------- --------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
------- ------- ---------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............... none none none none none none none none none
Maximum Deferred Sales
Charge.................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average net
assets)
Management Fees (after
applicable
limitations)/6/......... 1.00% 1.00% 1.00% 0.75% 0.75% 0.75% 1.00% 1.00% 1.00%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/7/......... 0.00% 0.75% 0.75% 0.25% 0.75% 0.75% 0.00% 0.75% 0.75%
Other Expenses:
Authorized Dealer
Service Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/8/......... 0.15% 0.18% 0.18% 0.10% 0.10% 0.10% 0.29% 0.29% 0.29%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/9/.. 1.40% 2.18% 2.18% 1.35% 1.85% 1.85% 1.54% 2.29% 2.29%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ----
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A Shares by certain classes of investors. A CDSC of
1.00% is imposed on certain redemptions (within 18 months of purchase) of
Class A Shares sold without an initial sales charge as part of an
investment of $1 million or more. See "How to Invest--Offering Price--
Class A Shares."
/2/ A CDSC is imposed upon Shares redeemed within six years of purchase at a
rate of 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter. See "How to Invest--Offering Price--Class B
Shares."
/3/ A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
Shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ Based on estimated amounts for the current fiscal year.
/6/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large
Cap Growth and CORE Small Cap Equity Funds, equal to 0.16%, 0.15% and
0.10%, respectively. Without such limitations, management fees would be
0.75%, 0.75% and 0.85% of each Fund's average daily net assets,
respectively.
/7/ Goldman Sachs is imposing the entire distribution fee attributable to
Class A Shares of the CORE U.S. Equity and Mid Cap Equity Funds. Goldman
Sachs has voluntarily agreed not to impose any of the distribution fee
attributable to Class A Shares of each other Fund, except the Growth and
Income and CORE Small Cap Equity Funds where Goldman Sachs has voluntarily
agreed not to impose a portion of the distribution fee equal to 0.16% and
0.20%, respectively, of the distribution fee. Actual distribution fees and
total expenses without waivers and reimbursements for the Growth and
Income and CORE U.S. Equity Funds equalled 0.07% and 1.25% and 0.23% and
1.28%, respectively, for the fiscal period ended January 31, 1998.
Distribution fees for Class A Shares would otherwise be payable at an
annual rate of 0.25% of average daily net assets.
/8/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of the Growth and Income and CORE U.S. Equity Funds) for the
following Funds to the extent such expenses exceed the following
percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
Mid Cap Equity................................................... 0.10%
</TABLE>
8
<PAGE>
/9/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below.
Information for Class A and Class B Shares of the Balanced, Growth and
Income, CORE U.S. Equity, Capital Growth and Small Cap Value Funds is shown
for the fiscal year ended January 31, 1998. Information for the Class A and
B Shares of the CORE Large Cap Growth, CORE Small Cap Equity, and Mid Cap
Equity Funds and Class C Shares of each Fund are estimated for the current
fiscal year.
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced
Class A.............................................. 0.42% 1.57%
Class B.............................................. 0.42% 2.07%
Class C.............................................. 0.42% 2.07%
Growth and Income
Class A.............................................. 0.22% 1.42%
Class B.............................................. 0.24% 1.94%
Class C.............................................. 0.24% 1.94%
CORE U.S. Equity
Class A.............................................. 0.22% 1.47%
Class B.............................................. 0.21% 1.96%
Class C.............................................. 0.21% 1.96%
CORE Large Cap Growth
Class A.............................................. 0.23% 1.48%
Class B.............................................. 0.23% 1.98%
Class C.............................................. 0.23% 1.98%
CORE Small Cap Equity
Class A.............................................. 0.66% 2.01%
Class B.............................................. 0.66% 2.51%
Class C.............................................. 0.66% 2.51%
Capital Growth
Class A.............................................. 0.15% 1.65%
Class B.............................................. 0.18% 2.18%
Class C.............................................. 0.18% 2.18%
Mid Cap Equity
Class A.............................................. 0.22% 1.47%
Class B.............................................. 0.22% 1.97%
Class C.............................................. 0.22% 1.97%
Small Cap Value
Class A.............................................. 0.26% 1.76%
Class B.............................................. 0.29% 2.29%
Class C.............................................. 0.29% 2.29%
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return; and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A Shares................................ $65 $85 $107 $171
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 65 83 114 187
--Assuming no redemption...................... 18 55 95 187
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 27 55 95 207
--Assuming no redemption...................... 18 55 95 207
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth and Income Fund
Class A Shares................................ $67 $93 $121 $200
Class B Shares
--Assuming complete redemption at end of
period....................................... 67 89 124 209
--Assuming no redemption...................... 20 61 105 209
Class C Shares
--Assuming complete redemption at end of
period....................................... 29 61 105 226
--Assuming no redemption...................... 20 61 105 226
CORE U.S. Equity Fund
Class A Shares................................ 68 94 122 203
Class B Shares
--Assuming complete redemption at end of
period....................................... 65 84 116 198
--Assuming no redemption...................... 18 56 97 198
Class C Shares
--Assuming complete redemption at end of
period....................................... 27 56 97 211
--Assuming no redemption...................... 18 56 97 211
CORE Large Cap Growth Fund
Class A Shares................................ 64 82 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 64 81 N/A N/A
--Assuming no redemption...................... 17 52 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 26 52 N/A N/A
--Assuming no redemption...................... 17 52 N/A N/A
CORE Small Cap Equity Fund
Class A Shares................................ 67 92 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 67 89 N/A N/A
--Assuming no redemption...................... 20 61 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 29 61 N/A N/A
--Assuming no redemption...................... 20 61 N/A N/A
Capital Growth Fund
Class A Shares................................ 68 97 127 214
Class B Shares
--Assuming complete redemption at end of
period....................................... 69 96 136 232
--Assuming no redemption...................... 22 68 117 232
Class C Shares
--Assuming complete redemption at end of
period....................................... 31 68 117 251
--Assuming no redemption...................... 22 68 117 251
Mid Cap Equity Fund
Class A Shares................................ 68 95 125 208
Class B Shares
--Assuming complete redemption at end of
period....................................... 66 86 119 204
--Assuming no redemption...................... 19 58 100 204
Class C Shares
--Assuming complete redemption at end of
period....................................... 28 58 100 217
--Assuming no redemption...................... 19 58 100 217
Small Cap Value Fund
Class A Shares................................ 70 101 134 228
Class B Shares
--Assuming complete redemption at end of
period....................................... 70 100 142 244
--Assuming no redemption...................... 23 72 123 244
Class C Shares
--Assuming complete redemption at end of
period....................................... 32 72 123 263
--Assuming no redemption...................... 23 72 123 263
</TABLE>
10
<PAGE>
The hypothetical example assumes that a CDSC will not apply to redemptions
of Class A Shares within the first 18 months. Class B Shares convert to Class
A Shares eight years after purchase; therefore, Class A expenses are used in
the hypothetical example after year eight.
As of the date of this Prospectus, the Investment Advisers and Goldman Sachs
have no intention of modifying or discontinuing any of the limitations set
forth above but may do so in the future at their discretion. The information
set forth in the foregoing table and hypothetical example relates only to
Class A, B and C Shares. Each Fund also offers Institutional and Service
Shares, which are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services than Class A, Class B and Class C Shares. Information
regarding Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution Plans, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the NASD's rules regarding investment
companies.
In addition to the compensation itemized above, certain institutions that
sell Fund Shares and/or their salespersons may receive other compensation in
connection with the sale and distribution of Class A, Class B and Class C
Shares of the Funds or for services to their customers' accounts and/or the
Funds. For additional information regarding such compensation, see
"Management" and "Services Available to Shareholders" in this Prospectus and
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
11
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended January 31, 1998 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- ------------------------------------------------
NET REALIZED IN EXCESS OF
AND UNREALIZED FROM NET NET REALIZED NET
NET ASSET GAIN ON FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE NET ASSET
VALUE, NET INVESTMENT NET OF NET ON INVESTMENT INVESTMENT (DECREASE) VALUE,
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET END OF
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ----------- ---------
BALANCED FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $18.78 $0.57 $2.66 $(0.56) $ -- $(1.16) $ -- $1.51 $20.29
1998--Class B
Shares.......... 18.73 0.50 2.57 (0.42) (0.02) (1.16) -- 1.47 20.20
1998--Class C
Shares(b)....... 21.10 0.25 0.24 (0.22) (0.04) (0.64) (0.52) (0.93) 20.17
1998--Institu-
tional
Shares(b)....... 21.18 0.26 0.32 (0.23) (0.08) (0.45) (0.71) (0.89) 20.29
1998--Service
Shares(b)....... 21.18 0.22 0.32 (0.22) (0.06) (0.72) (0.44) (0.90) 20.28
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) -- (1.00) -- 1.47 18.78
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (0.07) (1.00) -- 1.27 18.73
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) -- (0.35) -- 3.09 17.31
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.10 0.02 (0.08) -- -- -- 0.04 14.22
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE(G) RATE(F) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- --------- ---------- ---------- ----------- ----------- ---------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 17.54% 190.43% $.0590 $163,636 1.00% 2.94% 1.57% 2.37%
1998--Class B
Shares.......... 16.71 190.43 .0590 23,639 1.76 2.14 2.07 1.83
1998--Class C
Shares(b)....... 2.49(d) 190.43 .0590 8,850 1.77(c) 2.13(c) 2.08(c) 1.82(c)
1998--Institu-
tional
Shares(b)....... 2.93(d) 190.43 .0590 8,367 0.76(c) 3.13(c) 1.07(c) 2.82(c)
1998--Service
Shares(b)....... 2.66(d) 190.43 .0590 16 1.26(c) 2.58(c) 1.57(c) 2.27(c)
1997--Class A
Shares.......... 18.59 208.11 .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 16.22(d) 208.11 .0587 2,110 1.75(c) 2.59(c) 2.27(c) 2.07(c)
1996--Class A
Shares.......... 28.10 197.10 -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 0.87(d) 14.71 -- 7,510 1.00(c) 3.39(c) 8.29(c) (3.90)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A and Class B Share activity commenced on October 12, 1994 and May
1, 1996, respectively. Class C, Institutional and Service Share activity
commenced on August 15, 1997.
(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.
(g) Includes the effect of mortgage dollar roll transactions.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------- ------------------------------------------------
NET IN EXCESS OF
REALIZED AND FROM NET NET REALIZED
NET ASSET NET UNREALIZED FROM IN EXCESS REALIZED GAIN GAIN ON
VALUE, INVESTMENT GAIN ON NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL
--------- ------------ ------------- ---------- ---------- ------------- ------------ ----------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.18 $ 0.11 $ 5.27 $(0.11) $ -- $(2.52) $ -- $ --
1998--Class B
Shares.......... 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) --
1998--Class C
Shares(b)....... 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) --
1998--
Institutional
Shares.......... 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) --
1998--Service
Shares.......... 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- --
1997--Class A
Shares.......... 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- --
1997--Class B
Shares(b)....... 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- --
1997--Institu-
tional
Shares(b)....... 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- --
1997--Service
Shares(b)....... 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- --
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) -- (0.60) -- --
1995--Class A
Shares.......... 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- --
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO
OF NET RATIO
NET NET RATIO INVESTMENT OF NET
INCREASE NET ASSET ASSETS AT OF NET INCOME (LOSS) RATIO INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO TO AVERAGE OF EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- --------- ---------- ---------- ----------- ------------- ----------- -------------
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $2.75 $25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
1998--Class B
Shares.......... 2.63 25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
1998--Class C
Shares(b)....... (2.50) 25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
1998--
Institutional
Shares.......... 2.76 25.95 24.24 61.95 .0590 36.225 0.83 0.76 0.83 0.76
1998--Service
Shares.......... 2.75 25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
1997--Class A
Shares.......... 3.20 23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43 1.39
1997--Class B
Shares(b)....... 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
1997--Institu-
tional
Shares(b)....... 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
1997--Service
Shares(b)....... 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
1996--Class A
Shares.......... 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 1.61 15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. 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 February 5, 1993, May 1, 1996, August 15, 1997, June 3, 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.
(g) Calculated based on the average Shares outstanding methodology.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
FROM NET IN EXCESS OF NET
NET REALIZED REALIZED NET REALIZED INCREASE/ NET
NET ASSET AND UNREALIZED IN EXCESS GAIN ON GAIN ON (DECREASE) ASSET
VALUE, NET GAIN (LOSS) ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ---------- ------------ ------------ ---------- ------ ---------
CORE U.S. EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27 $26.59 24.96 %
1998--Class B
Shares.......... 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14 26.32 24.28
1998--Class C
Shares(b)....... 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24) 26.24 4.85(d)
1998--Institu-
tional Shares... 23.44 0.30 5.65 (0.24) (0.01) (1.33) (1.02) 3.35 26.79 25.76
1998--Service
Shares.......... 23.27 0.19 5.57 (0.07) (0.08) (2.35) -- 3.26 26.53 25.11
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(b)....... 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74 23.18 18.59(d)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(b)....... 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25 23.27 15.92(d)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(b)....... 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74 19.71 20.14(d)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 14.17 0.11 0.88 (0.11) -- -- -- 0.88 15.05 7.01(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT
ASSETS AT TO INCOME TO INCOME
PORTFOLIO AVERAGE END OF AVERAGE (LOSS) TO AVERAGE (LOSS) TO
TURNOVER COMMISSION PERIOD NET AVERAGE NET AVERAGE
RATE RATE(F) (IN 000S) ASSETS NET ASSETS ASSETS NET ASSETS
--------- ---------- --------- ---------- ------------ --------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
1998--Class B
Shares.......... 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
1998--Class C
Shares(b)....... 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
1998--Institu-
tional Shares... 65.89 .0651 202,893 0.65 1.16 0.82 0.99
1998--Service
Shares.......... 65.89 .0651 7,841 1.15 0.62 1.32 0.45
1997--Class A
Shares.......... 37.78 .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(b)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(b)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(b)....... 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15, 1995 and
June 7, 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.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
NET FROM NET IN EXCESS OF
REALIZED AND REALIZED NET REALIZED
NET ASSET NET UNREALIZED FROM IN EXCESS GAIN ON GAIN ON NET NET ASSET
VALUE, INVESTMENT GAIN (LOSS) ON NET OF NET INVESTMENT INVESTMENT INCREASE VALUE,
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET END OF
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------ ------------ ----------- ---------
CORE LARGE CAP GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $0.01 $2.35 $(0.01) -- $(0.32) $(0.06) $1.97 $11.97
1998--Class B
Shares(b)....... 10.00 (0.03) 2.33 -- -- (0.18) (0.20) 1.92 11.92
1998--Class C
Shares(b)....... 11.80 (0.02) 0.54 -- (0.01) (0.38) -- 0.13 11.93
1998--Institu-
tional
Shares(b)....... 10.00 0.01 2.35 (0.01) -- (0.19) (0.19) 1.97 11.97
1998--Service
Shares (b)...... 10.00 (0.02) 2.35 -- -- (0.08) (0.30) 1.95 11.95
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
----------------------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES INCOME TO EXPENSES TO (LOSS) TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000'S) NET ASSETS ASSETS ASSETS NET ASSETS
----------- --------- ---------- ---------- ----------- ------------- ------------------- --------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 23.79%(d) 74.97% $.0282 $53,786 0.91%(c) 0.12%(c) 2.40%(c) (1.37)%(c)
1998--Class B
Shares(b)....... 23.26(d) 74.97 .0282 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c)
1998--Class C
Shares(b)....... 4.56(d) 74.97 .0282 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00(c)
1998--Institu-
tional
Shares(b)....... 23.89(d) 74.97 .0282 4,656 0.72(c) 0.42 (c) 1.96(c) (0.82)(c)
1998--Service
Shares (b)...... 23.56(d) 74.97 .0282 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B Institutional and Service Share activity commenced on May
1, 1997. Class C share activity commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------
NET
REALIZED AND FROM NET
UNREALIZED REALIZED
NET ASSET NET GAIN (LOSS) ON FROM GAIN ON NET NET ASSET
VALUE, INVESTMENT INVESTMENT AND NET INVESTMENT INCREASE VALUE, PORTFOLIO
BEGINNING INCOME FUTURES INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER
OF PERIOD (LOSS) TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE
--------- ---------- -------------- ---------- ------------ ----------- --------- --------- ---------
CORE SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $(0.01) $0.65 -- $(0.05) $0.59 $10.59 6.37%(d) 37.65%
1998--Class B
Shares(b)....... 10.00 (0.03) 0.64 -- (0.05) 0.56 10.56 6.07(d) 37.65
1998--Class C
Shares(b)....... 10.00 (0.02) 0.64 -- (0.05) 0.57 10.57 6.17(d) 37.65
1998--Institu-
tional
Shares(b)....... 10.00 0.01 0.65 -- (0.05) 0.61 10.61 6.57(d) 37.65
1998--Service
Shares(b)....... 10.00 0.01 0.64 -- (0.05) 0.60 10.60 6.47(d) 37.65
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
AVERAGE END OF EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE
RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ----------- -------------- ------------ --------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $.0370 $11,118 1.25%(c) (0.36)%(c) 3.92%(c) (3.03)%(c)
1998--Class B
Shares(b)....... .0370 9,957 1.95(c) (1.04)(c) 4.37(c) (3.46)(c)
1998--Class C
Shares(b)....... .0370 2,557 1.95(c) (1.07)(c) 4.37(c) (3.49)(c)
1998--Institu-
tional
Shares(b)....... .0370 9,026 0.95(c) 0.15 (c) 3.37(c) (2.27)(c)
1998--Service
Shares(b)....... .0370 2 1.45(c) 0.40 (c) 3.87(c) (2.02)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
16
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
NET FROM NET IN EXCESS OF NET
NET ASSET NET REALIZED AND FROM IN EXCESS REALIZED NET REALIZED INCREASE NET ASSET
VALUE, INVESTMENT UNREALIZED NET OF NET GAIN ON GAIN ON (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT INVESTMENT IN NET END OF
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------ ------------ ----------- ---------
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.73 $ 0.02 $ 4.78 $(0.01) $(0.01) $(3.03) $ -- $ 1.75 $18.48
1998--Class B
Shares.......... 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60 18.27
1998--Class C
Shares(b)....... 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49) 18.24
1998--Institu-
tional
Shares(b)....... 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43) 18.45
1998--Service
Shares--(b)..... 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42) 18.46
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82 16.73
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00 16.67
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24 14.91
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29) 13.67
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32 15.96
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99 14.64
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55 13.65
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- -- (0.24) 11.10
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
-------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES INCOME TO EXPENSES TO INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(B) (IN 000S) NET ASSETS ASSETS ASSETS NET ASSETS
---------- --------- ---------- ---------- ---------- ------------- ----------- -------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
1998--Class B
Shares.......... 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
1998--Class C
Shares(b)....... 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
1998--Institu-
tional
Shares(b)....... 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18 (c) 1.16(c) 0.18 (c)
1998--Service
Shares--(b)..... 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
1997--Class A
Shares.......... 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
1996--Class A
Shares.......... 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(c)....... 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. 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 April 20, 1990, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, 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.
17
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ---------------------------------------------
NET REALIZED
AND UNREALIZED NET
NET REALIZED LOSS ON FROM NET INCREASE NET
NET ASSET AND UNREALIZED FOREIGN IN EXCESS REALIZED (DECREASE) ASSET
VALUE, NET GAIN ON CURRENCY FROM NET OF NET GAIN ON IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT INVESTMENT ASSET END OF
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
MID CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02) $21.61
1998--Class B
Shares(b)....... 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06) 21.57
1998--Class C
Shares(b)....... 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04) 21.59
1998--Institu-
tional Shares... 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92 21.65
1998--Service
Shares(b)....... 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39) 21.62
1997--Institu-
tional Shares... 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82 18.73
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 15.00 0.13 0.90 -- (0.12) -- -- 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- ---------- ---------- ------- ---------- ------------ ---------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21%(c)
1998--Class B
Shares(b)....... 3.17(d) 62.60 0.0540 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c)
1998--Class C
Shares(b)....... 3.27(d) 62.60 0.0540 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c)
1998--Institu-
tional Shares... 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
1998--Service
Shares(b)....... 6.30(d) 62.60 0.0540 8 1.35(c) 0.63 (c) 1.43(c) 0.51 (c)
1997--Institu-
tional Shares... 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 6.89(d) 58.77(d) -- 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
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 August 15, 1997, August 15, 1997, August 15, 1997, August 1,
1995 and July 18, 1997, 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
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET NET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET INCREASE
VALUE, INVESTMENT GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) NET ASSET
BEGINNING INCOME INVESTMENT AND INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END TOTAL
OF PERIOD (LOSS) OPTIONS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD RETURN(A)
--------- ---------- -------------------- ---------- ------------- ---------- ------------ ---------- ---------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $20.91 $0.14 $5.33 $ -- $(2.33) $ -- $ 3.14 $24.05 26.17%
1998--Class B
Shares.......... 20.80 (0.01) 5.27 -- (2.33) -- 2.93 23.73 25.29
1998--Class C
Shares(b)....... 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96) 23.73 5.51(d)
1998--Institu-
tional
Shares(b)....... 24.91 0.03 1.48 -- (2.05) (0.28) (0.82) 24.09 6.08(d)
1998--Service
Shares(b)....... 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86) 24.05 5.91(d)
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) -- 3.62 20.91 27.28
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE TO AVERAGE NET
RATE RATE(F) (IN 000S) NET ASSETS ASSETS NET ASSETS ASSETS
--------- ---------- ---------- ------------ ---------------- ----------- --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
1998--Class B
Shares.......... 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
1998--Class C
Shares(b)....... 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
1998--Institu-
tional
Shares(b)....... 84.81 0.0517 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c)
1998--Service
Shares(b)....... 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
1997--Class A
Shares.......... 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 7.12 -- 59,339 1.65(c) 0.62(c) 2.70(c) (0.43)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
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 October 22, 1992, May 1, 1996, August 15, 1997, August 15,
1997 and August 15, 1997, 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.
19
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
Funds and the equity portion of the Balanced Fund are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth Fund is managed using a growth equity
oriented approach. Equity securities for this Fund are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. The Fund generally will invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
20
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE Funds") are managed using both
quantitative and fundamental techniques. CORE is an acronym for "Computer-
Optimized, Research-Enhanced," which reflects the CORE Funds' investment
process. This investment process and the proprietary multifactor model used to
implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE Funds. As described more fully below, the
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to forecast the returns of different markets and individual
securities. In the case of an equity security followed by the Goldman Sachs
Global Investment Research Department (the "Research Department"), a rating is
assigned based upon the Research Department's evaluation. In the discretion of
the Investment Adviser, ratings may also be assigned to equity securities
based on research ratings obtained from other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Model. The Multifactor Model is a rigorous computerized rating
system for forecasting the returns of different equity markets and individual
equity securities according to fundamental investment characteristics. The
CORE Funds use the Multifactor Model to forecast the returns of securities
held in each Fund's portfolio. The Multifactor Model incorporates common
variables covering measures of value, growth, momentum and risk (e.g.,
book/price ratio, earnings/price ratio, price momentum, price volatility,
consensus growth forecasts, earnings estimate revisions and earnings
stability). All of the factors used in the Multifactor Model have been shown
to significantly impact the performance of the securities and markets they
were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE Funds are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Because it includes many disparate factors, the Investment
Adviser believes that the Multifactor Model is broader in scope and provides a
more thorough evaluation than most conventional quantitative models.
Securities and markets ranked highest by the Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Model) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
Funds seek to capitalize on the strengths of each discipline.
21
<PAGE>
BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed-income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed-income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed-income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed-income securities."
The Fund's investments in fixed-income securities that are issued by foreign
issuers, including issuers in Emerging Countries, may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed-income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
22
<PAGE>
CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective: The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed-income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives And Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with
U.S. accounting standards. The Investment Adviser emphasizes a company's
growth prospects in analyzing equity securities to be purchased by the Fund.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed-income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with
U.S. accounting standards. The Fund's investments are selected using both a
variety of quantitative
23
<PAGE>
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfolio
comprised of companies with small market capitalizations, strong expected
earnings growth and momentum, and better valuation and risk characteristics
than the Russell 2000 Index. The Fund may invest only in fixed-income
securities that are considered cash equivalents.
The Investment Adviser believes that the companies in which the Fund may
invest offer greater opportunity for growth of capital than larger, more
mature, better known companies. Investments in small market capitalization
issuers involve special risks. See "Description of Securities" and "Risk
Factors." If the issuer of a portfolio security held by the Fund is no longer
included in the Russell 2000 Index, the Fund may, but is not required to, sell
the security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid-Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion). If the capitalization of an issuer
increases above $16 billion after purchase of such issuer's securities, the
Fund may, but is not required to, sell the securities. Dividend income, if
any, is an incidental consideration.
Other. The Fund may invest up to 35% of its total assets in fixed-income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of
24
<PAGE>
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration. If the market capitalization of a company held by
the Fund increases above the amount stated above, the Fund may, consistent
with its investment objective, continue to hold the security.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion at the time of investment and in fixed- income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
DESCRIPTION OF SECURITIES
The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
25
<PAGE>
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities of foreign issuers
that are traded in the U.S. and comply with U.S. accounting standards).
Investments in foreign securities may offer potential benefits that are not
available from investments exclusively in equity securities of domestic
issuers quoted in U.S. dollars. Foreign countries may have economic policies
or business cycles different from those of the U.S. and markets for foreign
securities do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will be
ready by the scheduled launch date; the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment of exchange rates for existing
currencies and the euro; and the creation of suitable clearing and settlement
payment systems for the new currency. These or other factors, including
political and economic risks, could cause market disruptions before or after
the introduction of the euro, and could adversely affect the value of
securities held by the Funds. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE Funds, may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers (together, "Depository
26
<PAGE>
Receipts"). ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the United States on exchanges
or over-the-counter and are sponsored and issued by domestic banks. EDRs and
GDRs are receipts evidencing an arrangement with a non-U.S. bank. EDRs and
GDRs are not necessarily quoted in the same currency as the underlying
security. To the extent a Fund acquires Depository Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depository Receipts to issue and service such
Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and the underlying securities are quoted. However, by investing in
Depository Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund may
avoid currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced Fund
may have currency exposure independent of its securities positions, the value
of the assets of a Fund as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. A Fund may, to the extent it
invests in foreign securities, purchase or sell foreign currencies on a spot
basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced
Fund may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. The Balanced Fund may
also engage in cross-hedging by using forward contracts in a currency
different from that in which the hedged security is denominated or quoted if
the Investment Adviser determines that there is a pattern of correlation
between the two currencies. If a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or the Balanced Fund
enters into forward foreign currency exchange contracts to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
27
<PAGE>
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
The Balanced Fund may also engage in a variety of foreign currency
management techniques. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
FIXED-INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced Fund may invest in debt
obligations of foreign governments and governmental agencies, including those
of Emerging Countries. Investment in sovereign debt obligations involves
special risks not present in debt obligations of corporate issuers. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and the Fund may have limited recourse
in the event of a default. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the Fund's NAV, to
a greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, the Fund may fail to recoup fully
its initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped. The Fund's investments in
SMBS may require the Fund to sell portfolio securities to generate sufficient
cash to satisfy certain income distribution requirements.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be
general obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulation. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the banking industry
is largely dependent upon the availability and cost of funds for the purpose
of financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operation of this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to price accurately than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE
Funds, which only invest in debt instruments that are cash equivalents) may
invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets in debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth
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and Income, Capital Growth and Small Cap Value Funds may invest up to 10%, 10%
and 35%, respectively, of their total assets in debt securities which are
unrated or rated in the lowest rating categories by Standard & Poor's or
Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by Moody's),
including securities rated D by Moody's or Standard & Poor's. Mid Cap Equity
Fund may invest up to 10% of its total assets in below investment grade debt
securities rated B or higher by Standard & Poor's or B or higher by Moody's.
Fixed- income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capacity to pay interest
and repay principal. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds" and
are considered predominantly speculative and may be questionable as to
principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
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OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced Fund may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different currency, if there is a pattern of correlation
between the two currencies. As with other kinds of options transactions,
however, the writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If an option that a
Fund has written is exercised, the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition to
purchasing put and call options for hedging purposes, the Balanced Fund may
purchase call or put options on currency to seek to increase total return when
the Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations or to otherwise cover the obligations in
a manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions.
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Because perfect correlation between a futures position and portfolio position
that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to risk of loss. The
loss incurred by a Fund in entering into futures contracts and in writing call
options on futures is potentially unlimited and may exceed the amount of the
premium received. Futures markets are highly volatile and the use of futures
may increase the volatility of a Fund's NAV. The profitability of a Fund's
trading in futures to seek to increase total return depends upon the ability
of the Investment Adviser to analyze correctly the futures markets. In
addition, because of the low margin deposits normally required in futures
trading, a relatively small price movement in a futures contract may result in
substantial losses to a Fund. Further, futures contracts and options on
futures may be illiquid, and exchanges may limit fluctuations in futures
contract prices during a single day. The Funds may engage in futures
transactions on both U.S. and foreign exchanges. Foreign exchanges may not
provide the same protection as U.S. exchanges.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
Each Fund may, consistent with its objectives, purchase Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded
securities that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
This trust is sponsored by a subsidiary of the American Stock Exchange. SPDRs
may be used for several reasons, including but not limited to: facilitating
the handling of cash flows or trading, or reducing transaction costs. The use
of SPDRs would introduce additional risk to the Portfolio as the price
movement of the instrument does not perfectly correlate with the price action
of the underlying index.
EQUITY SWAPS
Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund will
segregate cash or liquid assets in an amount sufficient to meet the purchase
price until three days prior to the settlement date. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of
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the security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain SMBS, repurchase agreements maturing in more than
seven days, time deposits with a notice or demand period of more than seven
days, certain over-the-counter options, and certain restricted securities,
unless it is determined, based upon a review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 and, therefore,
is liquid. The Trustees have adopted guidelines under which the Investment
Adviser determines and monitors the liquidity of portfolio securities, subject
to the oversight of the Trustees. Investing in restricted securities eligible
for resale pursuant to Rule 144A may decrease the liquidity of a Fund's
portfolio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price and
subsequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or its affiliates, may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested in cash equivalents. If the
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of a
Fund (including the loan collateral). A Fund may experience a loss or delay in
the recovery of its securities if the institution with which it has engaged in
a portfolio loan transaction breaches its agreement with the Fund.
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MORTGAGE DOLLAR ROLLS
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would benefit to
the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for the forward purchase. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of
the Fund. The Fund will segregate cash or liquid assets in an amount equal to
the forward purchase price until the settlement date. Successful use of
mortgage dollar rolls depends upon the Investment Adviser's ability to predict
correctly interest rates and mortgage prepayments. There is no assurance that
mortgage dollar rolls can be successfully employed. For financial reporting
and tax purposes, the Fund treats mortgage dollar rolls as two separate
transactions: one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar rolls that are accounted for as a financing.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds may only hold up to 35% of their respective
total assets) in U.S. Government securities, repurchase agreements
collateralized by U.S. Government securities, commercial paper rated at least
A-2 by Standard & Poor's or P-2 by Moody's, certificates of deposit, bankers'
acceptances, repurchase agreements, non-convertible preferred stocks and non-
convertible corporate bonds with a remaining maturity of less than one year.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps (Balanced Fund only); (iii) mortgage swaps, index swaps
and interest rate swaps, caps, floors and collars (Balanced Fund only); (iv)
yield curve options and inverse floating rate securities (Balanced Fund only);
(v) other investment companies including World Equity Benchmark Shares; (vi)
unseasoned companies; (vii) municipal securities (Balanced Fund only); (viii)
loan participations (Balanced Fund only) and (ix) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
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RISK FACTORS
RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. The U.S. stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline. As
of the date of this Prospectus, domestic stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. Investing in the
securities of issuers in Emerging Countries involves risks in addition to
those discussed under "Description of Securities-- Foreign Investments." The
Balanced, Growth and Income, Mid Cap Equity and Small Cap Value Funds may each
invest up to 25% and the Capital Growth Fund may invest up to 10% of its total
assets in securities of issuers in Emerging Countries. Emerging Countries are
generally located in the Asia-Pacific region, Eastern Europe, Latin and South
America and Africa.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments.
Certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by a Fund. The repatriation of both investment income and capital
from certain Emerging Countries is subject to restrictions such as the need
for governmental consents. Many Emerging Countries may be subject to a greater
degree of economic, political and social instability than is the case in
Western Europe, the United States, Canada, Australia, New Zealand and Japan.
Many Emerging Countries do not have fully democratic governments. For example,
governments of some Emerging Countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other Emerging Countries have periodically used force to suppress civil
dissent. Many Emerging Countries have experienced currency devaluations and
substantial and, in some cases, extremely high rates of inflation, which have
a negative effect on the economies and securities markets of such Emerging
Countries. Settlement procedures in Emerging Countries are frequently less
developed and reliable than those in the United States and may involve a
Fund's delivery of securities before receipt of payment for their sale. In
addition, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to complete
its contractual obligations.
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RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed- income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding Shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's historical portfolio
turnover rate. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less. The
Investment Adviser will not consider the portfolio turnover rate a limiting
factor in making investment decisions for a Fund consistent with the Fund's
investment objectives and portfolio management policies.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, Distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
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INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as investment adviser to the Balanced, Growth and Income, CORE Large
Cap Growth, CORE Small Cap Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds
Management, L.P., One New York Plaza, New York, New York 10004, a Delaware
limited partnership which is an affiliate of Goldman Sachs, serves as the
investment adviser to the CORE U.S. Equity and Capital Growth Funds. Goldman
Sachs Funds Management, L.P. registered as an investment adviser in 1990. As
of March 23, 1998, GSAM and GSFM, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $153 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------- ------------------- ----------- -----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in 1997.
From 1990 to 1997, he was a
portfolio manager at Liberty
Investment Management Inc.
From 1988 to 1990 he was a
director of portfolio
management at Banc One in
Ohio.
- -----------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in 1992.
Balanced (Equity) 1996 From 1989 to 1992, he was a
Mid Cap Equity 1996 research analyst in the
Investment Research
Department of Goldman, Sachs
& Co.
- -----------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman joined the
Vice President Growth and Income 1996 Investment Adviser in 1993.
Balanced (Equity) 1996 From 1990 to 1993, she worked
Mid Cap Equity 1996 at Delphi Management as an
Small Cap Value 1997 equity analyst, focusing her
research efforts on value
stocks.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Jonathan A. Beinner Senior Portfolio Manager-- Since Mr. Beinner joined the
Managing Director and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. Fixed 1990. From 1988 to 1990,
Income he worked as a portfolio
manager at Franklin
Savings Association in
the trading and
arbitrage group.
- ------------------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992.
CORE Small Cap Equity 1997
- ------------------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1991 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. His past
experiences include work
as a special situations
analyst with Raymond
James & Associates for
five years.
- ------------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. From 1994 to 1997,
he was the Chief
Investment Officer and
Chairman of Liberty
Investment Management
Inc. He was a portfolio
manager and president at
Liberty's predecessor
firm, Eagle Asset
Management, from 1984 to
1994.
- ------------------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management
Inc. and its predecessor
firm, Eagle Asset
Management.
- ------------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991. During 1991, he
served as a managing
director at Plaza
Investment Managers, the
investment subsidiary of
GEICO Corp., a major
insurance company. From
1986 to 1991, he was
employed by Goldman
Sachs as a vice
president in the
investment research
department and was
responsible for the
formation of the firm's
Emerging Growth Research
Group.
- ------------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Managing Director Growth and Income 1993 Investment Adviser in
Balanced (Equity) 1994 1993. From 1988 to 1993,
Mid Cap Equity 1995 he was a partner at
Sanford C. Bernstein &
Co., Inc. in the
Investment Management
Research Department and
a member of the Research
Review Committee.
- ------------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
CORE Small Cap Equity 1997 he was the senior
quantitative analyst in
the Goldman Sachs
Investment Research
Department and the
author of the monthly
Stock Selection
publication.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Richard C. Lucy Senior Portfolio Manager Since Mr. Lucy joined the
Vice President and --Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. From 1983 to 1992,
Fixed Income he managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- ----------------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. From 1994 to 1995,
he worked in the
Investment Banking
Division of Goldman
Sachs in Australia. From
1991 to 1994, Mr.
McLennan worked at
Queensland Investment
Corporation in
Australia.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990. From 1985 to 1990,
CORE Small Cap Equity 1997 he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1987 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1992 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1990 to 1992,
he was an equity
research analyst with
Fidelity Management &
Research Company.
- ----------------------------------------------------------------------------------------------------
Lawrence S. Sibley Portfolio Manager-- Since Mr. Sibley joined the
Vice President Growth and Income 1997 Investment Adviser in
Balanced (Equity) 1997 1997. From 1994 to 1997,
Mid Cap Equity 1997 he headed Institutional
Equity Sales at J.P.
Morgan Securities and
from 1987 to 1994, he
was a principal of
Sanford C. Bernstein &
Co. in its Institutional
Sales Department.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
39
<PAGE>
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSFM are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
----
Balanced.................................. 0.65% 0.65%
Growth and Income......................... 0.70% 0.70%
CORE Large Cap Growth..................... 0.75% 0.60%
CORE Small Cap Equity..................... 0.85% 0.75%
Mid Cap Equity............................ 0.75% 0.75%
Small Cap Value........................... 1.00% 1.00%
GSFM
----
CORE U.S. Equity.......................... 0.75% 0.59%
Capital Growth............................ 1.00% 1.00%
</TABLE>
- ---------------------
* All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it
would have been entitled. The Investment Adviser may discontinue or modify
such voluntary limitations in the future at their discretion, although
there is no current intention to do so.
The Investment Adviser to the Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, CORE Small Cap Equity and Mid Cap Equity Funds has
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding management, distribution and authorized dealer service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses and, in the case of the Growth and Income and CORE U.S.
Equity Funds, transfer agency fees) to the extent such expenses exceed 0.10%,
0.11%, 0.06%, 0.05%, 0.20% and 0.10% per annum of such Funds' average daily
net assets, respectively. Such reductions or limits, if any, are calculated
monthly on a cumulative basis and may be discontinued or modified by the
applicable Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. From time to time, a Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management--Activities of Goldman Sachs and its Affiliates
and Other Accounts Managed by Goldman Sachs" in the Additional Statement for
further information.
40
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's Shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
Shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent), Goldman Sachs is entitled to a
fee from the Growth and Income, CORE U.S. Equity, Capital Growth and Small Cap
Value Funds, with respect to Class A, Class B and Class C Shares equal to
$12,000 per year per Class plus $7.50 per account and out-of-pocket and
transaction-related expenses. Class A, Class B and Class C Shares may also
bear fees paid to Authorized Dealers or other persons providing sub-transfer
agency and similar services. Goldman Sachs is entitled to receive a fee from
the Balanced, CORE Large Cap Growth, CORE Small Cap Equity and Mid Cap Equity
Funds equal to their proportionate share of a Fund's total transfer agency
costs. These costs are equal to the charges set forth above applicable to
Class A, Class B and Class C Shares plus 0.04% of the average daily net assets
of the other classes of the Fund plus any sub-transfer agency expenses.
Shareholders with inquiries regarding any Fund should contact Goldman Sachs
(as Transfer Agent) at the address or the telephone number set forth on the
back cover page of this Prospectus.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold Shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the Shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.
41
<PAGE>
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation: fees payable to the Investment Advisers;
distribution and authorized dealer service fees; custodial and transfer agency
fees; brokerage fees and commissions; filing fees for the registration or
qualification of the Funds' Shares under federal or state securities laws,
organizational expenses; fees and expenses incurred in connection with
membership in investment company organizations; taxes; interest; costs of
liability insurance; fidelity bonds or indemnification; any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against, the Funds for violation of any law; legal and auditing fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of the Investment Adviser and its affiliates with
respect to the Funds); expenses of preparing and setting in type prospectuses,
statements of additional information, proxy material, reports and notices and
the printing and distributing of the same to shareholders and regulatory
authorities; compensation and expenses of the Trust's "non-interested"
Trustees; and extraordinary organizational expenses, if any, incurred by the
Trust.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. To eliminate unnecessary duplication,
only one copy of such reports may be sent to shareholders with the same
mailing address. Shareholders who desire a duplicate copy of such reports to
be mailed to their residence should contact Goldman Sachs at 800-526-7384.
Each shareholder will also be provided with a printed confirmation for each
transaction in the shareholder's account and an individual quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide sub-
accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this Prospectus Class A, Class B and
Class C Shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which class of Shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A Shares.
CLASS A SHARES. If you invest less than $1 million in Class A Shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A Shares of a
Fund, no sales charge will be imposed at the time of purchase, but you may
incur a deferred sales charge equal to 1.00% if you redeem your Shares within
18 months of purchase. Class A Shares are subject to distribution fees of
0.25% (which currently are being waived in the case of Balanced, CORE Large
Cap Growth, Capital Growth and Small Cap Value Funds, limited to 0.05% for the
CORE Small Cap Equity Fund and limited to 0.09% for the Growth and Income
Fund) and authorized dealer service fees of 0.25%, per annum, respectively, of
each Fund's average daily net assets attributable to Class A Shares.
42
<PAGE>
CLASS B SHARES. Class B Shares are sold without an initial sales charge, but
are subject to a CDCS of up to 5% if redeemed within six years of purchase.
Class B Shares are subject to distribution and authorized dealer service fees
of 0.75% and 0.25%, per annum, respectively, of each Fund's average daily net
assets attributable to Class B Shares. See "Distribution and Authorized Dealer
Service Plans." Class B shares will automatically convert to Class A shares,
based on their relative NAVs, eight years after the initial purchase. Your
entire investment in Class B Shares is available to work for you from the time
you make your initial investment, but the distribution fee paid by Class B
Shares will cause your Class B Shares (until conversion to Class A Shares) to
have a higher expense ratio and to pay lower dividends, to the extent
dividends are paid, than Class A Shares.
CLASS C SHARES. Class C Shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
Shares are subject to distribution and authorized dealer service fees of 0.75%
and 0.25%, per annum, respectively, of each Fund's average daily net assets
attributable to Class C Shares. See "Distribution and Authorized Dealer
Service Plans." Class C Shares have no conversion feature, and accordingly, an
investor that purchases Class C Shares will be subject to the distribution
fees imposed on Class C Shares for an indefinite period, subject to annual
approval by the Fund's Board of Trustees and certain regulatory limitations.
Your entire investment in Class C Shares is available to work for you from the
time you make your initial investment, but the distribution fee paid by Class
C Shares will cause your Class C Shares to have a higher expense ratio and to
pay lower dividends, to the extent dividends are paid, than Class A Shares (or
Class B Shares after conversion to Class A Shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B Shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C Shares. There is no size limit
on the purchase of Class A Shares. A maximum purchase limitation of $250,000
and $1,000,000 in the aggregate normally applies to purchases of Class B
Shares and Class C Shares, respectively. Although Class C Shares are subject
to a CDSC for only 12 months and at a lower rate than Class B Shares, Class C
Shares do not have the conversion feature applicable to Class B Shares, making
them subject to higher distribution fees for an indefinite period. Authorized
Dealers may receive different compensation for selling Class A, Class B or
Class C Shares.
HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C SHARES
You may purchase Shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the NAV next
determined after receipt of an order as described below under "Other Purchase
Information," plus, in the case of Class A Shares, any applicable sales
charge. Currently, each Fund's NAV is determined as of the close of regular
trading on the New York Stock Exchange (which is normally, but not always,
4:00 p.m. New York time).
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with tax-sheltered
retirement plans, Individual Retirement Account Plans (excluding SIMPLE IRAs
and Education IRAs) or accounts established under the Uniform Gift to Minors
Act ("UGMA"),
43
<PAGE>
and an initial investment minimum of $200 applies to purchases in connection
with 403(b) plans. The minimum initial investment for purchases in connection
with SIMPLE and Education IRAs, as well as purchases through the Automatic
Investment Plan, is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Trust's officers.
You may pay for purchases of Shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
Shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Domestic Equity Funds--(Name of Fund and
class of Shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-
6711. Federal funds wires, ACH transfers and bank wires should be sent to
State Street Bank and Trust Company ("State Street"). Payment must be received
within three Business Days after receipt of the purchase order. An investor's
Authorized Dealer is responsible for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (i) provide a social security number or other taxpayer
identification number; or (ii) certify that such number is correct (if
required to do so under applicable law).
The Funds reserve the right to redeem Shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose Shares are being redeemed to allow them to purchase
sufficient additional Shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which Shares are offered and the sales charge rates
applicable to future purchases of Shares.
OFFERING PRICE--CLASS A SHARES
The offering price of Class A Shares of each Fund is the next determined NAV
per Share plus a sales charge, if any, paid to Goldman Sachs at the time of
purchase of Shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
(footnotes on next page)
44
<PAGE>
- --------
* No sales charge is payable at the time of purchase of Class A Shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of Shares
of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $500,000 or more by plans or $1
million or more by "wrap" accounts satisfying the criteria set forth in
(h) or (i) below. Purchases by such plans will be made at NAV with no
initial sales charge, but if all of the Shares held are redeemed within 18
months after the end of the calendar month in which such purchase was
made, a CDSC, as described below, of 1.00% may be imposed upon the plan
sponsor or the third party administrator. In addition, Authorized Dealers
shall remit to Goldman Sachs such payments received in connection with
"wrap" accounts in the event that Shares are redeemed within 18 months
after the end of the calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
Purchases of $1 million or more of Class A shares will be made at NAV with
no initial sales charge, but if the Shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the Shares were exchanged into and remained invested
in an ILA Portfolio (the "CDSC period"), a CDSC of 1.00% may be imposed
unless, in certain cases, the investor's Authorized Dealer enters into an
agreement with Goldman Sachs to return all or an applicable prorated portion
of its commission to Goldman Sachs. Any applicable CDSC will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A Shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
Shares. Upon redemption of Shares subject to a CDSC, shareholders will receive
that portion of the appreciation in account value attributable to the Shares
actually redeemed. In determining whether a CDSC applies to a redemption, it
will be assumed that the redemption is first made from any Class A Shares in
your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver or Reduction of Contingent
Deferred Sales Charges" below.
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to: (a) Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including retired employees and former
partners), any partnership of which Goldman Sachs is a general partner, any
Trustee or officer of the Trust and designated family members of any of the
above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses, children and parents; (e)
banks, trust companies or other types of depository institutions investing for
their own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
Shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy Shares worth $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by certain third-party
administrators that have entered into a special service arrangement with
Goldman Sachs relating to such plan; (i) "wrap" accounts for the benefit of
clients of broker-dealers, financial institutions
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or financial planners, provided that they have entered into an agreement with
GSAM specifying aggregate minimums and certain operating policies and
standards; (j) registered investment advisers investing for accounts for which
they receive asset-based fees; (k) accounts over which GSAM or its advisory
affiliates have investment discretion; and (l) shareholders receiving
distributions from a qualified retirement plan invested in the Goldman Sachs
Funds and reinvesting such proceeds in a Goldman Sachs IRA. Purchasers must
certify eligibility for an exemption on the Account Application and notify
Goldman Sachs if the shareholder is no longer eligible for an exemption.
Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Investors purchasing Shares of the Funds at NAV without payment
of any initial sales charge may be charged a fee if they effect transactions
in Shares through a broker or agent. In addition, under certain circumstances,
dividends and distributions from any of the Goldman Sachs Funds may be
reinvested in Shares of each Fund at NAV, as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (Shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A Shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A Shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B Shares of the Funds at the next determined
NAV without the imposition of an initial sales charge. However, Class B Shares
redeemed within six years of purchase will be subject to a CDSC at the rates
shown in the table below. At redemption, the charge will be assessed on the
amount equal to the lesser of the current market value or the original
purchase cost of the Shares being redeemed. No CDSC will be imposed on
increases in account value above the initial purchase price, including Shares
derived from the reinvestment of dividends or capital gains distributions.
Upon redemption of Shares subject to a CDSC, shareholders will receive that
portion of the appreciation in account value attributable to the Shares
actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B Shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B Shares, the
Funds will first redeem Shares not subject to any CDSC, and then Shares held
longest during the applicable period.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
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Proceeds from the CDSC are payable to the distributor and may be used in
whole or part to defray the distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B Shares of a Fund will automatically convert into Class A Shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B Shares of a Fund acquired by
exchange from Class B Shares of another Goldman Sachs Fund will convert into
Class A Shares of such Fund based on the date of the initial purchase. Class B
Shares acquired through reinvestment of distributions will convert into Class
A Shares based on the date of the initial purchase of the Shares on which the
distribution was paid. The conversion of Class B Shares to Class A Shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B Shares would continue to be subject to higher expenses than Class A
Shares for an indeterminate period.
OFFERING PRICE--CLASS C SHARES
Investors may purchase Class C Shares of the Funds at the next determined
NAV without the imposition of an initial sales charge. However, if Class C
Shares are redeemed within 12 months of purchase, a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the Shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
Shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of Shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
Shares actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
Shares, the Funds will first redeem Shares held for longer than 12 months, and
then Shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C Shares,
including the payment of compensation to Authorized Dealers. An amount equal
to 1.00% of the amount invested is paid by the Distributor to Authorized
Dealers.
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B Shares of a Fund may reinvest
at NAV any portion or all of the redemption proceeds (plus that amount
necessary to acquire a fractional Share to round off his purchase to the
nearest full Share) in Class A Shares of the same Fund or any other Goldman
Sachs Fund. A shareholder who redeems Class C Shares of a Fund may reinvest at
NAV any portion or all of the redemption proceeds (plus that amount necessary
to acquire a fractional Share to round off the purchase to the nearest full
Share) in Class C Shares of the same Fund or any other Goldman Sachs Fund.
Shareholders should obtain and read the applicable prospectuses of such other
funds and consider their objectives, policies and applicable fees before
investing in any of such funds. This reinvestment privilege is subject to the
condition that the Shares redeemed have been held for at least thirty (30)
days before the redemption and that the reinvestment is effected within ninety
(90) days after such redemption. If you redeemed Class A or Class C Shares,
paid a CDSC upon redemption and
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<PAGE>
reinvest in Class A or Class C Shares subject to the conditions set forth
above, your account will be credited with the amount of the CDSC previously
charged, and the reinvested Shares will continue to be subject to a CDSC. In
this case, the holding period of the Class A or Class C Shares acquired
through reinvestment for purposes of computing the CDSC payable upon a
subsequent redemption will include the holding period of the redeemed Shares.
If you redeemed Class B Shares and paid a CDSC upon redemption, you are
permitted to reinvest the redemption proceeds in Class A Shares at NAV as
described above, but the amount of the CDSC paid upon redemption will not be
credited to your account.
A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within 90 days after the original
purchase of Class A Shares, any sales charge paid on the original purchase
cannot be taken into account by a reinvesting shareholder to the extent an
otherwise applicable sales charge is not imposed pursuant to the reinvestment
privilege for purposes of determining gain or loss, if any, realized on the
redemption, but instead will be added to the tax basis of the Class A Shares
received in the reinvestment. To the extent that any loss is realized and
Shares of the same Fund are purchased within thirty (30) days before or after
the redemption, some or all of the loss may not be allowed as a deduction
depending upon the number of Shares purchased. Shareholders should consult
their own tax advisers concerning the tax consequences of a redemption and
reinvestment. Upon receipt of a written request, the reinvestment privilege
may be exercised once annually by a shareholder, except that there is no such
time limit as to the availability of this privilege in connection with
transactions the sole purpose of which is to reinvest the proceeds at NAV in a
tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES
The CDSC on Class B, Class C and Class A Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to: (a) retirement
distributions or loans to participants or beneficiaries from pension and
profit sharing plans, pension funds and other company-sponsored benefit plans
(each a "Plan"); (b) the death or disability (as defined in Section 72(m)(7)
of the Code) of a participant or beneficiary in a Plan; (c) hardship
withdrawals by a participant or beneficiary in a Plan; (d) satisfying the
minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t)(2) of
the Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in Section 72(m)(7) of the Code)
of a shareholder if the redemption is made within one year of such event; (h)
excess contributions distributed from a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
rolled over to a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C Shares subject to a Systematic Withdrawal Plan may be redeemed
without a CDSC. However, Goldman Sachs reserves the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B and
Class C Shares and 10% of the value of your Class A Shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
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CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in Shares of the same class or an equivalent
class of other Goldman Sachs Funds or ILA Portfolios. See "Fund Highlights." A
shareholder may also elect to exchange automatically a specified dollar amount
of Shares of a Fund for Shares of the same Class or an equivalent class of any
other Goldman Sachs Fund or ILA Portfolio. Shares acquired through cross-
reinvestment of dividends or the automatic exchange program will be purchased
at NAV and will not be subject to any initial sales charge or CDSC as a result
of the cross-reinvestment or exchange, but shares subject to a CDSC acquired
under the automatic exchange program may be subject to a CDSC at the time of
redemption from the fund into which the exchange is made determined on the
basis of the date and value of the investor's initial purchase of the Fund
from which the exchange (or any prior exchange) is made. Automatic exchanges
are made monthly on the 15th day of each month or the first Business Day
thereafter. The minimum dollar amount for automatic exchanges must be at least
$50 per month. Cross-reinvestments and automatic exchanges are subject to the
following conditions: (i) the value of the shareholder's account(s) in the
Fund which is paying the dividend or from which the automatic exchange is
being made must equal or exceed $5,000; and (ii) the value of the account in
the acquired fund must equal or exceed the acquired fund's minimum initial
investment requirement or the shareholder must elect to continue cross-
reinvestment or automatic exchanges until the value of acquired fund shares in
the shareholder's account equals or exceeds the acquired fund's minimum
initial investment requirement. A Fund shareholder may elect cross-
reinvestment into an identical account or an account registered in a different
name or with a different address, social security or other taxpayer
identification number, provided that the account in the acquired fund has been
established, appropriate signatures have been obtained and the minimum initial
investment requirement has been satisfied. A Fund shareholder should obtain
and read the prospectus of the fund into which dividends are invested or
automatic exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds offer their Shares for purchase by retirement plans, including
traditional and Roth IRAs for individuals and their spouses, IRA plans for
employees in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA
plans, 403(b) plans and defined contribution plans such as 401(k) Salary
Reduction Plans. Detailed information concerning these plans may be obtained
from the Transfer Agent. The information sets forth the service fee charged
for retirement plans and describes the federal income tax consequences of
establishing a plan. This information should be read carefully, and
consultation with an attorney or tax adviser may be advisable.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at NAV without the imposition of an
initial sales charge or CDSC at the time of exchange for Shares of the same
class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for Shares of the same class (or an
equivalent class) of the original Fund at the next determined NAV without the
imposition of an initial sales charge or CDSC if the dollar amount in the Fund
resulting from such exchanges is below the shareholder's all-time highest
dollar amount on which it has previously paid the applicable sales charge.
Shares of these other funds purchased through dividends and/or capital gains
reinvestment may be exchanged for Shares of the Funds without a sales charge.
In addition to free automatic exchanges pursuant to the Automatic Exchange
Program, six free exchanges are permitted in each 12 month period. A fee of
$12.50 may be charged for each subsequent exchange during such period. The
exchange privilege may be materially modified or withdrawn at any time upon 60
days' notice to shareholders and is subject to certain limitations.
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<PAGE>
An exchange of Shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the Shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has owned Shares will be measured from the date the shareholder
acquired the original Shares subject to a CDSC and will not be affected by any
subsequent exchange.
An exchange may be made by identifying the applicable Fund and Class of
Shares and either writing to Goldman Sachs, Attention: Goldman Sachs Domestic
Equity Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO
64141-6711 or, unless the investor has specifically declined telephone
exchange privileges on the Account Application or elected in writing not to
utilize telephone exchanges, by a telephone request to the Transfer Agent at
800-526-7384 (7:00 a.m. to 3:00 p.m. Chicago time). Certain procedures are
employed to prevent unauthorized or fraudulent exchange requests as set forth
under "How to Sell Shares of the Funds." Under the telephone exchange
privilege, Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange instructions are in writing and received in accordance with the
procedures set forth under "How to Sell Shares of the Funds." In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the Shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent a sales charge that
would otherwise apply to the shares received in the exchange is not imposed,
the sales charge paid on such purchase of Class A Shares cannot be taken into
account by the exchanging shareholder for purposes of determining gain or
loss, if any, realized on such redemption for federal income tax purposes, but
instead will be added to the tax basis of the Shares received in the exchange.
Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange.
Eligible investors may exchange certain classes of Shares for another class
of Shares of the same Fund. For further information, call Goldman Sachs at the
number set forth on the back of the Prospectus.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the Shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized to
accept, on the Trust's behalf, purchase, redemption and exchange orders placed
by or on behalf of their customers and, if approved by the Trust, to designate
other intermediaries to accept such orders. In these cases, a Fund will be
deemed to have received an order that is in proper form when the order is
accepted by an Authorized Dealer or intermediary on a Business Day, and the
order will be priced at a Fund's NAV per Share (adjusted for any applicable
sales charge) next determined after such acceptance. Otherwise, a Fund or
Goldman Sachs must receive an order in proper form before it is effective.
Authorized Dealers and intermediaries will be responsible for transmitting
accepted orders to the Funds within the period agreed upon by them. Customers
should contact their Authorized Dealers or intermediaries to learn whether
they are authorized to accept orders for the Trust.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund Shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of Shares or the
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reinvestment of dividends. Firms may arrange with their clients for other
investment or administrative services and may independently establish and
charge additional fees not described in this Prospectus to their clients for
such services. If Shares of a Fund are held in a "street name" account or were
purchased through an Authorized Dealer, shareholders should contact the
Authorized Dealer to purchase, redeem or exchange Shares, to make changes in
or give instructions concerning the account or to obtain information about the
account.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of Shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of Shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of Shares
of the Funds and other Goldman Sachs Funds (such as additional payments based
on new sales, amounts exceeding pre-established thresholds, or the length of
time their customers' assets have remained in a Fund) and, subject to
applicable NASD regulations, contribute to various non-cash and cash incentive
arrangements to promote the sale of Shares, as well as sponsor various
educational programs, sales contests and/or promotions in which participants
may receive reimbursement of expenses, entertainment and prizes such as travel
awards, merchandise, cash, investment research and educational information and
related support materials. This additional compensation can vary among
Authorized Dealers depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the
particular program involved, or the amount of reimbursable expenses.
Additional compensation based on sales may, but is currently not expected to,
exceed 0.50% (annualized) of the amount invested. For further information, see
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLANS--CLASS A, CLASS B AND CLASS C SHARES
The Trust, on behalf of the Funds' Class A, Class B and Class C Shares, has
adopted distribution plans pursuant to Rule 12b-1 under the Act (each a
"Distribution Plan"). Goldman Sachs is entitled to a monthly fee from each
Fund for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributable to
Class A, Class B and Class C Shares, respectively, of such Fund. Currently,
Goldman Sachs has voluntarily agreed to waive the entire amount of such fee
attributable to Class A Shares for the Balanced, CORE Large Cap Growth,
Capital Growth and Small Cap Value Funds; to limit the amount of such fee to
0.05% of average daily net assets attributable to Class A Shares of CORE Small
Cap Equity Fund; and to limit the amount of such fee to 0.09% of average daily
net assets attributable to Class A shares of the Growth and Income Fund. As of
the date of this Prospectus, Goldman Sachs has no intention of
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<PAGE>
modifying or discontinuing such waivers, but may do so in the future at its
discretion. The average rate for the fiscal year ended January 31, 1998 paid
by the Growth and Income and CORE U.S. Equity Funds to Goldman Sachs was 0.07%
and 0.23%, respectively, with respect to each Fund's Class A Shares. The
average rate for all other Funds' Class A Shares was 0.25%. The average rate
for the fiscal year ended January 31, 1998 paid by the Funds offering Class B
and Class C Shares was 0.75%.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class A, Class B and Class C Shares of the Funds. The types of expenses for
which Goldman Sachs may be compensated for distribution services under the
Distribution Plans include: compensation paid to and expenses incurred by
Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives, commissions paid to Authorized Dealers; allocable
overhead; telephone and travel expenses; the printing of prospectuses for
prospective shareholders; preparation and distribution of sales literature,
advertising of any type and all other expenses incurred in connection with
activities primarily intended to result in the sale of Class A, Class B and
Class C Shares. If the fees received by Goldman Sachs pursuant to the
Distribution Plans exceed its expenses, Goldman Sachs may realize a profit
from these arrangements. The Distribution Plans will be reviewed and are
subject to approval annually by the Trustees. The aggregate compensation that
may be received under the Distribution Plans for distribution services may not
exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the Shares have been held for one year. Goldman Sachs pays the
distribution fee on a quarterly basis.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C Shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C Shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their Shares or their accounts or similar
services not otherwise provided on behalf of the Funds. The Service Plans will
be reviewed and are subject to approval annually by the Trustees. For the
fiscal year ended January 31, 1998, each Fund paid Authorized Dealer service
fees at the foregoing rate for each Fund's Class A, Class B and Class C
Shares.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.25% ongoing service fee to Authorized Dealers after the Shares have been
held for one year. Goldman Sachs pays the service fee on a quarterly basis.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its Shares upon the request of a shareholder on any
Business Day at the NAV next determined after the receipt of such request in
proper form, subject to any applicable CDSC. See "Net Asset Value." Redemption
proceeds will normally be mailed by check to a shareholder within three
Business Days of
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receipt of a properly executed request. If the Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Shares. This may take up to 15 days.
Redemption requests may be made by writing to or calling the Transfer Agent at
the address or telephone number set forth on the back cover page of this
Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of Shares for amounts up
to $50,000 within any seven calendar day period, except for investors who have
specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests if
the Trust reasonably believes the instructions to be genuine. Thus,
shareholders risk possible losses in the event of a telephone redemption not
authorized by them. The Trust may accept telephone redemption instructions
from any person identifying himself or herself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of Shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to Shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total of one Business Day
delay) following receipt of a properly executed wire transfer redemption
request. Wiring of redemption proceeds may be delayed one additional Business
Day if the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above.
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Further documentation may be required for executors, trustees or corporations.
Once wire transfer instructions have been given by Goldman Sachs or an
Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor any Authorized
Dealer assumes any further responsibility for the performance of
intermediaries or the shareholder's bank in the transfer process. If a problem
with such performance arises, the shareholder should deal directly with such
intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in Shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C Shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares. The CDSC applicable to Class A, Class B or Class C Shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See the
Additional Statement for more information about the Systematic Withdrawal
Plan.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding Shares will, at the election of
each shareholder, be paid in: (i) cash; (ii) additional Shares of the same
class of the Fund; or (iii) shares of the same or an equivalent class of other
Goldman Sachs Funds or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Shares or units of the Fund or another Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase Shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized capital gains, after reduction by available capital losses,
including any capital losses carried forward from prior years, will be
declared as dividends for each taxable year. The Balanced and Growth and
Income Funds will pay dividends from net investment income quarterly. Each
other Fund will pay dividends at least annually. All of the Funds will pay
dividends from net investment income, and dividends from net realized capital
gains, reduced by available capital losses, at least annually. From time to
time, a portion of any Fund's dividends may constitute a return of capital.
54
<PAGE>
At the time of an investor's purchase of Shares of a Fund a portion of the
NAV per Share may be represented by undistributed income of the Fund or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such Shares from such income or
realized appreciation may be taxable to the investor even if the NAV of the
investor's Shares is, as a result of the distributions, reduced below the cost
of such Shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
NET ASSET VALUE
The NAV per Share of each Class of a Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per Share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at NAV. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Total return calculations for Class A Shares
reflect the effect of paying the maximum initial sales charge. Investment at a
lower sales charge would result in higher performance figures. Total return
calculations for Class B and Class C Shares reflect deduction of the
applicable CDSC imposed upon redemption of Class B and Class C Shares held for
the applicable period. Each Fund may also from time to time advertise total
return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on a Fund's NAV per Share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance
information is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent 30 day period by the product of the
average daily number of Shares outstanding and entitled to receive dividends
during the period and the maximum offering price per Share on the last day of
the relevant period. The results are compounded on a bond equivalent (semi-
annual) basis and then annualized. Net investment income per Share is equal to
the dividends and interest earned during the period, reduced by accrued
55
<PAGE>
expenses for the period. The calculation of net investment income for these
purposes may differ from the net investment income determined for accounting
purposes. The Balanced and Growth and Income Funds' quotations of distribution
rate are calculated by annualizing the most recent distribution of net
investment income for a monthly, quarterly or other relevant period and
dividing this amount by the NAV per Share on the last day of the period for
which the distribution rate is being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each Class of Shares in existence. Because each Class of Shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each Class of Shares for the same period
will differ. The investment performance of the Class A, Class B and Class C
Shares will be affected by the payment of a sales charge, distribution fees
and other class specific expenses. See "Shares of the Trust."
The Funds' performance quotations do not reflect any fees charged by an
Authorized Dealer to its customer accounts in connection with investments in
the Funds. The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify Shares
of beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of Shares
into one or more Classes. Information about the Trust's other series and
Classes is contained in separate prospectuses.
When issued, Shares are fully paid and non-assessable. In the event of
liquidation, shareholders of each class are entitled to share pro rata in the
net assets of the applicable Fund available for distribution to the
shareholders of such class. All Shares are freely transferable and have no
preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the NAVs represented by their
Shares.
As of April 3, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 59.9% of Mid Cap Equity Fund's
outstanding Shares.
The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
56
<PAGE>
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' Shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
Shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Each Fund has
elected to be treated as a regulated investment company and each Fund intends
to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed to shareholders as long-term
capital gains, regardless of the length of time a shareholder has held his or
her Shares or whether such gain was reflected in the price paid for the
Shares. Such long-term gain will constitute a 20% or 28% rate gain, depending
upon the Fund's holding period for the assets, the sale of which generated the
gain. These tax consequences will apply whether distributions are received in
cash or reinvested in Shares. A Fund's dividends that are paid to its
corporate shareholders and are attributable to qualifying dividends such Fund
receives from U.S. domestic corporations may be eligible, in the hands of such
corporate shareholders, for the corporate dividends-received deduction,
subject to certain holding period requirements and debt financing limitations
under the Code. Certain distributions paid by a Fund in January of a given
year may be taxable to shareholders as if received the prior December 31.
Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying Shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per Share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of Shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty, if any) on
amounts treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. However, the Funds do not
anticipate that they will be eligible to pass any foreign tax credits through
to their shareholders.
57
<PAGE>
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
58
<PAGE>
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A Shares of
a Fund alone or in combination with Class A Shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain Shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional Shares will not apply toward the completion
of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time Shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional Shares, but if the
investor's purchases within 13 months plus the value of Shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary), 5% of
the dollar amount specified on the Account Application shall be held in escrow
by the Transfer Agent in the form of Shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed Shares will
be paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed Shares will be released. In signing
the Account Application, the investor irrevocably constitutes and appoints the
Transfer Agent his or her attorney to surrender for redemption any or all
escrowed Shares with full power of substitution in the premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed Shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MA 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQ PRODOMABC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS DOMESTIC
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
LOGO
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1998
GOLDMAN SACHS DOMESTIC EQUITY FUNDS INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term capital growth Seeks long-term growth of capital
and current income through in- through a broadly diversified portfolio
vestments in equity and fixed of equity securities of U.S. issuers
income securities. which are included in the Russell 2000
Index at the time of investment.
GOLDMAN SACHS GROWTH AND INCOME
FUND GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of cap- Seeks long-term growth of capital
ital and growth of income through diversified investments in eq-
through investments in equity uity securities of companies that are
securities that are considered considered to have long-term capital ap-
to have favorable prospects preciation potential.
for capital appreciation
and/or dividend paying abili- GOLDMAN SACHS MID CAP EQUITY FUND
ty.
Seeks long-term capital appreciation
GOLDMAN SACHS CORE U.S. EQUITY primarily through investments in equity
FUND securities of companies with public
Seeks long-term growth of cap- stock market capitalizations within the
ital and dividend income range of the market capitalization of
through a broadly diversified companies constituting the Russell
portfolio of large cap and Midcap Index at the time of investment
blue chip equity securities (currently between $400 million and $16
representing all major sectors billion).
of the U.S. economy.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through
GOLDMAN SACHS CORE LARGE CAP investments in equity securities of com-
GROWTH FUND panies with public stock market capital-
Seeks long-term growth of cap- izations of $1 billion or less at the
ital through a broadly diver- time of investment.
sified portfolio of equity se-
curities of large cap U.S. is-
suers that are expected to
have better prospects for
earnings growth than the
growth rate of the general do-
mestic economy. Dividend in-
come is a secondary considera-
tion.
-----------------
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, Mid Cap Equity and Small Cap Value (formerly "Small Cap
Equity") Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the CORE
U.S. Equity (formerly the "Select Equity Fund") and Capital Growth Funds. GSAM
and GSFM are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 16
Description of Securities.......... 21
Investment Techniques.............. 26
Risk Factors....................... 30
Investment Restrictions............ 32
Portfolio Turnover................. 32
Management......................... 32
Expenses........................... 37
Net Asset Value.................... 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information............ 38
Shares of the Trust................ 38
Taxation........................... 39
Additional Information............. 40
Reports to Shareholders............ 41
Dividends.......................... 41
Purchase of Institutional Shares... 41
Exchange Privilege................. 44
Redemption of Institutional Shares. 44
Appendix .......................... A-1
Account Information Form
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in
this Prospectus.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment funds (commonly
known as mutual funds (the "Funds")). Each Fund pools the monies of
investors by selling its Shares to the public and investing these monies
in a portfolio of securities designed to achieve that Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
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<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------- ---------------- --------------------------------------- -------------
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed-income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend-paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers. The Fund
dividend income. seeks to achieve its objective through
a broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected returns,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
- ----------------------------------------------------------------------------------------
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ----------- ---------------- --------------------------------------- ------------
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of investment. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- --------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- --------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies with Index
appreciation. public stock market capitalizations
within the range of the market
capitalization of companies
constituting the Russell Midcap Index
at the time of investment (currently
between $400 million and $16 billion)
("Mid-Cap Companies").
- --------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
4
<PAGE>
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap
Equity, Mid Cap Equity and Small Cap Value Funds. Goldman Sachs Funds
Management, L.P. serves as Investment Adviser to the CORE U.S. Equity and
Capital Growth Funds. As of March 23, 1998, the Investment Advisers,
together with their affiliates, acted as investment adviser or
distributor for assets in excess of $153 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's Shares (the
"Distributor").
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000,000 or $10,000,000 (depending
upon an investor's eligibility) in Institutional Shares of a Fund alone or
in combination with Institutional Shares (or the corresponding class) of
any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current ("NAV") without any sales
load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the NAV next determined after
receipt of such request in proper form. See "Redemption of Institutional
Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
Small Cap Value....................... Annually Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends and
distributions in additional Institutional Shares of the Fund in which they
have invested or may elect to receive them in cash. For further information
concerning dividends and distributions, see "Dividends."
5
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
CORE CORE
GROWTH LARGE SMALL MID SMALL
AND CORE U.S. CAP CAP CAPITAL CAP CAP
BALANCED INCOME EQUITY GROWTH EQUITY GROWTH EQUITY VALUE
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND/1/ FUND FUND/1/
-------- ------ --------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable
limitations)/2/....... 0.65% 0.70% 0.59% 0.60% 0.75% 1.00% 0.75% 1.00%
Distribution (Rule 12b-
1) Fees............... None None None None None None None None
Other Expenses (after
applicable
limitations)/3/....... 0.10% 0.13% 0.06% 0.05% 0.20% 0.10% 0.10% 0.13%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)/4/....... 0.75% 0.83% 0.65% 0.65% 0.95% 1.10% 0.85% 1.13%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Adviser voluntarily has agreed not to impose a portion of
the management fee on the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity equal to 0.16%, 0.15% and 0.10%, respectively. Without
such limitations, management fees would be 0.75%, 0.75% and 0.85% of each
Fund's average daily net assets, respectively.
/3/ The Investment Adviser voluntarily has agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of the Growth and Income and CORE U.S.
Equity Funds)) for the following Funds to the extent such expenses exceed
the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
Mid Cap Equity................................................... 0.10%
</TABLE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Growth and Income,
CORE U.S. Equity and Mid Cap Equity Funds for the fiscal year ended January
31, 1998, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.13% 0.83%
CORE U.S. Equity....................................... 0.07% 0.82%
Mid Cap Equity......................................... 0.22% 0.97%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of the Balanced, CORE
Large Cap Growth and CORE Small Cap Equity Funds for the current fiscal year
are estimated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced............................................... 0.42% 1.07%
CORE Large Cap Growth.................................. 0.23% 0.98%
CORE Small Cap Equity ................................. 0.66% 1.51%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced...................................... $ 8 $24 $ 42 $ 94
Growth and Income............................. $ 8 $26 $ 46 $103
CORE U.S. Equity.............................. $ 7 $21 $ 36 $ 81
CORE Large Cap Growth......................... $ 7 $21 n/a n/a
CORE Small Cap Equity......................... $10 $30 n/a n/a
Capital Growth................................ $11 $35 $ 61 $134
Mid Cap Equity................................ $ 9 $27 $ 47 $105
Small Cap Value............................... $12 $36 $ 62 $137
</TABLE>
As of the date of this Prospectus, the Investment Adviser and Goldman Sachs
have no intention of modifying or discontinuing any of the limitations set
forth above but may do so in the future at their discretion. The information
set forth in the foregoing table and hypothetical example relates only to
Institutional Shares of the Funds. Each Fund also offers Service Shares and
Class A, Class B and Class C Shares, which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
Service, Class A, Class B and Class C Shares may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back cover of this Prospectus.
Institutions that invest in Institutional Shares on behalf of their
customers may charge fees directly to their customer accounts in connection
with their investments. Such fees, if any, may affect the return such
customers realize with respect to their investments.
Certain institutions may also receive other compensation in connection with
the sales and distribution of Institutional Shares or for services to their
customer's accounts and/or the Funds. For additional information regarding
such compensation, see "Purchase of Institutional Shares" in the Prospectus
and the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended January 31, 1998 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- ------------------------------------------------
NET REALIZED IN EXCESS OF
AND UNREALIZED FROM NET NET REALIZED NET
NET ASSET GAIN ON FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE NET ASSET
VALUE, NET INVESTMENT NET OF NET ON INVESTMENT INVESTMENT (DECREASE) VALUE,
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET END OF
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ----------- ---------
BALANCED FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $18.78 $0.57 $2.66 $(0.56) $ -- $(1.16) $ -- $1.51 $20.29
1998--Class B
Shares.......... 18.73 0.50 2.57 (0.42) (0.02) (1.16) -- 1.47 20.20
1998--Class C
Shares(b)....... 21.10 0.25 0.24 (0.22) (0.04) (0.64) (0.52) (0.93) 20.17
1998--Institu-
tional
Shares(b)....... 21.18 0.26 0.32 (0.23) (0.08) (0.45) (0.71) (0.89) 20.29
1998--Service
Shares(b)....... 21.18 0.22 0.32 (0.22) (0.06) (0.72) (0.44) (0.90) 20.28
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) -- (1.00) -- 1.47 18.78
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (0.07) (1.00) -- 1.27 18.73
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) -- (0.35) -- 3.09 17.31
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.10 0.02 (0.08) -- -- -- 0.04 14.22
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE(G) RATE(F) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- --------- ---------- ---------- ----------- ----------- ---------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 17.54% 190.43% $.0590 $163,636 1.00% 2.94% 1.57% 2.37%
1998--Class B
Shares.......... 16.71 190.43 .0590 23,639 1.76 2.14 2.07 1.83
1998--Class C
Shares(b)....... 2.49(d) 190.43 .0590 8,850 1.77(c) 2.13(c) 2.08(c) 1.82(c)
1998--Institu-
tional
Shares(b)....... 2.93(d) 190.43 .0590 8,367 0.76(c) 3.13(c) 1.07(c) 2.82(c)
1998--Service
Shares(b)....... 2.66(d) 190.43 .0590 16 1.26(c) 2.58(c) 1.57(c) 2.27(c)
1997--Class A
Shares.......... 18.59 208.11 .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 16.22(d) 208.11 .0587 2,110 1.75(c) 2.59(c) 2.27(c) 2.07(c)
1996--Class A
Shares.......... 28.10 197.10 -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 0.87(d) 14.71 -- 7,510 1.00(c) 3.39(c) 8.29(c) (3.90)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A and Class B Share activity commenced on October 12, 1994 and May
1, 1996, respectively. Class C, Institutional and Service Share activity
commenced on August 15, 1997.
(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.
(g) Includes the effect of mortgage dollar roll transactions.
8
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------ ------------------------------------------------
NET IN EXCESS OF
REALIZED AND FROM NET NET REALIZED NET
NET ASSET NET UNREALIZED FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE
VALUE, INVESTMENT GAIN ON NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL (DECREASE)
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN IN NET
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL ASSET VALUE
--------- ---------- ------------ ---------- ---------- ------------- ------------ ---------- -----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.18 $0.11 $5.27 $(0.11) $ -- $(2.52) $ -- $ -- $2.75
1998--Class B
Shares.......... 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) -- 2.63
1998--Class C
Shares(b)....... 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) -- (2.50)
1998--
Institutional
Shares.......... 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) -- 2.76
1998--Service
Shares.......... 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- -- 2.75
1997--Class A
Shares.......... 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- -- 3.20
1997--Class B
Shares(b)....... 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- -- 2.28
1997--Institu-
tional
Shares(b)....... 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- -- 1.94
1997--Service
Shares(b)....... 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- -- 2.46
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) -- (0.60) -- -- 4.18
1995--Class A
Shares.......... 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g) 0.01
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- -- 1.61
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO
OF NET RATIO
NET RATIO INVESTMENT OF NET
NET ASSET ASSETS AT OF NET INCOME (LOSS) RATIO INVESTMENT
VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO TO AVERAGE OF EXPENSES INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET NET TO AVERAGE TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- --------- ---------- ---------- ----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
1998--Class B
Shares.......... 25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
1998--Class C
Shares(b)....... 25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
1998--
Institutional
Shares.......... 25.95 24.24 61.95 .0590 36.225 0.83 0.76 0.83 0.76
1998--Service
Shares.......... 25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
1997--Class A
Shares.......... 23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43% 1.39%
1997--Class B
Shares(b)....... 23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
1997--Institu-
tional
Shares(b)....... 23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
1997--Service
Shares(b)....... 23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
1996--Class A
Shares.......... 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. 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 February 5, 1993, May 1, 1996, August 15, 1997, June 3, 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.
(g) Calculated based on the average Shares outstanding methodology.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
FROM NET IN EXCESS OF NET
NET REALIZED REALIZED NET REALIZED INCREASE/ NET
NET ASSET AND UNREALIZED IN EXCESS GAIN ON GAIN ON (DECREASE) ASSET
VALUE, NET GAIN (LOSS) ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ---------- ------------ ------------ ---------- ------ ---------
CORE U.S. EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27 $26.59 24.96%
1998--Class B
Shares.......... 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14 26.32 24.28
1998--Class C
Shares(b)....... 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24) 26.24 4.85(d)
1998--Institu-
tional Shares... 23.44 0.30 5.65 (0.24) (.01) (1.33) (1.02) 3.35 26.79 25.76
1998--Service
Shares.......... 23.27 0.19 5.57 (0.07) (.08) (2.35) -- 3.26 26.53 25.11
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(b)....... 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74 23.18 18.59(d)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(b)....... 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25 23.27 15.92(d)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(b)....... 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74 19.71 20.14(d)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 14.17 0.11 0.88 (0.11) -- -- -- 0.88 15.05 7.01(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT
ASSETS AT TO INCOME TO INCOME
PORTFOLIO AVERAGE END OF AVERAGE (LOSS) TO AVERAGE (LOSS) TO
TURNOVER COMMISSION PERIOD NET AVERAGE NET AVERAGE
RATE RATE(F) (IN 000S) ASSETS NET ASSETS ASSETS NET ASSETS
--------- ---------- --------- ---------- ------------ --------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
1998--Class B
Shares.......... 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
1998--Class C
Shares(b)....... 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
1998--Institu-
tional Shares... 65.89 .0651 202,893 0.65 1.16 0.82 0.99
1998--Service
Shares.......... 65.89 .0651 7,841 1.15 0.62 1.32 0.45
1997--Class A
Shares.......... 37.78 .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(b)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) 0.11(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(b)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(b)....... 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class B, Classs C, Institutional and Service Share
activity commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15,
1995 and June 7, 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.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------- -----------------------------------------------
NET
REALIZED
AND FROM NET IN EXCESS OF
UNREALIZED REALIZED NET REALIZED NET NET
NET ASSET NET GAIN (LOSS) IN EXCESS GAIN ON GAIN ON INCREASE ASSET
VALUE, INVESTMENT ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD
--------- ---------- ----------- ---------- ---------- ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CORE LARGE CAP GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ 0.01 $2.35 $(0.01) -- $(0.32) $(0.06) $1.97 $11.97
1998 -- Class B
Shares(b)....... 10.00 (0.03) 2.33 -- -- (0.18) (0.20) 1.92 11.92
1998 -- Class C
Shares(b)....... 11.80 (0.02) 0.54 -- (.01) (0.38) -- 0.13 11.93
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 2.35 (0.01) -- (0.19) (0.19) 1.97 11.97
1998 -- Service
Shares(b)....... 10.00 (0.02) 2.35 -- -- (0.08) (0.30) 1.95 11.95
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
------------------------
NET RATIO OF
ASSETS NET RATIO OF RATIO OF RATIO OF
AT END EXPENSES NET EXPENSES NET
OF TO INVESTMENT TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE INCOME TO AVERAGE LOSS TO
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET AVERAGE
RETURN(A) RATE RATE 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- --------- ---------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998 -- Class A
Shares(b)....... 23.79%(d) 74.97% $.0282 $53,786 0.91%(c) 0.12%(c) 2.40%(c) (1.37)%(c)
1998 -- Class B
Shares(b)....... 23.26(d) 74.97 .0282 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c)
1998 -- Class C
Shares(b)....... 4.56(d) 74.97 .0282 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00)(c)
1998 -- Institu-
tional
Shares(b)....... 23.89(d) 74.97 .0282 4,656 0.72(c) 0.42(c) 1.96(c) (0.82)(c)
1998 -- Service
Shares(b)....... 23.56(d) 74.97 .0282 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c)
</TABLE>
- ------------
(a) Assumes investment at the NAV at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the NAV at the end of
the period and no sales or redemption charges. Total return would be
reduced if a sales or redemption charge were taken into account.
(b) Class A, Class B, Institutional and Service Share activity commenced on
May 1, 1997. Class C Share activity commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------
NET
REALIZED AND FROM NET
UNREALIZED REALIZED
NET ASSET NET GAIN (LOSS) ON FROM GAIN ON NET NET ASSET
VALUE, INVESTMENT INVESTMENT AND NET INVESTMENT INCREASE VALUE, PORTFOLIO
BEGINNING INCOME FUTURES INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER
OF PERIOD (LOSS) TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE
--------- ---------- -------------- ---------- ------------ ----------- --------- --------- ---------
CORE SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $(0.01) $0.65 -- $(0.05) $0.59 $10.59 6.37%(d) 37.65%
1998--Class B
Shares(b)....... 10.00 (0.03) 0.64 -- (0.05) 0.56 10.56 6.07(d) 37.65
1998--Class C
Shares(b)....... 10.00 (0.02) 0.64 -- (0.05) 0.57 10.57 6.17(d) 37.65
1998--Institu-
tional
Shares(b)....... 10.00 0.01 0.65 -- (0.05) 0.61 10.61 6.57(d) 37.65
1998--Service
Shares(b)....... 10.00 0.01 0.64 -- (0.05) 0.60 10.60 6.47(d) 37.65
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
AVERAGE END OF EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE
RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ----------- -------------- ------------ --------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $.0370 $11,118 1.25%(c) (0.36)%(c) 3.92%(c) (3.03)%(c)
1998--Class B
Shares(b)....... .0370 9,957 1.95(c) (1.04)(c) 4.37(c) (3.46)(c)
1998--Class C
Shares(b)....... .0370 2,557 1.95(c) (1.07)(c) 4.37(c) (3.49)(c)
1998--Institu-
tional
Shares(b)....... .0370 9,026 0.95(c) 0.15 (c) 3.37(c) (2.27)(c)
1998--Service
Shares(b)....... .0370 2 1.45(c) 0.40 (c) 3.87(c) (2.02)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------ -------------------------------------
IN EXCESS
NET OF NET
NET ASSET NET REALIZED AND IN EXCESS FROM NET REALIZED NET INCREASE
VALUE, INVESTMENT UNREALIZED FROM NET OF NET REALIZED GAIN GAIN ON (DECREASE) NET ASSET
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT IN NET ASSET VALUE, END
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE OF PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ------------ ----------
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.73 $0.02 $4.78 $(0.01) $(0.01) $(3.03) $ -- $1.75 $18.48
1998--Class B
Shares.......... 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60 18.27
1998--Class C
Shares(b)....... 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49) 18.24
1998--Institu-
tional
Shares(b)....... 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43) 18.45
1998--Service
Shares(b)....... 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42) 18.46
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82 16.73
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00 16.67
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24 14.91
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29) 13.67
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32 15.96
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99 14.64
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55 13.65
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(b)....... 11.34 0.34 (0.27) (0.31) -- -- -- (0.24) 11.10
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ---------- ---------- ------------ -------------- ----------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
1998--Class B
Shares.......... 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
1998--Class C
Shares(b)....... 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
1998--Institu-
tional
Shares(b)....... 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18 (c) 1.16(c) 0.18 (c)
1998--Service
Shares(b)....... 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
1997--Class A
Shares.......... 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
1996--Class A
Shares.......... 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(b)....... 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. 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 April 20, 1990, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, 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.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ---------------------------------------------
NET REALIZED
AND UNREALIZED NET
NET REALIZED LOSS ON FROM NET INCREASE NET
NET ASSET AND UNREALIZED FOREIGN IN EXCESS REALIZED (DECREASE) ASSET
VALUE, NET GAIN ON CURRENCY FROM NET OF NET GAIN ON IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT INVESTMENT ASSET END OF
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
MID CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02) $21.61
1998--Class B
Shares(b)....... 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06) 21.57
1998--Class C
Shares(b)....... 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04) 21.59
1998--Institu-
tional Shares... 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92 21.65
1998--Service
Shares(b)....... 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39) 21.62
1997--Institu-
tional Shares... 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82 18.73
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 15.00 0.13 0.90 -- (0.12) -- -- 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- ---------- ---------- ------- ---------- ------------ ---------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21%(c)
1998--Class B
Shares(b)....... 3.17(d) 62.60 0.0540 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c)
1998--Class C
Shares(b)....... 3.27(d) 62.60 0.0540 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c)
1998--Institu-
tional Shares... 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
1998--Service
Shares(b)....... 6.30(d) 62.60 0.0540 8 1.35(c) 0.63 (c) 1.43(c) 0.51 (c)
1997--Institu-
tional Shares... 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 6.89(d) 58.77(d) -- 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
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 August 15, 1997, August 15, 1997, August 15, 1997, August 1,
1995 and July 18, 1997, 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.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET NET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET INCREASE
VALUE, INVESTMENT GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) NET ASSET
BEGINNING INCOME INVESTMENT AND INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END TOTAL
OF PERIOD (LOSS) OPTIONS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD RETURN(A)
--------- ---------- -------------------- ---------- ------------- ---------- ------------ ---------- ---------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $20.91 $0.14 $5.33 $ -- $(2.33) $ -- $ 3.14 $24.05 26.17%
1998--Class B
Shares.......... 20.80 (0.01) 5.27 -- (2.33) -- 2.93 23.73 25.29
1998--Class C
Shares(b)....... 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96) 23.73 5.51(d)
1998--Institu-
tional
Shares(b)....... 24.91 0.03 1.48 -- (2.05) (0.28) (0.82) 24.09 6.08(d)
1998--Service
Shares(b)....... 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86) 24.05 5.91(d)
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) -- 3.62 20.91 27.28
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE TO AVERAGE NET
RATE RATE(F) (IN 000S) NET ASSETS ASSETS NET ASSETS ASSETS
--------- ---------- ---------- ------------ ---------------- ----------- --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
1998--Class B
Shares.......... 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
1998--Class C
Shares(b)....... 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
1998--Institu-
tional
Shares(b)....... 84.81 0.0517 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c)
1998--Service
Shares(b)....... 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
1997--Class A
Shares.......... 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 7.12 -- 59,339 1.65(c) 0.62(c) 2.70(c) (0.43)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
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 October 22, 1992, May 1, 1996, August 15, 1997, August 15,
1997 and August 15, 1997, 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.
15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
Funds and the equity portion of the Balanced Fund are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth Fund is managed using a growth equity
oriented approach. Equity securities for this Fund is selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. The Fund generally will invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
16
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE Funds") are managed using both
quantitative and fundamental techniques. CORE is an acronym for "Computer-
Optimized, Research-Enhanced," which reflects the CORE Funds' investment
process. This investment process and the proprietary multifactor model used to
implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE Funds. As described more fully below, the
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to forecast the returns of different markets and individual
securities. In the case of an equity security followed by the Goldman Sachs
Global Investment Research Department (the "Research Department"), a rating is
assigned based upon the Research Department's evaluation. In the discretion of
the Investment Adviser, ratings may also be assigned to equity securities
based on research ratings obtained from other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Model. The Multifactor Model is a rigorous computerized rating
system for forecasting the returns of different equity markets and individual
equity securities according to fundamental investment characteristics. The
CORE Funds use the Multifactor Model to forecast the returns of securities
held in each Fund's portfolio. The Multifactor Model incorporates common
variables covering measures of value, growth, momentum and risk (e.g.,
book/price ratio, earnings/price ratio, price momentum, price volatility,
consensus growth forecasts, earnings estimate revisions and earnings
stability). All of the factors used in the Multifactor Model have been shown
to significantly impact the performance of the securities and markets they
were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE Funds are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Because it includes many disparate factors, the Investment
Adviser believes that the Multifactor Model is broader in scope and provides a
more thorough evaluation than most conventional, quantitative models.
Securities and markets ranked highest by the Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Model) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
Funds seek to capitalize on the strengths of each discipline.
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BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed-income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed-income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed-income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed-income securities."
The Fund's investments in fixed-income securities that are issued by foreign
issuers, including issuers in Emerging Countries, may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed-income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
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CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed-income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Investment Adviser emphasizes a company's growth
prospects in analyzing equity securities to be purchased by the Fund. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed-income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk,
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style, capitalization and industry characteristics similar to the Russell 2000
Index. The Fund seeks a portfolio comprised of companies with small market
capitalizations, strong expected earnings growth and momentum, and better
valuation and risk characteristics than the Russell 2000 Index. The Fund may
invest only in fixed-income securities that are considered cash equivalents.
The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid-Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion). If the capitalization of an issuer
increases above $16 billion after purchase of such issuer's securities, the
Fund may, but is not required to, sell the securities. Dividend income, if
any, is an incidental consideration.
Other. The Fund may invest up to 35% of its total assets in fixed-income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of
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investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration. If the market capitalization of a company held by
the Fund increases above the amount stated above, the Fund may, consistent
with its investment objective, continue to hold the security.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion at the time of investment and in fixed- income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
DESCRIPTION OF SECURITIES
The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
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FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities of foreign issuers
that are traded in the U.S. and comply with U.S. accounting standards).
Investments in foreign securities may offer potential benefits that are not
available from investments exclusively in equity securities of domestic
issuers quoted in U.S. dollars. Foreign countries may have economic policies
or business cycles different from those of the U.S. and markets for foreign
securities do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will be
ready by the scheduled launch date; the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment of exchange rates for existing
currencies and the euro; and the creation of suitable clearing and settlement
payment systems for the new currency. These or other factors, including
political and economic risks, could cause market disruptions before or after
the introduction of the euro, and could adversely affect the value of
securities held by the Funds. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE Funds, may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers (together, "Depository
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Receipts"). ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the United States on exchanges
or over-the-counter and are sponsored and issued by domestic banks. EDRs and
GDRs are receipts evidencing an arrangement with a non-U.S. bank. EDRs and
GDRs are not necessarily quoted in the same currency as the underlying
security. To the extent a Fund acquires Depository Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depository Receipts to issue and service such
Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and the underlying securities are quoted. However, by investing in
Depository Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund may
avoid currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced Fund
may have currency exposure independent of its securities positions, the value
of the assets of a Fund as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. A Fund may, to the extent it
invests in foreign securities, purchase or sell foreign currencies on a spot
basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced
Fund may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. The Balanced Fund may
also engage in cross-hedging by using forward contracts in a currency
different from that in which the hedged security is denominated or quoted if
the Investment Adviser determines that there is a pattern of correlation
between the two currencies. If a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or the Balanced Fund
enter into forward foreign currency exchange contracts to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign
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countries, the Fund will be more susceptible to the risk of adverse economic
and political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
The Balanced Fund may also engage in a variety of foreign currency
management techniques. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
FIXED-INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced Fund may invest in debt
obligations of foreign governments and governmental agencies, including those
of Emerging Countries. Investment in sovereign debt obligations involves
special risks not present in debt obligations of corporate issuers. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and the Fund may have limited recourse
in the event of a default. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the Fund's NAV, to
a greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, the Fund may fail to recoup fully
its initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped. The Fund's investments in
SMBS may require the Fund to sell portfolio securities to generate sufficient
cash to satisfy certain income distribution requirements.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be
general obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulation. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the banking industry
is largely dependent upon the availability and cost of funds for the purpose
of financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operation of this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to price accurately than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE
Funds, which only invest in debt instruments that are cash equivalents) may
invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth
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and Income, Capital Growth and Small Cap Value Funds may invest up to 10%, 10%
and 35%, respectively, of their total assets in debt securities which are
unrated or rated in the lowest rating categories by Standard & Poor's or
Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by Moody's),
including securities rated D by Moody's or Standard & Poor's. Mid Cap Equity
Fund may invest up to 10% of its total assets in below investment grade debt
securities rated B or higher by Standard & Poor's or B or higher by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capacity to pay interest
and repay principal. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
26
<PAGE>
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced Fund may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different currency, if there is a pattern of correlation
between the two currencies. As with other kinds of options transactions,
however, the writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If an option that a
Fund has written is exercised, the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition to
purchasing call and put options for hedging purposes, the Balanced Fund may
purchase call or put options on currency to seek to increase total return when
the Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations or to otherwise cover the obligations in
a manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
27
<PAGE>
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protection as U.S.
exchanges.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
Each Fund may, consistent with its objectives, purchase Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded
securities that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
This trust is sponsored by a subsidiary of the American Stock Exchange. SPDRs
may be used for several reasons, including but not limited to: facilitating
the handling of cash flows or trading, or reducing transaction costs. The use
of SPDRs would introduce additional risk to the Portfolio as the price
movement of the instrument does not perfectly correlate with the price action
of the underlying index.
EQUITY SWAPS
Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivations and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund will
segregate cash or liquid assets in an amount sufficient to meet the purchase
price until three days prior to the settlement date. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if the Investment Adviser deems it appropriate to do so.
28
<PAGE>
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain SMBS, repurchase agreements maturing in more than
seven days, time deposits with a notice or demand period of more than seven
days, certain over-the-counter options and certain restricted securities,
unless it is determined, based upon a review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines under which the Investment
Adviser determines and monitors the liquidity of portfolio securities, subject
to the oversight of the Trustees. Investing in restricted securities eligible
for resale pursuant to Rule 144A may decrease the liquidity of a Fund's
portfolio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price and
subsequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or its affiliates, may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If the Investment Adviser determines to make securities loans,
the value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral). A Fund may experience
a loss or delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
MORTGAGE DOLLAR ROLLS
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would benefit to
the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase or fee income plus
the interest earned on the cash proceeds of the securities sold
29
<PAGE>
until the settlement date for the forward purchase. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of
the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. The Fund will segregate cash or liquid
assets in an amount equal to the forward purchase price until the settlement
date. Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds may only hold up to 35% of their respective
total assets) in U.S. Government securities, repurchase agreements
collateralized by U.S. Government securities, commercial paper rated at least
A-2 by Standard & Poor's or P-2 by Moody's, certificates of deposit, bankers'
acceptances, repurchase agreements, non-convertible preferred stocks and non-
convertible corporate bonds with a remaining maturity of less than one year.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps (Balanced Fund only); (iii) mortgage swaps, index swaps
and interest rate swaps, caps, floors and collars (Balanced Fund only); (iv)
yield curve options and inverse floating rate securities (Balanced Fund only);
(v) other investment companies including World Equity Benchmark Shares;
(vi) unseasoned companies; (vii) municipal securities (Balanced Fund only);
(viii) loan participations (Balanced Fund only) and (ix) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
Risks of Investing in Equity Securities. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of
30
<PAGE>
individual companies and in response to general market and economic conditions
and, accordingly, the value of the stocks that a Fund holds may decline over
short or extended periods. The U.S. stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline. As of the date of this Prospectus, domestic stock markets were
trading at or close to record high levels and there can be no guarantee that
such levels will continue.
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. Investing in the
securities of issuers in Emerging Countries involves risks in addition to
those discussed under "Description of Securities-- Foreign Investments." The
Balanced, Growth and Income, Mid Cap Equity and Small Cap Value Funds may each
invest up to 25% and the Capital Growth Fund may invest up to 10% of its total
assets in securities of issuers in Emerging Countries. Emerging Countries are
generally located in the Asia-Pacific region, Eastern Europe, Latin and South
America and Africa.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments.
Certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by a Fund. The repatriation of both investment income and capital
from certain Emerging Countries is subject to restrictions such as the need
for governmental consents. Many Emerging Countries may be subject to a greater
degree of economic, political and social instability than is the case in
Western Europe, the United States, Canada, Australia, New Zealand and Japan.
Many Emerging Countries do not have fully democratic governments. For example,
governments of some Emerging Countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other Emerging Countries have periodically used force to suppress civil
dissent. Many Emerging Countries have experienced currency devaluations and
substantial and, in some cases, extremely high rates of inflation, which have
a negative effect on the economies and securities markets of such Emerging
Countries. Settlement procedures in Emerging Countries are frequently less
developed and reliable than those in the United States and may involve a
Fund's delivery of securities before receipt of payment for their sale. In
addition, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to complete
its contractual obligations.
RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed-income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
31
<PAGE>
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding Shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's historical portfolio
turnover rate. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less. The
Investment Adviser will not consider the portfolio turnover rate a limiting
factor in making investment decisions for a Fund consistent with the Fund's
investment objectives and portfolio management policies.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, Distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to the Balanced, Growth
32
<PAGE>
and Income, CORE Large Cap Growth, CORE Small Cap Equity, Mid Cap Equity and
Small Cap Value Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Funds Management, L.P. registered as an investment
adviser in 1990. As of March 23, 1998, GSAM and GSFM together with their
affiliates, acted as investment adviser or distributor for assets in excess of
$153 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management
Inc. From 1988 to 1990
he was a director of
portfolio management at
Banc One in Ohio.
- --------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1992. From 1989 to 1992,
Mid Cap Equity 1996 he was a research
analyst in the
Investment Research
Department of Goldman,
Sachs & Co.
- --------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1993. From 1990 to 1993,
Mid Cap Equity 1996 she worked at Delphi
Small Cap Value 1997 Management as an equity
analyst, focusing her
research efforts on
value stocks.
- --------------------------------------------------------------------------------------------
Jonathan A. Beinner Senior Portfolio Since Mr. Beinner joined the
Managing Director and Manager--Balanced 1994 Investment Adviser in
Co-Head U.S. Fixed (Fixed Income) 1990. From 1988 to 1990,
Income he worked as a portfolio
manager at Franklin
Savings Association in
the trading and
arbitrage group.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992.
CORE Small Cap Equity 1997
- -------------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1991 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. His past
experiences include work
as a special situations
analyst with Raymond
James & Associates for
five years.
- -------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. From 1994 to 1997,
he was the Chief
Investment Officer and
Chairman of Liberty
Investment Management
Inc. He was a portfolio
manager and president at
Liberty's predecessor
firm, Eagle Asset
Management, from 1984 to
1994.
- -------------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management
Inc. and its predecessor
firm, Eagle Asset
Management.
- -------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991. During 1991, he
served as a managing
director at Plaza
Investment Managers, the
investment subsidiary of
GEICO Corp., a major
insurance company. From
1986 to 1991, he was
employed by Goldman
Sachs as a vice
president in the
investment research
department and was
responsible for the
formation of the firm's
Emerging Growth Research
Group.
- -------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Managing Director Growth and Income 1993 Investment Adviser in
Balanced (Equity) 1994 1993. From 1988 to 1993,
Mid Cap Equity 1995 he was a partner at
Sanford C. Bernstein &
Co., Inc. in the
Investment Management
Research Department and
a member of the Research
Review Committee.
- -------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
CORE Small Cap Equity 1997 he was the senior
quantitative analyst in
the Goldman Sachs
Investment Research
Department and the
author of the monthly
Stock Selection
publication.
- -------------------------------------------------------------------------------------------------
Richard C. Lucy Senior Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. From 1983 to 1992,
Fixed Income he managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- -------------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. From 1994 to 1995,
he worked in the
Investment Banking
Division of Goldman
Sachs in Australia. From
1991 to 1994, Mr.
McLennan worked at
Queensland Investment
Corporation in
Australia.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990. From 1985 to 1990,
CORE Small Cap Equity 1997 he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1987 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1992 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1990 to 1992,
he was an equity
research analyst with
Fidelity Management &
Research Company.
- ----------------------------------------------------------------------------------------------------
Lawrence S. Sibley Portfolio Manager-- Since Mr. Sibley joined the
Vice President Growth and Income 1997 Investment Adviser in
Balanced (Equity) 1997 1997. From 1994 to 1997,
Mid Cap Equity 1997 he headed Institutional
Equity Sales at J.P.
Morgan Securities and
from 1987 to 1994, he
was a principal of
Sanford C. Bernstein &
Co. in its Institutional
Sales Department.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSFM are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
Balanced.................................. 0.65% 0.65%
Growth and Income......................... 0.70% 0.70%
CORE Large Cap Growth..................... 0.75% 0.60%
CORE Small Cap Equity..................... 0.85% 0.75%
Mid Cap Equity............................ 0.75% 0.75%
Small Cap Value........................... 1.00% 1.00%
GSFM
CORE U.S. Equity.......................... 0.75% 0.59%
Capital Growth............................ 1.00% 1.00%
</TABLE>
(footnotes on next page)
35
<PAGE>
- ---------------------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. The Investment Adviser may discontinue or modify such voluntary
limitations in the future at their discretion, although there is no current
intention to do so.
The Investment Adviser to the Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, CORE Small Cap Equity and Mid Cap Equity Funds has
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding management fees, service fees, taxes, interest and brokerage fees
and litigation, indemnification and other extraordinary expenses and, in the
case of the Growth and Income and CORE U.S. Equity Funds, transfer agency fees
to the extent such expenses exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, and
0.10%, per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds,The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of
Goldman Sachs have an adverse interest. From time to time, a Fund's activities
may be limited because of regulatory restrictions applicable to Goldman Sachs
and its affiliates, and/or their internal policies designed to comply with
such restrictions. See "Management--Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the CORE U.S. Equity Fund
with respect to Institutional or Service Shares. Goldman Sachs is entitled to
receive a transfer agency fee from the Capital Growth, Growth and Income and
Small Cap Value Funds equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Funds. Goldman Sachs is entitled to
receive a fee from the Balanced, CORE Large Cap Growth, CORE Small Cap Equity
and Mid Cap Equity Funds, with respect to Institutional and Service Shares,
equal to their proportionate share of the total transfer agency costs borne by
the Fund. These costs are equal to $12,000 per year per Class plus $7.50 per
account, and out-of-pocket and transaction related expenses applicable to
Class A, B and C Shares, plus 0.04% of the average daily net assets of the
Institutional and Service classes. Shares of a Fund may also bear fees paid to
Service Organizations or other persons providing sub-transfer agency and
similar services.
36
<PAGE>
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the accounts taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation; fees payable to the Investment Advisers;
distribution and authorized dealer service fees; custodial and transfer agency
fees; brokerage fees and commissions; filing fees for the registration or
qualification of the Funds' Shares under
federal or state securities laws, organizational expenses; fees and expenses
incurred in connection with membership in investment company organizations;
taxes; interest; costs of liability insurance; fidelity bonds or
indemnification; any costs, expenses or losses arising out of any liability
of, or claim for damages or other relief asserted against, the Funds for
violation of any law; legal and auditing fees and expenses (including the cost
of legal and certain accounting services rendered by employees of the
Investment Adviser and its affiliates with respect to the Funds); expenses of
preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to shareholders and regulatory authorities;
compensation and expenses of the Trust's "non-interested" Trustees; and
extraordinary organizational expenses, if any, incurred by the Trust.
NET ASSET VALUE
The NAV per share of each Class of a Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). NAV per Share of each Class is calculated by determining the
net assets attributed to each Class and dividing by the number of outstanding
shares of that Class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
37
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at NAV. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on the NAV per share would be reduced if any applicable sales charge
were taken into account. In addition to the above, each Fund may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance
information is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per Share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
Share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income
for a monthly, quarterly or other relevant period and dividing this amount by
the NAV per share on the last day of the period for which the distribution
rate is being calculated.
Each Fund's total return, yield and distribution rate will be calculated
separately for each Class of Shares in existence. Because each Class of Shares
may be subject to different expenses, the total return, yield and distribution
rate calculations with respect to each Class of Shares for the same period
will differ. See "Shares of the Trust."
The Funds' performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Funds. The investment results of a Fund will fluctuate over time and
any presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify Shares
of beneficial interests in separate series, without further
38
<PAGE>
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and Classes is contained in separate prospectuses.
When issued, Shares are fully paid and non-assessable. In the event of
liquidation, shareholders of each class are entitled to share pro rata in the
net assets of the applicable Fund available for distribution to the
shareholders of such Class. All Shares are freely transferable and have no
preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that, at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the NAVs represented by their
Shares.
As of April 3, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 59.9% of Mid Cap Equity Fund's
outstanding Shares.
The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
Shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Each Fund has
elected to be treated as a regulated investment company and each Fund intends
to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Distributions out of
the net capital gain (the excess of net long-term capital gain over net short-
term capital loss), if any, of a Fund will be taxed to shareholders as long-
term capital gains, regardless of the length of time a shareholder has held
his or her Shares or whether such gain was reflected in the price paid for the
Shares. Such long-term gain will constitute 20% or 28% rate gain, depending
upon the Fund's holding period for the assets the sale of which generated the
gain. These tax consequences will apply whether distributions are received in
cash or reinvested in Shares. A Fund's dividends that are paid to its
corporate shareholders and are attributable to qualifying dividends such Fund
receives from U.S. domestic corporations may be eligible, in the hands of such
corporate shareholders, for the corporate dividends-received deduction,
subject to certain holding period requirements and debt financing limitations
under
39
<PAGE>
the Code. Certain distributions paid by a Fund in January of a given year may
be taxable to shareholders as if received the prior December 31. Shareholders
will be informed annually about the amount and character of distributions
received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying Shares immediately
prior to a distribution. Investors who purchase Shares shortly before the
record date for a distribution will pay a per Share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of Shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty, if any) on
amounts treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. However, the Funds do not
anticipate that they will be eligible to pass any foreign tax credits through
to their shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
40
<PAGE>
REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. To
eliminate unnecessary duplication, only one copy of such reports may be sent to
recordholders with the same mailing address. Recordholders who desire a
duplicate copy of such reports to be mailed to their residence should contact
Goldman Sachs at 800-621-2550. Each recordholder of Institutional Shares will
also be provided with a printed confirmation for each transaction in its
account and a quarterly account statement. A year-to-date statement for any
account will be provided upon request made to Goldman Sachs. The Funds do not
generally provide subaccounting services with respect to beneficial ownership
of Institutional Shares.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid: (i) in cash; or (ii) in additional
Institutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net capital gains, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as dividends
for each taxable year. The Balanced and Growth and Income Funds will pay
dividends from net investment income quarterly. Each other Fund will pay
dividends from net investment income, and dividends from net realized capital
gains, reduced by available capital losses, at least annually. From time to
time, a portion of a Fund's dividends may constitute a return of capital.
At the time of an investor's purchase of Shares of a Fund, a portion of the
NAV per Share may be represented by undistributed income of the Fund or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such Shares from such income or realized
appreciation may be taxable to the investor even if the NAV of the investor's
Shares is, as a result of the distributions, reduced below the cost of such
Shares and the distributions (or portions thereof) represent a return of a
portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day at the NAV per
Share next determined after receipt of an order. No sales load will be charged.
Currently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
4:00 p.m. New York time), as described under "Net Asset Value." Purchases of
Institutional Shares of the Funds must be
41
<PAGE>
settled within three (3) Business Days of the receipt of a complete purchase
order. Payment of the proceeds of redemption of Shares purchased by check may
be delayed for a period of time as described under "Redemption of Institutional
Shares."
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to the Fund or Goldman
Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by qualified investors by
placing an order with Goldman Sachs at 800-621-2550 and either wiring federal
funds to State Street Bank and Trust Company ("State Street") or initiating an
ACH transfer. Purchases may also be made by check (except that the Trust will
not accept a check drawn on a foreign bank or a third party check) or Federal
Reserve draft made payable to "Goldman Sachs Domestic Equity Funds--Name of
Fund and Class of Shares" and should be directed to "Goldman Sachs Domestic
Equity Funds--Name of Fund and Class of Shares," c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
MINIMUM INITIAL INVESTMENTS
Institutional Shares of the Fund are offered to: (a) banks, trust companies
or other types of depository institutions investing for their own account or on
behalf of their clients; (b) pension and profit sharing plans, pension funds
and other company-sponsored benefit plans; (c) any state, county, city or any
instrumentality, department, authority or agency thereof; (d) corporations and
other for-profit business organizations with assets of at least $100 million or
publicly traded securities outstanding; (e) "wrap" accounts for the benefit of
clients of broker-dealers, financial institutions or financial planners,
provided that they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; and (f)
registered investment advisers investing for accounts for which they receive
asset-based fees. With respect to these investors, the minimum initial
investment is $1,000,000 in Institutional Shares of a Fund alone or in
combination with other assets under the management of GSAM and its affiliates.
The minimum initial investment in Institutional Shares for (a) individual
investors; (b) qualified non-profit organizations, charitable trusts,
foundations and endowments; and (c) accounts over which GSAM or its advisory
affiliates have investment discretion is $10,000,000.
The foregoing minimum investment requirements may be waived at the discretion
of the Trust's officers. In addition, the minimum investment requirement may be
waived for current and former officers, partners, directors or employees of
Goldman Sachs or any of its affiliates or for other investors at the discretion
of the Trust's officers. No minimum amount is required for subsequent
investments.
OTHER PURCHASE INFORMATION
The Trust may authorize certain institutions (including banks, trust
companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers to accept on the Trust's
42
<PAGE>
behalf purchase, redemption and exchange orders placed by or on behalf of such
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form by or on behalf of a customer when the order is accepted
by the authorized institution or intermediary on a Business Day, and the order
will be priced at a Fund's NAV per Share next determined after such acceptance.
The institution or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer should
contact an institution to learn whether it is authorized to accept orders for
the Trust. Such institutions may receive payments from the Funds or Goldman
Sachs for the services provided by them with respect to the Funds'
Institutional Shares. These payments may be in addition to other servicing
and/or sub-transfer agency payments borne by the Funds and their share classes.
The Investment Adviser, Distributor, and/or their affiliates, may pay other
compensation, from time to time, out of their assets and not as an additional
charge to the Funds, to selected institutions (including banks, trust
companies, brokers and investment advisers) and other persons in connection
with the sale and/or servicing of Shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales,
amounts exceeding pre-established thresholds, or the length of time clients'
assets have remained in the Trust), and subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales contests
and/or promotions in which participants may receive reimbursement of expenses,
entertainment and prizes such as travel awards, merchandise, cash, investment
research and educational information and related support materials. This
additional compensation may vary among institutions depending upon such factors
as the amounts their clients have invested (or may invest) in particular
portfolios of the Trust, the particular program involved, or the amount of
reimbursable expenses. Additional compensation based on sales may, but is
currently not expected to, exceed 0.50% (annualized) of the amount invested.
For further information, see the Additional Statement.
The Funds reserve the right to redeem the Institutional Shares of any
shareholder of record whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of a
recordholder's account falls below the minimum account balance solely as a
result of market conditions. The Trust will give 60 days' prior written notice
to recordholders whose Institutional Shares are being redeemed to allow them to
purchase sufficient additional Institutional Shares of a Fund to avoid such
redemption.
The Funds and Goldman Sachs each reserve the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of Shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
43
<PAGE>
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for: (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose; and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the NAV next determined either by writing to Goldman
Sachs, Attention: Goldman Sachs Domestic Equity Funds--Name of Fund and Class
of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois
60606 or, if previously elected in the Fund's Account Information Form, by
telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A shareholder
should obtain and read the prospectus relating to any other fund and its shares
and consider its investment objective, policies and applicable fees before
making an exchange. Under the telephone exchange privilege, Institutional
Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the exchange
request is in writing and is received in accordance with the procedures set
forth under "Redemption of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is treated
as a sale of the Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be materially
modified or withdrawn at any time on 60 days' written notice to holders of
Institutional Shares and is subject to certain limitations. See "Purchase of
Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
The Funds will redeem Institutional Shares upon request of a recordholder of
such Shares on any Business Day at the NAV next determined after receipt of a
request in proper form by Goldman Sachs from the recordholder. (See "Purchase
of Institutional Shares--Other Purchase Information" for a description of
limited situations where an institution or other intermediary may be authorized
to accept requests for the Funds.) If Institutional Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to 15
days. Redemption requests may be made by a shareholder of record by writing to
or calling the Transfer Agent at the address or telephone number set forth on
the back cover of this Prospectus. A shareholder of record may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form accompanying this Prospectus. It may be
difficult to implement redemptions by telephone in times of drastic economic or
market changes.
44
<PAGE>
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each recordholder whose
signature has been guaranteed by a bank, a securities broker or dealer, a
credit union having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
recordholder's Account Information Form or, if the recordholder elects in
writing, by check. Redemption proceeds paid by wire transfer will normally be
wired on the next Business Day in federal funds (for a total one-day delay),
but may be paid up to three Business Days after receipt of a properly executed
redemption request. Wiring of redemption proceeds may be delayed one additional
Business Day if the Federal Reserve Bank is closed on the day redemption
proceeds would originally be wired. Redemption proceeds paid by check will
normally be mailed to the address of record within three Business Days of
receipt of a properly executed redemption request. In order to change the bank
designated on the Account Information Form to receive redemption proceeds, a
written request must be received by the Transfer Agent. This request must be
signature guaranteed as set forth above. Further documentation may be required
for executors, trustees or corporations. Once wire transfer instructions have
been given by Goldman Sachs, neither the Funds, the Trust nor Goldman Sachs
assumes any further responsibility for the performance of intermediaries or the
recordholder's bank in the transfer process. If a problem with such performance
arises, the recordholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.
Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests by
their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions have established times
by which redemption requests must be received by them. Additional documentation
may be required when deemed appropriate by an institution.
--------------------
45
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to a Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to a Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Code and consult your tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPRODOMINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS DOMESTIC
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
LOGO
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1998
GOLDMAN SACHS DOMESTIC EQUITY FUNDS
SERVICE SHARES
GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term capital growth Seeks long-term growth of capital
and current income through in- through a broadly diversified portfolio
vestments in equity and fixed of equity securities of U.S. issuers
income securities. which are included in the Russell 2000
Index at the time of investment.
GOLDMAN SACHS GROWTH AND INCOME
FUND GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of cap- Seeks long-term growth of capital
ital and growth of income through diversified investments in eq-
through investments in equity uity securities of companies that are
securities that are considered considered to have long-term capital ap-
to have favorable prospects preciation potential.
for capital appreciation
and/or dividend paying abili- GOLDMAN SACHS MID CAP EQUITY FUND
ty.
Seeks long-term capital appreciation
GOLDMAN SACHS CORE U.S. EQUITY primarily through investments in equity
FUND securities of companies with public
Seeks long-term growth of cap- stock market capitalizations within the
ital and dividend income range of the market capitalization of
through a broadly diversified companies constituting the Russell
portfolio of large cap and Midcap Index at the time of investment
blue chip equity securities (currently between $400 million and $16
representing all major sectors billion).
of the U.S. economy.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through
GOLDMAN SACHS CORE LARGE CAP investments in equity securities of com-
GROWTH FUND panies with public stock market capital-
Seeks long-term growth of izations of $1 billion or less at the
capital through a broadly time of investment.
diversified portfolio of
equity securities of large cap
U.S. issuers that are expected
to have better prospects for
earnings growth than the
growth rate of the general
domestic economy. Dividend
income is a secondary
consideration.
-------------
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, Mid Cap Equity and Small Cap Value (formerly "Small Cap
Equity") Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the CORE
U.S. Equity (formerly the "Select Equity Fund") and Capital Growth Funds. GSAM
and GSFM are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 16
Description of Securities.......... 21
Investment Techniques.............. 26
Risk Factors....................... 30
Investment Restrictions............ 32
Portfolio Turnover................. 32
Management......................... 32
Expenses........................... 37
Net Asset Value.................... 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 38
Shares of the Trust........... 38
Taxation...................... 39
Additional Information........ 40
Additional Services........... 41
Reports to Shareholders....... 42
Dividends..................... 42
Purchase of Service Shares.... 43
Exchange Privilege............ 44
Redemption of Service Shares.. 44
Appendix...................... A-1
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in
this Prospectus.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment funds (commonly
known as mutual funds (the "Funds")). Each Fund pools the monies of
investors by selling its Shares to the public and investing these monies
in a portfolio of securities designed to achieve that Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ----------- ------------ ---------------------- -----------
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed-income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend-paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers. The Fund
dividend income. seeks to achieve its objective through
a broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------- --------------- -------------------------- --------------
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of investment. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- --------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- --------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies with Index
appreciation. public stock market capitalizations
within the range of the market
capitalization of companies
constituting the Russell Midcap Index
at the time of investment (currently
between $400 million and $16 billion)
("Mid-Cap Companies").
- --------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment.
</TABLE>
- --------------------------------------------------------------------------------
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's Share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
4
<PAGE>
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, Mid Cap Equity
and Small Cap Value Funds. Goldman Sachs Funds Management, L.P. serves as
Investment Adviser to the CORE U.S. Equity and Capital Growth Funds. As of
March 23, 1998, the Investment Advisers, together with their affiliates, acted
as investment adviser or distributor for assets in excess of $153 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's Shares (the "Distributor").
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares,
and may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value ("NAV") without any sales load. See
"Purchase of Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the NAV next determined after
receipt of such request in proper form. See "Redemption of Service Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
Small Cap Value....................... Annually Annually
</TABLE>
Recordholders of Service Shares may receive dividends and distributions
in additional Service Shares of the Fund in which they have invested or may
elect to receive them in cash. For further information concerning dividends
and distributions, see "Dividends."
5
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
CORE CORE
GROWTH CORE LARGE SMALL SMALL
AND U.S. CAP CAP CAPITAL MID CAP CAP
BALANCED INCOME EQUITY GROWTH EQUITY GROWTH EQUITY VALUE
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND/1/ FUND/1/ FUND/1/
-------- ------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable
limitations)/2/....... 0.65% 0.70% 0.59% 0.60% 0.75% 1.00% 0.75% 1.00%
Service Fees/5/........ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable limita-
tions)/3/............. 0.10% 0.13% 0.06% 0.05% 0.20% 0.10% 0.10% 0.13%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)/4/....... 1.25% 1.33% 1.15% 1.15% 1.45% 1.60% 1.35% 1.63%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Adviser voluntarily has agreed not to impose a portion of
the management fee on the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds equal to 0.16%, 0.15% and 0.10%, respectively.
Without such limitations, management fees would be 0.75%, 0.75% and 0.85%
of each Fund's average daily net assets, respectively.
/3/ The Investment Adviser voluntarily has agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Growth and Income
and CORE U.S. Equity Funds)) for the following Funds to the extent such
expenses exceed the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
Mid Cap Equity................................................... 0.10%
</TABLE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Service Shares of the Growth and Income and
CORE U.S. Equity Funds for the fiscal year ended January 31, 1998, would
have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.13% 1.33%
CORE U.S. Equity....................................... 0.07% 1.32%
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Service Shares of the Balanced, CORE Large
Cap Growth, CORE Small Cap Equity, and Mid Cap Equity Funds for the current
fiscal year are estimated to be as follows:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced .............................................. 0.42% 1.57%
CORE Large Cap Growth.................................. 0.23% 1.48%
CORE Small Cap Equity.................................. 0.66% 2.01%
Mid Cap Equity......................................... 0.22% 1.47%
</TABLE>
/5/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
6
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced...................................... $13 $40 $ 69 $151
Growth and Income............................. $14 $42 $ 73 $160
CORE U.S. Equity.............................. $12 $37 $ 63 $140
CORE Large Cap Growth......................... $12 $37 n/a n/a
CORE Small Cap Equity......................... $15 $46 n/a n/a
Capital Growth................................ $16 $50 $ 87 $190
Mid Cap Equity................................ $14 $43 $ 74 $162
Small Cap Value............................... $17 $51 $ 89 $193
</TABLE>
As of the date of this Prospectus, the Investment Adviser and Goldman Sachs
have no intention of modifying or discontinuing any of the limitations set
forth above but may do so in the future at their discretion. The information
set forth in the foregoing table and hypothetical example relates only to
Service Shares of the Funds. Each Fund also offers Institutional Shares and
Class A, Class B and Class C Shares, which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
Institutional, Class A, Class B and Class C Shares may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back of this Prospectus.
In addition to the compensation itemized above, certain Service
Organizations may receive other compensation in connection with the sale and
distribution of Service Shares or for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Additional Services" in this Prospectus and the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above is based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended January 31, 1998 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- ------------------------------------------------
NET REALIZED IN EXCESS OF
AND UNREALIZED FROM NET NET REALIZED NET
NET ASSET GAIN ON FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE NET ASSET
VALUE, NET INVESTMENT NET OF NET ON INVESTMENT INVESTMENT (DECREASE) VALUE,
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET END OF
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ----------- ---------
BALANCED FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $18.78 $0.57 $2.66 $(0.56) $ -- $(1.16) $ -- $1.51 $20.29
1998--Class B
Shares.......... 18.73 0.50 2.57 (0.42) (0.02) (1.16) -- 1.47 20.20
1998--Class C
Shares(b)....... 21.10 0.25 0.24 (0.22) (0.04) (0.64) (0.52) (0.93) 20.17
1998--Institu-
tional
Shares(b)....... 21.18 0.26 0.32 (0.23) (0.08) (0.45) (0.71) (0.89) 20.29
1998--Service
Shares(b)....... 21.18 0.22 0.32 (0.22) (0.06) (0.72) (0.44) (0.90) 20.28
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) -- (1.00) -- 1.47 18.78
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (0.07) (1.00) -- 1.27 18.73
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) -- (0.35) -- 3.09 17.31
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.10 0.02 (0.08) -- -- -- 0.04 14.22
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE(G) RATE(F) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- --------- ---------- ---------- ----------- ----------- ---------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 17.54% 190.43% $.0590 $163,636 1.00% 2.94% 1.57% 2.37%
1998--Class B
Shares.......... 16.71 190.43 .0590 23,639 1.76 2.14 2.07 1.83
1998--Class C
Shares(b)....... 2.49(d) 190.43 .0590 8,850 1.77(c) 2.13(c) 2.08(c) 1.82(c)
1998--Institu-
tional
Shares(b)....... 2.93(d) 190.43 .0590 8,367 0.76(c) 3.13(c) 1.07(c) 2.82(c)
1998--Service
Shares(b)....... 2.66(d) 190.43 .0590 16 1.26(c) 2.58(c) 1.57(c) 2.27(c)
1997--Class A
Shares.......... 18.59 208.11 .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 16.22(d) 208.11 .0587 2,110 1.75(c) 2.59(c) 2.27(c) 2.07(c)
1996--Class A
Shares.......... 28.10 197.10 -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 0.87(d) 14.71 -- 7,510 1.00(c) 3.39(c) 8.29(c) (3.90)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A and Class B Share activity commenced on October 12, 1994 and May
1, 1996, respectively. Class C, Institutional and Service Share activity
commenced on August 15, 1997.
(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.
(g) Includes the effect of mortgage dollar roll transactions.
8
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------ ------------------------------------------------
NET IN EXCESS OF
REALIZED AND FROM NET NET REALIZED NET
NET ASSET NET UNREALIZED FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE
VALUE, INVESTMENT GAIN ON NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL (DECREASE)
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN IN NET
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL ASSET VALUE
--------- ---------- ------------ ---------- ---------- ------------- ------------ ---------- -----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.18 $0.11 $5.27 $(0.11) $ -- $(2.52) $ -- $ -- $2.75
1998--Class B
Shares.......... 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) -- 2.63
1998--Class C
Shares(b)....... 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) -- (2.50)
1998--
Institutional
Shares.......... 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) -- 2.76
1998--Service
Shares.......... 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- -- 2.75
1997--Class A
Shares.......... 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- -- 3.20
1997--Class B
Shares(b)....... 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- -- 2.28
1997--Institu-
tional
Shares(b)....... 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- -- 1.94
1997--Service
Shares(b)....... 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- -- 2.46
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) -- (0.60) -- -- 4.18
1995--Class A
Shares.......... 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g) 0.01
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- -- 1.61
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO
OF NET RATIO
NET RATIO INVESTMENT OF NET
NET ASSET ASSETS AT OF NET INCOME (LOSS) RATIO INVESTMENT
VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO TO AVERAGE OF EXPENSES INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET NET TO AVERAGE TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- --------- ---------- ---------- ----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
1998--Class B
Shares.......... 25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
1998--Class C
Shares(b)....... 25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
1998--
Institutional
Shares.......... 25.95 24.24 61.95 .0590 36.225 0.83 0.76 0.83 0.76
1998--Service
Shares.......... 25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
1997--Class A
Shares.......... 23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43% 1.39%
1997--Class B
Shares(b)....... 23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
1997--Institu-
tional
Shares(b)....... 23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
1997--Service
Shares(b)....... 23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
1996--Class A
Shares.......... 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. 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 February 5, 1993, May 1, 1996, August 15, 1997, June 3, 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.
(g) Calculated based on the average Shares outstanding methodology.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
FROM NET IN EXCESS OF NET
NET REALIZED REALIZED NET REALIZED INCREASE/ NET
NET ASSET AND UNREALIZED IN EXCESS GAIN ON GAIN ON (DECREASE) ASSET
VALUE, NET GAIN (LOSS) ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ---------- ------------ ------------ ---------- ------ ---------
CORE U.S. EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27 $26.59 24.96%
1998--Class B
Shares.......... 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14 26.32 24.28
1998--Class C
Shares(b)....... 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24) 26.24 4.85(d)
1998--Institu-
tional Shares... 23.44 0.30 5.65 (0.24) (.01) (1.33) (1.02) 3.35 26.79 25.76
1998--Service
Shares.......... 23.27 0.19 5.57 (0.07) (.08) (2.35) -- 3.26 26.53 25.11
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(b)....... 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74 23.18 18.59(d)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(b)....... 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25 23.27 15.92(d)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(b)....... 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74 19.71 20.14(d)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 14.17 0.11 0.88 (0.11) -- -- -- 0.88 15.05 7.01(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT
ASSETS AT TO INCOME TO INCOME
PORTFOLIO AVERAGE END OF AVERAGE (LOSS) TO AVERAGE (LOSS) TO
TURNOVER COMMISSION PERIOD NET AVERAGE NET AVERAGE
RATE RATE(F) (IN 000S) ASSETS NET ASSETS ASSETS NET ASSETS
--------- ---------- --------- ---------- ------------ --------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
1998--Class B
Shares.......... 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
1998--Class C
Shares(b)....... 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
1998--Institu-
tional Shares... 65.89 .0651 202,893 0.65 1.16 0.82 0.99
1998--Service
Shares.......... 65.89 .0651 7,841 1.15 0.62 1.32 0.45
1997--Class A
Shares.......... 37.78 .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(b)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) 0.11(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(b)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(b)....... 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class B, Classs C, Institutional and Service Share
activity commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15,
1995 and June 7, 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.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------- -----------------------------------------------
NET
REALIZED
AND FROM NET IN EXCESS OF
UNREALIZED REALIZED NET REALIZED NET NET
NET ASSET NET GAIN (LOSS) IN EXCESS GAIN ON GAIN ON INCREASE ASSET
VALUE, INVESTMENT ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD
--------- ---------- ----------- ---------- ---------- ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CORE LARGE CAP GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ 0.01 $2.35 $(0.01) -- $(0.32) $(0.06) $1.97 $11.97
1998 -- Class B
Shares(b)....... 10.00 (0.03) 2.33 -- -- (0.18) (0.20) 1.92 11.92
1998 -- Class C
Shares(b)....... 11.80 (0.02) 0.54 -- (.01) (0.38) -- 0.13 11.93
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 2.35 (0.01) -- (0.19) (0.19) 1.97 11.97
1998 -- Service
Shares(b)....... 10.00 (0.02) 2.35 -- -- (0.08) (0.30) 1.95 11.95
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
------------------------
NET RATIO OF
ASSETS NET RATIO OF RATIO OF RATIO OF
AT END EXPENSES NET EXPENSES NET
OF TO INVESTMENT TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE INCOME TO AVERAGE LOSS TO
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET AVERAGE
RETURN(A) RATE RATE 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- --------- ---------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998 -- Class A
Shares(b)....... 23.79%(d) 74.97% $.0282 $53,786 0.91%(c) 0.12%(c) 2.40%(c) (1.37)%(c)
1998 -- Class B
Shares(b)....... 23.26(d) 74.97 .0282 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c)
1998 -- Class C
Shares(b)....... 4.56(d) 74.97 .0282 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00)(c)
1998 -- Institu-
tional
Shares(b)....... 23.89(d) 74.97 .0282 4,656 0.72(c) 0.42(c) 1.96(c) (0.82)(c)
1998 -- Service
Shares(b)....... 23.56(d) 74.97 .0282 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c)
</TABLE>
- ------------
(a) Assumes investment at the NAV at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the NAV at the end of
the period and no sales or redemption charges. Total return would be
reduced if a sales or redemption charge were taken into account.
(b) Class A, Class B, Institutional and Service Share activity commenced on
May 1, 1997. Class C Share activity commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------
NET
REALIZED AND FROM NET
UNREALIZED REALIZED
NET ASSET NET GAIN (LOSS) ON FROM GAIN ON NET NET ASSET
VALUE, INVESTMENT INVESTMENT AND NET INVESTMENT INCREASE VALUE, PORTFOLIO
BEGINNING INCOME FUTURES INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER
OF PERIOD (LOSS) TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE
--------- ---------- -------------- ---------- ------------ ----------- --------- --------- ---------
CORE SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $(0.01) $0.65 -- $(0.05) $0.59 $10.59 6.37%(d) 37.65%
1998--Class B
Shares(b)....... 10.00 (0.03) 0.64 -- (0.05) 0.56 10.56 6.07(d) 37.65
1998--Class C
Shares(b)....... 10.00 (0.02) 0.64 -- (0.05) 0.57 10.57 6.17(d) 37.65
1998--Institu-
tional
Shares(b)....... 10.00 0.01 0.65 -- (0.05) 0.61 10.61 6.57(d) 37.65
1998--Service
Shares(b)....... 10.00 0.01 0.64 -- (0.05) 0.60 10.60 6.47(d) 37.65
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
AVERAGE END OF EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE
RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ----------- -------------- ------------ --------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $.0370 $11,118 1.25%(c) (0.36)%(c) 3.92%(c) (3.03)%(c)
1998--Class B
Shares(b)....... .0370 9,957 1.95(c) (1.04)(c) 4.37(c) (3.46)(c)
1998--Class C
Shares(b)....... .0370 2,557 1.95(c) (1.07)(c) 4.37(c) (3.49)(c)
1998--Institu-
tional
Shares(b)....... .0370 9,026 0.95(c) 0.15 (c) 3.37(c) (2.27)(c)
1998--Service
Shares(b)....... .0370 2 1.45(c) 0.40 (c) 3.87(c) (2.02)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------ -------------------------------------
IN EXCESS
NET OF NET
NET ASSET NET REALIZED AND IN EXCESS FROM NET REALIZED NET INCREASE
VALUE, INVESTMENT UNREALIZED FROM NET OF NET REALIZED GAIN GAIN ON (DECREASE) NET ASSET
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT IN NET ASSET VALUE, END
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE OF PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ------------ ----------
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.73 $0.02 $4.78 $(0.01) $(0.01) $(3.03) $ -- $1.75 $18.48
1998--Class B
Shares.......... 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60 18.27
1998--Class C
Shares(b)....... 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49) 18.24
1998--Institu-
tional
Shares(b)....... 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43) 18.45
1998--Service
Shares(b)....... 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42) 18.46
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82 16.73
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00 16.67
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24 14.91
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29) 13.67
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32 15.96
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99 14.64
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55 13.65
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(b)....... 11.34 0.34 (0.27) (0.31) -- -- -- (0.24) 11.10
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ---------- ---------- ------------ -------------- ----------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
1998--Class B
Shares.......... 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
1998--Class C
Shares(b)....... 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
1998--Institu-
tional
Shares(b)....... 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18 (c) 1.16(c) 0.18 (c)
1998--Service
Shares(b)....... 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
1997--Class A
Shares.......... 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
1996--Class A
Shares.......... 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(b)....... 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. 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 April 20, 1990, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, 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.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ---------------------------------------------
NET REALIZED
AND UNREALIZED NET
NET REALIZED LOSS ON FROM NET INCREASE NET
NET ASSET AND UNREALIZED FOREIGN IN EXCESS REALIZED (DECREASE) ASSET
VALUE, NET GAIN ON CURRENCY FROM NET OF NET GAIN ON IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT INVESTMENT ASSET END OF
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
MID CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02) $21.61
1998--Class B
Shares(b)....... 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06) 21.57
1998--Class C
Shares(b)....... 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04) 21.59
1998--Institu-
tional Shares... 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92 21.65
1998--Service
Shares(b)....... 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39) 21.62
1997--Institu-
tional Shares... 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82 18.73
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 15.00 0.13 0.90 -- (0.12) -- -- 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- ---------- ---------- ------- ---------- ------------ ---------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21%(c)
1998--Class B
Shares(b)....... 3.17(d) 62.60 0.0540 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c)
1998--Class C
Shares(b)....... 3.27(d) 62.60 0.0540 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c)
1998--Institu-
tional Shares... 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
1998--Service
Shares(b)....... 6.30(d) 62.60 0.0540 8 1.35(c) 0.63 (c) 1.43(c) 0.51 (c)
1997--Institu-
tional Shares... 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 6.89(d) 58.77(d) -- 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
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 August 15, 1997, August 15, 1997, August 15, 1997, August 1,
1995 and July 18, 1997, 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.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET NET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET INCREASE
VALUE, INVESTMENT GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) NET ASSET
BEGINNING INCOME INVESTMENT AND INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END TOTAL
OF PERIOD (LOSS) OPTIONS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD RETURN(A)
--------- ---------- -------------------- ---------- ------------- ---------- ------------ ---------- ---------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $20.91 $0.14 $5.33 $ -- $(2.33) $ -- $ 3.14 $24.05 26.17%
1998--Class B
Shares.......... 20.80 (0.01) 5.27 -- (2.33) -- 2.93 23.73 25.29
1998--Class C
Shares(b)....... 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96) 23.73 5.51(d)
1998--Institu-
tional
Shares(b)....... 24.91 0.03 1.48 -- (2.05) (0.28) (0.82) 24.09 6.08(d)
1998--Service
Shares(b)....... 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86) 24.05 5.91(d)
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) -- 3.62 20.91 27.28
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE TO AVERAGE NET
RATE RATE(F) (IN 000S) NET ASSETS ASSETS NET ASSETS ASSETS
--------- ---------- ---------- ------------ ---------------- ----------- --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
1998--Class B
Shares.......... 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
1998--Class C
Shares(b)....... 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
1998--Institu-
tional
Shares(b)....... 84.81 0.0517 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c)
1998--Service
Shares(b)....... 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
1997--Class A
Shares.......... 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 7.12 -- 59,339 1.65(c) 0.62(c) 2.70(c) (0.43)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
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 October 22, 1992, May 1, 1996, August 15, 1997, August 15,
1997 and August 15, 1997, 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.
15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
Funds and the equity portion of the Balanced Fund are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth Fund is managed using a growth equity
oriented approach. Equity securities for this Fund is selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. The Fund generally will invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
16
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE Funds") are managed using both
quantitative and fundamental techniques. CORE is an acronym for "Computer-
Optimized, Research-Enhanced," which reflects the CORE Funds' investment
process. This investment process and the proprietary multifactor model used to
implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE Funds. As described more fully below, the
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to forecast the returns of different markets and individual
securities. In the case of an equity security followed by the Goldman Sachs
Global Investment Research Department (the "Research Department"), a rating is
assigned based upon the Research Department's evaluation. In the discretion of
the Investment Adviser, ratings may also be assigned to equity securities
based on research ratings obtained from other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Model. The Multifactor Model is a rigorous computerized rating
system for forecasting the returns of different equity markets and individual
equity securities according to fundamental investment characteristics. The
CORE Funds use the Multifactor Model to forecast the returns of securities
held in each Fund's portfolio. The Multifactor Model incorporates common
variables covering measures of value, growth, momentum and risk (e.g.,
book/price ratio, earnings/price ratio, price momentum, price volatility,
consensus growth forecasts, earnings estimate revisions and earnings
stability). All of the factors used in the Multifactor Model have been shown
to significantly impact the performance of the securities and markets they
were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE Funds are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Because it includes many disparate factors, the Investment
Adviser believes that the Multifactor Model is broader in scope and provides a
more thorough evaluation than most conventional, quantitative models.
Securities and markets ranked highest by the Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Model) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
Funds seek to capitalize on the strengths of each discipline.
17
<PAGE>
BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed-income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed-income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed-income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed-income securities."
The Fund's investments in fixed-income securities that are issued by foreign
issuers, including issuers in Emerging Countries, may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed-income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
18
<PAGE>
CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed-income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Investment Adviser emphasizes a company's growth
prospects in analyzing equity securities to be purchased by the Fund. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed-income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk,
19
<PAGE>
style, capitalization and industry characteristics similar to the Russell 2000
Index. The Fund seeks a portfolio comprised of companies with small market
capitalizations, strong expected earnings growth and momentum, and better
valuation and risk characteristics than the Russell 2000 Index. The Fund may
invest only in fixed-income securities that are considered cash equivalents.
The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid-Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion). If the capitalization of an issuer
increases above $16 billion after purchase of such issuer's securities, the
Fund may, but is not required to, sell the securities. Dividend income, if
any, is an incidental consideration.
Other. The Fund may invest up to 35% of its total assets in fixed-income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of
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investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration. If the market capitalization of a company held by
the Fund increases above the amount stated above, the Fund may, consistent
with its investment objective, continue to hold the security.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion at the time of investment and in fixed- income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
DESCRIPTION OF SECURITIES
The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
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FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities of foreign issuers
that are traded in the U.S. and comply with U.S. accounting standards).
Investments in foreign securities may offer potential benefits that are not
available from investments exclusively in equity securities of domestic
issuers quoted in U.S. dollars. Foreign countries may have economic policies
or business cycles different from those of the U.S. and markets for foreign
securities do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will be
ready by the scheduled launch date; the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment of exchange rates for existing
currencies and the euro; and the creation of suitable clearing and settlement
payment systems for the new currency. These or other factors, including
political and economic risks, could cause market disruptions before or after
the introduction of the euro, and could adversely affect the value of
securities held by the Funds. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE Funds, may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers (together, "Depository
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Receipts"). ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the United States on exchanges
or over-the-counter and are sponsored and issued by domestic banks. EDRs and
GDRs are receipts evidencing an arrangement with a non-U.S. bank. EDRs and
GDRs are not necessarily quoted in the same currency as the underlying
security. To the extent a Fund acquires Depository Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depository Receipts to issue and service such
Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and the underlying securities are quoted. However, by investing in
Depository Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund may
avoid currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced Fund
may have currency exposure independent of its securities positions, the value
of the assets of a Fund as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. A Fund may, to the extent it
invests in foreign securities, purchase or sell foreign currencies on a spot
basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced
Fund may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. The Balanced Fund may
also engage in cross-hedging by using forward contracts in a currency
different from that in which the hedged security is denominated or quoted if
the Investment Adviser determines that there is a pattern of correlation
between the two currencies. If a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or the Balanced Fund
enter into forward foreign currency exchange contracts to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign
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countries, the Fund will be more susceptible to the risk of adverse economic
and political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
The Balanced Fund may also engage in a variety of foreign currency
management techniques. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
FIXED-INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced Fund may invest in debt
obligations of foreign governments and governmental agencies, including those
of Emerging Countries. Investment in sovereign debt obligations involves
special risks not present in debt obligations of corporate issuers. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and the Fund may have limited recourse
in the event of a default. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the Fund's NAV, to
a greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, the Fund may fail to recoup fully
its initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped. The Fund's investments in
SMBS may require the Fund to sell portfolio securities to generate sufficient
cash to satisfy certain income distribution requirements.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be
general obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulation. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the banking industry
is largely dependent upon the availability and cost of funds for the purpose
of financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operation of this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to price accurately than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE
Funds, which only invest in debt instruments that are cash equivalents) may
invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth
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and Income, Capital Growth and Small Cap Value Funds may invest up to 10%, 10%
and 35%, respectively, of their total assets in debt securities which are
unrated or rated in the lowest rating categories by Standard & Poor's or
Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by Moody's),
including securities rated D by Moody's or Standard & Poor's. Mid Cap Equity
Fund may invest up to 10% of its total assets in below investment grade debt
securities rated B or higher by Standard & Poor's or B or higher by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capacity to pay interest
and repay principal. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
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securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced Fund may use options on currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different currency, if there is a pattern of correlation
between the two currencies. As with other kinds of options transactions,
however, the writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If an option that a
Fund has written is exercised, the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition to
purchasing call and put options for hedging purposes, the Balanced Fund may
purchase call or put options on currency to seek to increase total return when
the Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations or to otherwise cover the obligations in
a manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
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unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protection as U.S.
exchanges.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
Each Fund may, consistent with its objectives, purchase Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded
securities that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
This trust is sponsored by a subsidiary of the American Stock Exchange. SPDRs
may be used for several reasons, including but not limited to: facilitating
the handling of cash flows or trading, or reducing transaction costs. The use
of SPDRs would introduce additional risk to the Portfolio as the price
movement of the instrument does not perfectly correlate with the price action
of the underlying index.
EQUITY SWAPS
Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivations and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund will
segregate cash or liquid assets in an amount sufficient to meet the purchase
price until three days prior to the settlement date. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if the Investment Adviser deems it appropriate to do so.
28
<PAGE>
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain SMBS, repurchase agreements maturing in more than
seven days, time deposits with a notice or demand period of more than seven
days, certain over-the-counter options and certain restricted securities,
unless it is determined, based upon a review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines under which the Investment
Adviser determines and monitors the liquidity of portfolio securities, subject
to the oversight of the Trustees. Investing in restricted securities eligible
for resale pursuant to Rule 144A may decrease the liquidity of a Fund's
portfolio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price and
subsequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or its affiliates, may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If the Investment Adviser determines to make securities loans,
the value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral). A Fund may experience
a loss or delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
MORTGAGE DOLLAR ROLLS
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would benefit to
the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase or fee income plus
the interest earned on the cash proceeds of the securities sold
29
<PAGE>
until the settlement date for the forward purchase. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of
the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. The Fund will segregate cash or liquid
assets in an amount equal to the forward purchase price until the settlement
date. Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds may only hold up to 35% of their respective
total assets) in U.S. Government securities, repurchase agreements
collateralized by U.S. Government securities, commercial paper rated at least
A-2 by Standard & Poor's or P-2 by Moody's, certificates of deposit, bankers'
acceptances, repurchase agreements, non-convertible preferred stocks and non-
convertible corporate bonds with a remaining maturity of less than one year.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps (Balanced Fund only); (iii) mortgage swaps, index swaps
and interest rate swaps, caps, floors and collars (Balanced Fund only); (iv)
yield curve options and inverse floating rate securities (Balanced Fund only);
(v) other investment companies including World Equity Benchmark Shares;
(vi) unseasoned companies; (vii) municipal securities (Balanced Fund only);
(viii) loan participations (Balanced Fund only) and (ix) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
Risks of Investing in Equity Securities. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of
30
<PAGE>
individual companies and in response to general market and economic conditions
and, accordingly, the value of the stocks that a Fund holds may decline over
short or extended periods. The U.S. stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline. As of the date of this Prospectus, domestic stock markets were
trading at or close to record high levels and there can be no guarantee that
such levels will continue.
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. Investing in the
securities of issuers in Emerging Countries involves risks in addition to
those discussed under "Description of Securities-- Foreign Investments." The
Balanced, Growth and Income, Mid Cap Equity and Small Cap Value Funds may each
invest up to 25% and the Capital Growth Fund may invest up to 10% of its total
assets in securities of issuers in Emerging Countries. Emerging Countries are
generally located in the Asia-Pacific region, Eastern Europe, Latin and South
America and Africa.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments.
Certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by a Fund. The repatriation of both investment income and capital
from certain Emerging Countries is subject to restrictions such as the need
for governmental consents. Many Emerging Countries may be subject to a greater
degree of economic, political and social instability than is the case in
Western Europe, the United States, Canada, Australia, New Zealand and Japan.
Many Emerging Countries do not have fully democratic governments. For example,
governments of some Emerging Countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other Emerging Countries have periodically used force to suppress civil
dissent. Many Emerging Countries have experienced currency devaluations and
substantial and, in some cases, extremely high rates of inflation, which have
a negative effect on the economies and securities markets of such Emerging
Countries. Settlement procedures in Emerging Countries are frequently less
developed and reliable than those in the United States and may involve a
Fund's delivery of securities before receipt of payment for their sale. In
addition, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to complete
its contractual obligations.
RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed-income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
31
<PAGE>
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding Shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's historical portfolio
turnover rate. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less. The
Investment Adviser will not consider the portfolio turnover rate a limiting
factor in making investment decisions for a Fund consistent with the Fund's
investment objectives and portfolio management policies.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, Distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to the Balanced, Growth
32
<PAGE>
and Income, CORE Large Cap Growth, CORE Small Cap Equity, Mid Cap Equity and
Small Cap Value Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Funds Management, L.P. registered as an investment
adviser in 1990. As of March 23, 1998, GSAM and GSFM together with their
affiliates, acted as investment adviser or distributor for assets in excess of
$153 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management
Inc. From 1988 to 1990
he was a director of
portfolio management at
Banc One in Ohio.
- --------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1992. From 1989 to 1992,
Mid Cap Equity 1996 he was a research
analyst in the
Investment Research
Department of Goldman,
Sachs & Co.
- --------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1993. From 1990 to 1993,
Mid Cap Equity 1996 she worked at Delphi
Small Cap Value 1997 Management as an equity
analyst, focusing her
research efforts on
value stocks.
- --------------------------------------------------------------------------------------------
Jonathan A. Beinner Senior Portfolio Since Mr. Beinner joined the
Managing Director and Manager--Balanced 1994 Investment Adviser in
Co-Head U.S. Fixed (Fixed Income) 1990. From 1988 to 1990,
Income he worked as a portfolio
manager at Franklin
Savings Association in
the trading and
arbitrage group.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992.
CORE Small Cap Equity 1997
- -------------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1991 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. His past
experiences include work
as a special situations
analyst with Raymond
James & Associates for
five years.
- -------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. From 1994 to 1997,
he was the Chief
Investment Officer and
Chairman of Liberty
Investment Management
Inc. He was a portfolio
manager and president at
Liberty's predecessor
firm, Eagle Asset
Management, from 1984 to
1994.
- -------------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management
Inc. and its predecessor
firm, Eagle Asset
Management.
- -------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991. During 1991, he
served as a managing
director at Plaza
Investment Managers, the
investment subsidiary of
GEICO Corp., a major
insurance company. From
1986 to 1991, he was
employed by Goldman
Sachs as a vice
president in the
investment research
department and was
responsible for the
formation of the firm's
Emerging Growth Research
Group.
- -------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Managing Director Growth and Income 1993 Investment Adviser in
Balanced (Equity) 1994 1993. From 1988 to 1993,
Mid Cap Equity 1995 he was a partner at
Sanford C. Bernstein &
Co., Inc. in the
Investment Management
Research Department and
a member of the Research
Review Committee.
- -------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
CORE Small Cap Equity 1997 he was the senior
quantitative analyst in
the Goldman Sachs
Investment Research
Department and the
author of the monthly
Stock Selection
publication.
- -------------------------------------------------------------------------------------------------
Richard C. Lucy Senior Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. From 1983 to 1992,
Fixed Income he managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- -------------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. From 1994 to 1995,
he worked in the
Investment Banking
Division of Goldman
Sachs in Australia. From
1991 to 1994, Mr.
McLennan worked at
Queensland Investment
Corporation in
Australia.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990. From 1985 to 1990,
CORE Small Cap Equity 1997 he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1987 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1992 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1990 to 1992,
he was an equity
research analyst with
Fidelity Management &
Research Company.
- ----------------------------------------------------------------------------------------------------
Lawrence S. Sibley Portfolio Manager-- Since Mr. Sibley joined the
Vice President Growth and Income 1997 Investment Adviser in
Balanced (Equity) 1997 1997. From 1994 to 1997,
Mid Cap Equity 1997 he headed Institutional
Equity Sales at J.P.
Morgan Securities and
from 1987 to 1994, he
was a principal of
Sanford C. Bernstein &
Co. in its Institutional
Sales Department.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSFM are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
Balanced.................................. 0.65% 0.65%
Growth and Income......................... 0.70% 0.70%
CORE Large Cap Growth..................... 0.75% 0.60%
CORE Small Cap Equity..................... 0.85% 0.75%
Mid Cap Equity............................ 0.75% 0.75%
Small Cap Value........................... 1.00% 1.00%
GSFM
CORE U.S. Equity.......................... 0.75% 0.59%
Capital Growth............................ 1.00% 1.00%
</TABLE>
(footnotes on next page)
35
<PAGE>
- ---------------------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. The Investment Adviser may discontinue or modify such voluntary
limitations in the future at their discretion, although there is no current
intention to do so.
The Investment Adviser to the Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, CORE Small Cap Equity and Mid Cap Equity Funds has
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding management fees, service fees, taxes, interest and brokerage fees
and litigation, indemnification and other extraordinary expenses and, in the
case of the Growth and Income and CORE U.S. Equity Funds, transfer agency fees
to the extent such expenses exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, and
0.10%, per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds,The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of
Goldman Sachs have an adverse interest. From time to time, a Fund's activities
may be limited because of regulatory restrictions applicable to Goldman Sachs
and its affiliates, and/or their internal policies designed to comply with
such restrictions. See "Management--Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the CORE U.S. Equity Fund
with respect to Institutional or Service Shares. Goldman Sachs is entitled to
receive a transfer agency fee from the Capital Growth, Growth and Income and
Small Cap Value Funds equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Funds. Goldman Sachs is entitled to
receive a fee from the Balanced, CORE Large Cap Growth, CORE Small Cap Equity
and Mid Cap Equity Funds, with respect to Institutional and Service Shares,
equal to their proportionate share of the total transfer agency costs borne by
the Fund. These costs are equal to $12,000 per year per Class plus $7.50 per
account, and out-of-pocket and transaction related expenses applicable to
Class A, B and C Shares, plus 0.04% of the average daily net assets of the
Institutional and Service classes. Shares of a Fund may also bear fees paid to
Service Organizations or other persons providing sub-transfer agency and
similar services.
36
<PAGE>
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the accounts taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation; fees payable to the Investment Advisers;
distribution and authorized dealer service fees; custodial and transfer agency
fees; brokerage fees and commissions; filing fees for the registration or
qualification of the Funds' Shares under
federal or state securities laws, organizational expenses; fees and expenses
incurred in connection with membership in investment company organizations;
taxes; interest; costs of liability insurance; fidelity bonds or
indemnification; any costs, expenses or losses arising out of any liability
of, or claim for damages or other relief asserted against, the Funds for
violation of any law; legal and auditing fees and expenses (including the cost
of legal and certain accounting services rendered by employees of the
Investment Adviser and its affiliates with respect to the Funds); expenses of
preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to shareholders and regulatory authorities;
compensation and expenses of the Trust's "non-interested" Trustees; and
extraordinary organizational expenses, if any, incurred by the Trust.
NET ASSET VALUE
The NAV per share of each Class of a Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). NAV per Share of each Class is calculated by determining the
net assets attributed to each Class and dividing by the number of outstanding
shares of that Class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
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PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at NAV. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on the NAV per share would be reduced if any applicable sales charge
were taken into account. In addition to the above, each Fund may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance
information is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per Share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
Share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income
for a monthly, quarterly or other relevant period and dividing this amount by
the NAV per share on the last day of the period for which the distribution
rate is being calculated.
Each Fund's total return, yield and distribution rate will be calculated
separately for each Class of Shares in existence. Because each Class of Shares
may be subject to different expenses, the total return, yield and distribution
rate calculations with respect to each Class of Shares for the same period
will differ. See "Shares of the Trust."
The Funds' performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Funds. The investment results of a Fund will fluctuate over time and
any presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify Shares
of beneficial interests in separate series, without further
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action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and Classes is contained in separate prospectuses.
When issued, Shares are fully paid and non-assessable. In the event of
liquidation, shareholders of each class are entitled to share pro rata in the
net assets of the applicable Fund available for distribution to the
shareholders of such Class. All Shares are freely transferable and have no
preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that, at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the NAVs represented by their
Shares.
As of April 3, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 59.9% of Mid Cap Equity Fund's
outstanding Shares.
The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
Shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Each Fund has
elected to be treated as a regulated investment company and each Fund intends
to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Distributions out of
the net capital gain (the excess of net long-term capital gain over net short-
term capital loss), if any, of a Fund will be taxed to shareholders as long-
term capital gains, regardless of the length of time a shareholder has held
his or her Shares or whether such gain was reflected in the price paid for the
Shares. Such long-term gain will constitute 20% or 28% rate gain, depending
upon the Fund's holding period for the assets the sale of which generated the
gain. These tax consequences will apply whether distributions are received in
cash or reinvested in Shares. A Fund's dividends that are paid to its
corporate shareholders and are attributable to qualifying dividends such Fund
receives from U.S. domestic corporations may be eligible, in the hands of such
corporate shareholders, for the corporate dividends-received deduction,
subject to certain holding period requirements and debt financing limitations
under
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the Code. Certain distributions paid by a Fund in January of a given year may
be taxable to shareholders as if received the prior December 31. Shareholders
will be informed annually about the amount and character of distributions
received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying Shares immediately
prior to a distribution. Investors who purchase Shares shortly before the
record date for a distribution will pay a per Share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of Shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty, if any) on
amounts treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. However, the Funds do not
anticipate that they will be eligible to pass any foreign tax credits through
to their shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
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ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services may
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.
The Trust may authorize certain Service Organizations to accept on the
Trust's behalf, purchase, redemption and exchange orders placed by their
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a Business Day, and the order will be priced at
a Fund's NAV per Share next determined after such acceptance. The Service
Organization or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer may
contact its Service Organization to learn whether the Service Organization is
authorized to accept orders. Service Organizations that are authorized to
accept orders for the Trust may receive payments from the Fund or Goldman Sachs
that are in addition to the payments payable by the Trust under the Service
Plan.
Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations under the Service Plan as well as any other expenses which
are directly attributable to such Shares.
Service Organizations may charge fees directly to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.
The Investment Adviser, Distributor, and/or their affiliates, also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale of Shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales amounts
exceeding pre-established thresholds, or the length of time customer assets
have remained in the Trust) and, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of Shares, as well as sponsor various educational programs, sales contests
and/or promotions in which participants may receive reimbursement of expenses,
entertainment and prizes such as travel awards, merchandise, cash, investment
research and educational information and related support materials. This
additional compensation can vary among Service Organizations depending upon
such factors as the amounts their customers have invested (or may invest) in
particular investment portfolios of the Trust, the particular program involved,
or the amount of reimbursable expenses.
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Additional compensation based on sales may, but is currently not expected to,
exceed 0.50% (annualized) of the amount invested. For further information, see
the Additional Statement.
For the fiscal year ended January 31, 1998, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with quarterly statements with re-
spect to such customer's account in lieu of an immediate confirmation of each
transaction.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid: (i) in cash; or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net capital gains, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as dividends
for each taxable year. The Balanced and Growth and Income Funds will pay
dividends from net investment income quarterly. Each other Fund will pay
dividends from net investment income, and dividends from net realized capital
gains, reduced by available capital losses, at least annually. From time to
time, a portion of a Fund's dividends may constitute a return of capital.
At the time of an investor's purchase of Shares of a Fund a portion of the
NAV per Share may be represented by undistributed income of the Fund or real-
ized or unrealized appreciation of the Fund's portfolio securities. Therefore,
subsequent distributions on such Shares from such income or realized apprecia-
tion may be taxable to the investor even if the NAV of the investor's Shares
is, as a result of the distributions, reduced below the cost of such Shares and
the distributions (or portions thereof) represent a return of a portion of the
purchase price.
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PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the NAV per Share next determined after receipt of an order by Goldman
Sachs from a Service Organization. (See "Additional Services" for a description
of limited situations where a Service Organization or other intermediary may be
authorized to accept orders for the Funds.) No sales load will be charged. Cur-
rently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
4:00 p.m. New York time), as described under "Net Asset Value." Purchases of
Service Shares of the Funds must be settled within three (3) Business Days of
the receipt of a complete purchase order. Payment of the proceeds of redemption
of Shares purchased by check may be delayed for a period of time as described
under "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street Bank and Trust
Company ("State Street"). In order to facilitate timely transmittal, the
Service Organizations have established times by which purchase orders and
payments must be received by them.
PURCHASE PROCEDURES
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street or initiating an ACH transfer. Purchases may also be made by a
Service Organization by check (except that the Trust will not accept a check
drawn on a foreign bank or a third party check) or Federal Reserve draft made
payable to "Goldman Sachs Domestic Equity Funds--Name of Fund and Class of
Shares" and should be directed to "Goldman Sachs Domestic Equity Funds--Name of
Fund and Class of Shares," c/o National Financial Data Services, Inc. ("NFDS"),
P.O. Box 419711, Kansas City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.
The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of a recordholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give 60 days' prior written notice to Service Organiza-
tions whose Service Shares are being redeemed to allow them to purchase suffi-
cient additional Service Shares to avoid such redemption.
The Funds and Goldman Sachs each reserve the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of a Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
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In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of Shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for:
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose; and (ii) the corresponding class
of any Goldman Sachs Money Market Fund at the NAV next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Domestic Equity Funds--Name
of Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account Infor-
mation Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of the Fund for which the exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be materially modified
or withdrawn at any time on 60 days' written notice to recordholders of Service
Shares and is subject to certain limitations. See "Purchase of Service Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of a recordholder of
such Shares on any Business Day at the NAV next determined after the receipt of
a request in proper form by Goldman Sachs. (See "Additional Services" for a de-
scription of limited situations where a Service Organization or other interme-
diary may be authorized to accept requests for the Funds.) If Service Shares to
be redeemed were recently purchased by check, a Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good funds
have been collected for the purchase of such Service Shares. This may take up
to 15 days. Redemption requests may be made by a Service Organization by writ-
ing to or calling the Transfer Agent at the address or telephone number set
forth on the back cover of this Prospectus. A Service Organization may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form. It may be difficult to implement re-
demptions by telephone in times of drastic economic or market changes.
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In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares or, if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three Business
Days of receipt of a properly executed redemption request. Once wire transfer
instructions have been given by Goldman Sachs, neither the Funds, the Trust nor
Goldman Sachs assumes any further responsibility for the performance of
intermediaries or the customer's Service Organization in the transfer process.
If a problem with such performance arises, the customer should deal directly
with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
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APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to a Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to a Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Code and consult your tax adviser.
A-1
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPRODOMSVC
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- --------------------------------------------------------------------------------
GOLDMAN SACHS
DOMESTIC
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
LOGO
Goldman
Sachs
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<PAGE>
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PROSPECTUS
May 1, 1998 GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
CLASS A, B AND C SHARES
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap companies that are organized outside the U.S.
or whose securities are principally traded outside the U.S.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies that are organized outside the U.S. or whose securities
are principally traded outside the U.S.
GOLDMAN SACHS JAPANESE EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of Japanese companies.
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies with public stock market capitalizations of $1 billion or
less at the time of investment that are organized outside the U.S. or whose
securities are principally traded outside the U.S.
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of emerging country issuers.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies related (in the manner described herein) to Asian coun-
tries.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the CORE International Equity Fund. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to each other Fund. GSAM and GSAMI are each
referred to in this Prospectus as the "Investment Adviser." Goldman Sachs
serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES
OF U.S. ISSUERS QUOTED IN U.S. DOLLARS, INCLUDING RISKS RELATING TO CHANGES IN
RELATIVE CURRENCY EXCHANGE RATES OR (AS IN THE CASE OF THE EXPECTED
INTRODUCTION OF THE EURO) THE CREATION OF NEW CURRENCIES. THE SECURITIES
MARKETS OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS
LIQUID, ARE ESPECIALLY SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER
MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO
AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER,
INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER
EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE
REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENT IN MORE DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. THE JAPANESE EQUITY AND ASIA GROWTH FUNDS WILL BE PARTICULARLY
SUBJECT TO EVENTS AFFECTING THE MARKETS IN WHICH THESE FUNDS CONCENTRATE THEIR
INVESTMENTS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 11
Investment Objectives and Policies. 15
Description of Securities.......... 20
Investment Techniques.............. 24
Risk Factors....................... 27
Investment Restrictions............ 31
Portfolio Turnover................. 31
Management......................... 31
Expenses .......................... 36
Reports to Shareholders............ 36
How to Invest...................... 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders. 43
Distribution and Authorized Dealer
Service Plans..................... 46
How to Sell Shares of the Funds.... 47
Dividends.......................... 49
Net Asset Value.................... 49
Performance Information............ 50
Shares of the Trust................ 50
Taxation........................... 51
Additional Information............. 52
Appendix .......................... A-1
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in
this Prospectus.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment funds (commonly
known as mutual funds (the "Funds")). Each Fund pools the monies of
investors by selling its Shares to the public and investing these monies
in a portfolio of securities designed to achieve that Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ------------------------------ ---------------------
CORE Long-term growth of At least 90% of total assets EAFE Index (unhedged)
INTERNATIONAL capital. in equity securities of
EQUITY FUND companies organized outside
the United States or whose
securities are principally
traded outside the United
States. The Fund seeks broad
representation of large cap
issuers across major countries
and sectors of the
international economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
unhedged Morgan Stanley
Capital International (MSCI)
Europe, Australasia and Far
East Index (the "EAFE Index").
The Fund may employ certain
currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at FT/S&P Actuaries
EQUITY FUND appreciation. least 65%, of total assets in Europe & Pacific
equity securities of companies Index (unhedged)
organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ------------------------------ ---------------------
JAPANESE Long-term capital Substantially all, and at Tokyo Price Index
EQUITY FUND appreciation. least 65%, of total assets in ("TOPIX")
equity securities of Japanese
companies. The Fund may employ
currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at Morgan Stanley
SMALL CAP appreciation. least 65%, of total assets in Capital International
FUND equity securities of companies EAFE Small Cap Index
with public stock market
capitalizations of $1 billion
or less at the time of
investment that are organized
outside the United States or
whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and at Morgan Stanley
MARKETS appreciation. least 65%, of total assets in Capital International
EQUITY FUND equity securities of emerging Emerging Markets Free
country issuers. The Fund may Index
employ certain currency
management techniques.
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and at Morgan Stanley
FUND appreciation. least 65%, of total assets in Capital International
equity securities of companies All Country Asia Free
in China, Hong Kong, India, ex-Japan Index
Indonesia, Malaysia, Pakistan,
the Philippines,
Singapore, South Korea, Sri
Lanka, Taiwan, Thailand and
other Asian countries. The
Fund may employ certain
currency management
techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's Share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions, so that an investment
in any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent
that a Fund invests in the securities of small market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility. Securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates (or, as in the case of the expected introduction of the euro next
year, the creation of new currencies), political and economic
developments, the imposition of exchange controls, confiscation and other
governmental restrictions. Generally, there is less availability of data
on foreign companies and securities markets as well as less regulation of
foreign stock exchanges, brokers and issuers. A Fund's investments in
emerging markets and countries ("Emerging Countries") involves greater
risks than investments in the developed countries of Western Europe, the
United States, Canada, Australia, New Zealand and Japan. In addition,
because the Funds invest primarily outside the United States, they may
involve greater risks, since the securities markets of foreign countries
are
4
<PAGE>
generally less liquid and subject to greater price volatility. The securities
markets of Emerging Countries, including those in Asia, Latin America, Eastern
Europe and Africa are marked by a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such securities
by a limited number of investors.
Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and therefore, will be particularly subject
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets.
Other. A Fund's use of certain investment techniques, including derivatives,
forward contracts, options and futures, will subject the Fund to greater risk
than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International serves
as Investment Adviser to each other Fund. As of March 23, 1998, the Investment
Advisers, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $153 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's Shares (the "Distributor").
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
- ---------------- -------- -----------
<S> <C> <C>
Regular Purchases......................................... $1,000 $50
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) and UGMA/UTMA Purchases.................. $ 250 $50
SIMPLE IRAs and Education IRAs............................ $ 50 $50
Automatic Investment Plan................................. $ 50 $50
403(b) Plans.............................................. $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 37.
HOW DO I PURCHASE SHARES?
You may purchase Shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
agreements with Goldman Sachs relating to the sale of Shares ("Authorized
Dealers"). See "How to Invest" on page 37.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer three classes of Shares through this Prospectus. These Shares
may be purchased, at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A Shares"); (ii) with a contingent deferred sales
charge (CDSC) imposed on redemptions within six years of purchase ("Class B
Shares"); or (iii) without any initial sales charge or CDSC, as long as Shares
are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A Shares will be sold without an initial sales charge
and may be subject to a CDSC at the time of certain redemptions.
5
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if Shares are redeemed within 12 months of purchase
</TABLE>
Over time, the CDSC and distribution fees attributable to Class B or Class C
Shares will exceed the initial sales charge and the distribution fees
attributable to Class A Shares. Class B Shares convert to Class A Shares, which
are subject to lower distribution fees, eight years after initial purchase.
Class C Shares, which are subject to the same distribution fees as Class B
Shares, do not convert to Class A Shares and are subject to the higher
distribution fees indefinitely. See "How to Invest--Alternative Purchase
Arrangements" on page 36.
HOW DO I SELL MY SHARES?
You may redeem Shares upon request on any Business Day, as defined under
"Additional Information," at the NAV next determined after receipt of such
request in proper form, subject to any applicable CDSC. See "How to Sell Shares
of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- --------------------------- -------------
<S> <C> <C>
CORE International Equity............. Annually Annually
International Equity.................. Annually Annually
Japanese Equity....................... Annually Annually
International Small Cap............... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
You may receive dividends and distributions in additional Shares of the same
Class of the Fund in which you have invested or you may elect to receive them
in cash, Shares of the same class of other mutual funds sponsored by Goldman
Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime Obligations
Portfolio or the Tax-Exempt Diversified Portfolio, if you hold Class A Shares
of a Fund, or ILA Class B or Class C Units of the Prime Obligations Portfolio,
if you hold Class B or Class C Shares of a Fund (the "ILA Portfolios"). For
further information concerning dividends and distributions, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE INT'L JAPANESE
INT'L EQUITY EQUITY
EQUITY FUND/5/ FUND FUND/5/
----------------------------- --------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A/5/ CLASS B CLASS C/5/ CLASS A CLASS B CLASS C
------- ------- ------- ---------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. none none none none none none none none none
Maximum Deferred Sales
Charge................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
net assets)
Management Fees (after
applicable
limitations)/6/........ 0.75% 0.75% 0.75% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/7/........ 0.25% 0.75% 0.75% 0.24% 0.75% 0.75% 0.25% 0.75% 0.75%
Other Expenses:
Authorized Dealer
Service Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/8/........ 0.25% 0.25% 0.25% 0.30% 0.30% 0.30% 0.10% 0.10% 0.10%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/9/. 1.50% 2.00% 2.00% 1.69% 2.20% 2.20% 1.50% 2.00% 2.00%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
INT'L EMERGING ASIA
SMALL CAP MARKETS GROWTH
FUND/5/ EQUITY FUND/5/ FUND
----------------------------- --------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
------- ------- ------- ---------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. none none none none none none none none none
Maximum Deferred Sales
Charge................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
net assets)
Management Fees (after
applicable
limitations)/6/........ 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 0.86% 0.86% 0.86%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/7/........ 0.25% 0.75% 0.75% 0.25% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized Dealer
Service Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/8/........ 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.43% 0.44% 0.44%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/9/. 1.90% 2.40% 2.40% 1.90% 2.40% 2.40% 1.75% 2.30% 2.30%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
7
<PAGE>
- --------
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A Shares by certain classes of investors. A CDSC of
1.00% is imposed on certain redemptions (within 18 months of purchase) of
Class A Shares sold without an initial sales charge as part of an
investment of $1 million or more. See "How to Invest--Offering Price--
Class A Shares."
/2/ A CDSC is imposed upon Shares redeemed within six years of purchase at a
rate of 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter. See "How to Invest--Offering Price--Class B
Shares."
/3/ A CDSC of 1.00% is imposed on Shares redeemed within 12 months of
purchase. See "How to Invest--Offering Price--Class C Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ Based on estimated amounts for the current fiscal year.
/6/ The Investment Advisers voluntarily have agreed not to impose a portion of
the management fee on the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds equal to 0.10%, 0.10%, 0.10%, 0.10%, 0.10% and 0.14%,
respectively. Without such limitations, management fees would be 0.85%,
1.00%, 1.00%, 1.20%, 1.20% and 1.00% of each Fund's average daily net
assets, respectively.
/7/ Goldman Sachs is imposing the entire distribution fee attributable to
Class A Shares of all Funds except for the International Equity and Asia
Growth Funds, in which case the waivers are equal to 0.01% and 0.04%,
respectively. Actual distribution fees and total fees including waivers
and reimbursements for the International Equity and Asia Growth Funds were
0.22% and 1.67%, respectively for the year ended January 31, 1998.
Distribution fees for Class A Shares would otherwise be payable at an
annual rate of 0.25% of average daily net assets.
/8/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of International Equity, Emerging Markets Equity and Asia
Growth Funds)) for the following Funds to the extent such expenses exceed
the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.25%
International Equity............................................. 0.20%
Japanese Equity.................................................. 0.10%
International Small Cap.......................................... 0.30%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/9/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below.
Information for Class A and Class B Shares of the International Equity and
Asia Growth Funds is shown for the fiscal year ended January 31, 1998.
Information for the Class A and B Shares of the CORE International Equity,
Japanese Equity, International Small Cap and Emerging Markets Equity
Funds, and Class C Shares of each Fund are estimated for the current
fiscal year.
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity
Class A............................................. 0.64% 1.99%
Class B............................................. 0.64% 2.49%
Class C............................................. 0.64% 2.49%
International Equity
Class A............................................. 0.30% 1.80%
Class B............................................. 0.30% 2.30%
Class C............................................. 0.30% 2.30%
Japanese Equity
Class A............................................. 0.79% 2.29%
Class B............................................. 0.79% 2.79%
Class C............................................. 0.79% 2.79%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Small Cap
Class A.............................................. 0.74% 2.44%
Class B.............................................. 0.74% 2.94%
Class C.............................................. 0.74% 2.94%
Emerging Markets Equity
Class A.............................................. 0.53% 2.23%
Class B.............................................. 0.53% 2.73%
Class C.............................................. 0.53% 2.73%
Asia Growth
Class A.............................................. 0.49% 1.99%
Class B.............................................. 0.50% 2.50%
Class C.............................................. 0.50% 2.50%
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return; and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
CORE International Equity
Class A Shares................................ $69 $100 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 67 91 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 29 63 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
International Equity
Class A Shares................................ 71 106 $142 $245
Class B Shares
--Assuming complete redemption at end of
period....................................... 69 97 137 242
--Assuming no redemption...................... 22 69 118 242
Class C Shares
--Assuming complete redemption at end of
period....................................... 31 69 118 253
--Assuming no redemption...................... 22 69 118 253
Japanese Equity
Class A Shares................................ 69 100 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 67 91 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 29 63 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
International Small Cap
Class A Shares................................ 73 111 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 71 103 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 33 75 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Equity
Class A Shares................................ $73 $111 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 71 103 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 33 75 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Asia Growth
Class A Shares................................ 72 107 $145 $250
Class B Shares
--Assuming complete redemption at end of
period....................................... 70 100 142 250
--Assuming no redemption...................... 23 72 123 250
Class C Shares
--Assuming complete redemption at end of
period....................................... 32 72 123 264
--Assuming no redemption...................... 23 72 123 264
</TABLE>
The hypothetical example assumes that a CDSC will not apply to redemptions
of Class A Shares within the first 18 months. Class B Shares convert to Class
A Shares eight years after purchase; therefore, Class A expenses are used in
the hypothetical example after year eight.
As of the date of this Prospectus, the Investment Adviser and Goldman Sachs
have no intention of modifying or discontinuing any of the limitations set
forth above but may do so in the future at their discretion. The information
set forth in the foregoing table and hypothetical example relates only to
Class A, B and C Shares. Each Fund also offers Institutional and Service
Shares (Service Shares for the Asia Growth Fund have not commenced operations
as of the date of this Prospectus), which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Class A, Class B and
Class C Shares. Information regarding Institutional and Service Shares may be
obtained from your sales representative or from Goldman Sachs by calling the
number on the back cover page of this Prospectus. Because of the Distribution
Plans, long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the NASD's rules regarding
investment companies.
In addition to the compensation itemized above, certain institutions that
sell Fund Shares and/or their salespersons may receive other compensation in
connection with the sale and distribution of Class A, Class B and Class C
Shares of the Funds or for services to their customers' accounts and/or the
Funds. For additional information regarding such compensation, see
"Management" and "Services Available to Shareholders" in this Prospectus and
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
10
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended January 31, 1998 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus. During
the periods shown, the Trust did not offer Class A, Class B or Class C Shares
of the Japanese Equity or International Small Cap Funds. Accordingly, there
are no financial highlights for these Funds.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------
FROM NET
NET REALIZED NET REALIZED REALIZED
AND UNREALIZED AND UNREALIZED GAIN ON
NET ASSET GAIN (LOSS) ON GAIN (LOSS) ON FROM INVESTMENT NET NET ASSET
VALUE, NET INVESTMENTS CURRENCY NET AND DECREASE VALUE,
BEGINNING INVESTMENT AND FUTURES RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
CORE INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $ -- $0.13 $(0.91) $ -- -- $(0.78) $9.22 (7.66)%(d)
1998--Class B
Shares(b)....... 10.00 (0.02) 0.13 (0.90) -- -- (0.79) 9.21 (7.90)(d)
1998--Class C
Shares(b)....... 10.00 (0.02) 0.13 (0.89) -- -- (0.78) 9.22 (7.80)(d)
1998--Institu-
tional
Shares(b)....... 10.00 0.02 0.13 (0.89) (0.02) -- (0.76) 9.24 (7.45)(d)
1998--Service
Shares(b)....... 10.00 0.01 0.13 (0.91) -- -- (0.77) 9.23 (7.70)(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
--------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ------------ ------------- ----------- --------------
CORE INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 25.16% $.0069 $ 7,087 1.50%(c) (0.27)%(c) 4.87%(c) (3.90)%(c)
1998--Class B
Shares(b)....... 25.16 .0069 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c)
1998--Class C
Shares(b)....... 25.16 .0069 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c)
1998--Institu-
tional
Shares(b)....... 25.16 .0069 17,719 1.00(c) 0.59(c) 4.12(c) (2.53)(c)
1998--Service
Shares(b)....... 25.16 .0069 1 1.50(c) 0.26(c) 4.62(c) (2.86)(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED NET REALIZED
REALIZED GAIN ON GAIN ON
NET AND UNREALIZED INVESTMENT INVESTMENT NET
NET ASSET NET REALIZED GAIN (LOSS) IN EXCESS AND FOREIGN AND FOREIGN INCREASE
VALUE, INVESTMENT AND UNREALIZED ON CURRENCY FROM NET OF NET CURRENCY CURRENCY (DECREASE)
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT RELATED RELATED IN NET
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE
--------- ---------- -------------- -------------- ---------- ---------- ------------ ------------ -----------
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.32 $0.03 $2.99 $(0.95) $-- $(0.30) $(0.88) $(0.36) $0.53
1998--Class B
Shares.......... 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76) 0.46
1998--Class C
Shares(b)....... 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24) (3.04)
1998--
Institutional
Shares.......... 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27) 0.57
1998--Service
Shares.......... 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05) 0.50
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28) -- -- (0.21) -- 2.12
1997--Class B
Shares(b)....... 18.91 (0.06) 0.94 (0.34) -- -- (0.21) -- 0.33
1997--
Institutional
Shares(b)....... 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) -- 1.95
1997--Service
Shares(b)....... 17.70 (0.02) 2.95 (1.08) -- -- (0.21) -- 1.64
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) -- (0.87) -- 2.68
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- -- (0.59) -- (3.58)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- -- -- 3.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- -- -- 0.17
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET
INVESTMENT RATIO
NET RATIO INCOME OF NET
NET ASSET ASSETS AT OF NET (LOSS) TO RATIO OF INVESTMENT
VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO AVERAGE EXPENSES INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) IN (000S) NET ASSETS ASSETS NET ASSETS NET ASSETS
--------- ------------ --------- ---------- --------- ----------- ------------ ---------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.85 11.12% 40.82% $.0207 $697.590 1.67% (.027)% 1.80% (0.40)%
1998--Class B
Shares.......... 19.70 10.51 40.82 .0207 55,324 2.20 (0.90) 2.30 (1.00)
1998--Class C
Shares(b)....... 19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c)
1998--
Institutional
Shares.......... 19.97 11.82 40.82 .0207 56,263 1.08 0.30 1.18 0.20
1998--Service
Shares.......... 19.84 11.25 40.82 .0207 3,035 1.55 (0.36) 1.65 (0.46)
1997--Class A
Shares.......... 19.32 13.48 38.01 .0318 536,283 1.69 (0.07) 1.88 (0.26)
1997--Class B
Shares(b)....... 19.24 2.83 (d) 38.01 .0318 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c)
1997--
Institutional
Shares(b)....... 19.40 12.53 (d) 38.01 .0318 68,374 1.10(c) 0.43 (c) 1.25(c) 0.28 (c)
1997--Service
Shares(b)....... 19.34 10.42 (d) 38.01 .0318 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c)
1996--Class A
Shares.......... 17.20 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... 14.52 (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 18.10 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.35 1.23 (d) 0.00 -- 66,063 1.80(c) (0.42)(c) 2.58(c) (1.20)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) 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.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE NET ASSET
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET VALUE, END
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME ASSET VALUE OF PERIOD
--------- ---------- -------------- ---------------- ---------- ------------- ---------- ------------ ----------
EMERGING MARKETS EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998--Class A
Shares(b)....... $10.00 $-- $(0.11) $(0.20) -- -- -- $(0.31) $9.69
1998--Class B
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
1998--Class C
Shares(b)....... 10.00 -- (0.10) (0.20) -- -- -- (0.30) 9.70
1998--Institu-
tional
Shares(b)....... 10.00 0.01 (0.11) (0.20) -- -- -- (0.30) 9.70
1998--Service
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO LOSS TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ---------- ------------ -------------- ------------ --------------
EMERGING MARKETS EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998--Class A
Shares(b)....... (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3,43)%(c)
1998--Class B
Shares(b)....... (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
1998--Class C
Shares(b)....... (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
1998--Institu-
tional
Shares(b)....... (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28c) (3.18)(c)
1998--Service
Shares(b)....... (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) 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.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
LOSS ON REALIZED INCREASE NET
NET ASSET NET NET REALIZED FOREIGN IN EXCESS GAIN ON (DECREASE) ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY FROM NET OF NET INVESTMENT IN NET VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT AND FUTURES ASSET END OF
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93) $8.38
1998--Class B
Shares.......... 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93) 8.31
1998--Class C
Shares(b)....... 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44) 8.29
1998--Institu-
tional Shares... 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89) 8.44
1997--Class A
Shares.......... 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18) 16.31
1997--Class B
Shares(b)....... 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07) 16.24
1997--Institu-
tional
Shares(b)....... 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28) 16.33
1996--Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18 16.49
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87) 13.31
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ------- --------- ------------ --------- -------------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
1998--Class B
Shares.......... (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
1998--Class C
Shares(b)....... (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
1998--Institu-
tional Shares... (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
1997--Class A
Shares.......... (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(b)....... (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
1997--Institu-
tional
Shares(b)....... (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54 (c) 1.26(c) 0.38 (c)
1996--Class A
Shares 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C and Institutional share activity commenced on
July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 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.
14
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that a
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. A Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks, are described below under
"Description of Securities," "Risk Factors" and "Investment Techniques."
Actively Managed Funds. The International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds are
managed using an active international approach, which utilizes a consistent
process of stock selection undertaken by portfolio management teams located
within each of the major investment regions, including Europe, Japan, Asia and
the United States. In selecting securities, the Investment Adviser uses a
long-term, bottom-up strategy based on first-hand fundamental research that is
designed to give broad exposure to the available opportunities while seeking
to add return primarily through stock selection. Equity securities for these
Funds are evaluated based on three key factors--the business, the management
and the valuation. The Investment Adviser ordinarily seeks securities that
have, in the Investment Adviser's opinion, superior earnings growth potential,
sustainable franchise value with management attuned to creating shareholder
value and relatively discounted valuations. In addition, the Investment
Adviser uses a multi-factor risk model which seeks to assure that deviations
from the benchmark are justifiable.
Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
multifactor models used to implement it are discussed below.
15
<PAGE>
Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary multifactor models
(each a "Multifactor Model") to forecast the returns of different markets,
currencies and individual securities. The Investment Adviser may rely on
research from both the Goldman Sachs Global Investment Research Department
(the "Research Department") and other industry sources.
In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily composed of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are principally
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries
16
<PAGE>
and sectors of the international economy. The Fund's investments are selected
using both a variety of quantitative techniques and fundamental research in
seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the EAFE Index. In
addition, the Fund seeks a portfolio composed of companies with attractive
valuations and stronger momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."
Other. The Fund may invest only in fixed-income securities that are
considered to be cash equivalents.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed-income
securities.
JAPANESE EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded primarily on a Japanese stock
exchange as well as those whose shares are registered with the Japan
Securities Dealers Association for trading primarily on Japan's over-the-
counter market. The Fund's concentration in Japanese companies will expose it
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets as described under "Risk Factors--Special
Risks of Investment in the Japanese Markets."
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Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities.
INTERNATIONAL SMALL CAP FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of $1
billion or less at the time of investment that are organized outside the U.S.
or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economies which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries. If
the market capitalization of a company held by the Fund increases above $1
billion, the Fund may, consistent with its investment objective, continue to
hold the security.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion at the time of investment and in
fixed-income securities.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries;
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country; (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries; or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
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Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio managers' and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Investments" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed-income securities of private and governmental Emerging Country
issuers; and (ii) equity and fixed-income securities of issuers in developed
countries.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries; (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries; (iii) they maintain 50% or more of their assets
in one or more of the Asian countries; or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.
Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand, as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the Investment Adviser's views of the relative attractiveness of the Asian
markets and particular issuers. For example, on January 31, 1998 (the end of
the Fund's last fiscal year), more than 35% of the Fund's assets were invested
in securities traded in Hong Kong. Concentration of the Fund's assets in one
or a few of the Asian countries and Asian currencies will subject the Fund to
greater risks than if the Fund's assets were not geographically
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concentrated. See "Description of Securities--Foreign Investments." The Fund
may invest in the aggregate up to 35% of its total assets in equity securities
of issuers in other countries, including Japan, and in fixed-income
securities.
DESCRIPTION OF SECURITIES
The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar-denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will be
ready by the scheduled launch date; the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the
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euro; the establishment of exchange rates for existing currencies and the
euro; and the creation of suitable clearing and settlement payment systems for
the new currency. These or other factors, including political and economic
risks, could cause market disruptions before or after the introduction of the
euro, and could adversely affect the value of securities held by the Funds.
Commissions on transactions in foreign securities may be higher than those for
similar transactions on domestic stock markets. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have been unable to keep pace with the volume of
securities transactions, thus making it difficult to conduct such
transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not
geographically concentrated.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund may avoid currency risks during
the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell foreign currencies on a spot basis and
may also purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, each Fund
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may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. Each Fund may also
engage in cross-hedging by using forward contracts in a currency different
from that in which the hedged security is denominated or quoted if the
Investment Adviser determines that there is a pattern of correlation between
the two currencies. If a Fund enters into a forward foreign currency exchange
contract to buy foreign currency for any purpose or to sell foreign currency
to seek to increase total return, the Fund will segregate cash or liquid
assets in an amount equal to the value of the Fund's total assets committed to
the consummation of the forward contract, or otherwise cover its position in a
manner permitted by the SEC. The Fund will incur costs in connection with
conversions between various currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity or Asia Growth Fund's currency exposure will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objective and Policies" in the Additional
Statement.
FIXED-INCOME SECURITIES
Each Fund may invest in fixed-income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.
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Investments in fixed-income securities may include obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse in the event of a
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's NAV, to a greater extent
than the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward international lenders and the political constraints to which a
sovereign debtor may be subject.
Fixed-income investments may also include investments in structured
securities. The value of the principal of and/or interest on such securities
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured securities may provide that in certain circumstances
no principal is due at maturity and, therefore, result in the loss of a Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to price accurately than less complex securities.
Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds" and
are considered predominantly speculative and may be questionable as to
principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
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INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase a Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each Fund may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of options transactions, however, the
writing of an option on a foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If an option that a Fund has
written is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, each Fund may purchase call or put
options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices. A
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the
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Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on the Fund's outstanding positions in futures and related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations or to otherwise cover the obligations in a
manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.
EQUITY SWAPS
Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered
25
<PAGE>
to be an advantageous price and yield to the Fund at the time of entering into
the transaction. Each Fund may also purchase securities on a forward
commitment basis; that is, make contracts to purchase securities for a fixed
price at a future date beyond the customary settlement period. A Fund will
segregate cash or liquid assets in an amount sufficient to meet the purchase
price until three days prior to the settlement date. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain stripped mortgage-backed securities, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon a review of
the trading markets for a specific restricted security, that such restricted
security is eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities, subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Each Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or its affiliates may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis
26
<PAGE>
in an amount at least equal to the market value of the securities loaned. Cash
collateral may be invested in cash equivalents. If an Investment Adviser
determines to make securities loans, the value of the securities loaned may
not exceed 33 1/3% of the value of the total assets of a Fund (including the
loan collateral). A Fund may experience a loss or delay in the recovery of its
securities if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, for an equal amount of the securities of the same
issuer as the securities sold short (a short sale against-the-box). Not more
than 25% of a Fund's net assets (determined at the time of the short sale) may
be subject to such short sales. As a result of recent tax legislation, short
sales may not generally be used to defer the recognition of gain for tax
purposes with respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year. When a Fund's assets are invested in
such instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps; (iii) other investment companies including World Equity
Benchmark Shares and Standard & Poor's Depository Receipts; (iv) unseasoned
companies; and (v) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its total assets. For more information,
see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, certain foreign stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.
27
<PAGE>
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--Foreign
Investments." The International Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such Countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Starting in mid-1997 some Pacific region countries began to
experience currency devaluations that resulted in high interest rate levels
and sharp reductions in economic activity. This situation resulted in a
significant drop in the securities prices of companies located in the region.
Some countries have experienced government intervention,
28
<PAGE>
have sought assistance from the International Monetary Fund and are undergoing
substantial domestic unrest. Although some countries are taking steps to
restructure their financial sectors in a manner that may facilitate a return
to long-term economic growth, there can be no assurance that these efforts
will be successful or that their current problems will not persist. At the end
of its last fiscal year, a substantial portion of the assets of the Asia
Growth Fund were invested in securities traded in the Hong Kong market. In
1997, the sovereignty of Hong Kong reverted from the United Kingdom to China.
Although Hong Kong is, by law, to maintain a high degree of autonomy, there
can also be no assurance that the general economic position of Hong Kong will
not be adversely affected as a result of the exercise of Chinese sovereignty
over Hong Kong. In particular, business confidence in Hong Kong can be
significantly affected by political developments and statements by public
figures in China, which can in turn affect the performance of the securities
markets. In addition, the reversion of Hong Kong to China has created
uncertainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.
Economies in individual Emerging Countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rates of inflation, currency valuation, capital reinvestment,
resource self-sufficiency and balance of payments positions. Many Emerging
Countries have experienced currency devaluations and substantial and, in some
cases, extremely high rates of inflation, which have a negative effect on the
economies and securities markets of such Emerging Countries. Economies in
Emerging Countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be
affected adversely by the economies of their trading partners, trade barriers,
exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly, and is currently subject to deflationary
29
<PAGE>
pressures. In addition to this economic downturn, Japan is undergoing
structural adjustments related to high wages and taxes, currency valuations
and structural rigidities. Japan has also been experiencing notable
uncertainty and loss of public confidence in connection with the reform of its
political process and the deregulation of its economy. These conditions
present risks to the Japanese Equity Fund and its ability to attain its
investment objective.
Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.
During the recent past, the average stock market prices of Japanese
companies, as measured by major indices such as the NIKKEI 225 Average, have
experienced a substantial decline. It is not possible to determine whether
this general decline will continue.
RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed- income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
30
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding Shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of the historical portfolio turnover
rate of each Fund (other than the Japanese Equity and International Small Cap
Funds). It is anticipated that the annual portfolio turnover rates of the
Japanese Equity and International Small Cap Funds will generally not exceed
75%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. The Investment Adviser
will not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund consistent with the Fund's investment
objectives and portfolio management policies.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the CORE International Equity Fund.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Asset
Management International, 133 Peterborough Court, London EC4A 2BB, England, an
affiliate of Goldman Sachs, serves as the investment adviser to the
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organisation Limited in 1990 and registered as an investment adviser in 1991.
As of March 23, 1998, GSAM and GSAMI, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $153 billion.
31
<PAGE>
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert A. Beckwitt Portfolio Manager-- Since Mr. Beckwitt joined the
Vice President and Emerging Markets Equity 1997 Investment Adviser in
Co-Head Emerging Market 1996. From 1986 to 1996,
Equities he was Chief Investment
Strategist-Portfolio
Adviser to high net
worth investors at
Fidelity Investments.
- -----------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
Japanese Equity 1998 1996 and is also co-head
of our Japanese Equity
Group in Tokyo. From
1984 to 1996, he was a
portfolio manager and an
Executive Director at
CIN Management.
- -----------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992.
- -----------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1995 to 1996,
he was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
From 1994 to 1995 he was
engaged in French equity
research and marketing
at Banque Nationale de
Paris and Schroders in
London.
- -----------------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989. From 1987 to 1989,
he was the senior
quantitative analyst in
the Goldman, Sachs & Co.
Investment Research
Department.
- ---------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser
in 1990. Prior to 1990,
she was a management
consultant with Andersen
Consulting in Hong Kong.
- ---------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1990 to 1996,
he was at CIN
Management, where his
responsibilities
included European equity
fund management as well
as active quantitative
techniques and risk
management.
- ---------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998 1994. From 1987 to 1994,
Japanese Equity 1998 he worked at Nomura
Investment Management
Incorporated as a Senior
Portfolio Manager.
- ---------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director and Asia Growth 1994 Investment Adviser in
Co-Head Emerging Portfolio Manager-- 1994. From 1987 to 1994,
Market International Equity 1994 he was a Vice President
Equities Emerging Markets Equity 1997 of Bankers Trust
International Small Cap 1998 Australia Ltd where he
was the Chief Investment
Officer of their
Southeast Asian
investment team. He is
also a member of Goldman
Sachs Asset Management's
global asset allocation
committee.
- ---------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990. From 1985 to 1990,
he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ---------------------------------------------------------------------------------------------
Ramakrishna Shankar Portfolio Manager-- Since Mr. Shankar joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. From July 1996 to
1997, he worked for
Goldman, Sachs & Co. in
Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
for Goldman, Sachs & Co.
as an investment banker
in the Investment
Banking Division.
- ---------------------------------------------------------------------------------------------
Miyako Shibamoto Portfolio Manager-- Since Ms. Shibamoto joined the
Vice President Japanese Equity 1998 Japanese Equity team in
March 1998. From 1993 to
1998 she was a Vice
President at Scudder
Stevens and Clark
(Japan).
- ---------------------------------------------------------------------------------------------
Robert Stewart Portfolio Manager-- Since Mr. Stewart joined the
Vice President Japanese Equity 1998 Investment Adviser in
1996. From 1994 to 1996,
he was at CIN Management
as a portfolio manager
managing Japanese
equities.
- ---------------------------------------------------------------------------------------------
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity 1998 Investment Adviser in
1996. From 1990 to 1996,
he was a Japanese equity
portfolio manager at
Nomura Investment
Management where he
actively managed assets
for US pension funds.
- ---------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
International Equity 1997 1994. From 1992 to 1994,
she was employed at
Bankers Trust Australia
Ltd where she was a
senior analyst in the
South East Asia
Investment Team.
</TABLE>
33
<PAGE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSAMI are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
CORE International Equity................. 0.85% 0.75%
GSAMI
International Equity...................... 1.00% 0.90%
Japanese Equity........................... 1.00% N/A
International Small Cap................... 1.20% N/A
Emerging Markets Equity................... 1.20% 1.10%
Asia Growth............................... 1.00% 0.86%
</TABLE>
- --------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. The Investment Adviser may discontinue or modify such voluntary
limitations in the future at their discretion, although there is no current
intention to do so.
The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses and, in the case
of the International Equity, Emerging Markets Equity and Asia Growth Funds,
transfer agency fees) to the extent such expenses exceed 0.25%, 0.20%, 0.10%,
0.30%, 0.16% and 0.24% per annum of the average daily net assets of the CORE
International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Fund, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which
34
<PAGE>
Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Funds may, from time to time, enter into transactions in which other clients
of Goldman Sachs have an adverse interest. From time to time, a Fund's
activities may be limited because of regulatory restrictions applicable to
Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. See "Management--Activities of Goldman Sachs
and its Affiliates and Other Accounts Managed by Goldman Sachs" in the
Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's Shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
Shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent), Goldman Sachs is entitled to a
fee from the International Equity, Emerging Markets Equity and Asia Growth
Funds, with respect to Class A, Class B and Class C Shares equal to $12,000
per year per Class plus $7.50 per account and out-of-pocket and transaction-
related expenses. Class A, Class B and Class C Shares may also bear fees paid
to Authorized Dealers or other persons providing sub-transfer agency and
similar services. Goldman Sachs is entitled to receive a fee from the CORE
International Equity, Japanese Equity and International Small Cap Funds equal
to their proportionate share of a Fund's total transfer agency costs. These
costs are equal to the charges set forth above applicable to Class A, Class B
and Class C Shares plus 0.04% of the average daily net assets of the other
Classes of the Fund plus any sub-transfer agency expenses. Shareholders with
inquiries regarding any Fund should contact Goldman Sachs (as Transfer Agent)
at the address or the telephone number set forth on the back cover page of
this Prospectus.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold Shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the Shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to
35
<PAGE>
continue to service the Funds at current levels. In addition, the Investment
Adviser has sought assurances from the Funds' other service providers that
they are taking the steps necessary so that they do not experience Year 2000
Problems, and the Investment Adviser will continue to monitor the situation.
At this time, however, no assurance can be given that the actions taken by the
Investment Adviser and the Funds' other service providers will be sufficient
to avoid any adverse effect on the Funds due to the Year 2000 Problem.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation: the fees payable to the Investment Adviser;
distribution and authorized dealer service fees; custodial and transfer agency
fees; brokerage fees and commissions; filing fees for the registration or
qualification of the Fund's Shares under federal or state securities laws;
organizational expenses; fees and expenses incurred in connection with
membership in investment company organizations; taxes; interest; costs of
liability insurance, fidelity bonds or indemnification; any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against, the Funds for violation of any law; legal and auditing fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of the Investment Adviser and its affiliates with
respect to the Funds); expenses of preparing and setting in type prospectuses,
statements of additional information, proxy material, reports and notices and
the printing and distributing of the same to shareholders and regulatory
authorities; compensation and expenses of the Trust's "non-interested"
Trustees; and extraordinary organizational expenses, if any, incurred by the
Trust.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. To eliminate unnecessary duplication,
only one copy of such reports may be sent to shareholders with the same
mailing address. Shareholders who desire a duplicate copy of such reports to
be mailed to their residence should contact Goldman Sachs at 800-526-7384.
Each shareholder will also be provided with a printed confirmation for each
transaction in the shareholder's account and an individual quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide sub-
accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this Prospectus Class A, Class B and
Class C Shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which Class of Shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A Shares.
CLASS A SHARES. If you invest less than $1 million in Class A Shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A
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<PAGE>
Shares of a Fund, no sales charge will be imposed at the time of purchase, but
you may incur a deferred sales charge equal to 1.00% if you redeem your Shares
within 18 months of purchase. Class A Shares are subject to distribution fees
of 0.25% (which currently are being limited to 0.24% and 0.21% for the
International Equity and Asia Growth Funds, respectively) and authorized
dealer service fees of 0.25%, per annum, respectively, of each Fund's average
daily net assets attributable to Class A Shares.
CLASS B SHARES. Class B Shares are sold without an initial sales charge, but
are subject to a CDSC of up to 5% if redeemed within six years of purchase.
Class B Shares are subject to distribution and authorized dealer service fees
of 0.75% and 0.25%, per annum, respectively, of each Fund's average daily net
assets attributable to Class B Shares. See "Distribution and Authorized Dealer
Service Plans." Class B Shares will automatically convert to Class A Shares,
based on their relative NAVs, eight years after the initial purchase. Your
entire investment in Class B Shares is available to work for you from the time
you make your initial investment, but the distribution fee paid by Class B
Shares will cause your Class B Shares (until conversion to Class A Shares) to
have a higher expense ratio and to pay lower dividends, to the extent
dividends are paid, than Class A Shares.
CLASS C SHARES. Class C Shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
Shares are subject to distribution and authorized dealer service fees of 0.75%
and 0.25%, per annum, respectively, of each Fund's average daily net assets
attributable to Class C Shares. See "Distribution and Authorized Dealer
Service Plans." Class C Shares have no conversion feature, and accordingly, an
investor that purchases Class C Shares will be subject to the distribution
fees imposed on Class C Shares for an indefinite period, subject to annual
approval by the Fund's Board of Trustees and certain regulatory limitations.
Your entire investment in Class C Shares is available to work for you from the
time you make your initial investment, but the distribution fee paid by Class
C Shares will cause your Class C Shares to have a higher expense ratio and to
pay lower dividends, to the extent dividends are paid, than Class A Shares (or
Class B Shares after conversion to Class A Shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which Class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B Shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C Shares. There is no size limit
on the purchase of Class A Shares. A maximum purchase limitation of $250,000
and $1,000,000 in the aggregate normally applies to purchases of Class B
Shares and Class C Shares, respectively. Although Class C Shares are subject
to a CDSC for only 12 months and at a lower rate than Class B Shares, Class C
Shares do not have the conversion feature applicable to Class B Shares, making
them subject to higher distribution fees for an indefinite period. Authorized
Dealers may receive different compensation for selling Class A, Class B or
Class C Shares.
HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C SHARES
You may purchase Shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the NAV next
determined after receipt of an order as described below under "Other Purchase
Information," plus, in the case of Class A Shares,
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<PAGE>
any applicable sales charge. Currently, each Fund's NAV is determined as of
the close of regular trading on the New York Stock Exchange (which is
normally, but not always, 4:00 p.m. New York time).
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with tax-sheltered
retirement plans, Individual Retirement Account Plans (excluding SIMPLE IRAs
and Education IRAs) or accounts established under the Uniform Gift to Minors
Act ("UGMA"), and an initial investment minimum of $200 applies to purchases
in connection with 403(b) plans. The minimum initial investment for purchases
in connection with SIMPLE and Education IRAs, as well as purchases through the
Automatic Investment Plan, is $50. The minimum subsequent investment is $50.
These requirements may be waived at the discretion of the Trust's officers.
You may pay for purchases of Shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
Shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer; or (ii) to Goldman Sachs International Equity Funds--(Name of Fund and
Class of Shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-
6711. Federal funds wires, ACH transfers and bank wires should be sent to
State Street Bank and Trust Company ("State Street"). Payment must be received
within three Business Days after receipt of the purchase order. An investor's
Authorized Dealer is responsible for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (i) provide a social security number or other taxpayer
identification number; or (ii) certify that such number is correct (if
required to do so under applicable law).
The Funds reserve the right to redeem Shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give 60 days' prior written notice to shareholders
whose Shares are being redeemed to allow them to purchase sufficient
additional Shares of the Fund to avoid such redemption. In addition, the Funds
and Goldman Sachs reserve the right to modify the minimum investment, the
manner in which Shares are offered and the sales charge rates applicable to
future purchases of Shares.
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<PAGE>
OFFERING PRICE--CLASS A SHARES
The offering price of Class A Shares of each Fund is the next determined NAV
per Share plus a sales charge, if any, paid to Goldman Sachs at the time of
purchase of Shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A Shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of Shares
of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $500,000 or more by plans or $1
million or more by "wrap" accounts satisfying the criteria set forth in
(h) or (i) below. Purchases by such plans will be made at NAV with no
initial sales charge, but if all of the Shares held are redeemed within 18
months after the end of the calendar month in which such purchase was
made, a CDSC, as described below, of 1.00% may be imposed upon the plan
sponsor or the third party administrator. In addition, Authorized Dealers
shall remit to Goldman Sachs such payments received in connection with
"wrap" accounts in the event that Shares are redeemed within 18 months
after the end of the calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
Purchases of $1 million or more of Class A shares will be made at NAV with
no initial sales charge, but if the Shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the Shares were exchanged into and remained invested
in an ILA Portfolio (the "CDSC period"), a CDSC of 1.00% may be imposed
unless, in certain cases, the investor's Authorized Dealer enters into an
agreement with Goldman Sachs to return all or an applicable prorated portion
of its commission to Goldman Sachs. Any applicable CDSC will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A Shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
Shares. Upon redemption of shares subject to a CDSC, shareholders will receive
that portion of the appreciation in account value attributable to the Shares
actually redeemed. In determining whether a CDSC applies to a redemption, it
will be assumed that the redemption is first made from any Class A Shares in
your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver or Reduction of Contingent
Deferred Sales Charges" below.
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<PAGE>
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to: (a) Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including retired employees and former
partners), any partnership of which Goldman Sachs is a general partner, any
Trustee or officer of the Trust and designated family members of any of the
above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses, children and parents; (e)
banks, trust companies or other types of depository institutions investing for
their own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
Shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buys Shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by certain third-party
administrators that have entered into a special service arrangement with
Goldman Sachs relating to such plan; (i) "wrap" accounts for the benefit of
clients of broker-dealers, financial institutions or financial planners,
provided that they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; (j)
registered investment advisers investing for accounts for which they receive
asset-based fees; (k) accounts over which GSAM or its advisory affiliates have
investment discretion; and (l) shareholders receiving distributions from a
qualified retirement plan invested in the Goldman Sachs Funds and reinvesting
such proceeds in a Goldman Sachs IRA. Purchasers must certify eligibility for
an exemption on the Account Application and notify Goldman Sachs if the
shareholder is no longer eligible for an exemption. Exemptions will be granted
subject to confirmation of a purchaser's entitlement. Investors purchasing
Shares of the Funds at NAV without payment of any initial sales charge may be
charged a fee if they effect transactions in Shares through a broker or agent.
In addition, under certain circumstances, dividends and distributions from any
of the Goldman Sachs Funds may be reinvested in Shares of each Fund at NAV, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (Shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A Shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A Shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B Shares of a Fund at the next determined NAV
without the imposition of an initial sales charge. However, Class B Shares
redeemed within six years of purchase will be subject to a CDSC at the rates
shown in the table that follows. At redemption, the charge will be assessed on
the amount equal to
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the lesser of the current market value or the original purchase cost of the
Shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase price, including Shares derived from the
reinvestment of dividends or capital gains distributions. Upon redemption of
Shares subject to a CDSC, shareholders will receive that portion of the
appreciation in account value attributable to the Shares actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B Shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B Shares, the
Funds will first redeem shares not subject to any CDSC, and then Shares held
longest during the applicable period.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B Shares of a Fund will automatically convert into Class A Shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B Shares of a Fund acquired by
exchange from Class B Shares of another Goldman Sachs Fund will convert into
Class A Shares of such Fund based on the date of the initial purchase. Class B
Shares acquired through reinvestment of distributions will convert into Class
A Shares based on the date of the initial purchase of the Shares on which the
distribution was paid. The conversion of Class B Shares to Class A Shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B Shares would continue to be subject to higher expenses than Class A
Shares for an indeterminate period.
OFFERING PRICE--CLASS C SHARES
Investors may purchase Class C Shares of a Fund at the next determined NAV
without the imposition of an initial sales charge. However, if Class C Shares
are redeemed within 12 months of purchase, a CDSC of 1% will be deducted from
the redemption proceeds. At redemption, the charge will be assessed on the
amount equal to the lesser of the current market value or the original
purchase cost of the Shares being redeemed. No CDSC will be imposed on
increases in account value above the initial purchase price, including Shares
derived from the reinvestment of dividends or capital gains distributions.
Upon redemption of Shares subject to a CDSC, shareholders will receive that
portion of the appreciation in account value attributable to the Shares
actually redeemed.
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<PAGE>
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
Shares, the Funds will first redeem Shares held for longer than 12 months, and
then Shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C Shares,
including the payment of compensation to Authorized Dealers. An amount equal
to 1.00% of the amount invested is paid by the Distributor to Authorized
Dealers.
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B Shares of a Fund may reinvest
at NAV any portion or all of the redemption proceeds (plus that amount
necessary to acquire a fractional Share to round off the purchase to the
nearest full Share) in Class A Shares of the same Fund or any other Goldman
Sachs Fund. A shareholder who redeems Class C Shares of a Fund may reinvest at
NAV any portion or all of the redemption proceeds (plus that amount necessary
to acquire a fractional Share to round off the purchase to the nearest full
Share) in Class C Shares of the same Fund or any other Goldman Sachs Fund.
Shareholders should obtain and read the applicable prospectuses of such other
funds and consider their objectives, policies and applicable fees before
investing in any of such funds. This reinvestment privilege is subject to the
condition that the shares redeemed have been held for at least 30 days before
the redemption and that the reinvestment is effected within 90 days after such
redemption. If you redeemed Class A or Class C Shares, paid a CDSC upon a
redemption and reinvest in Class A or Class C Shares subject to the conditions
set forth above, your account will be credited with the amount of the CDSC
previously charged, and the reinvested Shares will continue to be subject to a
CDSC. In this case, the holding period of the Class A or Class C Shares
acquired through reinvestment for purposes of computing the CDSC payable upon
a subsequent redemption will include the holding period of the redeemed
Shares. If you redeemed Class B Shares and paid a CDSC upon redemption, you
are permitted to reinvest the redemption proceeds in Class A Shares at NAV as
described above, but the amount of the CDSC paid upon redemption will not be
credited to your account.
A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within 90 days after the original
purchase of Class A Shares, any sales charge paid on the original purchase
cannot be taken into account by a reinvesting shareholder to the extent an
otherwise applicable sales charge is not imposed pursuant to the reinvestment
privilege for purposes of determining gain or loss, if any, realized on the
redemption, but instead will be added to the tax basis of the Class A Shares
received in the reinvestment. To the extent that any loss is realized and
Shares of the same Fund are purchased within 30 days before or after the
redemption, some or all of the loss may not be allowed as a deduction
depending upon the number of shares purchased. Shareholders should consult
their own tax advisers concerning the tax consequences of a redemption and
reinvestment. Upon receipt of a written request, the reinvestment privilege
may be exercised once annually by a shareholder, except that there is no such
time limit as to the availability of this privilege in connection with
transactions the sole purpose of which is to reinvest the proceeds at NAV in a
tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES
The CDSC on Class B Shares, Class C Shares and Class A Shares that are
subject to a CDSC may be waived or reduced if the redemption relates to: (a)
retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans (each a "Plan"); (b) the death or disability (as defined in
Section 72(m)(7) of the Code) of a participant or beneficiary
42
<PAGE>
in a Plan; (c) hardship withdrawals by a participant or beneficiary in a Plan;
(d) satisfying the minimum distribution requirements of the Code; (e) the
establishment of "substantially equal periodic payments" as described in
Section 72(t)(2) of the Code; (f) the separation from service by a participant
or beneficiary in a Plan; (g) the death or disability (as defined in Section
72(m)(7) of the Code) of a shareholder if the redemption is made within one
year of such event; (h) excess contributions being distributed from a Plan;
(i) distributions from a qualified retirement plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; and (j)
redemption proceeds which are to be reinvested in accounts or non-registered
products over which GSAM or its advisory affiliates have investment
discretion. In addition, Class A, Class B and Class C Shares subject to a
Systematic Withdrawal Plan may be redeemed without a CDSC. However, Goldman
Sachs reserves the right to limit such redemptions, on an annual basis, to 12%
each of the value of your Class B and Class C Shares and 10% of the value of
your Class A Shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in Shares of the same Class or an equivalent
class of other Goldman Sachs Funds or ILA Portfolios. See "Fund Highlights." A
shareholder may also elect to exchange automatically a specified dollar amount
of Shares of a Fund for Shares of the same Class or an equivalent class of any
other Goldman Sachs Fund or ILA Portfolio. Shares acquired through cross-
reinvestment of dividends or the automatic exchange program will be purchased
at NAV and will not be subject to any initial sales charge or CDSC as a result
of the cross-reinvestment or exchange, but shares subject to a CDSC acquired
under the automatic exchange program may be subject to a CDSC at the time of
redemption from the fund into which the exchange is made determined on the
basis of the date and value of the investor's initial purchase of the fund
from which the exchange (or any prior exchange) is made. Automatic exchanges
are made monthly on the 15th day of each month or the first Business Day
thereafter. The minimum dollar amount for automatic exchanges must be at least
$50 per month. Cross-reinvestments and automatic exchanges are subject to the
following conditions: (i) the value of the shareholder's account(s) in the
fund which is paying the dividend or from which the automatic exchange is
being made must equal or exceed $5,000; and (ii) the value of the account in
the acquired fund must equal or exceed the acquired fund's minimum initial
investment requirement or the shareholder must elect to continue cross-
reinvestment or automatic exchanges until the value of acquired fund shares in
the shareholder's account equals or exceeds the acquired fund's minimum
initial investment requirement. A Fund shareholder may elect cross-
reinvestment into an identical account or an account registered in a different
name or with a different address, social security or other taxpayer
identification number, provided that the account in the acquired fund has been
established, appropriate signatures have been obtained and the minimum initial
investment requirement has been satisfied. A Fund shareholder should obtain
and read the prospectus of the fund into which dividends are invested or
automatic exchanges are made.
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TAX-SHELTERED RETIREMENT PLANS
The Funds offer their Shares for purchase by retirement plans, including
traditional and Roth IRAs for individuals and their spouses, IRA plans for
employees in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA
plans, 403(b) plans and defined contribution plans such as 401(k) Salary
Reduction Plans. Detailed information concerning these plans may be obtained
from the Transfer Agent. This information should be read carefully, and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at NAV without the imposition of an
initial sales charge or CDSC at the time of exchange for Shares of the same
Class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for Shares of the same Class (or an
equivalent Class) of the original Fund at the next determined NAV without the
imposition of an initial sales charge or CDSC if the dollar amount in the Fund
resulting from such exchanges is below the shareholder's all-time highest
dollar amount on which it has previously paid the applicable sales charge.
Shares of these other funds purchased through dividends and/or capital gains
reinvestment may be exchanged for Shares of the Funds without a sales charge.
In addition to free automatic exchanges pursuant to the Automatic Exchange
Program, six free exchanges are permitted in each 12 month period. A fee of
$12.50 may be charged for each subsequent exchange during such period. The
exchange privilege may be materially modified or withdrawn at any time upon 60
days' notice to shareholders and is subject to certain limitations.
An exchange of Shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the Shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has owned Shares will be measured from the date the shareholder
acquired the original Shares subject to a CDSC and will not be affected by any
subsequent exchange.
An exchange may be made by identifying the applicable Fund and Class of
Shares and either writing to Goldman Sachs, Attention: Goldman Sachs
International Equity Funds, Shareholder Services, c/o NFDS, P.O. Box 419711,
Kansas City, MO 64141-6711 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer
Agent at 800-526-7384 (7:00 a.m. to 3:00 p.m. Chicago time). Certain
procedures are employed to prevent unauthorized or fraudulent exchange
requests as set forth under "How to Sell Shares of the Funds." Under the
telephone exchange privilege, Shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Funds." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the Shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of Shares received in the exchange. If such redemption occurs within 90 days
after the purchase of such Shares, to the extent a sales charge that would
otherwise apply to the Shares received in the exchange is not imposed, the
sales charge paid on such purchase of Class A Shares cannot be taken into
account by the exchanging
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shareholder for purposes of determining gain or loss, if any, realized on such
redemption for federal income tax purposes, but instead will be added to the
tax basis of the Shares received in the exchange. Shareholders should consult
their own tax advisers concerning the tax consequences of an exchange.
Eligible investors may exchange certain classes of shares for another class
of shares of the same Fund. For further information contact Goldman Sachs at
the number set forth on the back of the Prospectus.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the Shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized to
accept, on the Trust's behalf, purchase, redemption and exchange orders placed
by or on behalf of their customers and, if approved by the Trust, to designate
other intermediaries to accept such orders. In these cases, a Fund will be
deemed to have received an order that is in proper form when the order is
accepted by an Authorized Dealer or intermediary on a Business Day, and the
order will be priced at a Fund's NAV per Share (adjusted for any applicable
sales charge) next determined after such acceptance. Otherwise, a Fund or
Goldman Sachs must receive an order in proper form before it is effective.
Authorized Dealers and intermediaries will be responsible for transmitting
accepted orders to the Funds within the period agreed upon by them. Customers
should contact their Authorized Dealers or intermediaries to learn whether
they are authorized to accept orders for the Trust.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund Shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of Shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If Shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange Shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of Shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of Shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of Shares
of the Funds and other Goldman Sachs Funds (such as additional payments based
on new sales, amounts exceeding pre-established thresholds, or
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the length of time their customers' assets have remained in a Fund) and,
subject to applicable NASD regulations, contribute to various non-cash and
cash incentive arrangements to promote the sale of Shares, as well as sponsor
various educational programs, sales contests and/or promotions in which
participants may receive reimbursement of expenses, entertainment and prizes
such as travel awards, merchandise, cash, investment research and educational
information and related support materials. This additional compensation can
vary among Authorized Dealers depending upon such factors as the amounts their
customers have invested (or may invest) in particular Goldman Sachs Funds, the
particular program involved, or the amount of reimbursable expenses.
Additional compensation based on sales may, but is currently not expected to,
exceed 0.50% (annualized) of the amount invested. For further information, see
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLANS--CLASS A, CLASS B AND CLASS C SHARES
The Trust, on behalf of the Funds' Class A, Class B and Class C Shares, has
adopted distribution plans pursuant to Rule 12b-1 under the Act (each a
"Distribution Plan"). Goldman Sachs is entitled to a monthly fee from each
Fund for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributable to
Class A, Class B and Class C Shares, respectively, of such Fund. Currently,
Goldman Sachs has voluntarily agreed to limit the amount of such fees to 0.24%
and 0.21% of average daily net assets attributable to Class A shares of the
International Equity and Asia Growth Funds. As of the date of this Prospectus,
Goldman Sachs has no intention of modifying or discontinuing such waivers, but
may do so in the future at its discretion. The average rate for the fiscal
year ended January 31, 1998 paid by the International Equity and Asia Growth
Funds to Goldman Sachs was 0.22% and 0.21%, respectively with respect to each
Fund's Class A Shares. The average rate paid for all other Funds' Class A
Shares was 0.25%. The average rate for the fiscal year ended January 31, 1998
paid by the Funds offering Class B and Class C Shares was 0.75%. As of January
31, 1998, the Japanese Equity and International Small Cap Funds had not
commenced operations.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class A, Class B and Class C Shares of the Funds. The types of expenses for
which Goldman Sachs may be compensated for distribution services under the
Distribution Plans include: compensation paid to and expenses incurred by
Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives; commissions paid to Authorized Dealers; allocable
overhead; telephone and travel expenses; the printing of prospectuses for
prospective shareholders; preparation and distribution of sales literature;
advertising of any type; and all other expenses incurred in connection with
activities primarily intended to result in the sale of Class A, Class B and
Class C Shares. If the fees received by Goldman Sachs pursuant to the
Distribution Plans exceed its expenses, Goldman Sachs may realize a profit
from these arrangements. The Distribution Plans will be reviewed and are
subject to approval annually by the Trustees. The aggregate compensation that
may be received under the Distribution Plans for distribution services may not
exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the Shares have been held for one year. Goldman Sachs pays the
distribution fee on a quarterly basis.
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AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C Shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C Shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their Shares or their accounts or similar
services not otherwise provided on behalf of the Funds. The Service Plans will
be reviewed and are subject to approval annually by the Trustees. For the
fiscal year ended January 31, 1998, each Fund paid Authorized Dealer service
fees at the foregoing rate for each Fund's Class A, Class B and Class C
Shares.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.25% ongoing service fee to Authorized Dealers after the Shares have been
held for one year. Goldman Sachs pays the service fee on a quarterly basis.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its Shares upon request of a shareholder on any
Business Day at the NAV next determined after the receipt of such request in
proper form, subject to any applicable CDSC. See "Net Asset Value." Redemption
proceeds will normally be mailed by check to a shareholder within three
Business Days of receipt of a properly executed request. If the Shares to be
redeemed were recently purchased by check, a Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good funds
have been collected for the purchase of such Shares. This may take up to 15
days. Redemption requests may be made by writing to or calling the Transfer
Agent at the address or telephone number set forth on the back cover page of
this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of Shares for amounts up
to $50,000 within any seven calendar day period, except for investors who have
specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests if
the Trust reasonably believes the instructions to be genuine. Thus,
shareholders risk possible losses in the event of a telephone redemption not
authorized by them. The Trust may accept telephone redemption instructions
from any person identifying himself or herself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of Shares will be
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made only to an identical account. Telephone requests will also be recorded.
The Trust may implement other procedures from time to time concerning
telephone redemptions and exchanges. If reasonable procedures are not
employed, the Trust may be liable for any loss due to unauthorized or
fraudulent transactions. Proceeds of telephone redemptions will be mailed to
the shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total of one Business Day
delay) following receipt of a properly executed wire transfer redemption
request. Wiring of redemption proceeds may be delayed one additional Business
Day if the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in Shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C Shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares. The CDSC applicable to Class A, Class B or Class C Shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See the
Additional Statement for more information about the Systematic Withdrawal
Plan.
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DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding Shares will, at the election of
each shareholder, be paid in (i) cash; (ii) additional Shares of the same
Class of the Fund or (iii) Shares of the same or an equivalent class of other
Goldman Sachs Funds or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Shares or units of the Fund or another Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase Shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized capital gains, after reduction by available capital losses,
including any capital losses carried forward from prior years, will be
declared as dividends for each taxable year. Each Fund will pay dividends at
least annually. Each Fund will pay dividends from net investment income, and
dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Fund's dividends
may constitute a return of capital.
At the time of an investor's purchase of Shares of a Fund, a portion of the
NAV per Share may be represented by undistributed income of the Fund or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such Shares from such income or
realized appreciation may be taxable to the investor even if the NAV of the
investor's Shares is, as a result of the distributions, reduced below the cost
of such Shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
NET ASSET VALUE
The NAV per Share of each Class of a Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per Share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.
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PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in
advertisements and communications to shareholders or prospective investors.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at NAV. The total
return calculation assumes a complete redemption of the investment at the end
of the relevant period. Total return calculations for Class A Shares reflect
the effect of paying the maximum initial sales charge. Investment at a lower
sales charge would result in higher performance figures. Total return
calculations for Class B and Class C Shares reflect deduction of the
applicable CDSC imposed upon redemption of Class B and Class C Shares held for
the applicable period. Each Fund may also from time to time advertise total
return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on a Fund's NAV per Share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance
information is available.
Each Fund's total return will be calculated separately for each Class of
Shares in existence. Because each Class of Shares may be subject to different
expenses, the total return calculations with respect to each Class of Shares
for the same period will differ. The investment performance of the Class A,
Class B and Class C Shares will be affected by the payment of a sales charge,
distribution fees and other Class specific expenses. See "Shares of the
Trust."
The Funds' performance quotations do not reflect any fees charged by an
Authorized Dealer to its customer accounts in connection with investments in
the Funds. The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify Shares of beneficial interest in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
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When issued, Shares are fully paid and non-assessable. In the event of
liquidation, shareholders of each class are entitled to share pro rata in the
net assets of the applicable Fund available for distribution to the
shareholders of such Class. All Shares are freely transferable and have no
preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the NAVs represented by their
Shares.
As of April 3, 1998, Goldman Sachs CORE International Equity Omnibus A/C-
Growth and Income Strategy, 4900 Sears Tower, Chicago, IL 60606 was
recordholder of 29.1% of CORE International Equity Fund's outstanding Shares.
The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' Shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
Shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The Japanese
Equity and International Small Cap Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company, and each Fund
intends to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed as long-term capital gains,
regardless of the length of time a shareholder has held Shares or whether such
gain was reflected in the price paid for the Shares. Such long-term gain will
constitute a 20% or 28% rate gain, depending upon the Fund's holding period
for the assets, the sale of which generated the gain. These tax consequences
will apply whether distributions are received in cash or reinvested in Shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction,
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subject to certain holding period requirements and debt financing limitations
under the Code. Dividends paid by the Funds are not generally expected to
qualify, in the hands of corporate shareholders, for the corporate dividends-
received deduction. Certain distributions paid by a Fund in January of a given
year may be taxable to shareholders as if received the prior December 31.
Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying Shares immediately
prior to a distribution. Investors who purchase Shares shortly before the
record date for a distribution will pay a per Share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of Shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty, if any) on
amounts treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds may elect to pass
such foreign taxes through to their shareholders, who would then take such
taxes into account on their own tax returns. Alternatively, the Funds may
simply deduct such taxes in determining the amounts available for distribution
to shareholders. Generally, the Funds have taken the latter approach and
anticipate that they may continue to do so.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A Shares of
a Fund alone or in combination with Class A Shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain Shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional Shares will not apply toward the completion
of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time Shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of Shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary), 5% of
the dollar amount specified on the Account Application shall be held in escrow
by the Transfer Agent in the form of Shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed Shares will
be paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed Shares will be released. In signing
the Account Application, the investor irrevocably constitutes and appoints the
Transfer Agent his or her attorney to surrender for redemption any or all
escrowed Shares with full power of substitution in the premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed Shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQ PROABC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1998
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS INSTITUTIONAL SHARES
GOLDMAN SACHS CORE INTERNATIONAL GOLDMAN SACHS INTERNATIONAL
EQUITY FUND SMALL CAP FUND
Seeks long-term growth of cap- Seeks long-term capital appre-
ital through a broadly diver- ciation through investments in
sified portfolio of equity se- equity securities of companies
curities of large cap compa- with public stock market capi-
nies that are organized out- talizations of $1 billion or
side the U.S. or whose securi- less at the time of investment
ties are principally traded that are organized outside the
outside the U.S. U.S. or whose securities are
principally traded outside the
U.S.
GOLDMAN SACHS INTERNATIONAL EQ-
UITY FUND
Seeks long-term capital appre- GOLDMAN SACHS EMERGING MARKETS
ciation through investments in EQUITY FUND
equity securities of companies Seeks long-term capital appre-
that are organized outside the ciation through investments in
U.S. or whose securities are equity securities of emerging
principally traded outside the country issuers.
U.S.
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS JAPANESE EQUITY Seeks long-term capital appre-
FUND ciation through investments in
Seeks long-term capital appre- equity securities of companies
ciation through investments in related (in the manner de-
equity securities of Japanese scribed herein) to Asian coun-
companies. tries.
-----------------
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Goldman Sachs CORE International Equity Fund. Goldman
Sachs Asset Management International ("GSAMI"), London, England, an affiliate
of Goldman Sachs, serves as investment adviser to each other Fund. GSAM and
GSAMI are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS, INCLUDING RISKS RELATING TO CHANGES IN
RELATIVE CURRENCY EXCHANGE RATES OR (AS IN THE CASE OF THE EXPECTED
INTRODUCTION OF THE EURO) THE CREATION OF NEW CURRENCIES. THE SECURITIES
MARKETS OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS LIQUID, ARE
ESPECIALLY SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN
EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING
COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE REGISTRATION
AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH INVESTMENT IN MORE
DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN SECURITIES AND EMERGING
MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH
THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. THE JAPANESE
EQUITY AND ASIA GROWTH FUNDS WILL BE PARTICULARLY SUBJECT TO EVENTS AFFECTING
THE MARKETS IN WHICH THESE FUNDS CONCENTRATE THEIR INVESTMENTS. SEE
"DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 12
Description of Securities.......... 17
Investment Techniques.............. 21
Risk Factors....................... 24
Investment Restrictions............ 28
Portfolio Turnover................. 28
Management......................... 28
Expenses........................... 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value.................... 33
Performance Information............ 34
Shares of the Trust................ 34
Taxation........................... 35
Additional Information............. 36
Reports to Shareholders............ 37
Dividends.......................... 37
Purchase of Institutional Shares... 37
Exchange Privilege................. 40
Redemption of Institutional Shares. 40
Appendix .......................... A-1
Account Information Form
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in
this Prospectus.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment funds (commonly
known as mutual funds (the "Funds")). Each Fund pools the monies of
investors by selling its Shares to the public and investing these monies
in a portfolio of securities designed to achieve that Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ------------ -------------- ----------------------- -------------
<S> <C> <C> <C>
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australasia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
JAPANESE Long-term Substantially all, and at least 65%, of Tokyo Price
EQUITY FUND capital total assets in equity securities of Index ("TOPIX")
appreciation. Japanese companies. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of Morgan Stanley
SMALL CAP capital total assets in equity securities of Capital
FUND appreciation. companies with public stock market International
capitalizations of $1 billion or less EAFE Small Cap
at the time of investment that are Index
organized outside the United States or
whose securities are principally traded
outside the United States. The Fund may
employ currency management techniques.
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------- ---------- ------------------- ---------
<S> <C> <C> <C>
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex-Japan
South Korea, Sri Lanka, Taiwan, Index
Thailand and other Asian countries.
The Fund may employ certain currency
management techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's Share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates (or, as in the case of the expected introduction of the euro next
year, the creation of new currencies), political and economic developments,
the imposition of exchange controls, confiscation and other governmental
restrictions. Generally, there is less availability of data on foreign
companies and securities markets as well as less regulation of foreign
stock exchanges, brokers and issuers. A Fund's investments in emerging
markets and countries ("Emerging Countries") involves greater risks than
investments in the developed countries of Western Europe, the United
States, Canada, Australia, New Zealand and Japan. In addition, because the
Funds invest primarily outside the United States, they may involve greater
risks, since the securities markets of foreign countries are generally less
liquid and subject to greater price volatility. The securities markets of
Emerging Countries, including those in Asia, Latin America, Eastern Europe
and Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and, therefore, will be particularly subject
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
4
<PAGE>
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International
serves as Investment Adviser to each other Fund. As of March 23, 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $153 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's Shares (the
"Distributor").
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000,000 or $10,000,000 (depending
upon an investor's eligibility) in Institutional Shares of a Fund alone or
in combination with Institutional Shares (or the corresponding class) of
any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value ("NAV")
without any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the NAV next determined after
receipt of such request in proper form. See "Redemption of Institutional
Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
CORE International Equity............. Annually Annually
International Equity.................. Annually Annually
Japanese Equity....................... Annually Annually
International Small Cap............... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends and
distributions in additional Institutional Shares of the Fund in which they
have invested or may elect to receive them in cash. For further information
concerning dividends and distributions, see "Dividends."
5
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
CORE INT'L EMERGING
INT'L INT'L JAPANESE SMALL MARKETS ASIA
EQUITY EQUITY EQUITY CAP EQUITY GROWTH
FUND/1/ FUND FUND/1/ FUND/1/ FUND/1/ FUND
------- ------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed
on Purchases................. None None None None None None
Maximum Sales Charge Imposed
on Reinvested Dividends...... None None None None None None
Redemption Fees............... None None None None None None
Exchange Fees................. None None None None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
daily net assets)
Management Fees (after
applicable limitations)/2/... 0.75% 0.90% 0.90% 1.10% 1.10% 0.86%
Distribution (Rule 12b-1)
Fees......................... None None None None None None
Other Expenses (after
applicable limitations)/3/... 0.25% 0.18% 0.10% 0.30% 0.20% 0.25%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(AFTER FEE AND EXPENSE
LIMITATIONS)/4/.............. 1.00% 1.08% 1.00% 1.40% 1.30% 1.11%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Adviser voluntarily have agreed not to impose a portion of
the management fee on the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds equal to 0.10%, 0.10%, 0.10%, 0.10%, 0.10% and 0.14%,
respectively. Without such limitations, management fees would be 0.85%,
1.00%, 1.00%, 1.20%, 1.20% and 1.00% of each Fund's average daily net
assets, respectively.
/3/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of the International Equity, Emerging
Markets Equity and Asia Growth Funds)) for the following Funds to the extent
such expenses exceed the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.25%
International Equity............................................. 0.20%
Japanese Equity ................................................. 0.10%
International Small Cap.......................................... 0.30%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the International Equity
and Asia Growth Funds for the fiscal year ended January 31, 1998, would have
been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Equity................................... 0.18% 1.18%
Asia Growth............................................ 0.31% 1.31%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of the CORE
International Equity, Emerging Markets Equity, Japanese Equity and
International Small Cap Funds for the current fiscal year are estimated to be
as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity.............................. 0.64% 1.49%
Emerging Markets Equity................................ 0.34% 1.54%
Japanese Equity........................................ 0.79% 1.79%
International Small Cap................................ 0.74% 1.94%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the
end of each time period:
CORE International Equity..................... $10 $32 n/a n/a
International Equity.......................... $11 $34 $60 $132
Japanese Equity............................... $10 $32 n/a n/a
International Small Cap....................... $14 $44 n/a n/a
Emerging Markets Equity....................... $13 $41 n/a n/a
Asia Growth................................... $11 $35 $61 $135
</TABLE>
As of the date of this Prospectus, the Investment Adviser and Goldman Sachs
have no intention of modifying or discontinuing any of the limitations set
forth above but may do so in the future at their discretion. The information
set forth in the foregoing table and hypothetical example relates only to
Institutional Shares of the Funds. Each Fund also offers Service Shares and
Class A, Class B and Class C Shares, which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
Service, Class A, Class B and Class C Shares may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back cover of this Prospectus.
Institutions that invest in Institutional Shares on behalf of their
customers may charge fees directly to their customer accounts in connection
with their investments. Such fees, if any, may affect the return such
customers realize with respect to their investments.
Certain institutions may also receive other compensation in connection with
the sale and distribution of Institutional Shares or for services to their
customers' accounts and/or the Funds. For additional information regarding
such compensation, see "Purchase of Institutional Shares" in this Prospectus
and the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended January 31, 1998 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus. During
the periods shown, the Trust did not offer Shares of the Japanese Equity and
International Small Cap Funds. Accordingly, there are no financial highlights
for these Funds.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------
FROM NET
NET REALIZED NET REALIZED REALIZED
AND UNREALIZED AND UNREALIZED GAIN ON
NET ASSET GAIN (LOSS) ON GAIN (LOSS) ON FROM INVESTMENT NET NET ASSET
VALUE, NET INVESTMENTS CURRENCY NET AND DECREASE VALUE,
BEGINNING INVESTMENT AND FUTURES RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
CORE INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $ -- $0.13 $(0.91) $ -- -- $(0.78) $9.22 (7.66)%(d)
1998--Class B
Shares(b)....... 10.00 (0.02) 0.13 (0.90) -- -- (0.79) 9.21 (7.90)(d)
1998--Class C
Shares(b)....... 10.00 (0.02) 0.13 (0.89) -- -- (0.78) 9.22 (7.80)(d)
1998--Institu-
tional
Shares(b)....... 10.00 0.02 0.13 (0.89) (0.02) -- (0.76) 9.24 (7.45)(d)
1998--Service
Shares(b)....... 10.00 0.01 0.13 (0.91) -- -- (0.77) 9.23 (7.70)(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
--------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ------------ ------------- ----------- --------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 25.16% $.0069 $ 7,087 1.50%(c) (0.27)%(c) 4.87%(c) (3.90)%(c)
1998--Class B
Shares(b)....... 25.16 .0069 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c)
1998--Class C
Shares(b)....... 25.16 .0069 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c)
1998--Institu-
tional
Shares(b)....... 25.16 .0069 17,719 1.00(c) 0.59(c) 4.12(c) (2.53)(c)
1998--Service
Shares(b)....... 25.16 .0069 1 1.50(c) 0.26(c) 4.62(c) (2.86)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
8
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
-------------------------------------- -----------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED REALIZED NET REALIZED
AND GAIN ON GAIN ON NET
UNREALIZED INVESTMENT INVESTMENT INCREASE
NET ASSET NET NET REALIZED GAIN (LOSS) IN EXCESS AND FOREIGN AND FOREIGN (DECREASE)
VALUE, INVESTMENT AND UNREALIZED ON CURRENCY FROM NET OF NET CURRENCY CURRENCY IN NET
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT RELATED RELATED ASSET
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
--------- ---------- -------------- ------------ ---------- ---------- ------------ ------------ ----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.32 $0.03 $2.99 $(0.95) $ -- $(0.30) $(0.88) $(0.36) $0.53
1998--Class B
Shares.......... 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76) 0.46
1998--Class C
Shares(b)....... 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24) (3.04)
1998--Institu-
tional Shares... 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27) 0.57
1998--Service
Shares.......... 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05) 0.50
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28) -- -- (0.21) -- 2.12
1997--Class B
Shares(b)....... 18.91 (0.06) 0.94 (0.34) -- -- (0.21) -- 0.33
1997--Institu-
tional
Shares(b)....... 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) -- 1.95
1997--Service
Shares(b)....... 17.70 (0.02) 2.95 (1.08) -- -- (0.21) -- 1.64
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) -- (0.87) -- 2.68
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- -- (0.59) -- (3.58)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- -- -- 3.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- -- -- 0.17
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
NET AT END EXPENSES INVESTMENT EXPENSES NET
ASSET OF TO INCOME TO INVESTMENT
VALUE, PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------ ------------ --------- ---------- -------- --------- ------------ --------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.85 11.12% 40.82% $.0207 $697,590 1.67% (0.27)% 1.80% (0.40)%
1998--Class B
Shares.......... 19.70 10.51 40.82 .0207 55,324 2.20 (0.90) 2.30 (1.00)
1998--Class C
Shares(b)....... 19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c)
1998--Institu-
tional Shares... 19.97 11.82 40.82 .0207 56,263 1.08 0.30 1.18 0.20
1998--Service
Shares.......... 19.84 11.25 40.82 .0207 3,035 1.55 (0.36) 1.65 (0.46)
1997--Class A
Shares.......... 19.32 13.48 38.01 .0318 536,283 1.69 (0.07) 1.88 (0.26)
1997--Class B
Shares(b)....... 19.24 2.83(d) 38.01 .0318 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c)
1997--Institu-
tional
Shares(b)....... 19.40 12.53(d) 38.01 .0318 68,374 1.10(c) 0.43(c) 1.25(c) 0.28(c)
1997--Service
Shares(b)....... 19.34 10.42(d) 38.01 .0318 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c)
1996--Class A
Shares.......... 17.20 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... 14.52 (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 18.10 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.35 1.23(d) 0.00 -- 66,063 1.80(c) (0.42)(c) 2.58(c) (1.20)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) 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.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE NET ASSET
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD
--------- ---------- -------------- ---------------- ---------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS EQUITY FUND
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ -- $(0.11) $(0.20) -- -- -- $(0.31) $9.69
1998 -- Class B
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
1998 -- Class C
Shares(b)....... 10.00 -- (0.10) (0.20) -- -- -- (0.30) 9.70
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 (0.11) (0.20) -- -- -- (0.30) 9.70
1998 -- Service
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO LOSS TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3.43)%(c)
1998 -- Class B
Shares(b)....... (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
1998 -- Class C
Shares(b)....... (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
1998 -- Institu-
tional
Shares(b)....... (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28(c) (3.18)(c)
1998 -- Service
Shares(b)....... (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
</TABLE>
------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) 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.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ----------------------------------
NET REALIZED FROM NET NET
AND UNREALIZED REALIZED INCREASE NET
NET ASSET NET NET REALIZED ON FOREIGN IN EXCESS GAIN ON (DECREASE) ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY FROM NET OF NET INVESTMENT IN NET VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT AND FUTURES ASSET END OF
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93) $8.38
1998--Class B
Shares.......... 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93) 8.31
1998--Class C
Shares(b)....... 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44) 8.29
1998--Institu-
tional Shares... 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89) 8.44
1997--Class A
Shares.......... 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18) 16.31
1997--Class B
Shares(b)....... 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07) 16.24
1997--Institu-
tional
Shares(b)....... 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28) 16.33
1996--Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18 16.49
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87) 13.31
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ------- --------- ------------ --------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
1998--Class B
Shares.......... (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
1998--Class C
Shares(b)....... (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
1998--Institu-
tional Shares... (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
1997--Class A
Shares.......... (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(b)....... (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
1997--Institu-
tional
Shares(b)....... (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54(c) 1.26(c) 0.38 (c)
1996--Class A
Shares 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C and Institutional share activity commenced on
July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 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.
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that a
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. A Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.
The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks are described under "Description of
Securities," "Risk Factors" and "Investment Techniques."
Actively Managed Funds. The International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds are
managed using an active international approach, which utilizes a consistent
process of stock selection undertaken by portfolio management teams located
within each of the major investment regions, including Europe, Japan, Asia and
the United States. In selecting securities, the Investment Adviser uses a
long-term, bottom-up strategy based on first-hand fundamental research that is
designed to give broad exposure to the available opportunities while seeking
to add return primarily through stock selection. Equity securities for these
Funds are evaluated based on three key factors--the business, the management
and the valuation. The Investment Adviser ordinarily seeks securities that
have, in the Investment Adviser's opinion, superior earnings growth potential,
sustainable franchise value with management attuned to creating shareholder
value and relatively discounted valuations. In addition, the Investment
Adviser uses a multi-factor risk model which seeks to assure that deviations
from the benchmark are justifiable.
Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
multifactor models used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary
12
<PAGE>
multifactor models (each a "Multifactor Model") to forecast the returns of
different markets, currencies and individual securities. The Investment
Adviser may rely on research from both the Goldman Sachs Global Investment
Research Department (the "Research Department") and other industry sources.
In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily composed of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
13
<PAGE>
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio composed of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."
Other. The Fund may invest only in fixed-income securities that are
considered to be cash equivalents.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed-income
securities.
JAPANESE EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded primarily on a Japanese stock
exchange as well as those whose shares are registered with the Japan
Securities Dealers Association for trading primarily on Japan's over-the-
counter market. The Fund's concentration in Japanese companies will expose it
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets as described under "Risk Factors--Special
Risks of Investment in the Japanese Markets."
14
<PAGE>
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities.
INTERNATIONAL SMALL CAP FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economics which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in Asian and Other Emerging Markets,"
which are not present in investments in more developed countries. If the
market capitalization of a company held by the Fund increases above $1
billion, the Fund may, consistent with its investment objective, continue to
hold the security.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion at the time of investment and in
fixed-income securities.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries;
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country; (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries; or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
15
<PAGE>
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio managers' and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed-income securities of private and governmental Emerging Country
issuers; and (ii) equity and fixed-income securities of issuers in developed
countries.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries; (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries; (iii) they maintain 50% or more of their assets
in one or more of the Asian countries; or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand, as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the Investment Adviser's views of the relative attractiveness of the Asian
markets and particular issuers. For example, on January 31, 1998 (the end of
the Fund's last fiscal year), more than 35% of the Fund's assets were invested
in securities traded in Hong Kong. Concentration of the Fund's assets in one
or a few of the Asian countries and Asian currencies will subject the Fund to
greater risks than if the Fund's assets were not geographically concentrated.
See "Description of Securities--Foreign Investments." The Fund may invest in
the aggregate up to 35% of its total assets in equity securities of issuers in
other countries, including Japan, and in fixed-income securities.
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DESCRIPTION OF SECURITIES
The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar-denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will be
ready by the scheduled launch date; the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment of exchange rates for existing
currencies and the euro; and the creation of suitable clearing and settlement
payment systems for the new currency. These or other factors, including
political and economic risks, could cause market disruptions before or after
the introduction of the euro, and could adversely affect the value of
securities held by the Funds. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures
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may be different in foreign countries and, in certain markets, such procedures
have been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not
geographically concentrated.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund may avoid currency risks during
the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell foreign currencies on a spot basis and
may also purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, each Fund may enter into such
contracts to seek to increase total return when the Investment Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. Each Fund may also engage in cross-
hedging by using forward contracts in a currency different from that in which
the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation
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between the two currencies. If a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity or Asia Growth Fund's currency exposure will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objective and Policies" in the Additional
Statement.
FIXED-INCOME SECURITIES
Each Fund may invest in fixed-income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.
Investments in fixed-income securities may include obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that
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control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's NAV, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
Fixed-income investments may also include investments in structured
securities. The value of the principal of and/or interest on such securities
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured securities may provide that in certain circumstances
no principal is due at maturity and, therefore, result in the loss of a Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to price accurately than less complex securities.
Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
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INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase a Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each Fund may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of options transactions, however, the
writing of an option on a foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If an option that a Fund has
written is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing call
and put options for hedging purposes, each Fund may purchase call or put
options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices. A
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the
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Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on the Fund's outstanding positions in futures and related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations or to otherwise cover the obligations in a
manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.
EQUITY SWAPS
Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may
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also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary settlement period. A Fund will segregate cash or liquid assets in an
amount sufficient to meet the purchase price until three days prior to the
settlement date. Alternatively, each Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. The purchase of
securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain stripped mortgage-backed securities, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days, certain over-the-counter options and
certain restricted securities, unless it is determined, based upon a review of
the trading markets for a specific restricted security, that such restricted
security is eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities, subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Each Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or its affiliates, may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
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equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral). A Fund may experience
a loss or delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, for an equal amount of the securities of the same
issuer as the securities sold short (a short sale against-the-box). Not more
than 25% of a Fund's net assets (determined at the time of the short sale) may
be subject to such short sales. As a result of recent tax legislation, short
sales may not generally be used to defer the recognition of gain for tax
purposes with respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year. When a Fund's assets are invested in
such instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps; (iii) other investment companies including World Equity
Benchmark Shares and Standard & Poor's Depository Receipts; (iv) unseasoned
companies; and (v) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its total assets. For more information,
see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, certain foreign stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.
24
<PAGE>
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may each invest without limit in
the securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such Countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Starting in mid-1997 some Pacific region countries began to
experience currency devaluations that resulted in high interest rate levels
and sharp reductions in economic activity. This situation resulted in a
significant drop in the securities prices of companies located in the region.
Some countries have experienced government intervention,
25
<PAGE>
have sought assistance from the International Monetary Fund and are undergoing
substantial domestic unrest. Although some countries are taking steps to
restructure their financial sectors in a manner that may facilitate a return
to long-term economic growth, there can be no assurance that these efforts
will be successful or that their current problems will not persist. At the end
of its last fiscal year, a substantial portion of the assets of the Asia
Growth Fund were invested in securities traded in the Hong Kong market. In
1997, the sovereignty of Hong Kong reverted from the United Kingdom to China.
Although Hong Kong is, by law, to maintain a high degree of autonomy, there
can also be no assurance that the general economic position of Hong Kong will
not be adversely affected as a result of the exercise of Chinese sovereignty
over Hong Kong. In particular, business confidence in Hong Kong can be
significantly affected by political developments and statements by public
figures in China, which can in turn affect the performance of the securities
markets. In addition, the reversion of Hong Kong to China has created
uncertainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.
Economies in individual Emerging Countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rates of inflation, currency valuation, capital reinvestment,
resource self-sufficiency and balance of payments positions. Many Emerging
Countries have experienced currency devaluations and substantial and, in some
cases, extremely high rates of inflation, which have a negative effect on the
economies and securities markets of such Emerging Countries. Economies in
Emerging Countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be
affected adversely by the economies of their trading partners, trade barriers,
exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly, and is currently subject to deflationary
26
<PAGE>
pressures. In addition to this economic downturn, Japan is undergoing
structural adjustments related to high wages and taxes, currency valuations
and structural rigidities. Japan has also been experiencing notable
uncertainty and loss of public confidence in connection with the reform of its
political process and the deregulation of its economy. These conditions
present risks to the Japanese Equity Fund and its ability to attain its
investment objective.
Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.
During the recent past the average stock market prices of Japanese
companies, as measured by major indices such as the NIKKEI 225 Average, have
experienced a substantial decline. It is not possible to determine whether
this general decline will continue.
RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed- income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
27
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of the historical portfolio turnover
rate of each Fund (other than the Japanese Equity and International Small Cap
Funds). It is anticipated that the annual portfolio turnover rates of the
Japanese Equity and International Small Cap Funds will generally not exceed
75%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. The Investment Adviser
will not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund consistent with the Fund's investment
objectives and portfolio management policies.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE International Equity Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management International became a
member of the Investment Management Regulatory Organisation Limited in 1990
and registered as an investment adviser in 1991. As of March 23, 1998, GSAM
and GSAMI, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $153 billion.
28
<PAGE>
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert A. Beckwitt Portfolio Manager-- Since Mr. Beckwitt joined the
Vice President and Emerging Markets Equity 1997 Investment Adviser in
Co-Head Emerging Market 1996. From 1986 to 1996,
Equities he was Chief Investment
Strategist-Portfolio
Adviser to high net
worth investors at
Fidelity Investments.
- -----------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
Japanese Equity 1998 1996 and is also co-head
of our Japanese Equity
Group in Tokyo. From
1984 to 1996, he was a
portfolio manager and an
Executive Director at
CIN Management.
- -----------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992.
- -----------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1995 to 1996,
he was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
From 1994 to 1995, he
was engaged in French
equity research and
marketing at Banque
Nationale de Paris and
Schroders in London.
- -----------------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the Investment Adviser in
Managing Director CORE International Equity 1997 1989. From 1987 to 1989, he was the senior
quantitative analyst in the Goldman, Sachs
& Co. Investment Research Department.
- -----------------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the Investment Adviser
Vice President Asia Growth 1994 in 1990. Prior to 1990, she was a
management consultant with Andersen
Consulting in Hong Kong.
- -----------------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the Investment Adviser
Executive Director International Equity 1996 in 1996. From 1990 to 1996, he was at CIN
Management, where his responsibilities
included European equity fund management
as well as active quantitative techniques
and risk management.
- -----------------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the Investment Adviser in
Managing Director International Equity 1994 1994. From 1987 to 1994, he worked at
International Small Cap 1998 Nomura Investment Management Incorporated
Japanese Equity 1998 as a Senior Portfolio Manager.
- -----------------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the Investment Adviser in
Managing Director and Asia Growth 1994 1994. From 1987 to 1994, he was a Vice
Co-Head Emerging Portfolio Manager-- President of Bankers Trust Australia Ltd
Market International Equity 1994 where he was the Chief Investment Officer
Equities Emerging Markets Equity 1997 of their Southeast Asian investment team.
International Small Cap 1998 He is also a member of Goldman Sachs Asset
Management's global asset allocation
committee.
- -----------------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the Investment Adviser
Vice President CORE International Equity 1997 in 1990. From 1985 to 1990, he was a
project manager in the Information
Technology Division of the Investment
Adviser.
- -----------------------------------------------------------------------------------------------------------
Ramakrishna Shankar Portfolio Manager-- Since Mr. Shankar joined the Investment Adviser
Vice President Asia Growth 1997 in 1997. From July 1996 to 1997, he worked
for Goldman, Sachs & Co. in Singapore as a
strategic advisor for transactions
involving infrastructure industries in
Asia. From 1988
to 1996, he worked at Goldman, Sachs & Co.
as an investment banker in the Investment
Banking Division.
- -----------------------------------------------------------------------------------------------------------
Miyako Shibamoto Portfolio Manager-- Since Ms. Shibamoto joined the Japanese Equity
Vice President Japanese Equity 1998 team in March 1998. From 1993 to 1998, she
was a Vice President at Scudder Stevens
and Clark (Japan).
- -----------------------------------------------------------------------------------------------------------
Robert Stewart Portfolio Manager-- Since Mr. Stewart joined the Investment Adviser
Vice President Japanese Equity 1998 in 1996. From 1994 to 1996, he was at CIN
Management as a portfolio manager,
managing Japanese equities.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity 1998 Investment Adviser in
1996. From 1990 to 1996,
he was a Japanese equity
portfolio manager at
Nomura Investment
Management where he
actively managed assets
for US pension funds.
- -------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
International Equity 1997 1994. From 1992 to 1994,
she was employed at
Bankers Trust Australia
Ltd where she was a
senior analyst in the
South East Asia
Investment Team.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSAMI are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
CORE International Equity ................ 0.85% 0.75%
GSAMI
International Equity...................... 1.00% 0.90%
Japanese Equity........................... 1.00% N/A
International Small Cap................... 1.20% N/A
Emerging Markets Equity................... 1.20% 1.10%
Asia Growth............................... 1.00% 0.86%
</TABLE>
- ---------------------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. The Investment Adviser may discontinue or modify such voluntary
limitations in the future at their discretion, although there is no current
intention to do so.
31
<PAGE>
The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses and, in the case of International Equity, Emerging
Markets Equity and Asia Growth Funds, transfer agency fees) to the extent such
expenses exceed 0.25%, 0.20%, 0.10%, 0.30%, 0.16% and 0.24% per annum of the
average daily net assets of the CORE International Equity, International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds, respectively. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the applicable Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. From time to time, a Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management--Activities of Goldman Sachs and its Affiliates
and Other Accounts Managed by Goldman Sachs" in the Additional Statement for
further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's Shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the International Equity
and Asia Growth Funds with respect to Institutional or Service shares. Goldman
Sachs is entitled to receive a transfer agency fee from the Emerging Markets
Equity Fund equal to 0.04% of the average daily net assets of the
Institutional and Service shares of such Fund. Goldman Sachs is entitled to
receive a fee from the CORE International Equity, Japanese Equity and
International Small Cap Funds, with respect to Institutional and Service
shares, equal to their proportionate share of the total transfer agency costs
borne by the Fund. These costs are equal to $12,000 per year per Class plus
$7.50 per account and out-of-pocket and transaction-related expenses for Class
A, B and C Shares plus 0.04% of the average daily net assets of the
Institutional and Service classes. Shares of a Fund may also bear fees paid to
Service Organizations or other persons providing sub-transfer agency and
similar services.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold Shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the Shares acquired for its own account.
32
<PAGE>
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation, the fees payable to the Investment Adviser;
custodial and transfer agency fees; service fees paid to Service
Organizations; brokerage fees and commissions; filing fees for the
registration or qualification of the Fund's Shares under federal or state
securities laws; organizational expenses; fees and expenses incurred in
connection with membership in investment company organizations; taxes;
interest; costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for
damages or other relief asserted against, the Funds for violation of any law;
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investment Adviser and its
affiliates with respect to the Funds); expenses of preparing and setting in
type prospectuses, statements of additional information, proxy material,
reports and notices and the printing and distributing of the same to
shareholders and regulatory authorities; compensation and expenses of the
Trust's "non-interested" Trustees; and extraordinary organizational expenses,
if any, incurred by the Trust.
NET ASSET VALUE
The NAV per share of each Class of a Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.
33
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in
advertisements and communications to shareholders or prospective investors.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at NAV. The total
return calculation assumes a complete redemption of the investment at the end
of the relevant period. Each Fund may also from time to time advertise total
return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance data which are based
on the NAV per share would be reduced if any applicable sales charge were
taken into account. In addition to the above, each Fund may from time to time
advertise its performance relative to certain averages, performance rankings,
indices, other information prepared by recognized mutual fund statistical
services and investments for which reliable performance information is
available.
Each Fund's total return will be calculated separately for each Class of
Shares in existence. Because each Class of Shares may be subject to different
expenses, the total return calculations with respect to each Class of Shares
for the same period will differ. See "Shares of the Trust."
The Funds' performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Funds. The investment results of a Fund will fluctuate over time and
any presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify Shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
When issued, Shares are fully paid and non-assessable. In the event of
liquidation, shareholders of each class are entitled to share pro rata in the
net assets of the applicable Fund available for distribution to the
shareholders of such Class. All Shares, are freely transferable and have no
preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that, at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the NAVs represented by their
shares.
As of April 3, 1998, Goldman Sachs CORE International Equity Fund Omnibus
A/C - Growth and Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was
recordholder of 29.1% CORE International Equity Fund's outstanding shares.
34
<PAGE>
The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' Shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
Shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The Japanese
Equity and International Small Cap Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company, and each Fund
intends to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed as long-term capital gain,
regardless of the length of time a shareholder has held Shares or whether such
gain was reflected in the price paid for the Shares. Such long-term gain will
constitute a 20% or 28% rate gain, depending upon the Fund's holding period
for the assets, the sale of which generated the gain. These tax consequences
will apply whether distributions are received in cash or reinvested in Shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying Shares immediately
prior to a distribution. Investors who purchase Shares shortly before the
record date for a distribution will pay a per Share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of Shares are taxable events.
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Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty, if any) on
amounts treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds may elect to pass
such foreign taxes through to their shareholders, who would then take such
taxes into account on their own tax returns. Alternatively, the Funds may
simply deduct such taxes in determining the amounts available for distribution
to shareholders. Generally, the Funds have taken the latter approach and
anticipate that they may continue to do so.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. To
eliminate unnecessary duplications, only one copy of such reports may be sent
to Recordholders with the same mailing address. Recordholders of Institutional
Shares who desire a duplicate copy of such reports to be mailed to their
residence should contact Goldman Sachs as provided below. Each recordholder of
Institutional Shares will also be provided with a printed confirmation for each
transaction in its account and a quarterly account statement. A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.
The Funds do not generally provide subaccounting services with respect to
beneficial ownership of Institutional Shares.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid: (i) in cash; or (ii) in additional
Institutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net capital gains, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as dividends
for each taxable year. Each Fund will pay dividends from net investment income,
and dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Fund's dividends
may constitute a return of capital.
At the time of an investor's purchase of Shares of a Fund, a portion of the
NAV per Share may be represented by undistributed income of the Fund or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such Shares from such income or realized
appreciation may be taxable to the investor even if the NAV of the investor's
Shares is, as a result of the distributions, reduced below the cost of such
Shares and the distributions (or portions thereof) represent a return of a
portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day at the NAV per
Share next determined after receipt of an order. No sales load will be charged.
Currently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
37
<PAGE>
4:00 p.m. 037-380New York time) as described under "Net Asset Value." Purchases
of Institutional Shares of the Funds must be settled within 3 Business Days of
the receipt of a complete purchase order. Payment of the proceeds of redemption
of Shares purchased by check may be delayed for a period of time as described
under "Redemption of Institutional Shares."
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to the Fund or Goldman
Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by qualified investors by
placing an order with Goldman Sachs at 800-621-2550 and either wiring federal
funds to State Street Bank or initiating an ACH transfer. Purchases may also be
made by check (except that the Trust will not accept a check drawn on a foreign
bank or a third party check) or Federal Reserve draft made payable to "Goldman
Sachs International Equity Funds--Name of Fund and Class of Shares" and should
be directed to "Goldman Sachs International Equity Funds--Name of Fund and
Class of Shares," c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box
419711, Kansas City, MO 64141-6711.
MINIMUM INITIAL INVESTMENTS
Institutional Shares of the Fund are offered to: (a) banks, trust companies
or other types of depository institutions investing for their own account or on
behalf of their clients; (b) pension and profit sharing plans, pension funds
and other company-sponsored benefit plans; (c) any state, county, city or any
instrumentality, department, authority or agency thereof; (d) corporations and
other for-profit business organizations with assets of at least $100 million or
publicly traded securities outstanding; (e) "wrap" accounts for the benefit of
clients of broker-dealers, financial institutions or financial planners,
provided that they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; and (f)
registered investment advisers investing for accounts for which they receive
asset-based fees. With respect to these investors, the minimum initial
investment is $1,000,000 in Institutional Shares of a Fund alone or in
combination with other assets under the management of GSAM and its affiliates.
The minimum initial investment in Institutional Shares for (a) individual
investors; (b) qualified non-profit organizations, charitable trusts,
foundations and endowments; and (c) accounts over which GSAM or its advisory
affiliates have investment discretion is $10,000,000.
The foregoing minimum investment requirements may be waived at the discretion
of the Trust's officers. In addition, the minimum investment requirement may be
waived for current and former officers, partners, directors or employees of
Goldman Sachs or any of its affiliates or for other investors at the discretion
of the Trust's officers. No minimum amount is required for subsequent
investments.
OTHER PURCHASE INFORMATION
The Trust may authorize certain institutions (including banks, trust
companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers to accept on the Trust's
38
<PAGE>
behalf, purchase, redemption and exchange orders placed by or on behalf of such
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form by or on behalf of a customer when the order is accepted
by the authorized institution or intermediary on a Business Day, and the order
will be priced at a Fund's NAV per Share next determined after such acceptance.
The institution or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer should
contact an institution to learn whether it is authorized to accept orders for
the Trust. Such institutions may receive payments from the Funds or Goldman
Sachs for the services provided by them with respect to the Funds'
Institutional Shares. These payments may be in addition to other servicing
and/or sub-transfer agency payments borne by the Funds and their Share Classes.
The Investment Adviser, Distributor, and/or their affiliates, may pay other
compensation, from time to time, out of their assets and not as an additional
charge to the Funds, to selected institutions (including banks, trust
companies, brokers and investment advisers) and other persons in connection
with the sale and/or servicing of Shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales,
amounts exceeding pre-established thresholds, or the length of time clients'
assets have remained in the Trust), and subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of Shares, as well as sponsor various educational programs, sales contests
and/or promotions in which participants may receive reimbursement of expenses,
entertainment and prizes such as travel awards, merchandise, cash, investment
research and educational information and related support materials. This
additional compensation can vary among institutions depending upon such factors
as the amounts their clients have invested (or may invest) in particular
portfolios of the Trust, the particular program involved, or the amount of
reimbursable expenses. Additional compensation based on sales may, but is
currently not expected to, exceed .50% (annualized) of the amount invested. For
further information, see the Additional Statement.
The Funds reserve the right to redeem the Institutional Shares of any
Shareholder of record whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of a
recordholder's account falls below the minimum account balance solely as a
result of market conditions. The Trust will give 60 days' prior written notice
to recordholders whose Institutional Shares are being redeemed to allow them to
purchase sufficient additional Institutional Shares of a Fund to avoid such
redemption.
The Funds and Goldman Sachs each reserve the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of Shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
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EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for: (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose; and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the NAV next determined either by writing to Goldman
Sachs, Attention: Goldman Sachs International Equity Funds--Name of Fund and
Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606 or, if previously elected in the Fund's Account Information
Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A
shareholder should obtain and read the prospectus relating to any other fund
and its shares and consider its investment objective, policies and applicable
fees before making an exchange. Under the telephone exchange privilege,
Institutional Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the
procedures set forth under "Redemption of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is treated
as a sale of the Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be materially
modified or withdrawn at any time on 60 days' written notice to Institutional
Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
The Funds will redeem their Institutional Shares upon request of a
recordholder of such Shares on any Business Day at the NAV next determined
after receipt of a request in proper form by Goldman Sachs from the
recordholder. (See "Purchase of Institutional Shares--Other Purchase
Information" for a description of limited situations where an institution or
other intermediary may be authorized to accept requests for the Funds.) If
Institutional Shares to be redeemed were recently purchased by check, a Fund
may delay transmittal of redemption proceeds until such time as it has assured
itself that good funds have been collected for the purchase of such
Institutional Shares. This may take up to 15 days. Redemption requests may be
made by a shareholder of record by writing to or calling the Transfer Agent at
the address or telephone number set forth on the back cover of this Prospectus.
A shareholder of record may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form
accompanying this Prospectus. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes.
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<PAGE>
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each recordholder whose
signature has been guaranteed by a bank, a securities broker or dealer, a
credit union having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
recordholder's Account Information Form or, if the recordholder elects in
writing, by check. Redemption proceeds paid by wire transfer will normally be
wired on the next Business Day in federal funds (for a total one-day delay),
but may be paid up to three Business Days after receipt of a properly executed
redemption request. Wiring of redemption proceeds may be delayed one additional
Business Day if the Federal Reserve Bank is closed on the day redemption
proceeds would originally be wired. Redemption proceeds paid by check will
normally be mailed to the address of record within three Business Days of
receipt of a properly executed redemption request. In order to change the bank
designated on the Account Information Form to receive redemption proceeds, a
written request must be received by the Transfer Agent. This request must be
signature guaranteed as set forth above. Further documentation may be required
for executors, trustees or corporations. Once wire transfer instructions have
been given by Goldman Sachs, neither the Funds, the Trust nor Goldman Sachs
assumes any further responsibility for the performance of intermediaries or the
recordholder's bank in the transfer process. If a problem with such performance
arises, the recordholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.
Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests by
their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions have established times
by which redemption requests must be received by them. Additional documentation
may be required when deemed appropriate by an institution.
--------------------
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APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to a Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to a Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Code and consult your tax adviser.
A-1
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
[LOGO OF
GOLDMAN SACHS
APPEARS HERE]
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<PAGE>
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PROSPECTUS
May 1, 1998
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
SERVICE SHARES
GOLDMAN SACHS CORE INTERNATIONAL GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
EQUITY FUND Seeks long-term capital appreciation
Seeks long term growth of cap- through investments in equity securities
ital through a broadly diver- of companies with public stock market
sified portfolio of equity se- capitalizations of $1 billion or less at
curities of large cap compa- the time of investment that are orga-
nies that are organized out- nized outside the U.S. or whose securi-
side the U.S. or whose securi- ties are principally traded outside the
ties are principally traded U.S.
outside the U.S.
GOLDMAN SACHS EMERGING MARKETS
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
EQUITY FUND Seeks long-term capital appreciation
Seeks long-term capital appre- through investments in equity securities
ciation through investments in of emerging country issuers.
equity securities of companies
that are organized outside the GOLDMAN SACHS ASIA GROWTH FUND
U.S. or whose securities are Seeks long-term capital appreciation
principally traded outside the through investments in equity securities
U.S. of companies related (in the manner de-
scribed herein) to Asian countries.
GOLDMAN SACHS JAPANESE EQUITY
FUND
Seeks long-term capital appre-
ciation through investments in
equity securities of Japanese
companies.
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Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the CORE International Equity Fund. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to each other Fund. GSAM and GSAMI are each
referred to in this Prospectus as the "Investment Adviser." Goldman Sachs
serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS, INCLUDING RISKS RELATING TO CHANGES IN
RELATIVE CURRENCY EXCHANGE RATES OR (AS IN THE CASE OF THE EXPECTED
INTRODUCTION OF THE EURO) THE CREATION OF NEW CURRENCIES. THE SECURITIES
MARKETS OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS LIQUID, ARE
ESPECIALLY SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN
EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING
COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE REGISTRATION
AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH INVESTMENT IN MORE
DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN SECURITIES AND EMERGING
MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH
THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. THE JAPANESE
EQUITY AND ASIA GROWTH FUNDS WILL BE PARTICULARLY SUBJECT TO EVENTS AFFECTING
THE MARKETS IN WHICH THESE FUNDS CONCENTRATE THEIR INVESTMENTS. SEE
"DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
Fund Highlights.................... 3 Performance Information....... 34
Fees and Expenses.................. 6 Shares of the Trust........... 34
Financial Highlights............... 8 Taxation...................... 35
Investment Objectives and Policies. 12 Additional Information........ 36
Description of Securities.......... 17 Additional Services........... 37
Investment Techniques.............. 21 Reports to Shareholders....... 38
Risk Factors....................... 24 Dividends..................... 38
Investment Restrictions............ 28 Purchase of Service Shares.... 39
Portfolio Turnover................. 28 Exchange Privilege............ 40
Management......................... 28 Redemption of Service Shares.. 40
Expenses........................... 33 Appendix...................... A-1
Net Asset Value.................... 33
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in
this Prospectus.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment funds (commonly
known as mutual funds (the "Funds")). Each Fund pools the monies of
investors by selling its Shares to the public and investing these monies
in a portfolio of securities designed to achieve that Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australasia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
JAPANESE Long-term Substantially all, and at least 65%, of Tokyo Price
EQUITY FUND capital total assets in equity securities of Index ("TOPIX")
appreciation. Japanese companies. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of Morgan Stanley
SMALL CAP capital total assets in equity securities of Capital
FUND appreciation. companies with public stock market International
capitalizations of $1 billion or less EAFE Small Cap
at the time of investment that are Index
organized outside the United States or
whose securities are principally traded
outside the United States. The Fund may
employ currency management techniques.
</TABLE>
(continued)
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ------------ ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital its total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex-Japan
South Korea, Sri Lanka, Taiwan, Index
Thailand and other Asian countries.
The Fund may employ certain currency
management techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's Share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates (or, as in the case of the expected introduction of the euro next
year, the creation of new currencies), political and economic developments,
the imposition of exchange controls, confiscation and other governmental
restrictions. Generally, there is less availability of data on foreign
companies and securities markets as well as less regulation of foreign
stock exchanges, brokers and issuers. A Fund's investments in emerging
markets and countries ("Emerging Countries") involves greater risks than
investments in the developed countries of Western Europe, the United
States, Canada, Australia, New Zealand and Japan. In addition, because the
Funds invest primarily outside the United States, they may involve greater
risks, since the securities markets of foreign countries are generally less
liquid and subject to greater price volatility. The securities markets of
Emerging Countries, including those in Asia, Latin America, Eastern Europe
and Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and, therefore, will be particularly
subject to the risk of adverse social, political and economic events which
occur in Japan or affect the Japanese markets.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International
serves as Investment Adviser to each other Fund. As of
4
<PAGE>
March 23, 1998, the Investment Advisers, together with their affiliates,
acted as investment adviser or distributor for assets in excess of $153
billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's Shares (the
"Distributor").
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares,
and may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value ("NAV") without any sales load. See
"Purchase of Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the NAV next determined after
receipt of such request in proper form. See "Redemption of Service Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
CORE International Equity............. Annually Annually
International Equity.................. Annually Annually
Japanese Equity....................... Annually Annually
International Small Cap............... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Service Shares may receive dividends and distributions
in additional Service Shares of the Fund in which they have invested or may
elect to receive them in cash. For further information concerning dividends
and distributions, see "Dividends."
5
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
CORE INT'L EMERGING
INT'L INT'L JAPANESE SMALL MARKETS ASIA
EQUITY EQUITY EQUITY CAP EQUITY GROWTH
FUND/1/ FUND FUND/1/ FUND/1/ FUND/1/ FUND/1/,/6/
------- ------ -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.... None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............... None None None None None None
Redemption Fees.......... None None None None None None
Exchange Fees............ None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable
limitations)/2/......... 0.75% 0.90% 0.90% 1.10% 1.10% 0.86%
Service Fees/5/.......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable limita-
tions)/3/............... 0.25% 0.15% 0.10% 0.30% 0.20% 0.24%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/4/......... 1.50% 1.55% 1.50% 1.90% 1.80% 1.60%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Adviser voluntarily has agreed not to impose a portion of
the management fee on the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds equal to 0.10%, 0.10%, 0.10%, 0.10%, 0.10% and 0.14%,
respectively. Without such limitations, management fees would be 0.85%,
1.00%, 1.00%, 1.20%, 1.20% and 1.00% of each Fund's average daily net
assets, respectively.
/3/ The Investment Adviser voluntarily has agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the International
Equity, Emerging Markets Equity and Asia Growth Funds)) for the following
Funds to the extent such expenses exceed the following percentage of
average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity.............................. 0.25%
International Equity................................... 0.20%
Japanese Equity........................................ 0.10%
International Small Cap................................ 0.30%
Emerging Markets Equity................................ 0.16%
Asia Growth............................................ 0.24%
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" for the Service Shares of the International Equity
Fund for the fiscal year ended January 31, 1998, would have been as
follows:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Equity................................... 0.15% 1.65%
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Service Shares of the CORE International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds for the current fiscal year are estimated to be as follows:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity.............................. 0.64% 1.99%
Emerging Markets Equity................................ 0.34% 2.04%
Japanese Equity........................................ 0.79% 2.29%
International Small Cap................................ 0.74% 2.44%
Asia Growth............................................ 0.31% 1.81%
/5/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/6/ Service Shares had not commenced operations as of the date of this
Prospectus.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the
end of each time period:
CORE International Equity..................... $15 $47 n/a n/a
International Equity.......................... $16 $49 $ 84 $185
Japanese Equity............................... $15 $47 n/a n/a
International Small Cap....................... $19 $60 n/a n/a
Emerging Markets Equity....................... $18 $57 n/a n/a
Asia Growth................................... $16 $50 $ 87 $190
</TABLE>
As of the date of this Prospectus, the Investment Adviser and Goldman Sachs
have no intention of modifying or discontinuing any of the limitations set
forth above but may do so in the future at their discretion. The information
set forth in the foregoing table and hypothetical example relates only to
Service Shares of the Funds. Each Fund also offers Institutional Shares and
Class A, Class B and Class C Shares, which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
Institutional, Class A, Class B and Class C Shares may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back of this Prospectus.
In addition to the compensation itemized above, certain Service
Organizations may receive other compensation in connection with the sale and
distribution of Service Shares or for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Additional Services" in this Prospectus and the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above is based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended January 31, 1998 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus. During
the periods shown, the Trust did not offer Shares of the Japanese Equity and
International Small Cap Funds. Accordingly, there are no financial highlights
for these Funds.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------
FROM NET
NET REALIZED NET REALIZED REALIZED
AND UNREALIZED AND UNREALIZED GAIN ON
NET ASSET GAIN (LOSS) ON GAIN (LOSS) ON FROM INVESTMENT NET NET ASSET
VALUE, NET INVESTMENTS CURRENCY NET AND DECREASE VALUE,
BEGINNING INVESTMENT AND FUTURES RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
CORE INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $ -- $0.13 $(0.91) $ -- -- $(0.78) $9.22 (7.66)%(d)
1998--Class B
Shares(b)....... 10.00 (0.02) 0.13 (0.90) -- -- (0.79) 9.21 (7.90)(d)
1998--Class C
Shares(b)....... 10.00 (0.02) 0.13 (0.89) -- -- (0.78) 9.22 (7.80)(d)
1998--Institu-
tional
Shares(b)....... 10.00 0.02 0.13 (0.89) (0.02) -- (0.76) 9.24 (7.45)(d)
1998--Service
Shares(b)....... 10.00 0.01 0.13 (0.91) -- -- (0.77) 9.23 (7.70)(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
--------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ------------ ------------- ----------- --------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 25.16% $.0069 $ 7,087 1.50%(c) (0.27)%(c) 4.87%(c) (3.90)%(c)
1998--Class B
Shares(b)....... 25.16 .0069 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c)
1998--Class C
Shares(b)....... 25.16 .0069 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c)
1998--Institu-
tional
Shares(b)....... 25.16 .0069 17,719 1.00(c) 0.59(c) 4.12(c) (2.53)(c)
1998--Service
Shares(b)....... 25.16 .0069 1 1.50(c) 0.26(c) 4.62(c) (2.86)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
8
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
-------------------------------------- -----------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED REALIZED NET REALIZED
AND GAIN ON GAIN ON NET
UNREALIZED INVESTMENT INVESTMENT INCREASE
NET ASSET NET NET REALIZED GAIN (LOSS) IN EXCESS AND FOREIGN AND FOREIGN (DECREASE)
VALUE, INVESTMENT AND UNREALIZED ON CURRENCY FROM NET OF NET CURRENCY CURRENCY IN NET
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT RELATED RELATED ASSET
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
--------- ---------- -------------- ------------ ---------- ---------- ------------ ------------ ----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.32 $0.03 $2.99 $(0.95) $ -- $(0.30) $(0.88) $(0.36) $0.53
1998--Class B
Shares.......... 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76) 0.46
1998--Class C
Shares(b)....... 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24) (3.04)
1998--Institu-
tional Shares... 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27) 0.57
1998--Service
Shares.......... 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05) 0.50
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28) -- -- (0.21) -- 2.12
1997--Class B
Shares(b)....... 18.91 (0.06) 0.94 (0.34) -- -- (0.21) -- 0.33
1997--Institu-
tional
Shares(b)....... 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) -- 1.95
1997--Service
Shares(b)....... 17.70 (0.02) 2.95 (1.08) -- -- (0.21) -- 1.64
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) -- (0.87) -- 2.68
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- -- (0.59) -- (3.58)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- -- -- 3.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- -- -- 0.17
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
NET AT END EXPENSES INVESTMENT EXPENSES NET
ASSET OF TO INCOME TO INVESTMENT
VALUE, PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------ ------------ --------- ---------- -------- --------- ------------ --------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.85 11.12% 40.82% $.0207 $697,590 1.67% (0.27)% 1.80% (0.40)%
1998--Class B
Shares.......... 19.70 10.51 40.82 .0207 55,324 2.20 (0.90) 2.30 (1.00)
1998--Class C
Shares(b)....... 19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c)
1998--Institu-
tional Shares... 19.97 11.82 40.82 .0207 56,263 1.08 0.30 1.18 0.20
1998--Service
Shares.......... 19.84 11.25 40.82 .0207 3,035 1.55 (0.36) 1.65 (0.46)
1997--Class A
Shares.......... 19.32 13.48 38.01 .0318 536,283 1.69 (0.07) 1.88 (0.26)
1997--Class B
Shares(b)....... 19.24 2.83(d) 38.01 .0318 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c)
1997--Institu-
tional
Shares(b)....... 19.40 12.53(d) 38.01 .0318 68,374 1.10(c) 0.43(c) 1.25(c) 0.28(c)
1997--Service
Shares(b)....... 19.34 10.42(d) 38.01 .0318 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c)
1996--Class A
Shares.......... 17.20 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... 14.52 (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 18.10 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.35 1.23(d) 0.00 -- 66,063 1.80(c) (0.42)(c) 2.58(c) (1.20)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) 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.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE NET ASSET
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD
--------- ---------- -------------- ---------------- ---------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS EQUITY FUND
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ -- $(0.11) $(0.20) -- -- -- $(0.31) $9.69
1998 -- Class B
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
1998 -- Class C
Shares(b)....... 10.00 -- (0.10) (0.20) -- -- -- (0.30) 9.70
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 (0.11) (0.20) -- -- -- (0.30) 9.70
1998 -- Service
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO LOSS TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3.43)%(c)
1998 -- Class B
Shares(b)....... (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
1998 -- Class C
Shares(b)....... (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
1998 -- Institu-
tional
Shares(b)....... (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28(c) (3.18)(c)
1998 -- Service
Shares(b)....... (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
</TABLE>
------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) 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.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ----------------------------------
NET REALIZED FROM NET NET
AND UNREALIZED REALIZED INCREASE NET
NET ASSET NET NET REALIZED ON FOREIGN IN EXCESS GAIN ON (DECREASE) ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY FROM NET OF NET INVESTMENT IN NET VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT AND FUTURES ASSET END OF
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93) $8.38
1998--Class B
Shares.......... 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93) 8.31
1998--Class C
Shares(b)....... 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44) 8.29
1998--Institu-
tional Shares... 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89) 8.44
1997--Class A
Shares.......... 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18) 16.31
1997--Class B
Shares(b)....... 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07) 16.24
1997--Institu-
tional
Shares(b)....... 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28) 16.33
1996--Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18 16.49
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87) 13.31
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ------- --------- ------------ --------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
1998--Class B
Shares.......... (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
1998--Class C
Shares(b)....... (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
1998--Institu-
tional Shares... (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
1997--Class A
Shares.......... (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(b)....... (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
1997--Institu-
tional
Shares(b)....... (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54(c) 1.26(c) 0.38 (c)
1996--Class A
Shares 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C and Institutional share activity commenced on
July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 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.
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that a
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. A Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.
The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks are described under "Description of
Securities," "Risk Factors" and "Investment Techniques."
Actively Managed Funds. The International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds are
managed using an active international approach, which utilizes a consistent
process of stock selection undertaken by portfolio management teams located
within each of the major investment regions, including Europe, Japan, Asia and
the United States. In selecting securities, the Investment Adviser uses a
long-term, bottom-up strategy based on first-hand fundamental research that is
designed to give broad exposure to the available opportunities while seeking
to add return primarily through stock selection. Equity securities for these
Funds are evaluated based on three key factors--the business, the management
and the valuation. The Investment Adviser ordinarily seeks securities that
have, in the Investment Adviser's opinion, superior earnings growth potential,
sustainable franchise value with management attuned to creating shareholder
value and relatively discounted valuations. In addition, the Investment
Adviser uses a multi-factor risk model which seeks to assure that deviations
from the benchmark are justifiable.
Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
multifactor models used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary
12
<PAGE>
multifactor models (each a "Multifactor Model") to forecast the returns of
different markets, currencies and individual securities. The Investment
Adviser may rely on research from both the Goldman Sachs Global Investment
Research Department (the "Research Department") and other industry sources.
In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily composed of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
13
<PAGE>
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio composed of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."
Other. The Fund may invest only in fixed-income securities that are
considered to be cash equivalents.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed-income
securities.
JAPANESE EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded primarily on a Japanese stock
exchange as well as those whose shares are registered with the Japan
Securities Dealers Association for trading primarily on Japan's over-the-
counter market. The Fund's concentration in Japanese companies will expose it
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets as described under "Risk Factors--Special
Risks of Investment in the Japanese Markets."
14
<PAGE>
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities.
INTERNATIONAL SMALL CAP FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economics which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in Asian and Other Emerging Markets,"
which are not present in investments in more developed countries. If the
market capitalization of a company held by the Fund increases above $1
billion, the Fund may, consistent with its investment objective, continue to
hold the security.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion at the time of investment and in
fixed-income securities.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries;
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country; (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries; or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
15
<PAGE>
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio managers' and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed-income securities of private and governmental Emerging Country
issuers; and (ii) equity and fixed-income securities of issuers in developed
countries.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries; (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries; (iii) they maintain 50% or more of their assets
in one or more of the Asian countries; or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand, as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the Investment Adviser's views of the relative attractiveness of the Asian
markets and particular issuers. For example, on January 31, 1998 (the end of
the Fund's last fiscal year), more than 35% of the Fund's assets were invested
in securities traded in Hong Kong. Concentration of the Fund's assets in one
or a few of the Asian countries and Asian currencies will subject the Fund to
greater risks than if the Fund's assets were not geographically concentrated.
See "Description of Securities--Foreign Investments." The Fund may invest in
the aggregate up to 35% of its total assets in equity securities of issuers in
other countries, including Japan, and in fixed-income securities.
16
<PAGE>
DESCRIPTION OF SECURITIES
The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar-denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will be
ready by the scheduled launch date; the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment of exchange rates for existing
currencies and the euro; and the creation of suitable clearing and settlement
payment systems for the new currency. These or other factors, including
political and economic risks, could cause market disruptions before or after
the introduction of the euro, and could adversely affect the value of
securities held by the Funds. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures
17
<PAGE>
may be different in foreign countries and, in certain markets, such procedures
have been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not
geographically concentrated.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund may avoid currency risks during
the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell foreign currencies on a spot basis and
may also purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, each Fund may enter into such
contracts to seek to increase total return when the Investment Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. Each Fund may also engage in cross-
hedging by using forward contracts in a currency different from that in which
the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation
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between the two currencies. If a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's NAV to fluctuate. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity or Asia Growth Fund's currency exposure will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objective and Policies" in the Additional
Statement.
FIXED-INCOME SECURITIES
Each Fund may invest in fixed-income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.
Investments in fixed-income securities may include obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that
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control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's NAV, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
Fixed-income investments may also include investments in structured
securities. The value of the principal of and/or interest on such securities
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured securities may provide that in certain circumstances
no principal is due at maturity and, therefore, result in the loss of a Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to price accurately than less complex securities.
Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
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INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase a Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each Fund may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of options transactions, however, the
writing of an option on a foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If an option that a Fund has
written is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing call
and put options for hedging purposes, each Fund may purchase call or put
options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices. A
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the
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Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on the Fund's outstanding positions in futures and related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations or to otherwise cover the obligations in a
manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.
EQUITY SWAPS
Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may
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also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary settlement period. A Fund will segregate cash or liquid assets in an
amount sufficient to meet the purchase price until three days prior to the
settlement date. Alternatively, each Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. The purchase of
securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain stripped mortgage-backed securities, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days, certain over-the-counter options and
certain restricted securities, unless it is determined, based upon a review of
the trading markets for a specific restricted security, that such restricted
security is eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities, subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Each Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or its affiliates, may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
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equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral). A Fund may experience
a loss or delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, for an equal amount of the securities of the same
issuer as the securities sold short (a short sale against-the-box). Not more
than 25% of a Fund's net assets (determined at the time of the short sale) may
be subject to such short sales. As a result of recent tax legislation, short
sales may not generally be used to defer the recognition of gain for tax
purposes with respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year. When a Fund's assets are invested in
such instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps; (iii) other investment companies including World Equity
Benchmark Shares and Standard & Poor's Depository Receipts; (iv) unseasoned
companies; and (v) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its total assets. For more information,
see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, certain foreign stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.
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RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may each invest without limit in
the securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such Countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Starting in mid-1997 some Pacific region countries began to
experience currency devaluations that resulted in high interest rate levels
and sharp reductions in economic activity. This situation resulted in a
significant drop in the securities prices of companies located in the region.
Some countries have experienced government intervention,
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have sought assistance from the International Monetary Fund and are undergoing
substantial domestic unrest. Although some countries are taking steps to
restructure their financial sectors in a manner that may facilitate a return
to long-term economic growth, there can be no assurance that these efforts
will be successful or that their current problems will not persist. At the end
of its last fiscal year, a substantial portion of the assets of the Asia
Growth Fund were invested in securities traded in the Hong Kong market. In
1997, the sovereignty of Hong Kong reverted from the United Kingdom to China.
Although Hong Kong is, by law, to maintain a high degree of autonomy, there
can also be no assurance that the general economic position of Hong Kong will
not be adversely affected as a result of the exercise of Chinese sovereignty
over Hong Kong. In particular, business confidence in Hong Kong can be
significantly affected by political developments and statements by public
figures in China, which can in turn affect the performance of the securities
markets. In addition, the reversion of Hong Kong to China has created
uncertainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.
Economies in individual Emerging Countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rates of inflation, currency valuation, capital reinvestment,
resource self-sufficiency and balance of payments positions. Many Emerging
Countries have experienced currency devaluations and substantial and, in some
cases, extremely high rates of inflation, which have a negative effect on the
economies and securities markets of such Emerging Countries. Economies in
Emerging Countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be
affected adversely by the economies of their trading partners, trade barriers,
exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly, and is currently subject to deflationary
26
<PAGE>
pressures. In addition to this economic downturn, Japan is undergoing
structural adjustments related to high wages and taxes, currency valuations
and structural rigidities. Japan has also been experiencing notable
uncertainty and loss of public confidence in connection with the reform of its
political process and the deregulation of its economy. These conditions
present risks to the Japanese Equity Fund and its ability to attain its
investment objective.
Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.
During the recent past the average stock market prices of Japanese
companies, as measured by major indices such as the NIKKEI 225 Average, have
experienced a substantial decline. It is not possible to determine whether
this general decline will continue.
RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed- income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
27
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of the historical portfolio turnover
rate of each Fund (other than the Japanese Equity and International Small Cap
Funds). It is anticipated that the annual portfolio turnover rates of the
Japanese Equity and International Small Cap Funds will generally not exceed
75%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. The Investment Adviser
will not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund consistent with the Fund's investment
objectives and portfolio management policies.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE International Equity Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management International became a
member of the Investment Management Regulatory Organisation Limited in 1990
and registered as an investment adviser in 1991. As of March 23, 1998, GSAM
and GSAMI, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $153 billion.
28
<PAGE>
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert A. Beckwitt Portfolio Manager-- Since Mr. Beckwitt joined the
Vice President and Emerging Markets Equity 1997 Investment Adviser in
Co-Head Emerging Market 1996. From 1986 to 1996,
Equities he was Chief Investment
Strategist-Portfolio
Adviser to high net
worth investors at
Fidelity Investments.
- -----------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
Japanese Equity 1998 1996 and is also co-head
of our Japanese Equity
Group in Tokyo. From
1984 to 1996, he was a
portfolio manager and an
Executive Director at
CIN Management.
- -----------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992.
- -----------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1995 to 1996,
he was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
From 1994 to 1995, he
was engaged in French
equity research and
marketing at Banque
Nationale de Paris and
Schroders in London.
- -----------------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the Investment Adviser in
Managing Director CORE International Equity 1997 1989. From 1987 to 1989, he was the senior
quantitative analyst in the Goldman, Sachs
& Co. Investment Research Department.
- -----------------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the Investment Adviser
Vice President Asia Growth 1994 in 1990. Prior to 1990, she was a
management consultant with Andersen
Consulting in Hong Kong.
- -----------------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the Investment Adviser
Executive Director International Equity 1996 in 1996. From 1990 to 1996, he was at CIN
Management, where his responsibilities
included European equity fund management
as well as active quantitative techniques
and risk management.
- -----------------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the Investment Adviser in
Managing Director International Equity 1994 1994. From 1987 to 1994, he worked at
International Small Cap 1998 Nomura Investment Management Incorporated
Japanese Equity 1998 as a Senior Portfolio Manager.
- -----------------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the Investment Adviser in
Managing Director and Asia Growth 1994 1994. From 1987 to 1994, he was a Vice
Co-Head Emerging Portfolio Manager-- President of Bankers Trust Australia Ltd
Market International Equity 1994 where he was the Chief Investment Officer
Equities Emerging Markets Equity 1997 of their Southeast Asian investment team.
International Small Cap 1998 He is also a member of Goldman Sachs Asset
Management's global asset allocation
committee.
- -----------------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the Investment Adviser
Vice President CORE International Equity 1997 in 1990. From 1985 to 1990, he was a
project manager in the Information
Technology Division of the Investment
Adviser.
- -----------------------------------------------------------------------------------------------------------
Ramakrishna Shankar Portfolio Manager-- Since Mr. Shankar joined the Investment Adviser
Vice President Asia Growth 1997 in 1997. From July 1996 to 1997, he worked
for Goldman, Sachs & Co. in Singapore as a
strategic advisor for transactions
involving infrastructure industries in
Asia. From 1988
to 1996, he worked at Goldman, Sachs & Co.
as an investment banker in the Investment
Banking Division.
- -----------------------------------------------------------------------------------------------------------
Miyako Shibamoto Portfolio Manager-- Since Ms. Shibamoto joined the Japanese Equity
Vice President Japanese Equity 1998 team in March 1998. From 1993 to 1998, she
was a Vice President at Scudder Stevens
and Clark (Japan).
- -----------------------------------------------------------------------------------------------------------
Robert Stewart Portfolio Manager-- Since Mr. Stewart joined the Investment Adviser
Vice President Japanese Equity 1998 in 1996. From 1994 to 1996, he was at CIN
Management as a portfolio manager,
managing Japanese equities.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity 1998 Investment Adviser in
1996. From 1990 to 1996,
he was a Japanese equity
portfolio manager at
Nomura Investment
Management where he
actively managed assets
for US pension funds.
- -------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
International Equity 1997 1994. From 1992 to 1994,
she was employed at
Bankers Trust Australia
Ltd where she was a
senior analyst in the
South East Asia
Investment Team.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSAMI are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
CORE International Equity ................ 0.85% 0.75%
GSAMI
International Equity...................... 1.00% 0.90%
Japanese Equity........................... 1.00% N/A
International Small Cap................... 1.20% N/A
Emerging Markets Equity................... 1.20% 1.10%
Asia Growth............................... 1.00% 0.86%
</TABLE>
- ---------------------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. The Investment Adviser may discontinue or modify such voluntary
limitations in the future at their discretion, although there is no current
intention to do so.
31
<PAGE>
The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses and, in the case of International Equity, Emerging
Markets Equity and Asia Growth Funds, transfer agency fees) to the extent such
expenses exceed 0.25%, 0.20%, 0.10%, 0.30%, 0.16% and 0.24% per annum of the
average daily net assets of the CORE International Equity, International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds, respectively. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the applicable Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. From time to time, a Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management--Activities of Goldman Sachs and its Affiliates
and Other Accounts Managed by Goldman Sachs" in the Additional Statement for
further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's Shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the International Equity
and Asia Growth Funds with respect to Institutional or Service shares. Goldman
Sachs is entitled to receive a transfer agency fee from the Emerging Markets
Equity Fund equal to 0.04% of the average daily net assets of the
Institutional and Service shares of such Fund. Goldman Sachs is entitled to
receive a fee from the CORE International Equity, Japanese Equity and
International Small Cap Funds, with respect to Institutional and Service
shares, equal to their proportionate share of the total transfer agency costs
borne by the Fund. These costs are equal to $12,000 per year per Class plus
$7.50 per account and out-of-pocket and transaction-related expenses for Class
A, B and C Shares plus 0.04% of the average daily net assets of the
Institutional and Service classes. Shares of a Fund may also bear fees paid to
Service Organizations or other persons providing sub-transfer agency and
similar services.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold Shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the Shares acquired for its own account.
32
<PAGE>
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation, the fees payable to the Investment Adviser;
custodial and transfer agency fees; service fees paid to Service
Organizations; brokerage fees and commissions; filing fees for the
registration or qualification of the Fund's Shares under federal or state
securities laws; organizational expenses; fees and expenses incurred in
connection with membership in investment company organizations; taxes;
interest; costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for
damages or other relief asserted against, the Funds for violation of any law;
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investment Adviser and its
affiliates with respect to the Funds); expenses of preparing and setting in
type prospectuses, statements of additional information, proxy material,
reports and notices and the printing and distributing of the same to
shareholders and regulatory authorities; compensation and expenses of the
Trust's "non-interested" Trustees; and extraordinary organizational expenses,
if any, incurred by the Trust.
NET ASSET VALUE
The NAV per share of each Class of a Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.
33
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in
advertisements and communications to shareholders or prospective investors.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at NAV. The total
return calculation assumes a complete redemption of the investment at the end
of the relevant period. Each Fund may also from time to time advertise total
return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance data which are based
on the NAV per share would be reduced if any applicable sales charge were
taken into account. In addition to the above, each Fund may from time to time
advertise its performance relative to certain averages, performance rankings,
indices, other information prepared by recognized mutual fund statistical
services and investments for which reliable performance information is
available.
Each Fund's total return will be calculated separately for each Class of
Shares in existence. Because each Class of Shares may be subject to different
expenses, the total return calculations with respect to each Class of Shares
for the same period will differ. See "Shares of the Trust."
The Funds' performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Funds. The investment results of a Fund will fluctuate over time and
any presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify Shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
When issued, Shares are fully paid and non-assessable. In the event of
liquidation, shareholders of each class are entitled to share pro rata in the
net assets of the applicable Fund available for distribution to the
shareholders of such Class. All Shares, are freely transferable and have no
preemptive, subscription or conversion rights. Shareholders are entitled to
one vote per Share, provided that, at the option of the Trustees, shareholders
will be entitled to a number of votes based upon the NAVs represented by their
shares.
As of April 3, 1998, Goldman Sachs CORE International Equity Fund Omnibus
A/C - Growth and Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was
recordholder of 29.1% CORE International Equity Fund's outstanding shares.
34
<PAGE>
The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' Shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
Shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The Japanese
Equity and International Small Cap Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company, and each Fund
intends to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed as long-term capital gain,
regardless of the length of time a shareholder has held Shares or whether such
gain was reflected in the price paid for the Shares. Such long-term gain will
constitute a 20% or 28% rate gain, depending upon the Fund's holding period
for the assets, the sale of which generated the gain. These tax consequences
will apply whether distributions are received in cash or reinvested in Shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying Shares immediately
prior to a distribution. Investors who purchase Shares shortly before the
record date for a distribution will pay a per Share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of Shares are taxable events.
35
<PAGE>
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty, if any) on
amounts treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds may elect to pass
such foreign taxes through to their shareholders, who would then take such
taxes into account on their own tax returns. Alternatively, the Funds may
simply deduct such taxes in determining the amounts available for distribution
to shareholders. Generally, the Funds have taken the latter approach and
anticipate that they may continue to do so.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
36
<PAGE>
ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services may
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.
The Trust may authorize certain Service Organizations to accept on the
Trust's behalf, purchase, redemption and exchange orders placed by their
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a Business Day, and the order will be priced at
a Fund's NAV per Share next determined after such acceptance. The Service
Organization or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer may
contact its Service Organization to learn whether the Service Organization is
authorized to accept orders. Service Organizations that are authorized to
accept orders for the Trust may receive payments from the Funds or Goldman
Sachs that are in addition to the payments payable by the Trust under the
Service Plan.
Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations under the Service Plan as well as any other expenses which
are directly attributable to such Shares.
Service Organizations may charge fees directly to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.
The Investment Adviser, Distributor, and/or their affiliates, also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale of Shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales amounts
exceeding pre-established thresholds, or the length of time customer assets
have remained in the Trust) and, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of Shares, as well as sponsor various educational programs, sales contests
and/or promotions in which participants may receive reimbursement of expenses,
entertainment and prizes such as travel awards, merchandise, cash, investment
research and educational information and related support materials. This
additional compensation can vary among Service Organizations depending upon
such factors as the amounts their customers have invested (or may invest) in
particular
37
<PAGE>
investment portfolios of the Trust, the particular program involved, or the
amount of reimbursable expenses. Additional compensation based on sales may,
but is currently not expected to, exceed 0.50% (annualized) of the amount
invested. For further information, see the Additional Statement.
For the fiscal year ended January 31, 1998, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares for those Funds that had commenced
operations.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with quarterly statements with re-
spect to such customer's account in lieu of an immediate confirmation of each
transaction.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid (i) in cash or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net capital gains, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as dividends
for each taxable year. Each Fund will pay dividends from net investment income,
and dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Fund's dividends
may constitute a return of capital.
At the time of an investor's purchase of Shares of a Fund, a portion of the
NAV per Share may be represented by undistributed income of the Fund or real-
ized or unrealized appreciation of the Fund's portfolio securities. Therefore,
subsequent distributions on such Shares from such income or realized apprecia-
tion may be
38
<PAGE>
taxable to the investor even if the NAV of the investor's Shares is, as a re-
sult of the distributions, reduced below the cost of such Shares and the dis-
tributions (or portions thereof) represent a return of a portion of the pur-
chase price.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the NAV per Share next determined after receipt of an order by Goldman
Sachs from a Service Organization. (See "Additional Services" for a description
of limited situations where a Service Organization or other intermediary may be
authorized to accept orders for the Funds.) No sales load will be charged. Cur-
rently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
4:00 p.m. New York time), as described under "Net Asset Value." Purchases of
Service Shares of the Funds must be settled within three (3) Business Days of
the receipt of a complete purchase order. Payment of the proceeds of redemption
of Shares purchased by check may be delayed for a period of time as described
under "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street Bank and Trust
Company ("State Street"). In order to facilitate timely transmittal, the
Service Organizations have established times by which purchase orders and
payments must be received by them.
PURCHASE PROCEDURES
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street or initiating an ACH transfer. Purchases may also be made by a
Service Organization by check (except that the Trust will not accept a check
drawn on a foreign bank or a third party check) or Federal Reserve draft made
payable to "Goldman Sachs International Equity Funds--Name of Fund and Class of
Shares" and should be directed to "Goldman Sachs International Equity Funds--
Name of Fund and Class of Shares," c/o National Financial Data Services, Inc.
("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.
The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of a recordholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The
39
<PAGE>
Trust will give 60 days' prior written notice to Service Organizations whose
Service Shares are being redeemed to allow them to purchase sufficient addi-
tional Service Shares to avoid such redemption.
The Funds and Goldman Sachs each reserve the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of a Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of Shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose; and (ii) the corresponding class
of any Goldman Sachs Money Market Fund at the NAV next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs International Equity Funds--
Name of Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of the Fund for which the exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be materially modified
or withdrawn at any time on 60 days' written notice to recordholders of Service
Shares and is subject to certain limitations. See "Purchase of Service Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of a recordholder of
such Shares on any Business Day at the NAV next determined after the receipt of
a request in proper form by Goldman Sachs. (See "Additional Services" for a de-
scription of limited situations where a Service Organization or other interme-
diary may
40
<PAGE>
be authorized to accept requests for the Funds.) If Service Shares to be re-
deemed were recently purchased by check, a Fund may delay transmittal of re-
demption proceeds until such time as it has assured itself that good funds have
been collected for the purchase of such Service Shares. This may take up to 15
days. Redemption requests may be made by a Service Organization by writing to
or calling the Transfer Agent at the address or telephone number set forth on
the back cover of this Prospectus. A Service Organization may request redemp-
tions by telephone if the optional telephone redemption privilege is elected on
the Account Information Form. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares or, if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three Business
Days of receipt of a properly executed redemption request. Once wire transfer
instructions have been given by Goldman Sachs, neither the Funds, the Trust nor
Goldman Sachs assumes any further responsibility for the performance of
intermediaries or the customer's Service Organization in the transfer process.
If a problem with such performance arises, the customer should deal directly
with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
--------------------
41
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to a Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to a Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Code and consult your tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
[LOGO OF GOLDMAN SACHS APPEARS HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
, 1998
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
CLASS A, B AND C SHARES
The Goldman Sachs Real Estate Securities Fund (the "Fund") seeks total return
comprised of long-term growth of capital and dividend income through
investments in equity securities of issuers that are primarily engaged in or
related to the real estate industry. The Fund expects that a substantial
portion of its total assets will be invested in real estate investment trusts.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Fund. GSAM is referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as the Fund's distributor and
transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Fund that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated , 1998,
containing further information about the Trust and the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Investment Objectives and Policies. 8
Description of Securities.......... 9
Investment Techniques.............. 11
Risk Factors....................... 14
Investment Restrictions............ 15
Portfolio Turnover................. 15
Management......................... 16
Reports to Shareholders............ 18
How to Invest...................... 19
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders. 25
Distribution and Authorized Dealer
Service Plans..................... 28
How to Sell Shares of the Fund..... 29
Dividends.......................... 30
Net Asset Value.................... 31
Performance Information............ 32
Shares of the Trust................ 32
Taxation........................... 33
Additional Information............. 34
Appendix .......................... A-1
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). The Fund pools
the monies of investors by selling its shares to the public and investing these
monies in a portfolio of securities designed to achieve the Fund's stated
investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUND?
The Fund has distinct investment objectives and policies. There can be no
assurance that the Fund's objectives will be achieved. For a complete
description of the Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
<TABLE>
<C> <S>
INVESTMENT OBJECTIVES Total return comprised of long-term
growth of capital and dividend income.
- ----------------------------------------------------------------------------------
INVESTMENT CRITERIA Substantially all, and at least 80%, of
total assets in a diversified portfolio
of equity securities of issuers that
are primarily engaged in or related to
the real estate industry. The Fund
expects that a substantial portion of
its total assets will be invested in
real estate investment trusts
("REITs").
- ----------------------------------------------------------------------------------
BENCHMARK National Association of Real Estate
Investment Trust Index ("NAREIT").
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
The Fund's share price will fluctuate with market and economic conditions, so
that an investment in the Fund may be worth more or less when redeemed than
when purchased. The Fund should not be relied upon as a complete investment
program. There can be no assurance that the Fund's investment objectives will
be achieved. In view of the specialized nature of the Fund's investments, the
Fund may be suitable only for those investors who are financially able to
assume greater risk and share price volatility than presented by funds that do
not concentrate in the real estate industry. See "Risk Factors."
Risk Factors Associated with the Real Estate Industry. Although the Fund does
not invest directly in real estate, it does invest primarily in common stocks
and other equity securities of REITs and other real estate industry companies
and does have a policy of concentrating its investments in the real estate
industry. Therefore, an investment in the Fund is subject to certain risks
associated with the direct ownership of real estate and with the real estate
industry in general, including possible declines in the value of real estate,
general and local
3
<PAGE>
economic conditions, environmental problems and changes in interest rates. To
the extent that assets underlying the Fund's investments are concentrated
geographically, by property type or in certain other respects, these risks may
be heightened. In addition, if the Fund has rental income or income from the
disposition of real property acquired as a result of a default on securities
the Fund owns, the receipt of such income may adversely affect its ability to
retain its tax status as a regulated investment company.
Risks of Investing in REITs. Investing in REITs involves certain unique risks
in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of,
and income produced by, the underlying property owned by the REITs. Mortgage
REITs may be affected by the quality of any credit extended and interest rate
risk. REITs are dependent upon management skills, are not diversified and are
subject to heavy cash flow dependency, default by borrowers and self-
liquidation.
Other. The Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund to
greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUND?
Goldman Sachs Asset Management serves as Investment Adviser to the Fund. As
of August 19, 1997, the Investment Adviser, together with its affiliates, acted
as investment adviser or distributor for assets in excess of $124 billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of the Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
---------------- -------- -----------
<S> <C> <C>
Regular Purchases........................................ $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA purchases... $ 250 $50
Automatic Investment Plan................................ $ 50 $50
403(b) Plans............................................. $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Fund"
on page 20.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
agreements with Goldman Sachs relating to the sale of shares ("Authorized
Dealers"). See "How to Invest" on page 19.
4
<PAGE>
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase (Class A shares), (ii) with a contingent deferred sales
charge imposed on redemptions within six years of purchase ("Class B shares")
or (iii) without any initial or contingent deferred sales charge, as long as
shares are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A shares will be sold without an initial sales charge
and will be subject to a contingent deferred sales charge at the time of
certain redemptions.
<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
SALES CHARGE DEFERRED SALES CHARGE
--------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>
Over time, the deferred sales charge and distribution fees attributable to
Class B or Class C shares will exceed the initial sales charge and the
distribution fees attributable to Class A shares. Class B shares convert to
Class A shares, which are subject to lower distribution fees, eight years after
initial purchase. Class C shares, which are subject to the same distribution
fees as Class B shares, do not convert to Class A shares and are subject to the
higher distribution fees indefinitely. See "How to Invest--Alternative Purchase
Arrangements" on page 19.
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after receipt
of such request in proper form, subject to any applicable contingent deferred
sales charge. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
DECLARED AND PAID DISTRIBUTIONS
--------------------------- -------------
<S> <C> <C>
Quarterly Annually
</TABLE>
You may receive dividends in additional shares of the same class of the Fund
in which you have invested or you may elect to receive dividends in cash,
shares of the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Funds") or ILA Service Units of the Prime Obligations Portfolio
or the Tax-Exempt Diversified Portfolio, if you hold Class A shares of the
Fund, or ILA Class B or Class C Units of the Prime Obligations Portfolio, if
you hold Class B or Class C shares of the Fund (the "ILA Portfolios"). For
further information concerning dividends, see "Dividends."
5
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases....... 5.5%/1/ none none
Maximum Sales Charge Imposed on Reinvested
Dividends...................................... none none none
Maximum Deferred Sales Charge................... none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/.............................. none none none
Exchange Fees/4/................................ none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)/5/
Management Fees (after applicable
limitations)/6/................................ 0.85% 0.85% 0.85%
Distribution (Rule 12b-1) Fees (after applicable
limitations)................................... 0.25% 0.75% 0.75%
Other Expenses:
Authorized Dealer Service Fees.................. 0.25% 0.25% 0.25%
Other Expenses (after applicable
limitations)/7/................................ 0.20% 0.20% 0.20%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/8/......................... 1.55% 2.05% 2.05%
==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A Shares................................................. $70 $101
Class B Shares
--Assuming complete redemption at end of period................ 71 94
--Assuming no redemption....................................... 21 64
Class C Shares
--Assuming complete redemption at end of period................ 31 64
--Assuming no redemption....................................... 21 64
</TABLE>
The hypothetical example assumes that a contingent deferred sales charge will
not apply to redemptions of Class A shares within the first 18 months. Class B
shares convert to Class A shares eight years after purchase.
- -------
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.00% is imposed on certain redemptions of Class
A shares sold without an initial sales charge as part of an investment of
$1 million or more. See "How to Invest--Offering Price--Class A Shares."
/2/ A contingent deferred sales charge is imposed upon shares redeemed within
six years of purchase at a rate of 5% in the first year, declining to 1%
in the sixth year, and eliminated thereafter. See "How to Invest--Offering
Price--Class B Shares."
/3/ A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ Based on estimated amounts for the current fiscal year.
/6/ The Investment Adviser has voluntarily agreed that a portion of the
management fee would not be imposed on the Fund equal to 0.15% . Without
such limitation, management fees would be 1.00% of the Fund's average
daily net assets.
6
<PAGE>
/7/ The Investment Adviser voluntarily has agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) for the Fund to the
extent such expenses exceed 0.20% of the Fund's average daily net assets.
/8/ Without the limitations and waivers described above, "Other Expenses" and
"Total Operating Expenses" of the Fund for the current fiscal year are
estimated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Class A.............................................. 0.74% 2.24%
Class B.............................................. 0.74% 2.74%
Class C.............................................. 0.74% 2.74%
</TABLE>
The Investment Adviser and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information set forth in the
foregoing table and hypothetical example relates only to Class A, B and C
shares. The Fund also offers Institutional and Service Shares, which are
subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services than Class A, Class B and Class C shares. Information regarding
Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution Plans, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the NASD's rules regarding investment
companies.
In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive certain compensation
for the sale and distribution of Class A, Class B and Class C shares of the
Fund or for services to the Fund. For additional information regarding such
compensation, see "Management" and "Services Available to Shareholders" in the
Prospectus and "Other Information Regarding Purchases, Redemptions, Exchanges
and Dividends" in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of the Fund that an investor will bear directly
or indirectly. The information on the fees and expenses included in the table
and hypothetical example above are based on the Fund's estimated fees and
expenses and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. Information about the actual performance of the Fund will be
contained in the Fund's future annual reports to shareholders, which may be
obtained without charge when they become available. See "Management--
Investment Adviser."
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of the Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that the
Fund's investment objectives will be achieved.
The Investment Adviser may purchase for the Fund interests in real estate
investment trusts, common stocks, preferred stocks, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing the Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in the Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
The Fund's investment strategy is based on the premise that property market
fundamentals are the primary determinant of growth underlying the success of
companies in the real estate industry. The Fund's research and investment
process is designed to identify those companies with strong property
fundamentals and strong management teams. This process is comprised of real
estate market research and securities analysis. The Investment Adviser's
analysis will focus on determining the degree to which a company can achieve
sustainable growth in cash flow and dividend paying capability. The Investment
Adviser will take into account fundamental trends in underlying property
markets as determined by proprietary models, research of local real estate
markets, earnings, cash flow growth and stability, the relationship between
asset values and market prices of the securities and dividend payment history.
The Investment Adviser will attempt to purchase securities so that its
underlying portfolio will be diversified geographically and by property type.
REAL ESTATE SECURITIES FUND
Objective. The Fund's investment objective is to provide investors with
total return comprised of long-term growth of capital and dividend income.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 80%, of its total assets in issuers that are
primarily engaged in or related to the real estate industry. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity securities of REITs and other real estate industry companies. A "real
estate industry company" is a company that derives at least 50% of its gross
revenues or net profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate or interests therein.
Shares of REITs. The Fund may invest without limitation in shares of REITs.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs
8
<PAGE>
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets
in real estate mortgages and derive income from the collection of interest
payments. Similar to investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund will indirectly bear its proportionate share of expenses incurred by
REITs in which the Fund invests in addition to the expenses incurred directly
by the Fund.
Other. Under normal circumstances, the Fund may invest up to 20% of its
total assets in fixed income securities that, in the opinion of the Investment
Adviser, offer the potential to further the Fund's investment objectives. In
addition, although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 5% of its net assets in foreign securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Fund may invest are not subject to any minimum
rating criteria. Convertible debt securities are equity investments for
purposes of the Fund's investment policies.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. The Fund may also invest in zero coupon U.S.
Treasury securities and in zero coupon securities issued by financial
institutions, which represent a proportionate interest in underlying U.S.
Treasury securities. A zero coupon security pays no interest to its holder
during its life and its value consists of the difference between its face
value at maturity and its cost. The market prices of zero coupon securities
generally are more volatile than the market prices of securities that pay
interest periodically. See "Taxation" in the Additional Statement.
9
<PAGE>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities ("Mortgage-Backed Securities"), which represent
direct or indirect participations in, or are collateralized by and payable
from, mortgage loans secured by real property. The Fund may also invest in
asset-backed securities ("Asset-Backed Securities"). The principal and
interest payments on Asset-Backed Securities are collateralized by pools of
assets such as auto loans, credit card receivables, leases, installment
contracts and personal property. Such asset pools are securitized through the
use of special purpose trusts or corporations. Principal and interest payments
may be credit enhanced by a letter of credit, a pool insurance policy or a
senior/subordinated structure.
The Fund may also invest in stripped Mortgage-Backed Securities ("SMBS")
(including interest only and principal only securities), which are derivative
multiple class Mortgage-Backed Securities. SMBS are usually structured with
two different classes: one that receives 100% of the interest payments and the
other that receives 100% of the principal payments from a pool of mortgage
loans. If the underlying mortgage loans experience different than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
CORPORATE DEBT OBLIGATIONS. The Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. The Fund may invest in obligations issued or guaranteed by
U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. The Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of the Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Under normal circumstances, the Fund may invest up to 20%
of its total assets in fixed income securities, including securities which are
unrated or rated in the lowest rating categories by Standard &
10
<PAGE>
Poor's Ratings Group ("Standard & Poor's") or Moody's Investors Service, Inc.
("Moody's") (i.e., BB or lower by Standard & Poor's or Ba or lower by
Moody's), including securities rated D by Moody's or Standard & Poor's. Fixed
income securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal. Fixed income securities rated BB or Ba or below (or comparable
unrated securities) are commonly referred to as "junk bonds" and are
considered predominantly speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in the Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Fund may write (sell) covered call and put options and purchase call and
put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in the Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase the Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates or securities prices, the Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. The Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices and other financial instruments and indices.
The Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. The Fund may not purchase or sell futures contracts or purchase
or sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Fund to
purchase securities, require the Fund to segregate and maintain cash or liquid
assets with a value equal to the amount of the Fund's obligations.
11
<PAGE>
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while the Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates or securities prices may result in poorer overall performance than if
the Fund had not entered into any futures contracts or options transactions.
Because perfect correlation between a futures position and portfolio position
that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and the Fund may be exposed to risk of loss.
The loss incurred by the Fund in entering into futures contracts and in
writing call options on futures is potentially unlimited and may exceed the
amount of the premium received. Futures markets are highly volatile and the
use of futures may increase the volatility of the Fund's net asset value. The
profitability of the Fund's trading in futures to seek to increase total
return depends upon the ability of the Investment Adviser to correctly analyze
the futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to the Fund. Further, futures
contracts and options on futures may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase when-issued securities. When-issued transactions arise
when securities are purchased by a Fund with payment and delivery taking place
in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund may also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary three-day settlement period. The Fund is required to hold and
maintain in a segregated account with the Fund's custodian until three days
prior to the settlement date, cash or liquid assets in an amount sufficient to
meet the purchase price. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. The purchase
of securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of when-issued securities
or forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain over-the-counter options, and certain
restricted securities, unless it is determined, based upon the continuing
review of the trading markets for a specific restricted security, that such
restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. The Trustees have adopted
guidelines and delegated to the Investment Adviser the daily function of
determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
each determination. Investing in restricted securities eligible for resale
pursuant to Rule 144A may decrease the liquidity of the Fund's portfolio to
the extent that qualified institutional buyers become for a time uninterested
in purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.
12
<PAGE>
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. If the other party or "seller" defaults, the Fund
might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund in connection with
the related repurchase agreement are less than the repurchase price. In
addition, in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, the Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with
delay and enforcement of the repurchase agreement. The Trustees have reviewed
and approved certain counterparties whom they believe to be creditworthy and
have authorized the Fund to enter into repurchase agreements with such
counterparties. In addition, the Fund, together with other registered
investment companies having management agreements with the Investment Adviser
or its affiliates may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested in cash equivalents. If the
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
the Fund. The Fund may experience a loss or delay in the recovery of its
securities if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box). Not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such short sales.
As a result of recent tax legislation, short sales may not generally be used
to defer the recognition of gain for tax purposes with respect to appreciated
securities in the Fund's portfolio.
TEMPORARY INVESTMENTS
The Fund may, for temporary defensive purposes, invest 100% of its total
assets in U.S. Government securities, repurchase agreements collateralized by
U.S. Government securities, commercial paper rated at least A-2 by Standard &
Poor's or P-2 by Moody's, certificates of deposit, bankers' acceptances,
repurchase agreements, non-convertible preferred stocks and non-convertible
corporate bonds with a remaining maturity of less than one year. When the
Fund's assets are invested in such instruments, the Fund may not be achieving
its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, the Fund may,
with respect to no more than 5% of its net assets, engage in the following
techniques and investments (i) warrants and stock purchase rights,
13
<PAGE>
(ii) foreign securities (including options and futures transactions), (iii)
foreign currency transactions, (iv) mortgage swaps, index swaps and interest
rate swaps, caps, floors and collars, (v) yield curve options and inverse
floating rate securities, (vi) other investment companies, (vii) mortgage
dollar rolls, (viii) unseasoned companies and (ix) custodial receipts. For
more information see the Additional Statement.
In addition, the Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. The Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISK FACTORS ASSOCIATED WITH THE REAL ESTATE INDUSTRY. Although the Fund
does not invest directly in real estate, it does invest primarily in
securities of issuers that are engaged in or related to the real estate
industry, and does have a policy of concentrating its investments in the real
estate industry. Therefore, an investment in the Fund is subject to certain
risks associated with the direct ownership of real estate and with the real
estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting
from, environmental problems; casualty or condemnation losses; uninsured
damages from floods, earthquakes or other natural disasters; limitations on
and variations in rents; and changes in interest rates. To the extent that
assets underlying the Fund's investments are concentrated geographically, by
property type or in certain other respects, the Fund may be subject to certain
of the foregoing risks to a greater extent.
In addition, if the Fund receives rental income or income from the
disposition of real property acquired as a result of a default on securities
the Fund owns, the receipt of such income or the ownership of such property
may adversely affect the Fund's ability to retain its tax status as a
regulated investment company. Investments by the Fund in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.
RISKS OF INVESTING IN REITS. Investing in REITs involves certain unique
risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs. Mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency,
default by borrowers and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax free pass-through of income under
the Code and failing to maintain their exemptions from registration under the
Investment Company Act of 1940, as amended (the "1940 Act"). REITs whose
underlying properties are concentrated in a particular industry or geographic
region are also subject to risks affecting such industries and regions.
REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will
14
<PAGE>
gradually align themselves to reflect changes in market interest rates,
causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Investing in REITs involves risks similar to those associated with investing
in small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger capitalization companies.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the
Standard & Poor's Index of 500 Common Stocks. Among the reasons for the
greater price volatility of these small company and unseasoned stocks are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such stocks.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and the Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. The Fund's transactions, if any, in
options, futures, options on futures, swaps and structured securities involve
certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets (if any) being hedged,
the potential illiquidity of the markets for derivative instruments, the risks
arising from margin requirements and related leverage factors associated with
such transactions. The use of these management techniques to seek to increase
total return may be regarded as a speculative practice and involves the risk
of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The Fund's use of certain
derivative transactions may be limited by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions that are described in
detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of the Fund can not be changed without
approval of a majority of the outstanding shares of the Fund. The Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in the Fund's investment objectives,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by the Fund and its shareholders and may
under certain circumstances make it more difficult for the Fund
15
<PAGE>
to qualify as a regulated investment company under the Code. It is anticipated
that the annual portfolio turnover rate of the Fund will generally not exceed
100%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of the Fund's portfolio securities, excluding securities having
a maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interest of the
Fund.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise the Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISER
INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the Fund. Goldman Sachs registered as an
investment adviser in 1981. As of August 19, 1997, GSAM together with its
affiliates, acted as investment adviser or distributor for assets in excess of
$124 billion.
Under a Management Agreement with the Fund, the Investment Adviser, subject
to the general supervision of the Trustees, provides day-to-day advice as to
the Fund's portfolio transactions. Goldman Sachs has agreed to permit the Fund
to use the name "Goldman Sachs" or a derivative thereof as part of the Fund's
name for as long as the Fund's Management Agreement is in effect.
In performing its investment advisory services, the Investment Adviser,
while remaining ultimately responsible for the management of the Fund, may
rely upon its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities and is able to draw
upon the research and expertise of its other affiliate offices. In addition,
the Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and may apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of the Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii) arranges for
at the Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains the Fund's records; and (v) provides office space
and all necessary office equipment and services.
16
<PAGE>
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ----------- ----------------------------
<C> <C> <S>
Herbert E. Ehlers Since 1997 Mr. Ehlers joined the Investment Adviser in
Managing Director 1997. Prior to 1997, he was the Chief
Investment Officer of Liberty Investment
Management, Inc. and its predecessor firm.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the purchase and sale orders for the
Fund's portfolio transactions. Such orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Goldman Sachs or its affiliates. In effecting purchases and sales of portfolio
securities for the Fund, the Investment Adviser will seek the best price and
execution of the Fund's orders. In doing so, where two or more brokers or
dealers offer comparable prices and execution for a particular trade,
consideration may be given to whether the broker or dealer provides investment
research or brokerage services or sells shares of any Goldman Sachs Fund. See
the Additional Statement for a further description of the Investment Adviser's
brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to the Management Agreement, the Investment Adviser is entitled to a
fee, computed daily and payable monthly at an annual rate equal to 1.00% of
the Fund's average daily net assets. The Investment Adviser has voluntarily
agreed to waive 0.15% of this fee. The Investment Adviser may discontinue or
modify its voluntary waiver in the future in its discretion, although it has
no current intention to do so.
The Investment Adviser has also voluntarily agreed to reduce or limit
certain "Other Expenses" of the Fund (excluding management, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed 0.20% per annum of the Fund's average daily net assets.
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the Investment Adviser in its
discretion at any time.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers and other persons for performing
administrative services to their customers. These services include maintaining
account records, processing orders to purchase, redeem and exchange Fund
shares and responding to certain customer inquiries. In addition, these
services may also include responding to certain inquiries from and providing
written materials to depository institutions about the Fund; furnishing advice
about and assisting depository institutions in obtaining from state regulatory
agencies any rulings, exemptions or other authorizations that may be required
to conduct a mutual fund sales program; acting as liaison between depository
institutions and national regulatory organizations; assisting with the
preparation of sales material; and providing general assistance and advice in
establishing and maintaining mutual fund sales programs on the premises of
depository institutions.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the
17
<PAGE>
Fund or limit the Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Fund and/or which engage in
and compete for transactions in the same types of securities, currencies and
instruments as the Fund. Goldman Sachs and its affiliates will not have any
obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Fund and in
general it is not anticipated that the Investment Adviser will have access to
proprietary information for the purpose of managing the Fund. The results of
the Fund's investment activities, therefore, may differ from those of Goldman
Sachs and its affiliates and it is possible that the Fund could sustain losses
during periods in which Goldman Sachs and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other
accounts. From time to time, the Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of the Fund's shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, also serves as the
Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
the Fund by Goldman Sachs (as Transfer Agent) and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a
fee from the Fund, with respect to Class A, Class B and Class C shares equal
to its proportionate share of the total transfer agency fees borne by the
Fund. Such fees are equal to $12,000 per year plus $7.50 per account, together
with out-of-pocket and transaction-related expenses (including those out-of-
pocket expenses payable to servicing and/or sub-transfer agents) applicable to
Class A, Class B and Class C shares plus 0.04% of the average daily net assets
of the other classes of the Fund. Shareholders with inquiries regarding the
Fund should contact Goldman Sachs (as Transfer Agent) at the address or the
telephone number set forth on the back cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Fund does
not generally provide sub-accounting services.
18
<PAGE>
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund continuously offers through this Prospectus Class A, Class B and
Class C shares, as described more fully in "How to Buy Shares of the Fund." If
you do not specify in your instructions to the Fund which class of shares you
wish to purchase, the Fund will assume that your instructions apply to Class A
shares.
CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A shares of
the Fund, no sales charge will be imposed at the time of purchase, but you
will incur a deferred sales charge equal to 1.00% if you redeem your shares
within 18 months of purchase. Class A shares are subject to distribution fees
of 0.25% and authorized dealer service fees of 0.25%, per annum, respectively,
of the Fund's average daily net assets attributable to Class A shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and authorized dealer service fees of 0.75% and 0.25%, per annum,
respectively, of the Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans." Class B shares
will automatically convert to Class A shares, based on their relative net
asset values, eight years after the initial purchase. Your entire investment
in Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.
CLASS C SHARES. Class C shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
shares are subject to distribution and authorized dealer service fees of 0.75%
and 0.25%, per annum, respectively, of the Fund's average daily net assets
attributable to Class C shares. See "Distribution and Authorized Dealer
Service Plans." Class C shares have no conversion feature, and accordingly, an
investor that purchases Class C shares will be subject to distribution fees
that will be imposed on Class C shares for an indefinite period, subject to
annual approval by the Fund's Board of Trustees and certain regulatory
limitations. Your entire investment in Class C shares is available to work for
you from the time you make your initial investment, but the distribution fee
paid by Class C shares will cause your Class C shares to have a higher expense
ratio and to pay lower dividends, to the extent dividends are paid, than Class
A shares (or Class B shares after conversion to Class A shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C shares. There is a maximum
purchase limitation of $250,000 and $1,000,000 in the aggregate on purchases
of Class B shares and Class C shares, respectively. Although Class C shares
are subject to a CDSC for only twelve months
19
<PAGE>
at a lower rate than Class B shares, Class C shares do not have the conversion
feature applicable to Class B shares, making them subject to higher
distribution fees for an indefinite period. Authorized Dealers may receive
different compensation for selling Class A, Class B or Class C shares.
HOW TO BUY SHARES OF THE FUND--CLASS A, CLASS B AND CLASS C SHARES
You may purchase shares of the Fund through any Authorized Dealer (including
Goldman Sachs) or directly from the Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. Currently, the Fund's net asset value is
determined as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. New York time).
The minimum initial investment in the Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). An initial investment minimum of $200 applies to purchases in
connection with 403(b) plans. For purchases through the Automatic Investment
Plan, the minimum initial investment is $50. The minimum subsequent investment
is $50. These requirements may be waived at the discretion of the Trust's
officers.
You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Real Estate Securities Fund--(Name of Class
of shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-6711.
Federal funds wires, ACH transfers and bank wires should be sent to State
Street Bank and Trust Company ("State Street"). Payment must be received
within three Business Days after receipt of the purchase order. An investor's
Authorized Dealer is responsible for forwarding payment promptly to the Fund.
In order to make an initial investment in the Fund, an investor must
establish an account with the Fund by furnishing to the Fund, Goldman Sachs or
the investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Fund may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Fund reserves the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. The Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Fund and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
20
<PAGE>
OFFERING PRICE--CLASS A SHARES
The offering price of Class A shares of the Fund is the next determined net
asset value per share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of the Fund equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $500,000 or more by plans or $1
million or more by "wrap" accounts satisfying the criteria set forth in
(h) or (j) below. Purchases by such plans will be made at net asset value
with no initial sales charge, but if all of the shares held are redeemed
within 18 months after the end of the calendar month in which such
purchase was made, a contingent deferred sales charge (CDSC), as described
below, of 1.00% will be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 18
months after the end of the calendar month in which the purchase was made,
excluding any period of time in which the shares were exchanged into and
remained invested in an ILA Portfolio (the contingent deferred sales charge
period), a CDSC of 1.00% will be imposed. Any applicable CDSC will be assessed
on an amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
shares. Upon redemption of shares subject to a CDSC, shareholders will receive
that portion of the appreciation in account value attributable to the shares
actually redeemed. In determining whether a CDSC applies to a redemption, it
will be assumed that the redemption is first made from any Class A shares in
your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver or Reduction of Contingent
Deferred Sales Charges" below.
Class A shares of the Fund may be sold at net asset value without payment of
any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired
21
<PAGE>
employees and former partners), any partnership of which Goldman Sachs is a
general partner, any Trustee or officer of the Trust and designated family
members of any of the above individuals; (b) qualified retirement plans of
Goldman Sachs; (c) trustees or directors of investment companies for which
Goldman Sachs or an affiliate acts as sponsor; (d) any employee or registered
representative of any Authorized Dealer or their respective spouses and
children; (e) banks, trust companies or other types of depository institutions
investing for their own account or investing for accounts for which they have
investment discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of the Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by a third party
administrator that in the aggregate satisfies (1) or (3) above; (i) until
October 15, 1997, shareholders whose purchase is attributable to redemption
proceeds (subject to appropriate documentation) from a registered open-end
management investment company not distributed or managed by Goldman Sachs or
its affiliates, if such redemption has occurred no more than 60 days prior to
the purchase of shares of the Fund and the shareholder either (1) paid an
initial sales charge or (2) was at some time subject to a deferred sales
charge with respect to the redemption proceeds; (j) "wrap" accounts for the
benefit of clients of broker-dealers, financial institutions or financial
planners, provided that they have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards;
(k) registered investment advisers investing for accounts for which they
receive asset-based fees; (l) accounts over which GSAM or its advisory
affiliates have investment discretion; and (m) shareholders receiving
distributions from a qualified retirement plan invested in the Goldman Sachs
Funds and reinvesting such proceeds in a Goldman Sachs IRA. Purchasers must
certify eligibility for an exemption on the Account Application and notify
Goldman Sachs if the shareholder is no longer eligible for an exemption.
Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Investors purchasing shares of the Fund at net asset value
without payment of any initial sales charge may be charged a fee if they
effect transactions in shares through a broker or agent. In addition, under
certain circumstances, dividends and distributions from any of the Goldman
Sachs Funds may be reinvested in shares of the Fund at net asset value, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B shares of the Fund at the next determined net
asset value without the imposition of an initial sales charge. However, Class
B shares redeemed within six years of purchase will be
22
<PAGE>
subject to a CDSC at the rates shown in the table that follows. At redemption,
the charge will be assessed on the amount equal to the lesser of the current
market value or the original purchase cost of the shares being redeemed. No
CDSC will be imposed on increases in account value above the initial purchase
price, including shares derived from the reinvestment of dividends or capital
gains distributions. Upon redemption of shares subject to a CDSC, shareholders
will receive that portion of the appreciation in account value attributable to
the shares actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Fund will first redeem shares not subject to any CDSC, and then shares held
longest during the six-year period.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Fund in connection with the sale of Class
B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B shares of the Fund will automatically convert into Class A shares of
the Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of the Fund acquired by
exchange from Class B shares of another Goldman Sachs Fund will convert into
Class A shares of the Fund based on the date of the initial purchase. Class B
shares acquired through reinvestment of distributions will convert into Class
A shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares will
not occur at any time the Fund is advised that such conversions may constitute
taxable events for federal tax purposes, which the Fund believes is unlikely.
If conversions do not occur as a result of possible taxability, Class B shares
would continue to be subject to higher expenses than Class A shares for an
indeterminate period.
OFFERING PRICE--CLASS C SHARES
Investors may purchase Class C shares of the Fund at the next determined net
asset value without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a
23
<PAGE>
CDSC, shareholders will receive that portion of the appreciation in account
value attributable to the shares actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
shares, the Fund will first redeem shares held for longer than 12 months, and
then shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Fund in connection with the sale of Class C shares,
including the payment of compensation to Authorized Dealers. A commission
equal to 1.00% of the amount invested is paid to Authorized Dealers.
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B shares of the Fund may reinvest
at net asset value any portion or all of his redemption proceeds (plus that
amount necessary to acquire a fractional share to round off his purchase to
the nearest full share) in Class A shares of the same Fund or any other
Goldman Sachs Fund. A shareholder who redeems Class C shares of the Fund may
reinvest at net asset value any portion or all of his redemption proceeds
(plus that amount necessary to acquire a fractional share to round off his
purchase to the nearest full share) in Class C shares of the Fund or any other
Goldman Sachs Fund. Shareholders should obtain and read the applicable
prospectuses of such other funds and consider their objectives, policies and
applicable fees before investing in any of such funds. This reinvestment
privilege is subject to the condition that the shares redeemed have been held
for at least thirty (30) days before the redemption and that the reinvestment
is effected within ninety (90) days after such redemption. If you redeemed
Class A or Class C shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested shares will continue to be subject to a CDSC. In this case, the
holding period of the Class A or Class C shares acquired through reinvestment
for purposes of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed shares. If you redeemed Class B
shares and paid a CDSC upon redemption, you are permitted to reinvest the
redemption proceeds in Class A shares at net asset value as described above,
but the amount of the CDSC paid upon redemption will not be credited to your
account.
A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the
original purchase of Class A shares, any sales charge paid on the original
purchase cannot be taken into account by a reinvesting shareholder to the
extent an otherwise applicable sales charge is not imposed pursuant to the
reinvestment privilege for purposes of determining gain or loss, if any,
realized on the redemption, but instead will be added to the tax basis of the
Class A shares received in the reinvestment. To the extent that any loss is
realized and shares of the same Fund are purchased within thirty (30) days
before or after the redemption, some or all of the loss may not be allowed as
a deduction depending upon the number of shares purchased. Shareholders should
consult their own tax advisers concerning the tax consequences of a redemption
and reinvestment. Upon receipt of a written request, the reinvestment
privilege may be exercised once annually by a shareholder, except that there
is no such time limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES.
The CDSC on Class B shares, Class C shares and Class A shares that are
subject to a CDSC may be waived or reduced if the redemption relates to (a)
retirement distributions or loans to participants or beneficiaries from
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pension and profit sharing plans, pension funds and other company sponsored
benefit plans (each a "Plan"); (b) the death or disability (as defined in
section 72 of the Code) of a participant or beneficiary in a Plan; (c)
hardship withdrawals by a participant or beneficiary in a Plan; (d) satisfying
the minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t) of the
Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in section 72 of the Code) of a
shareholder if the redemption is made within one year of such event; (h)
excess contributions being returned to a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
reinvested into a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C shares subject to a Systematic Withdrawal Plan may be redeemed
without a CDSC. However, Goldman Sachs reserves the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B and
Class C shares and 10% of the value of your Class A shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by the Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. See "Fund Highlights."
A shareholder may also elect to exchange automatically a specified dollar
amount of shares of the Fund for shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. Shares acquired
through cross-reinvestment of dividends or the automatic exchange program will
be purchased at net asset value and will not be subject to any initial or
contingent deferred sales charge as a result of the cross-reinvestment or
exchange, but shares subject to a CDSC acquired under the automatic exchange
program may be subject to a CDSC at the time of redemption from the fund into
which the exchange is made determined on the basis of the date and value of
the investor's initial purchase of the fund from which the exchange (or any
prior exchange) is made. Automatic exchanges are made monthly on the fifteenth
day of each month or the first Business Day thereafter. The minimum dollar
amount for automatic exchanges must be at least $50 per month. Cross-
reinvestments and automatic exchanges are subject to the following conditions:
(i) the value of the shareholder's account(s) in the fund which is paying the
dividend or from which the automatic exchange is being made must equal or
exceed $5,000 and (ii) the value of the account in the acquired fund must
equal or exceed the acquired fund's minimum initial investment requirement or
the shareholder must elect to continue cross-reinvestment or automatic
exchanges until the value of acquired fund shares in the shareholder's account
equals or exceeds the acquired fund's minimum initial investment requirement.
A Fund shareholder may elect cross-reinvestment into an identical account or
an account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus of the fund into which
dividends are invested or automatic exchanges are made.
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TAX-SHELTERED RETIREMENT PLANS
The Fund offers its shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans,
403(b) plans and defined contribution plans such as 401(k) Salary Reduction
Plans. Detailed information concerning these plans may be obtained from the
Transfer Agent. This information should be read carefully, and consultation
with an attorney or tax adviser may be advisable. The information sets forth
the service fee charged for retirement plans and describes the federal income
tax consequences of establishing a plan.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged at net asset value without the
imposition of an initial sales charge or CDSC at the time of exchange for
shares of the same class or an equivalent class of any other Goldman Sachs
Fund or ILA Portfolio. A shareholder needs to obtain and read the prospectus
of the fund into which the exchange is made. The shares of these other funds
acquired by an exchange may later be exchanged for shares of the same class
(or an equivalent class) of the original fund at the next determined net asset
value without the imposition of an initial or contingent deferred sales charge
if the dollar amount in the fund resulting from such exchanges is below the
shareholder's all-time highest dollar amount on which it has previously paid
the applicable sales charge. Shares of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for shares of the
Fund without a sales charge. In addition to free automatic exchanges pursuant
to the Automatic Exchange Program, six free exchanges are permitted in each
twelve-month period. A fee of $12.50 may be charged for each subsequent
exchange during such period. The exchange privilege may be modified or
withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.
An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has owned shares will be measured from the date the shareholder
acquired the original shares subject to a CDSC and will not be affected by any
subsequent exchange.
An exchange may be made by identifying the applicable fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Real
Estate Securities Fund, Shareholder Services, c/o NFDS, P.O. Box 419711,
Kansas City, MO 64141-6711 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer
Agent at 800-526-7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain
procedures are employed to prevent unauthorized or fraudulent exchange
requests as set forth under "How to Sell Shares of the Fund." Under the
telephone exchange privilege, shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Fund." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent a sales charge that
would otherwise apply to the shares received in the exchange is not imposed,
the sales charge paid on such purchase of Class A shares cannot be taken into
account by the
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exchanging shareholder for purposes of determining gain or loss, if any,
realized on such redemption for federal income tax purposes, but instead will
be added to the tax basis of the shares received in the exchange. Shareholders
should consult their own tax advisers concerning the tax consequences of an
exchange.
All exchanges which represent an initial investment in a fund must satisfy
the minimum investment requirements of the fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized by
the Trust to accept purchase, exchange and redemption orders on the Trust's
behalf. In these cases, the Fund will be deemed to have received an order that
is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a Business Day, and the order will be priced at the Fund's net
asset value per share next determined after such acceptance. Otherwise, the
Fund or Goldman Sachs must receive an order in proper form before it is
effective. Authorized Dealers and intermediaries will be responsible for
transmitting accepted orders to the Fund within the period agreed upon by
them.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of the Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
The Fund and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of shares of the Fund is evident, or if
purchases, sales or exchanges are, or a subsequent abrupt redemption might be,
of a size that would disrupt management of the Fund.
In the sole discretion of Goldman Sachs, the Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Adviser, Distributor, and/or their affiliates may also pay
additional compensation, out of their assets and not as an additional charge
to the Fund, to selected Authorized Dealers and other persons in connection
with the sale, distribution and/or servicing of Class A, Class B or Class C
shares (such as additional payments based on new sales, amounts exceeding pre-
established thresholds, or the length of time clients' assets have remained in
the Fund), and will from time to time, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales
contests and/or promotions in which participants may receive reimbursement of
expenses, entertainment and prizes such as travel awards, merchandise, cash,
investment research and educational information and related support materials.
This additional compensation may vary among Authorized Dealers depending upon
such factors as the amounts their clients have invested (or may invest) in the
Fund, the particular
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program involved, or the amount of reimbursable expenses. Additional
compensation based on sales may, but is currently not expected to, exceed .50%
(annualized) of the amount invested. For further information, see "Other
Information Regarding Purchases, Redemptions, Exchanges and Dividends" in the
Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLANS--CLASS A, CLASS B AND CLASS C SHARES
The Trust, on behalf of the Fund's Class A, Class B and Class C shares, has
adopted Distribution Plans pursuant to Rule 12b-1 under the 1940 Act (each, a
"Distribution Plan"). Goldman Sachs is entitled to a quarterly fee from the
Fund under its Class A, Class B and Class C Distribution Plans for
distribution services equal, on an annual basis, to 0.25%, 0.75% and 0.75%,
respectively, of the Fund's average daily net assets attributable to Class A,
Class B and Class C shares.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class A, Class B and Class C shares of the Fund. The types of expenses for
which Goldman Sachs may be compensated for distribution services under the
Class A, Class B and Class C Distribution Plans include compensation paid to
and expenses incurred by Authorized Dealers, Goldman Sachs and their
respective officers, employees and sales representatives, commissions paid to
Authorized Dealers (Class B and Class C only), allocable overhead, telephone
and travel expenses, the printing of prospectuses for prospective
shareholders, preparation and distribution of sales literature, advertising of
any type and all other expenses incurred in connection with activities
primarily intended to result in the sale of Class A, Class B and Class C
shares. If the fee received by Goldman Sachs pursuant to the Class A, Class B
and Class C Distribution Plans exceeds its expenses, Goldman Sachs may realize
a profit from these arrangements. The Distribution Plans will be reviewed and
are subject to approval annually by the Trustees. The aggregate compensation
that may be received under each Distribution Plan for distribution services
may not exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C shares, Goldman Sachs pays sales
commissions of 0.75% of the purchase price to Authorized Dealers from its own
resources at the time of sale. Goldman Sachs plans to pay the 0.75%
distribution fee on a quarterly basis as an ongoing commission to Authorized
Dealers on Class C shares that have been outstanding for one year or more.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of the Fund's Class A, Class B and Class C shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. The Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or similar
services not otherwise provided on behalf of the Fund. The Service Plans will
be reviewed and are subject to approval annually by the Trustees.
In connection with the sale of Class C shares, Goldman Sachs pays the 0.25%
service fee to Authorized Dealers in advance for the first year after the
shares have been sold by the Authorized Dealer. After the shares
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have been held for one year, Goldman Sachs pays the service fee on a quarterly
basis. In addition, as described above under "Distribution Plan--Class B and
Class C Shares," Goldman Sachs pays sales commissions of 0.75% of the purchase
price from its own resources at the time of sale. Accordingly, the total up
front commission paid by Goldman Sachs to the Authorized Dealer at the time of
sale of Class C shares is 1.00% of the purchase price.
HOW TO SELL SHARES OF THE FUND
The Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will normally be mailed by check to a shareholder within
three (3) Business Days of receipt of a properly executed request. If shares
to be redeemed were recently purchased by check, the Fund may delay
transmittal of redemption proceeds until such time as it has assured itself
that good funds have been collected for the purchase of such shares. This may
take up to fifteen (15) days. Redemption requests may be made by writing to or
calling the Transfer Agent at the address or telephone number set forth on the
back cover page of this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and
29
<PAGE>
loan association, a building and loan association, a cooperative bank, a
federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Fund will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither the Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
the Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C shares. The CDSC applicable to Class A, Class B or Class C shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See the
Additional Statement for more information about the Systematic Withdrawal
Plan.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by the Fund on its outstanding shares will, at the election of
each shareholder, be paid in (i) cash, (ii) additional shares of the same
class of the Fund or (iii) shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the Fund.
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The election to reinvest dividends and distributions paid by the Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
The Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Fund
will pay dividends from net investment income quarterly. The Fund will pay
dividends from net realized long-term and short-term capital gains, reduced by
available capital losses, at least annually.
In addition, distributions paid by the Fund's REIT investments often include
a "return of capital." The Code requires a REIT to distribute at least 95% of
its taxable income to investors. In many cases, however, because of "non-cash"
expenses such as property depreciation, an equity REIT's cash flow will exceed
its taxable income. The REIT may distribute this excess cash to offer a more
competitive yield. This portion of the distribution is deemed a return of
capital, and is generally not taxable to shareholders. However, when
shareholders receive a return of capital, the cost basis of their shares is
decreased by the amount of such return of capital. This, in turn, affects the
capital gain or loss realized when shares of the Fund are exchanged or sold.
Therefore, a shareholder's original investment in the Fund will be reduced by
the amount of the return of capital and capital gains included in a
distribution if such shareholder elects to receive distributions in cash (as
opposed to having them reinvested in additional shares of the Fund). Once a
shareholder's cost basis is reduced to zero, any return of capital is taxable
as a capital gain.
The Fund's REIT investments often do not provide complete tax information to
the Fund until after the calendar year-end. Consequently, because of this
delay, it may be necessary for the Fund to request permission to extend the
deadline for issuance of Forms 1099-DIV beyond January 31.
At the time of an investor's purchase of shares of the Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio
securities. Therefore, subsequent distributions on such shares from such
income or realized appreciation may be taxable to the investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of the Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
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PERFORMANCE INFORMATION
From time to time the Fund may publish average annual total return, yield
and distribution rates in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Total
return calculations for Class A shares reflect the effect of paying the
maximum initial sales charge. Investment at a lower sales charge would result
in higher performance figures. Total return calculations for Class B or Class
C shares reflect deduction of the applicable CDSC imposed upon redemption of
Class B or Class C shares held for the applicable period. The Fund may also
from time to time advertise total return on a cumulative, average, year-by-
year or other basis for various specified periods by means of quotations,
charts, graphs or schedules. In addition, the Fund may furnish total return
calculations based on investments at various sales charge levels or at net
asset value. Any performance data which is based on the Fund's net asset value
per share would be reduced if any applicable sales charge were taken into
account. In addition to the above, the Fund may from time to time advertise
its performance relative to certain averages, performance rankings, indices,
other information prepared by recognized mutual fund statistical services and
investments for which reliable performance data is available.
The Fund computes its yield by dividing net investment income earned during
a recent thirty-day period by the product of the average daily number of
shares outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes. The Fund's
quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share on
the last day of the period for which the distribution rate is being
calculated.
The Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A, Class B and Class C
shares will be affected by the payment of a sales charge, distribution fees
and other class specific expenses. See "Shares of the Trust."
The investment results of the Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
The Fund is a series of Goldman Sachs Trust, which was formed under the laws
of the State of Delaware on January 28, 1997. The Trust was formerly a
Maryland corporation and reorganized into the Trust as of April
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30, 1997. The Trustees have authority under the Trust's Declaration of Trust
to create and classify shares of beneficial interest in separate series,
without further action by shareholders. Additional series may be added in the
future. The Trustees also have authority to classify and reclassify any series
or portfolio of shares into one or more classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to such shareholders. All shares are
freely transferable and have no preemptive, subscription or conversion rights.
Shareholders are entitled to one vote per share, provided that at the option
of the Trustees, shareholders will be entitled to a number of votes based upon
the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
The Fund is treated as a separate entity for tax purposes. The Fund intends
to elect to be treated as a regulated investment company and intends to
continue to qualify for such treatment for each taxable year under Subchapter
M of the Code. To qualify as such, the Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regulated investment company,
the Fund will not be subject to federal income or excise tax on any net
investment income and net realized capital gains that are distributed to its
shareholders in accordance with certain timing requirements of the Code.
Dividends paid by the Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by the Fund
from the excess of net long-term capital gain over net short-term capital loss
will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. The Fund's dividends that are paid to its corporate shareholders and
are attributable to qualifying dividends the Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Since dividends
the Fund
33
<PAGE>
receives from REITs are not qualifying dividends for this purpose, it is not
likely that a substantial portion of the Fund's dividends will generally
qualify for the corporate dividends-received deduction. Certain distributions
paid by the Fund in January of a given year may be taxable to shareholders as
if received the prior December 31. Shareholders will be informed annually
about the amount and character of distributions received from the Fund for
federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund.
The Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Fund will not be eligible
to elect to pass such foreign taxes through to shareholders, who therefore
will generally not take such taxes into account on their own tax returns. The
Fund will generally deduct such taxes in determining the amounts available for
distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Fund. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) the Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Fund, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of the Fund
means the vote of the lesser of (i) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
34
<PAGE>
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A shares of
the Fund alone or in combination with Class A shares of another Goldman Sachs
Fund within a 13-month period, the shareholder may obtain shares of the Fund
at the same reduced sales charge as though the total quantity were invested in
one lump sum by filing this Statement of Intention incorporated by reference
in the Account Application. Income dividends and capital gain distributions
taken in additional shares will not apply toward the completion of this
Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQ PROAC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
LOGO
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
, 1998
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
INSTITUTIONAL SHARES
The Goldman Sachs Real Estate Securities Fund (the "Fund") seeks total return
comprised of long-term growth of capital and dividend income through
investments in equity securities of issuers that are primarily engaged in or
related to the real estate industry. The Fund expects that a substantial
portion of its total assets will be invested in real estate investment trusts.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Fund. GSAM is referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as the Fund's distributor and
transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Fund that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated , 1998,
containing further information about the Trust and the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
-----------------
INSTITUTIONAL SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 5
Investment Objective and Policies.. 6
Description of Securities.......... 7
Investment Techniques.............. 9
Risk Factors....................... 12
Investment Restrictions............ 13
Portfolio Turnover................. 13
Management......................... 13
Net Asset Value.................... 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information............ 16
Shares of the Trust................ 17
Taxation........................... 17
Additional Information............. 19
Reports to Shareholders............ 20
Dividends.......................... 20
Purchase of Institutional Shares... 20
Exchange Privilege................. 22
Redemption of Institutional Shares. 23
Appendix .......................... A-1
Account Information Form
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). The Fund is a
separate investment fund that pools the monies of investors by selling its
shares to the public and investing these monies in a portfolio of securities
designed to achieve the Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?
The Fund has distinct investment objectives and policies. There can be no
assurance that the Fund's objective will be achieved. For a complete
description of the Fund's investment objective and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
<TABLE>
<S> <C>
Investment Objective................. Total return comprised of long-term
growth of capital and dividend
income.
Investment Criteria.................. Substantially all, and at least 80%,
of total assets in a diversified
portfolio of equity securities of
issuers that are primarily engaged in
or related to the real estate
industry. The Fund expects that a
substantial portion of its total
assets will be invested in real
estate investment trusts ("REITs").
Benchmark............................ National Association of Real Estate
Investment Trusts Index ("NAREIT").
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
The Fund's share price will fluctuate with market and conditions, so that
an investment in the Fund may be worth more or less when redeemed than when
purchased. The Fund should not be relied upon as a complete investment
program. There can be no assurance that the Fund's investment objective
will be achieved. See "Risk Factors."
Risk Factors Associated with the Real Estate Industry. Although the Fund
does not invest directly in real estate, it does invest primarily in common
stocks and other equity securities of REITs and other real estate industry
companies and does have a policy of concentrating its investments in the
real estate industry. Therefore, an investment in the Fund is subject to
certain risks associated with the direct ownership of real estate and with
the real estate industry in general, including possible declines in the
value of real estate, general and local economic conditions, environmental
problems and changes in interest rates. To the extent that assets
underlying the Fund's investments are concentrated geographically, by
property type or in certain other respects, these risks may be heightened.
In addition, if the Fund has rental income or income from the disposition
of real property acquired as a result of a default on securities the Fund
owns, the receipt of such income may adversely affect its ability to retain
its tax status as a regulated investment company.
3
<PAGE>
Risks of Investing in REITs. Investing in REITs involves certain unique risks
in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of,
and income produced by, the underlying property owned by the REITs. Mortgage
REITs may be affected by the quality of any credit extended and interest rate
risk. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and self-
liquidation.
Other. The Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUND?
Goldman Sachs Asset Management serves as Investment Adviser to the Fund.
As of June 23, 1997, the Investment Adviser, together with its affiliates,
acted as investment adviser, administrator or distributor for assets in
excess of $120 billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of the Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000,000 in Institutional Shares of
the Fund alone or in combination with Institutional Shares (or the
corresponding class) of any other mutual fund sponsored by Goldman Sachs
and designated as an eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Fund through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
DECLARED AND PAID DISTRIBUTIONS
----------------- -------------
<S> <C> <C>
Quarterly Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund in which you have invested or you may
elect to receive dividends in cash. For further information concerning
dividends, see "Dividends."
4
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
FUND
----
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases.............................. None
Maximum Sales Charge Imposed on Reinvested Dividends................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average daily net
assets)
Management Fees (after applicable limitations)/2/...................... 0.85%
Distribution (Rule 12b-1) Fees......................................... None
Other Expenses (after applicable limitations)/3/....................... 0.20%
----
TOTAL FUND OPERATING EXPENSES (AFTER FEE AND EXPENSE LIMITATIONS)/4/.. 1.05%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS
- -------- ------ -------
<S> <C> <C>
You would pay the following expenses on a hypothetical $1,000
investment, assuming (1) a 5% annual return and (2) redemption
at the end of each time period:............................... $11 $33
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Adviser has voluntarily agreed that a portion of the
management fee would not be imposed on the Fund equal to 0.15%. Without
such limitation, management fees would be 1.00% of the Fund's average
daily net assets.
/3/ The Investment Adviser voluntarily has agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses) to
the extent such expenses exceed 0.20% of the Fund's average daily net
assets:
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Fund for the current fiscal year are estimated
to be 0.74% and 1.74%, respectively.
The Investment Adviser has no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at its discretion. The information set forth in the foregoing table and
hypothetical example relates only to Institutional Shares of the Fund. The
Fund also offers Service Shares, Class A, Class B and Class C Shares, which
are subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services. Information regarding Service, Class A, Class B and Class C Shares
may be obtained from an investor's sales representative or from Goldman Sachs
by calling the number on the back cover of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of the Fund that an investor will bear directly
or indirectly. The information on the fees and expenses included in the table
and hypothetical example above are based on the Fund's estimated fees and
expenses and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Adviser."
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and principal investment policies of the Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that the
Fund's investment objectives will be achieved.
The Investment Adviser may purchase for the Fund interests in real estate
investment trusts, common stocks, preferred stocks, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing the Fund's securities, the Investment Adviser may utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in the Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
The Fund's investment strategy is based on the premise that property market
fundamentals are the primary determinant of growth underlying the success of
companies in the real estate industry. The Fund's research and investment
process is designed to identify those companies with strong property
fundamentals and strong management teams. This process is comprised of real
estate market research and securities analysis. The Investment Adviser's
analysis will focus on determining the degree to which a company can achieve
sustainable growth in cash flow and dividend paying capability. The Investment
Adviser will take into account fundamental trends in underlying property
markets as determined by proprietary models, research of local real estate
markets, earnings, cash flow growth and stability, the relationship between
asset values and market prices of the securities and dividend payment history.
The Investment Adviser will attempt to purchase securities of companies whose
underlying portfolios are diversified geographically and by property type.
REAL ESTATE SECURITIES FUND
Objectives. The Fund's investment objective is to provide investors with
total return comprised of long-term growth of capital and dividend income.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 80% of its total assets in issuers that are
primarily engaged in or related to the real estate industry. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity securities of REITs and other real estate industry companies. A "real
estate industry company" is a company that derives at least 50% of its gross
revenues or net profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate or interests therein.
6
<PAGE>
Shares of REITs. The Fund may invest without limitation in shares of REITs.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets
in real estate mortgages and derive income from the collection of interest
payments. Similar to investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund will indirectly bear its proportionate share of expenses incurred by
REITs in which the Fund invests in addition to the expenses incurred directly
by the Fund.
Other. The Fund may invest up to 20% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
5% of its net assets in foreign securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Fund may invest are not subject to any minimum
rating criteria. Convertible debt securities are equity investments for
purposes of the Fund's investment policies.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. The Fund may also invest in zero coupon U.S.
Treasury securities and in zero coupon securities issued by financial
institutions, which represent a proportionate interest in underlying U.S.
Treasury securities. A zero coupon security pays no interest to its holder
during its life and its value consists of the difference between its face
value at maturity and its cost. The market prices of zero coupon securities
generally are more volatile than the market prices of securities that pay
interest periodically. See "Taxation" in the Additional Statement.
7
<PAGE>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities ("Mortgage-Backed Securities"), which represent
direct or indirect participations in, or are collateralized by and payable
from, mortgage loans secured by real property. The Fund may also invest in
asset-backed securities ("Asset-Backed Securities"). The principal and
interest payments on Asset-Backed Securities are collateralized by pools of
assets such as auto loans, credit card receivables, leases, installment
contracts and personal property. Such asset pools are securitized through the
use of special purpose trusts or corporations. Principal and interest payments
may be credit enhanced by a letter of credit, a pool insurance policy or a
senior/subordinated structure.
The Fund may also invest in stripped Mortgage-Backed Securities ("SMBS")
(including interest only and principal only securities), which are derivative
multiple class Mortgage-Backed Securities. SMBS are usually structured with
two different classes: one that receives 100% of the interest payments and the
other that receives 100% of the principal payments from a pool of mortgage
loans. If the underlying mortgage loans experience different than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
CORPORATE DEBT OBLIGATIONS. The Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. The Fund may invest in obligations issued or guaranteed by
U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. The Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of the Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. The Fund may invest up to 20% of its total assets in debt
securities, including securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed income securities rated
8
<PAGE>
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capacity to pay interest and repay principal. Fixed
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," and are considered predominately
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such bonds will entail greater speculative risks than those associated with
investment in investment grade bonds. Also, to the extent that the rating
assigned to a security in the Fund's portfolio is downgraded by a rating
organization, the market price and liquidity of such security may be adversely
affected. See Appendix A to the Additional Statement for a description of the
corporate bond ratings assigned by Standard & Poor's and Moody's.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Fund may write (sell) covered call and put options and purchase call and
put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in the Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase the Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates or securities prices, the Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. The Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices and other financial instruments and indices.
The Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. The Fund may not purchase or sell futures contracts or purchase
or sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Fund to
purchase securities, require the Fund to segregate and maintain cash or liquid
assets with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options
9
<PAGE>
on Futures Contracts" in the Additional Statement. Thus, while the Fund may
benefit from the use of futures and options on futures, unanticipated changes
in interest rates or securities prices may result in poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and the Fund may be
exposed to risk of loss. The loss incurred by the Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of the
Fund's net asset value. The profitability of the Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to the
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase when-issued securities. When-issued transactions arise
when securities are purchased by a Fund with payment and delivery taking place
in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund may also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary three-day settlement period. The Fund is required to hold and
maintain in a segregated account with the Fund's custodian until three days
prior to the settlement date, cash or liquid assets in an amount sufficient to
meet the purchase price. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. The purchase
of securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of when-issued securities
or forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Adviser the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of the Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount
10
<PAGE>
of their repurchase obligation. If the other party or "seller" defaults, the
Fund might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund in connection with
the related repurchase agreement are less than the repurchase price. In
addition, in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, the Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with
delay and enforcement of the repurchase agreement. The Trustees have reviewed
and approved certain counterparties whom they believe to be creditworthy and
have authorized the Fund to enter into repurchase agreements with such
counterparties. In addition, the Fund, together with other registered
investment companies having management agreements with the Investment Adviser
or its affiliates, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
The Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If the Investment Adviser determines to make securities loans,
the value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of the Fund. The Fund may experience a loss or delay in the
recovery of its securities if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box). Not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such short sales.
As a result of recent tax legislation, short sales may no longer be used to
defer the recognition of gain for tax purposes with respect to appreciated
securities in the Fund's portfolio.
TEMPORARY INVESTMENTS
The Fund may, for temporary defensive purposes, invest 100% of its total
assets in U.S. Government securities, repurchase agreements collateralized by
U.S. Government securities, commercial paper rated at least A-2 by Standard &
Poor's or P-2 by Moody's, certificates of deposit, bankers' acceptances,
repurchase agreements, non-convertible preferred stocks and non-convertible
corporate bonds with a remaining maturity of less than one year. When the
Fund's assets are invested in such instruments, the Fund may not be achieving
its investment objectives.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, the Fund may,
with respect to no more than 5% of its net assets, engage in the following
techniques and investments (i) warrants and stock purchase rights,
(ii) foreign securities (including options and futures transactions), (iii)
foreign currency transactions, (iv) mortgage swaps, index swaps and interest
rate swaps, caps, floors and collars, (v) yield curve options and inverse
floating rate securities, (vi) other investment companies, (vii) mortgage
dollar rolls, (viii) unseasoned companies and (ix) custodial receipts. For
more information see the Additional Statement.
In addition, the Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
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<PAGE>
RISK FACTORS
RISK FACTORS ASSOCIATED WITH THE REAL ESTATE INDUSTRY. Although the Fund
does not invest directly in real estate, it does invest primarily in
securities of issuers that are primarily engaged in or related to the real
estate industry, and does have a policy of concentrating its investments in
the real estate industry. Therefore, an investment in the Fund is subject to
certain risks associated with the direct ownership of real estate and with the
real estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting
from, environmental problems; casualty or condemnation losses; uninsured
damages from floods, earthquakes or other natural disasters; limitations on
and variations in rents; and changes in interest rates. To the extent that
assets underlying the Fund's investments are concentrated geographically, by
property type or in certain other respects, the Fund may be subject to certain
of the foregoing risks to a greater extent.
In addition, if the Fund receives rental income or income from the
disposition of real property acquired as a result of a default on securities
the Fund owns, the receipt of such income or the ownership of such property
may adversely affect the Fund's ability to retain its tax status as a
regulated investment company. Investments by the Fund in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.
RISKS OF INVESTING IN REITS. Investing in REITs involves certain unique
risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs. Mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency,
default by borrowers and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax free pass-through of income under
the Code and failing to maintain their exemptions from registration under the
Investment Company Act of 1940, as amended (the "1940 Act"). REITs whose
underlying properties are concentrated in a particular industry or geographic
region are also subject to risks affecting such industries and regions.
REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will
gradually align themselves to reflect changes in market interest rates,
causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Investing in REITs involves risks similar to those associated with investing
in small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs have been more
volatile in price than the larger capitalization stocks included in the
Standard & Poor's Index of 500 Common Stocks.
RISK OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income
12
<PAGE>
securities tends to decline. Volatility of a security's market value will
differ depending upon the security's duration, the issuer and the type of
instrument. Investments in fixed income securities are subject to the risk
that the issuer could default on its obligations and the Fund could sustain
losses on such investments. A default could impact both interest and principal
payments.
RISKS OF DERIVATIVE TRANSACTIONS. The Fund's transactions, if any, in
options, futures, options on futures, swaps transactions and structured
securities involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from the margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices or
interest rates. The Fund's use of certain derivative transactions may be
limited by the requirements of the Code, for qualification as a regulated
investment company.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions that are described in
detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of the Fund can not be changed without
approval of a majority of the outstanding shares of the Fund. The Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in the Fund's investment objectives,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by the Fund and its shareholders and may
under certain circumstances make it more difficult for the Fund to qualify as
a regulated investment company under the Code. It is anticipated that the
annual portfolio turnover rate of the Fund will generally not exceed 100%. The
portfolio turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of portfolio securities by the average monthly
value of the Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interests of the
Fund.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise the Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
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<PAGE>
INVESTMENT ADVISER
INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Fund. Goldman Sachs registered as an
investment adviser in 1981. As of June 23, 1997, GSAM, together with its
affiliates, acted as investment adviser or distributor for assets in excess of
$120 billion.
Under a Management Agreement with the Fund, the Investment Adviser, subject
to the general supervision of the Trustees, provides day-to-day advice as to
the Fund's portfolio transactions. Goldman Sachs has agreed to permit the
Trust to use the name "Goldman Sachs" or a derivative thereof as part of the
Fund's name for as long as the Fund's Management Agreement is in effect.
In performing its investment advisory services, the Investment Adviser,
while remaining ultimately responsible for the management of the Fund, may
rely upon its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities and is able to draw
upon the research and expertise of its other affiliate offices. In addition,
the Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and may apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of the Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of the Fund;
(iii) arranges for at the Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains the Fund's records; and
(v) provides office space and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ----------- ----------------------------
<C> <C> <S>
</TABLE>
[TO COME]
14
<PAGE>
It is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the purchase and sale orders for the
Fund's portfolio transactions. Such orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Goldman Sachs or its affiliates. In effecting purchases and sales of portfolio
securities for the Fund, the Investment Adviser will seek the best price and
execution of the Fund's orders. In doing so, where two or more brokers or
dealers offer comparable prices and execution for a particular trade,
consideration may be given to whether the broker or dealer provides investment
research or brokerage services or sells shares of any Goldman Sachs Fund. See
the Additional Statement for a further description of the Investment Adviser's
brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to the Management Agreement, GSAM is entitled to a fee, computed
daily and payable monthly at a rate equal to 1.00% of the Fund's average daily
net assets. GSAM has voluntarily agreed to waive 0.15% of this fee for a net
amount of 0.85%.
The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses to the extent such expenses exceed 0.20% per annum of
the Fund's average daily net assets. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Fund or limit the Fund's investment activities. Goldman Sachs
and its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Fund and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Fund. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Fund
and in general it is not anticipated that the Investment Adviser will have
access to proprietary information for the purpose of managing the Fund. The
results of the Fund's investment activities, therefore, may differ from those
of Goldman Sachs and its affiliates and it is possible that the Fund could
sustain losses during periods in which Goldman Sachs and its affiliates and
other accounts achieve significant profits on their trading for proprietary or
other accounts. From time to time, the Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management--Activities of Goldman Sachs and its Affiliates
and Other Accounts Managed by Goldman Sachs" in the Additional Statement for
further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10009, serves as the
exclusive distributor (the "Distributor") of the Fund's shares. Goldman Sachs,
4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's transfer
agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. As compensation for the services rendered to the Fund by
Goldman Sachs (as Transfer Agent) and the assumption by Goldman Sachs of the
expenses related thereto, Goldman Sachs is entitled to receive a fee from the
Fund, with respect to the Institutional and Service shares, equal to their
proportionate share of the total transfer agency fees borne by the Fund. Such
fees are equal to the fixed per account charge of $12,000 per year plus $7.50
per account, together with out-of-pocket and transaction-related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents). Shareholders with inquiries regarding the Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus.
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<PAGE>
NET ASSET VALUE
The net asset value per share of the class of the Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time the Fund may publish average annual total return, yield
and distribution rates in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. The
Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition, the Fund may furnish
total return calculations based on investments at various sales charge levels
or at net asset value. Any performance data which is based on the Fund's net
asset value per share would be reduced if any applicable sales charge were
taken into account. In addition to the above, the Fund may from time to time
advertise its performance relative to certain averages, performance rankings,
indices, other information prepared by recognized mutual fund statistical
services and investments for which reliable performance data is available.
The Fund computes its yield by dividing net investment income earned during
a recent thirty-day period by the product of the average daily number of
shares outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes. The Fund's
quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share on
the last day of the period for which the distribution rates are being
calculated.
The Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, yield, the total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of the Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Fund may, in its discretion, from time to time
make a list of its holdings available to investors upon request.
16
<PAGE>
SHARES OF THE TRUST
The Fund is a series of Goldman Sachs Trust, which was formed under the laws
of the State of Delaware on January 28, 1997. The Trust was formerly a
Maryland corporation, and reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of shares into one or more classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to such shareholders. All shares are
freely transferable and have no preemptive, subscription or conversion rights.
Shareholders are entitled to one vote per share, provided that, at the option
of the Trustees, shareholders will be entitled to a number of votes based upon
the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
The Fund is treated as a separate entity for tax purposes. The Fund intends
to elect to be treated as a regulated investment company and intends to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, the Fund must satisfy certain requirements relating
to the sources of its income, diversification of its assets and distribution
of its income to shareholders. As a regulated investment company, the Fund
will not be subject to federal income or excise tax on any net investment
income and net realized capital gains that are distributed to its shareholders
in accordance with certain timing requirements of the Code.
17
<PAGE>
Dividends paid by the Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by the
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. The Fund's dividends that are paid to its corporate shareholders and
are attributable to qualifying dividends the Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Since dividends
the Fund receives from REITs are not qualifying dividends for this purpose, it
is not likely that a substantial portion of the Fund's dividends will
generally qualify for the corporate dividends-received deduction. Certain
distributions paid by the Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Fund for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund.
The Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Fund will not be eligible
to elect to pass such foreign taxes through to shareholders, who therefore
will generally not take such taxes into account on their own tax returns. The
Fund will generally deduct such taxes in determining the amounts available for
distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Fund. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) the Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Fund, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
18
<PAGE>
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of the Fund
means the vote of the lesser of (i) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
19
<PAGE>
REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Fund will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and a quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Fund does not generally provide
subaccounting services with respect to beneficial ownership of Institutional
Shares.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by the Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional
Institutional Shares of the Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the Fund.
The election to reinvest dividends and distributions paid by the Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of the Fund.
The Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Fund will
pay dividends from net investment income quarterly. The Fund will pay dividends
from net realized long-term and short-term capital gains, reduced by available
capital losses, at least annually. From time to time, a portion of the Fund's
dividends may constitute a return of capital.
At the time of an investor's purchase of shares of the Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day through Goldman
Sachs at the net asset value per share next determined after receipt of an
order. No sales load will be charged. If, by the close of regular trading on
the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New
York time), an order is received by Goldman Sachs, the price per share will be
the net asset value per share computed on the
20
<PAGE>
day the purchase order is received. See "Net Asset Value." Purchases of
Institutional Shares of the Fund must be settled within three (3) Business Days
of the receipt of a complete purchase order. Payment of the proceeds of
redemption of shares purchased by check may be delayed for a period of time as
described under "Redemption of Institutional Shares."
Prior to making an initial investment in the Fund, an investor must open an
account with the Fund by furnishing necessary information to the Fund or
Goldman Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
Bank and Trust Company ("State Street") or initiating an ACH transfer.
Purchases may also be made by check (except that the Trust will not accept a
check drawn on a foreign bank or a third party check) or Federal Reserve draft
made payable to "Goldman Sachs Real Estate Securities Fund--Name of Class of
shares" and should be directed to "Goldman Sachs Real Estate Securities Fund--
Name of Class of shares," c/o National Financial Data Services, Inc. ("NFDS"),
P.O. Box 419711, Kansas City, MO 64141-6711.
The minimum initial investment is $1,000,000 in Institutional Shares of the
Fund alone or in combination with other assets under the management of GSAM and
its affiliates. Institutional Shares of the Fund are offered to (a) banks,
trust companies or other types of depository institutions investing for their
own account or on behalf of their clients; (b) pension and profit sharing
plans, pension funds and other company-sponsored benefit plans; (c) qualified
non-profit organizations, charitable trusts, foundations and endowments; (d)
any state, county, city or any instrumentality, department, authority or agency
thereof; (e) corporations and other for-profit business organizations with
assets of at least $100 million or publicly traded securities outstanding; (f)
"wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided that they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards; (g) registered investment advisers investing for
accounts for which they receive asset-based fees; and (h) accounts over which
GSAM or its advisory affiliates have investment discretion. The minimum
investment requirement may be waived at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
OTHER PURCHASE INFORMATION
The Fund reserves the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Trust will give sixty (60) days'
prior written notice to Institutional Shareholders whose Institutional Shares
are being redeemed to allow them to purchase sufficient additional
Institutional Shares of the Fund to avoid such redemption.
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.
21
<PAGE>
The Fund and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of the Fund is evident,
or if purchases, sales or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of the Fund.
In the sole discretion of Goldman Sachs, the Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Real Estate Securities
Fund--Name of Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange request is in writing and is received in accordance with
the procedures set forth under "Redemptions of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is treated
as a sale of the Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in the fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be modified or
withdrawn at any time on sixty (60) days' written notice to Institutional
Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
22
<PAGE>
REDEMPTION OF INSTITUTIONAL SHARES
The Fund will redeem its Institutional Shares upon request of an
Institutional Shareholder on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value." If Institutional Shares to be redeemed were
recently purchased by check, the Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. An Institutional Shareholder may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Information Form accompanying this Prospectus. It may be difficult to
implement redemptions by telephone in times of drastic economic or market
changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Fund,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each Institutional
Shareholder whose signature has been guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Fund will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would originally be wired. Redemption proceeds paid
by check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. In order to
change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the Fund,
the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries
23
<PAGE>
or the Institutional Shareholder's bank in the transfer process. If a problem
with such performance arises, the Institutional Shareholder should deal
directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.
--------------------
24
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
REPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
LOGO
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
, 1998
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
SERVICE SHARES
The Goldman Sachs Real Estate Securities Fund (the "Fund") seeks total return
comprised of long-term growth of capital and dividend income through
investments in equity securities of issuers that are primarily engaged in or
related to the real estate industry. The Fund expects that a substantial
portion of its total assets will be invested in real estate investment trusts.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Fund. GSAM is referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as the Fund's distributor and
transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Fund that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated , 1998,
containing further information about the Trust and the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
-----------------
SERVICE SHARE OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 5
Investment Objective and Policies.. 6
Description of Securities.......... 7
Investment Techniques.............. 9
Risk Factors....................... 12
Investment Restrictions............ 13
Portfolio Turnover................. 13
Management......................... 13
Net Asset Value.................... 16
Performance Information............ 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shares of the Trust........... 17
Taxation...................... 17
Additional Information........ 19
Additional Services........... 20
Reports to Shareholders....... 20
Dividends..................... 20
Purchase of Service Shares.... 21
Exchange Privilege............ 22
Redemption of Service Shares.. 23
Appendix...................... A-1
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). The Fund is a
separate investment fund that pools the monies of investors by selling its
shares to the public and investing these monies in a portfolio of securities
designed to achieve the Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?
The Fund has distinct investment objectives and policies. There can be no
assurance that the Fund's objective will be achieved. For a complete
description of the Fund's investment objective and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."
<TABLE>
<S> <C>
Investment Objective................. Total return comprised of long-term
growth of capital and dividend
income.
Investment Criteria.................. Substantially all, and at least 80%,
of total assets in a diversified
portfolio of equity securities of
issuers that are primarily engaged in
or related to the real estate
industry. The Fund expects that a
substantial portion of its total
assets will be invested in a real
estate investment trusts ("REITs").
Benchmark............................ National Association of Real Estate
Investment Trusts Index ("NAREIT").
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
The Fund's share price will fluctuate with market and economic
conditions, so that an investment in the Fund may be worth more or less
when redeemed than when purchased. The Fund should not be relied upon as a
complete investment program. There can be no assurance that the Fund's
investment objectives will be achieved. See "Risk Factors."
Risk Factors Associated with the Real Estate Industry. Although the Fund does
not invest directly in real estate, it does invest primarily in common stocks
and other equity securities of REITs and other real estate industry companies
and does have a policy of concentrating its investments in the real estate
industry. Therefore, an investment in the Fund is subject to certain risks
associated with the direct ownership of real estate and with the real estate
industry in general, including possible declines in the value of real estate,
general and local economic conditions, environmental problems and changes in
interest rates. To the extent that assets underlying the Fund's investments are
concentrated geographically, by property type or in certain other respects,
these risks may be heightened. In addition, if the Fund has rental income or
income from the disposition of real property acquired as a result of a default
on securities the Fund owns, the receipt of such income may adversely affect
its ability to retain its tax status as a regulated investment company.
3
<PAGE>
Risks of Investing in REITs. Investing in REITs involves certain unique risks
in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of,
and income produced by, the underlying property owned by the REITs. Mortgage
REITs may be affected by the quality of any credit extended and interest rate
risk. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and self-
liquidation.
Other. The Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund to
greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUND?
Goldman Sachs Asset Management serves as Investment Adviser to the Fund.
As of June 23, 1997, the Investment Adviser, together with its affiliates,
acted as investment adviser or distributor for assets in excess of $120
billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of the Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The Fund does not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares,
and may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of the Fund are
purchased at the current net asset value without any sales load. See
"Purchase of Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Fund, has adopted a
Service Plan with respect to the Service Shares which authorizes the Fund
to compensate Service Organizations for providing account administration
and shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Fund, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Shares of
the Fund attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Service Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
DECLARED AND PAID DISTRIBUTIONS
----------------- -------------
<S> <C>
Quarterly Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund or you may elect to receive dividends in cash.
For further information concerning dividends, see "Dividends."
4
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
FUND
----
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases.............................. None
Maximum Sales Charge Imposed on Reinvested Dividends................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average daily net
assets)(/1/)
Management Fees (after applicable limitations)(/2/).................... 0.85%
Service Fees(/5/)...................................................... 0.50%
Other Expenses (after applicable limitations)(/3/)..................... 0.20%
----
TOTAL FUND OPERATING EXPENSES (AFTER FEE AND EXPENSE
LIMITATIONS)(/4/).................................................... 1.55%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS
- -------- ------ -------
<S> <C> <C>
You would pay the following expenses on a hypothetical $1,000
investment, assuming (1) a 5% annual return and (2) redemption
at the end of each time period................................ $16 $49
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Adviser has voluntarily agreed that a portion of the
management fee would not be imposed on the Fund equal to 0.15%. Without
such limitations, management fees would be 1.00% of the Fund's average
daily net assets.
/3/ The Investment Adviser voluntarily has agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses to the extent such expenses exceed 0.20% of the Fund's average
daily net assets:
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Fund for the current fiscal year are estimated
to be 0.74% and 2.24%, respectively as follows:
/5/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts. Due to the service fees, a long-term shareholder may pay more
than the economic equivalent of the maximum front-end sales charges
permitted by the NASD's rules regarding investment companies. See
"Additional Services."
The Investment Adviser has no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at its discretion. The information set forth in the foregoing table and
hypothetical example relates only to Service Shares of the Fund. The Fund also
offers Institutional Shares, Class A, Class B and Class C Shares, which are
subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services. Information regarding Institutional, Class A, Class B and Class C
Shares may be obtained from an investor's sales representative or from Goldman
Sachs by calling the number on the back of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of the Fund that an investor will bear directly
or indirectly. The information on the fees and expenses included in the table
and hypothetical example above is based on the Fund's estimated fees and
expenses and should not be considered as representative of future expenses.
Actual fees and expenses may be greater or less than those indicated.
Moreover, while the example assumes a 5% annual return, the Fund's actual
performance will vary and may result in an actual return greater or less than
5%. See "Management--Investment Adviser" and "Additional Services."
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and principal investment policies of the Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that the
Fund's investment objectives will be achieved.
The Investment Adviser may purchase for the Fund interests in real estate
investment trusts, common stocks, preferred stocks, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing the Fund's securities, the Investment Adviser may utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in the Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
The Fund's investment strategy is based on the premise that property market
fundamentals are the primary determinant of growth underlying the success of
companies in the real estate industry. The Fund's research and investment
process is designed to identify those companies with strong property
fundamentals and strong management teams. This process is comprised of real
estate market research and securities analysis. The Investment Adviser's
analysis will focus on determining the degree to which a company can achieve
sustainable growth in cash flow and dividend paying capability. The Investment
Adviser will take into account fundamental trends in underlying property
markets as determined by proprietary models, research of local real estate
markets, earnings, cash flow growth and stability, the relationship between
asset values and market prices of the securities and dividend payment history.
The Investment Adviser will attempt to purchase securities of companies whose
underlying portfolios are diversified geographically and by property type.
REAL ESTATE SECURITIES FUND
Objectives. The Fund's investment objective is to provide investors with
total return comprised of long-term growth of capital and dividend income.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 80% of its total assets in issuers that are
primarily engaged in or related to the real estate industry. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity securities of REITs and other real estate industry companies. A "real
estate industry company" is a company that derives at least 50% of its gross
revenues or net profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate or interests therein.
6
<PAGE>
Shares of REITs. The Fund may invest without limitation in shares of REITs.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets
in real estate mortgages and derive income from the collection of interest
payments. Similar to investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund will indirectly bear its proportionate share of expenses incurred by
REITs in which the Fund invests in addition to the expenses incurred directly
by the Fund.
Other. The Fund may invest up to 20% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
5% of its net assets in foreign securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Fund may invest are not subject to any minimum
rating criteria. Convertible debt securities are equity investments for
purposes of the Fund's investment policies.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. The Fund may also invest in zero coupon U.S.
Treasury securities and in zero coupon securities issued by financial
institutions, which represent a proportionate interest in underlying U.S.
Treasury securities. A zero coupon security pays no interest to its holder
during its life and its value consists of the difference between its face
value at maturity and its cost. The market prices of zero coupon securities
generally are more volatile than the market prices of securities that pay
interest periodically. See "Taxation" in the Additional Statement.
7
<PAGE>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities ("Mortgage-Backed Securities"), which represent
direct or indirect participations in, or are collateralized by and payable
from, mortgage loans secured by real property. The Fund may also invest in
asset-backed securities ("Asset-Backed Securities"). The principal and
interest payments on Asset-Backed Securities are collateralized by pools of
assets such as auto loans, credit card receivables, leases, installment
contracts and personal property. Such asset pools are securitized through the
use of special purpose trusts or corporations. Principal and interest payments
may be credit enhanced by a letter of credit, a pool insurance policy or a
senior/subordinated structure.
The Fund may also invest in stripped Mortgage-Backed Securities ("SMBS")
(including interest only and principal only securities), which are derivative
multiple class Mortgage-Backed Securities. SMBS are usually structured with
two different classes: one that receives 100% of the interest payments and the
other that receives 100% of the principal payments from a pool of mortgage
loans. If the underlying mortgage loans experience different than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
CORPORATE DEBT OBLIGATIONS. The Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. The Fund may invest in obligations issued or guaranteed by
U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. The Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of the Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. The Fund may invest up to 20% of its total assets in debt
securities, including securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed income securities rated
8
<PAGE>
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capacity to pay interest and repay principal. Fixed
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," and are considered predominately
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such bonds will entail greater speculative risks than those associated with
investment in investment grade bonds. Also, to the extent that the rating
assigned to a security in the Fund's portfolio is downgraded by a rating
organization, the market price and liquidity of such security may be adversely
affected. See Appendix A to the Additional Statement for a description of the
corporate bond ratings assigned by Standard & Poor's and Moody's.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Fund may write (sell) covered call and put options and purchase call and
put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in the Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase the Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates or securities prices, the Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. The Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices and other financial instruments and indices.
The Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. The Fund may not purchase or sell futures contracts or purchase
or sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Fund to
purchase securities, require the Fund to segregate and maintain cash or liquid
assets with a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options
9
<PAGE>
on Futures Contracts" in the Additional Statement. Thus, while the Fund may
benefit from the use of futures and options on futures, unanticipated changes
in interest rates or securities prices may result in poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and the Fund may be
exposed to risk of loss. The loss incurred by the Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of the
Fund's net asset value. The profitability of the Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to the
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase when-issued securities. When-issued transactions arise
when securities are purchased by a Fund with payment and delivery taking place
in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund may also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary three-day settlement period. The Fund is required to hold and
maintain in a segregated account with the Fund's custodian until three days
prior to the settlement date, cash or liquid assets in an amount sufficient to
meet the purchase price. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. The purchase
of securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of when-issued securities
or forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Adviser the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of the Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount
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<PAGE>
of their repurchase obligation. If the other party or "seller" defaults, the
Fund might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund in connection with
the related repurchase agreement are less than the repurchase price. In
addition, in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, the Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with
delay and enforcement of the repurchase agreement. The Trustees have reviewed
and approved certain counterparties whom they believe to be creditworthy and
have authorized the Fund to enter into repurchase agreements with such
counterparties. In addition, the Fund, together with other registered
investment companies having management agreements with the Investment Adviser
or its affiliates, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
The Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If the Investment Adviser determines to make securities loans,
the value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of the Fund. The Fund may experience a loss or delay in the
recovery of its securities if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box). Not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such short sales.
As a result of recent tax legislation, short sales may no longer be used to
defer the recognition of gain for tax purposes with respect to appreciated
securities in the Fund's portfolio.
TEMPORARY INVESTMENTS
The Fund may, for temporary defensive purposes, invest 100% of its total
assets in U.S. Government securities, repurchase agreements collateralized by
U.S. Government securities, commercial paper rated at least A-2 by Standard &
Poor's or P-2 by Moody's, certificates of deposit, bankers' acceptances,
repurchase agreements, non-convertible preferred stocks and non-convertible
corporate bonds with a remaining maturity of less than one year. When the
Fund's assets are invested in such instruments, the Fund may not be achieving
its investment objectives.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, the Fund may,
with respect to no more than 5% of its net assets, engage in the following
techniques and investments (i) warrants and stock purchase rights,
(ii) foreign securities (including options and futures transactions), (iii)
foreign currency transactions, (iv) mortgage swaps, index swaps and interest
rate swaps, caps, floors and collars, (v) yield curve options and inverse
floating rate securities, (vi) other investment companies, (vii) mortgage
dollar rolls, (viii) unseasoned companies and (ix) custodial receipts. For
more information see the Additional Statement.
In addition, the Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
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<PAGE>
RISK FACTORS
RISK FACTORS ASSOCIATED WITH THE REAL ESTATE INDUSTRY. Although the Fund
does not invest directly in real estate, it does invest primarily in
securities of issuers that are primarily engaged in or related to the real
estate industry, and does have a policy of concentrating its investments in
the real estate industry. Therefore, an investment in the Fund is subject to
certain risks associated with the direct ownership of real estate and with the
real estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting
from, environmental problems; casualty or condemnation losses; uninsured
damages from floods, earthquakes or other natural disasters; limitations on
and variations in rents; and changes in interest rates. To the extent that
assets underlying the Fund's investments are concentrated geographically, by
property type or in certain other respects, the Fund may be subject to certain
of the foregoing risks to a greater extent.
In addition, if the Fund receives rental income or income from the
disposition of real property acquired as a result of a default on securities
the Fund owns, the receipt of such income or the ownership of such property
may adversely affect the Fund's ability to retain its tax status as a
regulated investment company. Investments by the Fund in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.
RISKS OF INVESTING IN REITS. Investing in REITs involves certain unique
risks in addition to those risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of
the underlying property owned by the REITs. Mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management
skills, are not diversified, are subject to heavy cash flow dependency,
default by borrowers and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax free pass-through of income under
the Code and failing to maintain their exemptions from registration under the
Investment Company Act of 1940, as amended (the "1940 Act"). REITs whose
underlying properties are concentrated in a particular industry or geographic
region are also subject to risks affecting such industries and regions.
REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will
gradually align themselves to reflect changes in market interest rates,
causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Investing in REITs involves risks similar to those associated with investing
in small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs have been more
volatile in price than the larger capitalization stocks included in the
Standard & Poor's Index of 500 Common Stocks.
RISK OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income
12
<PAGE>
securities tends to decline. Volatility of a security's market value will
differ depending upon the security's duration, the issuer and the type of
instrument. Investments in fixed income securities are subject to the risk
that the issuer could default on its obligations and the Fund could sustain
losses on such investments. A default could impact both interest and principal
payments.
RISKS OF DERIVATIVE TRANSACTIONS. The Fund's transactions, if any, in
options, futures, options on futures, swaps transactions and structured
securities involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from the margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices or
interest rates. The Fund's use of certain derivative transactions may be
limited by the requirements of the Code, for qualification as a regulated
investment company.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions that are described in
detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of the Fund can not be changed without
approval of a majority of the outstanding shares of the Fund. The Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in the Fund's investment objectives,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by the Fund and its shareholders and may
under certain circumstances make it more difficult for the Fund to qualify as
a regulated investment company under the Code. It is anticipated that the
annual portfolio turnover rate of the Fund will generally not exceed 100%. The
portfolio turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of portfolio securities by the average monthly
value of the Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interests of the
Fund.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise the Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
13
<PAGE>
INVESTMENT ADVISER
INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Fund. Goldman Sachs registered as an
investment adviser in 1981. As of June 23, 1997, GSAM, together with its
affiliates, acted as investment adviser or distributor for assets in excess of
$120 billion.
Under a Management Agreement with the Fund, the Investment Adviser, subject
to the general supervision of the Trustees, provides day-to-day advice as to
the Fund's portfolio transactions. Goldman Sachs has agreed to permit the
Trust to use the name "Goldman Sachs" or a derivative thereof as part of the
Fund's name for as long as the Fund's Management Agreement is in effect.
In performing its investment advisory services, the Investment Adviser,
while remaining ultimately responsible for the management of the Fund, may
rely upon its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities and is able to draw
upon the research and expertise of its other affiliate offices. In addition,
the Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and may apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of the Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of the Fund;
(iii) arranges for at the Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains the Fund's records; and
(v) provides office space and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ----------- ----------------------------
<C> <C> <S>
</TABLE>
[TO COME]
14
<PAGE>
It is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the purchase and sale orders for the
Fund's portfolio transactions. Such orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Goldman Sachs or its affiliates. In effecting purchases and sales of portfolio
securities for the Fund, the Investment Adviser will seek the best price and
execution of the Fund's orders. In doing so, where two or more brokers or
dealers offer comparable prices and execution for a particular trade,
consideration may be given to whether the broker or dealer provides investment
research or brokerage services or sells shares of any Goldman Sachs Fund. See
the Additional Statement for a further description of the Investment Adviser's
brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to the Management Agreement, GSAM is entitled to a fee, computed
daily and payable monthly at a rate equal to 1.00% of the Fund's average daily
net assets. GSAM has voluntarily agreed to waive 0.15% of this fee for a net
amount of 0.85%.
The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses to the extent such expenses exceed 0.20% per annum of
the Fund's average daily net assets. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Fund or limit the Fund's investment activities. Goldman Sachs
and its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Fund and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Fund. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Fund
and in general it is not anticipated that the Investment Adviser will have
access to proprietary information for the purpose of managing the Fund. The
results of the Fund's investment activities, therefore, may differ from those
of Goldman Sachs and its affiliates and it is possible that the Fund could
sustain losses during periods in which Goldman Sachs and its affiliates and
other accounts achieve significant profits on their trading for proprietary or
other accounts. From time to time, the Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management--Activities of Goldman Sachs and its Affiliates
and Other Accounts Managed by Goldman Sachs" in the Additional Statement for
further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10009, serves as the
exclusive distributor (the "Distributor") of the Fund's shares. Goldman Sachs,
4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's transfer
agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. As compensation for the services rendered to the Fund by
Goldman Sachs (as Transfer Agent) and the assumption by Goldman Sachs of the
expenses related thereto, Goldman Sachs is entitled to receive a fee from the
Fund, with respect to the Institutional and Service shares, equal to their
proportionate share of the total transfer agency fees borne by the Fund. Such
fees are equal to the fixed per account charge of $12,000 per year plus $7.50
per account, together with out-of-pocket and transaction-related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents). Shareholders with inquiries regarding the Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus.
15
<PAGE>
NET ASSET VALUE
The net asset value per share of the class of the Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time the Fund may publish average annual total return, yield
and distribution rates in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. The
Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition, the Fund may furnish
total return calculations based on investments at various sales charge levels
or at net asset value. Any performance data which is based on the Fund's net
asset value per share would be reduced if any applicable sales charge were
taken into account. In addition to the above, the Fund may from time to time
advertise its performance relative to certain averages, performance rankings,
indices, other information prepared by recognized mutual fund statistical
services and investments for which reliable performance data is available.
The Fund computes its yield by dividing net investment income earned during
a recent thirty-day period by the product of the average daily number of
shares outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes. The Fund's
quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share on
the last day of the period for which the distribution rates are being
calculated.
The Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, yield, the total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of the Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Fund may, in its discretion, from time to time
make a list of its holdings available to investors upon request.
16
<PAGE>
SHARES OF THE TRUST
The Fund is a series of Goldman Sachs Trust, which was formed under the laws
of the State of Delaware on January 28, 1997. The Trust was formerly a
Maryland corporation, and reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of shares into one or more classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to such shareholders. All shares are
freely transferable and have no preemptive, subscription or conversion rights.
Shareholders are entitled to one vote per share, provided that, at the option
of the Trustees, shareholders will be entitled to a number of votes based upon
the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
The Fund is treated as a separate entity for tax purposes. The Fund intends
to elect to be treated as a regulated investment company and intends to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, the Fund must satisfy certain requirements relating
to the sources of its income, diversification of its assets and distribution
of its income to shareholders. As a regulated investment company, the Fund
will not be subject to federal income or excise tax on any net investment
income and net realized capital gains that are distributed to its shareholders
in accordance with certain timing requirements of the Code.
17
<PAGE>
Dividends paid by the Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by the
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. The Fund's dividends that are paid to its corporate shareholders and
are attributable to qualifying dividends the Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Since dividends
the Fund receives from REITs are not qualifying dividends for this purpose, it
is not likely that a substantial portion of the Fund's dividends will
generally qualify for the corporate dividends-received deduction. Certain
distributions paid by the Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Fund for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund.
The Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Fund will not be eligible
to elect to pass such foreign taxes through to shareholders, who therefore
will generally not take such taxes into account on their own tax returns. The
Fund will generally deduct such taxes in determining the amounts available for
distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Fund. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) the Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Fund, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
18
<PAGE>
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of the Fund
means the vote of the lesser of (i) 67% or more of the shares present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
19
<PAGE>
ADDITIONAL SERVICES
The Trust, on behalf of the Fund, has adopted a Service Plan with respect to
the Service Shares which authorizes the Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Fund, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services shall
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.
Holders of Service Shares of the Fund bear all expenses and fees paid to
Service Organizations for their services with respect to such Shares as well as
any other expenses which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in the Fund. The Trust, on behalf of the Fund, accrues payments made pur-
suant to a Service Agreement daily. All inquiries of beneficial owners of Serv-
ice Shares should be directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Fund will receive an annual report
containing audited financial statements and a semi-annual report. The
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs. The Funds do not generally provide
subaccounting services with respect to beneficial ownership of Service Shares.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each trans-
action.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by the Fund on its outstanding Service Shares will, at the elec-
tion of each shareholder, be paid (i) in cash or (ii) in additional Service
Shares of the Fund. This election should initially be made on a shareholder's
Account Information Form and may be changed upon written notice to Goldman
Sachs at any time prior to the record date for a particular
20
<PAGE>
dividend or distribution. If no election is made, all dividends from net in-
vestment income and capital gain distributions will be reinvested in Service
Shares of the Fund.
The election to reinvest dividends and distributions paid by the Fund in ad-
ditional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of the Fund.
The Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Fund will
pay dividends from net investment income quarterly. The Fund will pay dividends
from net realized long-term and short-term capital gains, reduced by available
capital losses, at least annually. From time to time, a portion of the Fund's
dividends may constitute a return of capital.
At the time of an investor's purchase of shares of the Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
Service Organizations. Service Shares may be purchased on any Business Day at
the net asset value per share next determined after receipt of an order by
Goldman Sachs from a Service Organization. (See "Additional Services" for a de-
scription of limited sittuations where a Service Organization or other interme-
diary may be authorized to accept orders for the Funds.) No sales load will be
charged. Currently, net asset value is determined as of the close of regular
trading on the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00
p.m. New York time) as described under "Net Asset Value." Purchases of Service
Shares of the Fund must be settled within three (3) Business Days of the re-
ceipt of a complete purchase order. Payment of the proceeds of redemption of
shares purchased by check may be delayed for a period of time as described un-
der "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street. In order to
facilitate timely transmittal, the Service Organizations have established times
by which purchase orders and payments must be received by them.
PURCHASE PROCEDURES
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street Bank and Trust Company ("State Street") or initiating an ACH
transfer. Purchases may also be made by a Service Organization by check (except
that the
21
<PAGE>
Trust will not accept a check drawn on a foreign bank or a third party check)
or Federal Reserve draft made payable to "Goldman Sachs Real Estate Securities
Fund--Name of Class of shares" and should be directed to "Goldman Sachs Real
Estate Securities Fund--Name of Class of shares," c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Fund does not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.
The Fund reserves the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of such shareholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give sixty (60) days' prior written notice to Service
Organizations whose Service Shares are being redeemed to allow them to purchase
sufficient additional Service Shares to avoid such redemption.
The Fund and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of the Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of the Fund.
In the sole discretion of Goldman Sachs, the Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Fund may be exchanged by a Service Organization for (i)
Service Shares of any other mutual fund sponsored by Goldman Sachs and desig-
nated as an eligible fund for this purpose and (ii) the corresponding class of
any Goldman Sachs Money Market Fund at the net asset value next determined ei-
ther by writing to Goldman Sachs, Attention: Goldman Sachs Real Estate Securi-
ties Fund--Name of Class of shares, c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of the Fund for which the exchange is being made.
22
<PAGE>
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be modified or with-
drawn at any time on sixty (60) days' written notice to recordholders of Serv-
ice Shares and is subject to certain limitations. See "Purchase of Service
Shares."
REDEMPTION OF SERVICE SHARES
The Fund will redeem its Service Shares upon request of the recordholder of
such Shares on any Business Day at the net asset value next determined after
receipt of such request in proper form by Goldman Sachs from a Service Organi-
zation. (See "Additional Services" for a description of limited situations
where a Service Organization or other intermediary may be authorized to accept
requests for the Fund.) If Service Shares to be redeemed were recently pur-
chased by check, the Fund may delay transmittal of redemption proceeds until
such time as it has assured itself that good funds have been collected for the
purchase of such Service Shares. This may take up to fifteen (15) days. Redemp-
tion requests may be made by a Service Organization by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover of this Prospectus. A Service Organization may request redemptions by
telephone if the optional telephone redemption privilege is elected on the Ac-
count Information Form. It may be difficult to implement redemptions by tele-
phone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Fund,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
The Fund will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares, or if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. Once
23
<PAGE>
wire transfer instructions have been given by Goldman Sachs, neither the Fund,
the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries or the customer's Service Organization in the
transfer process. If a problem with such performance arises, the customer
should deal directly with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
--------------------
24
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
REPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
REAL ESTATE
SECURITIES FUND
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
LOGO
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
SERVICE SHARES
INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS JAPANESE EQUITY FUND
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(EQUITY PORTFOLIOS OF GOLDMAN SACHS TRUST)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectus for the Class A Shares, Class B Shares, Class C Shares, Service
Shares and Institutional Shares of Goldman Sachs Balanced Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs CORE Small Cap Equity Fund, Goldman Sachs
CORE International Equity Fund, Goldman Sachs Capital Growth Fund, Goldman
Sachs Mid Cap Equity Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Small Cap Value Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs
International Small Cap Fund, Goldman Sachs Emerging Markets Equity Fund,
Goldman Sachs Asia Growth Fund and Goldman Sachs Real Estate Securities Fund
dated May 1, 1998 (the "Prospectus"), which may be obtained without charge from
Goldman, Sachs & Co. by calling the telephone number, or writing to one of the
addresses, listed below.
<PAGE>
TABLE OF CONTENTS
Page
-----
Introduction.................................................. B-4
Investment Policies........................................... B-6
Investment Restrictions....................................... B-47
Management.................................................... B-50
Portfolio Transactions and Brokerage.......................... B-69
Net Asset Value............................................... B-75
Performance Information....................................... B-77
Shares of the Trust........................................... B-85
Taxation...................................................... B-91
Financial Statements.......................................... B-100
Other Information............................................. B-100
Distribution and Authorized Dealer Service Plans.............. B-102
Other Information Regarding Maximum Sales Charge, Purchases,
Redemptions, Exchanges and Dividends........................ B-110
Service Plan.................................................. B-115
Appendix A:................................................... 1-A
Appendix B:................................................... 1-B
The date of this Additional Statement is May 1, 1998.
B-2
<PAGE>
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
Adviser to:
Goldman Sachs CORE U.S. Equity Fund
Goldman Sachs Capital Growth Fund
One New York Plaza
New York, New York 10004
GOLDMAN SACHS ASSET MANAGEMENT
Adviser to:
Goldman Sachs Balanced Fund
Goldman Sachs Growth and Income Fund
Goldman Sachs CORE Large Cap Growth Fund
Goldman Sachs CORE Small Cap Equity Fund
Goldman Sachs CORE International Equity Fund
Goldman Sachs Mid Cap Equity Fund
Goldman Sachs Mid Cap Equity Fund
Goldman Sachs Small Cap Value Fund
Goldman Sachs Real Estate Securities Fund
One New York Plaza
New York, New York 10004
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
GOLDMAN, SACHS & CO.
Distributor
85 Broad Street
New York, New York 10004
GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
Adviser to:
Goldman Sachs International Equity Fund
Goldman Sachs Japanese Equity Fund
Goldman Sachs International Small Cap Fund
Goldman Sachs Emerging Markets Equity Fund
Goldman Sachs Asia Growth Fund
133 Peterborough Court
London, England EC4A 2BB
Toll free (in U.S.) . . . . 800-621-2550
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INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management
investment company. The following series of the Trust are described in this
Additional Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman
Sachs Growth and Income Fund ("Growth and Income Fund"), Goldman Sachs, CORE
U.S. Equity Fund ("CORE U.S. Equity Fund")(formerly known as "Goldman Sachs
Select Equity Fund"), Goldman Sachs CORE Large Cap Growth Fund ("CORE Large Cap
Growth Fund"), Goldman Sachs CORE Small Cap Equity Fund ("CORE Small Cap Equity
Fund"), Goldman Sachs CORE International Equity Fund ("CORE International Equity
Fund"), Goldman Sachs Mid Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs
Capital Growth Fund ("Capital Growth Fund"), Goldman Sachs International Equity
Fund ("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small
Cap Value Fund"), Goldman Sachs Japanese Equity Fund ("Japanese Equity Fund"),
Goldman Sachs International Small Cap Fund ("International Small Cap Fund"),
Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets Equity Fund"),
Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman Sachs Real
Estate Securities Fund ("Real Estate Securities Fund") (collectively referred to
herein as the "Funds").
The Funds, except the Japanese Equity, International Small Cap, CORE
Large Cap Growth, CORE International, CORE Small Cap Equity and Emerging Markets
Equity Funds, were initially organized as a series of a corporation formed under
the laws of the State of Maryland on September 27, 1989 and were reorganized as
a Delaware business trust as of April 30, 1997. The Trustees have authority
under the Trust's charter to create and classify shares into separate series and
to classify and reclassify any series or portfolio of shares into one or more
classes without further action by shareholders. Pursuant thereto, the Trustees
have created the Funds and other series. Additional series may be added in the
future from time to time. Each Fund, except the Asia Growth Fund, currently
offers five classes of shares: Class A Shares, Class B Shares, Class C Shares,
Institutional Shares and Service Shares. The Asia Growth Fund offers Class A,
Class B, Class C and Institutional Shares. See "Shares of the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. GSAM, GSFM and GSAMI are sometimes referred to collectively
herein as the "Advisers." Goldman Sachs serves as each Fund's distributor and
transfer agent. Each Fund's custodian is State Street Bank and Trust Company
("State Street").
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The following information relates to and supplements the description
of each Fund's investment policies contained in the Prospectus. See the
Prospectus for a fuller description of the Funds' investment objectives and
policies. There is no assurance that each Fund will achieve its objective.
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INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions, so that an investment in any
of the Funds may be worth more or less when redeemed than when purchased. None
of the Funds should be relied upon as a complete investment program.
BALANCED FUND
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The investment objective of the Balanced Fund is to provide
shareholders with long-term capital growth and current income. The Balanced
Fund seeks to achieve its investment objective by investing in a balanced
portfolio diversified among both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor
can build an investment portfolio or to serve as the core of an investment
program, depending on the investor's goals. Balanced Fund is designed for
relatively conservative investors who seek a combination of long-term capital
growth and current income in a single investment. Balanced Fund offers a
portfolio of equity and fixed income securities intended to provide less
volatility than a portfolio completely invested in equity securities and greater
diversification than a portfolio invested in only one asset class. Balanced
Fund may be appropriate for people who seek capital appreciation but are
concerned about the volatility typically associated with a fund that invests
solely in stocks and other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced
Fund's portfolio seeks to provide high returns relative to a market benchmark,
the Lehman Brothers Aggregate Bond Index, while also seeking to provide high
current income. This approach emphasizes (1) sector allocation strategies which
enable GSAM to tactically overweight or underweight one sector of the fixed-
income market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar
bonds, emerging market debt) versus another; (2) individual security selection
based on identifying relative value (fixed income securities inexpensive
relative to others in their sector); and (3) to a lesser extent, strategies
based on GSAM's expectation of the direction of interest rates or the spread
between short-term and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways.
These include diversifying the fixed income portion of the Balanced Fund's
portfolio among various types of fixed income securities and utilizing
sophisticated quantitative models to understand how the fixed income portion of
the portfolio will perform under a variety of market and economic scenarios.
In addition, GSAM uses extensive credit analysis to select and to monitor any
investment-grade or non-investment grade bonds that may be included in the
Balanced Fund's portfolio. In employing this
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and other investment strategies, the GSAM team has access to extensive
fundamental research and analysis available through Goldman Sachs and a broad
range of other sources.
A number of investment strategies will be used in selecting fixed
income securities for the Fund's portfolio. GSAM's fixed income investment
philosophy is to actively manage the portfolio within a risk-controlled
framework. The Adviser de-emphasizes interest rate anticipation by monitoring
the duration of the portfolio within a narrow range of the Adviser's target
duration, and instead focuses on seeking to add value through sector selection,
security selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the
underweighting or overweighting of one or more market sectors (i.e., U.S.
Treasuries, U.S. Government agency securities, corporate securities, mortgage-
backed securities and asset-backed securities). GSAM may decide to overweight
or underweight a given market sector or subsector (e.g., within the corporate
sector, industrials, financial issuers and utilities) based on, among other
things, expectations of future yield spreads between different sectors or
subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of
corporate securities based on a corporation's current and expected credit
standing (within the constraints imposed by Balanced Fund's minimum credit
quality requirements). This strategy focuses on four types of investment-grade
corporate issuers. Selection of securities from the first type of issuers -
those with low but stable credit - is intended to enhance total returns by
providing incremental yield. Selecting securities from the second type of
issuers - those with low and intermediate but improving credit quality - is
intended to enhance total returns in two stages. Initially, these securities
are expected to provide incremental yield. Eventually, price appreciation
should occur relative to alternative securities as credit quality improves, the
nationally recognized statistical rating organizations upgrade credit ratings,
and credit spreads narrow. Securities from the third type of issuers - issuers
with deteriorating credit quality - will be avoided, since total returns are
typically enhanced by avoiding the widening of credit spreads and the consequent
relative price depreciation. Finally, total returns can be enhanced by focusing
on securities that are rated differently by different rating organizations. If
the securities are trading in line with the higher published quality rating
while GSAM concurs with the lower published quality rating, the securities would
generally be sold and any potential price deterioration avoided. On the other
hand, if the securities are trading in line with the lower published quality
rating while the higher published quality rating is considered more realistic,
the securities may be purchased in anticipation of the expected market
reevaluation and relative price appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting
or underweighting different maturity sectors relative
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to a benchmark to take advantage of the shape of the yield curve. Three
alternative maturity sector selections are available: a "barbell" strategy in
which short and long maturity sectors are overweighted while intermediate
maturity sectors are underweighted; a "bullet" strategy in which, conversely,
short-and long-maturity sectors are underweighted while intermediate-maturity
sectors are overweighted; and a "neutral yield curve" strategy in which the
maturity distribution mirrors that of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
INTERNATIONAL EQUITY FUNDS
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Under normal circumstances, the Funds will invest at least 90% of
their total assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity and CORE International Equity Funds will be
implemented to the extent it is consistent with maintaining a Fund's
qualification as a regulated investment company under the Internal Revenue Code.
A Fund's strategy may be limited, in particular, by the requirement for such
qualification that less than 30% of the Fund's gross income for its taxable year
be derived from the sale or other disposition of stocks or securities or certain
other investments (generally including options and futures contracts) held for
less than three months.
Since normal settlement for equity securities is three trading days
(for certain international markets settlement may be longer), the Funds will
need to hold cash balances to satisfy shareholder redemption requests. Such
cash balances will normally range from 2% to 5% of a Fund's net assets. The
Funds may purchase futures contracts only with respect to the S&P 500 Index (in
the case of CORE U.S. Equity Fund) and a representative index (in the case of
CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) in order to keep a Fund's effective equity exposure close to 100%. For
example, if cash balances are equal to 10% of the net assets, the Fund may enter
into long futures contracts covering an amount equal to 10% of the Fund's net
assets. As cash balances fluctuate based on new contributions or withdrawals, a
Fund may enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous
computerized rating system for evaluating equity securities according to a
variety of investment characteristics (or factors). The factors used by the
Multifactor Model incorporate many variables studied by traditional fundamental
analysts and cover measures of value, growth, momentum, risk (e.g.
price/earnings ratio, book/price ratio, growth forecasts, earning estimate
revisions, price momentum, volatility and earnings stability). All of these
factors have been shown to significantly impact the per formance of equity
securities.
Because it includes many disparate factors, the Adviser believes that
the Multifactor Model is broader in scope and
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provides a more thorough evaluation than most conventional, value-oriented
quantitative models. As a result, the securities ranked highest by the
Multifactor Model do not have one dominant investment characteristic (such as a
low price/earnings ratio); rather, such securities possess many different
investment characteristics. By using a variety of relevant factors to select
securities, the Adviser believes that the Fund will be better balanced and have
more consistent performance than an investment portfolio that uses only one or
two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make
changes to, the method by which securities are selected for or weighted in the
Fund. Such changes (which may be the result of changes in the Multifactor Model
or the method of applying the Multifactor Model) may include: (i) evolutionary
changes to the structure of the Multifactor Model (e.g., the addition of new
factors or a new means of weighting the factors); (ii) changes in trading
procedures (e.g., trading frequency or the manner in which the Fund uses
futures); or (iii) changes in the method by which securities are weighted in the
Fund. Any such changes will preserve the Fund's basic investment philosophy of
combining qualitative and quantitative methods of selecting securities using a
disciplined investment process.
INTERNATIONAL EQUITY FUND
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International Equity Fund will seek to achieve its investment
objective by investing primarily in equity and equity-related securities of
issuers that are organized outside the United States or whose securities are
principally traded outside the United States. Because research coverage outside
the United States is fragmented and relatively unsophisticated, many foreign
companies that are well-positioned to grow and prosper have not come to the
attention of investors. GSAMI believes that the high historical returns and
less efficient pricing of foreign markets create favorable conditions for
International Equity Fund's highly focused investment approach. For a
description of the risks of the International Equity Fund's investments in Asia,
see "Investing in Emerging Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAMI's equity team in London, Singapore and Tokyo seeks to
identify companies that may achieve superior long-term returns. Stocks are
carefully selected for International Equity Fund's portfolio through a three-
stage investment process. Because International Equity Fund is a long-term
holder of stocks, the portfolio managers adjust International Equity Fund's
portfolio only when expected returns fall below acceptable levels or when the
portfolio managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered
from other sources in Europe and the Asia-Pacific region, the Adviser seeks to
identify attractive industries around the world. Such industries are expected
to have favorable underlying
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economics and allow companies to generate sustainable and predictable high
returns. As a rule, they are less economically sensitive, relatively free of
regulation and favor strong franchises.
Within these industries the Adviser seeks to identify well-run
companies that enjoy a stable competitive advantage and are able to benefit from
the favorable dynamics of the industry. This stage includes analyzing the
current and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in
foreign equities by means of a currency overlay program. The program may be
utilized to protect the value of foreign investments in sustained periods of
dollar appreciation and to add returns by seeking to take advantage of foreign
exchange fluctuations.
The members of GSAMI's international equity team bring together years
of experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
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Each Fund may, under normal market conditions, invest in corporate
debt obligations, including obligations of industrial, utility and financial
issuers. CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and
CORE International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly
leveraged issuers of junk bond securities to service their debt obligations or
to repay their obligations upon maturity. Factors having an adverse impact on
the market value of junk bonds will have an adverse effect on a Fund's net asset
value to the extent it invests in such securities. In addition, a Fund may
incur additional expenses to the extent it is required to seek
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recovery upon a default in payment of principal or interest on its portfolio
holdings.
The secondary market for junk bonds, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities. This reduced liquidity may have an adverse effect
on the ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity,
Small Cap Value, Japanese Equity, International Small Cap, Emerging Markets
Equity, Asia Growth and Real Estate Securities Funds to dispose of a particular
security when necessary to meet their redemption requests or other liquidity
needs. Under adverse market or economic conditions, the secondary market for
junk bonds could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, the Advisers could find
it difficult to sell these securities or may be able to sell the securities only
at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under such
circumstances, may be less than the prices used in calculating a Fund's net
asset value.
Since investors generally perceive that there are greater risks
associated with the medium to lower rated securities of the type in which
Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small Cap Value,
Japanese Equity, International Small Cap, Emerging Markets Equity, Asia Growth
and Real Estate Securities Funds may invest, the yields and prices of such
securities may tend to fluctuate more than those for higher rated securities.
In the lower quality segments of the fixed-income securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the fixed-
income securities market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to
offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer
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and its ability to make timely payments of income and principal, as well as
broad economic trends and corporate developments.
ZERO COUPON BONDS
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A Fund's investments in fixed income securities may include zero
coupon bonds, which are debt obligations issued or purchased at a significant
discount from face value. The discount approximates the total amount of
interest the bonds would have accrued and compounded over the period until
maturity. Zero coupon bonds do not require the periodic payment of interest.
Such investments benefit the issuer by mitigating its need for cash to meet debt
service but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments may experience greater
volatility in market value than debt obligations which provide for regular
payments of interest. In addition, if an issuer of zero coupon bonds held by a
Fund defaults, the Fund may obtain no return at all on its investment. Each
Fund will accrue income on such investments for each taxable year which (net of
deductible expenses, if any) is distributable to shareholders and which, because
no cash is generally received at the time of accrual, may require the
liquidation of other portfolio securities to obtain sufficient cash to satisfy
the Fund's distribution obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
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The interest rates payable on certain fixed income securities in which
a Fund may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
CUSTODIAL RECEIPTS
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Each Fund may invest up to 5% of its net assets in custodial receipts
in respect of securities issued or guaranteed as to principal and interest by
the U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
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MUNICIPAL SECURITIES
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Balanced Fund may invest up to 5% of its net assets in municipal
securities. Municipal securities consist of bonds, notes and other instruments
issued by or on behalf of states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the
issuer could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
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GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
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The investment characteristics of adjustable and fixed rate mortgage-
backed securities differ from those of traditional fixed income securities. The
major differences include the payment of interest and principal on mortgage-
backed securities on a more frequent (usually monthly) schedule, and the
possibility that principal may be prepaid at any time due to prepayments on the
underlying mortgage loans or other assets. These differences can result in
significantly greater price and yield volatility than is the case with
traditional fixed income securities. As a result, if a Fund purchases mortgage-
backed securities at a premium, a faster than expected prepayment rate will
reduce both the market value and the yield to maturity from those which were
anticipated. A prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity and market value. Conversely,
if a Fund purchases mortgage-backed securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce yield to maturity and market values. To the extent that a Fund invests
in mortgage-backed securities, the Advisers may seek to manage these potential
risks by investing in a variety of mortgage-backed securities and by using
certain hedging techniques.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several
types of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include
securities issued or guaranteed by the U.S. Government or one of its agencies,
authorities, instrumentalities or sponsored enterprises, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned
corporation chartered under an act of the United States Congress. Each Fannie
Mae Certificate is issued and guaranteed by Fannie Mae and represents an
undivided interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae.
Each Pool consists of residential
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mortgage loans ("Mortgage Loans") either previously owned by Fannie Mae or
purchased by it in connection with the formation of the Pool. The Mortgage
Loans may be either conventional Mortgage Loans (i.e., not insured or guaranteed
by any U.S. Government agency) or Mortgage Loans that are either insured by the
Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). However, the Mortgage Loans in Fannie Mae Pools are
primarily conventional Mortgage Loans. The lenders originating and servicing
the Mortgage Loans are subject to certain eligibility requirements established
by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to
each Pool, Fannie Mae is obligated to distribute scheduled monthly installments
of principal and interest after Fannie Mae's servicing and guaranty fee, whether
or not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S.
Government sponsored enterprise. The principal activity of Freddie Mac
currently is the purchase of first lien, conventional, residential mortgage
loans and participation interests in such mortgage loans and their resale in the
form of mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset or
deduction, but does not, generally, guarantee the timely payment of scheduled
principal. The obligations of Freddie Mac under its guaranty of Freddie Mac
Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae
Certificates consist of adjustable rate or fixed rate mortgage loans with
original terms to maturity of between five and thirty years. Substantially all
of these mortgage loans are secured by first liens on one-to-four-family
residential properties or multifamily projects. Each mortgage loan must meet
the applicable standards set forth in the law creating Freddie Mac or Fannie
Mae. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
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MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S.
Equity , CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds) may invest in both government guaranteed and privately issued
mortgage pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or
adjustable rate mortgage-backed securities which provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in
one or more classes of senior certificates and one or more classes of
subordinate certificates. Each such class may bear a different pass-through
rate. Generally, each certificate will evidence the specified interest of the
holder thereof in the payments of principal or interest or both in respect of
the mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled
to varying amounts of principal and interest. If a REMIC election has been
made, certificates of such subclasses may be entitled to payments on the basis
of a stated principal balance and stated interest rate, and payments among
different subclasses may be made on a sequential, concurrent, pro rata or
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disproportionate basis, or any combination thereof. The stated interest rate on
any such subclass of certificates may be a fixed rate or one which varies in
direct or inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--------
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
--------
such
B-16
<PAGE>
mortgage loan when paid by the mortgagor in subsequent monthly payments or at
maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage
Pass-Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pools of mortgages, the provision of a reserve fund, or a
combination thereof, to ensure, subject to certain limitations, that scheduled
payments on the underlying pool are made in a timely fashion. Protection
against losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. Such credit
support can be provided by among other things, payment guarantees, letters of
credit, pool insurance, subordination, or any combination thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to
achieve ratings on one or more classes of Mortgage Pass-Throughs, one or more
classes of certificates may be subordinate certificates which provide that the
rights of the subordinate certificate-holders to receive any or a specified
portion of distributions with respect to the underlying mortgage loans may be
subordinated to the rights of the senior certificate-holders. If so structured,
the subordination feature may be enhanced by distributing to the senior
certificate-holders on certain distribution dates, as payment of principal, a
specified percentage (which generally declines over time) of all principal
payments received during the preceding prepayment period ("shifting interest
credit enhancement"). This will have the effect of accelerating the
amortization of the senior certificates while increasing the interest in the
trust fund evidenced by the subordinate certificates. Increasing the interest
of the subordinate certificates relative to that of the senior certificates is
intended to preserve the availability of the subordination provided
B-17
<PAGE>
by the subordinate certificates. In addition, because the senior certificate-
holders in a shifting interest credit enhancement structure are entitled to
receive a percentage of principal prepayments which is greater than their
proportionate interest in the trust fund, the rate of principal prepayments on
the mortgage loans will have an even greater effect on the rate of principal
payments and the amount of interest payments on, and the yield to maturity of,
the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to
enhance the likelihood of timely receipt by senior certificate-holders of the
full amount of scheduled monthly payments of principal and interest due them and
will protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event the Reserve Fund is depleted before the
subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
--------
all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to
the credit enhancement afforded by subordination, credit enhancement for
Mortgage Pass-Throughs may be provided by mortgage insurance, hazard insurance,
by the deposit of cash, certificates of deposit, letters of credit, a limited
guaranty or by such other methods as are acceptable to a rating agency. In
certain circumstances, such as where credit enhancement is provided by
guarantees or a letter of credit, the security is subject to credit risk because
of its exposure to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in
payments on the mortgage loans underlying the Mortgage Pass-
B-18
<PAGE>
Throughs, the servicer agrees to make advances of cash for the benefit of
certificate-holders, but only to the extent that it determines such voluntary
advances will be recoverable from future payments and collections on the
mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac
REMIC Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and
Freddie Mac are types of multiple class mortgage-backed securities. Investors
may purchase beneficial interests in REMICs, which are known as "regular"
interests or "residual" interests. The Funds do not intend to purchase residual
interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage- backed securities
B-19
<PAGE>
(the "Mortgage Assets"). The obligations of Fannie Mae or Freddie Mac under
their respective guaranty of the REMIC Certificates are obligations solely of
Fannie Mae or Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each
class of CMOs or REMIC Certificates, often referred to as a "tranche," is issued
at a specific adjustable or fixed interest rate and must be fully retired no
later than its final distribution date. Principal prepayments on the Mortgage
Loans or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause
some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs or REMIC Certificates
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets.
B-20
<PAGE>
These tranches tend to have market prices and yields that are much more volatile
than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate
Securities Funds may invest in stripped mortgage-backed securities ("SMBS"),
which are derivative multiclass mortgage securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
INVERSE FLOATING RATE SECURITIES
- --------------------------------
Balanced Fund may invest up to 5% of its net assets in leveraged
inverse floating rate debt instruments ("inverse floaters"). The interest rate
on an inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
ASSET-BACKED SECURITIES
- -----------------------
Asset-backed securities represent participation in, or are secured by
and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other categories
of receivables. Such assets are securitized through the use of trusts and
special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often
subject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the underlying
loans. A Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
B-21
<PAGE>
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
LOAN PARTICIPATIONS
- -------------------
The Balanced Fund may invest in loan participations. Such loans must
be to issuers in whose obligations the Balanced Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a number of lenders, usually banks (co-
lenders), lend a corporate borrower a specified sum pursuant to the terms and
conditions of a loan agreement. One of the co-lenders usually agrees to act as
the agent bank with respect to the loan.
Participation interests acquired by the Balanced Fund may take the
form of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or
a participation in the seller's share of the loan. When the Balanced Fund acts
as co-lender in connection with a participation interest or when the Balanced
Fund acquires certain participation interests, the Balanced Fund will have
direct recourse against the borrower if the borrower fails to pay scheduled
principal and interest. In cases where the Balanced Fund lacks direct recourse,
it will look to the agent bank to enforce appropriate credit remedies against
the borrower. In these cases, the Balanced Fund may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Fund
B-22
<PAGE>
had purchased a direct obligation (such as commercial paper) of such borrower.
For example, in the event of the bankruptcy or insolvency of the corporate
borrower, a loan participation may be subject to certain defenses by the
borrower as a result of improper conduct by the agent bank. Moreover, under the
terms of the loan participation, the Balanced Fund may be regarded as a creditor
of the agent bank (rather than of the underlying corporate borrower), so that
the Balanced Fund may also be subject to the risk that the agent bank may become
insolvent. The secondary market, if any, for these loan participations is
limited and any loan participations purchased by the Balanced Fund will be
regarded as illiquid.
For purposes of certain investment limitations pertaining to
diversification of the Balanced Fund's portfolio investments, the issuer of a
loan participation will be the underlying borrower. However, in cases where the
Balanced Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the Balanced Fund
and the borrower will be deemed issuers of a loan participation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
Each Fund may purchase and sell futures contracts and may also
purchase and write options on futures contracts. CORE U.S. Equity and CORE
Large Cap Growth Funds may only enter into such transactions with respect to the
S&P 500 Index, for the CORE U.S. Equity Fund and a representative index in the
case of the CORE Large Cap Growth Fund. The other Funds may purchase and sell
futures contracts based on various securities (such as U.S. Government
securities), securities indices, foreign currencies and other financial
instruments and indices. Each Fund will engage in futures and related options
transactions, only for bona fide hedging purposes as defined below or for
purposes of seeking to increase total return to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). All futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as
an agreement between two parties to buy and sell particular financial
instruments for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
When interest rates are rising or securities prices are falling, a
Fund can seek through the sale of futures contracts to offset a decline in the
value of its current portfolio securities. When rates are falling or prices are
rising, a Fund, through the purchase of futures contracts, can attempt to secure
better rates or prices than might later be available in the market when it
effects anticipated purchases. Similarly, each Fund (other than CORE U.S.
Equity, CORE Large Cap Growth and CORE Small Cap Equity
B-23
<PAGE>
Funds) can sell futures contracts on a specified currency to protect against a
decline in the value of such currency and its portfolio securities which are
quoted or denominated in such currency. Each Fund (other than CORE U.S. Equity,
CORE Large Cap Growth and CORE Small Cap Equity Funds) can purchase futures
contracts on foreign currency to establish the price in U.S. dollars of a
security quoted or denominated in such currency that such Fund has acquired or
expects to acquire.
Positions taken in the futures market are not normally held to
maturity, but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While each Fund will usually liquidate futures
contracts on securities or currency in this manner, a Fund may instead make or
take delivery of the underlying securities or currency whenever it appears
economically advantageous for the Fund to do so. A clearing corporation
associated with the exchange on which futures are traded guarantees that, if
still open, the sale or purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price, rate of return or currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. A Fund may, for example,
take a "short" position in the futures market by selling futures contracts to
seek to hedge against an anticipated rise in interest rates or a decline in
market prices or (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) foreign currency rates that would adversely affect the
dollar value of such Fund's portfolio securities. Similarly, each Fund (other
than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds)
may sell futures contracts on a currency in which its portfolio securities are
quoted or denominated or in one currency to seek to hedge against fluctuations
in the value of securities quoted or denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the applicable Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
B-24
<PAGE>
On other occasions, a Fund may take a "long" position by purchasing
such futures contracts. This would be done, for example, when a Fund
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices or currency exchange rates then available
in the applicable market to be less favorable than prices or rates that are
currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options
on futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract if the option is exercised, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, a Fund
becomes obligated to purchase a futures contract if the option is exercised,
which may have a value lower than the exercise price. Thus, the loss incurred
by a Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions
and will engage in related options transactions only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of
B-25
<PAGE>
securities (or the currency in which they are quoted or denominated) it intends
to purchase.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase. A Fund will engage in transactions in currency forward
contracts futures contracts and, for a Fund permitted to do so, related options
transactions only to the extent such transactions are consistent with the
requirements of the Code for maintaining its qualification as a regulated
investment company for federal income tax purposes (see "Taxation").
Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the Fund
to segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and a Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts available to hedge a Fund's portfolio are various
futures on U.S. Government securities, securities indices and foreign
currencies. In addition, it is not possible for a Fund to hedge fully or
perfectly against currency fluctuations affecting the value of securities quoted
or denominated in foreign currencies because the value of such securities is
likely to fluctuate as a result of independent factors not related to currency
fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
- --------------------------------------------
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and
put options on any securities in which it may invest (other than CORE U.S.
Equity and CORE Large Cap Growth Funds). A call option written by a Fund
obligates such Fund to sell specified
B-26
<PAGE>
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. All call options written by a
Fund are covered, which means that such Fund will own the securities subject to
the option as long as the option is outstanding or such Fund will use the other
methods described below. A Fund's purpose in writing covered call options is to
realize greater income than would be realized on portfolio securities
transactions alone. However, a Fund may forego the opportunity to profit from
an increase in the market price of the underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund.
In addition, a written call option or put option may be covered by
maintaining segregated cash or liquid assets (either of which may be quoted or
denominated in any currency), by entering into an offsetting forward contract
and/or by purchasing an offsetting option which, by virtue of its exercise price
or otherwise, reduces a Fund's net exposure on its written option position.
A Fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index
options are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single
security.
A Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration which has been segregated by the Fund) upon conversion or exchange
of other securities in its portfolio. A Fund may cover call and put options on
a securities index by segregating cash or liquid assets with a value equal to
the exercise price.
B-27
<PAGE>
A Fund may terminate its obligations under an exchange traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and
CORE Large Cap Growth Funds) may purchase put and call options on any securities
in which it may invest or options on any securities index composed of securities
in which it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an
increase in the market value of securities of the type in which it may invest.
The purchase of a call option would entitle a Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. A Fund would ordinarily realize a gain if, during the option period,
the value of such securities exceeded the sum of the exercise price, the premium
paid and transaction costs; otherwise such a Fund would realize either no gain
or a loss on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or in securities in which it may invest. The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell specified securities
at a specified price during the option period. The purchase of protective puts
is designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise
such a Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend
to be offset by countervailing changes in the value of the underlying portfolio
securities.
A Fund would purchase put and call options on securities indices for
the same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its
net assets, may enter into options on the yield "spread" or differential between
two securities. Such transactions are referred to as "yield curve" options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the
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individual securities, and is settled through cash payments. Accordingly, a
yield curve option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease.
Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, Balanced Fund may
purchase a call option on the yield spread between two securities if it owns one
of the securities and anticipates purchasing the other security and wants to
hedge against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A
call (or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and segregates cash or
liquid assets sufficient to cover the Balanced Fund's net liability under the
two options. Therefore, the Balanced Fund's liability for such a covered option
is generally limited to the difference between the amount of the Balanced Fund's
liability under the option written by the Balanced Fund less the value of the
option held by the Balanced Fund. Yield curve options may also be covered in
such other manner as may be in accordance with the requirements of the
counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter, and because they
have been only recently introduced, established trading markets for these
options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance
that a liquid secondary market on an options exchange will exist for any
particular exchange-traded option or at any particular time. If a Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of segregated assets until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be
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imposed by an exchange on opening or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or the Options Clearing Corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
Each Fund may purchase and sell both options that are traded on U.S.
and foreign exchanges and options traded over-the-counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of
protective puts for hedging purposes depends in part on the Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
Each Fund may invest in shares of REITs. The Real Estate Securities
Fund expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize
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<PAGE>
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Like regulated investment
companies such as the Funds, REITs are not taxed on income distributed to
shareholders provided they comply with certain requirements under the Code. A
Fund will indirectly bear its proportionate share of any expenses paid by REITs
in which it invests in addition to the expenses paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the
time of purchase, in warrants or rights (other than those acquired in units or
attached to other securities) which entitle the holder to buy equity securities
at a specific price for a specific period of time. A Fund will invest in
warrants and rights only if such equity securities are deemed appropriate by the
Adviser for investment by the Fund. CORE U.S. Equity, CORE Large Cap Growth,
CORE Small Cap Equity and CORE International Equity Funds have no present
intention of acquiring warrants or rights. Warrants and rights have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
FOREIGN SECURITIES
- ------------------
Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of the applicable Adviser,
to offer better opportunity for long-term growth of capital and income than
investments in U.S. securities, the opportunity to invest in foreign countries
with economic policies or business cycles different from those of the United
States and the opportunity to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not necessarily move in a manner
parallel to U.S. markets.
Investing in foreign securities involves certain special risks,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted
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<PAGE>
securities of U.S. issuers. Investments in foreign securities usually involve
currencies of foreign countries. Accordingly, any Fund that invests in foreign
securities may be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations and may incur costs in connection with
conversions between various currencies. Balanced, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may be subject to currency exposure independent of
their securities positions.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when some of a Fund's assets are uninvested and no return
is earned on such assets. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ
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<PAGE>
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position.
Each Fund may invest in foreign securities which take the form of
sponsored and unsponsored American Depository Receipts ("ADRs") and Global
Depository Receipts ("GDRs") and (except for CORE U.S. Equity, CORE Large Cap
Growth and CORE Small Cap Equity Funds) may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs are traded on
domestic exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which
do not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) may invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) may invest in securities of issuers domiciled in a
country other than the country in whose currency the instrument is denominated
or quoted. The Funds may also invest in securities quoted or denominated in the
European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain of the member states of the European
Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community from time to time
to reflect changes in relative values
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<PAGE>
of the underlying currencies. In addition, the Funds may invest in securities
quoted or denominated in other currency "baskets."
Investing in Emerging Markets , including Asia. CORE International
Equity, International Equity, International Small Cap, Asia Growth and Emerging
Markets Equity Funds are intended for long-term investors who can accept the
risks associated with investing primarily in equity and equity-related
securities of foreign issuers, including Emerging Countries issuers (in the case
of International Small Cap, Emerging Markets Equity and International Equity
Funds) and Asian Companies (as defined in the Prospectus) (in the case of Asia
Growth Fund), as well as the risks associated with investments quoted or
denominated in foreign currencies. Balanced, Growth and Income, CORE
International Equity, Small Cap Value, Mid Cap Equity and Capital Growth Funds
may invest, to a lesser extent, in equity and equity-related securities of
foreign issuers; including Emerging Countries issuers. In addition, certain of
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Fund's potential investment and management techniques
entail special risks. Asia Growth Fund concentrates on companies that the
Advisers believe are taking full advantage of the region's growth and that have
the potential for long-term capital appreciation. The Advisers believe that Asia
offers an attractive investment environment and that new opportunities will
continue to emerge in the years ahead.
The pace of change in many Emerging Countries, and in particular those
in Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less
liquid and subject to greater price volatility and has a smaller market
capitalization than the U.S. securities markets. Issuers and securities markets
in such countries are not subject to as extensive and frequent accounting,
financial and other reporting requirements or as comprehensive government
regulations as are issuers and securities markets in the U.S. In particular, the
assets and profits appearing on the financial statements of Emerging Country
issuers may not reflect their financial position or results of operations in the
same manner as financial statements for U.S. issuers. Substantially less
information may be publicly available about Emerging Country issuers than is
available about issuers in the United States.
Certain of the Emerging Country securities markets are marked by a
high concentration of market capitalization and trading volume in a small number
of issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages
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<PAGE>
of their development. Even the markets for relatively widely traded securities
in Emerging Countries may not be able to absorb, without price disruptions, a
significant increase in trading volume or trades of a size customarily
undertaken by institutional investors in the securities markets of developed
countries. Additionally, market making and arbitrage activities are generally
less extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The limited liquidity of Emerging Country
markets may also affect a Fund's ability to accurately value its portfolio
securities or to acquire or dispose of securities at the price and time it
wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups,
in Emerging Countries may be higher than in the United States and other
developed securities markets. In addition, existing laws and regulations are
often inconsistently applied. As legal systems in Emerging Countries develop,
foreign investors may be adversely affected by new or amended laws and
regulations. In circumstances where adequate laws exist, it may not be possible
to obtain swift and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions
may limit a Fund's investment in certain of the Asian countries and may increase
the expenses of the Fund. Certain Emerging Countries require governmental
approval prior to investments by foreign persons or limit investment by foreign
persons to only a specified percentage of an issuer's outstanding securities or
a specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds. A Fund may be required to establish special custodial or other
arrangements before investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which
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<PAGE>
the Funds may invest and adversely affect the value of the Funds' assets.
The economies of Emerging Countries may differ unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments. Many Emerging Countries have experienced in the past, and continue to
experience, high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks
and securities will be subject to applicable taxation in certain of the
countries in which it invests, and treaties between the U.S. and such countries
may not be available in some cases to reduce the otherwise applicable tax rates.
See "Taxation."
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of a Fund is uninvested and no
return is earned on such assets. The inability of a Fund to make intended
security purchases or sales due to settlement problems could result either in
losses to the Fund due to subsequent declines in value of the portfolio
securities or, if the Fund has entered into a contract to sell the securities,
could result in possible liability to the purchaser.
INVESTING IN JAPAN. The Japanese Equity Fund Invests in Japan's
economy, the second-largest in the world, has grown substantially over the last
three decades. The boom in Japan's equity and property markets during the
expansion of the late 1980's supported high rates of investment and consumer
spending on durable goods, but both of these components of demand have now
retreated sharply following the decline in asset prices. Profits have fallen
sharply, unemployment has reached a historical high and consumer confidence is
low. The banking sector continues to suffer from non-performing loans and this
economy is subject to substantial deflationary pressures. Numerous discount-
rate cuts since its peak in 1991, a succession of fiscal stimulus packages,
support plans for the debt-burdened financial system and spending for
reconstruction following the Kobe earthquake may help to contain the
recessionary forces, but substantial uncertainties remain.
In addition to the cyclical downturn, Japan is suffering through
structural adjustments. Like the Europeans, the Japanese
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<PAGE>
have seen a deterioration of their competitiveness due to high wages, a strong
currency and structural rigidities. Finally, Japan is reforming its political
process and deregulating its economy. This has brought about turmoil,
uncertainty and a crisis of confidence.
While the Japanese governmental system itself seems stable, the
dynamics of the country's politics have been unpredictable in recent years. The
economic crisis of 1990-92 brought the downfall of the conservative Liberal
Democratic Party, which had ruled since 1955. Since then, the country has seen
a series of unstable multi-party coalitions and several prime ministers come and
go, because of politics as well as personal scandals. While there appears to be
no reason for anticipating civic unrest, it is impossible to know when the
political instability will end and what trade and fiscal policies might be
pursued by the government that emerges.
Japan's heavy dependence on international trade has been adversely
affected by trade tariffs and other protectionist measures as well as the
economic condition of its trading partners. While Japan subsidizes its
agricultural industry, only 19% of its land is suitable for cultivation and it
is only 50% self-sufficient in food production. Accordingly, it is highly
dependent on large imports of wheat, sorghum and soybeans. In addition,
industry, its most important economic sector, depends on imported raw materials
and fuels, including iron ore, copper, oil and many forest products. Japan's
high volume of exports, such as automobiles, machine tools and semiconductors,
have caused trade tensions, particularly with the United States. Some trade
agreements, however, have been implemented to reduce these tensions. The
relaxing of official and de facto barriers to imports, or hardships created by
any pressures brought by trading partners, could adversely affect Japan's
economy. A substantial rise in world oil or commodity prices could also have a
negative affect. The strength of the yen itself may prove an impediment to
strong continued exports and economic recovery, because it makes Japanese goods
sold in other countries more expensive and reduces the value of foreign earnings
repatriated to Japan. Because the Japanese economy is so dependent on exports,
any fall-off in exports may be seen as a sign of economic weakness, which may
adversely affect the market.
Geologically, Japan is located in a volatile area of the world, and
has historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's economy.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid
Cap Equity, Capital Growth and Small Cap Value Funds may enter into forward
foreign currency exchange contracts for hedging purposes. Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap,
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<PAGE>
Emerging Markets Equity and Asia Growth Funds may enter into forward foreign
currency exchange contracts for hedging purposes and to seek to increase total
return. A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are generally charged at any stage for
trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of some or all
of such Fund's portfolio securities quoted or denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is
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<PAGE>
not possible, and short-term hedging provides a means of fixing the U.S. dollar
value of only a portion of a Fund's foreign assets.
Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may engage in cross-hedging by using
forward contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may also
purchase and sell forward contracts to seek to increase total return when GSAM
or GSAMI anticipates that the foreign currency will appreciate or depreciate in
value, but securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
Cash or liquid assets of such Fund will be segregated in an amount
equal to the value of the Fund's total assets committed to the consummation of
forward foreign currency exchange contracts requiring the Fund to purchase
foreign currencies or, in the case of Balanced, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds forward contracts entered into to seek to increase
total return. If the value of the segregated assets declines, additional cash
or liquid assets will be segregated on a daily basis so that the value of the
account will equal the amount of a Fund's commitments with respect to such
contracts. The segregated assets will be marked-to-market on a daily basis.
Although the contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate these contracts. In such event, a
Fund's ability to utilize forward foreign currency exchange contracts may be
restricted.
While a Fund will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Fund may benefit from such transactions, unanticipated changes
in currency prices may result in a poorer overall performance for the Fund than
if it had not engaged in any such transactions. Moreover, there may be
imperfect correlation between a Fund's portfolio holdings of securities quoted
or denominated in a particular currency and forward contracts entered into by
such Fund. Such imperfect correlation may cause a Fund to sustain losses which
will prevent the Fund from achieving a complete hedge or expose the Fund to risk
of foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
B-39
<PAGE>
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund
(except CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds)
may write covered put and call options and purchase put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of portfolio securities and against increases in the U.S. dollar
cost of securities to be acquired. As with other kinds of option transactions,
however, the writing of an option on foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If and when a Fund
seeks to close out an option, the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different currency with a pattern of correlation. In addition, Balanced,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may purchase call options on currency to seek to
increase total return when the Adviser anticipates that the currency will
appreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not included in the
Fund's portfolio.
A call option written by a Fund obligates a Fund to sell specified
currency to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. A put option written by a
Fund would obligate a Fund to purchase specified currency from the option holder
at a specified price if the option is exercised at any time before the
expiration date. The writing of currency options involves a risk that a Fund
will, upon exercise of the option, be required to sell currency subject to a
call at a price that is less than the currency's market value or be required to
purchase currency subject to a put at a price that exceeds the currency's market
value. For a description of how to cover written put and call options, see
"Written Covered Options" above.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Fund.
B-40
<PAGE>
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a
decline in the U.S. dollar value of currency in which securities in its
portfolio are quoted or denominated ("protective puts"). The purchase of a put
option would entitle a Fund, in exchange for the premium paid, to sell specified
currency at a specified price during the option period. The purchase of
protective puts is designed merely to offset or hedge against a decline in the
dollar value of a Fund's portfolio securities due to currency exchange rate
fluctuations. A Fund would ordinarily realize a gain if, during the option
period, the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the put option.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of underlying currency or
portfolio securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to seek to increase total return. Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds may write (sell) covered put
and call options on any currency in order to realize greater income than would
be realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may forego the opportunity to profit from an
increase in the market value of the underlying currency. Also, when writing
put options, Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
accept, in return for the option premium, the risk that they may be required to
purchase the underlying currency at a price in excess of the currency's market
value at the time of purchase.
Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
would normally purchase call options to seek to increase total return in
anticipation of an increase in the market value of a currency. Balanced, CORE
International Equity,
B-41
<PAGE>
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds would ordinarily realize a gain if, during the
option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds would realize either no gain
or a loss on the purchase of the call option. Put options may be purchased by a
Fund for the purpose of benefiting from a decline in the value of currencies
which it does not own. A Fund would ordinarily realize a gain if, during the
option period, the value of the underlying currency decreased below the exercise
price sufficiently to more than cover the premium and transaction costs.
Otherwise the Fund would realize either no gain or a loss on the purchase of the
put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums which a Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
B-42
<PAGE>
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
- --------------------------------------------------------------------------
FLOORS AND COLLARS
- ------------------
The Balanced, CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may, with respect to up to 5% of their net assets, enter into
currency swaps for both hedging purposes and to seek to increase total return.
In addition, the Balanced and Real Estate Securities Funds may, with respect to
5% of its net assets, enter into mortgage, index and interest rate swaps and
other interest rate swap arrangements such as rate caps, floors and collars, for
hedging purposes or to seek to increase total return. Currency swaps involve
the exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by a Fund with another party of the respective amounts
payable with respect to a notional principal amount at interest rates equal to
two specified indices. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on
a net basis, which means that the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or
B-43
<PAGE>
collar is segregated in cash or liquid assets, the Funds and the Advisers
believe that swaps do not constitute senior securities under the Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party
thereto is considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well
as interest rate caps, floors and collars, is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If an Adviser is incorrect in
its forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The investment advisers, under the
supervision of the Board of Trustees, are responsible for determining and
monitoring the liquidity of the Funds' transactions in swaps, caps, floors and
collars.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund
would be required to have the right to call a loan and obtain the securities
loaned at any time on five days' notice. For the duration of a loan, a Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and would also receive compensation from
investment of the collateral. A Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Advisers to be of good standing,
and when, in the judgment of the Advisers, the consideration which can be
earned currently from securities loans of this type justifies the attendant
risk. If the Advisers determine to make securities loans, it is intended that
the value of the securities loaned would not exceed one-third of the value of
the total assets of a Fund.
B-44
<PAGE>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually purchasing or selling the securities. If deemed advisable as a matter
of investment strategy, however, a Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to segregate until three days prior to
the settlement date, cash and liquid assets in an amount sufficient to meet the
purchase price. Alternatively, a Fund may enter into offsetting contracts for
the forward sale of other securities that it owns. Securities purchased or sold
on a when-issued or forward commitment basis involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date or if the
value of the security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the
time of purchase, in companies (including predecessors) which have operated less
than three years, except that this limitation does not apply to debt securities
which have been rated investment grade or better by at least one nationally
recognized statistical rating organization. The securities of such companies
may have limited liquidity, which can result in their being priced higher or
lower than might otherwise be the case. In addition, investments in unseasoned
companies are more speculative and entail greater risk than do investments in
companies with an established operating record.
OTHER INVESTMENT COMPANIES
- --------------------------
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund.
B-45
<PAGE>
However, to the extent that the Fund invests in a money market fund for which an
Adviser or any of its affiliates acts as adviser, the advisory and
administration fees payable by the Fund to an Adviser will be reduced by an
amount equal to the Fund's proportionate share of the advisory and
administration fees paid by such money market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held
by the UIT. Accordingly, the level of risk involved in the purchase or sale of
a SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds." Country
funds have portfolios consisting primarily of securities of issuers located in
one foreign country or region. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) may invest in World Equity
Benchmark Shares ("WEBS") and similar securities that invest in securities
included in foreign securities indices.
B-46
<PAGE>
REPURCHASE AGREEMENTS
- ---------------------
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities is maintained by a Fund's custodian. The repurchase
price may be higher than the purchase price, the difference being income to a
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to a Fund together with the repurchase price on repurchase. In
either case, the income to a Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, a Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the
Advisers seek to minimize the risk of loss from repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
security. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, if
the market value of the security subject to the repurchase agreement becomes
less than the repurchase price (including accrued interest), a Fund will direct
the seller of the security to deliver additional securities so that the market
value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price. Certain repurchase agreements which provide for
settlement in more than seven days can be liquidated before the nominal fixed
term on seven days or less notice. Such repurchase agreements will be regarded
as liquid instruments.
In addition, a Fund, together with other registered investment
companies having advisory agreements with the Advisers or their affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
B-47
<PAGE>
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust
as fundamental policies that cannot be changed without the affirmative vote of
the holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
A Fund may not:
(1) make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act of
1940, as amended (the "Act"). This restriction does not, however,
apply to any Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage
B-48
<PAGE>
transactions in mortgage dollar rolls which are accounted for as
financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund may, notwithstanding any other fundamental investment restriction
or policy, invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same investment objective,
restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
B-49
<PAGE>
(d) Make short sales of securities, except short sales against the box.
B-50
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
Ashok N. Bakhru, 55 Chairman Executive Vice President
1325 Ave. of the & Trustee - Finance and
Americas Administration and Chief
New York, NY 10019 Financial Officer, Coty
Inc. (since April 1996);
President, ABN Associates
(June 1994 to March
1996); Senior Vice
President of Scott Paper
Company (until June
1994); Director of
Arkwright Mutual
Insurance Company;
Trustee of International
House of Philadelphia;
Member of Cornell
University Council;
Trustee of the Walnut
Street Theater.
*David B. Ford, 52 Trustee Managing Director,
One New York Plaza Goldman Sachs (since
New York, NY 10004 1996); General Partner,
Goldman Sachs (1986-
1996); Co-Head of Goldman
Sachs Asset Management
(since December 1994).
*Douglas C. Grip, 36 Trustee Vice President, Goldman
One New York Plaza & President Sachs (since May 1996);
New York, NY 10004 President, MFS Retirement
Services Inc., of
Massachusetts Financial
Services (prior thereto).
B-51
<PAGE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
*John P. McNulty, 45 Trustee Managing Director,
One New York Plaza Goldman Sachs (since
New York, NY 10004 1996); General Partner of
Goldman Sachs (1990-1994
and 1995-1996); Co-Head
of Goldman Sachs Asset
Management (since
November 1996); Limited
Partner of Goldman Sachs
(1994 to November 1995).
Mary P. McPherson, 62 Trustee President of Bryn Mawr
Taylor Hall College (since 1978);
Bryn Mawr, PA 19010 Director of Josiah Macy,
Jr. Foundation (since
1977); Director of the
Philadelphia
Contributionship (since
1985); Director of
Amherst College (since
1986); Director of Dayton
Hudson Corporation (since
1988); Director of the
Spenser Foundation (since
1993); and member of PNC
Advisory Board (since
1993).
*Alan A. Shuch, 49 Trustee Limited Partner, Goldman
One New York Plaza Sachs (since 1994);
New York, NY 10004 Director and Vice
President of Goldman
Sachs Funds Management,
Inc. (from April 1990 to
November 1994); President
and Chief Operating
Officer, GSAM (from
September 1988 to
November 1994); Limited
Partner, Goldman Sachs
since December 1994.
B-52
<PAGE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
Jackson W. Smart, 67 Trustee Chairman, Executive
One Northfield Plaza Committee, First
#218 Commonwealth, Inc. (a
Northfield, IL 60093 managed dental care
company,) (since January
1996); Chairman and Chief
Executive Officer, MSP
Communications Inc. (a
company engaged in radio
broadcasting) (since
November 1988); Director,
Federal Express
Corporation (since 1976);
Evanston Hospital
Corporation (since 1980);
First Commonwealth, Inc.
(since 1988) and North
American Private Equity
Group (a venture capital
fund).
William H. Springer, 68 Trustee Vice Chairman and Chief
701 Morningside Drive Financial and
Lake Forest, IL 60045 Administrative Officer of
Ameritech (a
telecommunications
holding company)
(February 1987 to June
1991); Director, Walgreen
Co. (a retail drug store
business); Director of
Baker, Fentress & Co. (a
closed-end, non-
diversified management
investment company)
(April 1992 to present).
Richard P. Strubel, 58 Trustee Managing Director, Tandem
70 West Madison St., Partners, Inc. (since
Suite 1400 1990); President and
Chicago, IL 60602 Chief Executive Officer,
Microdot, Inc. (a
diversified manufacturer
of fastening systems and
connectors) (January 1984
to October 1994).
B-53
<PAGE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
*John W. Mosior, 59 Vice Vice President, Goldman
4900 Sears Tower President Sachs and Manager of
Chicago, IL 60606 Shareholder Servicing of
GSAM (since November
1989).
*Nancy L. Mucker, 48 Vice Vice President, Goldman
4900 Sears Tower President Sachs (since April 1985);
Chicago, IL 60606 Manager of Shareholder
Servicing of GSAM (since
November 1989).
*John M. Perlowski, 33 Treasurer Vice President, Goldman
One New York Plaza Sachs (since July 1995);
New York, NY 10004 Director, Investors Bank
and Trust (November
1993).
James A. Vice Vice President of Goldman
Fitzpatrick, 33 President Sachs Asset Management
4900 Sears Tower (since April 1997); Vice
Chicago, IL 60606 President and General
Manager, First Data
Corporation - Investor
Services Group (prior
thereto).
*Michael J. Richman, 37 Secretary General Counsel of the
85 Broad Street Mutual Funds Group of
New York, NY 10004 Goldman Sachs Asset
Management (since
December 1997); Associate
General Counsel of
Goldman Sachs Asset
Management (February 1994
to December 1997); Vice
President and Assistant
General Counsel of
Goldman Sachs (since June
1992); Counsel to the
Funds Group, GSAM (since
June 1992); Partner, Hale
and Dorr (September 1991
to June 1992).
B-54
<PAGE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
*Howard B. Surloff, 32 Assistant Assistant General
85 Broad Street Secretary Counsel, Goldman Sachs
New York, NY 10004 Asset Management and
Associate General Counsel
to the Funds Group (since
December 1997); Assistant
General Counsel and Vice
President, Goldman Sachs
(since November 1993 and
May 1994, respectively);
Counsel to the Funds
Group, Goldman Sachs
Asset Management (since
November 1993); Associate
of Shereff, Friedman,
Hoffman & Goodman (prior
thereto).
*Valerie A. Zondorak,32 Assistant Assistant General
85 Broad Street Secretary Counsel, Goldman Sachs
New York, NY 10004 Asset Management and
Associate General Counsel
to the Funds Group (since
December 1997); Vice
President, Goldman Sachs
(since March 1997);
Counsel to the Funds
Group, Goldman Sachs
Asset Management (since
March 1997); Associate of
Shereff, Friedman,
Hoffman & Goodman (prior
thereto).
*Steven E. Hartstein, Assistant Legal Products Analyst,
34 Secretary Goldman Sachs (June 1993
85 Broad Street to present); Funds
New York, NY 10004 Compliance Officer,
Citibank Global Asset
Management (August 1991
to June 1993).
B-55
<PAGE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
*Deborah Farrell, 26 Assistant Administrative Assistant,
85 Broad Street Secretary Goldman Sachs (January
New York, NY 10004 1996 to present);
Secretary, Goldman Sachs
(January 1994 to January
1996); Secretary, Cleary,
Gottlieb, Steen and
Hamilton (September 1990
to January 1994).
*Kaysie P. Uniacke, 37 Assistant Vice President and Senior
One New York Plaza Secretary Portfolio Manager,
New York, NY 10004 Goldman Sachs Asset
Management (since 1988).
*Elizabeth D. Assistant Portfolio Manager, GSAM
Anderson, 28 Secretary (April 1996 to present);
One New York Plaza Junior Portfolio Manager,
New York, NY 10004 Goldman Sachs Asset
Management (1995 to April
1996); Funds Trading
Assistant, GSAM (1993 -
1995); Compliance
Analyst, Prudential
Insurance (1991 - 1993).
Each interested Trustee and officer holds comparable positions with certain
other companies of which Goldman Sachs, GSAM or an affiliate thereof is the
investment adviser, administrator and/or distributor. As of April 3, 1998, the
Trustees and officers of the Trust as a group owned less than 1% of the
outstanding shares of beneficial interest of each Fund.
The Trust pays each Trustee, other than those who are "interested persons"
of Goldman Sachs, a fee for each Trustee meeting attended and an annual fee.
Such Trustees are also reimbursed for travel expenses incurred in connection
with attending such meetings.
B-56
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1998:
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Benefits from
Aggregate Accrued as Part of Goldman Sachs Mutual
Name of Trustee Compensation ------------------ Funds (including the
- --------------------- from the Funds** Funds' Expenses Funds)*
---------------- ------ -------- ------
<S> <C> <C> <C>
Ashok N. Bakhru $ 93,750 0 93,750
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPhearson 7,500 0 7,500
Alan A. Shuch 0 0 0
Jackson W. Smart 7,500 0 7,500
William H. Springer 7,500 0 7,500
Richard P. Strubel 7,500 0 7,500
</TABLE>
______________
* The Goldman Sachs Funds consisted of 43 mutual funds on January 31,
1998.
** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-57
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds. See "Management" in
the Funds' Prospectus for a description of the applicable Adviser's duties to
the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
B-58
<PAGE>
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds), the Advisers will have access to the
Global Asset Allocation Model. The model is based on the observation that the
prices of all financial assets, including foreign currencies, will adjust until
investors globally are comfortable holding the pool of outstanding assets.
Using the model, the Advisers will estimate the total returns from each currency
sector which are consistent with the average investor holding a portfolio equal
to the market capitalization of the financial assets among those currency
sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
The Japanese Equity and International Small Cap Funds' management agreement
were initially approved by the Trustees, including a majority of the non-
interested Trustees (as defined below) who are not parties to the management
agreement on January 28, 1998. The CORE Small Cap Equity, CORE International
Equity and Real Estate Securities Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on July 22,
1997. The CORE Large Cap Growth and Emerging Markets Equity Funds management
agreements were initially approved by the Trustees, including a majority of the
non-interested Trustees (as defined below) who are not parties to the management
agreement, on April 23, 1997. The other Funds' management agreements were most
recently approved by the Trustees,
B-59
<PAGE>
including a majority of the Trustees who are not parties to the management
agreement or "interested persons" (as such term is defined in the Act) of any
party thereto (the "non-interested Trustees"), on April 30, 1997. These
arrangements were most recently approved by the shareholders of each Fund (other
than CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity,
Real Estate Securities, Japanese Equity, International Small Cap and Emerging
Markets Equity Funds) on April 21, 1997. The sole shareholder of the CORE Large
Cap Growth Fund approved these arrangements on April 30, 1997. The sole
shareholders of the CORE Small Cap Equity and CORE International Equity Funds
approved these arrangements on August 13, 1997. The sole shareholder of the
Japanese Equity and the International Small Cap Funds approved these
arrangements on April 22, 1998. Each management agreement will remain in effect
until June 30, 1998 from year to year thereafter provided such continuance is
specifically approved at least annually by (a) the vote of a majority of the
outstanding voting securities of such Fund or a majority of the Trustees, and
(b) the vote of a majority of the non-interested Trustees, cast in person at a
meeting called for the purpose of voting on such approval. Each management
agreement will terminate automatically if assigned (as defined in the Act) and
is terminable at any time without penalty by the Trustees or by vote of a
majority of the outstanding voting securities of the affected Fund on 60 days'
written notice to the Adviser and by the Adviser on 60 days' written notice to
the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
Management Management
With Fee Without Fee
Fund Limitations Limitations
- -------------------------------- ------------ ------------
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.90% 1.00%
Japanese Equity Fund 0.90% 1.00%
International Small Cap Fund 1.10% 1.20%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
B-60
<PAGE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
1998 1997 1996
=========== ============= =============
Balanced Fund $ 870,444 $ 402,183 $ 193,041
Growth and Income Fund 7,740,380 3,541,318 2,225,553
CORE U.S. Equity Fund 3,924,639 1,667,381/3/ 817,563/2/
CORE Large Cap Growth Fund/1/ 228,283 N/A N/A
CORE Small Cap Equity Fund/1/ 74,140 N/A N/A
CORE International Equity Fund/1/ 57,835 N/A N/A
Capital Growth Fund 10,913,224 8,697,265 9,335,745
Mid Cap Equity Fund 1,653,946 964,945 489,043
International Equity Fund 7,525,362 4,124,076/3/ 2,794,872/2/
Small Cap Value Fund 3,206,411 2,130,703 2,908,839
Japanese Equity Fund/4/ N/A N/A N/A
International Small Cap Fund/4/ N/A N/A N/A
Emerging Market Equity Fund/1/ 34,840 N/A N/A
Asia Growth Fund 2,179,299 2,221,857/3/ 1,563,641/2/
Real Estate Securities Fund/4/ N/A N/A N/A
- --------------------------------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity
and Emerging Markets Equity Funds commenced operations on May 1, 1997,
August 15, 1997, August 15, 1997 and December 15, 1997, respectively.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.90% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.90% and 0.86%, respectively, of
the CORE U.S. Equity, International Equity and Asia Growth Fund's average
daily net assets. For the fiscal year ended January 31, 1996, had
limitations not been in effect, CORE U.S. Equity Fund would have paid
$1,019,639 in investment management fees. For the fiscal year ended January
31, 1997, had limitations not been in effect, CORE U.S. Equity,
International Equity and Asia Growth Funds would have paid $2,119,552,
$4,638,203 and $2,583,555, respectively, in investment management fees. For
the fiscal year ended January 31, 1998, had limitation not been
B-61
<PAGE>
in effect the CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity, International Equity, Emerging Markets
and Asia Growth Funds would have paid $837,296; $45,655; $8,722; $6,804;
$216,492; $2,903 and $305,106, respectively, in investment management fees.
4 Not Operational.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek to
purchase or sell the same assets
B-62
<PAGE>
for their managed accounts, including the Funds, the assets actually purchased
or sold may be allocated among the accounts on a basis determined in its good
faith discretion to be equitable. In some cases, this system may adversely
affect the size or the price of the assets purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Advisers will have access to such information for the purpose of managing the
Funds. The proprietary activities or portfolio strategies of Goldman Sachs and
its affiliates or the activities or strategies used for accounts managed by them
or other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies
B-63
<PAGE>
regarding a Fund's activities but will not be involved in the day-to-day
management of such Fund. In such instances, those individuals may, as a result,
obtain information regarding the Fund's proposed investment activities which is
not generally available to the public. In addition, by virtue of their
affiliation with Goldman Sachs, any such member of an investment policy
committee will have direct or indirect interests in the activities of Goldman
Sachs and its affiliates in securities and investments similar to those in which
the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund in which customers of Goldman Sachs serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own
B-64
<PAGE>
account. A large redemption of shares of a Fund by Goldman Sachs could
significantly reduce the asset size of the Fund, which might have an adverse
effect on the Fund's investment flexibility, portfolio diversification and
expense ratio. Goldman Sachs will consider the effect of redemptions on a Fund
and other shareholders in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal year
ended January 31, 1996. No Class C Shares were outstanding during the fiscal
years ended January 31, 1996 and 1997.
B-65
<PAGE>
Goldman Sachs retained the following commissions on sales of Class A, Class
B and Class C Shares during the following periods:
1998 1997 1996
========== ========== ========
Balanced Fund $ 387,000 $ 94,000 $ 28,000
Growth and Income Fund 2,405,000 555,000 771,000
CORE U.S. Equity Fund 566,000 380,000 108,000
CORE Large Cap Growth Fund/1/ 129,000 N/A N/A
CORE Small Cap Equity Fund/1/ 49,000 N/A N/A
CORE International Equity Fund/1/ 24,000 N/A N/A
Capital Growth Fund 743,000 323,000 523,000
Mid Cap Equity Fund 704,000 N/A N/A
International Equity Fund 1,091,000 1,563,000 211,000
Small Cap Value Fund 662,000 219,000 202,000
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Market Equity Fund/1/ 107,000 N/A N/A
Asia Growth Fund 414,000 1,397,000 507,000
Real Estate Securities Fund/2/ N/A N/A N/A
- --------------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity,
and Emerging Markets Equity Funds commenced operations on May 1, 1997, August
15, 1997, August 15, 1997, and December 15, 1997, respectively.
2 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
B-66
<PAGE>
Class A , B & C Class A & B Class A
1998 1997 1996
=============== =========== ========
Balanced Fund $ 240,869 $148,576 $ 72,067
Growth and Income Fund 1,545,495 870,527 542,671
CORE U.S. Equity Fund 483,534 319,246 103,682
CORE Large Cap Growth Fund/1/ 107,944 N/A N/A
CORE Small Cap Equity Fund/1/ 62,625 N/A N/A
CORE International Equity Fund/1/ 36,474 N/A N/A
Capital Growth Fund 992,678 908,310 549,844
MidCap Equity Fund 142,558 N/A N/A
International Equity Fund 860,719 586,243 129,313
Small Cap Value Fund 595,479 511,883 254,292
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ 1,907 N/A N/A
Asia Growth Fund 370,233 385,114 192,097
Real Estate Securities Fund/2/ N/A N/A N/A
<TABLE>
<CAPTION>
Institutional Shares Service Shares Institutional Shares
1998 1997 1998 1997 1996
==== ===== ==== ==== ====
<S> <C> <C> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A $N/A $ N/A
Growth and Income Fund 2,593 15 5,033 488 N/A
CORE U.S. Equity Fund/3/ 0 N/A 0 N/A 11,571
CORE Large Cap Growth Fund/1/ 49 N/A 21 N/A N/A
CORE Small Cap Equity Fund/1/ 0 N/A 0 N/A N/A
CORE International Equity Fund/1/ 0 N/A 0 N/A N/A
Capital Growth Fund/1/ 683 N/A 0 N/A N/A
Mid Cap Equity Fund/1/ 74,315 51,464 1 N/A 26,082
International Equity Fund/3/ 0 N/A 0 N/A N/A
Small Cap Value Fund/1/ 2,674 N/A 0 N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A N/A N/A
Emerging Markets Equity Fund/1/ 617 N/A 0 N/A N/A
Asia Growth Fund/3/ 0 N/A 0 N/A N/A
Real Estate Securities Fund/2/ N/A N/A N/A N/A N/A
</TABLE>
- ---------------------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity
and Emerging Markets Equity Funds commenced operations on May 1, 1997, August
15, 1997, August 15, 1997, and December 15, 1997 respectively.
2 Not Operational.
3 Contractually set to 0.
The Trust's distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
B-67
<PAGE>
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit certain
"Other Expenses" (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses (and transfer agency fees in the case of each
Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity and Mid Cap Equity Funds) for the following funds to the
extent such expenses exceed the following percentage of average daily net
assets:
<TABLE>
<CAPTION>
---------
Other
Expenses
---------
<S> <C>
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Japanese Equity Fund 0.10%
International Small Cap Fund 0.16%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
</TABLE>
B-68
<PAGE>
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
======== ======== ========
<S> <C> <C> <C>
Balanced Fund $420,659 $319,552 $192,405
Growth and Income Fund 0 0 0
CORE U.S. Equity Fund 63,253 104,833 110,581
CORE Large Cap Growth Fund/1/ 332,713 N/A N/A
CORE Small Cap Equity Fund/1/ 202,498 N/A N/A
CORE International Equity Fund/1/ 206,055 N/A N/A
Capital Growth Fund 0 N/A N/A
Mid Cap Equity Fund 264,378 72,441 85,515
International Equity Fund 0 144,265 N/A
Small Cap Value Fund 0 N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ 112,725 N/A N/A
Asia Growth Fund 125,828 50,407 0
Real Estate Securities Fund/2/ N/A N/A N/A
</TABLE>
- ------------------------------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August
15, 1997, August 15, 1997, and December 15, 1997 respectively.
2 Not operational.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
B-69
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
Arthur Andersen LLP, independent public accountants, 225 Franklin Street,
Boston, Massachusetts 02110, have been selected as auditors of the Trust. In
addition to audit services, Arthur Andersen LLP, prepares the Trust's federal
and state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
B-70
<PAGE>
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the applicable Adviser in the manner it considers to be equitable and
consistent with its fiduciary obligations to such Fund and such other customers.
In some instances, this procedure may adversely affect the price and size of the
position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman
Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for each Fund, the commissions, fees or other
remuneration received by Goldman Sachs
B-71
<PAGE>
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. This standard would allow Goldman Sachs to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Trustees, including a majority of the Trustees who are not "interested"
Trustees, have adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to Goldman Sachs are consistent
with the foregoing standard. Brokerage transactions with Goldman Sachs are also
subject to such fiduciary standards as may be imposed upon Goldman Sachs by
applicable law.
B-72
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1998:
Balanced Fund 111,054 13,185 2,731,475,157 N/A
Growth and Income Fund 1,550,312 190,001 9,046,102,538 N/A
CORE U.S. Equity Fund 994,985 0 1,996,000,522 N/A
CORE Large Cap Growth Fund 54,360 288 200,813,608 N/A
CORE Small Cap Equity Fund 59,517 0 159,674,227 N/A
CORE International Equity Fund 43,120 0 142,395,942 N/A
Capital Growth Fund 514,890 37,947 2,748,868,081 N/A
Mid Cap Equity Fund 480,808 76,398 2,584,258,044 N/A
International Equity Fund 506,607 0 3,898,718,988 N/A
Small Cap Value Fund 646,533 82,143 5,686,763,232 N/A
Japanese Equity Fund/3/ N/A N/A N/A N/A
International Small Cap Fund/3/ N/A N/A N/A N/A
Emerging Markets Equity Fund 59,999 6,230 238,915,108 N/A
Asia Growth Fund 814,656 2,885 2,160,632,195 N/A
Real Estate Securities Fund N/A N/A N/A N/A
</TABLE>
B-73
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================== =================== ===========
Fiscal Year Ended
January 31, 1997:
<S> <C> <C> <C> <C>
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Japanese Equity Fund/3/ N/A N/A N/A N/A
International Small Cap Fund/3/ N/A N/A N/A N/A
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-74
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ====================== ===========
Fiscal Year Ended
January 31, 1996:
<S> <C> <C> <C> <C>
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3 / N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Japanese Equity Fund/3/ N/A N/A N/A N/A
International Small Cap Fund/3/ N/A N/A N/A N/A
Emerging Markets Equity Fund/3 / N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-75
<PAGE>
During the fiscal year ended January 31, 1998, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1998, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
[TO BE UPDATED]
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ---- ------------- ------
<S> <C> <C>
Balanced Fund Bear Stearns $7,534
Lehman Brothers 5,954
Nomura Securities 5,901
Salomon Smith Barney 2,511
Morgan Stanley 425
Growth and Income Fund Morgan Stanley 51,948
Bear Stearns 32,164
Lehman Brothers 25,420
Nomura Securities 25,195
Salomon Smith Barney 10,721
Capital Growth Fund State Street 13,026
Bear Stearns 9,494
Lehman Brothers 7,504
Nomura Securities 7,437
Salomon Smith Barney 3,165
Small Cap Equity Fund Bear Stearns 12,074
Lehman Brothers 9,543
Nomura Securities 9,458
Salomon Smith Barney 4,025
International Equity Fund State Street 24,412
Asia Growth Fund State Street 4,920
Mid Cap Equity Fund Bear Stearns 10,870
Lehman Brothers 8,591
Nomura Securities 8,515
Salomon Smith Barney 3,623
Emerging Markets Equity Fund State Street 5,727
CORE U.S. Equity Fund Morgan Stanley 6,707
Lehman Brothers 4,434
Merrill Lynch 2,878
Bear Stearns 1,823
Nomura Securities 1,428
Salomon Smith Barney 608
CORE Large Cap Growth Fund Merrill Lynch 1,578
Morgan Stanley 1,080
Lehman Brothers 929
Bear Stearns 722
Nomura Securities 566
Lehman Brothers 358
Salomon Smith Barney 241
CORE International Fund State Street 2,391
CORE Small Cap Fund Bear Stearns 275
Lehman Brothers 217
Nomura Securities 216
Salomon Smith Barney 92
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good faith
the fair value of securities of each Fund. In accordance with procedures
adopted by the Trustees, the net value per share of each class of each Fund is
calculated by determining the value of the net assets attributable to each class
of that Fund and dividing by the number of outstanding shares of that class.
All securities are valued as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. New York time) on each Business Day (as
defined in the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations are
available are valued as follows: (a) securities
B-76
<PAGE>
listed on any U.S. or foreign stock exchange or on the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the mean
between the closing bid and asked prices; and (ii) on a foreign exchange will be
valued at the last sale price (also referred to as the close price). The last
sale price for securities traded principally on a foreign exchange will be
determined as of the close of the London Stock Exchange or, for securities
traded on exchanges located in the Asia Pacific region, noon London time; (b)
debt securities will be valued using a pricing service approved by the Trustees
if such prices are believed by the investment adviser to accurately represent
market value; (c) overnight repurchase agreements will be valued by the
investment adviser at cost; (d) term repurchase agreements (i.e., those whose
maturity exceeds seven days) and interest rate swaps, caps, collars and floors
will be valued at the average of the bid quotations obtained daily from at least
two dealers or, for term repurchase agreements, recognized counterparties; (e)
debt securities with a remaining maturity of 60 days or less are valued by the
investment adviser at amortized cost, which the Trustees have determined to
approximate fair value; (f) spot and forward foreign currency exchange contracts
will be valued using a pricing service such as Reuters then calculating the mean
between the last bid and asked quotations supplied by certain independent
dealers in such contracts; (g) exchange-traded options and futures contracts
will be valued by the custodian bank at the last sale price on the exchange
where such contracts and options are principally traded; and (h) over-the-
counter options will be valued by an independent unaffiliated broker identified
by the portfolio manager/trader and contacted by the custodian bank; and (i) all
other securities, including those for which a pricing service supplies no
exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate; will be valued at fair value as stated in the
valuation procedures which were approved by the Board of Trustees. For all
brokers used in this process, the custodian bank will send a letter to the
broker furnishing the quotation. If accurate quotations are not readily
available, such contracts will be valued by an independent unaffiliated broker
identified by the portfolio manager/trader and contacted by the custodian bank.
If broker quotes are used, the portfolio manager/trader will identify one
independent unaffiliated broker from whom the custodian bank will obtain prices
daily and another independent unaffiliated broker from whom the custodian bank
will obtain quotes at least weekly. The custodian bank will promptly notify the
portfolio manager/trader and a member of the GSAM Valuation Committee or a
designee thereof of any deviations equal to or greater than 3% between the
weekly quote and the daily quotes for the date that the weekly quotes were
obtained. The investment adviser will promptly provide instructions to the
custodian bank. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation.
B-77
<PAGE>
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust from
the issue or sale of its shares, and all net investment income, realized and
unrealized gain and proceeds thereof, subject only to the rights of creditors,
will be specifically allocated to such Fund and constitute the underlying assets
of that Fund or series. The underlying assets of each Fund will be segregated
on the books of account, and will be charged with the liabilities in respect of
such Fund and with a share of the general liabilities of the Trust. Expenses of
the Trust with respect to the Funds and the other series of the Trust are
generally allocated in proportion to the net asset values of the respective
Funds or series except where allocations of direct expenses can otherwise be
fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return, yield
and/or distribution rate information in advertisements, shareholder reports or
sales literature. Average annual total return and yield are computed pursuant
to formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
B-78
<PAGE>
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Trust may from time to time advertise a
Fund's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report
B-79
<PAGE>
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer Price
Index published by the U.S. Bureau of Labor Statistics (which measures changes
in the price of goods and services); (d) Stocks, Bonds, Bills and Inflation
published by Ibbotson Associates (which provides historical performance figures
for stocks, government securities and inflation); (e) the Salomon Brothers'
World Bond Index (which measures the total return in U.S. dollar terms of
government bonds, Eurobonds and foreign bonds of ten countries, with all such
bonds having a minimum maturity of five years); (f) the Lehman Brothers
Aggregate Bond Index or its component indices; (g) the Standard & Poor's Bond
Indices (which measure yield and price of corporate, municipal and U.S.
Government bonds); (h) the J.P. Morgan Global Government Bond Index; (i) other
taxable investments including certificates of deposit (CDs), money market
deposit accounts (MMDAs), checking accounts, savings accounts, money market
mutual funds and repurchase agreements; (j) Donoghues' Money Fund Report (which
provides industry averages for 7-day annualized and compounded yields of
taxable, tax-free and U.S. Government money funds); (k) the Hambrecht & Quist
Growth Stock Index; (l) the NASDAQ OTC Composite Prime Return; (m) the Russell
Midcap Index; (n) the Russell 2000 Index - Total Return; (o) Russell 1000 Growth
Index-Total Return; (p) the Value-Line Composite-Price Return; (q) the Wilshire
4500 Index; (r) the FT-Actuaries Europe and Pacific Index, and (s) historical
investment data supplied by the research departments of Goldman Sachs, Lehman
Brothers, First Boston Corporation, Morgan Stanley including (EAFE), and the
Morgan Stanley Capital International Combined Asia ex Japan Free Index, the
Morgan Stanley Capital International Emerging Markets Free Index, Salomon
Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette or other providers of
such data; (t) the FT-Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger
Investment Companies Services or Wiesenberger Investment Companies Service; (v)
The Goldman Sachs Commodities Index; and (w) information produced by Micropal,
Inc. The composition of the investments in such indices and the characteristics
of such benchmark investments are not identical to, and in some cases are very
different from, those of the Fund's portfolio. These indices and averages are
generally unmanaged and the items included in the calculations of such indices
and averages may not be identical to the formulas used by a Fund to calculate
its performance figures.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
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<PAGE>
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets);
. asset allocation strategies and the benefits of diversifying among
asset classes;
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta
and standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices
(i.e., Morgan Stanley Capital International EAFE Index, FT-Actuaries
Europe & Pacific Index and the Standard & Poor's Index of 500 Common
Stocks) over varying periods of time;
. total stock market capitalizations of specific countries and regions
on a global basis;
. performance of securities markets of specific countries and regions;
and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such
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<PAGE>
as the Institutional Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to Class A Shares (the class into which the separate account
transferred) to reflect the expenses expected to be incurred by the Fund as
stated in the expense table in the Prospectus. These expenses include any sales
charges and asset-based charges (i.e., fees under Distribution and Authorized
Dealer Service Plans) imposed and other operating expenses. Total return
quotations will be calculated pursuant to SEC approved methodology. Prior to May
1, 1997, the separate account was a separate investment advisory account under
discretionary management by the Adviser and had substantially similar investment
objectives, policies and strategies as the Fund. Unlike the Fund, the separate
account was not registered as an investment company under the Act and therefore
was not subject to certain investment restrictions and operational requirements
that are imposed on investment companies by the Act. If the separate account had
been registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account (based on
Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
The Service Shares of the Balanced, Capital Growth, Small Cap Value
and Asia Growth Funds commenced operations on August 15, 1997, August 15, 1997,
August 15, 1997 and January 31, 1998, respectively. The Service Shares of these
funds had no operating or performance history prior thereto. However, in
accordance with interpretive positions expressed by the staff of the SEC, each
of these Funds has adopted the performance records of its respective Class A
Shares from that class' inception date (October 12, 1994, April 21, 1990,
October 22, 1992 and July 8, 1994 respectively) to the inception dates of
Service Shares stated above. Any quotation of performance data of these Funds
relating to this period will include the adjusted performance record of the
applicable Class A Shares. The performance records of the applicable Class A
Shares reflect the expenses expected to be incurred by the Fund as stated in the
expense table in the Prospectus. These expenses include any sales charges and
asset-based charges (i.e., fees under Distribution and Authorized Dealer Service
Plans) imposed and other
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operating expenses. Total return quotations will be calculated pursuant to SEC-
approved methodology.
B-83
<PAGE>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ---------------------- ------------- ------------------------------------ ---------- ---------------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund A 10/12/94-1/31/98 - Since inception 17.45 19.48 15.85 17.85
Balanced Fund A 2/1/97-1/31/98 - One year 11.10 17.54 10.48 16.90
Balanced Fund B 5/1/96-1/31/97 - Since inception N/A 18.96 N/A 18.51
Balanced Fund B 2/1/97-1/31/98 - One year N/A 16.71 N/A 16.36
Balanced Fund C 8/15/97-1/31/98 - Since inception* N/A 2.49 N/A 2.35
Balanced Fund Institutional 8/15/97-1/31/98 - Since inception* N/A 2.93 N/A 2.68
Balanced Fund Service 8/15/97-1/31/98 - Since inception N/A 2.66 N/A 2.47
Growth and Income A 2/5/93-1/31/98 - Since inception 18.56 19.91 17.87 19.21
Growth and Income A 2/1/97-1/31/98 - One year 16.90 23.71 16.69 23.48
Growth and Income B 5/1/96-1/31/98 - Since inception N/A 26.06 N/A 26.05
Growth and Income B 2/1/97-1/31/98 - One year N/A 22.87 N/A 22.85
Growth and Income C 8/15/97-1/31/98 - Since inception* N/A 0.51 N/A 0.49
Growth and Income Institutional 6/3/96-1/31/98 - Since inception N/A 27.58 N/A 27.57
Growth and Income Institutional 2/1/97-1/31/98 - One year N/A 24.24 N/A 24.23
Growth and Income Service 3/6/96-1/31/98 - Since inception N/A 25.01 N/A 24.99
Growth and Income Service 2/1/97-1/31/98 - One year N/A 23.63 N/A 23.62
CORE U.S. Equity A 5/24/91-1/31/98 - Since inception 15.18 16.15 14.90 15.87
CORE U.S. Equity A 2/1/93-1/31/98 - Five year 18.20 19.54 17.94 19.28
CORE U.S. Equity A 2/1/97-1/31/98 - One year 18.07 24.96 17.85 24.72
CORE U.S. Equity B 5/1/96-1/31/98 - Since inception N/A 24.71 N/A 24.53
CORE U.S. Equity B 2/1/97-1/31/98 - One year N/A 24.28 N/A 24.08
CORE U.S. Equity C 8/15/97-1/31/98 - Since inception* N/A 4.85 N/A 4.77
CORE U.S. Equity Institutional 6/15/95-1/31/98 - Since inception N/A 27.17 N/A 26.90
CORE U.S. Equity Institutional 2/1/97-1/31/98 - One year N/A 25.76 N/A 25.55
CORE U.S. Equity Service 6/7/96-1/31/98 - Since inception N/A 25.18 N/A 24.93
CORE U.S. Equity Service 2/1/97-1/31/98 - One year N/A 25.11 N/A 24.91
CORE Large Cap Growth A 11/11/91-1/31/98 - Since inception 19.82 20.95 19.61 20.73
CORE Large Cap Growth A 2/1/93-1/31/98 - Five year 22.17 23.55 21.90 23.28
CORE Large Cap Growth A 2/1/97-1/31/98 - One year 19.70 26.57 18.39 25.19
CORE Large Cap Growth B 5/1/97-1/31/98 - Since inception* N/A 23.26 N/A 22.15
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Assuming no voluntary
waiver of fees and no
expense reimbursements
------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- --------------------------- ------------- ----------------------------------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
CORE Large Cap Growth C 8/15/97-1/31/98 - Since inception* N/A 4.56 N/A 3.97
CORE Large Cap Growth Institutional 11/11/91-1/31/98 - Since inception N/A 20.96 N/A 20.78
CORE Large Cap Growth Institutional 2/1/93-1/31/98 - Five year N/A 23.57 N/A 23.34
CORE Large Cap Growth Institutional 2/1/97-1/31/98 - One year N/A 26.67 N/A 25.48
CORE Large Cap Growth Service 5/1/97-1/31/98 - Since inception* N/A 23.56 N/A 22.43
CORE Small Cap Equity A 8/15/97-1/31/98 - Since inception* 0.54 6.37 0.70 5.07
CORE Small Cap Equity B 8/15/97-1/31/98 - Since inception* N/A 6.07 N/A 4.99
CORE Small Cap Equity C 8/15/97-1/31/98 - Since inception* N/A 6.17 N/A 4.89
CORE Small Cap Equity Institutional 8/15/97-1/31/98 - Since inception* N/A 6.57 N/A 5.38
CORE Small Cap Equity Service 8/15/97-1/31/98 - Since inception* N/A 6.47 N/A 5.19
CORE International Equity A 8/15/97-1/31/98 - Since inception* (12.72) (7.66) (14.10) (9.11)
CORE International Equity B 8/15/97-1/31/98 - Since inception* N/A (7.90) N/A (9.25)
CORE International Equity C 8/15/97-1/31/98 - Since inception* N/A (7.80) N/A (9.15)
CORE International Equity Institutional 8/15/97-1/31/98 - Since inception* N/A (7.45) N/A (8.81)
CORE International Equity Service 8/15/97-1/31/98 - Since inception* N/A (7.70) N/A (9.12)
Capital Growth A 4/20/90-1/31/98 - Since inception 17.30 18.15 16.97 17.82
Capital Growth A 2/1/93-1/31/98 - Five year 17.63 18.97 17.38 18.71
Capital Growth A 2/1/97-1/31/98 - One year 22.61 29.71 22.31 29.40
Capital Growth B 5/1/96-1/31/98 - Since inception N/A 27.73 N/A 27.72
Capital Growth B 2/1/97-1/31/98 - One year N/A 28.73 N/A 28.71
Capital Growth C 8/15/97-1/31/98 - Since inception* N/A 8.83 N/A 8.82
Capital Growth Institutional 8/15/97-1/31/98 - Since inception* N/A 9.31 N/A 9.28
Capital Growth Service 4/20/90-1/31/98 - Since inception N/A 9.18 N/A 9.03
Capital Growth Service 2/1/93-1/31/98 - Five year N/A N/A N/A N/A
Capital Growth Service 2/1/97-1/31/98 - One year N/A N/A N/A N/A
Mid Cap Equity A 8/15/97-1/31/98 - Since inception* (2.29) 3.42 (2.34) 3.36
Mid Cap Equity B 8/15/97-1/31/98 - Since inception* N/A 3.17 N/A 3.12
Mid Cap Equity C 8/15/97-1/31/98 - Since inception* N/A 3.27 N/A 3.22
Mid Cap Equity Institutional 8/1/95-1/31/98 - Since inception N/A 25.25 N/A 25.13
Mid Cap Equity Institutional 2/1/97-1/31/98 - One year N/A 30.86 N/A 30.71
Mid Cap Equity Service 7/18/97-1/31/98 - Since inception* N/A 6.30 N/A 6.22
International Equity A 12/1/92-1/31/98 - Since inception 9.94 11.15 9.70 10.91
International Equity A 2/1/93-1/31/98 - Five year 10.02 11.27 9.85 11.11
International Equity A 2/1/97-1/31/98 - One year 5.03 11.12 4.90 10.98
International Equity B 5/1/96-1/31/98 - Since inception N/A 7.55 N/A 7.44
International Equity B 2/1/97-1/31/98 - One year N/A 10.51 N/A 10.41
International Equity C 8/15/97-1/31/98 - Since inception* N/A (5.92) N/A (5.99)
International Equity Institutional 2/7/96-1/31/98 - Since inception N/A 12.27 N/A 12.13
International Equity Institutional 2/1/97-1/31/98 - One year N/A 11.82 N/A 11.71
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Assuming no voluntary
waiver of fees and no
expense reimbursements
------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- --------------------------- ------------- ----------------------------------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
International Equity Service 3/6/96-1/31/98 - Since inception N/A 11.38 N/A 11.26
International Equity Service 2/1/97-1/31/98 - One year N/A 11.25 N/A 11.17
Small Cap Value A 10/22/92-1/31/98 - Since inception 14.65 15.89 14.33 15.56
Small Cap Value A 2/1/93-1/31/98 - Five year 11.80 13.07 11.58 12.85
Small Cap Value A 2/1/97-1/31/98 - One year 19.21 26.17 18.96 25.90
Small Cap Value B 5/1/96-1/31/98 - Since inception N/A 17.15 N/A 17.18
Small Cap Value B 2/1/97-1/31/98 - One year N/A 25.29 N/A 25.31
Small Cap Value C 8/15/97-1/31/98 - Since inception* N/A 5.55 N/A 5.64
Small Cap Value Institutional 8/15/97-1/31/98 - Since inception* N/A 6.08 N/A 6.08
Small Cap Value Service 10/22/92-1/31/98 - Since inception N/A 5.91 N/A 5.93
Small Cap Value Service 2/1/93-1/31/98 - Five year N/A N/A N/A N/A
Small Cap Value Service 2/1/97-1/31/98 - One year N/A N/A N/A N/A
Asia Growth A 7/8/94-1/31/98 - Since inception (14.31) (12.94) (14.55) (13.19)
Asia Growth A 2/1/97-1/31/98 - One year (51.33) (48.49) (51.45) (48.62)
Asia Growth B 5/1/96-1/31/98 - Since inception N/A (34.00) N/A (34.09)
Asia Growth B 2/1/97-1/31/98 - One year N/A (48.70) N/A (48.81)
Asia Growth C 8/15/97-1/31/98 - Since inception* N/A (47.17) N/A (47.22)
Asia Growth Institutional 2/2/96-1/31/98 - Since inception N/A N/A N/A N/A
Asia Growth Institutional 2/1/97-1/31/98 - One year N/A N/A N/A N/A
Asia Growth Service 7/8/94-1/31/98 - Since inception
Asia Growth Service 2/1/97-1/31/98 - One year
Emerging Markets Equity A 12/15/97-1/31/98 - Since inception* (8.41) (3.10) (8.91) (3.62)
Emerging Markets Equity B 12/15/97-1/31/98 - Since inception* N/A (3.10) N/A (3.62)
Emerging Markets Equity C 12/15/97-1/31/98 - Since inception* N/A (3.00) N/A (3.52)
Emerging Markets Equity Institutional 12/15/97-1/31/98 - Since inception* N/A (3.00) N/A (3.51)
Emerging Markets Equity Service 12/15/97-1/31/98 - Since inception* N/A (3.10) N/A (3.62)
</TABLE>
__________________________
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
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<PAGE>
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in the Fund. Such
advertisements or information may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail in the
communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the adviser's
views as to markets, the rationale for a Fund's investments and discussions of a
Fund's current asset allocation.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
A Fund's performance data will be based on historical results and will not be
intended to indicate future performance. A Fund's total return and yield will
vary based on market conditions, portfolio expenses, portfolio investments and
other factors. The value of a Fund's shares will fluctuate and an investor's
shares may be worth more or less than their original cost upon redemption. The
Trust may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds except the CORE International Equity, CORE Small Cap Equity, CORE
Large Cap Growth, Japanese Equity and International Small Cap were reorganized
from series of a Maryland corporation as part of Goldman Sachs Trust, a Delaware
business trust, by a Declaration of Trust dated January 28, 1997, on April 30,
1997.
The Act requires that where more than one class or series of shares exists,
each class or series must be preferred over all other classes or series in
respect of assets specifically allocated
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<PAGE>
to such class or series. The Trustees also have authority to classify and
reclassify any series of shares into one or more classes of shares. As of the
date of this Additional Statement, the Trustees have classified the shares of
the Funds into five classes: Institutional Shares, Service Shares, Class A
Shares, Class B Shares and Class C Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales charge for
accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration fees at the annual rate of up to 0.50% of the average
daily net assets of the Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%, through
brokers and dealers who are members of the National Association of Securities
Dealers, Inc. and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. Class A Shares also bear the cost of an
Authorized Dealer Service Plan at an annual rate of up to 0.25% of the average
daily net assets attributable to Class A Shares.
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<PAGE>
Class B Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 5.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class B Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class B Shares. Class B Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 1.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class C Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class C Shares. Class C Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. Dividends paid by
each Fund, if any with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of April 3, 1998 State Street Bank & Trust Company as Trustee (GS Profit
Sharing Master Trust), P.O. Box 1992, Boston, MA 02105, was recordholder of
13.2% and Marine Midland Bank as Trustee (Mark IV Ind & Subs Employees
Retirement Income Fund) P.O. Box 1329, Attention: Mutual Fund Processing,
Buffalo, NY 14240, was recordholder of 6.0% of CORE U.S. Equity Fund's
outstanding shares; Fluor Corporation, Master Retirement Trust, 3353 Michelson
Drive,
B-89
<PAGE>
Irvine, CA 92698, was recordholder of 17.0%, Goldman Sachs CORE Large Cap Fund,
Omnibus A/C - Growth and Income Strategy, 4900 Sears Tower, Chicago, IL 60606,
was recordholder of 8.7% and Goldman Sachs CORE Large Cap Growth Fund, Omnibus
A/C - Growth Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of
7.7% of CORE Large Cap Growth Fund; Goldman Sachs CORE Small Cap, Omnibus A/C
Growth Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of 10.9%,
The Goldman Sachs Group LP, Seed Account, Attn: Karen Yost, 85 Broad Street,
New York, NY 10004, was recordholder of 10.9% and Goldman Sachs CORE Small Cap
Equity Fund, Omnibus A/C Growth & Income Strategy, 4900 Sears Tower, Chicago, IL
60606, was recordholder of 9.7% of CORE Small Cap Equity Fund's outstanding
shares; Goldman Sachs CORE International Equity Fund, Omnibus A/C Growth &
Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of 29.1%,
Goldman Sachs CORE International Equity Fund, Omnibus A/C - Growth Strategy,
4900 Sears Tower, Chicago, IL 60606, was recordholder of 23.1%, The Goldman
Sachs Group LP, Seed Account, Attn: Karen Yost, 85 Broad Street, New York, NY
10004, was recordholder of 11.7%, Goldman Sachs CORE International Equity Fund,
Omnibus A/C Aggressive Growth Strategy, 4900 Sears Tower, Chicago, IL 60606, was
recordholder of 9.6% and Goldman Sachs CORE International Equity Fund, Omnibus
A/C Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of
5.7% of CORE International Equity Fund's outstanding shares; State Street Bank
and Trust Company as Trustee, (GS Profit Sharing Master Trust), was recordholder
of 59.9% of Mid Cap Equity Fund's outstanding shares; Ralph Lauren 1997 CRUT,
C/O Arnold Cohen, 111 W. 40th Street, New York, NY 10018, was recordholder of
11.1%, B.J. McCloskey, T.D. McCloskey, W.R. Jordan, R.L. Branstein as Trustees,
McCloskey Trust U/A/D 8/10/72, P.O. Box 7846, Aspen, CO 81612, was recordholder
of 9.8%, GTE Investment Management Corporation, Attn: Robert Nunt, One Stamford
Forum, Stamford, CT 06904, was recordholder of 7.2%, Goldman Sachs Emerging
Markets Equity Fund, Omnibus A/C Growth & Income Strategy, 4900 Sears Tower,
Chicago, IL 60606, was recordholder of 5.9% and Goldman Sachs Emerging Markets
Equity Fund, Omnibus A/C Growth Strategy, 4900 Sears Tower, Chicago, IL 60606,
was recordholder of 5.8% of Emerging Markets Equity Fund's outstanding shares;
State Street Bank and Trust Company as Trustee, FBO Goldman Sachs Employee
Pension Plan, Attn: Jennifer Consigli, 200 Newport Avenue, North Quincy, MA
02170, was recordholder of 6.4% of Asia Growth Fund's outstanding shares.
Rule 18f-2 under the Act provides that any matter required to be submitted by
the provisions of the Act or applicable state law, or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Trust
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially
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identical or the matter does not affect any interest of such class or series.
However, Rule 18f-2 exempts the selection of independent public accountants, the
approval of principal distribution contracts and the election of directors from
the separate voting requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and does not
intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees,
either to one vote for each share or to one vote for each dollar of net asset
value represented by such shares on all matters presented to shareholders
including the elections of Trustees (this method of voting being referred to as
"dollar based voting"). However, to the extent required by the Act or otherwise
determined by the Trustees, series and classes of the Trust will vote separately
from each other. Shareholders of the Trust do not have cumulative voting rights
in the election of Trustees. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, certain officers or upon
the written request of holders of 10% or more of the shares entitled to vote at
such meetings. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising form such liability. The Trust, acting on behalf of any
affected series, must, upon request by such shareholder, assume the defense of
any claim made against such shareholder for any act or obligation of the series
and satisfy any judgment thereon from the assets of the series.
The Declaration of Trust permits the termination of the Trust or of any series
or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors
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and events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any successor series or class to
maintain its assets at an appropriate size; (ii) changes in laws or regulations
governing the Trust, series or class or affecting assets of the type in which it
invests; or (iii) economic developments or trends having a significant adverse
impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder approval
to cause the Trust, or any series thereof, to merge or consolidate with any
corporation, association, trust or their organization or sell or exchange all or
substantially all of the property belonging to the Trust or any series thereof.
In addition, the Trustees, without shareholder approval, may adopt a master-
feeder structure by investing all or a portion of the assets of a series of the
Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration of
Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more series
or classes of the Trust's shares (the "Series Trustees"). Series Trustees may,
but are not required to, serve as Trustees of the Trust or any other series or
class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by a series or the
Trustees. The Declaration of Trust provides for
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indemnification by the relevant Fund for all loss suffered by a shareholder as a
result of an obligation of the series. The Declaration of Trust also provides
that a series shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders
of a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of Trust
provides that shareholders of a series may bring a derivative action on behalf
of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
The Declaration of Trust further provides that the Trustees will not be liable
for error of judgment or mistakes of fact or law, but nothing in the Declaration
of Trust protects a Trustee against liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in each Fund of the Trust. This summary does not address
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in each Fund.
The summary is based on the laws in effect on the date of this Additional
Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. Japanese Equity and International
Small Cap Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each
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taxable year as a regulated investment company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) a Fund derive at least 90% of its gross income for its
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of such Fund's total
(gross) assets is comprised of cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of such Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses. For purposes of the 90% gross
income test, income that a Fund earns from equity interests in certain entities
that are not treated as corporations (e.g., partnerships or trusts) for U.S. tax
purposes will generally have the same character for such Fund as in the hands of
such an entity; consequently, a Fund may be required to limit its equity
investments in such entities that earn fee income, rental income, or other
nonqualifying income. In addition, future Treasury regulations could provide
that qualifying income under the 90% gross income test will not include gains
from foreign currency transactions that are not directly related to a Fund's
principal business of investing in stock or securities or options and futures
with respect to stock or securities. Using foreign currency positions or
entering into foreign currency options, futures and forward or swap contracts
for purposes other than hedging currency risk with respect to securities in a
Fund's portfolio or anticipated to be acquired may not qualify as "directly-
related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross
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tax-exempt interest income (if any) over certain disallowed deductions, such
Fund (but not its shareholders) will be relieved of federal income tax on any
income of the Fund, including long-term capital gains, distributed to
shareholders. However, if a Fund retains any investment company taxable income
or "net capital gain" (the excess of net long-term capital gain over net short-
term capital loss), it will be subject to a tax at regular corporate rates on
the amount retained. If the Fund retains any net capital gain, the Fund may
designate the retained amount as undistributed capital gains in a notice to its
shareholders who, if subject to U.S. federal income tax on long-term capital
gains, (i) will be required to include in income for federal income tax
purposes, as long-term capital gain, their shares of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by the Fund against their U.S. federal income tax liabilities, if any, and to
claim refunds to the extent the credit exceeds such liabilities. For U.S.
federal income tax purposes, the tax basis of shares owned by a shareholder of
the Fund will be increased by an amount equal under current law to 65% of the
amount of undistributed net capital gain included in the shareholder's gross
income. Each Fund intends to distribute for each taxable year to its
shareholders all or substantially all of its investment company taxable income,
net capital gain and any net tax-exempt interest. Exchange control or other
foreign laws, regulations or practices may restrict repatriation of investment
income, capital or the proceeds of securities sales by foreign investors such as
the CORE International Equity, International Equity, International Small Cap,
Emerging Markets Equity or Asia Growth Funds and may therefore make it more
difficult for such a Fund to satisfy the distribution requirements described
above, as well as the excise tax distribution requirements described below.
However, each Fund generally expects to be able to obtain sufficient cash to
satisfy such requirements from new investors, the sale of securities or other
sources. If for any taxable year a Fund does not qualify as a regulated
investment company, it will be taxed on all of its investment company taxable
income and net capital gain at corporate rates, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current
and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to
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such shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carry forwards expiring in 2002, 2003, and
2004, respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain
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futures and options thereon, foreign currency-denominated debt instruments,
foreign currency forward contracts, and foreign currency-denominated payables
and receivables will generally be treated as ordinary income or loss, although
in some cases elections may be available that would alter this treatment. If a
net foreign exchange loss treated as ordinary loss under Section 988 of the Code
were to exceed a Fund's investment company taxable income (computed without
regard to such loss) for a taxable year, the resulting loss would not be
deductible by the Fund or its shareholders in future years. Net loss, if any,
from certain foregoing currency transactions or instruments could exceed net
investment income otherwise calculated for accounting purposes with the result
being either no dividends being paid or a portion of a Fund's dividends being
treated as a return of capital for tax purposes, nontaxable to the extent of a
shareholder's tax basis in his shares and, once such basis is exhausted,
generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest securities,
certain structured securities or other securities bearing original issue
discount or, if a Fund elects to include market discount in income currently,
market discount, as well as any "mark to market" gain from certain options,
futures or forward contracts, as described above, will generally cause it to
realize income or gain prior to the receipt of cash payments with respect to
these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) anticipates that it will be subject to foreign taxes on its
income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
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If the CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds make this
election, its respective shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively,
use them as foreign tax credits, subject to applicable limitations, against
their U.S. federal income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by a Fund, although such shareholders will be
required to include their shares of such taxes in gross income if the election
is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid by
such shareholder as a result of any such election by CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity or Asia Growth Funds, the amount of the credit that may be claimed in any
year may not exceed the same proportion of the U.S. tax against which such
credit is taken which the shareholder's taxable income from foreign sources (but
not in excess of the shareholder's entire taxable income) bears to his entire
taxable income. For this purpose, distributions from long-term and short-term
capital gains or foreign currency gains by a Fund will generally not be treated
as income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may not be able to claim a credit for the full amount of their proportionate
share of the foreign taxes paid by such Fund even if the election is made by
such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax-
exempt shareholders, will ordinarily not benefit from this election. Each year,
if any, that the CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by a Fund and (ii) the portion of Fund dividends which represents income from
each foreign country. The other Funds will not be entitled to elect to pass
foreign taxes and associated credits or deductions through to their shareholders
because they will not satisfy the 50% requirement described above. If a Fund
cannot or does not make this election, it may deduct such taxes in computing the
amount it is required to distribute.
If a Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a
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convertible bond) in certain foreign corporations that receive at least 75% of
their annual gross income from passive sources (such as interest, dividends,
rents, royalties or capital gain) or hold at least 50% of their assets in
investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. In some cases, elections may be available that would ameliorate these
adverse tax consequences, but such elections would require the Fund to include
each year certain amounts as income or gain (subject to the distribution
requirements described above) without a concurrent receipt of cash. Each Fund
may limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income, if any, that would be eligible for the dividends received
deduction if such Fund were not a regulated investment company may be eligible,
for the dividends received deduction for corporate shareholders. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated
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as debt-financed under federal income tax law and is eliminated if the shares
are deemed to have been held for less than a minimum period, generally 46 days.
Because eligible dividends are limited to those a Fund receives from U.S.
domestic corporations, it is unlikely that a substantial portion of the
distributions made by CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Asia Growth and Emerging Markets Equity Funds
will qualify for the dividends-received deduction. The entire dividend,
including the deducted amount, is considered in determining the excess, if any,
of a corporate shareholder's adjusted current earnings over its alternative
minimum taxable income, which may increase its liability for the federal
alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Fund. Capital gain dividends (i.e., dividends from net capital
gain) if designated as such in a written notice to shareholders mailed not later
than 60 days after a Fund's taxable year closes, will be taxed to shareholders
as long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends received deduction for
corporations. Such long-term capital gain will be 20% or 28% rate gain,
depending upon the Fund's holding period for the assets the sale of which
generated the capital gain. Distributions, if any, that are in excess of a
Fund's current and accumulated earnings and profits will first reduce a
shareholder's tax basis in his shares and, after such basis is reduced to zero,
will generally constitute capital gains to a shareholder who holds his shares as
capital assets.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions, and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed of in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. In general, the maximum long-term capital gain rate will be
20% (for gains on capital assets held more than 18 months) or 28% (for gains on
capital gains held more than one year but not more than 18 months).
Shareholders should consult their own tax advisers with reference
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to their particular circumstances to determine whether a redemption (including
an exchange) or other disposition of Fund shares is properly treated as a sale
for tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Fund will not
be taken into account in determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent the redemption
proceeds are reinvested, or the exchange is effected, without payment of an
additional sales load pursuant to the reinvestment or exchange privilege. The
load not taken into account will be added to the tax basis of the newly-acquired
shares. Additionally, any loss realized on a sale or redemption of shares of a
Fund may be disallowed under "wash sale" rules to the extent the shares disposed
of are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including capital gain dividends) and share
redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S.
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investors) generally will be subject to U.S. federal withholding tax at the rate
of 30% on distributions treated as ordinary income unless the tax is reduced or
eliminated pursuant to a tax treaty or the dividends are effectively connected
with a U.S. trade or business of the shareholder. In the latter case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions of net
capital gain, including amounts retained by a Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be subject to
U.S. federal income or withholding tax unless the distributions are effectively
connected with the shareholder's trade or business in the United States or, in
the case of a shareholder who is a nonresident alien individual, the shareholder
is present in the United States for 183 days or more during the taxable year and
certain other conditions are met. Non-U.S. shareholders may also be subject to
U.S. federal withholding tax on deemed income resulting from any election by
CORE International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity or Asia Growth Funds to treat qualified
foreign taxes it pays as passed through to shareholders (as described above),
but they may not be able to claim a U.S. tax credit or deduction with respect to
such taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or redemption
of shares of a Fund will not be subject to U.S. federal income or withholding
tax unless the gain is effectively connected with the shareholder's trade or
business in the U.S., or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the U.S. for 183 days or more during
the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
B-102
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent
Public Accountants, contained in the 1998 Annual Report of each of the Funds
(except Real Estate Securities, Japanese Equity and International Small Cap
Funds), are incorporated herein by reference into this Additional Statement and
attached hereto. No other part of the Annual or Semi-Annual Report is
incorporated by reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by
each Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the
B-103
<PAGE>
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference.
B-104
<PAGE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
(CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES ONLY)
CLASS A DISTRIBUTION PLAN. As described in the Prospectus, the Trust with
respect to Class A Shares of each Fund has adopted a distribution plan (the
"Class A Plan") pursuant to Rule 12b-1 under the Act. See "Distribution and
Authorized Dealer Service Plan" in the Prospectus.
The Class A Plan for each Fund was most recently approved on April 22, 1998 by a
majority vote of the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Class A Plan,
cast in person at a meeting called for the purpose of approving the Class A
Plan. The compensation payable under the Class A Plan may not exceed 0.25% per
annum of each Fund's average daily net assets.
Currently, Goldman Sachs has voluntarily agreed to waive the entire amount of
such fee for the Balanced, CORE Large Cap Growth, Capital Growth and Small Cap
Value Funds and to limit the amount of such fee to 0.21% of average daily net
asset attributable to Class A Shares of CORE U.S. Equity and Asia Growth Funds;
and to limit the amount of such fee to 0.09% of the average daily net asset
attributable to Class A Shares of the Growth and Income Fund. Goldman Sachs has
no current intention of modifying or discontinuing such waiver but may do so in
the future at its discretion.
Each Class A Plan was amended effective April 30, 1997 for each of the Funds
then in existence to reduce the fee payable under the Plan from 0.50% of average
daily net assets attributable to Class A Shares. At the time of such amendment
the Trustees approved the Authorized Dealer Service Plan pursuant to which
personal and account maintenance services are provided. See "Management --
Authorized Dealer Service Plans."
For the fiscal years ended January 31, 1998, January 31, 1997 and January 31,
1996 the amounts paid to Goldman Sachs pursuant to its Class A Plan by each Fund
then in existence were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C>
Balanced Fund $ 0 $ 0 $10,103
Growth and Income Fund 723,634 139,025 191,414
CORE U.S. Equity Fund 720,025 363,264 264,159
CORE Large Cap Growth Fund/1/ 0 N/A N/A
CORE Small Cap Equity Fund/1/ 1,380 N/A N/A
CORE International Equity Fund/1/ 2,751 N/A N/A
Capital Growth Fund 0 0 770,488
Mid Cap Equity Fund/1/ 67,478 N/A N/A
International Equity Fund 1,416,253 900,274 231,028
</TABLE>
B-105
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C>
Small Cap Value Fund 0 0 272,353
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ 3,381 N/A N/A
Asia Growth Fund 431,390 526,448 114,156
Real Estate Securities Fund/2/ N/A N/A N/A
- -----------------------------------
</TABLE>
1. The Mid Cap Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity and Emerging Markets Equity Funds commenced operations
on August 15, 1997, May 1, 1997, August 15, 1997, August 15, 1997 and
December 15, 1997, respectively.
2. Not Operational.
Had Goldman Sachs' voluntary limitations not been in effect the Funds would have
paid Goldman Sachs the following fees during the fiscal years ended January 31,
1998, January 31, 1997 and January 31, 1996 pursuant to their respective Class A
Plans:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C>
Balanced Fund $ 301,397 $ 153,392 $ 84,350
Growth and Income Fund 2,324,970 1,252,257 986,255
CORE U.S. Equity Fund 771,451 432,457 349,883
CORE Large Cap Growth Fund/1/ 61,924 N/A N/A
CORE Small Cap Equity Fund/1/ 6,898 N/A N/A
CORE International Equity Fund/1/ 2,751 N/A N/A
Capital Growth Fund 2,678,370 2,171,462 3,104,424
Mid Cap Equity Fund/1/ 67,478 N/A N/A
International Equity Fund 1,632,745 1,071,755 929,746
Small Cap Value Fund 727,298 529,684 999,563
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ 3,381 N/A N/A
Asia Growth Fund 513,560 626,724 505,066
Real Estate Securities Fund/2/ N/A N/A N/A
- -----------------------------------
</TABLE>
1. The Mid Cap Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity and Emerging Markets Equity Funds commenced operations
on August 15, 1997, May 1, 1997, August 15, 1997, August 15, 1997 and
December 15, 1997, respectively.
2. Not Operational.
B-106
<PAGE>
During the fiscal year ended January 31, 1998, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan of
each applicable Fund then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers Personnel Expenses Shareholders Advertising
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1998:
Balanced Fund/1/ N/A N/A N/A N/A N/A
Growth and Income Fund/1/ 80,177 2,763,000 1,137,000 164,000 235,000
CORE U.S. Equity Fund 41,621 546,000 260,000 29,000 69,000
CORE Large Cap Growth Fund N/A N/A N/A N/A N/A
CORE Small Cap Equity Fund 534 338,000 138,000 19,000 33,000
CORE International Equity Fund 0 294,000 126,000 16,000 22,000
Capital Growth Fund/1/ N/A N/A N/A N/A N/A
Mid Cap Equity 10,090 539,000 154,000 32,000 44,000
International Equity Fund/1/ 240,271 537,000 236,000 32,000 50,000
Japanese Equity Fund/2/ N/A N/A N/A N/A N/A
International Small Cap/2/ N/A N/A N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A N/A N/A
Asia Growth Fund/1/ 112,925 281,000 114,000 17,000 31,000
Emerging Market Equity Fund N/A N/A N/A N/A N/A
Real Estate Securities Fund/2/ N/A N/A N/A N/A N/A
</TABLE>
The table above reflects amounts expended by Goldman Sachs, which amounts are in
excess of the compensation received by Goldman Sachs under the Class A Plans.
The payments under the Class A Plan were used by Goldman Sachs to compensate it
for the expenses shown above on a pro-rata basis.
_______________
/1/ Commencing June 1, 1995, Goldman Sachs is not imposing the 0.25% 12b-1 fee
for these funds. As no distribution revenue has been earned after this date for
these funds, no expenses are reflected above.
/2/ Not operational.
B-107
<PAGE>
The Class A Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. If the Class A Plan was terminated by the Trustees and
no successor plans were adopted, each Fund would cease to make payments to
Goldman Sachs under the Class A Plan and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed distribution expenditures.
Under the Class A Plan, Goldman Sachs, as distributor of each Fund's Class A
Shares, will provide to the Trustees for their review, and the Trustees will
review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class A Plans and the purposes for which
such services were performed and expenditures were made.
The Class A Plans will remain in effect until May 1, 1999 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees, including a majority of the non-interested Trustees who
have no direct or indirect financial interest in the Class A Plans. A Class A
Plan may not be amended to increase materially the amount to be spent for the
services described therein as to a Fund without approval of a majority of the
outstanding voting securities of the affected Fund. All material amendments of
the Class A Plan must also be approved by the Trustees in the manner described
above. A Class A Plan may be terminated at any time as to any Fund without
payment of any penalty by a vote of a majority of the non-interested Trustees or
by vote of a majority of the Class A Shares of the applicable Fund. So long as
the Class A Plans are in effect, the selection and nomination of non-interested
Trustees shall be committed to the discretion of the non-interested Trustees.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Class A Plans will benefit the Funds and their Class A
shareholders.
CLASS B DISTRIBUTION PLAN. As described in the Prospectus, the Trust has
adopted on behalf of the Funds distribution plans (the "Class B Plan") pursuant
to Rule 12b-1 under the Act with respect to the Class B Shares. See
"Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class B Plan was most recently approved for the Fund on April 22, 1998, by a
majority vote of the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Class B Plan,
cast in person at a meeting called for the purpose of approving the Class B
Plan.
With respect to each Fund, the compensation payable under the Class B Plans is
equal to 0.75% per annum of the average daily net assets attributable to Class B
Shares of that Fund. The fees received by
B-108
<PAGE>
Goldman Sachs under the Class B Plan and contingent deferred sales charge on
Class B Shares may be sold by Goldman Sachs as distributor to entities which
provide financing for payments to Authorized Dealers in respect of sales of
Class B Shares. To the extent such fee is not paid to such dealers, Goldman
Sachs may retain such fee as compensation for its services and expenses of
distributing the Funds' Class B Shares. If such fee exceeds Goldman Sachs'
expenses, Goldman Sachs may realize a profit from these arrangements.
During the fiscal years ended January 31, 1998 and January 31, 1997 Goldman
Sachs incurred the following fees under the Class B Plan of each applicable Fund
then in existence:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balanced Fund $ 74,569 $ 3,861
Growth and Income Fund 1,117,813 28,075
CORE U.S. Equity Fund 265,025 36,508
CORE Large Cap Growth Fund 34,332 N/A
CORE Small Cap Equity Fund 20,064 N/A
CORE International Equity Fund 5,700 N/A
Capital Growth Fund 127,395 7,632
Mid Cap Equity Fund/1/ 47,585 N/A
International Equity Fund 314,578 44,148
Small Cap Value Fund 160,608 8,973
Japanese Equity Fund N/A N/A
International Small Cap Fund/2/ N/A N/A
Emerging Markets Equity Fund 38 N/A
Asia Growth Fund 28,550 10,229
Real Estate Securities Fund/2/ N/A N/A
- ----------------------------------
</TABLE>
1. The CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity
and Emerging Markets Equity Funds commenced operations on May 1, 1997,
August 15, 1997, August 15, 1997 and December 15, 1997, respectively.
2. Not Operational.
During the fiscal year ended January 31, 1996, Goldman Sachs incurred no fees
under the Class B Plan, as Class B shares commenced operations on May 1,
1996.
The Class B Plan is a compensation plan which provides for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class B Plan was terminated by the Trustees
and no successor plan was adopted, the Funds would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures.
Under the Class B Plan, Goldman Sachs, as distributor of the Funds' shares, will
provide to the Board of Trustees for its review, and the Board will review at
least quarterly, a written report of the
B-109
<PAGE>
services provided and amounts expended by Goldman Sachs under the Class B Plan
and the purposes for which such services were performed and expenditures were
made.
The Class B Plans will remain in effect until May 1, 1999 and from year to year,
provided such continuance is approved annually by a majority vote of the
Trustees, including a majority of the non-interested Trustees. The Class B Plan
may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class B Shares of that Fund. All material amendments of the Class B
Plan must also be approved by the Trustees in the manner described above. With
respect to any Fund, the Class B Plan may be terminated at any time without
payment of any penalty by a vote of the majority of the non-interested Trustees
or by vote of a majority of the outstanding voting securities of the Class B
Shares of that Fund. So long as a Class B Plan is in effect, the selection and
nomination of non-interested Trustees shall be committed to the discretion of
the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class B Plan will benefit
each Fund and their respective Class B shareholders.
CLASS C DISTRIBUTION PLAN. As described in the Prospectus, the Trust has
adopted on behalf of the Funds distribution plans (the "Class C Plan") pursuant
to Rule 12b-1 under the Act with respect to the Class C shares. See
"Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class C Plan of each Fund were most recently approved for the Funds on April
22, 1998, on behalf of the Trust by a majority vote of the Trustees, including a
majority of the non-interested Trustees who have no direct or indirect financial
interest in the Class C Plan, cast in person at a meeting called for the purpose
of approving the Class C Plan.
With respect to each Fund, the compensation payable under the Class C Plan is
equal to 0.75% per annum of the average daily net assets attributable to Class C
Shares of that Fund. To the extent such fee is not paid to such dealers,
Goldman Sachs may retain such fee as compensation for its services and expenses
of distributing the Funds' Class C Shares.
No fees were paid to Goldman Sachs under the Class C Plans during the fiscal
year ended January 31, 1997.
B-110
<PAGE>
During the fiscal year ended January 31, 1998, Goldman Sachs incurred the
following fees under the Class C Plan of each applicable Fund then in existence:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Balanced $13,290
Growth and Income 57,542
CORE U.S. Equity Fund 14,614
CORE Large Cap Growth Fund 6,880
CORE Small Cap Equity Fund 4,038
CORE International Equity Fund 3,118
Capital Growth Fund 9,607
Mid Cap Equity Fund 10,495
International Equity Fund 7,485
Small Cap Value Fund 12,158
Japanese Equity Fund/1/ N/A
International Small Cap Fund/1/ N/A
Emerging Markets Fund 28
Asia Growth Fund 2,854
Real Estate Securities Fund/1/ N/A
</TABLE>
- -------------------------
/1/ Not Operational
The Class C Plan is a compensation plan which provides for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class C Plan was terminated by the Trustees
and no successor plan was adopted, the Funds would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures.
Under the Class C Plan, Goldman Sachs, as distributor of the Funds' shares, will
provide to the Board of Trustees for its review, and the Board will review at
least quarterly, a written report of the services provided and amounts expended
by Goldman Sachs under the Class C Plan and the purposes for which such services
were performed and expenditures were made.
The Class C Plan will remain in effect until May 1, 1999 and from year to year,
provided such continuance is approved annually by a majority vote of the
Trustees, including a majority of the non-interested Trustees. The Class C Plan
may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class C Shares of that Fund. All material amendments of the Class C
Plan must also be approved by the Trustees in the manner described above. With
respect to any Fund, the Class C Plan may be terminated at any time without
payment of
B-111
<PAGE>
any penalty by a vote of the majority of the non-interested Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of that
Fund. So long as the Class C Plan is in effect, the selection and nomination of
non-interested Trustees shall be committed to the discretion of the non-
interested Trustees. The Trustees have determined that in their judgment there
is a reasonable likelihood that the Class C Plan will benefit each Fund and
their respective Class C shareholders.
AUTHORIZED DEALER SERVICE PLANS. As described in the Prospectus, each Fund's
Class A, Class B and Class C Shares have adopted a non-Rule 12b-1 Authorized
Dealer Service Plan (each an "Authorized Dealer Plan") pursuant to which Goldman
Sachs and Authorized Dealers are compensated for the provision of personal and
account maintenance services. Each Authorized Dealer Plan of each other Fund
was most recently approved by the Trustees, including a majority of the non-
interested Trustees who have no direct or indirect financial interest in the
Authorized Dealer Plan, at a meeting held on April 22, 1998. Each Fund's
Authorized Dealer Plan provides for the compensation for personal and account
maintenance services at an annual rate of up to 0.25% of the Fund's average
daily net assets attributable to Class A or Class B Shares.
For the fiscal year ended January 31, 1998, January 31, 1997 and for the period
June 1, 1995 (commencement of each Authorized Dealer Plan) through January 31,
1996, each Fund that was operational paid Authorized Dealer Service fees at the
foregoing rate for each Fund's Class A Shares. During the period May 1, 1996
(commencement of each Class B Authorized Dealer Plan) through January 31, 1997,
Authorized Dealer Service fees were paid with respect to each Fund's Class B
Shares which were then in operation at the foregoing rate.
For the fiscal year ended January 31, 1998, January 31, 1997 and for the period
June 1, 1995 through January 31, 1996, the amounts paid to Goldman Sachs
pursuant to its Class A Authorized Dealer Service Plan and for the fiscal year
ended January 31, 1998 and the period May 1, 1996 (commencement of Class B
Authorized Dealer Service Plan) through January 31, 1997, the amounts paid to
Goldman Sachs pursuant to its Class B Authorized Dealer Plan were:
B-112
<PAGE>
<TABLE>
<CAPTION>
Class A Class A Class B Class B Class A Class C
1998 1997 1998 1997 1996 1998
---------- ---------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 301,397 $ 153,392 $ 24,856 $ 1,294 $ 64,145 $ 4,430
Growth and Income Fund 2,324,970 1,252,257 372,604 9,358 603,426 19,181
CORE U.S. Equity Fund 771,451 432,457 88,342 12,169 182,881 4,871
CORE Large Cap Growth Fund/1/ 61,924 N/A 11,444 N/A N/A 2,293
CORE Small Cap Equity Fund/1/ 6,898 N/A 6,688 N/A N/A 1,346
CORE International Equity Fund/1/ 2,748 N/A 1,900 N/A N/A 1,040
Capital Growth Fund 2,678,370 2,171,462 42,465 2,854 1,563,448 3,202
Mid Cap Equity Fund 67,485 N/A 15,862 N/A N/A 3,499
International Equity Fund 1,632,745 1,071,755 104,859 14,733 470,027 2,496
Small Cap Value Fund 727,298 569,684 53,536 2,992 458,857 4,052
Japanese Equity Fund/2/ N/A N/A N/A N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A N/A N/A N/A
Emerging Market Equity Fund/1/ 3,424 N/A 13 N/A N/A 10
Asia Growth Fund 513,560 626,724 9,517 3,410 276,754 951
Real Estate Securities Fund/2/ N/A N/A N/A N/A N/A N/A
- -------------------
</TABLE>
/1/ The CORE Large Cap Growth, CORE Small Equity, CORE International Equity and
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997 and December 15, 1997 respectively.
/2/ Not operational
The Authorized Dealer Plans of each Fund will remain in effect until May 1,
1999, and from year to year thereafter, provided that the continuance of each
service plan is approved annually by a majority vote of the Trustees, including
a majority of the non-interested Trustees who have no direct or indirect
financial interest in the Authorized Dealer Plans. All material amendments of
the Authorized Dealer Plans must also be approved by the Trustees in the manner
described above. The Authorized Dealer Plans may be terminated at any time as
to any Fund without payment of any penalty by a vote of a majority of the non-
interested Trustees or by vote of a majority of the outstanding voting
securities of the affected Fund. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Authorized Dealer Plans will
benefit the Funds and their shareholders.
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
(CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES ONLY)
MAXIMUM SALES CHARGES
- ---------------------
Class A Shares of each Fund are sold at a maximum sales charge of
5.5%. Using the initial offering price per share, as of January 31, 1998 and
$10.00 for the Real Estate Securities, Japanese Equity and International Small
Cap Funds, the maximum offering price of each Fund's Class A shares would be as
follows:
B-113
<PAGE>
<TABLE>
<CAPTION>
Maximum Offering
Net Asset Sales Price to
Value Charge Public
--------- -------- --------
<S> <C> <C> <C>
Balanced Fund 20.29 5.5% 21.47
Growth and Income Fund 25.93 5.5% 27.44
CORE U.S. Equity Fund 26.59 5.5% 28.14
CORE Large Cap Growth Fund 11.97 5.5% 12.67
CORE Small Cap Equity Fund 10.59 5.5% 11.21
CORE International Equity Fund 9.22 5.5% 9.76
Capital Growth Fund 18.48 5.5% 19.56
Mid Cap Equity Fund 21.61 5.5% 22.87
International Equity Fund 19.85 5.5% 21.01
Small Cap Value Fund 24.05 5.5% 25.45
Japanese Equity Fund N/A 5.5% N/A
International Small Cap Fund N/A 5.5% N/A
Emerging Market Equity Fund 9.69 5.5% 10.25
Asia Growth Fund 8.38 5.5% 8.87
Real Estate Securities Fund N/A 5.5% N/A
</TABLE>
The following information supplements the information in the Prospectus under
the captions "How to Invest," "How to Sell Shares of the Funds" and "Dividends."
Please see the Prospectus for more complete information.
OTHER PURCHASE INFORMATION
- --------------------------
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distributions
relating to the beneficial owner's account will be performed by the Authorized
Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have
no record of the beneficial owner's transactions, a beneficial owner should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain information
about the account. The transfer of shares in a "street name" account to an
account with another dealer or to an account directly with the Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Dealer.
RIGHT OF ACCUMULATION (CLASS A)
- -------------------------------
A Class A shareholder qualifies for cumulative quantity discounts if the current
purchase price of the new investment plus the shareholder's current holdings of
existing Class A Shares (acquired by purchase or exchange) of the Funds and
Class A Shares of any other Goldman Sachs Fund (as defined in the Prospectus)
total the requisite amount for receiving a discount. For example, if a
shareholder owns shares with a current market value of $35,000 and purchases
additional Class A Shares of any Fund with a purchase price of $25,000, the
sales charge for the $25,000 purchase would be 4.75% (the rate applicable to a
single purchase of more than
B-114
<PAGE>
$60,000). Class A Shares purchased without the imposition of a sales charge may
not be aggregated with Class A Shares purchased subject to a sales charge.
Class A Shares of the Funds and any other Goldman Sachs Fund purchased (i) by an
individual, his spouse and his children, and (ii) by a trustee, guardian or
other fiduciary of a single trust estate or a single fiduciary account, will be
combined for the purpose of determining whether a purchase will qualify for such
right of accumulation and, if qualifying, the applicable sales charge level.
For purposes of applying the right of accumulation, shares of the Funds and any
other Goldman Sachs Fund purchased by an existing client of the Private Client
Services Division of Goldman Sachs will be combined with Class A Shares held by
any other Private Client Services account. In addition, Class A Shares of the
Funds and Class A Shares of any other Goldman Sachs Fund purchased by partners,
directors, officers or employees of the same business organization, groups of
individuals represented by and investing on the recommendation of the same
accounting firm, certain affinity groups or other similar organizations
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation and,
if qualifying, the applicable sales charge level. This right of accumulation is
subject to the following conditions: (i) the business organization's, group's
or firm's agreement to cooperate in the offering of the Funds' shares to
eligible persons; and (ii) notification to the Funds at the time of purchase
that the investor is eligible for this right of accumulation.
STATEMENT OF INTENTION (CLASS A)
- --------------------------------
If a shareholder anticipates purchasing at least $50,000 of Class A Shares of a
Fund alone or in combination with Class A shares of any other Goldman Sachs Fund
within a 13-month period, the shareholder may purchase shares of the Fund at a
reduced sales charge by submitting a Statement of Intention (the "Statement").
Shares purchased pursuant to a Statement will be eligible for the same sales
charge discount that would have been available if all of the purchases had been
made at the same time. The shareholder or his Authorized Dealer must inform
Goldman Sachs that the Statement is in effect each time shares are purchased.
There is no obligation to purchase the full amount of shares indicated in the
Statement. A shareholder may include the value of all Class A Shares on which a
sales charge has previously been paid as an "accumulation credit" toward the
completion of the Statement, but a price readjustment will be made only on Class
A Shares purchased within ninety (90) days before submitting the Statement. The
Statement authorizes the Transfer Agent to hold in escrow a sufficient number of
shares which can be redeemed to make up any difference in the sales charge on
the amount actually invested. For purposes of satisfying the amount specified
on the Statement, the gross amount of each investment, exclusive of any
appreciation on shares previously purchased, will be taken into account.
B-115
<PAGE>
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------
A Fund shareholder should obtain and read the prospectus relating to any other
Fund, Goldman Sachs Fund or ILA Portfolio (as defined in the Prospectus) and its
shares or units and consider its investment objective, policies and applicable
fees before electing cross-reinvestment into that Fund or Portfolio. The
election to cross-reinvest dividends and capital gain distributions will not
affect the tax treatment of such dividends and distributions, which will be
treated as received by the shareholder and then used to purchase shares of the
acquired fund. Such reinvestment of dividends and distributions in shares of
other Goldman Sachs Funds or in units of ILA Portfolios is available only in
states where such reinvestment may legally be made.
AUTOMATIC EXCHANGE PROGRAM
- --------------------------
A Fund shareholder may elect cross-reinvestment into an identical account or an
account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus relating to any other
Goldman Sachs Portfolio and its shares and consider its investment objective,
policies and applicable fees and expenses before electing an automatic exchange
into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is available to
shareholders of a Fund whose shares are worth at least $5,000. The Systematic
Withdrawal Plan provides for monthly payments to the participating shareholder
of any amount not less than $50.
Dividends and capital gain distributions on shares held under the Systematic
Withdrawal Plan are reinvested in additional full and fractional shares of the
applicable Fund at net asset value. The Transfer Agent acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Systematic Withdrawal Plan may
be terminated at any time. Goldman Sachs reserves the right to initiate a fee
of up to $5 per withdrawal, upon thirty (30) days written notice to the
shareholder. Withdrawal payments should not be considered to be dividends,
yield or income. If periodic withdrawals continuously exceed new purchases and
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. The
maintenance of a withdrawal plan concurrently with purchases of additional Class
A or Class B Shares would be
B-116
<PAGE>
disadvantageous because of the sales charge imposed on purchases of Class A
Shares or the imposition of a CDSC on redemptions of Class A and Class B Shares.
The CDSC applicable to Class B Shares redeemed under a systematic withdrawal
plan may be waived. See "How to Invest -- Waiver or Reduction of Continent
Deferred Sales Charge" in the Prospectus. In addition, each withdrawal
constitutes a redemption of shares, and any gain or loss realized must be
reported for federal and state income tax purposes. A shareholder should
consult his or her own tax adviser with regard to the tax consequences of
participating in the Systematic Withdrawal Plan. For further information or to
request a Systematic Withdrawal Plan, please write or call the Transfer Agent.
B-117
<PAGE>
SERVICE PLAN
(SERVICE SHARES ONLY)
The Funds have adopted a service plan (the "Plan") with respect to its Service
Shares which authorizes it to compensate Service Organizations for providing
certain administration services and personal and account maintenance services to
their customers who are or may become beneficial owners of such Shares.
Pursuant to the Plan, each Fund enters into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund, (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from the Fund, working with the Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, each Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization.
The Funds have adopted the Plan pursuant to Rule 12b-1 under the Act in order to
avoid any possibility that payments to the Service Organizations pursuant to the
Service Agreements might violate the Act. Rule 12b-1, which was adopted by the
SEC under the Act, regulates the circumstances under which an investment company
or series thereof may bear expenses associated with the distribution of its
shares. In particular, such an investment company or series thereof cannot
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of shares issued by the company unless it has
adopted a plan pursuant to, and complies with the other requirements of, such
Rule. The Trust believes that fees paid for the services provided in the Plan
and described above are not expenses incurred primarily for
B-118
<PAGE>
effecting the distribution of Service Shares. However, should such payments be
deemed by a court or the SEC to be distribution expenses, such payments would be
duly authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with a Fund, such Service Organizations might be required to alter
materially or discontinue the services performed under their Service Agreements.
If one or more of the Service Organizations were restricted from effecting
purchases or sales of Service Shares automatically pursuant to pre-authorized
instructions, for example, effecting such transactions on a manual basis might
affect the size and/or growth of a Fund. Any such alteration or discontinuance
of services could require the Board of Trustees to consider changing a Fund's
method of operations or providing alternative means of offering Service Shares
of the Fund to customers of such Service Organizations, in which case the
operation of such Fund, its size and/or its growth might be significantly
altered. It is not anticipated, however, that any alternation of a Fund's
operations would have any effect on the net asset value per share or result in
financial losses to any shareholder.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of a Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal advisers before
investing fiduciary assets in Service Shares of a Fund. In addition, under
some state securities laws, banks and other financial institutions purchasing
Service Shares on behalf of their customers may be required to register as
dealers.
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or the related Service Agreements, voted to approve
the Plan and related Service Agreements at a meeting called for the purpose of
voting on such
B-119
<PAGE>
Plan and Service Agreements on April 22, 1998. The Plan and related Service
Agreements will remain in effect until June 30, 1999 and will continue in effect
thereafter only if such continuance is specifically approved annually by a vote
of the Trustees in the manner described above. The Plan may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the Service Shareholders of the affected Fund and all
material amendments of the Plan must also be approved by the Trustees in the
manner described above. The Plan may be terminated at any time by a majority of
the Trustees as described above or by a vote of a majority of the outstanding
Service Shares of the affected Fund. The Service Agreements may be terminated
at any time, without payment of any penalty, by vote of a majority of the
Trustees as described above or by a vote of a majority of the outstanding
Service Shares of the affected Fund on not more than sixty (60) days' written
notice to any other party to the Service Agreements. The Service Agreements
will terminate automatically if assigned. So long as the Plan is in effect, the
selection and nomination of those Trustees who are not interested persons will
be committed to the discretion of the Trust's Nominating Committee, which
consists of all of the non-interested members of the Trustees. The Trustees has
determined that, in its judgment, there is a reasonable likelihood that the
Plans will benefit the Funds and the holders of Service Shares of the Funds. In
the Trustees' quarterly review of the Plan and related Service Agreements, the
Board will consider their continued appropriateness and the level of
compensation provided therein.
B-120
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS/*/
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very
- ----------------------------
/*/ THE RATING SYSTEMS DESCRIBED HEREIN ARE BELIEVED TO BE THE MOST RECENT
RATING SYSTEMS AVAILABLE FROM MOODY'S INVESTORS SERVICE, INC. AND STANDARD
AND POOR'S RATINGS GROUP AT THE DATE OF THIS ADDITIONAL STATEMENT FOR THE
SECURITIES LISTED. RATINGS ARE GENERALLY GIVEN TO SECURITIES AT THE TIMES
OF ISSUANCE. WHILE THE RATING AGENCIES MAY FROM TIME TO TIME REVISE SUCH
RATINGS, THEY UNDERTAKE NO OBLIGATION TO DO SO, AND THE RATINGS INDICATED
DO NOT NECESSARILY REPRESENT RATINGS WHICH WILL BE GIVEN TO THESE
SECURITIES ON THE DATE OF THE FUND'S FISCAL YEAR END.
1-A
<PAGE>
moderate, and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds which may
be in default, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
2-A
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA: The obligor's capacity to meet its financial commitment on the
obligation is very strong and differs from the highest rated issues only in
small degree.
A: An obligation is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded as
having significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
D: Obligations rated D are in payment default. The D rating category
is used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating is also used
upon the filing of a bankruptcy petition or the taking of similar action if
payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
N.R.: Not rated.
3-A
<PAGE>
APPENDIX B/*/
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of
the firm's activities and serve as the basis for its distinguished reputation
among investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that
if we serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these
assets diminish, reputation is the most difficult to restore. We are dedicated
to complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have
an uncompromising determination to achieve excellence in everything we
undertake. Though we may be involved in a wide variety and heavy volume of
activity, we would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While
recognizing that the old way may still be the best way, we constantly strive to
find a better solution to a client's problems. We pride ourselves on having
pioneered many of the practices and techniques that have become standard in the
industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity
is always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the firm and in their personal lives.
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and
securities firm with a number of distinguishing characteristics.
- -------------------------
/*/ Source: Securities Data Corporation. Common stock ranking excludes REITs,
====================================
Investment Trusts and Rights.
1-B
<PAGE>
Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November 29, 1996.
With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
The number one underwriter of all international equity issuers from (1993-
1996).
A research budget of $200 million for 1997.
Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1996).
The number one lead manager of U.S. common stock offerings for the past
eight years (1989-1996).
The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-standing
client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs increases assets under management by 100% over 1996
3-B
<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
<PAGE>
Goldman Sachs Funds
================================================================================
MID CAP EQUITY FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth
potential through a diversified
portfolio of equity securities.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS MID CAP EQUITY FUND
Fund Basics
as of January 31, 1998
Assets Under Management
--------------------
$362.2 Million
--------------------
Number of Holdings
--------------------
49
--------------------
NASDAQ SYMBOLS
Class A Shares
--------------------
GCMAX
--------------------
Class B Shares
--------------------
GCMBX
--------------------
Class C Shares
--------------------
GCMCX
--------------------
Institutional Shares
--------------------
GSMCX
--------------------
Service Shares
--------------------
GSMSX
--------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return Russell MidCap
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A (8/15/97-1/31/98) 3.42% N/A
Class B (8/15/97-1/31/98) 3.17% N/A
Class C (8/15/97-1/31/98) 3.27% N/A
Institutional 30.86% 22.01%
Service (7/18/97-1/31/98) 6.30% N/A
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Russell MidCap Index (with dividends reinvested) figures do not reflect
any fees or expenses. In addition, investors cannot invest directly in the
Index.
================================================================================
SEC CUMULATIVE TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period Institutional
ending 12/31/97 Class A Class B Class C (Average Annual)(4) Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 months N/A N/A N/A 36.04% N/A
Since Inception -3.69% -3.30% 0.82% 25.49% 4.83%
(8/15/97) (8/15/97) (8/15/97) (8/1/95) (7/18/97)
- --------------------------------------------------------------------------------
</TABLE>
(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 1/31/98
was $22.87 and represents the NAV plus the maximum sales charge of 5.5%.
(4) 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.
================================================================================
TOP TEN HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
Quantum Corp. 4.3% Tape and Disk Drive Products
Lear Corp. 3.5% Auto Supplies
Central Maine Power Co. 3.1% Electric Utilities
Tenet Healthcare Corp. 3.0% Health Management
Republic N.Y. Corp. 2.9% Banking
Aetna Inc. 2.9% Healthcare Management
Tosco Corp. 2.9% Oil Refining and Marketing
Unicom Corp. 2.9% Electric Utilities
Fruit of the Loom, Inc. 2.7% Clothing Manufacturer
Quest Diagnostics, Inc. 2.6% Clinical Laboratories
- --------------------------------------------------------------------------------
</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 MID CAP EQUITY FUND
Market Overview
Dear Shareholder,
The U.S. stock market took investors on an unsteady ride during the period under
review -- one that saw the market climb to record highs and plummet in what
would be the market's largest single-day percentage drop in a decade. Small- and
mid-cap stocks lagged their large-cap brethren through most of the year,
emerging briefly in mid-summer as market leaders.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -Early in the fiscal year, the Federal Reserve's
decision to increase the Federal funds rate was perceived by
investors as potentially the first in a series of tightenings,
and the market sold off sharply. By late April, though, economic
indicators slowed, reassuring the market that further rate hikes
were unlikely. Renewed investor confidence sent the market
soaring.
Throughout the remainder of the year, several factors,
including a lack of inflationary pressure, furthered the market's
upward climb. Waxing and waning investor confidence, however,
caused a degree of market volatility. Most notably, in October,
investor uncertainty helped to foster overreaction to falling
Asian markets. The market fell precipitously, posting the largest
single-day decline in nearly a decade. Soon thereafter, the
market firmed as investors accepted the argument that Asian
market weakness would likely have little impact on U.S.
companies. Late-year strength in the market favored large, liquid
names, while small- and mid-caps, despite their attractive
relative valuations, struggled to regain the momentum they had
achieved mid-summer.
o The U.S. Economy: Robust Activity, Then Moderation -- Economic
activity gained momentum during the first quarter of 1997, with
real GDP surging at a revised 4.9% annualized rate. Growth
moderated somewhat during the second quarter, a slowdown that
continued into the second half of the year. Signs that the U.S.
economy remained strong were eminently present, though, despite
the fact that Asian market turmoil cast a shadow over sales and
trade prospects to that region. Most notably, U.S. unemployment
figures reached a 24-year low during the fourth quarter, as the
proportion of working Americans -- approximately 64% -- reached
an unprecedented level.
o Outlook: Expect Moderating Economic Growth and Low Inflation --
Going forward, we believe the inflation and interest rate
environments will likely remain favorable, particularly over the
near term. Furthermore, we believe the equity market will produce
returns closer to the historic norm, a scenario that should be
accompanied by more normal levels of volatility. The performance
of small- and mid-caps, to a significant extent, will depend upon
whether or not investors broaden their focus from the largest,
most liquid stocks to smaller, less widely followed issues.
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, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
1
<PAGE>
GOLDMAN SACHS MID CAP EQUITY FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Mid Cap Equity
Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's Institutional share class outperformed nearly all of its peers
for the one-year period ended January 31, 1998, according to Lipper
Analytical Services, Inc. The total return of the Fund's Institutional
share class ranked in the top 2% of all funds in the Lipper Mid Cap Fund
category (number 3 out of 258 funds. Class A shares, Class B shares, Class
C shares and Service shares were not ranked because their performance
records are less than 12 months. Please note that Lipper rankings do not
take sales charges into account and that past performance is not a
guarantee of future results).
Sector Allocations
As bottom-up stock pickers, we do not focus on sectors as guidelines to
value. However, in general, throughout the fiscal year, the Fund
maintained overweighted positions in the consumer durables and
transportation sectors, and an underweighted position in the capital
goods/basic industry sector.
Portfolio Highlights
o Lennar Corp. -- Homebuilding stock Lennar performed well in the
slow-growth, low-inflation economic environment, but company-specific
developments further abetted performance. Primarily, the company
appreciated as the market realized the worth of its different
divisions. Additionally, at the end of October, the company completed
the spin-off of its real estate investment and management business.
o Darden Restaurants Inc. -- The company is the largest full-service
restaurant group in the U.S. and operates the Red Lobster and Olive
Garden restaurant chains. The company continued its positive momentum,
reporting solid gains in sales and earnings. Red Lobster's
profitability improved substantially from year-ago levels in terms of
same-store sales and store traffic, while the Olive Garden posted
earnings growth and an increase in same-store sales. Darden's
aggressive stock buy-back also fueled the company's return this year.
o Continental Airlines -- The airline benefited from its geographic hubs
and from fewer discount offers, cheaper fuel pricing and increased
traffic.
o ShopKo Stores Inc. -- The company generated consistently high
same-store sales and improving margins in discount retailing. The
market recognized ShopKo's strategy and its consistency in a
competitive environment.
o Centex Corp. -- Centex sustained strong mid-year performance (third
quarter of 1997) after announcing better than expected earnings. This
announcement augmented the already positive effects of the market's
recognition of 1) results in the company's cost-cutting efforts in
homebuilding operations and 2) the use of its substantial free cash
flow to reduce debt and grow the business.
2
<PAGE>
GOLDMAN SACHS MID CAP EQUITY FUND
VALUE
INVESTMENT PROCESS
Value stocks represent companies that are currently undervalued in the market,
but whose intrinsic value we believe ultimately will be recognized. Our value
stock selection process emphasizes a bottom-up approach.
1
Search for Value
We search for value from a universe of 1,000 stocks, and then select 200 to 300
of the least expensive.
2
Fundamental Research
We refine our stock list through rigorous analysis of companies' "fundamentals"
and face-to-face meetings with company management, competitors, suppliers and
customers.
3
Risk Management
We maintain ongoing risk management resulting in an intentional and quantifiable
risk/return profile.
o Central Maine Power Co. -- The company continued to benefit from an
ongoing restructuring process. At year-end, Central Maine Power Co.'s
announcement that it had sold its nonnuclear generating assets at a
higher than expected price contributed further to performance.
Key New Acquisition
o Quantum Corp. -- The disk drive and digital linear tape (DLT)
manufacturer performed well, although it suffered a setback toward the
end of the period, when company-specific issues were exacerbated by
industry oversupply. Going forward, we believe the company's DLT
business will be extremely profitable (DLT provides rapid backup for
network servers).
Portfolio Outlook
We are keeping a close eye on the U.S. equity market's current valuation.
In recent memory, inflation has consistently surprised on the downside,
with technology improving overall productivity and the Asian economic
events driving down prices of imported goods. As many investors believe
this low-inflation environment will continue, the market's P/E level has
risen. The current S&P 500 P/E ratio seems unsustainable to us, as the
combination of rising labor costs and Asia-driven pricing pressure could
squeeze U.S. margins. By focusing on reasonably valued and discounted
names, however, we feel comfortable with our domestic portfolio.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/Ronald E. Gutfleish /s/G. Lee Anderson
Ronald E. Gutfleish G. Lee Anderson
Portfolio Manager, Portfolio Manager,
Goldman Sachs Mid Cap Equity Fund Goldman Sachs Mid Cap Equity Fund
/s/Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager,
Goldman Sachs Mid Cap Equity Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS MID CAP EQUITY FUND
For Best Results,
It's Time in the Market That Counts
For optimal long-term investment results, time in the market can make the
difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- can do more harm than good
to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
- --------------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long-Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has only generated negative returns
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than timing the market.
For More Information
A diversified portfolio of stocks is one of the best ways to reduce the
effects of market fluctuations on a portfolio. For most investors,
diversification is most easily acquired through mutual funds. Goldman Sachs
Asset Management offers a broad spectrum of equity mutual funds that can
help investors weather market ups and downs. For more information on these
and other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS MID-CAP 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 in the Institutional Class of shares on August 1, 1995. For
comparative purposes, the performance of the Fund's benchmark (the Russell
Mid Cap Index) is shown. This performance data represents past performance
and should not be considered indicative of future performance which will
fluctuate with changes in market conditions. These performance fluctuations
will cause an investor's shares, when redeemed, to be worth more or less than
their original cost. Performance of Class A, Class B, Class C and Service
shares will vary from the Institutional Class of shares due to differences in
fees and loads.
MID-CAP EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1995 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Russell Mid Cap Index Fund
<S> <C> <C>
08/01/1995 10000 10000
10153 10140
10832 10227
10150 9973
10654 10253
10716 10494
Jan-96 10942 10689
11199 10877
11362 10796
11683 10937
11860 11085
11682 10762
Jul-96 10959 10353
11480 10749
12048 11307
12144 11428
12883 12469
12752 12740
Jan-97 13229 13436
13209 13623
12648 13329
12963 14010
13909 15337
14364 15947
Jul-97 15562 16980
15392 17123
16271 17883
15638 17419
16010 17195
16452 17331
Jan-98 16143 17583
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 15, 1997)(A)
Excluding sales charges 3.42% n/a
Including sales charges -2.29% n/a
-------------------------------------------------------------------------
CLASS B (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 3.17% n/a
Including redemption charges -1.99% n/a
-------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 3.27% n/a
Including redemption charges 2.24% n/a
-------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 1,
1995)(A) 25.25% 30.86%
-------------------------------------------------------------------------
SERVICE CLASS (COMMENCED JULY 18, 1997)(A) 6.30% n/a
-------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 89.9%
<C> <S> <C>
AIRLINES - 1.7%
132,900 Continental Airlines Inc.* $ 6,163,237
---------------------------------------------------------
APPLIANCES - 2.2%
208,000 Sunbeam Corp. 7,891,000
---------------------------------------------------------
AUTO/VEHICLE - 3.5%
257,000 Lear Corp.* 12,769,687
---------------------------------------------------------
BANKS - 5.3%
549,500 National Bank of Canada, Inc. 8,511,918
97,600 Republic N.Y. Corp. 10,626,200
---------------------------------
19,138,118
---------------------------------------------------------
CHEMICAL PRODUCTS - 4.5%
223,800 IMC Global Inc. 7,217,550
208,600 Union Carbide Corp. 9,139,288
---------------------------------
16,356,838
---------------------------------------------------------
COMPUTER PERIPHERALS - 4.3%
645,300 Quantum Corp.* 15,729,188
---------------------------------------------------------
DATACOM EQUIPMENT - 2.1%
280,200 Bay Networks, Inc.* 7,617,937
---------------------------------------------------------
FOOD & BEVERAGES - 0.9%
125,400 International Multifoods Corp. 3,197,700
---------------------------------------------------------
FOREST PRODUCTS - 5.0%
139,100 Georgia-Pacific Corp. 7,667,888
430,400 Stone Container Corp.* 5,487,600
205,800 Georgia-Pacific Corp.*
(Timber Group) 4,784,850
---------------------------------
17,940,338
---------------------------------------------------------
GAMING - 1.8%
280,700 Circus Circus Enterprises, Inc.* 6,456,100
---------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 1.3%
347,200 Owens & Minor Inc. 4,708,900
---------------------------------------------------------
HEALTHCARE MANAGEMENT - 12.0%
143,700 Aetna Inc. 10,561,950
570,800 Quest Diagnostics Inc.* 9,489,550
284,900 Foundation Health Systems, Inc.* 7,389,594
211,800 Trigon Healthcare, Inc.* 5,268,525
310,400 Tenet Healthcare Corp.* 10,708,800
---------------------------------
43,418,419
---------------------------------------------------------
HOMEBUILDERS - 0.4%
3,100 Centex Corp. 194,525
51,500 Lennar Corp. 1,264,969
---------------------------------
1,459,494
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
HOTELS & RESTAURANTS - 0.4%
113,800 Darden Restaurants Inc. $ 1,436,725
---------------------------------------------------------
INSURANCE - BROKERS - 1.3%
118,500 Old Republic International Corp. 4,643,719
---------------------------------------------------------
INSURANCE - LIFE - 2.7%
68,849 American General Corp. 3,881,362
142,200 Reliastar Financial Corp. 5,901,300
---------------------------------
9,782,662
---------------------------------------------------------
INSURANCE - PROPERTY & CASUALTY - 1.5%
96,800 Allmerica Financial Corp. 5,094,100
3,600 CNA Financial Corp.* 481,050
---------------------------------
5,575,150
---------------------------------------------------------
OIL & GAS - REFINING AND MARKETING - 3.4%
313,900 Tosco Corp. 10,496,031
60,500 Valero Energy Corp. 1,909,531
---------------------------------
12,405,562
---------------------------------------------------------
PHARMACEUTICALS - 2.3%
72,239 Block Drug Co., Inc. 3,124,339
433,900 Perrigo Co.* 5,044,088
---------------------------------
8,168,427
---------------------------------------------------------
REAL ESTATE - 3.0%
433,200 Laser Mortgage Management Inc. 6,552,150
180,700 LNR Property Corp. 4,280,331
---------------------------------
10,832,481
---------------------------------------------------------
RETAIL - 2.5%
353,500 Shopko Stores Inc.* 9,014,250
---------------------------------------------------------
SEMICONDUCTORS - 4.6%
141,200 Avnet Inc. 8,613,200
377,162 Vishay Intertechnology, Inc.* 7,920,402
---------------------------------
16,533,602
---------------------------------------------------------
SPECIALTY FINANCE - 0.4%
50,800 C.I.T. Group Inc.* 1,527,175
---------------------------------------------------------
STEEL - 4.1%
458,400 AK Steel Holding Corp. 8,193,900
306,100 Ispat International NV* 6,619,413
---------------------------------
14,813,313
---------------------------------------------------------
SUPERMARKETS - 3.8%
464,000 Fleming Companies Inc. 6,989,000
158,400 Supervalu Inc. 6,949,800
---------------------------------
13,938,800
---------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
TEXTILES - 2.7%
412,700 Fruit of the Loom, Inc.* $ 9,904,800
--------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 2.3%
130,800 Goodyear Tire & Rubber Co. 8,191,350
--------------------------------------------------
TOBACCO - 1.1%
112,700 UST Inc. 3,888,150
--------------------------------------------------
TRANSPORTATION & LOGISTICS - 2.0%
157,900 CNF Transportation Inc. 7,214,056
--------------------------------------------------
UTILITIES - ELECTRIC - 6.9%
686,500 Central Maine Power Co. 11,370,156
249,200 Northeast Utilities* 3,052,700
336,700 Unicom Corp. 10,437,700
--------------------------
24,860,556
--------------------------------------------------
TOTAL COMMON STOCKS
(COST $292,399,308) (A) $325,577,734
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
REPURCHASE AGREEMENT - 8.7%
<S> <C> <C>
$31,600,000 Joint Repurchase Agreement
Account 5.64%, 02/02/98 $ 31,600,000
--------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $31,600,000) $ 31,600,000
--------------------------------------------------------
TOTAL INVESTMENTS
(COST $323,999,308) $ 357,177,734
--------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments
in which value exceeds cost $ 44,819,656
Gross unrealized loss for investments
in which cost exceeds value (12,146,808)
--------------------------------------------------------
Net unrealized gain $ 32,672,848
--------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $324,504,886.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$323,999,308) $357,177,734
Cash 11,330
Receivables:
Investment securities sold 1,438,207
Fund shares sold 6,149,243
Dividends and interest 371,586
Deferred organization expenses, net 42,890
Other assets 171,292
-----------------------------------------------------------------------------
TOTAL ASSETS 365,362,282
-----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 2,176,758
Fund shares repurchased 471,061
Amounts owed to affiliates 434,455
Accrued expenses and other liabilities 56,393
-----------------------------------------------------------------------------
TOTAL LIABILITIES 3,138,667
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 314,226,803
Accumulated undistributed net investment income 130,093
Accumulated undistributed net realized gain on investment
transactions 14,688,293
Net unrealized gain on investments 33,466,867
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies (288,441)
-----------------------------------------------------------------------------
NET ASSETS $362,223,615
-----------------------------------------------------------------------------
</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) 4,191,937 1,332,295 298,521
Net asset and Class A redemption value per
share(a) $21.61 $21.57 $21.59
Maximum public offering price per share (Class
A NAV X 1.0582) $22.87 $21.57 $21.59
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (Unlimited shares authorized) 10,921,229 360
Net asset value, offering and redemption price per
share $21.65 $21.62
--------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B and C shares may be subject to a contingent de-
ferred 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 MID-CAP EQUITY FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 2,931,678
Interest 680,409
----------------------------------------------------------------------------
TOTAL INCOME 3,612,087
----------------------------------------------------------------------------
EXPENSES:
Management fees 1,653,946
Distribution fees 125,558
Authorized dealer service fees 86,845
Transfer agent fees 216,874
Custodian fees 59,612
Professional fees 70,239
Registration fees 66,062
Amortization of deferred organization expenses 17,166
Trustee fees 1,882
Other 53,081
----------------------------------------------------------------------------
TOTAL EXPENSES 2,351,265
----------------------------------------------------------------------------
Less -- expenses reimbursed by Goldman Sachs (264,378)
----------------------------------------------------------------------------
NET EXPENSES 2,086,887
----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,525,200
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain from:
Investment transactions 33,414,228
Net change in unrealized gain (loss) on:
Investments 11,551,004
Translation of assets and liabilities denominated in foreign
currencies (288,441)
----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS 44,676,791
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $46,201,991
----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $14,613.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS MID-CAP 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 income $ 1,525,200 $ 1,726,659
Net realized gain on investment
transactions 33,414,228 13,627,039
Net realized gain on options written -- 40,466
Net change in unrealized gain on
investments 11,551,004 14,749,074
Net change in unrealized loss on
translation of assets and liabilities
denominated in foreign currencies (288,441) --
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 46,201,991 30,143,238
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (88,869) --
Class B shares -- --
Class C shares -- --
Institutional shares (1,204,893) (1,837,675)
Service shares (15) --
In excess of net investment income
Class A shares (63,822) --
Class B shares (36,518) --
Class C shares (7,184) --
Institutional shares -- (25,142)
Service shares (8) --
From net realized gain on investment and
foreign currency transactions
Class A shares (2,003,140) --
Class B shares (739,050) --
Class C shares (118,344) --
Institutional shares (23,361,534) (6,629,058)
Service shares (307) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (27,623,684) (8,491,875)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 219,499,016 3,933,239
Reinvestment of dividends and
distributions 27,184,097 8,489,760
Cost of shares repurchased (48,291,135) (24,491,993)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 198,391,978 (12,068,994)
------------------------------------------------------------------------------
TOTAL INCREASE 216,970,285 9,582,369
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 145,253,330 135,670,961
------------------------------------------------------------------------------
End of year $362,223,615 $145,253,330
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS
IN EXCESS OF) NET INVESTMENT INCOME $ 130,093 $ (25,142)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS MID-CAP 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 Mid Cap Eq-
uity Fund (the "Fund"). The Trust is registered under the Investment Company
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 official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on valuation date, or if no sale occurs at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned.
C. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment 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.
11
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
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. 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 fi-
nancial statements. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or extin-
guished by delivery of the currency. Risks may arise upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. SHORT SECURITIES 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.
G. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
H. EXPENSES -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are allocated to the funds based on
each Fund's relative net assets.
Class A, Class B and Class C shares bear all expenses and fees relating to
the distribution and authorized dealer service plans as well as other ex-
penses which are directly attributable to such shares. Service shares sepa-
rately bear a service class fee payable monthly, at an annual rate equal to
..50% of the average daily net assets of the service class.
12
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
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 as unrealized gains or losses. When contracts are closed, the
Fund realizes a gain or loss which is reported in the Statement of Opera-
tions.
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 MID-CAP 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 Manage-
ment ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser. Under the Agreement, GSAM,
subject to the general supervision of the Trust's Board of Trustees, manages
the Fund's portfolio. As compensation for the services rendered under the
Agreement, the assumption of the expenses related thereto and administering
the Fund's business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .75%
of the average 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 and extraordinary expenses) until further no-
tice to the extent such expenses exceed .10% of the average daily net assets
of the Fund. For the year ended January 31, 1998, Goldman Sachs reimbursed
approximately $264,000. At January 31, 1998, approximately $169,000 is owed
to 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 charges and has
advised the Fund that it retained approximately $704,000 during the year
ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 average daily net assets attrib-
utable to Class A, Class B and Class C shares, respectively.
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 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.
At January 31, 1998, the Fund owed approximately $220,000, $98,000, $65,000
and $52,000 for Management, Distribution, Authorized Dealer Service and
Transfer Agent fees, respectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for the year ended January 31,
1998, were $271,272,271 and $97,123,077, respectively.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$91,000 of brokerage commissions from portfolio transactions.
14
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more re-
purchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1998, the Fund had
an undivided interest in the repurchase agreements in the following joint ac-
count which equaled $31,600,000 in principal amount. At January 31, 1998, the
repurchase agreements held in this joint account, along with the correspond-
ing underlying securities (including the type of security, market value, in-
terest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC., $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 consisting of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA :
6.50%-8.00%, 05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
------------------------------------------------------------------------------
LEHMAN BROTHERS INC., 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA :
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
------------------------------------------------------------------------------
NOMURA SECURITIES INTERNATION-
AL, 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-01/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
------------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL, 270,000,000 5.64 02/02/98 270,000,000
dated 01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC:
03/06/98; FFCB: 6.30%, 08/08/07d)
------------------------------------------------------------------------------
SALOMON-SMITH BARNEY, 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.8%, 08/15/01)
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
7. 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.
8. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended January 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998 YEAR ENDED JANUARY 31, 1997
--------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 5,841,266 $ 131,260,250 -- $ --
Reinvestments of divi-
dends and distributions 94,688 2,037,019 -- --
Shares repurchased (1,744,017) (40,763,741) -- --
--------------------------------------------------------
4,191,937 92,533,528 -- --
-----------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,399,203 30,963,114 -- --
Reinvestments of divi-
dends and distributions 30,492 662,853 -- --
Shares repurchased (97,400) (2,201,814) -- --
--------------------------------------------------------
1,332,295 29,424,153 -- --
-----------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 324,716 7,154,293 -- --
Reinvestments of divi-
dends and distributions 4,930 106,487 -- --
Shares repurchased (31,125) (693,155) -- --
--------------------------------------------------------
298,521 6,567,625 -- --
-----------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 2,288,783 50,110,458 227,071 3,933,239
Reinvestments of divi-
dends and distributions 1,099,576 24,377,632 483,747 8,489,760
Shares repurchased (222,904) (4,630,323) (1,480,859) (24,491,993)
--------------------------------------------------------
3,165,455 69,857,767 (770,041) (12,068,994)
-----------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 452 10,901 -- --
Reinvestments of divi-
dends and distributions 5 106 -- --
Shares repurchased (97) (2,102) -- --
--------------------------------------------------------
360 8,905 -- --
-----------------------------------------------------------------------------------
NET INCREASE 8,988,568 $198,391,978 (770,041) $ (12,068,994)
-----------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$25,124 from paid-in-capital to accumulated undistributed net investment in-
come and $6,220 from accumulated undistributed net realized gain to accumu-
lated undistributed net investment income. These reclassifications have no
impact on the net asset value of the Fund and is designed to present the
Fund's capital accounts on a tax basis.
10. OTHER MATTERS
As of January 31, 1998, Goldman, Sachs & Co. Employees Profit Sharing and Re-
tirement Plan was the beneficial owner of 34% of the outstanding shares of
the Fund.
17
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------- ------------------------------------------------
NET REALIZED
AND UNREALIZED
NET REALIZED LOSS ON
NET ASSET AND UNREALIZED FOREIGN IN EXCESS FROM NET NET INCREASE
VALUE, NET GAIN ON CURRENCY FROM NET OF NET REALIZED GAIN (DECREASE)
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT ON INVESTMENT IN NET ASSET
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares(b) $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02)
1998 - Class B
Shares(b) 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06)
1998 - Class C
Shares(b) 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04)
1998 - Institu-
tional Shares 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92
1998 - Service
Shares(b) 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39)
-----------------------------------------------------------------------------------------------------------------------
1997 - Institu-
tional Shares 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82
FOR THE PERIOD ENDED JANUARY 31,
1996 - Institu-
tional Shares(b) 15.00 0.13 0.90 -- (0.12) -- -- 0.91
-----------------------------------------------------------------------------------------------------------------------
</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 August 15, 1997, August 15, 1997, August 15, 1997,
August 1, 1995 and July 18, 1997, 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 MID-CAP EQUITY FUND
<TABLE>
<CAPTION> RATIOS ASSUMING NO EXPENSE LIMITATIONS
RATIO OF ---------------------------------------
NET ASSETS RATIO OF NET INVESTMENT RATIO OF
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO RATIO OF NET INVESTMENT INCOME
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET EXPENSES TO (LOSS) TO AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS ASSETS AVERAGE NET ASSETS ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$21.61 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21% (c)
21.57 3.17 (d) 62.60 0.0540 28,743 1.85 (c) (0.20)(c) 1.97 (c) (0.32)(c)
21.59 3.27 (d) 62.60 0.0540 6,445 1.85 (c) (0.23)(c) 1.97 (c) (0.35)(c)
21.65 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
21.62 6.30 (d) 62.60 0.0540 8 1.35 (c) 0.63 (c) 1.43 (c) 0.51 (c)
- ----------------------------------------------------------------------------------------------------------------------------
18.73 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
- ----------------------------------------------------------------------------------------------------------------------------
15.91 6.89 (d) 58.77 (d) -- 135,671 0.85 (c) 1.67 (c) 0.98 (c) 1.54 (c)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Mid-Cap Eq-
uity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Mid-Cap Equity Fund, one of the portfolios constituting Goldman
Sachs Trust--Equity Funds (A Delaware Business Trust), including the state-
ment of investments, as of January 31, 1998, and the related statement of op-
erations 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 Mid-Cap Equity Fund as of January 31, 1998, the results
of its operations 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 Mid Cap Equity Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Mid Cap 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
Historically, stocks have demonstrated greater potential to build wealth
over the long term than most other types of investments.
Goldman Sachs Mid Cap Equity Fund offers investors access to the benefits
associated with equity investing. The Fund seeks long-term capital
appreciation, primarily through equity securities of companies with public
stock market capitalizations between $500 million and $10 billion at the
time of investment.
Target Your Needs
The Goldman Sachs Mid Cap Equity Fund has a distinct investment objective
and a defined place on the risk/return spectrum. As your investment
objectives or market conditions 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 Domestic Equity Funds
[THE FOLLOWING TABLE WAS REPRESENTED BY A CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Small Cap Value Fund
Risk/Return CORE Small Cap Equity Fund
MID CAP EQUITY FUND
Capital Growth Fund
CORE Large Cap Growth Fund
Lower CORE U.S. Equity Fund
Risk/Return Growth and Income Fund
</TABLE>
For More Information
To learn more about the Goldman Sachs Mid Cap 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
Investment Adviser,
Distributor and Transfer Agent
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 are subject to
risks in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. Compared with U.S. securities
markets, foreign markets may be less liquid, more volatile and less subject to
governmental regulation, and may make available less public information about
issuers. Funds that invest in foreign issues 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 MIDCAPAR / 65K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
ASIA GROWTH FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth potential
through a diversified portfolio of stocks
related to Asia, excluding Japan.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Fund Basics
as of January 31, 1998
Assets Under Management
-----------------------
$92.2 Million
-----------------------
Number of Holdings
-----------------------
43
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSAGX
-----------------------
Class B Shares
-----------------------
GSABX
-----------------------
Class C Shares
-----------------------
GSACX
-----------------------
Institutional Shares
-----------------------
GSAIX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return MSCI AC Asia
January 31, 1998 (based on NAV)(1) Free (Ex Japan) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A -48.49% -47.71%
Class B -48.70% -47.71%
Class C (8/15/97-1/31/98) -47.17% -45.37%
Institutional -48.19% -47.71%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Morgan Stanley Capital International (MSCI) All Country (AC) Asia Free
(ex Japan) Index is a market capitalization-weighted composite of
securities in 10 Asian countries, including Hong Kong, India, Indonesia,
Malaysia, Pakistan, Singapore, South Korea, Sri Lanka, Thailand and the
Philippines. Total returns are calculated without dividends reinvested.
"Free" indicates an index that excludes shares in otherwise free markets
that are not purchasable by foreigners. 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
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Last 12 Months -44.32% -44.30% N/A -40.64%
Since Inception -11.32% -31.76% -40.06% -24.40%
(7/8/94) (5/1/96) (8/15/97) (2/2/96)
- --------------------------------------------------------------------------------
</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
$8.87 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 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 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>
Hutchison Whampoa 7.7% Diversified
Hong Kong Telecom 6.5% Telecommunications
Hindustan Lever Ltd. 3.9% Consumer Goods and Services
Hong Kong Electric 3.9% Utilities
Singapore Press Holdings 3.8% Media
Mahanagar Telephone 3.8% Telecommunications
Ranbaxy Laboratories 3.4% Consumer Goods and Services
ITC Ltd 3.1% Consumer Goods and Services
Cheung Kong 2.4% Real Estate
China Light & Power 2.3% Utilities
- --------------------------------------------------------------------------------
</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 ASIA GROWTH FUND
Market Overview
Dear Shareholder,
While 1997 may best be remembered as a year of record returns on Wall Street, it
will also be recalled as a watershed in Asian market history. A decision by Thai
authorities to allow the devaluation of their currency set in motion a series of
events that impacted the world.
o The Asian Markets: Thai Currency Devaluation Causes Region-Wide
Currency Crisis -- Early in 1997, most Asian markets were weak,
largely due to uncertainties in the U.S. interest rate outlook.
Performance improved briefly in late January and February, but
the region subsequently sold off in response to a rise in U.S.
interest rates and weaker-than-expected economic indicators in
several countries. Although the markets rebounded in May, posting
their strongest monthly gain for the year, the recovery was
short-lived.
On July 2, Thai authorities allowed their currency, the
baht, to float freely against the U.S. dollar. The action was
taken as the government had been unable to address severe
domestic problems impacting Thailand during the past two years --
primarily high current account imbalances and financial sector
weakness. The decision set in motion a wave of currency
speculation over regional countries that had, albeit to a lesser
extent than Thailand, pursued overly aggressive investment
policies. The Philippines, Malaysia and Indonesia were most
immediately affected, as these governments allowed their
currencies to slide in order to keep their exports competitive.
While the Hong Kong market remained strong, its dollar peg came
under intense scrutiny.
In October, continued speculative attack against the Hong
Kong dollar sent interest rates soaring and led to government
intervention. The Hong Kong market plummeted, and world markets
again responded in kind. At period-end, South Korea's economic
and financial problems reached crisis point, forcing the
government to seek assistance from the International Monetary
Fund -- though questions remained as to whether the assistance
provided was sufficient.
o Outlook: Some Perspective Is Necessary -- Going forward, it is
necessary to place the current turmoil in Asia into perspective.
While emerging markets will at times experience a higher level of
volatility than more mature economies, they also stand to benefit
from significant long-term growth potential as economies and
markets develop. Additionally, we believe the currency delinkings
are likely to mark the beginning of a new, healthier stage in the
region's economic development. However, the adjustment process
for these economies will likely be subject to significant
volatility and could be lengthy, depending on the appropriateness
of policy responses.
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, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
International International
February 27, 1998
1
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Asia Growth
Fund for the 12-month period ended January 31, 1998.
Performance Review: Declines for Fund, Index and Peer Group
Asian markets in general fared poorly over the 12-month period ended
January 31, 1998, a circumstance that is reflected in the average return of
-42.39% generated by the Fund's Lipper peer group, Pacific (Ex-Japan)
Funds. Within the peer group, the Fund's Class A shares, Class B shares and
Institutional shares ranked 56, 58 and 66, respectively, out of 82 funds.
(Class C share rankings are not available, as the performance record is
less than 12 months. Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results.)
Regional Allocations
Early in the fiscal year, relative to its benchmark, the MSCI All Country
Asia Free (ex Japan) Index, the Fund was overweighted in Hong Kong (which
initially hurt Fund performance), India and the Philippines. Conversely,
the Fund's weighting in Hong Kong during the difficult investment
environment of the latter portion of the period under review, as well as
its underweightings in countries that were most severely affected,
including Thailand, Indonesia and Malaysia, helped cushion the impact of
market declines. However, underweighted positions in Korea and Thailand in
January hurt performance as these two markets rallied briefly in the wake
of positive new policy announcements.
Portfolio Highlights
o Hutchison Whampoa -- Located in Hong Kong, Hutchinson Whampoa -- the
portfolio's largest holding -- outperformed the Hang Seng Index by
over 10.9% during the period. The company has benefited from strong
growth in its core container terminal and telecom businesses in Hong
Kong, and from management's ability to realize value in its portfolio
of assets world-wide. For example, the company recently sold back to
Procter & Gamble an 11% stake in Procter & Gamble China for a
substantial net gain.
o Hindustan Lever Ltd. -- Hindustan Lever, the leading Indian maker of
consumer non-durable goods, was a strong performer during the period
as a dramatic slowdown in industrial production caused cyclical stocks
to underperform more resilient consumer stocks. The company
experienced strong growth in its businesses as low-end consumer goods
increasingly became more affordable. Also helping performance was the
fact that the company possesses strong distribution channels -- a key
quality in a country the size of India and one that prevents other
domestic and multinational companies from becoming effective
competition.
o PTTEP -- A state-owned oil production and exploration company in
Thailand, PTTEP continued to increase the value of its oil and gas
assets in the Gulf of Thailand and around the region. The company's
assets, valued in U.S. dollars, were not affected by fluctuations in
the Thai baht or the domestic economy, and so the company was a
natural hedge to the turmoil in the country.
2
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
INVESTMENT
PROCESS OVERVIEW
The investment process
for the Goldman Sachs Asia
Growth Fund combines both
qualitative and quantitative
analysis, with an emphasis
on portfolio manager input.
Company Visits
--------------
Internal Research
-----------------
Return Expectations
V
===============
Stock Selection
===============
V
==================
Portfolio
Construction
==================
o Stock & Industry
Views Relative
to Benchmark
V
==================
Portfolio Review
& Analysis
==================
o Performance
Measurement
& Attribution
o BARRA
o Risk Analysis
Key New Acquisitions
In view of the uncertain environment, we have increased our exposure to
cash-rich companies with stable cash flows and earnings:
o Berjaya Sports Toto -- Located in Malaysia, the company is involved in
the operation of Toto betting (a four-digit numbers game). The company
currently has 681 outlets nationwide, and is well positioned to
further tap consumer awareness of Toto betting.
o Hong Kong Telecom -- Hong Kong Telecom has significant cash reserves
and is generating substantial free cash flow from its existing
businesses, which makes it very defensive in Asia's current interest
rate and currency environment.
o China Light & Power (CLP) -- CLP was recently added to the portfolio
for its defensive qualities. CLP generates and supplies electricity to
Kowloon and the New Territories, and benefits from a policy of control
with the Hong Kong government that guarantees its return on assets.
Portfolio Outlook
The near-term outlook for Asia is less negative than initially feared, as
various countries are starting to take positive steps toward resolving
their economic woes. However, continued currency turmoil and the resulting
high interest rates are expected to continue in the coming months.
Moreover, investor sentiment has grown increasingly negative. Such an
environment is bound to create investment opportunities. While pursuing
these opportunities, we plan to maintain our defensive investment stance by
focusing on companies with strong balance sheets and dominant business
franchises. We will continue to employ our bottom-up strategy to identify
extremely undervalued companies in the region.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Warwick M. Negus /s/ Alice Lui
Warwick M. Negus Alice Lui
Portfolio Manager, Portfolio Manager,
Goldman Sachs Asia Growth Fund Goldman Sachs Asia Growth Fund
/s/ Ravi Shanker /s/ Karma A. Wilson
Ravi Shanker Karma A. Wilson
Portfolio Manager, Portfolio Manager,
Goldman Sachs Asia Growth Fund Goldman Sachs Asia Growth Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Emerging Markets Offer Long-Term Rewards
For investors willing to
assume the sometimes
significant price fluctuations
associated with emerging
market investments, the
long-term rewards may be
higher returns and lower
portfolio volatility.
Two compelling reasons for investors to consider allocating a portion of their
portfolios to emerging market countries are the potential for higher returns and
reduced overall portfolio volatility.
Diversification Can Reduce Portfolio Volatility
Emerging market countries have widely varying economies, growth rates and stages
of development. As a result, stock markets in emerging market countries
generally do not move in tandem with markets in developed countries.
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.
The chart below illustrates the low correlation that stock markets in emerging
market countries have had to market performances in the U.S. over the past 10
years.
- --------------------------------------------------------------------------------
Performance of Emerging vs. U.S. Equity Markets
(MSCI EMF Index vs. S&P 500 Index)
(Rolling 10-Year Cumulative Returns)
[TABLE ILLUSTRATED BY A BAR CHART]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C>
MSCI EMF 34.87% 114.70% 85.16% 188.79% 214.92%
S&P 500 16.61% 53.56% 48.80% 94.14% 108.94%
1993 1994 1995 1996 1997
MSCI EMF 439.34% 392.58% 358.39% 376.36% 312.53%
S&P 500 130.00% 133.03% 220.61% 294.22% 425.73%
</TABLE>
Source: Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF)
Index and the S&P 500 Index. The MSCI EMF Index is a market
capitalization-weighted composite of securities in over 30 emerging market
countries. The MSCI EMF Index and the S&P 500 Index (with dividends reinvested)
are unmanaged indices and the figures for the Indices do not reflect any fees or
expenses. In addition, investors cannot invest directly in the indices. The
chart is for illustrative purposes only and is not representative of any Goldman
Sachs fund. Past performance is not indicative of future results.
Emerging Country Markets Offer Greater Return Potential
Historically, emerging market countries have been among the fastest growing in
the world. On average, the rate of economic growth in emerging market countries
- -- at 6% to 8% -- is four to five percentage points greater than the growth
rates of developed countries. This can lead to greater corporate profitability
and potentially greater market returns over time.
For More Information
A mutual fund composed of emerging market stocks is one of the most convenient
ways for investors to access the benefits associated with emerging country
investing. Goldman Sachs Asset Management offers a variety of funds that invest
in emerging market countries. For more information on these and other Goldman
Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS ASIA GROWTH 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
July 8, 1994. For comparative purposes, the performance of the Fund's bench-
mark (the Morgan Stanley All Country Asia Free ex Japan Index ("MSCI")) is
shown. This performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
Performance of Class B, Class C and Institutional shares will vary from Class
A due to differences in fees and loads.
ASIA GROWTH FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED JULY 8, 1994 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
MSCI FUND
07/08/1994 10000 9450
Jul-94 10700 9847
Aug-94 11539 10473
Sep-94 11298 10520
Oct-94 11456 10567
Nov-94 10431 9933
Dec-94 10126 9705
Jan-95 9075 8934
Feb-95 9822 9504
Mar-95 9790 9471
Apr-95 9636 9316
May-95 10705 10450
Jun-95 10522 10289
Jul-95 10702 10504
Aug-95 10191 10048
Sep-95 10297 10269
Oct-95 10108 10034
Nov-95 9865 9779
Dec-95 10340 10341
Jan-96 11131 11300
Feb-96 11236 11341
Mar-96 11299 11218
Apr-96 11687 11862
May-96 11537 11842
Jun-96 11343 11465
Jul-96 10484 10656
Aug-96 10782 10773
Sep-96 10953 10793
Oct-96 10734 10485
Nov-96 11229 10999
Dec-96 11178 11165
Jan-97 11395 11186
Feb-97 11482 11097
Mar-97 10954 10651
Apr-97 10630 10431
May-97 11087 11152
Jun-97 11471 11261
Jul-97 11543 11330
Aug-97 9480 9135
Sep-97 9424 9055
Oct-97 7314 6786
Nov-97 6802 6655
Dec-97 6534 6580
Jan-98 5957 5761
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
CLASS A (COMMENCED JULY
8, 1994)
Excluding sales charges (12.94)% (48.49)%
Including sales charges (14.31)% (51.33)%
------------------------------------------------------
CLASS B (COMMENCED MAY
1, 1996)
Excluding redemption
charges (34.00)% (48.70)%
Including redemption
charges (35.51)% (51.27)%
------------------------------------------------------
CLASS C (COMMENCED AU-
GUST 15, 1997)(a)
Excluding redemption
charges (47.17)% n/a
Including redemption
charges (47.70)% n/a
------------------------------------------------------
INSTITUTIONAL CLASS
(COMMENCED FEBRUARY 2,
1996) (28.41)% (48.19)%
------------------------------------------------------
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 74.1%
<C> <S> <C>
HONG KONG DOLLAR - 37.6%
1,512,000 Asia Satellite Telephone (Telecommunications) $ 2,110,586
4,272,000 Beijing Datang Power Gen-H (Utility)* 2,029,159
427,000 Cheung Kong Holdings
(Real Estate)* 2,179,979
389,000 CLP Holdings (Utility) 2,136,810
811,500 Dao Heng Bank Group (Banking) 1,206,185
2,292,000 Guangnan Holdings
(Consumer Goods)* 1,170,143
3,708,784 HKR International Ltd. (Real Estate)* 1,833,540
1,014,500 Hong Kong Electric (Utility) 3,625,556
2,884,000 Hong Kong Telecomm (Telecommunications) 6,001,344
1,214,000 Hutchison Whampoa (Telecommunications) 7,139,330
764,000 New World Development Co. (Diversified) 1,841,618
1,995,000 Ng Fung Hong (Other)* 1,882,319
575,600 Wing Hang Bank Ltd. (Banking) 840,672
4,661,000 Zhejiang Expressway (Construction)* 656,649
---------------------------------------------
34,653,890
----------------------------------------------------------------------
INDIAN RUPEE - 14.3%
1,090 Colgate Palmolive (Consumer Goods) 6,522
108,550 Hindustan Lever Ltd. (Consumer Goods) 3,636,355
197,796 ITC Ltd. (Consumer Goods) 2,844,117
644 Larsen & Toubro Ltd. (Heavy Industries) 3,066
630,400 Mahanagar Telephone (Telecommunications)* 3,535,296
350 Mahindra & Mahindra Ltd. (Automotive) 2,223
400 Niit Ltd. (Technology) 6,986
176,250 Ranbaxy Labs (Consumer Goods)* 3,143,087
---------------------------------------------
13,177,652
----------------------------------------------------------------------
INDONESIAN RUPIAH - 1.2%
1,819,500 Daya Guna Samudera (Consumer Goods) 1,079,006
----------------------------------------------------------------------
MALAYSIAN RINGGIT - 2.2%
430,000 Berjaya Sports (Leisure) 981,688
623,000 Tenaga Nasional Berhad (Utility) 1,051,914
---------------------------------------------
2,033,602
----------------------------------------------------------------------
NEW TAIWAN DOLLAR - 1.1%
207,000 Siliconware Precis (Technology) 502,279
134,000 Taiwan Semiconductor (Technology) 463,089
---------------------------------------------
965,368
----------------------------------------------------------------------
PHILIPPINE PESO - 3.6%
3,240,000 Ayala Land Inc. (Real Estate) 1,130,233
290,270 Manila Electric Co. (Utility) 911,313
7,320 Metro Bank & Trust Co. (Banking) 42,558
52,000 Philippine Long Distance (Telecommunications) 1,263,721
---------------------------------------------
3,347,825
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
SINGAPORE DOLLAR - 11.3%
372,000 City Developments (Real Estate) $ 1,160,805
167,000 Overseas Chinese Bank (Financial Services)* 696,442
1,257,000 Parkway Holdings (Consumer Goods) 1,898,880
153,000 Rothmans Industries (Consumer Goods) 758,530
150,000 Singapore Airlines (Transportation)* 979,878
272,000 Singapore Press Holdings (Media) 3,537,824
684,000 Singapore Telecomm (Telecommunications)* 1,356,430
-------------------------------------------
10,388,789
--------------------------------------------------------------------
THAILAND BAHT - 2.8%
947,000 Bangkok Expressway (Construction)* 722,668
161,800 PTT Exploration & Production
(Energy Source) 1,864,918
-------------------------------------------
2,587,586
--------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $89,772,478) $68,233,718
--------------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
<TABLE>
<CAPTION>
UNITS/PRINCIPAL
AMOUNT DESCRIPTION VALUE
<C> <S> <C> <C>
STRUCTURED NOTE - 12.8%
US DOLLAR - 12.8%
783,987 units Taiwan Index Linked Note $ 7,236,200
492,926 units Taiwan Index Note 4,529,990
------------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(COST $15,860,795) $ 11,766,190
------------------------------------------------------------------------
SHORT-TERM OBLIGATION - 5.3%
US DOLLAR - 5.3%
$4,920,110 State Street Bank Euro-Time Deposit
5.56%, 02/02/98(b) $ 4,920,110
------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION $ 4,920,110
------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $110,553,383) (A) $ 84,920,018
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FEDERAL INCOME
TAX INFORMA-
TION:
Gross
unrealized gain
for investments
in which value
exceeds cost $ 3,430,898
Gross
unrealized loss
for investments
in which cost
exceeds value (31,819,749)
------------------------------
Net unrealized
loss $(28,388,851)
------------------------------
</TABLE>
Futures contracts open at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Number of Settlement Unrealized
Type Short(c) Month Loss
--------------- --------- ------------- ----------
<S> <C> <C> <C>
Hang Seng Index 22 February 1998 $53,843
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $113,308,869.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each Hang Seng Index represents 50 HKD x index value at time of purchase
in notional par value. The total net notional amount and market value at
risk are $1,274,353 and $1,220,510, respectively. The determination of
notional amounts does not consider market risks factors and therefore
notional amounts as presented here are indicative of volume of activity
and not a measure of market risks.
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 CONCENTRATIONS
Automotive 0.0%
Banking 2.3%
Construction 1.5%
Consumer Goods 15.8%
Diversified 2.0%
Energy Sources 2.0%
Financial Services 0.8%
Heavy Industry 0.0%
Leisure 1.1%
Media 3.8%
Other 2.0%
Real Estate 6.8%
Technology 1.1%
Telecommunications 23.2%
Transportation 1.1%
Utility 10.6%
--------------------------------------------
TOTAL COMMON STOCK 74.1%
--------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$110,553,383) $ 84,920,018
Cash, at value 3,633,162
Receivables:
Fund shares sold 4,569,167
Dividends and interest, at value 70,738
Deferred organization expenses, net 45,380
Other assets 14,334
-----------------------------------------------------------------------------
TOTAL ASSETS 93,252,799
-----------------------------------------------------------------------------
LIABILITIES:
Payables:
Fund shares repurchased 134,703
Capital gains tax 505,583
Amounts owed to affiliates 281,380
Accrued expenses and other liabilities 225,606
-----------------------------------------------------------------------------
TOTAL LIABILITIES 1,147,272
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 191,631,821
Accumulated undistributed net investment income 137,887
Accumulated distributions in excess of net realized gains
on investment and futures transactions (50,144,575)
Accumulated net realized foreign currency loss (23,485,151)
Net unrealized loss on investments and futures (18,360,285)
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies (7,674,170)
-----------------------------------------------------------------------------
NET ASSETS $ 92,105,527
-----------------------------------------------------------------------------
</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) 10,430,282 404,337 52,511
Net asset and Class A redemption value per
share(a) $8.38 $8.31 $8.29
Maximum public offering price per share
(Class A NAV X 1.0582) $8.87 $8.31 $8.29
-----------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 103,588
Net asset value, offering and redemption
price per share $8.44
-----------------------------------------------------------------------------
</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 ASIA GROWTH FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 3,567,537
Interest 909,396
------------------------------------------------------------------------------
TOTAL INCOME 4,476,933
------------------------------------------------------------------------------
EXPENSES:
Management fees 2,179,299
Distribution fees 544,964
Authorized dealer service fees 524,028
Transfer agent fees 370,233
Custodian fees 392,707
Professional fees 75,733
Amortization of deferred organization expenses 31,733
Trustee fees 3,657
Other 168,640
------------------------------------------------------------------------------
TOTAL EXPENSES 4,290,994
------------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (513,104)
------------------------------------------------------------------------------
NET EXPENSES 3,777,890
------------------------------------------------------------------------------
NET INVESTMENT INCOME 699,043
------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENT, FUTURES AND FOR-
EIGN CURRENCY TRANSACTIONS:
Net realized loss from:
Investment transactions(b) (31,911,904)
Futures transactions (957,101)
Foreign currency related transactions (24,461,103)
Net change in unrealized loss on:
Investments (51,320,817)
Futures (53,843)
Translation of assets and liabilities denominated in foreign
currencies (5,678,939)
------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT, FUTURES AND
FOREIGN CURRENCY TRANSACTIONS (114,383,707)
------------------------------------------------------------------------------
NET DECREASE IN ASSETS RESULTING FROM OPERATIONS $(113,684,664)
------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $272,188.
(b) Net of capital gains taxes withheld of $531,662.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS ASIA GROWTH 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 income $ 699,043 $ 538,846
Net realized loss on investment and
futures transactions (32,869,005) (7,436,150)
Net realized loss on foreign currency
related transactions (24,461,103) (1,099,538)
Net change in unrealized gain (loss) on
investments and futures (51,374,660) 5,823,115
Net change in unrealized loss on
translation of assets and liabilities
denominated in foreign currencies (5,678,939) (599,549)
------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS (113,684,664) (2,773,276)
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (455,983) (206,784)
Class B shares -- --
Class C shares -- --
Institutional shares (22,635) --
In excess of net investment income
Class A shares -- --
Class B shares (10,435) (5,064)
Class C shares (617) --
Institutional shares -- (83,075)
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (489,670) (294,923)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 94,368,053 144,448,826
Reinvestment of dividends and
distributions 587,801 221,279
Cost of shares repurchased (168,365,597) (67,451,011)
------------------------------------------------------------------------------
NET DECREASE (INCREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS (73,409,743) 77,219,094
------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (187,584,077) 74,150,895
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 279,689,604 205,538,709
------------------------------------------------------------------------------
End of year $ 92,105,527 $279,689,604
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS
IN EXCESS OF) NET INVESTMENT INCOME $ 137,887 $ (1,316,323)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS ASIA GROWTH 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 Asia Growth
Fund (the "Fund"). The Trust is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. At Janu-
ary 31, 1998, the Asia Growth Fund offered five classes of shares--Class A,
Class B, Class C, Institutional and Service (Service shares have not com-
menced operations).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded or
NASDAQ. If no sale occurs, securities traded on a U.S. exchange or NASDAQ are
valued at the mean between the closing bid and asked price, and securities
traded on a foreign exchange will be valued at the official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on the valuation date or, if no sale occurs
at the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. Securities Transactions and Investment Income -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned. In addition, it
is the Fund's policy to accrue for estimated capital gains taxes on foreign
securities held.
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 may be more volatile than those of comparable securities in the United
States.
C. 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. At January, 31, 1998 and for the year then ended, the av-
erage fair value of structured notes held by the fund and the net unrealized
loss arising from trading such securities were $12,215,316 and $4,094,605,
respectively.
11
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
D. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment
valuations, other assets and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based on current
exchange rates; (ii) purchases and sales of foreign investments, income and
expenses are converted into U.S. dollars based on currency exchange rates
prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies 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.
E. 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.
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
provisions are required. The characterization of distributions to sharehold-
ers 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 in-
vestment income or net realized gain on investment transactions, or from cap-
ital, 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.
The Fund had approximately $184,000, $5,487,000, $10,408,000 and
$14,137,000 at October 31, 1997 (the Fund's tax year end) of capital loss
carryforwards expiring in 2002, 2003, 2004 and 2005, respectively, for fed-
eral tax purposes. These amounts are available to be carried forward to off-
set future capital gains to the extent permitted by applicable laws or
regulations.
H. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
12
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
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 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.
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.
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 or currency exchange
rates or to seek to increase total return.
Upon entering into a futures contract, the Fund is required to deposit with
a broker, an amount of cash or securities equal to the minimum "initial mar-
gin" requirement of the respective futures. Subsequent payments for futures
contracts ("variation margin") are paid or received by the Fund daily, depen-
dent on the daily fluctuations in the value of the contracts, and are re-
corded as unrealized gains or losses. When contracts are closed, the Fund
realized a gain or loss which is reported in the Statement of Operations. The
use of futures contracts involve, to varying degrees, elements of market and
counterparty risk which may exceed the amounts recognized in the Statement of
Assets and Liabilities. Changes in the value of the futures contracts 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 ASIA GROWTH 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 Manage-
ment International ("GSAM International") an affiliate 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 compensation for the services ren-
dered under the Agreement, the assumption of the expenses related thereto and
administering the Fund's business affairs, including providing facilities,
GSAM International is entitled to a fee, computed daily and payable monthly,
at an annual rate equal to 1.00% of the average daily net assets of the Fund.
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 .24% of the
average daily net assets of the Fund. For the year ended January 31, 1998,
Goldman Sachs has reimbursed approximately $126,000. At January 31, 1998, ap-
proximately $4,700 is owed to 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 charges imposed
and has advised the Fund that it retained approximately $414,000 during the
year ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 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 $82,000 of its distribution fee attributable to the
Class A shares and the Manager has agreed to waive $305,000 of its management
fee attributable to all classes. 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 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.
At January 31, 1998, the Fund owed approximately $64,000, $64,000, $65,000
and $88,000 for Management, Distribution, Authorized Dealer Service and
Transfer Agent fees, respectively.
14
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for the year ended January 31,
1998, were $209,322,562 and $288,302,543, respectively.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$74,000 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 year ended January 31, 1998, the Fund did not have
any borrowings under these facililties.
15
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
6. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended January 31, 1998 and 1997 is 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 7,223,511 $ 87,540,626 7,588,351 $ 124,281,405
Reinvestments of divi-
dends and distributions 43,677 582,740 11,669 184,607
Shares repurchased (12,959,028) (156,582,479) (3,945,614) (63,723,269)
---------------------------------------------------------------------------
(5,691,840) (68,459,113) 3,654,406 60,742,743
----------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 303,767 4,001,854 210,879 3,433,876
Reinvestments of divi-
dends and distributions 718 9,264 279 4,391
Shares repurchased (106,535) (1,359,625) (4,771) (76,391)
---------------------------------------------------------------------------
197,950 2,651,493 206,387 3,361,876
----------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 70,257 777,621 -- --
Reinvestments of divi-
dends and distributions 48 (185) -- --
Shares repurchased (17,794) (163,196) -- --
---------------------------------------------------------------------------
52,511 614,240 -- --
----------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 163,318 2,047,952 1,041,822 16,733,545
Reinvestments of divi-
dends and distributions 277 (4,018) 2,040 32,281
Shares repurchased (875,506) (10,260,297) (228,363) (3,651,351)
---------------------------------------------------------------------------
(711,911) (8,216,363) 815,499 13,114,475
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) (6,153,290) $ (73,409,743) 4,676,292 $ 77,219,094
----------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
7. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified
$1,384,341 from paid-in capital to accumulated undistributed net investment
income, $1,387,871 from accumulated undistributed net investment income to
accumulated net realized foreign currency loss, $1,248,367 from accumulated
undistributed net realized loss on investment and futures transactions to ac-
cumulated undistributed net investment income and $466 from paid-in capital
to accumulated undistributed net realized loss on investment and futures
transactions.
17
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------- -----------------------------------
FROM NET
NET ASSET NET NET REALIZED NET REALIZED IN EXCESS REALIZED GAIN NET INCREASE
VALUE, INVESTMENT AND UNREALIZED AND UNREALIZED FROM NET OF NET ON INVESTMENT (DECREASE)
BEGINNING INCOME GAIN (LOSS) ON LOSS ON FOREIGN CURRENCY INVESTMENT INVESTMENT AND FUTURES IN NET ASSET
OF PERIOD (LOSS) INVESTMENTS RELATED TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93)
1998 - Class B
Shares 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93)
1998 - Class C
Shares(b) 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44)
1998 - Institu-
tional Shares 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89)
--------------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18)
1997 - Class B
Shares(b) 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07)
1997 - Institu-
tional Shares(b) 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28)
--------------------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18
FOR THE PERIOD ENDED JANUARY 31,
1995 - Class A
Shares(b) 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87)
--------------------------------------------------------------------------------------------------------------------------------
</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 and Institutional share activity commenced
on July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 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 ASIA GROWTH FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS ASSETS ASSETS ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.38 (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
8.31 (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
8.29 (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
8.44 (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
- -----------------------------------------------------------------------------------------------------------------------------
16.31 (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
16.24 (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
16.33 (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54(c) 1.26(c) 0.38 (c)
- -----------------------------------------------------------------------------------------------------------------------------
16.49 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
- -----------------------------------------------------------------------------------------------------------------------------
13.31 (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35 (c)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Asia Growth
Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Asia Growth Fund, one of the portfolios constituting Goldman
Sachs Trust--Equity Funds, (a Delaware Business Trust), including the state-
ment of investments, as of January 31, 1998, and the related statement of op-
erations 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 Asia Growth Fund as of January 31, 1998, the results of
its operations, 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 Asia Growth Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Asia Growth 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 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 Asia Growth Fund provides investors access to the benefits
associated with emerging market investing. The Fund seeks long-term capital
appreciation, primarily through equity securities of companies related to Asia,
excluding Japan.
Target Your Needs
The Goldman Sachs Asia Growth 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 Asia Growth 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 are subject to
risks in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. In particular, the securities
markets of emerging countries in which the Fund 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.
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 AGAR / 47K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
GROWTH ANDINCOME FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth and growth
of income potential from a diversified
portfolio of equity securities.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Fund Basics
as of January 31, 1998
Assets Under Management
-----------------------
$1.6 Billion
-----------------------
Number of Holdings
-----------------------
46
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSGRX
-----------------------
Class B Shares
-----------------------
GSGBX
-----------------------
Class C Shares
-----------------------
GSGCX
-----------------------
Institutional Shares
-----------------------
GSIIX
-----------------------
Service Shares
-----------------------
GSGSX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return S&P 500
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 23.71% 26.92%
Class B 22.87% 26.92%
Class C (8/15/97-1/31/98) 0.51% 6.78%
Institutional 24.24% 26.92%
Service 23.63% 26.92%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The S&P 500 Index (with dividends reinvested) figures do not reflect any
fees or expenses. In addition, 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 20.88% 21.51% N/A 28.44% 27.87%
Since Inception 18.72% 24.49% -1.19% 28.56% 25.78%
(2/5/93) (5/1/96) (8/15/97) (6/3/96) (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
$27.44 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 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 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>
Quantum Corp. 4.5% Tape and Disk Drive Products
Lockheed Martin Corp. 4.0% Defense
Cigna Corp. 3.6% Insurance
Aetna Inc. 3.6% Healthcare Management
Lear Corp. 3.6% Auto Supplies
Morgan Stanley, Dean Witter Discover 3.2% Financial Services
Tosco Corp. 3.0% Oil Refining and Marketing
Union Carbide Corp. 2.9% Chemicals and Plastics
Fruit of the Loom, Inc. 2.9% Clothing Manufacturer
Unicom Corp. 2.9% Electric Utilities
- --------------------------------------------------------------------------------
</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 GROWTH AND INCOME FUND
Market Overview
Dear Shareholder,
The U.S. stock market took investors on an unsteady ride during the period under
review -- one that saw the market climb to record highs, and plummet in what
would be the market's largest single-day percentage drop in a decade.
Nonetheless, for the 12 months ended January 31, 1998, the market posted an
approximate 27% return as measured by the S&P 500 stock index -- well above
stocks' historical long-term average return.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -- Market turbulence early in the period was largely fueled
by speculation over Federal Reserve policy. The Fed's decision to
increase the Federal funds rate in March was perceived by investors as
potentially the first in a series of tightenings, and the market,
after a period of buoyancy, sold off sharply. By late April, though,
economic indicators slowed, reassuring the market that further rate
hikes were unlikely. Renewed investor confidence sent the market
soaring. Throughout the remainder of the year, several factors,
including a lack of inflationary pressure, furthered the market's
upward climb. Waxing and waning investor confidence, however, caused a
degree of market volatility. Most notably, in October, investor
uncertainty helped to foster overreaction to falling Asian markets.
The market fell precipitously, posting the largest single-day decline
in nearly a decade. Soon thereafter, the market firmed as investors
accepted the argument that Asian market weakness would have little
impact on U.S. companies.
o The U.S. Economy: Robust Activity, Then Moderation -- Economic
activity gained momentum during the first quarter of 1997, with real
GDP surging at a revised 4.9% annualized rate. Growth moderated
somewhat during the second quarter, a slowdown that continued into the
second half of the year. Signs that the U.S. economy remained strong
were eminently present, though, despite the fact that Asian market
turmoil cast a shadow over sales and trade prospects to that region.
Most notably, U.S. unemployment figures reached a 24-year low during
the fourth quarter, as the proportion of working Americans --
approximately 64% -- reached an unprecedented level.
o Outlook: Expect Moderating Economic Growth and Low Inflation -- Going
forward, we believe the inflation and interest rate environments will
likely remain favorable, particularly over the near term. Furthermore,
although we believe the equity market will produce returns closer to
the historic norm, this scenario should also be accompanied by more
normal levels of volatility.
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, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
1
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Growth and
Income Fund for the 12-month period ended January 31, 1998.
Outperformance Relative to Peers
The Fund's share classes fared well in the peer rankings for the one-year
period ended January 31, 1998, according to Lipper Analytical Services,
Inc. The Fund's Class A shares, Class B shares and Institutional shares
outperformed the 21.82% average return of the Lipper Growth and Income Fund
peer group (ranking 214, 255 and 187, respectively, out of 633 funds. Class
C share and Service share rankings were not available. Please note that
Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results).
Sector Allocations
As bottom-up stock pickers, we do not focus on sectors as guides to value.
Instead, we evaluate individual stocks on a one-by-one basis, sometimes
investing in multiple companies within a sector or industry. Hence,
throughout most of the period, we were overweighted in consumer durables
and capital goods. These sectors, which are composed of cyclical stocks,
became significantly discounted in the year-end "flight to quality," which
slightly hurt Fund performance. We believe, however, in the potential of
cyclical stocks to generate strong earnings even in a downturn.
Portfolio Highlights
o Ford Motor Co. -- New products and cost-cutting efforts drove the auto
manufacturer's earnings during the period under review. The company's
performance in 1998 will largely depend upon changes in its capital
structure.
o Tenet Health Care Corp. -- The nation's number two-ranked hospital
chain, Tenet benefited from its acquisition of OrNda, which helped the
company build a strong market position. We believe the company will
continue to acquire not-for-profit hospitals in a market with few
buyers.
o Morgan Stanley Dean Witter Discover & Co. -- This financial services
company was a top performer during the period under review, as Wall
Street finally recognized its post-merger profitability.
o Unicom Corp. -- Unicom is an electric utility company servicing the
northern third of Illinois, including most of the Chicago metropolitan
area. After a period of sustained weakness due to negative press and
regulatory rulings, investors regained confidence in Unicom when local
industry legislation concerns were resolved. We believe in this
company's fundamentals and took advantage of price declines earlier in
the year to increase our position.
2
<PAGE>
VALUE
INVESTMENT PROCESS
Value stocks represent companies that are currently undervalued in the market,
but whose intrinsic value we believe ultimately will be recognized. Our value
stock selection process emphasizes a bottom-up approach.
1
Search for Value
We search for value from a universe of 1,000 stocks, and then select 200 to 300
of the least expensive.
2
Fundamental Research
We refine our stock list through rigorous analysis of companies' "fundamentals"
and face-to-face meetings with company management, competitors, suppliers and
customers.
3
Risk Management
We maintain ongoing risk management resulting in an intentional and quantifiable
risk/return profile.
o Centex Corp. -- Homebuilding stock Centex performed well in the
slow-growth, low-inflation economic environment, but company-specific
developments further abetted performance. The company appreciated as
the market began to see results in cost-cutting efforts in
homebuilding operations, as well as the company's use of its
substantial free cash flow to reduce debt and grow the business.
Key New Acquisitions
o Quantum Corp. -- The disk drive and digital linear tape (DLT)
manufacturer performed well, although it suffered a setback toward the
end of the period when company-specific issues were exacerbated by
industry oversupply. Going forward, we believe the company's DLT
business will be extremely profitable (DLT provides rapid backup for
network servers).
o Wells Fargo & Co. -- The second largest bank in California, Wells
Fargo is the most advanced of its peers in lowering branch
distribution costs and in data-mining. Following initial difficulties
after a merger with First Interstate, prospects for the bank are
positive.
Portfolio Outlook
We are keeping a close eye on the U.S. equity market's current valuation.
In recent memory, inflation has consistently surprised on the downside,
with technology improving overall productivity and the Asian economic
events driving down prices of imported goods. As many investors believe
this low-inflation environment will continue, the market's P/E level has
risen. The current S&P 500 P/E ratio seems unsustainable to us, as the
combination of rising labor costs and Asia-driven pricing pressure could
squeeze U.S. margins. By focusing on reasonably valued and discounted
names, however, we feel comfortable with our domestic portfolio.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Ronald E. Gutfleish /s/ G. Lee Anderson
Ronald E. Gutfleish G. Lee Anderson
Portfolio Manager, Portfolio Manager,
Goldman Sachs Growth Goldman Sachs Growth
and Income Fund and Income Fund
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager,
Goldman Sachs Growth and Income Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
For Best Results,
It's Time in the Market That Counts
For optimal long-term
investment results,
time in the market can
make the difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- can do more harm than good
to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
---------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATTER]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has generated negative returns only
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than timing the market.
For More Information
A diversified portfolio of stocks is one of the best ways to reduce the
effects of market fluctuations on a portfolio. For most investors,
diversification is most easily acquired through mutual funds. Goldman Sachs
Asset Management offers a broad spectrum of equity mutual funds that can
help investors weather market ups and downs. For more information on these
and other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME 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
February 5, 1993. For comparative purposes, the performance of the Fund's
benchmark (the Standard and Poor's 500 Index ("S&P 500 Index")) is shown.
This performance data represents past performance and should not be consid-
ered 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.
Performance of Class B, Class C, Institutional and Service shares will vary
from Class A due to differences in fees and loads.
GROWTH AND INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED FEBRUARY 5, 1993 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Growth and Income Fund (Class A) S&P 500
<S> <C> <C>
02/05/1993 9450 10000
9507 9943
9773 10153
9513 9907
9727 10172
9637 10202
Jul-93 9764 10161
10045 10547
9942 10466
9962 10682
9908 10580
10185 10708
Jan-94 10686 11073
10842 10772
10674 10302
10722 10434
10960 10606
10739 10346
Jul-94 10950 10685
11570 11123
11383 10852
11055 11096
10645 10692
10787 10850
Jan-95 11110 11131
11764 11565
12124 11908
12385 12258
12752 12748
13023 13044
Jul-95 13434 13477
13661 13511
13930 14081
13646 14030
14115 14646
14399 14929
Jan-96 14716 15436
15026 15580
15132 15729
15398 15961
15709 16372
15457 16435
Jul-96 15004 15708
15405 16040
16140 16943
16549 17410
17860 18727
18152 18356
Jan-97 18911 19503
19286 19655
18714 18848
19556 19971
20937 21187
21555 22137
Jul-97 23420 23899
23208 22560
24044 23796
23061 23002
23143 24067
23214 24481
Jan-98 23395 24752
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED FEBRUARY 5, 1993)
Excluding sales charges 19.91% n/a 23.71%
Including sales charges 18.56% n/a 16.90%
-----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges 26.06% n/a 22.87%
Including redemption charges 23.72% n/a 17.36%
-----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 0.51% n/a n/a
Including redemption charges -0.50% n/a n/a
-----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED JUNE 3,
1996) 27.58% n/a 24.24%
-----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 6, 1996) 25.01% n/a 23.63%
-----------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 93.0%
<C> <S> <C>
AEROSPACE & DEFENSE - 5.7%
576,440 Boeing Company $ 27,416,928
611,400 Lockheed Martin Corp. 63,623,813
-----------------------------------------
91,040,741
-----------------------------------------------------------------
AIRLINES - 3.5%
238,400 AMR Corp.* 30,098,000
569,900 Continental Airlines Inc.* 26,429,113
-----------------------------------------
56,527,113
-----------------------------------------------------------------
APPLIANCES - 2.2%
933,800 Sunbeam Corp. 35,426,038
-----------------------------------------------------------------
AUTO/VEHICLE - 5.0%
472,500 Ford Motor Co. 24,097,500
1,151,700 Lear Corp.* 57,225,094
-----------------------------------------
81,322,594
-----------------------------------------------------------------
BANKS - 8.3%
359,000 Chase Manhattan Corp. 38,480,313
542,100 Fleet Financial Group Inc. 38,827,913
236,600 Republic N.Y. Corp. 25,759,825
96,800 Wells Fargo & Co. 29,911,200
-----------------------------------------
132,979,251
-----------------------------------------------------------------
CHEMICAL PRODUCTS - 4.9%
991,600 IMC Global Inc. 31,979,100
1,066,600 Union Carbide Corp. 46,730,413
-----------------------------------------
78,709,513
-----------------------------------------------------------------
COMPUTER PERIPHERALS - 4.5%
2,986,400 Quantum Corp.* 72,793,500
-----------------------------------------------------------------
DATACOM EQUIPMENT - 2.1%
1,255,200 Bay Networks, Inc.* 34,125,750
-----------------------------------------------------------------
DEPARTMENT STORES - 0.6%
209,400 Sears Roebuck & Co. 9,645,488
-----------------------------------------------------------------
FOREST PRODUCTS - 5.1%
620,800 Georgia-Pacific Corp. 34,221,600
976,300 Georgia-Pacific Corp. (Timber Group)* 22,698,975
1,940,200 Stone Container Corp.* 24,737,550
-----------------------------------------
81,658,125
-----------------------------------------------------------------
GAMING - 2.0%
1,359,400 Circus Circus Enterprises, Inc.* 31,266,200
-----------------------------------------------------------------
HEALTHCARE MANAGEMENT - 8.4%
786,300 Aetna Inc. 57,793,050
1,271,200 Foundation Health Systems, Inc.* 32,971,750
1,275,600 Tenet Healthcare Corp.* 44,008,200
-----------------------------------------
134,773,000
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
HOMEBUILDERS - 0.4%
16,700 Centex Corp. $ 1,047,925
197,200 Lennar Corp. 4,843,725
-----------------------------------------------
5,891,650
-----------------------------------------------------------------------
INSURANCE-BROKERS - 2.3%
369,500 Loews Corp. 36,880,719
-----------------------------------------------------------------------
INSURANCE-LIFE - 3.6%
343,600 Cigna Corp. 58,261,675
-----------------------------------------------------------------------
INSURANCE-PROPERTY & CASUALTY - 0.2%
22,100 CNA Financial Corp.* 2,953,113
-----------------------------------------------------------------------
OIL-INTEGRATED - 1.0%
293,600 Texaco Inc. 15,285,550
-----------------------------------------------------------------------
OIL & GAS-REFINING AND MARKETING - 3.1%
1,461,300 Tosco Corp. 48,862,219
-----------------------------------------------------------------------
REAL ESTATE - 1.1%
731,900 LNR Property Corp.* 17,336,881
-----------------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES - 3.2%
889,900 Morgan Stanley, Dean Witter, Discover & Co. 51,947,913
-----------------------------------------------------------------------
SEMICONDUCTORS - 2.6%
676,200 Avnet Inc. 41,248,200
-----------------------------------------------------------------------
SPECIALTY FINANCE - 0.1%
36,300 C.I.T. Group Inc.* 1,091,269
-----------------------------------------------------------------------
STEEL - 3.6%
1,573,700 AK Steel Holding Corp. 28,129,888
1,381,400 Ispat International NV* 29,872,775
-----------------------------------------------
58,002,663
-----------------------------------------------------------------------
SUPERMARKETS - 2.9%
1,038,300 Fleming Companies Inc. 15,639,394
691,100 Supervalu Inc. 30,322,013
-----------------------------------------------
45,961,407
-----------------------------------------------------------------------
TEXTILES - 2.9%
1,928,600 Fruit of the Loom Inc.* 46,286,400
-----------------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 2.6%
655,400 Goodyear Tire & Rubber Co. 41,044,425
-----------------------------------------------------------------------
TOBACCO - 3.5%
1,268,300 RJR Nabisco Holdings Corp. 39,951,450
486,300 UST Inc. 16,777,350
-----------------------------------------------
56,728,800
-----------------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
TRANSPORTATION & LOGISTICS - 3.7%
961,800 Canadian Pacific Ltd. $ 26,028,713
710,600 CNF Transportation Inc. 32,465,538
---------------------------
58,494,251
---------------------------------------------------
UTILITIES-ELECTRIC - 3.9%
1,367,300 Northeast Utilities* 16,749,425
1,486,500 Unicom Corporation 46,081,500
---------------------------
62,830,925
---------------------------------------------------
TOTAL COMMON STOCKS
(COST $1,344,570,463) $1,489,375,373
---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
<C> <S> <C>
REPURCHASE AGREEMENT - 5.8%
$93,500,000 Joint Repurchase Agreement Account 5.64%,
02/02/98 $ 93,500,000
------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT ACCOUNT
(COST $93,500,000) $ 93,500,000
------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $1,438,070,463)(A) $1,582,875,373
------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 198,724,322
Gross unrealized loss for investments in which cost
exceeds value (54,632,790)
------------------------------------------------------------------------
Net unrealized gain $ 144,091,532
------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $1,438,783,841.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$1,438,070,463) $1,582,875,373
Cash 55,896
Receivables:
Investment securities sold 15,321,885
Fund shares sold 15,323,500
Dividends and interest 1,699,243
Deferred organization expenses, net 209
Other assets 22,101
---------------------------------------------------------------------------
TOTAL ASSETS 1,615,298,207
---------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 9,325,328
Fund shares repurchased 1,510,824
Amounts owed to affiliates 3,007,196
Accrued expenses and other liabilities 253,728
---------------------------------------------------------------------------
TOTAL LIABILITIES 14,097,076
---------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 1,396,713,617
Accumulated distributions in excess of net investment
income (614,031)
Accumulated undistributed net realized gain on
investment, option and futures transactions 60,296,635
Net unrealized gain on investments 144,804,910
---------------------------------------------------------------------------
NET ASSETS $1,601,201,131
---------------------------------------------------------------------------
</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) 46,918,649 11,963,607 1,233,014
Net asset and Class A redemption value
per share(a) $25.93 $25.73 $25.70
Maximum public offering price per
share (Class A NAV X 1.0582) $27.44 $25.73 $25.70
---------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SERVICE
---------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 1,396,153 343,095
Net asset value, offering and redemption price
per share $25.95 $25.92
---------------------------------------------------------------------------
</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 GROWTH AND INCOME FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 15,481,524
Interest 2,863,267
-----------------------------------------------------------------------------
TOTAL INCOME 18,344,791
-----------------------------------------------------------------------------
EXPENSES:
Management fees 7,740,380
Distribution fees 3,500,325
Authorized dealer service fees 2,716,755
Transfer agent fees 1,553,121
Custodian fees 188,085
Professional fees 70,544
Registration fees 137,442
Amortization of deferred organization expenses 19,112
Trustee fees 10,054
Other 487,190
-----------------------------------------------------------------------------
TOTAL EXPENSES 16,423,008
-----------------------------------------------------------------------------
Less -- fees waived by Goldman Sachs (1,601,336)
-----------------------------------------------------------------------------
NET EXPENSES 14,821,672
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 3,523,119
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FUTURES TRANS-
ACTIONS:
Net realized gain from:
Investment transactions 172,824,728
Futures transactions 131,178
Net change in unrealized gain on:
Investments 19,463,359
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT, OPTION AND
FUTURES TRANSACTIONS: 192,419,265
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $195,942,384
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $15,521.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME 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 income $ 3,523,119 $ 8,054,855
Net realized gain on investment and
futures transactions 172,955,906 58,230,209
Net change in unrealized gain on
investments 19,463,359 67,575,111
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 195,942,384 133,860,175
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (3,826,646) (8,111,894)
Class B shares -- (5,818)
Class C shares -- --
Institutional shares (92,867) (494)
Service shares (20,774) (11,500)
In excess of net investment income
Class A shares -- (135,533)
Class B shares (72,045) (48,273)
Class C shares (7,576) --
Institutional shares -- (380)
Service shares -- (9,070)
From net realized gain on investment and
futures transactions
Class A shares (101,878,845) (46,442,616)
Class B shares (22,880,349) (754,312)
Class C shares (1,205,452) --
Institutional shares (1,886,598) (9,971)
Service shares (761,129) (255,610)
In excess of net realized gain on
investment and futures transactions
Class B shares (656,842) --
Class C shares (936,744) --
Institutional shares (64,615) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (134,290,482) (55,785,471)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 918,965,833 140,362,846
Reinvestment of dividends and
distributions 127,012,752 53,352,809
Cost of shares repurchased (142,245,348) (72,730,939)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 903,733,237 120,984,716
------------------------------------------------------------------------------
TOTAL INCREASE 965,385,139 199,059,420
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 635,815,992 436,756,572
------------------------------------------------------------------------------
End of year $1,601,201,131 $635,815,992
------------------------------------------------------------------------------
ACCUMULATED DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME $ (614,031) $ (193,256)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME 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 Growth and
Income 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 official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on valuation date or, if no sale occurs at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned.
C. 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.
11
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements (continued)
January 31, 1998
D. 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.
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
F. 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.
G. 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.
12
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
H. 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 as unrealized gains or losses. When contracts are closed, the
Fund realizes a gain or loss which is reported in the Statement of Opera-
tions.
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
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 Manage-
ment ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser. Under the Agreement, GSAM,
subject to the general supervision of the Trust's Board of Trustees, manages
the Fund's portfolios. As compensation for the services rendered under the
Agreement, the assumption of the expenses related thereto and administering
the Fund's business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .70%
of the average 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 .11% 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 charges and has
advised the Fund that it retained approximately $2,405,000 during the year
ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 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 ap-
proximately $1,601,000 of its distribution fee attributable to the Class A
shares. The Distributor may discontinue or modify this waiver in the future
at its discretion.
13
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements (continued)
January 31, 1998
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 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.
At January 31, 1998, the Fund owed approximately $906,000, $798,000,
$856,000 and $447,000 for Management, Distribution, Authorized Dealer Service
and Transfer Agent fees, respectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for the year ended January 31,
1998, were $1,333,580,933 and $648,647,904, respectively.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$367,000 of brokerage commissions from portfolio transactions.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
14
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more re-
purchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1998, the Fund had
an undivided interest in the repurchase agreements in the following joint ac-
count which equaled $93,500,000 in principal amount. At January 31, 1998, the
repurchase agreements held in this joint account, along with the correspond-
ing underlying securities (including the type of security, market value, in-
terest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC. $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA: 6.50%-8.00%,
05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
----------------------------------------------------------------------------
LEHMAN BROTHERS INC. 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA:
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
----------------------------------------------------------------------------
NOMURA SECURITIES INTERNA-
TIONAL 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-1/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
----------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL 270,000,000 5.64 02/02/98 270,000,000
01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC:
03/06/98; FFCB: 6.30%, 08/08/07)
----------------------------------------------------------------------------
SALOMON-SMITH BARNEY 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.8%, 08/15/01)
----------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
----------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements (continued)
January 31, 1998
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 20,995,379 $ 557,445,055 5,616,082 $ 121,074,992
Reinvestments of divi-
dends and distributions 4,040,452 100,776,496 2,390,917 52,287,188
Shares repurchased (4,651,468) (124,783,147) (3,328,038) (72,163,062)
------------------------------------------------------------------------
20,384,363 533,438,404 4,678,961 101,199,118
---------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 10,786,633 285,377,804 729,877 16,222,639
Reinvestments of divi-
dends and distributions 884,342 21,878,707 35,976 787,421
Shares repurchased (458,457) (12,335,625) (14,764) (340,546)
------------------------------------------------------------------------
11,212,518 294,920,886 751,089 16,669,514
---------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,258,885 34,759,146 -- --
Reinvestments of divi-
dends and distributions 71,436 1,766,121 -- --
Shares repurchased (97,307) (2,549,826) -- --
------------------------------------------------------------------------
1,233,014 33,975,441 -- --
---------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,383,424 36,071,512 8,229 186,173
Reinvestments of divi-
dends and distributions 72,596 1,812,637 92 2,020
Shares repurchased (68,188) (1,831,590) -- --
------------------------------------------------------------------------
1,387,832 36,052,559 8,321 188,193
---------------------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 204,087 5,312,316 134,652 2,879,042
Reinvestments of divi-
dends and distributions 31,372 778,791 12,587 276,180
Shares repurchased (29,341) (745,160) (10,262) (227,331)
------------------------------------------------------------------------
206,118 5,345,947 136,977 2,927,891
---------------------------------------------------------------------------------------------------
NET INCREASE 34,423,845 $ 903,733,237 5,575,348 $ 120,984,716
---------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
8. 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.
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$14,180 from paid-in capital to accumulated distributions in excess of net
investment income and $61,834 from accumulated undistributed net realized
gain on investments to accumulated distributions in excess of net investment
income. These reclassifications have no impact on the net asset value of the
Fund and is designed to present the Fund's capital accounts on a tax basis.
17
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------------- ------------------------------------------------
IN EXCESS OF
NET REALIZED FROM NET NET REALIZED
NET ASSET AND UNREALIZED IN EXCESS REALIZED GAIN GAIN ON
VALUE, NET GAIN ON FROM NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN
OF PERIOD INCOME (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $23.18 $ 0.11 $5.27 $(0.11) $ -- $(2.52) $ -- --
1998 - Class B
Shares 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) --
1998 - Class C
Shares(b) 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) --
1998 - Institu-
tional Shares 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) --
1998 - Service
Shares 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- --
---------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- --
1997 - Class B
Shares(b) 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- --
1997 - Institu-
tional Shares(b) 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- --
1997 - Service
Shares(b) 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- --
---------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 15.80 0.33 4.75 (0.30) -- (0.60) -- --
---------------------------------------------------------------------------------------------------------------------
1995 - Class A
Shares 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g)
FOR THE PERIOD ENDED JANUARY 31,
1994 - Class A
Shares(b) 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- --
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET INCREASE
(DECREASE)
IN NET ASSET
VALUE
<S> <C>
1998 - Class A
Shares $2.75
1998 - Class B
Shares 2.63
1998 - Class C
Shares(b) (2.50)
1998 - Institu-
tional Shares 2.76
1998 - Service
Shares 2.75
---------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 3.20
1997 - Class B
Shares(b) 2.28
1997 - Institu-
tional Shares(b) 1.94
1997 - Service
Shares(b) 2.46
---------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 4.18
---------------------------------------------------------------------------------------------------------------------
1995 - Class A
Shares 0.01
1994 - Class A
Shares(b) 1.61
---------------------------------------------------------------------------------------------------------------------
</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 February 5, 1993, May 1, 1996, August 15, 1997, June 3,
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.
(g) Calculated based on the average shares outstanding methodology.
18 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE NET AVERAGE NET AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS ASSETS ASSETS ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
25.95 24.24 61.95 .0590 36,225 0.83 0.76 0.83 0.76
25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
- ---------------------------------------------------------------------------------------------------------------------------
23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43 1.39
23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
- ---------------------------------------------------------------------------------------------------------------------------
19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
- ---------------------------------------------------------------------------------------------------------------------------
15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
- ---------------------------------------------------------------------------------------------------------------------------
15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Growth and
Income Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Growth and Income 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 Growth and Income Fund as of January 31, 1998, the
results of its operations 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 Growth and Income Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Growth and Income 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
Historically, stocks have demonstrated greater potential to build wealth
over the long term than most other types of investments.
Goldman Sachs Growth and Income Fund provides investors access to the
benefits associated with equity investing. The Fund seeks long-term capital
growth and growth of income, primarily through equity securities that, in
management's view, offer favorable capital appreciation and/or
dividend-paying ability.
Target Your Needs
The Goldman Sachs Growth and Income 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 the Goldman
Sachs Funds family without an additional charge. (Please note: in general,
greater returns are associated with greater risk.)
---------------------------------------------------------------------------
Goldman Sachs Domestic Equity Funds
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Small Cap Value Fund
Risk/Return CORE Small Cap Equity Fund
Mid Cap Equity Fund
Capital Growth Fund
CORE Large Cap Growth Fund
Lower CORE U.S. Equity Fund
Risk/Return GROWTH AND INCOME FUND
</TABLE>
For More Information
To learn more about the Goldman Sachs Growth and Income 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
Investment Adviser,
Distributor and Transfer Agent
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 are subject to
risks in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. Compared with U.S. securities
markets, foreign markets may be less liquid, more volatile and less subject to
governmental regulation, and may make available less public information about
issuers. Funds that invest in foreign issues 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 GIAR / 276K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
EMERGING MARKETS EQUITY FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth potential
through a diversified portfolio
of emerging markets stocks.
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Fund Basics
as of January 31, 1998
Assets Under Management
-----------------------
$36.9 Million
-----------------------
Number of Holdings
-----------------------
99
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GEMAX
-----------------------
Class B Shares
-----------------------
GEKBX
-----------------------
Class C Shares
-----------------------
GEMCX
-----------------------
Institutional Shares
-----------------------
GEMIX
-----------------------
Service Shares
-----------------------
GEMSX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
December 15, 1997- Fund Total Return MSCI EMF (Partial Domestic)
January 31, 1998 (based on NAV)(1) MSCI EMF Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A -3.10% -2.12%
Class B -3.10% -2.12%
Class C -3.00% -2.12%
Institutional -3.00% -2.12%
Service -3.10% -2.12%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(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)
================================================================================
<TABLE>
<CAPTION>
For the period
ending 12/31/97 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception -3.21% -2.60% 1.40% 2.30% 2.40%
(12/15/97)
- --------------------------------------------------------------------------------
</TABLE>
(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 1/31/98
was $10.25 and represents the NAV plus the maximum sales charge of 5.5%.
<TABLE>
=======================================================================================
TOP 10 HOLDINGS AS OF 1/31/98
=======================================================================================
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ITC Limited 3.3% Consumer Goods and Services
Telebras ADR 3.2% Telecommunications
South African Breweries 2.4% Consumer Goods and Services
Mahanagar Telephone 2.3% Telecommunications
Liberty Life Association of Africa 2.1% Insurance and Financial Services
ABSA Group Limited 1.6% Insurance and Financial Services
CIFRA S.A. De C.V. 1.6% Consumer Goods and Services
Lukoil Holding-ADR 1.5% Energy Sources
Ranbaxy Laboratories 1.5% Consumer Goods and Services
CIA Tele. de Venezuela 1.4% Telecommunications
- ---------------------------------------------------------------------------------------
</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 EMERGING MARKETS EQUITY FUND
Market Overview
Dear Shareholder,
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder in
the Goldman Sachs Emerging Markets Equity Fund. This annual report covers the
brief period from December 15, 1997, when the Fund began operations, through
January 31, 1998.
o The Emerging Markets: The Impact of Asia's Market Downturn Was
Widespread -- The decision by Thai authorities to allow their currency
to float freely against the U.S. dollar on July 2, 1997, set in motion
a series of events that sent Asia's emerging market countries into a
tailspin. The Philippines, Malaysia and Indonesia --countries that,
like Thailand, albeit to a lesser extent, had pursued overly
aggressive investment policies --were most affected.
The strength and breadth of Asia's financial crisis powerfully
impacted the equity markets of many non-Asian emerging countries.
Latin America's equity markets sold off sharply, effectively slowing
what had been that region's strongest economic performance since 1982.
Most affected were those countries with overvalued exchange rates and
large external financing needs, such as Brazil. Eastern European
countries reacted as dramatically. Russia's markets were temporarily
closed as public concern caused steep declines. Currencies in Eastern
and Central Europe lost value against the dollar, amid speculation
that Poland, Hungary and the Czech Republic might follow the path of
Southeast Asian countries -- situations that did not occur. Markets in
Africa and the Mediterranean region behaved more defensively, with
Turkey even appreciating in the fourth quarter in anticipation of an
economic reform package.
o Outlook: A Waiting Game -- Going forward, it is necessary to place the
current turmoil in Asia into perspective. While emerging markets will
at times experience a higher level of volatility than more mature
economies, they also stand to benefit from significant long-term
growth potential as economies and markets develop. Additionally, we
believe the currency delinkings in Asia are likely to mark the
beginning of a new, healthier stage in the region's economic
development. A currency system that floats freely should stimulate
better economic management in the region. However, the adjustment
process for these economies will be marked by volatility, and could be
lengthy, depending on the appropriateness of policy responses. The
health of emerging market economies outside Asia depends to a great
extent on what happens in Asia --and it may take until mid-year to
determine the exact nature of this impact. However, there are positive
early indications -- such as the fact that Mexico expects to see a
level of foreign investment in 1998 equivalent to that of 1997 --that
the Asian crisis will not be as detrimental to the health of world
emerging market economies as initially feared.
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
February 27, 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 period since the Fund's inception on December 15,
1997, through January 31, 1998.
Performance Review: Short Performance Record Reflects
Asian Market Downturn
Asian markets in general fared poorly over the short time period covered by
this report, a circumstance that is reflected in the Fund's performance.
From the Fund's inception on December 15, 1997 through January 31, 1998,
the Fund's Class A shares generated a total return of -3.10%, compared to a
-2.12% return for the Fund's benchmark, the MSCI Emerging Markets Free
Index. The Fund's underperformance compared to its benchmark is
attributable to a large initial cash position held by the Fund (see
"Regional Allocations"). As a result, the Fund was not able to participate
in a market rally that occurred in the final weeks of December.
Regional Allocations
At the time of its inception, the Fund held a substantial cash position
that was significantly reduced as the period progressed and positions were
initiated. As of January 31, 1998, the portfolio was significantly
overweighted in the Eastern Europe, Middle East and Africa (EMEA) regions,
and underweighted in both Latin America and Asia.
Portfolio Highlights
o Compania Anonima de Telefonos de Venezuela (CANTV) -- CANTV is the
largest telecommunications company in Venezuela and holds an exclusive
concession to provide fixed local, domestic and international
long-distance services throughout the country until October 2000. The
company was privatized in 1991. We believe that the company's
potential lies on three fronts: increasing demand for telecom services
as the Venezuelan economy recovers, cost cutting primarily from
headcount reduction and revenue enhancement from tariff rebalancing.
o Liberty Life Association of Africa -- Liberty Life provides life
insurance and pension plans to customers throughout South Africa. The
company also provides construction, development, management and
ownership of fixed property and a range of investment and fund
management services. The company has good sales growth prospects due
to a newly introduced laptop-based sales platform, and stands to
benefit from ongoing corporate restructuring.
o Lukoil Holding -- The second largest oil producer in Russia, Lukoil is
a prospector, extractor, transporter, refiner and provider of oil and
gas, mainly from Western Siberia. The company also manufactures
petrochemicals, fuels and other petroleum products, and operates two
refineries, 162 oil and gas fields, and 800 filling stations.
2
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
INVESTMENT
PROCESS OVERVIEW
The investment process for
the Goldman Sachs Emerging
Markets Fund combines both
qualitative and quantitative
analysis, with an emphasis
on portfolio manager input.
==================
Asset Allocation
Committee
==================
o Proprietary
Quantitative Model
o Portfolio
Manager Views
\/
==================
Country Allocation
==================
Company Visits
--------------
Internal Research
-----------------
Return Expectations
\/
==================
Stock Selection
==================
==================
Portfolio
Construction
==================
o Stock & Industry
Views Relative
to Benchmark
\/
==================
Portfolio Review
& Analysis
==================
o Performance
Measurement
& Attribution
o BARRA
o Risk Analysis
o Mahanagar Telephone Nigam Ltd (MTNL) -- MTNL is the primary provider
of fixed line telephone services in the two most important cities in
India, Delhi and Bombay. While a second private operator has been
licensed in each of these areas, these operators are burdened by very
high license fees, and start-up has been slow. MTNL stands to benefit
from the growth of telephone lines in India as a result of economic
growth in the country.
o Ranbaxy Laboratories -- Ranbaxy is the largest pharmaceutical company
in India. In addition to a strong presence in the Indian formulations
market, Ranbaxy has aggressively pursued a strategy to tap the global
generics market. The company recently received approval from the FDA
for two drugs, Ranitidine and Cephaclor; Cephaclor has already been
launched in the United States and there are plans to launch Ranitidine
in March 1998.
o South African Breweries -- South African Breweries is the dominant
brewer in South Africa. Company shares are local shares quoted on the
Johannesburg stock exchange. The company is expanding successfully in
other emerging markets in Africa and Eastern Europe.
o Telecomunicacoes Brasileiras (Telebras) -- Telebras is a holding
company that has the monopoly to provide telecommunication services in
Brazil. It is the largest telecom company in Latin America and is
scheduled to be privatized by mid-1998. Telebras offers significant
growth prospects as there is huge pent-up demand for telephone
services in Brazil as well as substantial cost-cutting potential
following privatization.
Portfolio Outlook
Investor sentiment toward Asia turned positive in January as the IMF
programs in Indonesia and South Korea appeared to be helping to stabilize
currencies in the region. The real economies in Asia, however, are likely
to enter a period of slow to negative growth with a number of corporate
bankruptcies and increasing unemployment. On a selective basis, the recent
turmoil has created investment opportunities, but volatility in the equity
markets is likely to remain high.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Warwick M. Negus /s/ Robert A. Beckwitt
Warwick M. Negus Robert A. Beckwitt
Portfolio Manager, Portfolio Manager,
Goldman Sachs Goldman Sachs
Emerging Markets Equity Fund Emerging Markets Equity Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Emerging Markets Offer Long-Term Rewards
For investors willing to
assume the sometimes
significant price fluctuations
associated with emerging
market investments,
the long-term rewards
may be higher returns and
lower portfolio volatility.
Two compelling reasons for investors to consider allocating a portion of
their portfolios to emerging market countries are the potential for higher
returns and reduced overall portfolio volatility.
Diversification Can Reduce Portfolio Volatility
Emerging market countries have widely varying economies, growth rates and
stages of development. As a result, stock markets in emerging market
countries generally do not move in tandem with markets in developed
countries. 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.
The chart below illustrates the low correlation that stock markets in
emerging market countries have had to market performances in the United
States over the past 10 years.
---------------------------------------------------------------------------
Performance of Emerging vs. U.S. Equity Markets
(MSCI EMF Index vs. S&P 500 Index)
(Rolling 10-Year Cumulative Returns)
[TABLE ILLUSTRATED BY A BAR CHART]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C>
MSCI EMF 34.87% 114.70% 85.16% 188.79% 214.92%
S&P 500 16.61% 53.56% 48.80% 94.14% 108.94%
1993 1994 1995 1996 1997
MSCI EMF 439.34% 392.58% 358.39% 376.36% 312.53%
S&P 500 130.00% 133.03% 220.61% 294.22% 425.73%
</TABLE>
Source: Morgan Stanley Capital International (MSCI) Emerging Markets Free
(EMF) Index and the S&P 500 Index. The MSCI EMF Index is a market
capitalization-weighted composite of securities in over 30 emerging market
countries. The MSCI EMF Index and the S&P 500 Index are unmanaged indices
and the figures for the Indices do not reflect any fees or expenses. In
addition, investors cannot invest directly in the indices. The chart is for
illustrative purposes only and is not representative of any Goldman Sachs
fund. Past performance is not indicative of future results.
Emerging Country Markets Offer Greater Return Potential
Historically, emerging market countries have been among the fastest growing
in the world. On average, the rate of economic growth in emerging market
countries -- at 6% to 8% -- is four to five percentage points greater than
the growth rates of developed countries. This can lead to greater corporate
profitability and potentially greater market returns over time.
For More Information
A mutual fund composed of emerging market stocks is one of the best ways
for investors to access the benefits associated with emerging country
investing. Goldman Sachs Asset Management offers a variety of funds that
invest in emerging market countries. For more information on these and
other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS EMERGING MARKETS 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% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively) on
December 15, 1997. 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
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 15, 1997 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Morgan Stanley EMF Index Class A Fund Class B Fund Class C Fund Institutional Class Service Class
<S> <C> <C> <C> <C> <C> <C>
12/15/1997 10000 9500 10000 10000 10000 10000
JAN 9788 9159 9205 9603 9700 9690
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
AGGREGATE TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED DE-
CEMBER 15, 1997)
Excluding sales charges -3.10%
Including sales charges -8.41%
--------------------------------------------------
CLASS B (COMMENCED DE-
CEMBER 15, 1997)
Excluding redemption
charges -3.10%
Including redemption
charges -7.95%
--------------------------------------------------
CLASS C (COMMENCED DE-
CEMBER 15, 1997)
Excluding redemption
charges -3.00%
Including redemption
charges -3.97%
--------------------------------------------------
INSTITUTIONAL CLASS
(COMMENCED DECEMBER 15,
1997) -3.00%
--------------------------------------------------
SERVICE CLASS (COMMENCED
DECEMBER 15, 1997) -3.10%
--------------------------------------------------
</TABLE>
5
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 79.7%
ARGENTINIAN PESO - 3.4%
8,338 Banco de Galicia ADR (Financial Services) $ 182,904
5,300 Cresud S.A. ADR* (Natural Resources) 96,063
3,500 Irsa GDR (Real Estate) 111,781
7,700 Telefonica de Argentina ADR (Telecommunications) 266,613
13,600 YPF Sociedad Anonima ADR
(Energy Source) 414,028
26,900 Perez Companc SA (Diversified) 176,810
---------------------------------------------------
1,248,199
-----------------------------------------------------------------------------
BRAZILIAN REAL - 11.5%
2,900 Brasil Distr Pao Acu ADR (Consumer Goods) 51,642
5,062,000 Cemig Cia Energy Mg (Utility) 199,890
54,000 Cia Cerve Brahma (Consumer Goods) 37,023
82,118,200 Cia Energet Ceara (Utility) 246,361
121,330 Cia Riogrand Telecommunications (Telecommunications) 125,857
14,900 Cia Vale Rio Doce (Diversified) 279,069
10,600 Cia Vale Do Rio Doce ADR* (Mining) 206,700
10,300 Companhia Cervejaria Brah ADR* (Consumer Goods) 143,556
5,300 Companhia Energetica de Minas Gerais ADR* (Utility) 208,025
23,580,000 Copel Parana Energy (Utility) 285,328
4,940,000 Electrobras Centr (Utility) 222,126
1,710,000 Petrol Brasileiros (Energy Source) 365,417
10,500 Telebras ADR (Telecommunications) 1,165,500
1,660,000 Telesp Tel Sao Pau (Telecommunications) 480,382
8,100 Unibanco GDR* (Bank) 243,000
---------------------------------------------------
4,259,876
-----------------------------------------------------------------------------
CHILEAN PESO - 3.5%
8,900 Banco de A. Edwards ADR (Financial Services) 134,121
7,500 Cia Telecom de Chile ADR (Telecommunications) 180,469
18,100 CN Quinenco S.A. ADR* (Diversified) 176,430
11,400 Distribucion Y Servicio ADR* (Consumer Goods) 179,550
11,800 Embotelladora Andina ADR* (Consumer Goods) 208,030
11,400 Empresa Nacional de Electric ADR (Utility) 192,375
7,700 Enersis S.A ADR (Utility) 203,569
---------------------------------------------------
1,274,544
-----------------------------------------------------------------------------
COLOMBIAN PESO - 0.7%
16,300 Banco Industrial Colombiano ADR* (Bank) 198,656
5,600 Cementos Diamante GDR* (Construction) 60,834
---------------------------------------------------
259,490
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
GREEK DRACHMA - 1.2%
6,770 Attica Enterprises (Transportation) $ 84,922
3,435 Hellenic Bottling (Consumer Goods) 89,787
8,940 Ote Greek Telecom (Telecommunications) 164,671
2,709 Titan Cement Co (Construction Materials) 120,429
-------------------------------------------------
459,809
---------------------------------------------------------------------------
HONG KONG DOLLAR - 0.9%
471,000 Beijing Datang Power (Utility) 223,720
653,000 Zhejiang Expressway (Construction) 91,996
-------------------------------------------------
315,716
---------------------------------------------------------------------------
HUNGARIAN FORINT - 2.5%
4,809 Gedeon Richter Ltd. ADR (Consumer Goods)* 462,866
19,643 Magyar Olaj Es Gaz ADR (Energy Source) 476,343
-------------------------------------------------
939,209
---------------------------------------------------------------------------
INDIAN RUPEE - 8.6%
61,400 ITC Ltd. ADR (Consumer Goods) 1,214,306
56,400 Mahanagar Telephone Ni ADR (Telecommunications) 849,525
23,900 Ranbaxy Labs ADR (Pharmaceuticals) 564,638
34,400 St Bank India GDR (Bank) 533,200
-------------------------------------------------
3,161,669
---------------------------------------------------------------------------
INDONESIAN RUPIAH - 0.9%
208,000 Daya Guna Samudera (Consumer Goods) 123,349
374,000 H M Sampoerna (Consumer Goods) 163,516
122,000 Telekomunikasi Ind (Telecommunications) 48,800
-------------------------------------------------
335,665
---------------------------------------------------------------------------
ISRAELI SHEKEL - 4.2%
2,110 Eci Telecom Ltd. ADR* (Technology) 52,750
557 First International Bank (Financial Services) 386,608
180,077 ICL Israel Chemicals (Cyclical) 206,065
14,979 Makteshim Chemical Works (Cyclical) 96,521
6,716 Nice Systems Ltd. ADR (Technology) 251,850
129,996 Super Sol (Consumer Goods) 360,338
3,940 Teva Pharmaceutical Industries Ltd. ADR* (Consumer
Goods) 180,994
-------------------------------------------------
1,535,126
---------------------------------------------------------------------------
MALAYSIAN RINGGIT - 1.1%
34,000 Rothmans Pall Mall (Consumer Goods) 268,847
71,000 Tenaga Nasional (Utility) 119,881
-------------------------------------------------
388,728
---------------------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
MEXICAN PESO - 13.0%
21,700 Alfa S.A. (Diversified) $ 115,521
80,800 Cemex S.A. (Construction) 348,073
330,400 Cifra Sa de Cv (Other) 559,196
25,025 Cifra Sa de Cv Series V (Other) 45,532
14,600 Empresas Ica S.A. ADR (Construction) 198,813
38,800 Fomento Econ Mexic (Consumer Goods) 250,273
76,500 Groupo Carso (Diversified) 448,985
129,200 Groupo Fin Banamex Ac (Financial Services) 346,931
561,900 Groupo Fin Bancomer (Financial Services) 300,460
46,000 Grupo Modelo Sa De (Consumer Goods) 375,631
13,900 Grupo Televisa S.A. ADR* (Media) 447,053
8,500 Industrias Bachoco S.A. ADR* (Consumer Goods) 140,565
98,800 Kimberly Clark Mexico (Consumer Staples) 427,218
8,000 Panamerican Beverages, Inc. ADR (Consumer Goods) 260,111
11,200 Telefonos de Mexico ADR (Telecommunications) 551,598
--------------------------------------------------
4,815,960
----------------------------------------------------------------------------
NEW TAIWAN DOLLAR - 1.5%
112,000 Siliconware Precis (Technology) 271,765
77,000 Taiwan Semiconductor (Technology) 266,103
--------------------------------------------------
537,868
----------------------------------------------------------------------------
PERUVIAN NEW SOL - 0.4%
2,300 Creditcorp. Ltd. ADR* (Bank) 39,963
5,900 Telefonica de Peru ADR (Telecommunications) 115,788
--------------------------------------------------
155,751
----------------------------------------------------------------------------
PHILIPPINE PESO - 2.1%
688,000 Ayala Land Inc. (Real Estate) 240,000
79,000 Manila Electric Co. (Utility) 248,023
12,000 Philippine Long Distance (Telecommunications) 291,628
--------------------------------------------------
779,651
----------------------------------------------------------------------------
POLISH ZLOTY - 0.5%
5,788 Government of Poland NIF Privatization Certificates
(Government) 190,948
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
RUSSIAN RUBLES - 3.5%
8,817 Ao Mosenergo ADR (Utility) $ 257,897
8,634 Lukoil Co. ADR (Energy Source) 552,576
24,217 Unified Energy Systems Russia ADR (Utility) 480,556
--------------------------------------------------
1,291,029
----------------------------------------------------------------------------
SOUTH AFRICAN RAND - 13.9%
82,705 Absa Group Ltd. (Financial Services) 586,145
11,803 Anglo American Industrial Corp. (Diversified) 280,586
35,200 Barlow Ltd. (Construction) 320,745
22,496 De Beers Centenary (Cyclical) 489,232
49,000 First National Bank (Bank) 466,336
29,600 Liberty Life Association of Africa (Financial
Services) 781,581
287,881 Premier Group (Consumer Goods) 314,783
65,484 Rembrandt Group (Consumer Goods) 496,583
55,758 Sasol (Cyclical) 508,071
33,805 South African Breweries (Consumer Goods) 891,245
--------------------------------------------------
5,135,307
----------------------------------------------------------------------------
THAILAND BAHT - 1.2%
272,000 Bangkok Expressway (Construction) 207,545
19,400 PTT Exploration & Production (Energy Source) 223,606
--------------------------------------------------
431,151
----------------------------------------------------------------------------
TURKISH LIRA - 3.7%
3,860,878 Adana Cimento (Construction) 308,906
3,651,937 Akbank (Bank) 296,362
320,778 Migros (Consumer Goods) 289,650
804,803 Netas (Technology) 279,644
5,536,000 Yapi Kredi Bankasi (Bank) 199,952
--------------------------------------------------
1,374,514
----------------------------------------------------------------------------
VENEZUELAN BOLIVAR - 1.5%
15,300 Cia Anonima Telefonos de Venezuela ADR
(Telecommunications) 562,418
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $30,308,248) $29,452,628
----------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 15.5%
$5,726,614 State Street Bank & Trust Euro-Time Deposit 5.56%,
02/02/98 $ 5,726,614
----------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $5,726,614) $ 5,726,614
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $36,034,862) (A) $35,179,242
----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
-----------------------------
<C> <S> <C>
FEDERAL INCOME
TAX
Gross
unrealized gain
for investments
in which
value exceeds
cost $ 790,909
Gross
unrealized loss
for investments
in which
cost exceeds
value (1,649,829)
-----------------------------
Net unrealized
loss $ (858,920)
-----------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $36,038,162.
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 CONCENTRATIONS
</TABLE>
<TABLE>
<S> <C>
Banking 5.3%
Construction 4.5
Consumer Goods 18.8
Cyclicals 3.5
Diversified 4.6
Energy Sources 5.5
Financial Services 7.4
Government 0.5
Media 1.2
Natural Resources 0.3
Others 1.6
Pharmaceuticals 1.5
Real Estate 1.0
Technology 3.0
Telecommunications 13.0
Transportation 0.2
Utilities 7.8
--------------------------
TOTAL COMMON STOCK 79.7%
--------------------------
</TABLE>
8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C> <C>
Investment in securities, at value
(identified cost $36,034,862) $35,179,242
Cash 1,504,468
Receivables:
Fund shares sold 3,021,558
Dividends and interest 10,915
Deferred organization expenses, net 48,685
Other assets 71,870
------------------------------------------------------------------------------
TOTAL ASSETS 39,836,738
------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 2,662,464
Fund shares repurchased 18,924
Amounts owed to affiliates 41,312
Accrued expenses and other liabilities 175,000
------------------------------------------------------------------------------
TOTAL LIABILITIES 2,897,700
------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 37,805,183
Accumulated undistributed net
investment income 19,872
Accumulated undistributed net realized
loss on investment transactions (8,792)
Accumulated net realized foreign
currency loss (13,662)
Net unrealized loss on investments (289,186)
Net unrealized loss on translation of
assets and liabilities denominated in
foreign currencies (574,377)
------------------------------------------------------------------------------
NET ASSETS $36,939,038
------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 1,824,207 6,579 7,520
Net asset and Class A redemption value
per share(a) $9.69 $9.69 $9.70
Maximum public offering price per share
(Class A NAV X 1.0582) $10.25 $9.69 $9.70
------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SERVICE
------------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 1,971,850 160
Net asset value, offering and
redemption price per share $9.70 $9.69
------------------------------------------------------------------------------
</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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Operations
For the Period Ended January 31, 1998(a)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(b) $ 10,077
Interest 55,754
----------------------------------------------------------------------------
TOTAL INCOME 65,831
----------------------------------------------------------------------------
EXPENSES:
Management fees 34,840
Distribution fees 3,447
Authorized dealer service fees 3,404
Transfer agent fees 2,524
Custodian fees 9,468
Professional fees 32,973
Registration fees 57,535
Printing fees 15,000
Amortization of deferred organization expenses 1,315
Trustee fees 158
Other 923
----------------------------------------------------------------------------
TOTAL EXPENSES 161,587
----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (115,628)
----------------------------------------------------------------------------
NET EXPENSES 45,959
----------------------------------------------------------------------------
NET INVESTMENT INCOME 19,872
----------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENT AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized loss from:
Investment transactions (8,792)
Foreign currency related transactions (13,662)
Net change in unrealized loss on:
Investments (289,186)
Translation of assets and liabilities denominated in foreign
currencies (574,377)
----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS (886,017)
----------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(866,145)
----------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on December 15, 1997.
(b) Taxes withheld on dividends were $374.
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED
JANUARY 31, 1998(A)
<S> <C>
FROM OPERATIONS:
Net investment income $ 19,872
Net realized loss on investment transactions (8,792)
Net realized loss on currency related transactions (13,662)
Net change in unrealized loss on investments (289,186)
Net change in unrealized loss on translation of assets
and liabilities denominated in foreign currencies (574,377)
-----------------------------------------------------------------------------
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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 11
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust"), a Delaware business trust, includes the
Goldman Sachs Emerging Markets Equity Fund (the "Fund"). The Trust is regis-
tered under the Investment Company 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 on
the valuation date. If there are no sales on the valuation day, securities
are valued at the last sale price on valuation date, or if no sale occurs at
the mean between the closing bid and asked price, or if closing bid and asked
price are not available at the exchange defined close price. If the relevant
exchange or system has not closed by the above-mentioned time for determining
the Fund's NAV, the securities will be valued at the last sale price on valu-
ation date or, if no sale occurs at the mean between the bid and asked prices
at the time the NAV is determined. 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 valua-
tions and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued
at fair value using methods approved by the Board of Trustees of the Trust.
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.
12
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
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. 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 fi-
nancial statements. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or extin-
guished by delivery of the currency. Risks may arise upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. SHORT SECURITIES 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 tim-
ing differences associated with having different book and tax year ends.
G. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
13
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
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 average net assets for the period.
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.
14
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
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 investment 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 re-
lated thereto and administering the Fund's business affairs, including pro-
viding facilities, GSAM International is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to 1.20% of the average daily
net assets of the Fund. For the period ended January 31, 1998, GSAM Interna-
tional has voluntarily agreed to waive approximately $3,000 of its Management
Fee. GSAM International may discontinue or modify this waiver in the future
at its discretion.
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 .16% of the
average daily net assets of the Fund. For the period ended January 31, 1998,
Goldman Sachs has reimbursed approximately $113,000. At January 31, 1998, ap-
proximately $72,000 is owed to 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 and has
advised the Trust that it has retained approximately $107,000 during the pe-
riod ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 average daily net assets attrib-
utable to Class A, Class B and Class C shares, respectively.
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 services. The Fund pays a fee un-
der 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.
At January 31, 1998, the Fund owed approximately $32,000, $3,000, $3,000
and $2,500 for Management, Distribution, Authorized Dealer Service and Trans-
fer Agent fees, respectively.
15
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures) for the period ended January 31, 1998, were
$31,005,666 and $688,626, respectively.
For the period ended January 31, 1998, Goldman Sachs earned approximately
$6,000 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 period ended January 31, 1998, the Fund did not
have any borrowings under these facilities.
16
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
6. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended January 31, 1998 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED JANUARY 31, 1998
-------------------------
SHARES DOLLARS
----------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
Shares sold 1,824,207 $ 17,866,344
Reinvestment of dividends and distributions -- --
Shares repurchased -- --
-------------------------
1,824,207 17,866,344
----------------------------------------------------------------------------
CLASS B SHARES
Shares sold 6,579 64,645
Reinvestment of dividends and distributions -- --
Shares repurchased -- --
-------------------------
6,579 64,645
----------------------------------------------------------------------------
CLASS C SHARES
Shares sold 7,520 72,494
Reinvestment of dividends and distributions -- --
Shares repurchased -- --
-------------------------
7,520 72,494
----------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,973,802 19,819,033
Reinvestment of dividends and distributions -- --
Shares repurchased (1,952) (18,934)
-------------------------
1,971,850 19,800,099
----------------------------------------------------------------------------
SERVICE SHARES
Shares sold 160 1,601
Reinvestment of dividends and distributions -- --
Shares repurchased -- --
-------------------------
160 1,601
----------------------------------------------------------------------------
NET INCREASE 3,810,316 $ 37,805,183
----------------------------------------------------------------------------
</TABLE>
17
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE
FOR THE PERIOD ENDED JANUARY 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares(b) $10.00 $ -- $(0.11) $(0.20) -- -- -- $(0.31)
1998 - Class B
Shares(b) 10.00 -- (0.11) (0.20) -- -- -- (0.31)
1998 - Class C
Shares(b) 10.00 -- (0.10) (0.20) -- -- -- (0.30)
1998 - Institu-
tional Shares(b) 10.00 0.01 (0.11) (0.20) -- -- -- (0.30)
1998 - Service
Shares(b) 10.00 -- (0.11) (0.20) -- -- -- (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.
18 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
RATIO OF -----------------------------------
NET ASSETS RATIO OF NET INVESTMENT RATIO OF
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO RATIO OF NET
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET INVESTMENT LOSS TO
OF PERIOD RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$9.69 (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3.43)%(c)
9.69 (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
9.70 (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
9.70 (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28(c) (3.18)(c)
9.69 (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Emerging
Markets Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Emerging Markets Equity Fund, one of the portfolios constitut-
ing Goldman Sachs Trust--Equity Funds (a Delaware Business Trust), including
the statement of investments, as of January 31, 1998, and the related state-
ment of operations and the statement of changes in net assets and the finan-
cial highlights for the periods presented. These financial statements and the
financial 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 plan and perform the audit to obtain rea-
sonable 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 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 Emerging Markets Equity Fund as of January 31, 1998,
the results of its operations and the changes in its net assets and the fi-
nancial 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 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 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 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 International Equity Funds
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Asian 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 Emerging Markets 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 are subject to
risks in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. In particular, the securities
markets of emerging countries in which the Fund may invest without limit are
less liquid, 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.
(C)Copyright 1998 Goldman, Sachs & Co. All rights reserved.
Date of first use: March 31, 1998 EMEAR / 30K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
CAPITAL GROWTH FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth
potential from a diversified
portfolio of equity securities.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Fund Basics
as of January 31, 1998
Assets Under Management
---------------------
$1.3 Billion
---------------------
Number of Holdings
---------------------
93
---------------------
NASDAQ SYMBOLS
---------------------
Class A Shares
---------------------
GSCGX
---------------------
Class B Shares
---------------------
GSCBX
---------------------
Class C Shares
---------------------
GSPCX
---------------------
Institutional Shares
---------------------
GSPIX
---------------------
Service Shares
---------------------
GSPSX
---------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return S&P 500
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 29.71% 26.92%
Class B 28.73% 26.92%
Class C (8/15/97-1/31/98) 8.83% 6.78%
Institutional (8/15/97-1/31/98) 9.31% 6.78%
Service (8/15/97-1/31/98) 9.18% 6.78%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The S&P 500 Index (with dividends reinvested) figures do not reflect any
fees or expenses. In addition, investors cannot invest directly in the
Index.
<TABLE>
===================================================================================================
SEC AVERAGE ANNUAL TOTAL RETURN(3)
===================================================================================================
<CAPTION>
For the period Class C Institutional Service
ending 12/31/97 Class A Class B (Cumulative)(4) (Cumulative)(4) (Cumulative)(4)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 Months 27.89% 28.31% N/A N/A N/A
Five Years 17.11% N/A N/A N/A N/A
Since Inception 17.18% 25.02% 5.44% 6.94% 6.87%
(4/20/90) (5/1/96) (8/15/97) (8/15/97) (8/15/97)
- ---------------------------------------------------------------------------------------------------
</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
$19.56 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 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 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>
Pfizer Inc. 3.5% Pharmaceuticals
Bristol-Myers Squibb Co. 3.3% Pharmaceuticals
General Electric Co. 2.9% Electrical Equipment
American Home Products Corp. 2.8% Pharmaceuticals
Banc One Corp. 2.7% Banking
BankAmerica Corp. 2.6% Banking
Warner Lambert Co. 2.6% Pharmaceuticals
MBNA Corp. 2.4% Credit Card Bank
Microsoft Corp. 2.3% Software
Nationsbank Corp. 2.2% 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 CAPITAL GROWTH FUND
Market Overview
Dear Shareholder,
The U.S. stock market took investors on an unsteady ride during the period under
review -- one that saw the market climb to record highs, and plummet in what
would be the market's largest single-day percentage drop in a decade.
Nonetheless, for the 12 months ended January 31, 1998, the market posted an
approximate 27% return as measured by the S&P 500 stock index -- well above
stocks' historical long-term average return.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -- Market turbulence early in the period was largely fueled
by speculation over Federal Reserve policy. The Fed's decision to
increase the Federal funds rate in March was perceived by investors as
potentially the first in a series of tightenings, and the market,
after a period of buoyancy, sold off sharply. By late April, though,
economic indicators slowed, reassuring the market that further rate
hikes were unlikely. Renewed investor confidence sent the market
soaring. Throughout the remainder of the year, several factors,
including a lack of inflationary pressure, furthered the market's
upward climb. Waxing and waning investor confidence, however, caused a
degree of market volatility. Most notably, in October, investor
uncertainty helped to foster overreaction to falling Asian markets.
The market fell precipitously, posting the largest single-day decline
in nearly a decade. Soon thereafter, the market firmed as investors
accepted the argument that Asian market weakness would have little
impact on U.S. companies.
o The U.S. Economy: Robust Activity, Then Moderation -- Economic
activity gained momentum during the first quarter of 1997, with real
GDP surging at a revised 4.9% annualized rate. Growth moderated
somewhat during the second quarter, a slowdown that continued into the
second half of the year. Signs that the U.S. economy remained strong
were eminently present, though, despite the fact that Asian market
turmoil cast a shadow over sales and trade prospects to that region.
Most notably, U.S. unemployment figures reached a 24-year low during
the fourth quarter, as the proportion of working Americans --
approximately 64% --reached an unprecedented level.
o Outlook: Expect Moderating Economic Growth and Low Inflation -- Going
forward, we believe the inflation and interest rate environments will
likely remain favorable, particularly over the near term. Furthermore,
although we believe the equity market will produce returns closer to
the historic norm, this scenario should also be accompanied by more
normal levels of volatility.
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, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
1
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Capital Growth
Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's share classes fared well in the peer rankings for the one-year
period ended January 31, 1998, according to Lipper Analytical Services,
Inc. The total return of the Fund's Class A and Class B shares ranked in
the top 10% of all funds in the Lipper Growth Fund category (placing 49 and
69, respectively, out of 846 funds. For the five-year period, Class A
shares ranked 78 out of 322 funds. Class C shares, Institutional shares and
Service shares were not ranked because their performance records are less
than 12 months. Please note that Lipper rankings do not take sales charges
into account and that past performance is not a guarantee of future
results).
Sector Allocations
In general, the Fund was overweighted in the consumer non-durables and
health sectors throughout the year, and underweighted in the capital goods
sector. It is important to note that the Fund's sector weightings are the
result of our "bottom-up," individual stock selection process rather than
sector-based decisions.
Portfolio Highlights
o Valassis Communications -- The company's stock price appreciated
meaningfully as growth in the company's freestanding advertising
inserts business boosted revenue and earnings growth.
o Walgreen Co. -- The once-mature drugstore business has been
re-energized as shifting demographics -- a result of an aging baby
boom generation -- and the growing influence of third-party payers
(such as HMOs) rewrite the way consumers gain access to prescription
drugs.
o Lear Corp. -- Lear, the leading worldwide supplier of automotive
interior systems, has benefited from strategic acquisitions of
third-tier suppliers. A renewed focus on Lear's advantageous position
in the automotive supply industry helped its price rise through the
year.
o Schering Plough Corp. -- The company is a mid-sized pharmaceutical
company with over $6 billion in revenues generated by four main
business segments: prescription drugs, over-the-counter medicines,
consumer health and animal health businesses. The company is
successfully transitioning itself from an organization that was
largely dependent upon the success of an individual product (Claritin)
to one with a diversified product line.
2
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
GROWTH
INVESTMENT PROCESS
The Fund's stock selection process can be characterized as Growth.
Strong Growth Characteristics
Growth companies have earnings expectations that exceed those of the stock
market as a whole. We search for growth companies with:
o Favorable financial characteristics
o High returns on invested capital
o Dominant market shares for core service or product
o Recurring revenue streams
o Solid brand franchises
o Management committed to maximizing shareholder returns
Result
A diversified portfolio of stocks with strong long-term growth potential.
Key New Acquisitions
o Monsanto Co. -- After years of promising research, biotechnology --
including genetic engineering -- is starting to show commercial success in
agricultural weed and pest control. Monsanto is the leading player in this
emerging business.
o RiteAid and CVS -- Like Walgreen, these companies have benefited from the
revitalization of the once-mature drug business.
Portfolio Outlook
The outlook for the economy and the stock market appears favorable, with low
inflation, stable interest rates and modest economic growth expected to help the
Fund's holdings produce favorable earnings gains. We will actively seek
companies that fit our selective growth style and that have, among other
characteristics, strong brand franchises, favorable long-term prospects and free
cash flow and whose stocks are believed to be selling at a discount to the true
value of their business.
We thank you for your investment and look forward to your continued confidence.
Sincerely,
/s/ Herbert E. Ehlers /s/ George D. Adler /s/ Robert G. Collins
Herbert E. Ehlers George D. Adler Robert G. Collins
Portfolio Manager, Portfolio Manager, Portfolio Manager,
Goldman Sachs Goldman Sachs Goldman Sachs
Capital Growth Fund Capital Growth Fund Capital Growth Fund
/s/ Gregory H. Ekizian /s/ Ernest C. Segundo /s/ David G. Shell
Gregory H. Ekizian Ernest C. Segundo David G. Shell
Portfolio Manager, Portfolio Manager, Portfolio Manager,
Goldman Sachs Goldman Sachs Goldman Sachs
Capital Growth Fund Capital Growth Fund Capital Growth Fund
/s/ Scott G. Kolar
Scott G. Kolar
Portfolio Manager,
Goldman Sachs
Capital Growth Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
For Best Results,
It's Time in the Market That Counts
For optimal long-term investment results, time in the market can make the
difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- can do more harm than good
to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
- --------------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has generated negative returns only
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than timing the market.
For More Information
A diversified portfolio of stocks is one of the best ways to reduce the
effects of market fluctuations on a portfolio. For most investors,
diversification is most easily acquired through mutual funds. Goldman Sachs
Asset Management offers a broad spectrum of equity mutual funds that can
help investors weather market ups and downs. For more information on these
and other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH 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
April 20, 1990. For comparative purposes, the performance of the Fund's
benchmark (the Standard and Poor's 500 Index ("S&P 500 Index")) is shown.
This performance data represents past performance and should not be consid-
ered 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.
Performance of Class B, Class C, Institutional and Service shares will vary
from Class A due to differences in fees and loads.
CAPITAL GROWTH FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED APRIL 20, 1990 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P 500 Index Capitol Growth Fund (Class A)
<S> <C> <C>
Jan-91 10000 9450
9882 9458
10819 9708
10754 9775
10728 9667
9751 9108
Jul-91 9284 8458
9253 8125
9838 8600
10112 8937
10552 9529
11307 10096
Jan-92 11581 10285
11608 10448
12109 10980
11554 10354
12093 10801
12379 10982
Jul-92 12172 10999
12336 11352
11839 10663
13193 11790
12947 12323
13114 12765
Jan-93 12859 12765
13237 12873
13301 13198
13104 12666
13639 12946
13360 12431
Jul-93 13517 12579
13563 13098
14025 14090
14197 14552
14316 14542
14511 14304
Jan-94 14817 14979
14459 14383
14846 14910
14889 15148
14829 15386
15392 15595
Jul-94 15274 15927
15590 15917
15441 15977
15628 16614
16160 16998
15721 17285
Jan-95 15036 16636
15228 16657
15478 16774
15099 16455
15594 16657
16233 17530
Jul-95 15837 17300
16194 16976
15604 16084
15835 16432
16245 16254
16879 17443
Jan-96 17378 17811
17889 18216
18605 18810
19037 19535
19669 20094
19718 20368
Jul-96 20550 20479
20476 19701
21375 20371
21787 20663
22528 21203
22738 21573
Jan-97 22956 21815
23293 22284
23894 22753
23985 22156
22925 21388
23409 22042
Jul-97 24727 23059
25409 23424
27329 24942
26788 25081
28461 26727
28685 26695
Jan-98 27506 25496
29145 27429
30920 28819
32306 30417
34877 32941
32924 30816
34728 32239
33568 31689
35122 33129
35726 33937
36123 34668
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED APRIL 20, 1990)
Excluding sales charges 18.15% 18.97% 29.71%
Including sales charges 17.30% 17.63% 22.61%
----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges 27.73% n/a 28.73%
Including redemption charges 25.22% n/a 22.86%
----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 8.83% n/a n/a
Including redemption charges 7.74% n/a n/a
----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST
15, 1997)(A) 9.31% n/a n/a
----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15,
1997)(A) 9.18% n/a n/a
----------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 97.7%
<C> <S> <C>
ADVERTISING & MARKETING - 1.9%
711,580 Valassis Communications Inc.* $ 24,549,510
----------------------------------------------------------------
AEROSPACE & DEFENSE - 1.1%
294,840 Boeing Co. 14,023,328
----------------------------------------------------------------
ALCOHOLIC BEVERAGES - 0.6%
186,300 Anheuser Busch Companies Inc. 8,371,856
----------------------------------------------------------------
AUTO/VEHICLE - 0.6%
153,700 Lear Corp.* 7,636,969
----------------------------------------------------------------
BANKS - 12.4%
471,200 Bankamerica Corp. 33,484,650
73,900 Citicorp 8,794,100
237,700 First Union Corp. 11,424,456
1,025,887 MBNA Corp. 31,866,615
468,700 Nationsbank Corp. 28,122,000
631,422 Banc One Corp. 35,280,704
232,600 State Street Corp. 13,025,600
----------------------------------------
161,998,125
----------------------------------------------------------------
BUSINESS EQUIPMENT - 0.3%
49,000 Xerox Corp. 3,938,375
----------------------------------------------------------------
BUSINESS SERVICES - 2.2%
213,000 H & R Block Inc. 9,345,375
502,080 Service Corp. International 19,581,120
----------------------------------------
28,926,495
----------------------------------------------------------------
CHEMICAL PRODUCTS - 2.3%
171,700 Betzdearborn Inc. 9,894,213
97,400 Du Pont (EI) De Nemours & Co. 5,515,275
101,200 Minnesota Mining & Manufacturing Co. 8,450,200
146,100 Sigma Aldrich Corp. 5,661,375
----------------------------------------
29,521,063
----------------------------------------------------------------
COMMERCIAL SERVICES - 1.6%
453,000 Ecolab Inc. 12,400,875
270,100 Galileo International Inc. 7,967,950
----------------------------------------
20,368,825
----------------------------------------------------------------
COMPUTER SOFTWARE - 0.6%
153,600 HBO & Co. 8,035,200
----------------------------------------------------------------
COMPUTERS AND BUSINESS EQUIPMENT - 1.9%
651,200 Tandy Corp. 25,234,000
----------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.2%
99,700 Sherwin-Williams Co. 2,841,450
----------------------------------------------------------------
CONSUMER STAPLES - 4.9%
93,800 Amway Asia Pacific Ltd. 1,758,750
186,400 Colgate-Palmolive Co. 13,653,800
88,800 Clorox Co. 6,804,300
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
CONSUMER STAPLES - (CONTINUED)
173,100 Gillette Co. $ 17,093,625
321,880 Procter & Gamble Co. 25,227,345
-------------------------------------
64,537,820
-------------------------------------------------------------
DEPARTMENT STORES - 0.4%
135,500 Federated Department Stores, Inc.* 5,741,813
-------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.9%
485,100 General Electric Co. 37,595,250
-------------------------------------------------------------
ENTERPRISE SYSTEMS - 2.1%
301,900 Compaq Computer Corp. 9,075,869
173,450 Cisco Systems Inc.* 10,938,191
216,300 EMC Corp.* 7,043,269
-------------------------------------
27,057,329
-------------------------------------------------------------
ENTERTAINMENT AND LEISURE - 1.1%
130,400 Walt Disney Co. 13,895,750
-------------------------------------------------------------
FOOD & BEVERAGES - 5.2%
234,500 Coca Cola Co. 15,183,875
183,100 Nabisco Holdings Corp. 7,575,763
408,100 Pepsico Inc. 14,717,106
194,900 Ralston--Ralston Purina Group 18,296,238
160,480 Wm Wrigley Jr. Co. 11,865,490
-------------------------------------
67,638,472
-------------------------------------------------------------
FOREST PRODUCTS - 0.4%
97,300 Georgia-Pacific Corp. 5,363,663
-------------------------------------------------------------
HEALTH AND BEAUTY AIDS - 0.9%
194,000 Avon Products Inc. 11,640,000
-------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 1.7%
331,900 Johnson & Johnson 22,216,556
-------------------------------------------------------------
HEALTHCARE MANAGEMENT - 1.1%
197,220 Aetna Inc. 14,495,670
-------------------------------------------------------------
HOTELS & RESTAURANTS - 1.1%
202,220 Marriott International Inc. 13,978,458
-------------------------------------------------------------
INDUSTRIAL PRODUCTS - 0.5%
148,800 American Standard Companies* 5,961,300
-------------------------------------------------------------
INFORMATION MANAGEMENT - 0.6%
207,000 Envoy Corp.* 7,814,250
-------------------------------------------------------------
INSURANCE - LIFE - 2.1%
152,200 Hartford Life Inc. 6,516,063
210,100 Nationwide Financial Services, Inc. 7,708,044
321,150 SunAmerica Inc. 12,906,216
-------------------------------------
27,130,323
-------------------------------------------------------------
INSURANCE - PROPERTY & CASUALTY - 0.8%
90,000 American International Group Inc. 9,928,125
-------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
MEDIA/ENTERTAINMENT - 7.2%
69,000 Cablevision Systems Corp.* $ 6,097,875
213,800 Gannett Co. 12,934,900
530,700 Tele-Communications Liberty Media Group* 19,005,694
223,700 New York Times Co. 14,554,481
180,770 Reuters Holdings PLC ADR 9,693,791
348,802 Tele-Communications Inc.* 9,766,478
114,300 Tribune Co. 6,943,725
237,610 Time Warner Inc. 15,251,592
------------------------------------------
94,248,536
------------------------------------------------------------------
NONFERROUS METALS - 0.4%
75,300 Aluminum Company of America 5,751,038
------------------------------------------------------------------
OIL - INTEGRATED - 0.4%
70,500 Atlantic Richfield Co. 5,243,438
------------------------------------------------------------------
OIL - INTERNATIONAL - 2.6%
142,400 Mobil Corp. 9,701,000
247,100 Texaco Inc. 12,864,644
188,500 Exxon Corp. 11,180,406
------------------------------------------
33,746,050
------------------------------------------------------------------
OIL & GAS - INTEGRATED - 0.4%
143,200 Unocal Corp. 4,922,500
------------------------------------------------------------------
OIL & GAS SERVICES - 1.0%
177,600 Schlumberger Ltd. 13,086,900
------------------------------------------------------------------
PHARMACEUTICALS - 15.1%
377,600 American Home Products Corp. 36,037,200
428,800 Bristol Myers Squibb Co. 42,746,000
217,580 Eli Lilly & Co. 14,686,650
151,900 Monsanto Co. 7,205,756
565,820 Pfizer Inc. 46,361,869
237,800 Schering-Plough Corp. 17,210,775
222,100 Warner Lambert Co. 33,426,050
------------------------------------------
197,674,300
------------------------------------------------------------------
RAILROADS - 0.2%
95,400 Norfolk Southern Corp. 3,011,063
------------------------------------------------------------------
RECREATIONAL PRODUCTS - 0.9%
349,600 Hasbro Inc. 12,061,200
------------------------------------------------------------------
RETAIL - 1.5%
103,500 CVS Corporation 6,785,719
329,500 Wal Mart Stores Inc. 13,138,813
------------------------------------------
19,924,532
------------------------------------------------------------------
SEMICONDUCTORS - 1.2%
197,000 Intel Corp. 15,957,000
------------------------------------------------------------------
SOFTWARE & SERVICES - 4.7%
670,400 First Data Corp. 20,531,000
205,900 Microsoft Corporation* 30,717,706
135,400 Peoplesoft Inc.* 4,739,000
158,100 Sterling Commerce, Inc.* 5,741,006
------------------------------------------
61,728,712
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
SPECIALTY FINANCE - 3.3%
47,300 C.I.T. Group Inc.* $ 1,421,956
345,300 Federal National Mortgage Association 21,322,275
453,000 Federal Home Loan Mortgage Corp. 20,158,500
------------------------------------------------
42,902,731
------------------------------------------------------------------------
SPECIALTY RETAIL - 2.5%
122,200 Home Depot Inc. 7,370,188
131,700 Rite Aid Corp. 8,223,019
518,460 Walgreen Co. 17,173,988
------------------------------------------------
32,767,195
------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.3%
197,160 Lucent Technologies Co. 17,448,660
------------------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 0.4%
86,300 Goodyear Tire & Rubber Co. 5,404,538
------------------------------------------------------------------------
TOBACCO - 2.6%
519,300 Philip Morris Co., Inc. 21,550,950
378,300 UST Inc. 13,051,350
------------------------------------------------
34,602,300
------------------------------------------------------------------------
UTILITIES - ELECTRIC - 0.7%
207,200 AES Corp.* 8,870,750
------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $916,767,127) $1,279,791,418
------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
REPURCHASE AGREEMENT - 2.1%
<C> <S> <C>
$27,600,000 Joint Repurchase Agreement Account, 5.64%,
02/02/98 $ 27,600,000
------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $27,600,000) $ 27,600,000
------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $944,367,127) (A) $1,307,391,418
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 376,659,097
Gross unrealized loss for investments in which cost exceeds
value (14,080,126)
------------------------------------------------------------------------------
Net unrealized gain $ 362,578,971
------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $944,812,447.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$944,367,127) $1,307,391,418
Cash 97,502
Receivables:
Fund shares sold 5,167,184
Dividends and interest 789,516
Other assets 16,729
------------------------------------------------------------------------------
TOTAL ASSETS 1,313,462,349
------------------------------------------------------------------------------
LIABILITIES:
Payables:
Fund shares repurchased 1,042,270
Amounts owed to affiliates 2,139,330
Accrued expenses and other liabilities 200,056
------------------------------------------------------------------------------
TOTAL LIABILITIES 3,381,656
------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 943,792,262
Accumulated undistributed net realized gain on investment
transactions 3,264,140
Net unrealized gain on investments 363,024,291
------------------------------------------------------------------------------
NET ASSETS $1,310,080,693
------------------------------------------------------------------------------
</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) 67,981,133 2,234,279 295,829
Net asset and Class A redemption value per
share(a) $18.48 $18.27 $18.24
Maximum public offering price per share
(Class A NAV X 1.0582) $19.56 $18.27 $18.24
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 393,638 94
Net asset value, offering and redemption price per
share $18.45 $18.46
--------------------------------------------------------------------------
</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 CAPITAL GROWTH FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 14,709,637
Interest 1,485,991
---------------------------------------------------------------------------
TOTAL INCOME 16,195,628
---------------------------------------------------------------------------
EXPENSES:
Management fees 10,913,224
Distribution fees 2,815,372
Authorized dealer service fees 2,724,037
Transfer agent fees 992,702
Custodian fees 186,487
Professional fees 68,015
Registration fees 107,946
Trustee fees 11,404
Other 308,564
---------------------------------------------------------------------------
TOTAL EXPENSES 18,127,751
---------------------------------------------------------------------------
Less -- fees waived by Goldman Sachs (2,678,370)
---------------------------------------------------------------------------
NET EXPENSES 15,449,381
---------------------------------------------------------------------------
NET INVESTMENT INCOME 746,247
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS:
Net realized gain from investment transactions 171,487,631
Net change in unrealized gain on investments 110,348,766
---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS 281,836,397
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $282,582,644
---------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $68,534.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH 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 income $ 746,247 $ 5,337,292
Net realized gain on investment
transactions 171,487,631 53,687,297
Net change in unrealized gain on
investments 110,348,766 145,350,120
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 282,582,644 204,374,709
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (884,787) (5,948,617)
Class B shares -- --
Class C shares -- --
Institutional shares (3,044) --
Service shares -- --
In excess of net investment income
Class A shares (624,850) (258,749)
Class B shares -- (12,838)
Class C shares (7,981) --
Institutional shares (22,826) --
Service shares (4) --
From net realized gain on investment
transactions
Class A shares (175,320,995) (91,862,169)
Class B shares (1,824,839) (179,327)
Class C shares (91,373) --
Institutional shares (119,185) --
Service shares (61) --
In excess of realized gain on investment
transactions
Class B shares (2,788,015) --
Class C shares (504,407) --
Institutional shares (768,360) --
Service shares (183) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (182,960,910) (98,261,700)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 268,104,441 76,008,897
Reinvestment of dividends and
distributions 169,448,560 90,088,874
Cost of shares repurchased (150,961,069) (229,399,817)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 286,591,932 (63,302,046)
------------------------------------------------------------------------------
TOTAL INCREASE 386,213,666 42,810,963
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 923,867,027 881,056,064
------------------------------------------------------------------------------
End of year $1,310,080,693 $923,867,027
------------------------------------------------------------------------------
ACCUMULATED DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME $ -- $ (275,552)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH 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 Capital
Growth 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 official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on valuation date, or if no sale occurs, at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned.
C. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment 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.
11
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
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. 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 fi-
nancial statements. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or extin-
guished by delivery of the currency. Risks may arise upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. SHORT SECURITIES 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.
G. 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.
12
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
H. 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.
I. 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 CAPITAL GROWTH 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 Funds Manage-
ment L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"),
acts as investment adviser. Under the Agreement, GSFM, 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, GSFM is entitled to a fee, computed
daily and payable monthly, at an annual rate equal to 1.00% of the average
daily net assets of the Fund.
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 charges and has
advised the Fund that it retained approximately $743,000 during the year
ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 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 ap-
proximately $2,678,000 of its distribution fee attributable to the Class A
shares. The Distributor may discontinue or modify this waiver in the future
at its 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 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.
At January 31, 1998, the Fund owed approximately $1,072,000, $68,000,
$754,000 and $245,000 for Management, Distribution, Authorized Dealer Service
and Transfer Agent fees, respectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for year ended January 31, 1998,
were $738,069,080 and $653,855,824, respectively.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$200,000 of brokerage commissions from portfolio transactions.
14
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSFM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more re-
purchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1998, the Fund had
an undivided interest in the repurchase agreements in the following joint ac-
count which equaled $27,600,000 in principal amount. At January 31, 1998, the
repurchase agreements held in this joint account, along with the correspond-
ing underlying securities (including the type of security, market value, in-
terest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC., $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 consisting of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA:
6.50%-8.00%, 05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
------------------------------------------------------------------------------
LEHMAN BROTHERS INC., 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA:
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
------------------------------------------------------------------------------
NOMURA SECURITIES INTERNATION-
AL, 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-01/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
------------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL, 270,000,000 5.64 02/02/98 270,000,000
dated 01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC:
03/06/98; FFCB: 6.30%, 08/08/07)
------------------------------------------------------------------------------
SALOMON-SMITH BARNEY, 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.88%, 08/15/01)
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
7. 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.
8. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended January 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998 YEAR ENDED JANUARY 31, 1997
----------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 11,682,231 $ 219,227,835 4,677,047 $ 73,029,007
Reinvestments of divi-
dends and distributions 9,276,258 164,296,869 5,870,272 89,898,521
Shares repurchased (7,999,080) (148,461,895) (14,635,348) (229,277,586)
----------------------------------------------------------
12,959,409 235,062,809 (4,088,029) (66,350,058)
-------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,886,965 35,512,523 188,331 2,979,890
Reinvestments of divi-
dends and distributions 248,911 4,352,015 12,408 190,353
Shares repurchased (94,837) (1,799,265) (7,499) (122,231)
----------------------------------------------------------
2,041,039 38,065,273 193,240 3,048,012
-------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 300,430 5,779,471 -- --
Reinvestments of divi-
dends and distributions 31,825 552,643 -- --
Shares repurchased (36,426) (646,150) -- --
----------------------------------------------------------
295,829 5,685,964 -- --
-------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 382,307 7,583,012 -- --
Reinvestments of divi-
dends and distributions 14,102 246,791 -- --
Shares repurchased (2,771) (53,759) -- --
----------------------------------------------------------
393,638 7,776,044 -- --
-------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 80 1,600 -- --
Reinvestments of divi-
dends and distributions 14 242 -- --
Shares repurchased -- -- -- --
----------------------------------------------------------
94 1,842 -- --
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) 15,690,009 $ 286,591,932 (3,894,789) $ (63,302,046)
-------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$1,072,796 from accumulated undistributed net realized gain on investment
transactions to accumulated distributions in excess of net investment income.
17
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ------------------------------------------------
IN EXCESS OF
NET ASSET NET NET REALIZED IN EXCESS FROM NET NET REALIZED NET INCREASE
VALUE, INVESTMENT AND UNREALIZED FROM NET OF NET REALIZED GAIN GAIN ON (DECREASE)
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT IN NET ASSET
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $16.73 $0.02 $4.78 $(0.01) $(0.01) $(3.03) $ -- $1.75
1998 - Class B
Shares 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60
1998 - Class C
Shares(b) 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49)
1998 - Institutional
Shares(b) 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43)
1998 - Service
Shares(b) 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42)
------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82
1997 - Class B
Shares(b) 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00
------------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24
------------------------------------------------------------------------------------------------------------------------
1995 - Class A
Shares 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29)
------------------------------------------------------------------------------------------------------------------------
1994 - Class A
Shares 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32
------------------------------------------------------------------------------------------------------------------------
1993 - Class A
Shares 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99
------------------------------------------------------------------------------------------------------------------------
1992 - Class A
Shares 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55
FOR THE PERIOD ENDED JANUARY 31,
1991 - Class A
Shares(b) 11.34 0.34 (0.27) (0.31) -- -- -- (0.24)
------------------------------------------------------------------------------------------------------------------------
</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 April 20, 1990, May 1, 1996, August 15, 1997, August
15, 1997 and August 15, 1997, 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 CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF FEES
----------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS NET ASSETS ASSETS ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$18.48 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
18.27 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
18.24 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
18.45 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18(c) 1.16(c) 0.18(c)
18.46 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
-------------------------------------------------------------------------------------------------------------------
16.73 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
16.67 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
-------------------------------------------------------------------------------------------------------------------
14.91 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
-------------------------------------------------------------------------------------------------------------------
13.67 (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
-------------------------------------------------------------------------------------------------------------------
15.96 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
-------------------------------------------------------------------------------------------------------------------
14.64 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
-------------------------------------------------------------------------------------------------------------------
13.65 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
11.10 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Capital
Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Capital Growth Fund, one of the portfolios constituting Goldman
Sachs Trust--Equity Funds (A Delaware Business Trust), including the state-
ment of investments, as of January 31, 1998, and the related statement of op-
erations 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 Capital Growth Fund as of January 31, 1998, the results
of its operations, 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 Capital Growth Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Capital Growth 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
Historically, stocks have demonstrated greater potential to build wealth
over the long term than most other types of investments.
Goldman Sachs Capital Growth Fund provides investors access to the benefits
associated with equity investing. The Fund seeks long-term capital growth,
primarily through a diversified portfolio of equity securities with
long-term capital appreciation potential.
Target Your Needs
The Goldman Sachs Capital Growth 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 the Goldman Sachs Funds
family without an additional charge. (Please note: in general, greater
returns are associated with greater risk.)
- --------------------------------------------------------------------------------
Goldman Sachs Domestic Equity Funds
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Small Cap Value Fund
Risk/Return CORE Small Cap Equity Fund
Mid Cap Equity Fund
CAPITAL GROWTH FUND
CORE Large Cap Growth Fund
Lower CORE U.S. Equity Fund
Risk/Return Growth and Income Fund
</TABLE>
For More Information
To learn more about the Goldman Sachs Capital Growth 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
Investment Adviser,
Distributor and Transfer Agent
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 stocks of smaller companies are often associated with higher risks than
stocks of larger companies, including higher volatility.
Funds that invest in foreign securities and utilize
active management techniques are subject to risks in addition to those
customarily associated with investing in dollar-denominated securities of U.S.
issuers. Compared with U.S. securities markets, foreign markets may be less
liquid, more volatile and less subject to governmental regulation, and may make
available less public information about issuers. Funds that invest in foreign
issues 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 CGAR / 144K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
SMALL CAP VALUE FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth
potential through a portfolio of
smaller capitalization companies.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Fund Basics
as of January 31, 1998
Assets Under Management
-----------------------
$433.1 Million
-----------------------
Number of Holdings
-----------------------
87
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSSMX
-----------------------
Class B Shares
-----------------------
GSQBX
-----------------------
Class C Shares
-----------------------
GSSCX
-----------------------
Institutional Shares
-----------------------
GSSIX
-----------------------
Service Shares
-----------------------
GSSSX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return Russell 2000
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 26.17% 18.07%
Class B 25.29% 18.07%
Class C (8/15/97-1/31/98) 5.51% 4.99%
Institutional (8/15/97-1/31/98) 6.08% 4.99%
Service (8/15/97-1/31/98) 5.91% 4.99%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Russell 2000 Index figures include dividends reinvested and do not
reflect any fees or expenses. In addition, investors cannot invest directly
in the Index.
================================================================================
SEC AVERAGE ANNUAL TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period Class C Institutional Service
ending 12/31/97 Class A Class B (Cumulative)(4) (Cumulative)(4) (Cumulative)(4)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 Months 23.00% 23.81% N/A N/A N/A
Five Years 12.70% N/A N/A N/A N/A
Since Inception 15.20% 16.71% 6.12% 7.62% 7.50%
(10/22/92) (5/1/96) (8/15/97) (8/15/97) (8/15/97)
- -----------------------------------------------------------------------------------------------------
</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
$25.45 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 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 the assumed deferred sales charge for
Class C shares (1% if redeemed within 12 months of purchase).
================================================================================
TOP TEN HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Plan Services Corp. 4.3% Healthcare Management Services
Friedman's Inc. 3.1% Jewelry Retailer
Integrated Health Services, Inc. 3.0% Healthcare Provider
Quest Diagnostics Inc. 2.9% Clinical Laboratories
Philip Services Corp. 2.7% Metal Processing and Industrial Services
Hutchinson Technologies, Inc. 2.5% Disk Drive Suspension Assemblies
Syms Corp. 2.4% Specialty Retailer
Movado Group Inc. 2.3% Luxury Watch Distributor
Metromail Corp. 2.2% Database and Direct Marketing
Terra Nova (Bermuda)Holdings 2.1% P/C Insurance
- -----------------------------------------------------------------------------------------------------
</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 SMALL CAP VALUE FUND
Market Overview
Dear Shareholder,
The U.S. stock market took investors on an unsteady ride during the period under
review -- one that saw the market climb to record highs, and plummet in what was
the market's largest single-day percentage drop in a decade. Small- and mid-cap
stocks lagged their large-cap brethren through most of the year, emerging
briefly in mid-summer as market leaders.
o The U.S. Equity Market: An Upward Climb Marked by Periods of Volatility --
Early in the year, market volatility resulting from uncertainty regarding
Federal Reserve policy eased after economic indicators reassured investors
that further rate hikes were unlikely. Renewed investor confidence and a
positive economy sent the market soaring through the remainder of the year.
Waxing and waning investor sentiment, however, continued to cause a degree
of market volatility. Most notably, in October, investor uncertainty helped
foster a temporary overreaction to falling Asian markets. The market
dropped precipitously, posting the largest single-day decline in nearly a
decade. In the aftermath, the market firmed as investors realized that
Asian market weakness would likely have little impact on U.S. companies.
Late-year strength in the market favored large, liquid names, while small-
and mid-caps, despite their attractive relative valuations, struggled to
regain the momentum they had achieved mid-summer.
o The U.S. Economy: Robust Activity, Then Moderation -- Economic activity
gained momentum during the first quarter of 1997, with real GDP surging at
a revised 4.9% annualized rate. Growth moderated somewhat during the second
quarter, a slowdown that continued into the second half of the year. Signs
that the U.S. economy remained strong were eminently present, though,
despite the fact that Asian market turmoil cast a shadow over sales and
trade prospects to that region. Most notably, U.S. unemployment figures
reached a 24-year low during the fourth quarter, as the proportion of
working Americans -- approximately 64% -- reached an unprecedented level.
o Outlook: Expect Moderating Economic Growth and Low Inflation -- Going
forward, we believe the inflation and interest rate environments will
likely remain favorable, particularly over the near term. Furthermore, we
believe the equity market will produce returns closer to the historic norm,
a scenario that should be accompanied by more normal levels of volatility
(that is, greater volatility than the relatively low level averaged over
the past five years). The performance of small- and mid-caps, to a
significant extent, will depend upon whether or not investors broaden their
focus from the largest, most liquid stocks to smaller, less widely followed
issues.
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, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
1
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Small Cap Value
Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's share classes posted very strong performance in the peer
rankings for the one-year period ended January 31, 1998. During the
period, the total returns of the Fund's Class A shares and Class B shares
each ranked in the top 25% of all funds in the Lipper Small Cap Fund
category (placing 74 and 90, respectively, out of 480 funds. For the
five-year period, Class A shares ranked 109 out of 144 funds. Class C
shares, Institutional shares and Service shares were not ranked because
their performance records are less than 12 months. Please note that Lipper
rankings do not take sales charges into account and that past performance
is not a guarantee of future results).
Portfolio Highlights
o Linens 'N Things -- Linens 'N Things was spun off with substantially
lower margins and a more erratic earnings history than its largest
competitor, leading the market to initially value the stock at a deep
discount. During the past year, the company aggressively expanded its
store base and substantially improved its margins, driving the stock
price sharply higher. (This position was liquidated in mid-January
1998 due to price appreciation.)
o Movado Group Inc. -- The company announced solid quarterly earnings
and sales results throughout the year. Movado should also benefit from
the anticipated launch of the new Coach brand watch line.
o Pegasus Communications Corp. -- A diversified media and communications
company, Pegasus benefited from rapid growth in satellite penetration
in rural areas and strategic acquisitions of a number of rural Direct
and TV franchises.
o Carbide/Graphite Group Inc. -- The company, a manufacturer of graphite
electrodes and calcium carbide products, posted solid performance in
both product lines as aggressive cost reduction efforts led to margin
expansion. Industry trends have also been positive.
o Central Maine Power Co. -- The company continued to benefit from an
ongoing process of restructuring. At year-end, the company announced
the sale of its non-nuclear generating assets for a
higher-than-expected price.
Key New Acquisitions
o Health Plan Services -- Health Plan Services provides marketing,
administration and risk management services to the healthcare
industry. Following a period of acquisition integration, the company
is beginning to grow again, and the company's free cash flow exceeds
reported earnings.
o Quest Diagnostics, Inc. -- Spun off from Corning in 1996, Quest is one
of the top three clinical laboratories in the United States. The
company has implemented a program to dramatically reduce costs and
improve profitability. The company's relatively modest capital
spending requirements, non-cash goodwill amortization expense, and
efforts to reduce working capital requirements have resulted in
substantial free cash flow. The stock sells below book value.
2
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
VALUE
INVESTMENT PROCESS
Value stocks represent companies that are currently undervalued in the market,
but whose intrinsic value we believe ultimately will be recognized. Our value
stock selection process emphasizes a bottom-up approach.
1
Search for Value
We search for value from a universe of 1,000 stocks, and then select 200 to 300
of the least expensive.
2
Fundamental Research
We refine our stock list through rigorous analysis of companies' "fundamentals"
and face-to-face meetings with company management, competitors, suppliers and
customers.
3
Risk Management
We maintain ongoing risk management resulting in an intentional and quantifiable
risk/return profile.
o Integrated Health Services -- The company, a leading provider of
long-term and post-acute care, is aggressively preparing for the
upcoming Medicare prospective payment system. We believe the value of
the company's various businesses is misunderstood, and the share price
reflects uncertainty about the company's balance sheet and the impact
of changes in Medicare reimbursement policies.
o Hutchinson Technologies -- The company, the largest worldwide
manufacturer of suspension assemblies for the disk drive industry, has
70% market share and a multiyear lead in bringing its technology to
its customers. We purchased this company, traditionally a 15% to 20%
"grower," at a discount due to recent pricing pressures in the disk
drive industry.
Portfolio Outlook
We are keeping a close eye on the U.S. equity market's current valuation.
In recent memory, inflation has consistently surprised on the downside,
with technology improving overall productivity and Asian economic events
driving down prices of imported goods. As many investors believe this
low-inflation environment will continue, the market's P/E level has risen.
The current S&P 500 P/E ratio seems unsustainable to us, as the combination
of rising labor costs and Asia-driven pricing pressure could squeeze U.S.
margins.
The small-cap market's valuation level seems more reasonable to us. The
average small-cap company is less exposed to Asia than the major
multinational, megacap companies that have driven the S&P 500's expansion
over the last few months. In addition, the typically non-unionized wage
structure of smaller companies leaves this segment less vulnerable to
broader labor cost trends. Although the largest cap names have led market
returns in recent months, we are confident that small-caps, and our
value-based portfolio especially, are well positioned for the long term.
The market's short-sighted, near-term focus produces opportunities to buy
good businesses with inevitable bumps in the road.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Paul D. Farrell /s/ Matthew B. McLennan
Paul D. Farrell Matthew B. McLennan
Portfolio Manager, Portfolio Manager,
Goldman Sachs Small Cap Value Fund Goldman Sachs Small Cap Value Fund
/s/ Eileen A. Aptman
Portfolio Manager,
Goldman Sachs Small Cap Value Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
For Best Results,
It's Time in the Market That Counts
For optimal long-term investment results, time in the market can make the
difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- tend to do more harm than
good to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
- --------------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long-Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has only generated negative returns
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than attempting to time the market.
For More Information
A diversified portfolio of stocks is one of the best ways to reduce the
effects of market fluctuations on a portfolio. For most investors,
diversification is most easily acquired through mutual funds. Goldman Sachs
Asset Management offers a broad spectrum of equity mutual funds that can
help investors weather market ups and downs. For more information on these
and other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE 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
October 22, 1992. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 Index ("S&P 500 Index") and the Rus-
sell 2000 Index) 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 redeemed, to be worth more or less than
their original cost. Performance of Class B, Class C, Institutional and Serv-
ice shares will vary from Class A due to differences in fees and loads.
SMALL CAP VALUE FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED OCTOBER 22, 1992 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Russell 2000 Index S&P 500 Small Cap Value Fund (Class A)
<S> <C> <C> <C>
10/22/1992 10000 10000 9450
10187 10095 9620
10966 10439 10120
11348 10567 10857
Jan-93 11731 10655 11138
11460 10800 11138
11832 11028 11752
11508 10762 11618
12016 11050 11772
12091 11082 12266
Jul-93 12258 11037 12606
12787 11456 13341
13148 11368 13663
13486 11603 13897
13042 11493 13763
13488 11632 14241
Jan-94 13912 12027 14493
13861 11701 14269
13130 11191 14058
13207 11334 13925
13059 11520 13883
12618 11238 13609
Jul-94 12825 11606 13294
13540 12082 13960
13495 11788 14009
13442 12053 13461
12899 11614 12835
13246 11786 12131
Jan-95 13080 12091 11953
13624 12563 12508
13858 12935 12738
14166 13315 12819
14409 13847 12442
15157 14169 12501
Jul-95 16030 14639 13108
16362 14676 13716
16655 15295 13679
15924 15240 12605
16582 15909 13160
17030 16216 13177
Jan-96 17012 16767 12813
17542 16923 13221
17905 17086 15185
18863 17337 15407
19607 17784 16608
18800 17852 16393
Jul-96 17159 17063 15682
18156 17423 16267
18866 18404 16964
18574 18912 16097
19340 20341 16134
19846 19939 16054
Jan-97 20243 21184 16320
19750 21350 16335
18817 20473 16515
18870 21693 16304
20970 23014 18130
21870 24046 18942
Jul-97 22887 25960 19200
23411 24506 19886
25125 25849 20805
24021 24985 21169
23865 26142 20589
24283 26592 20899
Jan-98 23899 26887 20591
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED OCTOBER 22, 1992)
Excluding sales charges 15.89% 13.07% 26.17%
Including sales charges 14.65% 11.80% 19.21%
---------------------------------------------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges 17.15% n/a 25.29%
Including redemption charges 14.79% n/a 19.80%
---------------------------------------------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997) (A)
Excluding redemption charges 5.51% n/a n/a
Including redemption charges 4.49% n/a n/a
---------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST
15, 1997) (A) 6.08% n/a n/a
---------------------------------------------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15,
1997) (A) 5.91% n/a n/a
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 92.9%
ADVERTISING & MARKETING - 2.2%
568,600 Metromail Corp.* $ 9,346,363
--------------------------------------------------------------
APPAREL & TEXTILES - 1.6%
148,700 Angelica Corp. 3,420,100
415,500 Pluma Inc.* 3,583,688
------------
7,003,788
--------------------------------------------------------------
BANKS - 1.0%
175,900 UST Corp. 4,397,500
--------------------------------------------------------------
COMMERCIAL PRODUCTS - 4.1%
177,200 Carbide/Graphite Group Inc.* 6,024,800
239,300 Figgie International Inc. Class B* 2,871,600
43,700 Figgie International Inc.* 579,025
139,700 Norwood Promotional Products, Inc.* 2,374,900
189,300 Spartech Corp. 3,052,463
127,200 Synthetic Industries Inc.* 3,068,700
------------
17,971,488
--------------------------------------------------------------
COMMERCIAL SERVICES - 4.7%
58,500 Bridgestreet Accommodations* 665,438
107,900 Galileo International Inc. 3,183,050
539,200 Opinion Research Corp.* 2,864,500
1,433,400 Philip Services Corp.* 11,826,277
103,900 RCM Technologies, Inc.* 1,753,313
------------
20,292,578
--------------------------------------------------------------
COMMUNICATIONS - 1.5%
571,300 Metromedia International Group Inc.* 6,677,069
--------------------------------------------------------------
COMPUTER PERIPHERALS - 2.6%
425,300 Hutchinson Technologies, Inc.* 10,685,663
86,900 Scitex Corp. Ltd.* 852,706
------------
11,538,369
--------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.5%
208,600 Congoleum Corp.* 1,955,625
--------------------------------------------------------------
DATACOM EQUIPMENT - 4.2%
151,700 Black Box Corp.* 4,930,250
438,500 Hypercom Corp.* 5,919,750
450,700 Unova Inc.* 7,323,875
------------
18,173,875
--------------------------------------------------------------
EDUCATION - 0.2%
45,600 Career Education Corp.* 912,000
--------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.7%
348,100 Dennison International PLC ADR* 5,743,650
466,400 Fedders Corp. Common 2,681,800
548,900 Fedders Corp.--Class A* 3,053,256
------------
11,478,706
--------------------------------------------------------------
ENTERPRISE SYSTEMS - 0.1%
38,000 Mapics Inc.* 494,000
--------------------------------------------------------------
FINANCIAL SERVICES - 0.6%
236,200 Annaly Mortgage Management 2,509,625
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FOOD & BEVERAGES - 0.4%
96,300 Ralcorp Holdings Inc.* $ 1,608,920
-----------------------------------------------------------
FOREST PRODUCTS - 0.2%
43,600 Shorewood Packaging Corp.* 1,068,200
-----------------------------------------------------------
GAMING - 0.3%
72,400 Scientific Games Holding Corp.* 1,429,900
-----------------------------------------------------------
HEALTH SUPPLIES/SERVICES - 1.4%
380,400 Mariner Health Group Inc.* 5,848,650
-----------------------------------------------------------
HEALTHCARE MANAGEMENT - 15.2%
266,000 American Physician Partners* 2,759,750
844,600 Healthplan Services Corp. 18,528,413
448,100 Integrated Health Services, Inc. 12,826,861
865,000 Matria Healthcare Inc.* 4,216,875
563,300 Physicians Resource Group Inc.* 1,971,550
750,300 Quest Diagnostics Inc.* 12,473,738
146,600 Sierra Health Services Inc.* 4,755,338
180,800 Sun Healthcare Group, Inc.* 3,367,400
195,700 Trigon Healthcare, Inc.* 4,868,038
------------
65,767,963
-----------------------------------------------------------
HOTELS & RESTAURANTS - 4.9%
463,100 Friendly Ice Cream Corp.* 7,120,163
315,600 La Quinta Inns Inc. 6,726,225
369,300 Morton's Restaurant Group, Inc.* 7,270,593
------------
21,116,981
-----------------------------------------------------------
INSURANCE-BROKERS AND OTHER INSURANCE - 2.9%
168,300 Amerin Corp.* 4,691,363
177,300 Esg Re Ltd.* 4,343,850
125,900 Scpie Holdings Inc. 3,588,150
------------
12,623,363
-----------------------------------------------------------
INSURANCE-LIFE - 1.2%
216,900 Arm Financial Group, Inc. 5,381,831
-----------------------------------------------------------
INSURANCE-PROPERTY & CASUALTY - 5.0%
8,100 Ipc Holdings Ltd. 241,988
284,300 Gainsco Inc. 2,276,045
429,800 Seibels Bruce Group, Inc.* 3,062,325
398,900 Symons International Group, Inc.* 7,279,925
353,000 Terra Nova Holdings, Ltd. 8,913,250
------------
21,773,533
-----------------------------------------------------------
JEWELRY - 2.3%
468,812 Movado Group Inc. 10,079,458
-----------------------------------------------------------
MACHINERY - 1.3%
561,900 AVteam Inc.* 5,478,525
-----------------------------------------------------------
MEDIA/ENTERTAINMENT - 4.5%
1,305,800 Groupe AB SA ADR* 6,937,063
159,671 News Corp. LTD. ADR* 3,363,070
275,900 Pegasus Communications Corp.* 5,759,413
545,700 Platinum Entertainment Inc.* 3,410,624
------------
19,470,170
-----------------------------------------------------------
MISCELLANEOUS - 0.4%
119,400 Stoneridge Inc.* 1,793,280
-----------------------------------------------------------
PHARMACEUTICALS - 0.6%
240,900 Perrigo Co.* 2,800,463
-----------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
REAL ESTATE - 3.6%
132,900 Boykin Lodging Trust Inc. $ 3,721,200
186,800 Insignia Financial Group Inc.* 4,097,925
245,300 Prime Retail Inc. 3,633,506
218,500 RFS Hotel Investors Inc. 4,042,250
------------
15,494,881
----------------------------------------------------------
RECREATIONAL PRODUCTS - 0.2%
335,800 DSI Recreational Products Inc.* 818,513
----------------------------------------------------------
RETAIL - 4.3%
238,800 Finlay Enterprises, Inc.* 5,552,100
941,100 Friedmans Inc.* 13,231,656
------------
18,783,756
----------------------------------------------------------
SAVINGS & LOAN - 0.6%
171,800 Northwest Savings Bank 2,405,200
----------------------------------------------------------
SOFTWARE & SERVICES - 0.3%
5,023 Decisionone Holdings Corp.* 121,180
432,300 Video Services Corp.* 1,215,844
------------
1,337,024
----------------------------------------------------------
SPECIALTY FINANCE - 0.5%
124,000 American Capital Strategies 2,263,000
11,500 Long Beach Financial Corp.* 117,875
------------
2,380,875
----------------------------------------------------------
SPECIALTY RETAIL - 6.2%
697,700 Brookstone Inc.* 8,285,188
1,256,500 J. Baker, Inc. 5,654,250
728,900 Loehmann's Inc.* 2,778,930
728,500 Syms Corp.* 10,290,063
------------
27,008,431
----------------------------------------------------------
STEEL - 1.4%
62,900 Ispat International NV* 1,360,213
376,000 WHX Corp.* 4,582,500
------------
5,942,713
----------------------------------------------------------
TELECOMMUNICATIONS - 0.8%
78,300 Telephone and Data Systems, Inc. 3,445,200
----------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.5%
486,300 Commscope Inc.* 6,382,688
----------------------------------------------------------
TELECOMMUNICATIONS SERVICES - 0.5%
176,700 Rural Cellular Corp.* 2,032,050
----------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 0.8%
199,000 Titan International, Inc. 3,557,125
----------------------------------------------------------
TRUCKING & LOGISTICS - 2.8%
213,000 Allied Holdings Inc.* 4,393,125
296,500 Landstar System Inc.* 7,746,063
------------
12,139,188
----------------------------------------------------------
UTILITIES-ELECTRIC - 2.7%
507,900 Central Maine Power Co. 8,412,089
270,100 Northeast Utilities* 3,308,725
------------
11,720,814
----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $387,475,142) $402,440,681
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
OPTIONS* - 0.2%
500 S & P 500 Index Put Strike 950 exp. 3/98 $ 750,000
-----------------------------------------------------------------------
TOTAL OPTIONS
(COST $1,059,000) $ 750,000
-----------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
<C> <S> <C>
CORPORATE BONDS - 0.1%
$500,000 J. Baker, Inc., 7.00%, 06/01/02 $ 377,500
-----------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $498,689) $ 377,500
-----------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.1%
$35,100,000 Joint Repurchase Agreement Account, 5.64%,
02/02/98 $ 35,100,000
-----------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $424,132,831)(A) $438,668,181
-----------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 55,002,770
Gross unrealized loss for investments in which cost ex-
ceeds value (40,866,988)
-----------------------------------------------------------------------
Net unrealized gain $ 14,135,782
-----------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $424,532,399.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C> <C>
Investment in securities, at value (identified cost
$424,132,831) $438,668,181
Cash 4,286
Receivables:
Investment securities sold 893,000
Fund shares sold 1,755,082
Dividends and interest 156,970
Other assets 55,163
--------------------------------------------------------------------------
TOTAL ASSETS 441,532,682
--------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 6,870,089
Fund shares repurchased 597,626
Amounts owed to affiliates 864,385
Accrued expenses and other liabilities 45,279
--------------------------------------------------------------------------
TOTAL LIABILITIES 8,377,379
--------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 394,203,466
Accumulated undistributed net realized gain on
investment and option transactions 24,416,487
Net unrealized gain on investments and options 14,535,350
--------------------------------------------------------------------------
NET ASSETS $433,155,303
--------------------------------------------------------------------------
</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) 15,394,383 1,798,680 236,148
Net asset and Class A redemption value per
share(a) $24.05 $23.73 $23.73
Maximum public offering price per share (Class
A NAV X 1.0582) $25.45 $23.73 $23.73
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 607,122 70
Net asset value, offering and redemption price per
share $24.09 $24.05
--------------------------------------------------------------------------
</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 SMALL CAP VALUE FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 2,210,842
Interest 1,879,477
-----------------------------------------------------------------------------
TOTAL INCOME 4,090,319
-----------------------------------------------------------------------------
EXPENSES:
Management fees 3,206,411
Distribution fees 900,064
Authorized dealer service fees 784,886
Transfer agent fees 598,153
Custodian fees 117,539
Professional fees 70,240
Registration fees 1,563
Amortization of deferred organization expenses 13,467
Trustee fees 2,571
Other 124,624
-----------------------------------------------------------------------------
TOTAL EXPENSES 5,819,518
Less -- fees waived by Goldman Sachs (727,298)
-----------------------------------------------------------------------------
NET EXPENSES 5,092,220
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (1,001,901)
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT AND OPTION TRANSAC-
TIONS:
Net realized gain from:
Investment and options transactions 54,033,025
Net change in unrealized gain on:
Investments and options 9,929,833
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT AND OPTION
TRANSACTIONS: 63,962,858
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $62,960,957
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $12,631.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE 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 $ (1,001,901) $ (1,551,590)
Net realized gain on investment
transactions 54,033,025 28,767,853
Net change in unrealized gain on
investments 9,929,833 22,913,571
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 62,960,957 50,129,834
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investment and
option transactions
Class A shares (30,853,322) (10,210,264)
Class B shares (3,473,153) (149,626)
Class C shares (325,092) --
Institutional shares (1,149,003) --
Service shares (130) --
In excess of net realized gain on
investment and option transactions
Class C shares (56,555) --
Institutional shares (156,436) --
Service shares (19) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (36,013,710) (10,359,890)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 231,518,320 56,119,213
Reinvestment of dividends and
distributions 33,954,677 9,876,571
Cost of shares repurchased (74,999,747) (95,024,895)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 190,473,250 (29,029,111)
------------------------------------------------------------------------------
TOTAL INCREASE 217,420,497 10,740,833
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 215,734,806 204,993,973
------------------------------------------------------------------------------
End of year $433,155,303 $215,734,806
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME $ -- $ --
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE 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 Small Cap
Value Fund (the "Fund"). The Trust is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company. At
January 31, 1998, the Small Cap Value Fund offered five classes of shares--
Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded or
NASDAQ. If no sale occurs, securities traded on a U.S. exchange or NASDAQ are
valued at the mean between the closing bid and asked price, and securities
traded on a foreign exchange will be valued at the official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on valuation date, or if no sale occurs, at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned.
C. 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.
11
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Notes to Financial Statements (continued)
January 31, 1998
D. 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.
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs were being
amortized on a straight-line basis over a period of five years and are fully
amortized as of January 31, 1998.
F. 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 its respective class-specific transfer agency fees. Service
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.
G. 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.
12
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
H. 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.
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration
Agreements were combined into an Investment Management Agreement (the
"Agreement") encompassing the same services and fee structure. Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman, Sachs &
Co. ("Goldman Sachs"), acts as investment adviser. Under the Agreement, GSAM,
subject to the general supervision of the Trust's Board of Trustees, manages
the Fund's portfolio. As compensation for the services rendered under the
Agreement, the assumption of the expenses related thereto and administering
the Fund's business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to
1.00% of the average daily net assets of the Fund.
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 charges and has
advised the Fund that has retained approximately $662,000 during the year
ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 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 $727,000 of its distribution fees attributable to the
Class A shares. The Distributor may discontinue or modify this waiver in the
future at its 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
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.
At January 31, 1998, the Fund owed approximately $365,000, $85,000,
$250,000 and $164,000 for Management, Distribution, Authorized Dealer Service
and Transfer Agent fees, respectively.
13
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Notes to Financial Statements (continued)
January 31, 1998
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options transactions) for the year ended
January 31, 1998, were $383,473,138 and $245,849,428, respectively.
For the year ended January 31, 1998, written put option transactions in the
Fund were as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUM
WRITTEN OPTIONS CONTRACTS RECEIVED
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding at beginning
of year -- --
Options written 4,250 1,261,651
Options expired (1,300) (404,211)
Options exercised (1,500) (348,538)
Options repurchased (1,450) (508,902)
-------------------------------------------------------------------------------------------------
BALANCE OUTSTANDING, END OF YEAR 0 $ 0
-------------------------------------------------------------------------------------------------
</TABLE>
Certain risks arise related to call and put options from the possible
inability of counterparties to meet the terms of their contracts.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$96,000 of brokerage commissions from portfolio transactions.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all
repurchase agreements are held in safekeeping at the Fund's custodian.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$988,433 from accumulated net realized gains on investment and options to un-
distributed net investment loss and $13,468 from paid-in-capital to accumu-
lated net investment income. These reclassifications have no impact on the
net asset value of the Fund and are designed to present the Fund's capital
accounts on a tax basis.
14
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase
agreements are U.S. Treasury and agency obligations. At January 31, 1998, the
Fund had an undivided interest in the repurchase agreements in the following
joint account which equaled $35,100,000 in principal amount. At January 31,
1998, the repurchase agreements held in this joint account, along with the
corresponding underlying securities (including the type of security, market
value, interest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC. $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 consisting of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA:
6.50%-8.00%, 05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
----------------------------------------------------------------------------
LEHMAN BROTHERS INC. 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA:
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
----------------------------------------------------------------------------
NOMURA SECURITIES INTERNA-
TIONAL 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-01/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
----------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL 270,000,000 5.64 02/02/98 270,000,000
dated 01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC:
03/06/98; FFCB: 6.30%, 08/08/07)
----------------------------------------------------------------------------
SALOMON-SMITH BARNEY 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.88%, 08/15/01)
----------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
----------------------------------------------------------------------------
</TABLE>
8. 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.
15
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Notes to Financial Statements (continued)
January 31, 1998
9. TRANSACTIONS WITH AFFILIATED COMPANIES
A Fund is considered to be invested in an affiliated company if that Fund
owns greater than five percent of the outstanding voting securities of such
company. Transactions during the year ended January 31, 1998 with affiliates
of the Fund are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES REALIZED DIVIDEND MARKET
AFFILIATE NAME AT COST PROCEEDS GAIN/(LOSS) INCOME VALUE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alpine Lace Brands $ -- $3,418 $1,499 $ -- $ --
---------------------------------------------------------------------------------------
APS Holding 759 4,299 (5,692) -- --
---------------------------------------------------------------------------------------
AVTeam Inc. 4,776 -- -- -- 5,479
---------------------------------------------------------------------------------------
J. Baker, Inc. 1,979 190 (969) 64 5,654
---------------------------------------------------------------------------------------
Brookstone, Inc. -- 382 (98) -- 8,285
---------------------------------------------------------------------------------------
Congoleum Corp. 1,395 1,983 489 -- 1,956
---------------------------------------------------------------------------------------
DSI Recreational Product, Inc. -- -- -- -- 819
---------------------------------------------------------------------------------------
Figgie International, Inc. -- 2,198 705 -- 3,451
---------------------------------------------------------------------------------------
Friedmans Inc. 3,050 -- -- -- 13,232
---------------------------------------------------------------------------------------
Friendly Ice Cream Corp. 7,283 -- -- -- 7,120
---------------------------------------------------------------------------------------
Healthplan Services Corp. 17,095 -- -- 82 18,528
---------------------------------------------------------------------------------------
Loehmann's Inc. 6,958 1,231 (104) -- 2,779
---------------------------------------------------------------------------------------
Mortons Restaurant Group, Inc. 787 1,566 855 -- 7,271
---------------------------------------------------------------------------------------
Movado Group, Inc. -- 10,027 6,247 55 10,079
---------------------------------------------------------------------------------------
Opinion Research Corp. -- -- -- -- 2,865
---------------------------------------------------------------------------------------
Pegasus Communications, Inc. 1,153 1,895 572 -- 5,759
---------------------------------------------------------------------------------------
Platinum Entertainment Inc. 1,233 -- -- -- 3,411
---------------------------------------------------------------------------------------
Pluma Inc. 2,489 -- -- -- 3,584
---------------------------------------------------------------------------------------
Seibels Bruce Group, Inc. 3,313 -- -- -- 3,062
---------------------------------------------------------------------------------------
Video Services Corp. -- -- -- -- 1,216
---------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
10. 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 7,020,650 $ 172,468,843 2,508,268 $ 52,353,524
Reinvestments of divi-
dends and distributions 1,196,260 29,143,998 475,255 9,732,097
Shares repurchased (2,963,020) (72,385,902) (4,697,902) (94,933,279)
------------------------------------------------------------------------
5,253,890 129,226,939 (1,714,379) (32,847,658)
----------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,583,327 39,092,621 173,849 3,765,689
Reinvestments of divi-
dends and distributions 133,772 3,203,441 7,086 144,474
Shares repurchased (94,963) (2,262,530) (4,391) (91,616)
------------------------------------------------------------------------
1,622,136 40,033,532 176,544 3,818,547
----------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 237,741 6,114,667 -- --
Reinvestments of divi-
dends and distributions 12,751 303,029 -- --
Shares repurchased (14,344) (349,698) -- --
------------------------------------------------------------------------
236,148 6,067,998 -- --
----------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 553,727 13,840,589 -- --
Reinvestments of divi-
dends and distributions 53,456 1,304,063 -- --
Shares repurchased (61) (1,617) -- --
------------------------------------------------------------------------
607,122 15,143,035 -- --
----------------------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 64 1,600 -- --
Reinvestments of divi-
dends and distributions 6 146 -- --
Shares repurchased -- -- -- --
------------------------------------------------------------------------
70 1,746 -- --
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) 7,719,366 $190,473,250 (1,537,835) $ (29,029,111)
----------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED AND
UNREALIZED FROM NET
NET ASSET GAIN (LOSS) REALIZED GAIN IN EXCESS NET INCREASE
VALUE, NET ON INVESTMENT FROM NET ON INVESTMENT OF NET (DECREASE)
BEGINNING INVESTMENT AND OPTIONS INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET
OF PERIOD INCOME (LOSS) TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $20.91 $ 0.14 $ 5.33 $ -- $(2.33) $ -- $ 3.14
1998 - Class B Shares 20.80 (0.01) 5.27 -- (2.33) -- 2.93
1998 - Class C Shares(b) 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96)
1998 - Institutional
Shares(b) 24.91 0.03 1.48 -- (2.05) (0.28) (0.82)
1998 - Service Shares(b) 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86)
--------------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 17.29 (0.21) 4.92 -- (1.09) -- 3.62
1997 - Class B Shares(b) 20.79 (0.11) 1.21 -- (1.09) -- 0.01
--------------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 16.14 (0.23) 1.39 -- (0.01) -- 1.15
--------------------------------------------------------------------------------------------------------------------
1995 - Class A Shares 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53)
--------------------------------------------------------------------------------------------------------------------
1994 - Class A Shares 16.68 (0.04) 5.03 -- (1.00) -- 3.99
FOR THE PERIOD ENDED JANUARY 31,
1993 - Class A Shares(b) 14.18 0.03 2.50 (0.03) -- -- 2.50
--------------------------------------------------------------------------------------------------------------------
</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 October 22, 1992, May 1, 1996, August 15, 1997, August
15, 1997 and August 15, 1997, 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 SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET TO AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS ASSETS ASSETS ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$24.05 26.17% 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
23.73 25.29 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
23.73 5.51 (d) 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
24.09 6.08 (d) 84.81 0.0517 14,626 1.16(c) 0.27 (c) 1.16(c) 0.27 (c)
24.05 5.91 (d) 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
- ---------------------------------------------------------------------------------------------------------------------
20.91 27.28 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
20.80 5.39 (d) 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
- ---------------------------------------------------------------------------------------------------------------------
17.29 7.20 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
- ---------------------------------------------------------------------------------------------------------------------
16.14 (17.53) 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
- ---------------------------------------------------------------------------------------------------------------------
20.67 30.13 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
16.68 17.86 (d) 7.12 -- 59,339 1.65(c) 0.62 (c) 2.70(c) (0.43)(c)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Small Cap
Value Fund:
We have audited the accompanying statement of assets and liabilities of the
Goldman Sachs Small Cap Value 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 Small Cap Value 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 Small Cap Value Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Small Cap Value 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
Historically, stocks have demonstrated greater potential to build wealth
over the long term than most other types of investments.
Goldman Sachs Small Cap Value Fund offers investors access to the benefits
associated with equity investing. The Fund seeks long-term capital growth,
primarily through equity securities of companies with public stock market
capitalizations of $1 billion or less at the time of investment.
Target Your Needs
The Goldman Sachs Small Cap Value 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 Domestic Equity Funds
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher SMALL CAP VALUE FUND
Risk/Return CORE Small Cap Equity Fund
Mid Cap Equity Fund
Capital Growth Fund
CORE Large Cap Growth Fund
Lower CORE U.S. Equity Fund
Risk/Return Growth and Income Fund
</TABLE>
For More Information
To learn more about the Goldman Sachs Small Cap Value 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
Investment Adviser,
Distributor and Transfer Agent
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 are subject to
risks in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. Compared with U.S. securities
markets, foreign markets may be less liquid, more volatile and less subject to
governmental regulation, and may make available less public information about
issuers. Funds that invest in foreign issues 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 SCVAR / 110K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
BALANCED FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth
opportunities and current income
through a carefully constructed
mix of equity and fixed income
securities.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS BALANCED FUND
Fund Basics
as of January 31, 1998
Assets Under Management
----------------------
$204.5 Million
----------------------
Number of Equity Holdings
----------------------
47
----------------------
NASDAQ SYMBOLS
Class A Shares
----------------------
GSBFX
----------------------
Class B Shares
----------------------
GSBBX
----------------------
Class C Shares
----------------------
GSBCX
----------------------
Institutional Shares
----------------------
GSBIX
----------------------
Service Shares
----------------------
GSBSX
----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return Combined S&P 500 &
January 31, 1998 (based on NAV)(1) Lehman Aggregate Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 17.54% 19.60%
Class B 16.71% 19.60%
Class C (8/15/97-1/31/98) 2.49% 8.01%
Institutional (8/15/97-1/31/98) 2.93% 8.01%
Service (8/15/97-1/31/98) 2.66% 8.01%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%) assuming
reinvestment of all dividends and interest. Figures do not reflect fees or
expenses. Investors cannot invest directly in the Index.
<TABLE>
<CAPTION>
===================================================================================================
SEC AVERAGE ANNUAL TOTAL RETURN(3)
===================================================================================================
For the period Class C Institutional Service
ending 12/31/97 Class A Class B (Cumulative)(4) (Cumulative)(4) (Cumulative)(4)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 months 13.07% 13.37% N/A N/A N/A
Since Inception 17.61% 16.86% 0.56% 1.91% 1.75%
(10/12/94) (5/1/96) (8/15/97) (8/15/97) (8/15/97)
- ---------------------------------------------------------------------------------------------------
</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
$21.47 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 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 the assumed deferred sales charge for
Class C shares (1% if redeemed within 12 months of purchase).
================================================================================
TOP 10 EQUITY HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
Quantum Corp. 2.6% Tape and Disk Drive Products
Lockheed Martin Corp. 2.3% Defense
Cigna Corp. 2.1% Insurance
Aetna Inc. 2.0% Healthcare Management
Lear Corp. 2.0% Auto Supplies
Morgan Stanley, 1.8% Financial Services
Dean Witter Discover & Co.
Tosco Corp. 1.8% Oil Refining and Marketing
Unicom Corporation 1.6% Electric Utilities
Fruit of the Loom, Inc. 1.6% Clothing Manufacturer
Union Carbide Corp. 1.6% Chemicals and Plastics
- --------------------------------------------------------------------------------
</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 BALANCED FUND
Market Overview
Dear Shareholder,
The U.S. stock market took investors on an unsteady ride during the period under
review -- one that saw the market climb to record highs, and plummet in what
would be the market's largest single-day percentage drop in a decade.
Nonetheless, over the 12-month period ended January 31, 1998, the market posted
an approximate 27% return as measured by the S&P 500 stock index -- well above
stocks' historical long-term average return.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -- Market turbulence early in the period was largely fueled
by speculation over Federal Reserve policy. The Fed's decision to
increase the Federal funds rate in March was perceived by investors as
potentially the first in a series of tightenings, and the market,
after a period of buoyancy, sold off sharply. By late April, though,
economic indicators slowed, reassuring the market that further rate
hikes were unlikely. Renewed investor confidence sent the market
soaring.
Throughout the remainder of the year, several factors, including
a lack of inflationary pressure, furthered the market's upward climb.
Waxing and waning investor confidence, however, caused a degree of
market volatility. Most notably, in October, investor uncertainty
helped to foster overreaction to falling Asian markets. The market
fell precipitously, posting the largest single-day decline in nearly a
decade. Soon thereafter, the market firmed as investors accepted the
argument that Asian market weakness would have little impact on U.S.
companies.
o The U.S. Bond Market: After a Slow Start, Bonds Flourish Amid Global
Equity Market Worries -- Despite a slow start early in the year,
prospects for the bond market brightened as the year progressed.
Slowing economic growth caused fears over additional rate hikes to
subside, and bonds began to recoup their earlier losses. Regardless,
fixed income investors remained wary; when signs of strengthening
activity emerged during the summer, the bond market came under renewed
pressure. The decline proved to be short-lived, however, as bonds
quickly recovered on the back of reassuring inflation data and a surge
of buying interest. Treasury prices continued to rise sharply through
the end of the period, particularly when demand soared as investors
sought a safe haven in the wake of steep sell-offs in global equity
markets.
o Outlook: Expect Moderating Economic Growth and Low Inflation -- Going
forward, we believe the inflation and interest rate environments will
likely remain favorable, particularly over the near term. Furthermore,
we believe the equity market will produce returns closer to the
historic norm, a scenario that should be accompanied by more normal
levels of volatility (that is, greater volatility than the relatively
low levels averaged over the past five years).
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, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
1
<PAGE>
GOLDMAN SACHS BALANCED FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Balanced Fund
for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's share classes fared well versus its peers for the one-year
period ended January 31, 1998, according to Lipper Analytical Services,
Inc. The Fund's Class A shares and Class B shares outperformed the 16.52%
average return of the Lipper Balanced Fund peer group (ranking 135 and 179,
respectively, out of 361 funds. Class C share, Institutional share and
Service share performance was not available, as the performance record of
these classes is less than 12 months. Please note that Lipper rankings do
not take sales charges into account and that past performance is not a
guarantee of future results).
Sector Allocations
o Equity -- As of January 31, 1998, the Fund was 53% invested in equity
securities. As a result of our bottom-up approach to stock selection,
the Fund emphasized consumer durables and financial companies,
economically sensitive sectors in which we found attractive value. We
were underweighted in consumer non-durables, energy and technology,
and market-weighted in the health sector. Within health, we held no
pharmaceutical stocks, as we felt these were both richly priced and
open to competitive pressures. The Fund held no media and
communications stocks, as we found many stocks in this sector to be
overvalued.
o Fixed Income -- As of January 31, 1998, the Fund was 43% invested in
fixed income securities. Throughout the period under review, relative
to the Lehman Brothers Aggregate Bond Index, the Fund was
underweighted in U.S. Treasury and government agency bonds, and
overweighted in asset-backed securities, fixed rate mortgages,
corporate bonds and foreign debt. In general, the Fund's allocation to
corporate bonds contributed most to incremental return (although the
foreign subsector underperformed in the last quarter due to events in
Asia), followed by mortgage-backed securities. October's Asian market
downturn most adversely affected the Fund's emerging market debt
positions; despite a strong start in 1997, the portfolio's allocation
to the sector detracted from incremental return for the year as a
whole.
Portfolio Highlights
o Sunbeam -- The household appliance manufacturer benefited from
restructuring measures implemented by turnaround specialist Al Dunlap.
New feature-laden products were well-received by national retailers,
and improved distribution and heightened advertisement further
benefited the company.
o Lear Corp. -- Lear, the leading worldwide supplier of automotive
interior systems, has benefited from strategic acquisitions of
third-tier suppliers. A renewed focus on Lear's advantageous position
in the automotive supply industry helped its price rise through the
year.
2
<PAGE>
GOLDMAN SACHS BALANCED FUND
STOCK SELECTION FOLLOWS
A VALUE INVESTMENT PROCESS
Value stocks represent companies that are currently undervalued in the market,
but whose intrinsic value we believe ultimately will be recognized. Our value
stock selection process emphasizes a bottom-up approach.
1
Search for Value
We search for value from a universe of 1,000 stocks, and then select 200 to 300
of the least expensive.
2
Fundamental Research
We refine our stock list through rigorous analysis of companies' "fundamentals"
and face-to-face meetings with company management, competitors, suppliers and
customers.
3
Risk Management
We maintain ongoing risk management resulting in an intentional and quantifiable
risk/return profile.
o Morgan Stanley, Dean Witter Discover & Co. -- The company appreciated
as the market recognized its post-merger profitability.
o Lennar Corp. -- Lennar demonstrated consistently strong performance,
fueled in part by the market's recognition of the worth of the
company's different divisions: commercial real estate, homebuilding
and a financial division.
Key New Acquisitions
o Quantum Corp. -- The company, which designs and develops information
storage products, including hard-disk drives, benefited from the
strength of its digital linear tape business.
o Wells Fargo & Co. -- The second largest bank in California, Wells
Fargo is the most advanced of its peers in lowering branch
distribution costs and in data-mining.
Portfolio Outlook
We are keeping a close eye on the U.S. equity market's current valuation.
The current S&P 500 P/E ratio seems unsustainable to us, as the combination
of rising labor costs and Asia-driven pricing pressure could squeeze U.S.
margins. By focusing on reasonably valued and discounted names, however, we
feel comfortable with our domestic portfolio. We will continue to emphasize
non-Treasury sectors within the fixed income portion of the Fund. We are
especially positive on corporates, and view their recent underperformance
as an opportunity to add to the Fund's existing holdings. Despite
diminishing volatility in Asia, the situation there is tenuous. Therefore,
we will exercise caution in these markets.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
<TABLE>
<S> <C> <C>
/s/ Ronald E. Gutfleish /s/ G. Lee Anderson /s/ Eileen A. Aptman
Ronald E. Gutfleish G. Lee Anderson Eileen A. Aptman
Portfolio Manager, Portfolio Manager, Portfolio Manager,
Goldman Sachs Balanced Fund Goldman Sachs Balanced Fund Goldman Sachs Balanced Fund
/s/ Jonathan A. Beinner /s/ C. Richard Lucy
Jonathan A. Beinner C. Richard Lucy
Portfolio Manager, Portfolio Manager,
Goldman Sachs Balanced Fund Goldman Sachs Balanced Fund
</TABLE>
February 27, 1998
3
<PAGE>
GOLDMAN SACHS BALANCED FUND
For Best Results,
It's Time in the Market That Counts
For optimal long-term investment results, time in the market can make the
difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- can do more harm than good
to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
- --------------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long-Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has generated negative returns only
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than timing the market.
For More Information
A diversified portfolio of stocks is one of the best ways to reduce the
effects of market fluctuations on a portfolio. For most investors,
diversification is most easily acquired through mutual funds. Goldman Sachs
Asset Management offers a broad spectrum of equity mutual funds that can
help investors weather market ups and downs. For more information on these
and other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS BALANCED 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
October 12, 1994. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 index ("S&P 500") and the Lehman
Brothers Aggregate Bond Index (LBABI)) are shown. This performance data rep-
resents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to
be worth more or less than their original cost. Performance of Class B, Class
C, Institutional and Service shares will vary from Class A due to differences
in fees and loads.
BALANCED FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED OCTOBER 12, 1994 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P 500 w/Inc Lehman Aggregate Fund
<S> <C> <C> <C>
10/12/1994 10000 10000 9450
10152 9987 9413
9782 9965 9247
9927 10034 9351
Jan-95 10184 10232 9532
10582 10476 9948
10895 10540 10143
11215 10687 10379
11664 11101 10743
11934 11182 10959
Jul-95 12330 11157 11149
12361 11292 11319
12883 11402 11509
12837 11550 11455
13400 11724 11762
13659 11888 11978
Jan-96 14123 11966 12211
14254 11758 12275
14391 11676 12303
14603 11610 12402
14980 11587 12566
15037 11742 12544
Jul-96 14372 11774 12372
14675 11754 12544
15501 11958 12982
15929 12224 13314
17133 12433 14022
16794 12317 14102
Jan-97 17843 12356 14488
17983 12386 14665
17244 12249 14324
18272 12433 14759
19384 12551 15388
20253 12700 15745
Jul-97 21865 13043 16723
20640 12932 16566
21772 13122 17019
21045 13313 16720
22019 13374 16760
22398 13509 16870
Jan-98 22647 13682 17030
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED OCTOBER 12, 1994)
Excluding sales charges +19.48% +17.54%
Including sales charges +17.45% +11.10%
---------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges +18.96% +16.71%
Including redemption charges +16.60% +11.30%
---------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges +2.49% n/a
Including redemption charges +1.47% n/a
---------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 15,
1997)(A) +2.93% n/a
---------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15, 1997)(A) +2.66% n/a
---------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 52.9%
<C> <S> <C>
AEROSPACE & DEFENSE - 3.2%
40,190 Boeing Co. $ 1,911,537
44,600 Lockheed Martin Corp. 4,641,188
-------------------------------
6,552,725
--------------------------------------------------------
AIRLINES - 2.0%
17,500 AMR Corp.* 2,209,375
40,700 Continental Airlines Inc.* 1,887,463
-------------------------------
4,096,838
--------------------------------------------------------
APPLIANCES - 1.2%
66,000 Sunbeam Corp. 2,503,875
--------------------------------------------------------
AUTO/VEHICLE - 2.9%
34,400 Ford Motor Co. 1,754,400
82,900 Lear Corp. 4,119,094
-------------------------------
5,873,494
--------------------------------------------------------
BANKS - 4.7%
25,800 Chase Manhattan Corp. 2,765,438
38,100 Fleet Financial Group Inc. 2,728,913
15,800 Republic N.Y. Corp. 1,720,225
7,100 Wells Fargo & Co. 2,193,900
-------------------------------
9,408,476
--------------------------------------------------------
CHEMICAL PRODUCTS - 2.8%
72,500 IMC Global Inc. 2,338,125
76,100 Union Carbide Corp. 3,334,131
-------------------------------
5,672,256
--------------------------------------------------------
COMPUTER PERIPHERALS - 2.6%
217,500 Quantum Corp.* 5,301,563
--------------------------------------------------------
DATACOM EQUIPMENT - 1.2%
88,800 Bay Networks Inc.* 2,414,250
--------------------------------------------------------
DEPARTMENT STORES - 0.3%
14,200 Sears Roebuck & Co. 654,088
--------------------------------------------------------
FOREST PRODUCTS - 2.8%
45,300 Georgia-Pacific Corp. 2,497,163
136,600 Stone Container Corp.* 1,741,650
67,700 Georgia-Pacific Corp.
(Timber Group) 1,574,025
-------------------------------
5,812,838
--------------------------------------------------------
GAMING - 1.1%
99,700 Circus Circus Enterprises, Inc.* 2,293,100
--------------------------------------------------------
HEALTHCARE MANAGEMENT - 4.9%
56,700 Aetna Inc. 4,167,450
90,600 Foundation Health Systems, Inc.* 2,349,938
94,200 Tenet Healthcare Corp. 3,249,900
-------------------------------
9,767,288
--------------------------------------------------------
HOMEBUILDERS - 0.2%
1,200 Centex Corp. 75,300
13,800 Lennar Corp. 338,963
-------------------------------
414,263
--------------------------------------------------------
INSURANCE-BROKERS - 1.3%
27,100 Loews Corp. 2,704,919
--------------------------------------------------------
INSURANCE-LIFE - 2.1%
25,300 Cigna Corp. 4,289,931
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
INSURANCE-PROPERTY & CASUALTY - 0.3%
9,200 Allmerica Financial Corp. $ 484,150
1,500 CNA Financial Corp.* 200,438
------------------------------------------
684,588
-------------------------------------------------------------------
OIL-INTEGRATED - 0.5%
19,800 Texaco Inc. 1,030,838
-------------------------------------------------------------------
OIL & GAS-REFINING AND MARKETING - 1.8%
108,500 Tosco Corp. 3,627,969
-------------------------------------------------------------------
REAL ESTATE - 0.6%
51,000 LNR Property Corp.* 1,208,063
-------------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES - 1.8%
64,800 Morgan Stanley, Dean Witter, Discover & Co. 3,782,700
-------------------------------------------------------------------
SEMICONDUCTORS - 1.5%
49,600 AVnet Inc. 3,025,600
-------------------------------------------------------------------
SPECIALTY FINANCE - 0.0%
2,500 C.I.T. Group Inc.* 75,156
-------------------------------------------------------------------
STEEL - 2.1%
123,400 AK Steel Holding Corp. 2,205,775
97,000 Ispat International NV* 2,097,625
------------------------------------------
4,303,400
-------------------------------------------------------------------
SUPERMARKETS - 1.5%
70,300 Fleming Companies Inc. 1,058,894
47,000 Supervalu Inc. 2,062,125
------------------------------------------
3,121,019
-------------------------------------------------------------------
TEXTILES - 1.6%
140,000 Fruit of the Loom Inc.* 3,360,000
-------------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 1.5%
48,000 Goodyear Tire & Rubber Co. 3,006,000
-------------------------------------------------------------------
TOBACCO - 2.0%
93,100 RJR Nabisco Holdings Corp. 2,932,650
33,300 UST Inc. 1,148,850
------------------------------------------
4,081,500
-------------------------------------------------------------------
TRANSPORTATION & LOGISTICS - 2.2%
50,700 CNF Transportation Inc. $ 2,316,356
82,400 Canadian Pacific Ltd. 2,229,950
------------------------------------------
4,546,306
-------------------------------------------------------------------
UTILITIES-ELECTRIC - 2.2%
91,400 Northeast Utilities 1,119,650
108,500 Unicom Corp. 3,363,500
------------------------------------------
4,483,150
-------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $98,416,735) $108,096,193
-------------------------------------------------------------------
PREFERRED STOCKS - 0.0%
MEDIA/ENTERTAINMENT - 0.0%
71 Time Warner Inc. Series M Preferred $ 81,404
-------------------------------------------------------------------
TOTAL PREFERRED STOCKS - 0.0%
(COST $59,052) $ 81,404
-------------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - 8.1%
ALAC Automobile Receivables Trust
$ 1,750,000 6.12% 06/15/2003 $ 1,750,000
Americredit Automobile Receivables Trust, Series 1997-D,
Class A3
1,100,000 6.24 09/05/2003 1,124,063
Asset Securitization Corp., Series 1997-D4, Class A1
450,000 7.49 04/14/2027 488,052
Case Equipment Loan Trust, Series 1995-A, Class A
37,733 7.30 03/15/2002 37,917
Chase Commercial Mortgage Services Corp., Series 1997-2,
Class A2
2,200,000 6.60 11/19/2007 2,252,866
Chemical Bank Master Credit Card Trust, Series 1995-2,
Class A
140,000 6.23 06/15/2003 141,793
Chevy Chase Auto Receivables Trust, Series 1995-2, Class A
40,075 5.80 06/15/2002 40,063
Discover Card Master Trust Series 1994-2, Class A
70,000 5.94 10/16/2004 70,503
Discover Card Master Trust Series 1994-4, Class A
740,000 5.97 10/16/2013 746,475
Discover Card Master Trust Series 1994-4, Class B
420,000 6.14 10/16/2013 420,000
DVI Equipment Lease Trust, Series 1996, Class 1A
336,705 6.55 07/10/2004 339,200
EQCC Home Equity Loan Trust, Series 1997-3, Class A10
835,585 5.77 11/15/2028 834,674
Fasco Auto Trust, Series 1996-1, Class A
166,848 6.65 11/15/2001 169,360
Finger Hut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/2002 201,750
First Union Lehman Brothers Commercial Mortgage Services,
Series 1997-C1, Class A2
300,000 7.30 12/18/2006 319,056
First Union Lehman Brothers Commercial Mortgage Services,
Series 1997-C2, Class A2
700,000 6.60 05/18/2007 717,780
First USA Credit Card Master Trust, Series 1997-5, Class A
350,000 5.73 04/17/2007 349,024
First USA Credit Card Master Trust, Series 1997-6, Class A
1,350,000 6.42 03/17/2005 1,384,169
General Motors Acceptance Corp., Series 1997-C1, Class A3
600,000 6.87 08/15/2007 625,368
H & T Master Trust, Series 1996-1, Class A2
220,000 8.06 03/15/2000 219,655
MBNA Credit Card Master Trust, Series 1996-M, Class A
1,050,000 5.88 04/15/2009 1,046,388
Mid State Trust, Series 4, Class A
865,086 8.33 04/01/2030 948,446
Morgan Stanley Capital Commercial Mortgage, Inc.,
Series 1997-C1
400,000 7.46 05/15/2006 424,484
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
ASSET-BACKED SECURITIES - (CONTINUED)
<S> <C> <C> <C>
Mortgage Capital Funding Inc., Series 1997, Class A3
$ 500,000 7.29% 03/20/2007 $ 534,804
Navistar Owner Trust, Series 1995-B, Class A3
69,846 6.05 04/15/2002 69,998
Sears Credit Account Master Trust, Series 1995-1, Class A
360,000 8.25 01/07/2007 401,962
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/2004 726,250
Sears Credit Account Master Trust, Series 1995-3, Class A
70,000 7.00 10/15/2004 71,925
Sears Credit Account Master Trust, Series 1995-4, Class A
110,000 8.25 11/07/2003 118,800
------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $14,539,758) $ 16,574,825
CORPORATE BONDS - 12.4%
FINANCE BONDS - 3.0%
Bankamerica Corp.
$ 1,000,000 7.75% 07/15/2002 $ 1,063,420
Beneficial Corp.
1,350,000 6.43 04/10/2002 1,369,926
Capital One Bank
150,000 6.90 04/15/1999 152,145
220,000 8.13 03/01/2000 229,174
290,000 6.88 04/24/2000 296,328
900,000 6.60 08/20/2001 917,649
Continental Bank
100,000 12.50 04/01/2001 118,375
Countrywide Funding
100,000 6.08 07/14/1999 100,480
Edison Mission Energy Funding Corp.
89,516 6.77 09/15/2003 91,207
Fleet Mortgage Group
250,000 6.50 06/15/2000 253,568
Ford Motor Credit Corp.
40,000 8.38 01/15/2000 41,815
General Motors Acceptance Corp.
200,000 5.88 01/22/2003 198,860
Golden West Financial
200,000 10.25 12/01/2000 222,034
PXRE Capital Trust I
65,000 8.85 02/01/2027 70,782
Riggs National
280,000 9.65 06/15/2009 337,126
Signet Bank
500,000 9.63 06/01/1999 522,695
Washington Real Estate Trust
55,000 7.13 08/13/2003 57,290
------------------------------------------------------------------------------------------------
TOTAL FINANCE BONDS
(COST $7,736,833) $ 6,042,874
------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
CORPORATE BONDS - (CONTINUED)
<S> <C> <C> <C>
INDUSTRIAL BONDS - 8.4%
360 Communications Co.
$ 455,000 7.13% 03/01/2003 $ 467,394
Auburn Hills Trust
50,000 12.00 05/01/2020 80,504
Blockbuster Entertainment, Inc.
50,000 6.63 02/15/1998 49,993
California Energy
350,000 10.25 01/15/2004 376,870
Chelsea GCA Realty
656,000 7.75 01/26/2001 683,270
Chrysler Corp.
60,000 7.45 02/01/2097 63,197
Comdisco Inc.
765,000 6.13 01/15/2003 773,522
Conseco Finance
200,000 8.70 11/15/2026 220,556
Conseco Inc.
160,000 10.50 12/15/2004 193,357
Countrywide Capital
130,000 8.05 06/15/2027 137,114
Countrywide Funding
200,000 7.73 08/09/2001 210,490
Countrywide Home
650,000 6.38 10/08/2002 655,753
700,000 6.84 10/22/2004 720,000
Harrahs Inc.
500,000 8.75 03/15/2000 510,000
Health & Retirement
250,000 6.14 07/09/2007 249,750
Hertz Corp.
555,000 6.00 01/15/2003 548,806
K Mart Corp.
40,000 9.55 06/30/1998 40,373
40,000 9.60 09/15/1998 40,400
200,000 8.00 12/13/2001 202,262
Kroger Co.
750,000 12.95 02/01/2009 823,020
Liberty Property Limited Partnership
205,000 7.10 08/15/2004 212,595
Loewen Group International
180,000 8.25 10/15/2003 186,892
Meditrust
270,000 7.82 09/10/2026 282,909
News America Holdings
160,000 9.25 02/01/2013 191,398
Northwest Airlines
214,951 8.97 01/02/2015 238,022
NWA Trust, Series C
64,425 8.26 03/10/2006 69,315
NWCG Holding Corp
600,000 5.98 (b) 06/15/1999 553,302
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
CORPORATE BONDS - (CONTINUED)
<S> <C> <C> <C>
Oryx Energy Co
$ 245,000 9.50% 11/01/1999 $ 257,720
Panamsat Corp.
880,000 6.13 01/15/2005 865,550
Paramount Communications
200,000 5.88 07/15/2000 197,202
RJR Nabisco, Inc.
335,000 8.00 07/15/2001 346,651
240,000 8.63 12/01/2002 255,974
80,000 8.25 07/01/2004 83,426
Rogers Cablesystems, Inc.
115,000 9.63 08/01/2002 124,200
Taubman Realty Group
330,000 8.00 07/30/2001 348,058
200,000 7.00 10/01/2003 204,694
TCI Communications, Inc.
265,000 8.75 08/01/2015 305,640
410,000 6.82 09/15/2010 411,833
Tele-Communications, Inc.
$ 125,000 9.65% 10/01/2003 $ 137,824
800,000 8.25 01/15/2003 862,408
Tenet Healthcare Corporation
60,000 9.63 09/01/2002 65,700
Time Warner Inc.
375,000 7.45 02/01/1998 374,411
575,000 4.90 07/29/1999 564,794
850,000 7.95 02/01/2000 880,592
445,000 9.63 05/01/2002 501,617
250,000 7.98 08/15/2004 269,685
US Air Inc.
323,095 8.93 04/15/2008 369,104
US Home Corp.
195,000 7.95 03/01/2001 195,000
USI American Holdings
60,000 7.25 12/01/2006 62,834
Viacom International, Inc.
95,000 10.25 09/15/2001 105,493
160,000 9.13 08/15/1999 162,126
Worldcom Inc.
600,000 9.38 01/15/2004 640,050
------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS
(COST $17,092,953) $ 17,373,650
------------------------------------------------------------------------------------------------
UTILITY BONDS - 0.1%
Central Maine Power
$ 100,000 7.38% 01/01/1999 $ 100,988
160,000 7.45 08/30/1999 162,310
------------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS
(COST $259,231) $ 263,298
------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $25,089,017) $25,429,822
------------------------------------------------------------------------------------------------
</TABLE>
8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
EMERGING MARKET DEBT - 2.1%
APP International Finance Co.
$ 250,000 8.30 06/28/1999 $ 202,500
100,000 8.87 09/15/1999 70,000
200,000 10.25% 10/01/2000 164,400
Bancoldex
490,000 8.63 06/02/2000 499,356
Banobras
286,000 6.88 10/01/1998 285,274
80,000 9.63 11/15/2003 82,600
Bridas Corp.
90,000 10.25 12/07/1998 91,148
90,000 12.50 11/15/1999 96,750
Cemex S.A. + Tolmex
20,000 10.00 11/05/1999 20,643
Corp. Andina de Fomento
100,000 7.25 04/30/1998 100,109
Empresa Col Petroleos
80,000 7.25 07/08/1998 80,211
Empresas Ica Soc Contro
210,000 9.75 02/11/1998 210,185
Financiera Energy Nacional
390,000 9.38 06/15/2006 404,301
Grupo Industrial Durango
20,000 12.00 07/15/2001 21,650
100,000 12.63 08/01/2003 113,333
Grupo Iusacell
80,000 10.00 07/15/2004 80,878
Grupo Televisa
90,000 11.38 05/15/2003 99,408
Guangdong Enterprises
200,000 8.88 05/22/2007 158,206
IKPPIJ-Global
100,000 11.38 06/15/1999 91,000
Industrias Metal
150,000 9.50 05/31/2002 144,861
Innova S de R.L.
40,000 12.88 04/01/2007 40,299
Inst Fom Industrial
290,000 8.38 07/29/2001 294,698
Nacional Financiera
230,000 5.88 02/17/1998 229,793
Nacional Financiera
200,000 8.46 06/19/1998 199,880
National Power
120,000 7.63 11/15/2000 114,200
Poland Communications Inc.
90,000 9.88 11/01/2003 88,200
Province of Tucuman
96,429 9.45 08/01/2004 95,789
Pt Indah Kiat
30,000 8.88 11/01/2000 26,700
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
EMERGING MARKET DEBT - (CONTINUED)
<S> <C> <C> <C>
YPF SA
$ 95,370 7.50% 10/26/2002 $ 97,633
---------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $4,381,330) $ 4,204,005
MORTGAGE BACKED OBLIGATIONS - 13.0%
Collateralized Mortgage Obligation Trust Series 64,
Class Z
$ 478,916 9.00% 11/20/2020 $ 526,732
Federal Home Loan Mortgage Corp. (FHLMC)
1,000,000 6.35 03/25/2018 1,012,500
1,000,001 7.50 12/01/2027 1,028,751
989,564 7.00 07/01/2012 1,010,901
2,000,000 7.00 TBA-15 yr.(a) 2,040,620
5,000,000 7.50 TBA-15 yr.(a) 5,143,750
2,000,000 6.00 TBA-15 yr.(a) 1,985,626
Federal National Mortgage Association (FNMA)
1,000,000 6.55 10/25/2020 1,019,680
269,344 6.50 09/01/2025 269,007
317,950 6.50 10/01/2025 317,553
371,600 6.50 11/01/2025 371,366
581,119 6.50 09/01/2027 578,393
422,857 6.50 11/01/2027 420,874
1,000,000 6.50 01/01/2028 995,310
1,000,000 6.50 TBA-30 yr.(a) 996,562
1,000,000 7.00 TBA-30 yr.(a) 1,014,060
General National Mortgage Association (GNMA)
818,089 7.50 05/15/2023 843,645
802,829 7.00 08/15/2023 816,878
907,138 7.00 07/15/2023 923,013
192,433 7.00 05/15/2023 195,801
460,504 8.00 09/15/2026 479,068
488,890 8.00 12/15/2026 507,986
999,131 7.50 01/15/2027 1,028,476
45,089 8.00 05/15/2027 46,850
987,079 7.50 09/15/2027 1,016,069
2,000,000 6.50 TBA-30 yr.(a) 1,995,000
---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $26,264,882) $26,584,471
MUNICIPAL BONDS - 0.9%
Anaheim Public Financing Authority Revenue Bond
$ 290,000 5.00% 03/01/2037 $ 281,387
Chicago Skyway Toll Bridge Revenue Bond
210,000 5.50 01/01/2023 215,979
Indiana Health Facility Hospital Revenue Bond
155,000 5.13 11/01/2017 153,746
Marion County, Indiana Convention Revenue Bond
205,000 5.00 06/01/2027 199,194
Massachusetts Bay Authority Revenue Bond
290,000 5.00 03/01/2027 281,402
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MUNICIPAL BONDS - (CONTINUED)
<S> <C> <C> <C>
Massachusetts Turnpike Authority Revenue Bond, Series A
$ 110,000 5.00% 01/01/2037 $ 106,378
New York City Water & Sewer Revenue Bond, Series A
160,000 5.13 06/15/2021 159,680
New York City Water & Sewer Revenue Bond, Series B
160,000 5.75 06/15/2026 169,402
North Central Texas Health Facility Revenue Bond
320,000 5.13 02/15/2022 318,496
--------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $1,821,599) $ 1,885,664
SOVEREIGN CREDIT - 0.9%
Argentina Bocan
$ 490,299 5.66% 04/01/2001 $ 460,428
Argentina Bontes
18,000 8.63 04/04/1998 18,000
90,000 8.75 05/09/2002 86,625
Province of Quebec
200,000 13.25 09/15/2014 230,882
Republic of Argentina
16,800 8.63 04/06/1998 16,800
173,208 8.84 09/06/2000 159,887
Republic of Colombia
160,000 7.13 05/11/1998 160,112
Republic of Croatia
180,000 7.00 02/27/2002 171,637
Republic of Panama
50,000 7.88 02/13/2002 48,625
346,160 6.84 05/10/2002 340,780
State of Israel
190,000 6.38 12/15/2005 186,894
--------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(COST $1,937,262) $ 1,880,670
U.S. TREASURY OBLIGATIONS - 5.9%
United States Treasury Bonds (d)
$ 470,000 12.00% 08/15/2013 $ 701,033
3,000,000 8.75 05/15/2020 4,052,340
2,050,000 7.88 02/15/2021 2,553,849
United States Treasury Interest Only Stripped Securities
5,300,000 5.79(b) 05/15/2009 2,780,592
United States Treasury Notes
700,000 6.63 07/31/2001 726,796
United States Treasury Principal Only Stripped Securities
1,100,000 6.02(b) 05/15/2020 293,392
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
U.S. TREASURY OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
$ 80,000 5.35%(b) 08/15/1999 $ 73,777
3,250,000 6.10(b) 08/15/2021 804,700
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $11,623,277) $ 11,986,479
YANKEE BONDS - 0.0%
Korea Electric Power
$ 91,662 7.40% 04/01/2016 $ 63,783
----------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(COST $88,633) $ 63,783
SHORT-TERM OBLIGATIONS - 0.1%
Republic of Argentina
$ 100,000 7.67%(b) 10/16/1998 $ 95,469
Trikem SA
50,000 11.00(b) 05/08/1998 48,964
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $144,433) $ 144,433
REPURCHASE AGREEMENT - 10.7%
Joint Repurchase Agreement Account (b)
$21,900,000 5.64% 02/02/1998 $ 21,900,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $21,900,000) $ 21,900,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $206,265,978)(C) $217,081,749
----------------------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
-----------------------------
<C> <S> <C>
FEDERAL INCOME TAX INFORMA-
TION
Gross
unrealized gain
for investments
in which
value exceeds
cost $15,067,035
Gross
unrealized loss
for investments
in which
cost exceeds
value (4,285,077)
-----------------------------
Net unrealized
gain $10,781,958
-----------------------------
</TABLE>
Futures contracts open at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts
Long/ Settlement Unrealized
Type (Short)(e) Month Gain/(Loss)
-------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
90-Day Eurodollar 10 June 1998 $13,750
2-Year U.S. Treasury Note 10 March 1998 15,625
5-Year U.S. Treasury Note 16 March 1998 (250)
10-Year U.S. Treasury Bond (3) March 1998 750
-------
$29,875
--------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) TBA (To Be Assigned) securities are purchased on a forward commitment ba-
sis with an approximate (generally +/-2.5%) principal amount and no defi-
nite maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(b) The interest rate disclosed for these securities represents effective
yields to maturity.
(c) The aggregate cost for federal income tax purposes is $206,299,791.
(d) Portions of these securities are being segregated as collateral for
futures contracts, TBA securities and mortgage dollar rolls.
(e) Each Eurodollar contract represents $1,000,000 in notional par value.
Each 2-Year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 10-Year Treasury Bond represents $100,000 in notional par
value. The total net notional amount and market value at risk are
$13,900,000 and $6,541,929, respectively. The determination of notional
amounts does not consider market risk factors and therefore notional
amounts as presented here are indicative only of volume of activity and
not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 11
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$206,265,978) $217,081,749
Cash, at value 7,823
Receivables:
Investment securities sold 11,192,731
Forward foreign currency exchange contracts 11,555
Fund shares sold 2,339,076
Dividends and interest, at value 1,088,304
Deferred organization expenses, net 22,741
Other assets 103,966
-------------------------------------------------------------------------------
TOTAL ASSETS 231,847,945
-------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 25,762,034
Fund shares repurchased 168,701
Variation margin 195
Amounts owed to affiliates 320,616
Covered securities sold short (cash received $1,002,126) 1,006,578
Accrued expenses and other liabilities 81,576
-------------------------------------------------------------------------------
TOTAL LIABILITIES 27,339,700
-------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 188,861,586
Accumulated undistributed net investment income 410,404
Accumulated undistributed net realized gain on investment
and futures transactions 4,372,376
Accumulated net realized foreign currency gain 13,629
Net unrealized gain on investments and futures transactions 10,855,015
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies (4,765)
-------------------------------------------------------------------------------
NET ASSETS $204,508,245
-------------------------------------------------------------------------------
</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) 8,064,620 1,170,246 438,867
Net asset and Class A redemption value per
share (a) $20.29 $20.20 $20.17
Maximum public offering price per share (Class
A NAV X 1.0582) $21.47 $20.20 $20.17
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 412,422 780
Net asset value, offering and redemption price per
share 20.29 20.28
--------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B and C Shares may be subject to a contingent de-
ferred sales charge assessed on the amount equal to the lesser of the
current net asset value or the original purchase price of the shares.
12 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 1,068,241
Interest(b) 4,207,232
-----------------------------------------------------------------------------
TOTAL INCOME 5,275,473
-----------------------------------------------------------------------------
EXPENSES:
Management fees 870,444
Distribution fees 389,256
Authorized dealer service fees 330,683
Transfer agent fees 240,896
Custodian fees 116,809
Professional fees 71,466
Registration fees 20,510
Amortization of deferred organization expenses 13,432
Trustee fees 1,961
Other 100,880
-----------------------------------------------------------------------------
TOTAL EXPENSES 2,156,337
-----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (722,056)
-----------------------------------------------------------------------------
NET EXPENSES 1,434,281
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 3,841,192
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT, FUTURES AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 13,062,453
Futures transactions 273,218
Foreign currency related transactions (14,059)
Net change in unrealized gain (loss) on:
Investments 2,303,770
Futures (60,318)
Translation of assets and liabilities denominated in foreign
currencies 7,803
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT FUTURES AND
FOREIGN CURRENCY TRANSACTIONS 15,572,867
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,414,059
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $909.
(b) Taxes withheld on interest were $3,594.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 13
<PAGE>
GOLDMAN SACHS BALANCED 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 income $ 3,841,192 $ 2,322,774
Net realized gain on investment and
futures transactions 13,335,671 3,956,460
Net realized (loss) gain on foreign
currency related transactions (14,059) 12,575
Net change in unrealized gain on
investments and futures 2,243,452 5,023,032
Net change in unrealized gain (loss) on
translation of assets and liabilities
denominated in foreign currencies 7,803 (12,568)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 19,414,059 11,302,273
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (3,280,878) (2,259,972)
Class B shares (212,816) (13,466)
Class C shares (37,737) --
Institutional shares (51,094) --
Service shares (160) --
In excess of net investment income
Class A shares -- (7,504)
Class B shares (503) --
Class C shares (6,260) --
Institutional shares (19,503) --
Service shares (42) --
From net realized gain on investment and
futures transactions
Class A shares (8,192,911) (3,654,841)
Class B shares (995,615) (77,400)
Class C shares (180,689)
Institutional shares (164,436) --
Service shares (530) --
In excess of net realized gain on in-
vestment and futures transactions
Class C shares (146,227) --
Institutional shares (259,970) --
Service shares (321) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (13,549,692) (6,013,183)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 123,854,644 29,174,047
Reinvestment of dividends and
distributions 12,247,021 5,694,651
Cost of shares repurchased (20,977,914) (7,565,668)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 115,123,751 27,303,030
------------------------------------------------------------------------------
TOTAL INCREASE 120,988,118 32,592,120
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 83,520,127 50,928,007
------------------------------------------------------------------------------
End of year $204,508,245 $83,520,127
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT
INCOME $ 410,404 $ 180,204
------------------------------------------------------------------------------
</TABLE>
14 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS BALANCED 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 Balanced Fund
(the "Fund"). The Trust is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified management investment company.
At January 31, 1998, the Fund offers 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 at the official bid price. Unlisted equity
and debt securities for which market quotations are available are valued at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of 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.
The Fund does not amortize premiums on U.S. Government and corporate bonds.
In addition, it is the Fund's policy to accrue for estimated capital gains
taxes on foreign securities held.
C. MORTGAGE DOLLAR ROLLS -- The Fund may enter into mortgage "dollar rolls"
in which the Fund sells securities in the current month for delivery and si-
multaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. For financial reporting and tax reporting purposes, the Fund treats
mortgage dollar rolls as two separate transactions; one involving the pur-
chase of a security and a separate transaction involving a sale.
15
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
January 31, 1998
D. 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.
E. 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. 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 fi-
nancial statements. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or extin-
guished by delivery of the currency. Risks may arise upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
F. SHORT SECURITIES POSITIONS -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked
to market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and cash received is reported as
unrealized gain or loss. Gains and losses are realized when a short position
is closed out by delivering securities back to the broker. As of January 31,
1998, the Fund has shorted a FHLMC TBA-15 yr. bond with a par value and mar-
ket value of $980,000 and $1,006,578, respectively.
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
provisions are required. The characterization of distributions to sharehold-
ers 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 in-
vestment income or net realized gain on investment transactions, or from cap-
ital, 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.
H. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized 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 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. Service shares sepa-
rately bear a service class fee payable monthly, at an annual rate equal to
..50% of the average net assets of the Service class.
16
<PAGE>
GOLDMAN SACHS BALANCED FUND
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.
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 from 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 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 as unrealized gains or losses. When contracts are closed, the
Fund realizes a gain or loss which is reported in the Statement of Opera-
tions.
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
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 Manage-
ment ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser. Under the Agreement, GSAM,
subject to the general supervision of the Trust's Board of Trustees, manages
the Fund's portfolio. As compensation for the services rendered under the
Agreement, the assumption of the expenses related thereto and administering
the Fund's business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .65%
of the average daily net assets of the Fund.
17
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
January 31, 1998
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 and extraordinary expenses) until further no-
tice to the extent such expenses exceed .10% of the average daily net assets
of the Fund. Goldman Sachs reimbursed approximately $421,000 during the year
ended January 31, 1998. At January 31, 1998 approximately $78,000 is owed to
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 Company that it retained approximately $387,000 during
the year ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant 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 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 $301,000 of its distribution fee attributable to the
Class A shares. The Distributor may discontinue or modify this waiver in the
future at its 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 $108,000, $46,000 $108,000
and $59,000 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 year ended January 31, 1998, were
$342,037,766 and $243,347,462, respectively.
Included in these amounts are purchases and proceeds of sales or maturities
of governmental securities in the amounts of $198,977,099 and $179,540,740,
respectively.
The Fund has recorded a "Receivable for forward foreign currency exchange
contracts" resulting from a closed but not settled forward foreign currency
exchange contract of $11,555 in the accompanying Statement of Assets and
Liabilities.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$25,000 of brokerage commissions from portfolio transactions.
18
<PAGE>
GOLDMAN SACHS BALANCED FUND
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more re-
purchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1998, the Fund had
an undivided interest in the repurchase agreements in the following joint ac-
count which equaled $21,900,000 in principal amount. At January 31, 1998, the
repurchase agreements held in this joint account, along with the correspond-
ing underlying securities (including the type of security, market value, in-
terest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC., $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 consisting of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA:
6.50%-8.00%, 05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
------------------------------------------------------------------------------
LEHMAN BROTHERS INC., 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA:
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
------------------------------------------------------------------------------
NOMURA SECURITIES INTERNATION-
AL, 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-01/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
------------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL, 270,000,000 5.64 02/02/98 270,000,000
dated 01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC:
03/06/98; FFCB: 6.30%, 08/08/07)
------------------------------------------------------------------------------
SALOMON-SMITH BARNEY, 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.88%, 08/15/01)
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
January 31, 1998
7. 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.
8. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended January 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JANUARY 31, 1998 JANUARY 31, 1997
-------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 4,149,265 $ 84,252,017 1,529,469 $27,172,279
Reinvestments of dividends
and distributions 521,497 10,355,369 310,437 5,598,883
Shares repurchased (942,243) (19,021,204) (446,535) (7,533,272)
-------------------------------------------------
3,728,519 75,586,182 1,393,371 25,237,890
----------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,042,755 21,328,112 109,171 2,001,768
Reinvestments of dividends
and distributions 55,971 1,106,250 5,284 95,768
Shares repurchased (41,140) (847,100) (1,795) (32,396)
-------------------------------------------------
1,057,586 21,587,262 112,660 2,065,140
----------------------------------------------------------------------------
CLASS C SHARES
Shares sold 441,362 9,200,739 -- --
Reinvestments of dividends
and distributions 14,762 290,280 -- --
Shares repurchased (17,257) (343,901) -- --
-------------------------------------------------
438,867 9,147,118 -- --
----------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 422,391 9,058,228 -- --
Reinvestments of dividends
and distributions 24,982 494,072 -- --
Shares repurchased (34,951) (765,709) -- --
-------------------------------------------------
412,422 8,786,591 -- --
----------------------------------------------------------------------------
SERVICE SHARES
Shares sold 728 15,548 -- --
Reinvestments of dividends
and distributions 52 1,050 -- --
Shares repurchased -- -- -- --
-------------------------------------------------
780 16,598 -- --
----------------------------------------------------------------------------
NET INCREASE 5,638,174 $115,123,751 1,506,031 $27,303,030
----------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GOLDMAN SACHS BALANCED FUND
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified $13,031
from paid-in capital to accumulated undistributed net investment income,
$15,113 from accumulated undistributed net investment income to accumulated
net realized foreign currency gain and $83 from accumulated undistributed net
realized gain on investment and futures transactions to accumulated undis-
tributed net investment income.
21
<PAGE>
GOLDMAN SACHS BALANCED FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ------------------------------------------------
NET REALIZED IN EXCESS OF
AND UNREALIZED FROM NET NET REALIZED
NET ASSET GAIN ON IN EXCESS REALIZED GAIN GAIN ON NET INCREASE
VALUE, NET INVESTMENT FROM NET OF NET ON INVESTMENT INVESTMENT (DECREASE)
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET ASSET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $18.78 $0.57 $2.66 $(0.56) $ -- $(1.16) $ -- $ 1.51
1998 - Class B
Shares 18.73 0.50 2.57 (0.42) (0.02) (1.16) -- 1.47
1998 - Class C
Shares(b) 21.10 0.25 0.24 (0.22) (0.04) (0.64) (0.52) (0.93)
1998 - Institutional
Shares(b) 21.18 0.26 0.32 (0.23) (0.08) (0.45) (0.71) (0.89)
1998 - Service
Shares(b) 21.18 0.22 0.32 (0.22) (0.06) (0.72) (0.44) (0.90)
------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 17.31 0.66 2.47 (0.66) -- (1.00) -- 1.47
1997 - Class B
Shares(b) 17.46 0.42 2.34 (0.42) (0.07) (1.00) -- 1.27
------------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 14.22 0.51 3.43 (0.50) -- (0.35) -- 3.09
FOR THE PERIOD ENDED JANUARY 31,
1995 - Class A
Shares(b) 14.18 0.10 0.02 (0.08) -- -- -- 0.04
------------------------------------------------------------------------------------------------------------------------
</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 and Class B share activity commenced on October 12, 1994 and
May 1, 1996, respectively. Class C, Institutional and Service share
activity commenced on August 15, 1997.
(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.
(g) Includes the effect of mortgage dollar roll transactions.
22 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME TO EXPENSES TO INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET AVERAGE NET
OF PERIOD RETURN(A) RATE(G) RATE(F) (IN 000S) NET ASSETS ASSETS ASSETS ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$20.29 17.54% 190.43% $.0590 $163,636 1.00% 2.94% 1.57% 2.37%
20.20 16.71 190.43 .0590 23,639 1.76 2.14 2.07 1.83
20.17 2.49(d) 190.43 .0590 8,850 1.77(c) 2.13(c) 2.08(c) 1.82(c)
20.29 2.93(d) 190.43 .0590 8,367 0.76(c) 3.13(c) 1.07(c) 2.82(c)
20.28 2.66(d) 190.43 .0590 16 1.26(c) 2.58(c) 1.57(c) 2.27(c)
- -------------------------------------------------------------------------------------------------------------------------
18.78 18.59 208.11 .0587 81,410 1.00 3.76 1.77 2.99
18.73 16.22(d) 208.11 .0587 2,110 1.75(c) 2.59(c) 2.27(c) 2.07(c)
- -------------------------------------------------------------------------------------------------------------------------
17.31 28.10 197.10 -- 50,928 1.00 3.65 1.90 2.75
- -------------------------------------------------------------------------------------------------------------------------
14.22 0.87(d) 14.71 -- 7,510 1.00(c) 3.39(c) 8.29(c) (3.90)(c)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS BALANCED FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust--Balanced
Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Balanced 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 financial high-
lights are the responsibility of the fund's management. Our responsibility is
to express an opinion on these financial statements and the financial high-
lights 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 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 Balanced 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
24
<PAGE>
GOLDMAN SACHS FUND PROFILE
The Goldman Sachs Balanced Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Balanced 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 an investment composed of a blend of stocks and
bonds provides reduced volatility of returns while capturing the
appreciation potential of the portion invested in stocks.
Goldman Sachs Balanced Fund provides investors access to the benefits
associated with an investment that is composed of both stocks and bonds.
The Fund seeks long-term capital growth and current income through
investments in equity and fixed income securities.
Target Your Needs
The Goldman Sachs Balanced 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 Asset Allocation Funds
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Agressive Growth Strategy Portfolio
Risk/Return Growth Stratgey Portfolio
BALANCED FUND
Growth & Income Strategy Portfolio
Lower Income Strategy Portfolio
Risk/Return
</TABLE>
For More Information
To learn more about the Goldman Sachs Balanced 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
Investment Adviser,
Distributor and Transfer Agent
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 are subject to
risks in addition to those customarily associated with investing in
dollar-denominated securities of U.S. issuers. Compared with U.S. securities
markets, foreign markets may be less liquid, more volatile and less subject to
governmental regulation, and may make available less public information about
issuers. Funds that invest in foreign issues 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 BALAR / 59K / 3-98
<PAGE>
Goldman Sachs Funds
================================================================================
CORE EQUITY FUNDS Annual Report January 31, 1998
================================================================================
Long-term capital growth potential
through diversified portfolios of
stocks with attractive quantitative
and qualitative rankings.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
MARKET OVERVIEW
Goldman Sachs CORE Equity Funds
Dear Shareholder,
The world's bourses turned in widely diverse performances in 1997. The U.S.
market soared, while Asian markets plummeted. Consistency came in the form of
larger cap stocks, which were undeniably the performance leaders over their mid-
and small-cap stock brethren.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -- Early in the year, market volatility resulting from
uncertainty regarding Federal Reserve policy eased after economic
indicators reassured investors that further rate hikes were unlikely.
Renewed investor confidence and a positive economy sent the market
soaring through the remainder of the year. Waxing and waning investor
sentiment, however, continued to cause a degree of market volatility.
Most notably, in October, investor uncertainty helped foster a
temporary overreaction to falling Asian markets. The market dropped
precipitously, posting the largest single-day decline in nearly a
decade. In the aftermath, the market firmed as investors accepted the
argument that Asian market weakness would likely have little impact on
U.S. companies.
o International Equity Markets: Market Performances Vary Widely -- In
1997, Europe's overall economic recovery continued, but growth for
specific countries was mixed. Political will for European Monetary
Union and fundamental themes -- including loose monetary policy and
subdued inflation -- helped support stock performance. 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 bad news came in the
form of Asia's market woes, which propelled the Tokyo market into a
decline. In Asia, markets remained weak throughout the first half of
the year. The region's highly leveraged economies were severely
impacted in the second half of the year, following a decision by Thai
authorities to allow their currency to devalue. In the aftermath,
investors saw sharply lower asset prices, higher yields, extreme
volatility and widely varying liquidity conditions.
o Outlook -- Going forward, we believe the fundamental strengths of the
U.S. economy will remain intact. However, we believe the domestic
market will produce returns close to the historic norm -- a scenario
that should be accompanied by more normal levels of volatility.
Europe's domestic economy is well positioned to withstand the moderate
global shock resulting from Asia's market downturn, as both monetary
and fiscal policy underpin Europe's economic growth. In Japan, we are
reasonably optimistic about the prospects for the equity market, as it
is moderately undervalued relative to interest rates and compared with
many of the conventional valuation measures. In Asia, we anticipate
further weakness in the markets and currencies, as investors await the
reforms that will attract capital back into these markets.
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, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
<PAGE>
FUND BASICS
CORE U.S. Equity Fund
as of January 31, 1998
Assets Under Management
-----------------------
$674.6 Million
-----------------------
Number of Holdings
-----------------------
164
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSSQX
-----------------------
Class B Shares
-----------------------
GSSBX
-----------------------
Class C Shares
-----------------------
GSUSX
-----------------------
Institutional Shares
-----------------------
GSELX
-----------------------
Service Shares
-----------------------
GSESX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return S&P 500
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 24.96% 26.92%
Class B 24.28% 26.92%
Class C (8/15/97-1/31/98) 4.85% 6.78%
Institutional 25.76% 26.92%
Service 25.11% 26.92%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The S&P 500 Index (with dividends reinvested) figures do not reflect any
fees or expenses. In addition, 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 24.56% 25.57% N/A 32.67% 32.02%
Five Years 18.47% N/A N/A N/A N/A
Since Inception 15.31% 23.47% 3.41% 27.95% 26.38%
(5/24/91) (5/1/96) (8/15/97) (6/15/95) (6/7/96)
- --------------------------------------------------------------------------------
</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
$28.14 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 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 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>
General Electric Co. 3.8% Electric Equipment
Exxon Corp. 2.1% Energy
Ford Motor Company 1.8% Automotive
Philip Morris Co. Inc. 1.7% Tobacco
American International Group Inc. 1.6% Financial Services
Bristol Myers-Squibb Co. 1.5% Pharmaceuticals
Microsoft Corp. 1.5% Computer Software
Royal Dutch Pete Co. 1.5% Energy
AT&T Corp. 1.5% Telecommunications
GTE Corporation 1.5% Telecommunications
- --------------------------------------------------------------------------------
</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.
1
<PAGE>
PERFORMANCE OVERVIEW
CORE U.S. Equity Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs CORE U.S.
Equity Fund for the 12-month period ending January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The total returns of the Fund's share classes fared well in the peer
rankings for the one-year period ended January 31, 1998, according to
Lipper Analytical Services, Inc. The Fund's Class A shares, Institutional
and Service shares ranked in the top 25% of all funds in the Lipper Growth
Fund category (placing 209, 153 and 197, respectively, out of 846 funds.
For the five-year period, Class A shares ranked 62 out of 322 funds). Class
B shares ranked in the top 30% of all funds (243 out of 846 funds. Class C
shares were not ranked because their performance records are less than 12
months. Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results).
Sector Allocations
In general, the Fund's sector exposures stem from the Fund's "bottom-up,"
individual stock selection process, not from economic forecasts for
specific sectors. With this in mind, the Fund had a slight tilt toward
defensive, value stocks, and maintained slight underweightings in "pricey"
sectors and cyclical sectors.
Portfolio Highlights
The CORE investment process includes analysis of each stock based upon its
Value, Momentum and Risk characteristics. Throughout the period under
review, the Fund placed above-average emphasis on defensive, value-oriented
securities. This proved beneficial to performance as large-cap value stocks
outperformed large-cap growth stocks over the 12-month period ended January
31, 1998. Furthermore, the qualitative stock insights produced by Goldman
Sachs' Global Investment Research Department contributed to strong results.
Noteworthy company performance spanned a diverse group of sectors.
o The Fund benefited from its positions in healthcare, as pharmaceutical
holdings generated strong returns over the period. These companies
included Pfizer Inc. (up 78.97%), Schering Plough Corp. (up 94.51%)
and Warner Lambert Co. (up 88.44%).
o Our bias toward the consumer services sector was rewarded via
positions in general merchandisers such as Dayton Hudson Corp. (up
93.66%), as well as building materials and home improvement supplier
Home Depot Inc. (up 84.08%).
o In the financial sector, Morgan Stanley, Dean Witter Discover & Co.
(up 7.86% since the position was initiated in November 1997) produced
positive results.
2
<PAGE>
PERFORMANCE OVERVIEW
The Goldman Sachs CORE U.S. Equity Fund seeks long-term capital growth and
dividend income by investing in a broadly diversified portfolio of large-cap and
blue-chip equity securities representing all major sectors of the U.S. economy.
================================================================================
CORE INVESTMENT PROCESS (Computer Optimized, Research Enhanced)
================================================================================
------------------ -----------------
Computer Optimized + Research Enhanced
------------------ -----------------
o Risk management tools o Fundamental Research from
designed to minimize Goldman Sachs' Global
industry and style risk. Investment Research
Department and other
o Emphasis on stock research sources.
selection with attention
to attractive o Quantitative insights
quantitative and from proprietary
qualitative ratings. multi-factor model rank
each stock by its value,
o Construct portfolio with momentum and risk
maximum expected return characteristics.
forecast within risk
guidelines.
\/
------------
CORE Process
------------
Result: A risk-controlled portfolio grounded by a
rigorous quantitative model and enhanced by fundamental
research.
- --------------------------------------------------------------------------------
Portfolio Outlook
We intend to maintain our disciplined, long-term approach and defensive
stance, as the cautionary conditions that initially motivated us to assume
this position -- the market's increasing volatility and historically low
risk premiums -- have not yet abated. In fact, in view of the market's
recent behavior, we intend to strengthen our focus on value-oriented, lower
volatility stocks.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Robert C. Jones /s/ Kent A. Clark /s/ Victor H. Pinter
Robert C. Jones Kent A. Clark Victor H. Pinter
Portfolio Manager, Portfolio Manager, Portfolio Manager,
CORE U.S. Equity Fund CORE U.S. Equity Fund CORE U.S. Equity Fund
February 27, 1998
3
<PAGE>
FUND BASICS
CORE Large Cap Growth Fund
as of January 31, 1998
Assets Under Management
-----------------------
$76.5 Million
Number of Holdings
-----------------------
136
NASDAQ SYMBOLS
Class A Shares
-----------------------
GLCGX
-----------------------
Class B Shares
-----------------------
GCLCX
-----------------------
Class C Shares
-----------------------
GLCCX
-----------------------
Institutional Shares
-----------------------
GCGIX
-----------------------
Service Shares
-----------------------
GSCLX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return Russell 1000
January 31, 1998 (based on NAV)(1) Growth Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A(4) 26.57% 25.58%
Class B (5/1/97-1/31/98) 23.26% 25.35%
Class C (8/15/97-1/31/98) 4.56% N/A
Institutional(4) 26.67% 25.58%
Service (5/1/97-1/31/98) 23.56% 25.35%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Russell 1000 Growth Index (with dividends reinvested) figures do not
reflect any fees or expenses. In addition, investors cannot invest directly
in the Index.
================================================================================
SEC AVERAGE ANNUAL TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period Class B Class C Service
ending 12/31/97 Class A(4) (Cumulative)(5) (Cumulative)(5) Institutional(4) (Cumulative)(5)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 Months 24.81% N/A N/A 32.28% N/A
Five Years 21.92% N/A N/A 23.26% N/A
Since Inception 19.76% 15.92% 1.61% 20.93% 21.29%
(11/11/91) (5/1/97) (8/15/97) (11/11/91) (5/1/97)
- -------------------------------------------------------------------------------------------------------------
</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
$12.67 and represents the NAV plus the maximum sales charge of 5.5%.
(4) Performance data for Institutional shares prior to May 1, 1997
(commencement of operations) is that of Class A shares. Class A share
performance for such period is that of a predecessor separate account
(which converted into Class A shares) adjusted to reflect the higher fees
and expenses applicable to the Fund's Class A shares. Although the
predecessor separate account was managed by Goldman Sachs Asset Management
in a manner and pursuant to investment objectives in all material respects
equivalent to management and investment objectives of the CORE Large Cap
Growth Fund, the separate account was not registered under the Investment
Company Act of 1940 (the "Act") and was not subject to certain investment
restrictions imposed by the Act. If it had registered under the Act,
performance might have been adversely affected.
(5) 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 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>
Microsoft Corp. 3.0% Computer Software
Dayton Hudson Corp. 2.8% Department Stores
American International Group Inc. 2.7% Financial Services
General Electric Co. 2.7% Electric Equipment
Intel Corp. 2.6% Semiconductors
The Travelers Group Inc. 2.5% Property Insurance
Merrill Lynch Co. Inc. 2.1% Financial Services
Best Buy Co. Inc. 2.0% Home Products
Pfizer Inc. 2.0% Pharmaceuticals
Abbott Laboratories 1.8% Medical Products
- --------------------------------------------------------------------------------
</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.
4
<PAGE>
PERFORMANCE OVERVIEW
CORE Large Cap Growth Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs CORE Large Cap
Growth Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Benchmark
For the 12-month period ended January 31, 1998, the Fund's Class A shares
generated an average annual total return of 26.57% (based on NAV),
outperforming the 25.58% return generated by the Fund's benchmark, the
Russell 1000 Growth Index.
Sector Allocations
In general, the Fund's sector exposures stem from our bottom-up stock
selection process and are not the result of an explicit top-down decision
to overweight or underweight any given sector. With this in mind, during
the period the Fund was underweighted in consumer services and technology,
and overweighted in finance and consumer cyclicals.
Portfolio Highlights
The CORE investment process analyzes each stock based upon its Value,
Momentum and Risk characteristics. In general, throughout the fiscal year,
the Fund had an above-average tilt towards low-risk, "cheaper" securities
within the growth universe. This proved beneficial to performance, as
large-cap value stocks outperformed large-cap growth stocks over the
12-month period ended January 31, 1998. In addition, qualitative stock
recommendations produced by Goldman Sachs' Global Investment Research
Department contributed to strong results.
Noteworthy company performance spanned a diverse group of sectors.
o The Fund benefited from its positions in healthcare, as pharmaceutical
holdings generated strong returns over the period. These companies
included Pfizer Inc. (up 78.97%), Schering Plough Corp. (up 94.51%)
and Warner Lambert Co. (up 88.44%).
o Technology holdings contributing to portfolio performance included
Compaq Computer Corp. (up 76.84%) and Cisco Systems (up 82.79%).
o Entertainment holdings Walt Disney & Co. (up 31.33%) and Carnival Inc.
(up 52.62%) generated strong returns.
o In the financial sector, Morgan Stanley, Dean Witter Discover & Co.
(up 7.86% since the position was initiated in November 1997) and The
Travelers Group Inc. (up 34.88%) produced positive results.
5
<PAGE>
PERFORMANCE OVERVIEW
The Goldman Sachs CORE Large Cap Growth Fund seeks long-term capital growth,
primarily by investing in a broadly diversified portfolio of equity securities
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy.
================================================================================
CORE INVESTMENT PROCESS (Computer Optimized, Research Enhanced)
================================================================================
------------------ -----------------
Computer Optimized + Research Enhanced
------------------ -----------------
o Risk management tools o Fundamental Research from
designed to minimize Goldman Sachs' Global
industry and style risk. Investment Research
Department and other
o Emphasis on stock research sources.
selection with attention
to attractive o Quantitative insights
quantitative and from proprietary
qualitative ratings. multi-factor model rank
each stock by its value,
o Construct portfolio with momentum and risk
maximum expected return characteristics.
forecast within risk
guidelines.
\/
------------
CORE Process
------------
Result: A risk-controlled portfolio grounded by a
rigorous quantitative model and enhanced by fundamental
research.
- --------------------------------------------------------------------------------
Portfolio Outlook
We intend to maintain our disciplined, long-term approach and defensive
stance, as the cautionary conditions that initially motivated us to assume
this position -- the market's increasing volatility and historically low
risk premiums -- have not yet abated. In fact, in view of the market's
recent behavior, we intend to strengthen our focus on "cheaper," lower
volatility stocks within the growth universe.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Robert C. Jones /s/ Kent A. Clark /s/ Victor H. Pinter
Robert C. Jones Kent A. Clark Victor H. Pinter
Portfolio Manager, Portfolio Manager, Portfolio Manager,
CORE Large Cap CORE Large Cap CORE Large Cap
Growth Fund Growth Fund Growth Fund
February 27, 1998
6
<PAGE>
FUND BASICS
CORE Small Cap Equity Fund
as of January 31, 1998
Assets Under Management
-----------------------
$32.7 Million
-----------------------
Number of Holdings
-----------------------
182
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GCSAX
-----------------------
Class B Shares
-----------------------
GCSBX
-----------------------
Class C Shares
-----------------------
GCSCX
-----------------------
Institutional Shares
-----------------------
GCSIX
-----------------------
Service Shares
-----------------------
GCSSX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
August 15, 1997- Fund Total Return Russell 2000
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 6.37% 4.99%
Class B 6.07% 4.99%
Class C 6.17% 4.99%
Institutional 6.57% 4.99%
Service 6.47% 4.99%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Russell 2000 Index (with dividends reinvested) figures do not reflect
any fees or expenses. In addition, investors cannot invest directly in the
Index.
================================================================================
SEC CUMULATIVE TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period
ending 12/31/97 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception 2.06% 2.65% 6.67% 8.07% 7.97%
(8/15/97)
- --------------------------------------------------------------------------------
</TABLE>
(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 1/31/98
was $11.21 and represents the NAV plus the maximum sales charge of 5.5%.
================================================================================
TOP 10 HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
CNB Bancshares Inc. 1.7% Financials
BA Merchant Services Inc. 1.3% Financials
Schweitzer-Mauduit Int. 1.1% Tobacco
Nationwide Financial Services 1.1% Life Insurance
Texas Industries Inc. 1.1% Mining
TNP Enterprises Inc. 1.0% Utilities
Zale Corp. 1.0% Consumer Services
Rollins Truck Leasing 1.0% Industrial Services
The Scotts Co. 1.0% Chemical
Kaydon Corp. 1.0% Industrial Machinery
- --------------------------------------------------------------------------------
</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.
7
<PAGE>
PERFORMANCE OVERVIEW
CORE Small Cap Equity Fund
Dear Shareholder,
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder in
the Goldman Sachs CORE Small Cap Equity Fund. This report covers the brief
period beginning August 15, 1997 -- the Fund's inception date -- and ending
January 31, 1998.
Performance Review: Strong Performance Relative to Benchmark
From inception on August 15, 1997 through January 31, 1998, the Fund's
Class A shares generated a total return of 6.37% (based on NAV),
outperforming the 4.99% return generated by the Fund's benchmark, the
Russell 2000 Index.
Sector Allocations
In general, the Fund's sector exposures stem from the Fund's bottom-up
stock selection process, not from economic forecasts for specific sectors.
With this in mind, the Fund favored defensive, value stocks in a slight
overweighting to "cheap" sectors -- for example, consumer durables -- and
less volatile sectors such as energy. The portfolio maintained a slight
underweighting in "pricey" sectors, including consumer nondurables, and
cyclical sectors such as basic industry.
Portfolio Highlights
The CORE investment process analyzes each stock based upon its Value,
Momentum and Risk characteristics. Of these three investment themes, the
portfolio had a bias towards defensive, value stocks because of the
market's increasing volatility and low risk premiums. Furthermore, the
qualitative stock insights produced by Goldman Sachs' Global Investment
Research Department also contributed to the Fund's strong performance
results.
o On an individual stock level, the Fund benefited from the performance
of many of its top 10 holdings, such as TNP Enterprises Inc. (up
44.16%).
o An overweight position in finance abetted performance, as thrift
institutions and life insurance holdings, including Nationwide
Financial Services (up 32.69%) and Sovereign Bancorp (up 20.42%),
appreciated during the period under review.
8
<PAGE>
PERFORMANCE OVERVIEW
The Goldman Sachs CORE Small Cap Equity Fund seeks long-term capital growth by
investing primarily in a broadly diversified portfolio of equity securities of
U.S. issuers that are included in the Russell 2000 Index at the time of
investment.
================================================================================
CORE INVESTMENT PROCESS (Computer Optimized, Research Enhanced)
================================================================================
------------------ -----------------
Computer Optimized + Research Enhanced
------------------ -----------------
o Risk management tools o Fundamental Research from
designed to minimize Goldman Sachs' Global
industry and style risk. Investment Research
Department and other
o Emphasis on stock research sources.
selection with attention
to attractive o Quantitative insights
quantitative and from proprietary
qualitative ratings. multi-factor model rank
each stock by its value,
o Construct portfolio with momentum and risk
maximum expected return characteristics.
forecast within risk
guidelines.
\/
------------
CORE Process
------------
Result: A risk-controlled portfolio grounded by a
rigorous quantitative model and enhanced by fundamental
research.
- --------------------------------------------------------------------------------
Portfolio Outlook
We intend to maintain our disciplined, long-term approach and defensive
stance, as the cautionary conditions that initially motivated us to assume
this position -- the market's increasing volatility and historically low
risk premiums -- have not yet abated. In fact, in view of the market's
recent behavior, we intend to strengthen our focus on value-oriented, lower
volatility stocks.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Robert C. Jones /s/ Kent A. Clark /s/ Victor H. Pinter
Robert C. Jones Kent A. Clark Victor H. Pinter
Portfolio Manager, Portfolio Manager, Portfolio Manager,
CORE Small Cap CORE Small Cap CORE Small Cap
Equity Fund Equity Fund Equity Fund
February 27, 1998
9
<PAGE>
FUND BASICS
CORE International Equity Fund
as of January 31, 1998
Assets Under Management
-----------------------
$29.2 Million
-----------------------
Number of Holdings
-----------------------
102
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GCIAX
-----------------------
Class B Shares
-----------------------
GCIBX
-----------------------
Class C Shares
-----------------------
GCICX
-----------------------
Institutional Shares
-----------------------
GCIIX
-----------------------
Service Shares
-----------------------
GCISX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
August 15, 1997- Fund Total Return MS EAFE
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A -7.66% -2.78%
Class B -7.90% -2.78%
Class C -7.80% -2.78%
Institutional -7.45% -2.78%
Service -7.70% -2.78%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far
East (EAFE) Index is a market capitalization weighted composite of
securities in 21 developed markets, including Australia, Austria, Belgium,
Denmark, Finland, Germany, Hong Kong, Ireland, Italy, Japan and the United
Kingdom. Total returns are calculated without dividends reinvested.
Investors cannot invest directly in the Index. The Index figures do not
reflect any fees or expenses.
================================================================================
SEC CUMULATIVE TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period
ending 12/31/97 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception -17.07% -16.78% -13.18% -12.06% -12.20%
(8/15/97)
- --------------------------------------------------------------------------------
</TABLE>
(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 1/31/98
was $9.77 and represents the NAV plus the maximum sales charge of 5.5%.
================================================================================
TOP 10 HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
Novartis 4.2% Healthcare
Telefonica de Espana 3.2% Telecommunications
Deutsche Bank 3.1% Banking
British Telecom 3.1% Telecommunications
Glaxo Wellcome 2.9% Healthcare
Hitachi 2.5% Electronics
Int'l. Nederland Group 2.0% Finance
Matsushita Electrical Ind. 2.0% Appliances
Barclays 2.0% Banking
Aquitaine (ELF) 2.0% Energy
- --------------------------------------------------------------------------------
</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.
10
<PAGE>
PERFORMANCE OVERVIEW
CORE International Equity Fund
Dear Shareholder,
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder in
the Goldman Sachs CORE International Equity Fund. This report covers the brief
period beginning August 15, 1997 -- the Fund's inception date -- and ending
January 31, 1998.
Performance Review: Value Stock Positions Hurt Performance
Since inception on August 15, 1997 through January 31, 1998, the Fund's
Class A shares generated a total return of -7.66% (based on NAV), compared
to a -2.78% return generated by the Fund's benchmark, the Morgan Stanley
Capital International Europe, Australasia and Far East Index (MSCI EAFE).
The Fund lagged its benchmark in large part due to its fluctuating cash
position (typical of new funds), a situation that did not allow us to fully
participate in or diversify into markets to the extent that we would have
ideally wanted.
Sector Allocations
The Fund's sector exposures approximated those of the MSCI EAFE Index. In
seeking value through stock selection, the Fund modestly overweights and
underweights industries relative to the benchmark. In particular, the Fund
had underweight positions in the energy and consumer goods sectors and
overweight positions in multi-industry, capital equipment and materials
sectors. These differences are an outcome of the Fund's bottom-up stock
selection process, not from economic forecasts for specific sectors. We
intend to maintain a balanced approach by considering all of our investment
themes (Value, Momentum and Risk) when making investment decisions.
Portfolio Outlook
The Fund's investment approach is objective, disciplined and
risk-controlled. As mentioned previously, stock selection focuses on three
themes: Value, Momentum and Risk. The strategy has a preference for Value,
meaning that stocks that are inexpensive relative to various measures of
fundamentals are preferred to those that are expensive on the same
measures. Examples of these include Merck (Germany) and Suez-Lyonnaise des
Eau (France). Stocks with strong Momentum characteristics, such as Abbey
National (United Kingdom)and Aegon (Netherlands) are preferred to stocks
with poor Momentum characteristics, while less risky stocks are preferred
to more risky stocks (we measure risk by evaluating both company-specific
risk -- excluding market risk -- and earnings risk). Over time we expect
that adhering to these themes will enable the Fund to outperform its
benchmark.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Robert C. Jones /s/ Kent A. Clark /s/ Victor H. Pinter
Robert C. Jones Kent A. Clark Victor H. Pinter
Portfolio Manager, Portfolio Manager, Portfolio Manager,
CORE International CORE International CORE International
Equity Fund Equity Fund Equity Fund
February 27, 1998
11
<PAGE>
PERFORMANCE OVERVIEW
The Goldman Sachs CORE International Equity Fund seeks long-term capital
appreciation, primarily through equity securities of large-cap companies that
are organized or whose securities are principally traded outside the United
States.
================================================================================
CORE INTERNATIONAL INVESTMENT PROCESS
(Computer Optimized, Research Enhanced)
================================================================================
-------------------
Forecast
Returns
1
-------------------
o Countries, currencies and individual stocks.
o Common investment themes (Value, Momentum and Risk).
\/
-------------------
Construct Efficient
Portfolios
2
-------------------
o Maximize expected return for a given level of risk.
o Determine optimal country weights using equity market and currency
return forecasts.
o Construct a portfolio using stock return forecasts and optimal country
weights.
o Mirror benchmark exposures to common risk factors (style and
industries).
\/
-------------------
Monitor Holdings
and Performance
3
-------------------
o Continually review return forecasts and portfolio risk.
o Adjust positions as needed.
o Verify sources of value added.
- --------------------------------------------------------------------------------
12
<PAGE>
GOLDMAN SACHS CORE U.S. 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
May 24, 1991. For comparative purposes, the performance of the Fund's bench-
mark (the Standard and Poor's 500 Index ("S&P 500 Index")) is shown. This
performance data represents past performance and should not be considered in-
dicative 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. Performance
of Class B, Class C, Institutional and Service shares will vary from Class A
due to differences in fees and loads.
CORE U.S. EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MAY 24, 1991 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
Core U.S. Equity Fund
(Class A) S&P 500
05/24/1991 9450 10000
9626 10377
9099 9902
Jul-91 9586 10363
9860 10609
9726 10431
9586 10571
9273 10145
10384 11306
Jan-92 10116 11095
10237 11239
9894 11020
10069 11343
10055 11399
9632 11229
Jul-92 9847 11688
9625 11449
9773 11583
9827 11623
10277 12019
10381 12167
Jan-93 10551 12268
10606 12436
10960 12698
10462 12391
10653 12722
10824 12760
Jul-93 10701 12708
11103 13191
11180 13089
11517 13360
11306 13233
11705 13393
Jan-94 12147 13848
11979 13472
11438 12885
11735 13050
11720 13264
11461 12939
Jul-94 11933 13364
12315 13912
11969 13572
12227 13878
11734 13372
11857 13570
Jan-95 12013 13922
12465 14465
12811 14893
13312 15331
13855 15944
14266 16314
Jul-95 14833 16855
14883 16898
15474 17611
15358 17547
15878 18318
16035 18671
Jan-96 16654 19306
16933 19486
17111 19673
17314 19962
17704 20477
17746 20555
Jul-96 16882 19646
17179 20061
17973 21190
18544 21775
19865 23421
19462 22957
Jan-97 20620 24392
20682 24583
19904 23573
21053 24978
22203 26499
23220 27686
Jul-97 25174 29890
23971 28216
25237 29762
24239 28768
25077 30100
25651 30618
Jan-98 25767 30957
<TABLE>
<CAPTION>
SINCE INCEPTION FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 24, 1991)
Excluding sales charges 16.15% 19.54% 24.96%
Including sales charges 15.18% 18.20% 18.07%
----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges 24.71% n/a 24.28%
Including redemption charges 22.49% n/a 18.81%
----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15,
1997)(A)
Excluding redemption charges 4.85%(a) n/a n/a
Including redemption charges 3.80% n/a n/a
----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED JUNE
15, 1995) 27.17% n/a 25.76%
----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED JUNE 7,
1996) 25.18% n/a 25.11%
----------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
13
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 98.4%
AEROSPACE & DEFENSE - 1.3%
73,800 Allied-Signal, Inc. $ 2,873,588
112,000 Coltec Industries, Inc.* 2,618,000
42,600 United Technologies Corp. 3,477,225
------------
8,968,813
----------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT - 1.6%
149,500 Caterpillar, Inc. 7,176,000
73,700 Deere & Co. 3,887,675
------------
11,063,675
----------------------------------------------------
AIRLINES - 1.2%
51,700 America West Holdings Corp.* 1,127,706
23,400 AMR Corp.* 2,954,250
36,600 Delta Air Lines, Inc. 4,176,975
------------
8,258,931
----------------------------------------------------
APPAREL & TEXTILES - 0.6%
70,700 Intimate Brands, Inc. 1,789,594
48,000 Jones Apparel Group, Inc.* 2,088,000
------------
3,877,594
----------------------------------------------------
APPLIANCES - 0.3%
49,000 Sunbeam Corp. 1,858,938
----------------------------------------------------
AUTO/VEHICLE - 3.2%
234,600 Ford Motor Co. 11,964,600
164,600 General Motors Corp. 9,536,513
------------
21,501,113
----------------------------------------------------
AUTOPARTS - 0.2%
31,900 Federal-Mogul Corp. 1,435,500
----------------------------------------------------
BANKS - 6.5%
47,100 Bank of New York, Inc. 2,552,231
91,000 BankAmerica Corp. 6,466,688
61,600 Chase Manhattan Corp. 6,602,750
25,200 Citicorp 2,998,800
25,400 Comerica, Inc. 2,397,125
33,600 First Chicago Nbd Corp. 2,507,400
97,100 First Union Corp. 4,666,869
168,763 Nationsbank Corp. 10,125,750
27,800 US Bancorp. 3,044,100
7,600 Wells Fargo & Co. 2,348,400
------------
43,710,113
----------------------------------------------------
BUSINESS SERVICES - 0.7%
47,300 Automatic Data Processing 2,829,131
71,400 Interim Services Inc.* 1,704,675
------------
4,533,806
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
CHEMICAL PRODUCTS - 2.3%
77,600 Crompton & Knowles Corp. $ 2,221,300
45,100 Dow Chemical Co. 4,059,000
77,300 Du Pont (EI) De Nemours & Co. 4,377,113
81,300 IMC Global, Inc. 2,621,925
87,100 Solutia, Inc. 2,433,356
------------
15,712,694
---------------------------------------------------------------
COMPUTER SOFTWARE - 1.5%
68,900 Microsoft Corp.* 10,279,001
---------------------------------------------------------------
COMPUTERS AND BUSINESS EQUIPMENT - 2.2%
61,700 Sundstrand Corp. 3,358,794
111,600 Unisys Corp.* 1,841,400
123,300 Xerox Corp. 9,910,238
------------
15,110,432
---------------------------------------------------------------
CONGLOMERATES - 0.8%
39,910 Raytheon Co.* 2,040,402
36,200 Textron, Inc. 2,165,213
33,000 Tyco International Ltd. 1,464,375
------------
5,669,990
---------------------------------------------------------------
CONSUMER STAPLES - 2.1%
42,700 Gillette Co. 4,216,625
126,200 Procter & Gamble Co. 9,890,925
------------
14,107,550
---------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT - 5.1%
157,400 General Motors Corp. Class H 5,449,975
39,900 Arrow Electronics, Inc.* 1,291,763
328,100 General Electric Co. 25,427,750
32,800 Motorola, Inc. 1,949,550
------------
34,119,038
---------------------------------------------------------------
ENTERPRISE SYSTEMS - 2.2%
133,000 Compaq Computer Corp. 3,998,313
51,700 Hewlett-Packard Co. 3,102,000
77,500 International Business Machines, Inc. 7,648,281
------------
14,748,594
---------------------------------------------------------------
ENTERTAINMENT AND LEISURE - 0.9%
53,842 Walt Disney Co. 5,737,538
---------------------------------------------------------------
FINANCIAL SERVICES - 4.1%
58,700 American Express Co. 4,912,456
77,100 Case Corp. 4,495,894
135,600 Federal National Mortgage Association 8,373,300
30,900 Hartford Financial Services Group, Inc. 2,781,000
109,899 The Travelers Group, Inc. 5,440,001
------------
26,002,651
---------------------------------------------------------------
</TABLE>
14 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FOOD & BEVERAGES - 5.1%
254,000 Archer Daniels Midland Co. $ 5,349,875
65,000 Campbell Soup Co. 3,477,500
136,300 Coca Cola Co. 8,825,425
39,500 Dean Foods Co. 2,266,313
113,200 Interstate Bakeries Corp. 3,933,700
113,100 Pepsico, Inc. 4,078,669
32,400 Sara Lee Corp. 1,767,825
79,900 Unilever N V 4,559,294
------------
34,258,601
-----------------------------------------------------------
FOREST PRODUCTS - 1.1%
80,100 Champion International Corp. 4,100,119
65,500 International Paper Co. 2,992,531
------------
7,092,650
-----------------------------------------------------------
GREETING CARDS - 0.4%
58,200 American Greetings Corp. 2,520,788
-----------------------------------------------------------
HEALTH AND BEAUTY AIDS - 1.0%
31,900 Alberto Culver Co. Class B 945,038
85,700 Johnson & Johnson Co. 5,736,544
------------
6,681,582
-----------------------------------------------------------
HEALTHCARE MANAGEMENT - 2.3%
40,200 Cardinal Health, Inc. 3,112,988
120,800 Columbia/HCA Healthcare Corp. 3,020,000
41,100 Lincare Holdings, Inc.* 2,512,238
113,300 Tenet Healthcare Corp.* 3,908,850
64,100 Wellpoint Health Networks, Inc.* 3,140,900
------------
15,694,976
-----------------------------------------------------------
HOTELS & RESTAURANTS - 0.2%
61,410 Tricon Global Restaurants, Inc.* 1,673,423
-----------------------------------------------------------
INDUSTRIAL MACHINERY - 0.4%
46,600 Cummins-Engine, Inc. 2,493,100
-----------------------------------------------------------
INSURANCE - 3.8%
50,698 Aegon N V American 4,803,636
25,356 Allstate Corp. 2,244,006
98,875 American International Group, Inc. 10,907,148
38,000 Conseco, Inc. 1,738,500
54,500 Everest Reinsurance Holdings 2,064,188
25,800 MBIA, Inc. 1,670,550
35,600 Protective Life Corp. 2,236,125
------------
25,664,153
-----------------------------------------------------------
INSURANCE-LIFE - 0.1%
13,100 American Financial Group, Inc. 493,706
-----------------------------------------------------------
INSURANCE-PROPERTY & CASUALTY - 0.4%
61,800 Travelers Property & Casualty Corp. 2,580,150
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
MEDIA/ENTERTAINMENT - 0.3%
82,300 Tele-Communications, Inc.* $ 2,304,400
-----------------------------------------------------
MISCELLANEOUS - 0.8%
84,000 Beverly Enterprises, Inc.* 1,165,500
145,500 Endesa SA ADR 2,791,781
44,700 Fred Meyer, Inc.* 1,648,313
------------
5,605,594
-----------------------------------------------------
OFFICE FURNISHINGS & SUPPLIES - 1.0%
56,300 Avery Dennison Corporation 2,526,463
69,700 Miller Herman Inc. 4,033,888
------------
6,560,351
-----------------------------------------------------
OIL-INTERNATIONAL - 5.8%
21,600 Amoco Corp. 1,757,700
234,100 Exxon Corp. 13,885,056
94,600 Mobil Corp. 6,444,625
199,800 Royal Dutch Petroleum 10,239,750
77,300 Shell Transport & Trading PLC 3,130,650
66,300 Texaco, Inc. 3,451,744
------------
38,909,525
-----------------------------------------------------
OIL & GAS - 1.8%
16,900 Ashland, Inc. 891,475
78,400 Phillips Petroleum Co. 3,449,600
91,100 Sun Company, Inc. 3,530,125
45,700 Tenneco, Inc. 1,853,706
76,300 USX-Marathon Group, Inc. 2,560,819
------------
12,285,725
-----------------------------------------------------
OIL & GAS-REFINING AND MARKETING -
0.1%
30,200 Valero Energy Corp. 953,188
-----------------------------------------------------
OIL & GAS EXPLORATION - 0.3%
38,200 BJ Services Co.* 2,313,488
-----------------------------------------------------
OIL & GAS SERVICES - 0.9%
46,900 Camco International, Inc. 2,564,844
64,800 Ensco International, Inc. 1,757,700
55,500 Helmerich & Payne, Inc. 1,418,719
------------
5,741,263
-----------------------------------------------------
PHARMACEUTICALS - 7.3%
65,700 Abbott Laboratories 4,652,381
50,700 American Home Products Corp. 4,838,681
57,900 Bergen Brunswig Corp. 2,638,069
104,200 Bristol Myers Squibb Co. 10,387,438
60,800 Eli Lilly & Co. 4,104,000
84,300 Merck & Co. 9,884,175
81,200 Mylan Labs, Inc. 1,456,525
56,200 Pfizer, Inc. 4,604,888
62,000 Schering-Plough Corp. 4,487,250
12,800 Warner Lambert Co. 1,926,400
------------
48,979,807
-----------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 15
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
PUBLISHING - 1.1%
190,400 Dun & Bradstreet Corp. $ 6,069,000
35,400 Meredith Corp. 1,387,238
------------
7,456,238
-------------------------------------------------------------------
RAILROADS - 0.2%
32,000 Trinity Industries, Inc. 1,448,000
-------------------------------------------------------------------
RETAIL - 5.8%
163,600 Best Buy Co., Inc.* 8,282,250
34,216 Consolidated Stores Corp.* 1,407,133
105,700 Dayton Hudson Corp. 7,603,794
77,500 Dillards Inc. 2,722,188
118,200 Federated Department Stores, Inc.* 5,008,725
87,000 Pier 1 Imports, Inc. 2,033,625
101,100 Ross Stores, Inc. 3,285,750
94,100 TJX Companies, Inc. 3,187,638
151,200 Wal Mart Stores, Inc. 6,029,100
------------
39,560,203
-------------------------------------------------------------------
SAVINGS & LOAN - 0.8%
91,900 H.F. Ahmanson & Co. 5,358,919
-------------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES - 2.6%
55,100 Lehman Brothers Holdings, Inc. 2,992,619
124,800 Merrill Lynch Co., Inc. 7,878,000
114,900 Morgan Stanley, Dean Witter, Discover & Co. 6,707,288
54,000 PaineWebber Group, Inc. 1,717,875
------------
19,295,782
-------------------------------------------------------------------
SEMICONDUCTORS - 1.4%
32,000 Dallas Semiconductor Corp. 1,512,000
96,200 Intel Corp. 7,792,200
------------
9,304,200
-------------------------------------------------------------------
STEEL - 0.8%
68,000 AK Steel Holding Corp. 1,215,500
247,400 Bethlehem Steel Corp.* 2,443,075
71,500 British Steel PLC ADR 1,595,344
------------
5,253,919
-------------------------------------------------------------------
SUPERMARKETS - 1.6%
41,200 Albertson's, Inc. 1,964,725
109,400 Kroger Co.* 4,280,275
66,867 Safeway, Inc.* 4,442,476
------------
10,687,476
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
TELECOMMUNICATIONS - 5.7%
105,200 Ameritech Corp. $ 4,517,025
162,000 AT&T Corp. 10,145,250
48,700 Bellsouth Corp. 2,949,394
185,700 GTE Corp. 10,132,256
100,100 MCI Communications Corp. 4,648,394
51,200 Sprint Corp. 3,040,000
87,500 Worldcom, Inc.* 3,133,594
------------
38,565,913
------------------------------------------------------
TELECOMMUNICATIONS SERVICES - 1.0%
125,000 Telecom Argentina ADR 3,921,875
80,400 Valassis Communications, Inc.* 2,773,800
------------
6,695,675
------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS -
0.3%
29,100 Goodyear Tire & Rubber Co. 1,822,388
------------------------------------------------------
TOBACCO - 2.0%
271,200 Philip Morris Co., Inc. 11,254,800
75,600 RJR Nabisco Holdings Corp. 2,381,400
------------
13,636,200
------------------------------------------------------
TRUCKING - 0.5%
22,100 Airborne Freight Corp. 1,571,863
58,800 Ryder System, Inc. 1,969,800
------------
3,541,663
------------------------------------------------------
TRUCKING & LOGISTICS - 0.4%
45,900 FDX Corp.* 2,986,369
------------------------------------------------------
UTILITIES - 4.3%
25,400 Aptargroup, Inc. 1,295,400
51,400 Cinergy Corp. 1,773,300
45,300 Columbia Energy Group 3,437,138
95,200 Dominion Resources, Inc. 3,796,100
26,200 DQE Inc. 856,413
74,900 Duke Energy Corp. 4,058,644
126,200 Edison International 3,391,625
46,800 FPL Group, Inc. 2,685,150
91,000 Texas Utilities Co. 3,742,375
126,100 Unicom Corp. 3,909,100
------------
28,945,245
------------------------------------------------------
TOTAL COMMON STOCKS
(COST $514,222,914) $664,060,631
------------------------------------------------------
</TABLE>
16 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS - 0.1%
$ 980,000 U.S. Treasury Bills 5.12% - 5.16%, 02/05/98 -
02/12/98(b) $ 978,512
-----------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $978,512) $ 978,512
-----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.8%
$5,300,000 Joint Repurchase Agreement Account 5.64%, 02/02/98
(b) $ 5,300,000
-----------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $5,300,000) $ 5,300,000
-----------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $520,501,426) (A) $670,339,143
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------
FEDERAL INCOME TAX INFORMATION:
<S> <C>
Gross
unrealized gain
for investments
in which value
exceeds cost $158,475,782
Gross
unrealized loss
for investments
in which cost
exceeds value (8,650,138)
------------------------------
Net unrealized
gain $149,825,644
------------------------------
</TABLE>
Futures contracts open at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long (c) Month Gain
------------- --------- ---------- ----------
<S> <C> <C> <C>
S&P 500 Index 22 March 1998 $82,636
-----------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $520,513,499.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each S&P 500 Stock Index represents 250 X index value at time of purchase
in notional par value. The total net notional amount and market value at
risk are $5,350,264 and $5,432,900, respectively. The determination of
notional amounts does not consider market risk factors and therefore
notional amounts as presented here are indicative only of volume of
activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 17
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH 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% and redemption charges
of 5.0% for Class A and B, respectively and at NAV for the Institutional and
Service Classes) on May 1, 1997. For comparative purposes, the performance of
the Fund's benchmark (Russell 1000 Growth Index) is shown. All performance
data shown represents past performance and should not be considered indica-
tive of future performance which will fluctuate with changes in market condi-
tions. These performance fluctuations will cause an investor's shares, when
redeemed, to be worth more or less than their original cost.
CORE LARGE CAP GROWTH FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MAY 1, 1997 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Core Large Cap Core Large Cap Core Large Cap Core Large Cap
Growth Fund Russell 1000 Growth Fund Growth Fund Growth Fund
(Class A) Growth Index Class B Institutional Class Service Class
<S> <C> <C> <C> <C> <C>
05/01/1997 9450 10000 10000 10000 10000
May-97 9972 10722 10540 10550 10550
Jun-97 10425 11151 11020 11040 11030
Jul-97 11295 12137 11940 11950 11940
Aug-97 10983 11427 11610 11630 11610
Sep-97 11474 11989 12120 12150 12120
Oct-97 11096 11545 11700 11750 11720
Nov-97 11342 12036 11960 12020 11970
Dec-97 11485 12171 12109 12172 12129
Jan-98 11700 12535 11809 12389 12356
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
AGGREGATE TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 1, 1997)
Excluding sales charges 23.79%
Including sales charges 17.00%
--------------------------------------------------
CLASS B (COMMENCED MAY 1, 1997)
Excluding redemption charges 23.26%
Including redemption charges 18.09%
--------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding redemption charges 4.56%
Including redemption charges 3.53%
--------------------------------------------------
INSTITUTIONAL CLASS
(COMMENCED MAY 1, 1997) 23.89%
--------------------------------------------------
SERVICE CLASS (COMMENCED
MAY 1, 1997) 23.56%
--------------------------------------------------
</TABLE>
18
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 94.1%
<C> <S> <C>
ADVERTISING/MARKETING - 0.6%
12,500 Valassis Communications, Inc.* $ 431,250
----------------------------------------------------
AEROSPACE & DEFENSE - 1.0%
19,400 Coltec Industries, Inc.* 453,475
10,000 Gulfstream Aerospace Corp.* 340,645
-----------
794,120
----------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT - 1.5%
13,600 Caterpillar, Inc. 652,800
8,600 Dover Corp. 292,938
7,000 New Holland NV 176,313
-----------
1,122,051
----------------------------------------------------
AIRLINES - 2.0%
9,700 America West Holdings Corp.* 211,581
4,500 Delta Air Lines, Inc. 513,563
9,000 UAL Corp.* 799,875
-----------
1,525,019
----------------------------------------------------
APPAREL & TEXTILES - 1.2%
20,600 Footstar, Inc.* 551,050
8,600 Jones Apparel Group, Inc.* 374,100
-----------
925,150
----------------------------------------------------
APPLIANCES - 0.4%
8,500 Sunbeam Corp. 322,469
----------------------------------------------------
AUTO/VEHICLE - 0.8%
3,500 Ford Motor Co. 178,500
7,400 General Motors Corp. 428,738
-----------
607,238
----------------------------------------------------
AUTOPARTS - 0.2%
3,600 Federal-Mogul Corp. 162,000
----------------------------------------------------
BANKS - 0.6%
3,500 BankAmerica Corp. 248,719
3,400 Nationsbank Corp. 204,000
-----------
452,719
----------------------------------------------------
BUSINESS SERVICES - 0.4%
11,500 Interim Services, Inc.* 274,563
7,200 Medaphis Corp.* 57,375
-----------
331,938
----------------------------------------------------
CHEMICAL PRODUCTS - 1.2%
3,200 Dow Chemical Co. 288,000
14,600 Solutia, Inc. 407,888
14,300 Wellman, Inc. 256,506
-----------
952,394
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
COMPUTER PERIPHERALS - 0.3%
8,400 Banctec, Inc.* $ 214,725
-----------------------------------------------------------
COMPUTER SOFTWARE & SERVICES - 4.5%
18,300 Cadence Design System, Inc.* 512,400
4,800 Computer Associates International 255,300
9,100 Electronic Data Systems Corp. 378,788
15,600 Microsoft Corp.* 2,327,325
-----------
3,473,813
-----------------------------------------------------------
COMPUTERS AND BUSINESS EQUIPMENT - 2.2%
13,200 Ingram Micro, Inc.* 367,950
14,200 Tech Data Corp.* 601,725
16,000 Unisys Corp.* 264,000
5,900 Xerox Corp. 474,213
-----------
1,707,888
-----------------------------------------------------------
CONGLOMERATES - 0.4%
7,500 Tyco International Ltd. 332,813
-----------------------------------------------------------
CONSTRUCTION/ENVIRONMENTAL SERVICES - 1.3%
9,800 ACX Technologies, Inc.* 227,850
19,300 Hanson PLC ADR 429,425
6,800 USG Corp.* 357,850
-----------
1,015,125
-----------------------------------------------------------
CONSUMER STAPLES - 3.4%
7,500 Corning, Inc. 255,000
11,300 Gillette Co. 1,115,875
16,100 Procter & Gamble Co. 1,261,838
-----------
2,632,713
-----------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT - 5.1%
21,000 General Motors Corp. Class H 727,125
10,500 Arrow Electronics, Inc.* 339,938
3,300 Avid Technology, Inc.* 96,113
26,700 General Electric Co. 2,069,250
7,300 Motorola, Inc. 433,894
4,200 Tellabs, Inc.* 214,988
-----------
3,881,308
-----------------------------------------------------------
ENTERPRISE SYSTEMS - 2.7%
28,600 Compaq Computer Corp. 859,706
8,200 Hewlett-Packard Co. 492,000
2,600 International Business Machines, Inc. 256,588
9,400 Sun Microsystems, Inc.* 450,613
-----------
2,058,907
-----------------------------------------------------------
ENTERTAINMENT & LEISURE - 2.4%
9,500 Carnival Corp. 530,219
11,300 Walt Disney Co. 1,204,156
-----------
1,734,375
-----------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 19
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
EXPRESS DELIVERY - 0.2%
2,800 Federal Express Corp.* $ 182,175
---------------------------------------------------------
FINANCIAL SERVICES - 0.6%
5,700 American Express Co. 477,019
---------------------------------------------------------
FOOD & BEVERAGES - 2.6%
17,100 Archer Daniels Midland Co. 360,169
19,500 Coca Cola Co. 1,262,625
9,600 Interstate Bakeries Corp. 333,600
-----------
1,956,394
---------------------------------------------------------
FOREST PRODUCTS - 0.6%
5,600 Aracruz Celulose S.A. ADR 78,400
7,900 Champion International Corp. 404,381
-----------
482,781
---------------------------------------------------------
HEALTH AND BEAUTY AIDS - 1.2%
10,100 Alberto Culver Co. Class B 299,213
9,800 Johnson & Johnson 655,988
-----------
955,201
---------------------------------------------------------
HEALTHCARE MANAGEMENT - 3.7%
33,600 Beverly Enterprises, Inc.* 466,200
18,500 Biomet, Inc. 529,563
29,100 Columbia/HCA Healthcare Corp. 727,500
3,400 Lincare Holdings, Inc.* 207,840
12,500 Tenet Healthcare Corp.* 431,250
9,500 Wellpoint Health Networks, Inc.* 465,500
-----------
2,827,853
---------------------------------------------------------
INDUSTRIAL MACHINERY - 0.3%
3,300 Kennametal, Inc. 162,319
1,900 Tecumseh Products Co. 90,725
-----------
253,044
---------------------------------------------------------
INSURANCE - 0.5%
2,200 AMBAC Financial Group, Inc. 104,638
6,000 Conseco, Inc. 274,500
-----------
379,138
---------------------------------------------------------
INSURANCE-LIFE - 3.1%
4,200 Protective Life Corp. 263,813
3,750 Sunamerica, Inc. 150,703
38,038 The Travelers Group, Inc. 1,882,881
-----------
2,297,397
---------------------------------------------------------
INSURANCE-PROPERTY & CASUALTY - 3.4%
18,900 American International Group, Inc. 2,084,906
10,200 Travelers Property & Casualty Corp. 425,850
-----------
2,510,756
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
OFFICE FURNISHINGS & SUPPLIES - 1.0%
7,300 Avery Dennison Corp. $ 327,588
2,900 Herman Miller, Inc. 167,838
9,300 Ikon Office Solutions, Inc. 292,950
-----------
788,376
-----------------------------------------------------------
OIL & GAS - 0.5%
9,500 Sun Company, Inc. 368,125
-----------------------------------------------------------
OIL & GAS EXPLORATION - 0.2%
16,800 Santa Fe Energy Resources, Inc.* 176,400
-----------------------------------------------------------
OIL & GAS SERVICES - 2.0%
9,100 Camco International, Inc. 497,656
19,300 Ensco International, Inc. 523,513
7,400 Global Marine, Inc.* 169,738
8,800 Marine Drilling Companies, Inc.* 158,400
3,600 Norsk Hydro A/S ADR 162,000
-----------
1,511,307
-----------------------------------------------------------
PHARMACEUTICALS - 9.5%
19,700 Abbott Laboratories 1,395,006
5,400 American Home Products Corp. 515,363
15,100 Bergen Brunswig Corp. 687,998
6,900 Eli Lilly & Co. 465,750
6,500 Guidant Corp. 417,625
4,700 Merck & Co. 551,075
18,600 Mylan Labs, Inc. 333,638
18,400 Pfizer, Inc. 1,507,650
10,100 Schering-Plough Corp. 730,988
4,500 Warner Lambert Co. 677,250
-----------
7,282,343
-----------------------------------------------------------
PUBLISHING - 1.1%
27,300 Dun & Bradstreet Corp. 870,188
-----------------------------------------------------------
RAILROADS - 0.7%
8,900 Kansas City Southern Industries, Inc. 266,444
6,300 Trinity Industries, Inc. 285,075
-----------
551,519
-----------------------------------------------------------
RECREATIONAL PRODUCTS - 0.5%
8,700 Mattel, Inc. 352,350
-----------------------------------------------------------
RETAIL - 12.0%
30,200 Best Buy Co., Inc.* 1,528,875
5,259 CVS Corp. 344,793
29,400 Dayton Hudson Corp. 2,114,963
9,600 Ethan Allen Interiors, Inc. 459,600
13,400 Federated Department Stores, Inc.* 567,825
14,750 Fred Meyer, Inc.* 543,906
19,300 Pier 1 Imports, Inc. 451,138
13,300 Proffitt's, Inc.* 390,688
22,600 Ross Stores, Inc. 734,500
7,950 The Gap, Inc. 310,547
-----------------------------------------------------------
</TABLE>
20 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
RETAIL - (CONTINUED)
8,100 Tiffany & Co. $ 313,875
14,100 TJX Companies, Inc. 477,638
12,600 Wal Mart Stores, Inc. 502,425
14,800 Zale Corp.* 362,600
-----------
9,103,373
-----------------------------------------------------------------
SAVINGS & LOAN - 1.1%
29,900 Dime Bancorp., Inc. 837,200
-----------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES - 4.9%
5,400 Donaldson, Lufkin & Jenrette, Inc. 379,688
6,600 Lehman Brothers Holdings, Inc. 358,463
25,000 Merrill Lynch Co., Inc. 1,578,125
18,500 Morgan Stanley, Dean Witter, Discover & Co. 1,079,938
12,700 PaineWebber Group, Inc. 404,019
-----------
3,800,233
-----------------------------------------------------------------
SEMICONDUCTORS - 3.1%
24,600 Intel Corp. 1,992,600
12,700 National Semiconductor Corp.* 357,188
-----------
2,349,788
-----------------------------------------------------------------
STEEL - 1.1%
14,500 AK Steel Holding Corp. 259,188
51,500 Bethlehem Steel Corp.* 508,563
4,500 British Steel PLC ADR 100,406
-----------
868,157
-----------------------------------------------------------------
SUPERMARKETS - 1.6%
9,500 Kroger Co.* 371,688
13,100 Safeway, Inc.* 870,331
-----------
1,242,019
-----------------------------------------------------------------
TELECOMMUNICATIONS - 2.6%
16,200 GTE Corp. 883,913
17,100 MCI Communications Corp. 794,081
10,500 Telecom Argentina ADR 329,438
-----------
2,007,432
-----------------------------------------------------------------
TOBACCO - 2.5%
32,900 Philip Morris Co., Inc. 1,365,350
16,400 RJR Nabisco Holdings Corp. 516,600
-----------
1,881,950
-----------------------------------------------------------------
TRUCKING - 0.9%
6,600 Hertz Corp. 264,000
16,000 Navistar International Corp.* 432,000
-----------
696,000
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
UTILITIES - 0.4%
4,200 Columbia Energy Group $ 318,675
----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $66,994,976) $72,005,208
----------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION
<C> <S> <C>
U.S. TREASURY OBLIGATIONS - 0.3%
$225,000 U.S. Treasury Bill,
5.16%, 02/12/98(b) $ 224,727
----------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $224,727) $ 224,727
----------------------------------------------------------------
REPURCHASE AGREEMENT - 2.8%
$2,100,000 Joint Repurchase Agreement Account (b)
5.64%, 02/02/98 $ 2,100,000
----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $2,100,000) $ 2,100,000
----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $69,319,703)(A) $74,329,935
----------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX INFORMATION:
<TABLE>
<S> <C> <C>
Gross
unrealized gain
for investments
in which value
exceeds cost $ 6,357,270
Gross
unrealized loss
for investments
in which cost
exceeds value (1,431,894)
-----------------------------
Net unrealized
gain $ 4,925,376
-----------------------------
</TABLE>
Futures contracts open at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG(C) MONTH GAIN
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index 8 March 1998 $9,042
--------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $69,404,559.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each S&P 500 Stock Index represents 250 X index value at time of purchase
in notional par value. The total net notional amount and market value at
risk are $1,966,558 and $1,975,600, respectively. The determination of
notional amounts does not consider market risk factors and therefore
notional amounts as presented here are indicative only of volume of ac-
tivity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 21
<PAGE>
GOLDMAN SACHS CORE SMALL CAP 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% per Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and C, respectively and at NAV for
the Institutional and Service Classes) on August 15, 1997. For comparative
purposes, the performance of the Fund's benchmark (Russell 2000 Growth Index)
is shown. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their origi-
nal cost. Performance of Class C shares will vary due to differences in fees
and loads.
CORE SMALL CAP EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 15, 1997 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CORE Small Cap CORE Small Cap CORE Small Cap CORE Small Cap CORE Small Cap
Equity Fund Equity Fund Equity Fund Equity Fund Equity Fund
(Class A) Russell 2000 Index Class B Class C Fund Institutional Class Service Class
<S> <C> <C> <C> <C> <C> <C>
08/15/1997 9500 10000 10000 10000 10000 10000
Aug-97 9707 10284 10260 10260 10270 10260
Sep-97 10340 11037 10940 10940 10950 10950
Oct-97 9896 10552 10460 10460 10480 10480
Nov-97 9849 10484 10400 10400 10430 10420
Dec-97 10206 10667 10767 10767 10807 10797
Jan-98 10054 10499 10105 10516 10657 10647
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
AGGREGATE TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 15, 1997)
Excluding sales charges 6.37%
Including sales charges 0.54%
--------------------------------------------------
CLASS B (COMMENCED AUGUST 15, 1997)
Excluding redemption charges 6.07%
Including redemption charges 1.05%
--------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding redemption charges 6.17%
Including redemption charges 5.16%
--------------------------------------------------
INSTITUTIONAL CLASS
(COMMENCED AUGUST 15, 1997) 6.57%
--------------------------------------------------
SERVICE CLASS (COMMENCED
AUGUST 15, 1997) 6.47%
--------------------------------------------------
</TABLE>
22
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 94.1%
<C> <S> <C>
AEROSPACE & DEFENSE - 1.1%
3,800 AAR Corp. $ 172,900
3,000 Alliant Techsystems, Inc.* 178,313
-----------
351,213
--------------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT - 1.2%
6,300 Allied Products Corp. 145,688
11,100 Terex Corp.* 233,794
-----------
379,482
--------------------------------------------------------
AIRLINES - 0.9%
13,100 America West Holdings Corp.* 285,744
--------------------------------------------------------
ALCOHOLIC BEVERAGES - 0.8%
4,300 Adolph Coors Co. Class B 136,525
16,700 The Boston Beer Co., Inc.* 132,556
-----------
269,081
--------------------------------------------------------
APPARREL & TEXTILES - 1.2%
8,200 Nautica Enterprises, Inc.* 229,600
3,600 Oxford Industries, Inc. 108,000
2,550 Pacific Sunwear of California* 73,313
-----------
410,913
--------------------------------------------------------
AUTO/VEHICLE - 0.6%
3,700 Budget Group, Inc.* 129,269
3,800 Exide Corp. 83,838
-----------
213,107
--------------------------------------------------------
AUTOPARTS - 1.9%
2,900 Arvin Industries, Inc. 100,050
13,200 Excel Industries, Inc. 233,475
6,200 Federal-Mogul Corp. 279,000
-----------
612,525
--------------------------------------------------------
BANKS - 4.7%
12,400 CNB Bancshares, Inc. 542,500
4,200 Community Bank System, Inc. 130,461
5,500 First Commonwealth Financial Corp. 168,438
7,600 First Republic Bank Corp.* 238,925
3,300 Onbancorp 230,175
3,700 Southwest Bancorp of Texas, Inc.* 129,269
3,400 UST Corp. 85,000
-----------
1,524,768
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
BUSINESS SERVICES - 5.0%
6,000 AC Nielsen Corp.* $ 129,750
12,400 American Business Information, Inc.* 155,000
26,100 BA Merchant Services, Inc.* 440,435
2,900 Bowne & Co., Inc. 106,394
6,200 Commonwealth Telephone Enterprises, Inc.* 145,700
5,000 Corestaff, Inc.* 122,500
5,800 Cort Business Services Corp.* 222,938
11,500 Interim Services, Inc.* 274,563
4,500 Medaphis Corp.* 35,859
-----------
1,633,139
---------------------------------------------------------------
CHEMICAL PRODUCTS - 3.0%
4,300 Albemarle Corp. 95,138
4,400 Dexter Corp. 179,575
10,200 The Scotts Co.* 321,938
4,700 Waters Corp.* 216,788
8,500 Wellman, Inc. 152,469
-----------
965,908
---------------------------------------------------------------
COMMERCIAL PRODUCTS - 0.5%
5,200 Knoll, Inc.* 160,225
---------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES - 1.9%
6,500 Platinum Technology, Inc.* 182,000
9,500 Intersolv, Inc.* 169,813
4,900 Synopsys, Inc.* 151,583
7,600 USCS International, Inc.* 117,800
-----------
621,196
---------------------------------------------------------------
COMPUTERS AND BUSINESS EQUIPMENT - 1.3%
7,100 Banctec, Inc.* 181,494
4,600 Inacom Corp.* 115,000
6,500 Sandisk Corp.* 130,000
-----------
426,494
---------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.6%
8,600 Florida Rock Industrial, Inc. 184,900
---------------------------------------------------------------
CONSTRUCTION/ENVIRONMENTAL SERVICES - 2.4%
5,900 ACX Technologies, Inc.* 137,175
7,600 Caci International, Inc.* 161,500
9,600 Newpark Resources, Inc.* 156,000
4,100 Stone & Webster, Inc. 158,875
7,900 US Rentals, Inc.* 176,763
-----------
790,313
---------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 23
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
CONSUMER PRODUCTS - 0.5%
6,100 Herbalife International, Inc. $ 149,450
--------------------------------------------------------------
CONSUMER STAPLES - 1.1%
10,600 Nu Skin Asia Pacific, Inc.* 245,788
23,400 Paragon Trade Brands, Inc.* 112,613
-----------
358,401
--------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT - 2.4%
6,300 Anixter International, Inc.* 104,736
3,600 Avid Technology, Inc.* 104,850
2,400 Dynatech Corp.* 112,800
4,400 Input/Output, Inc.* 87,450
2,600 Marshall Industries, Inc.* 78,325
2,100 Sanmina Corp.* 141,225
8,500 Unitrode Corp.* 154,063
-----------
783,449
--------------------------------------------------------------
ENTERTAINMENT & LEISURE - 1.0%
16,400 Ascent Entertainment Group* 174,250
20,500 Boyd Gaming Corp.* 146,063
-----------
320,313
--------------------------------------------------------------
FINANCIAL SERVICES - 1.7%
3,400 Americredit Corp.* 82,450
5,600 Homeside, Inc.* 155,400
3,200 Jeffries Group, Inc. 123,200
11,425 Resource Bancshares Mortgage Group, Inc. 184,942
-----------
545,992
--------------------------------------------------------------
FOOD & BEVERAGES - 1.8%
5,100 Michael Foods, Inc. 127,500
14,900 Pilgrims Pride Corp. 227,225
13,700 Ralcorp. Holdings, Inc.* 228,619
-----------
583,344
--------------------------------------------------------------
FOREST PRODUCTS - 0.5%
3,800 United Stationers, Inc.* 182,875
--------------------------------------------------------------
GAMING - 0.3%
7,100 Grand Casinos, Inc.* 94,963
--------------------------------------------------------------
HEALTH AND BEAUTY AIDS - 0.3%
2,900 Alberto Culver Co. Class B 85,913
--------------------------------------------------------------
HEALTH SUPPLIES/SERVICES - 0.5%
3,700 Cohu, Inc. 159,100
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
HEALTHCARE MANAGEMENT - 5.3%
12,800 American Homepatient, Inc.* $ 297,597
6,300 Coventry Corp.* 84,656
6,993 Integrated Health Services, Inc. 200,175
4,600 Mariner Health Group, Inc.* 70,725
4,200 Medimmune, Inc.* 192,675
8,700 Novacare, Inc.* 108,750
6,500 Oec Medical Systems, Inc.* 143,810
7,700 Paragon Health Network, Inc.* 142,450
4,600 Prime Hospitality Corp.* 86,825
2,900 Quest Diagnostics, Inc.* 48,213
11,600 Sun Healthcare Group, Inc.* 216,050
6,000 Trigon Healthcare, Inc.* 149,250
-----------
1,741,176
---------------------------------------------------------
HOMEBUILDERS - 1.1%
3,000 Fairfield Communities, Inc.* 126,000
10,104 Lennar Corp. 248,175
-----------
374,175
---------------------------------------------------------
HOTELS & RESTAURANTS - 1.8%
10,300 Buffets, Inc.* 94,631
8,500 Ruby Tuesday, Inc.* 211,969
7,000 Showbiz Pizza Time, Inc.* 172,375
4,000 Sonic Corp.* 113,000
-----------
591,975
---------------------------------------------------------
INDUSTRIAL MACHINERY - 3.0%
3,100 Applied Power, Inc. 216,225
10,300 Commercial Intertech Corp. 198,275
9,200 Kaydon Corp. 319,125
1,400 Nacco Industries, Inc. 140,613
1,400 SPX Corp.* 102,200
-----------
976,438
---------------------------------------------------------
INSURANCE - 0.3%
1,700 Capital Re Corp. 101,256
90 Medical Assurance, Inc.* 2,340
-----------
103,596
---------------------------------------------------------
INSURANCE - LIFE - 3.7%
2,500 Amerus Life Holdings, Inc. 85,933
7,200 Delphi Financial Group, Inc.* 318,600
5,100 Hartford Life, Inc. 218,344
9,600 John Alden Financial Corp. 208,800
10,000 Nationwide Financial Services, Inc. 366,875
-----------
1,198,552
---------------------------------------------------------
</TABLE>
24 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
INSURANCE-PROPERTY & CASUALTY - 1.4%
6,800 Chartwell Re Corp. $ 230,350
4,300 Fremont General Corp. 218,494
-----------
448,844
-------------------------------------------------------
INSURANCE BROKERS - 1.7%
3,500 Arthur J Gallagher & Co. 129,500
4,710 Fidelity National Financial, Inc. 135,413
3,900 First American Financial Corp. 194,025
3,300 SCPIE Holdings, Inc. 94,050
-----------
552,988
-------------------------------------------------------
INVESTMENT COMPANIES - 0.4%
3,700 Piper Jaffray Companies, Inc. 135,050
-------------------------------------------------------
MACHINERY - 1.0%
8,400 Columbus Mckinnon Corp. 191,100
5,700 Thomas Industries, Inc. 124,688
-----------
315,788
-------------------------------------------------------
MEDIA-ENTERTAINMENT - 1.8%
700 Cablevision Sys Corp.* 61,863
10,900 Jones Intercable, Inc.* 174,400
8,000 McClatchy Newspapers, Inc. 215,000
1,500 SFX Broadcasting Inc.* 129,188
-----------
580,450
-------------------------------------------------------
MINING - 0.3%
23,000 Hecla Mining Co.* 106,375
-------------------------------------------------------
MISCELLAENOUS - 0.9%
500 Alltrista Corp.* 14,344
4,600 California Water Services Group 134,550
3,900 Superior Telecom, Inc. 154,050
-----------
302,944
-------------------------------------------------------
NONFERROUS METALS - 0.9%
4,100 AFC Cable Systems, Inc.* 116,850
6,900 Encore Wire Corp.* 188,888
-----------
305,738
-------------------------------------------------------
OIL & GAS EXPLORATION/SERVICES - 3.6%
7,200 Barrett Resources Corp.* 201,600
6,300 Belco Oil & Gas Corp.* 117,731
9,800 Benton Oil & Gas Co.* 121,275
9,700 Cabot Oil & Gas Corp. 192,181
10,300 Marine Drilling Companies, Inc.* 185,400
8,500 Pool Energy Services Co.* 174,781
2,100 Seacor Smit, Inc.* 107,100
6,700 Seitel, Inc.* 93,381
-----------
1,193,449
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
PACKAGING - 0.9%
5,600 Aptargroup, Inc. $ 285,600
-----------------------------------------------------------
PHARMACEUTICALS - 1.6%
7,000 Advanced Tissue Sciences, Inc.* 96,250
6,100 Alpharma, Inc. 125,431
7,700 Bindley Western Industries, Inc. 215,119
4,175 Organogenesis, Inc.* 92,111
-----------
528,911
-----------------------------------------------------------
PIPELINES - 0.9%
5,500 Aquarion Co. 190,781
3,500 Oneok, Inc. 119,656
-----------
310,437
-----------------------------------------------------------
RECREATIONAL PRODUCTS - 1.0%
10,900 Huffy Corp. 160,775
6,800 Russ Berrie and Co., Inc. 174,675
-----------
335,450
-----------------------------------------------------------
RETAIL - 7.1%
6,300 Best Buy Co., Inc.* 318,938
4,904 Consolidated Stores Corp.* 201,677
4,300 Department 56, Inc.* 122,281
4,600 Ethan Allen Interiors, Inc. 220,225
5,900 Furniture Brands International, Inc.* 152,294
6,800 Michaels Stores, Inc.* 209,100
8,500 Microage, Inc.* 92,969
9,800 Pier 1 Imports, Inc. 229,075
6,300 Proffitt's, Inc.* 185,063
6,100 Williams-Sonoma, Inc.* 259,632
13,600 Zale Corp.* 333,200
-----------
2,324,454
-----------------------------------------------------------
SAVINGS AND LOAN - 2.2%
4,300 Albank Financial Corp. 195,113
5,700 Firstfed Financial Corp.* 200,213
17,100 Sovereign Bancorp, Inc. 318,488
-----------
713,814
-----------------------------------------------------------
SEMICONDUCTORS - 0.9%
8,000 California Microwave, Inc.* 146,000
4,000 Esterline Technologies Corp.* 137,250
-----------
283,250
-----------------------------------------------------------
SPECIALTY RETAIL - 1.2%
3,100 Abercrombie & Fitch Co.* 96,488
3,000 Brylane, Inc.* 149,250
4,400 Goody's Family Clothing, Inc.* 150,700
-----------
396,438
-----------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 25
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
STEEL - 2.9%
8,500 AK Steel Holding Corp. $ 151,934
6,400 Lone Star Technologies, Inc.* 185,200
7,800 National Steel Corp.* 100,425
5,300 Reliance Steel & Aluminum Corp. 173,244
7,200 Texas Industries, Inc. 352,350
-----------
963,153
------------------------------------------------------------
SUPERMARKETS - 1.1%
13,600 Fleming Companies, Inc. 204,850
2,800 Whole Foods Market, Inc.* 140,700
-----------
345,550
------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 0.7%
1,500 Amphenol Corp.* 80,438
5,600 Sawtek, Inc.* 145,950
-----------
226,388
------------------------------------------------------------
TELECOMMUNICATIONS SERVICES - 1.0%
3,600 Mobile Telecomm Technology Corp.* 81,225
12,400 Paging Network, Inc.* 158,875
2,800 Premisys Communications, Inc.* 79,975
-----------
320,075
------------------------------------------------------------
TEMPORARY HEALTH SERVICES - 0.2%
3,000 Staffmark, Inc.* 75,375
------------------------------------------------------------
TIRE AND OTHER RELATED RUBBER PRODUCTS - 0.5%
3,600 Carlisle Companies, Inc. 159,300
------------------------------------------------------------
TOBACCO - 1.6%
6,700 Consolidated Cigar Holdings, Inc.* 161,638
10,400 Schweitzer-Mauduit International, Inc. 371,800
-----------
533,438
------------------------------------------------------------
TRUCK RENTAL - 1.0%
17,900 Rollins Truck Leasing Corp. 325,556
------------------------------------------------------------
TRUCKING - 2.6%
2,600 Airborne Freight Corp. 184,925
3,900 Avondale Industries, Inc.* 110,297
19,800 Consolidated Freightways Corp.* 293,288
8,300 Yellow Corp.* 216,838
-----------
805,348
------------------------------------------------------------
UTILITIES-ELECTRIC - 2.4%
11,600 Public Service Company of
New Mexico $ 262,450
10,200 TNP Enterprises, Inc. 341,063
10,900 Calpine Corp.* 171,675
-----------
775,188
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
TOTAL COMMON STOCKS
(COST $29,965,522) $30,728,071
----------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
U.S. TREASURY OBLIGATIONS - 0.2%
<C> <S> <C>
$65,000 U.S. Treasury Bills 5.12%-5.60%, 02/05/98-02/12/98 $ 64,951
----------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $64,951) $ 64,951
----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.5%
$800,000 Joint Repurchase Agreement Account(b)
5.64%, 02/02/98 $ 800,000
----------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $800,000) $ 800,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $30,830,473) $31,593,022
----------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 1,915,825
Gross unrealized loss for investments in which cost exceeds
value (1,213,520)
----------------------------------------------------------------------------
Net unrealized gain $ 702,305
----------------------------------------------------------------------------
</TABLE>
Futures contracts open at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(c) Month Gain
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Stock Index 9 March 1998 $394
----------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $30,890,717.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each S&P 500 Stock Index represents 250 X index value at time of purchase
in notional par value. The total net notional amount and market value at
risk are $200,000 and $646,575, respectively. The determination of
notional amounts does not consider market risk factors and therefore
notional amounts as presented here are indicative only of volume of ac-
tivity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
26 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE 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% per Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and C, respectively and at NAV for
the Institutional and Service Classes) on August 15, 1997. For comparative
purposes, the performance of the Fund's benchmark (Morgan Stanley gross Eu-
rope, Australia, Far East Index) is shown. All performance data shown repre-
sents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to
be worth more or less than their original cost.
CORE INTERNATIONAL EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 15, 1997 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CORE International Morgan Stanley Class B Fund Class C Fund Institutional Class Service Class
Equity Fund (Class A) Gross EAFE
<S> <C> <C> <C> <C> <C> <C>
08/15/1997 9450 10000 10000 10000 10000 10000
Aug-97 9045 9540 9570 9570 9570 9570
Sep-97 9405 10076 9950 9950 9960 9950
Oct-97 8620 9304 9110 9120 9130 9120
Nov-97 8365 9211 8840 8840 8860 8850
Dec-97 8293 9294 8760 8770 8794 8780
Jan-98 8728 9722 8749 8128 9255 9230
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
AGGREGATE TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AU-
GUST 15, 1997)
Excluding sales charges -7.66%
Including sales charges -12.72%
--------------------------------------------------
CLASS B (COMMENCED AU-
GUST 15, 1997)
Excluding redemption
charges -7.90%
Including redemption
charges -12.51%
--------------------------------------------------
CLASS C (COMMENCED AU-
GUST 15, 1997)
Excluding redemption
charges -7.80%
Including redemption
charges -8.72%
--------------------------------------------------
INSTITUTIONAL CLASS
(COMMENCED AUGUST 15,
1997) -7.45%
--------------------------------------------------
SERVICE CLASS (COMMENCED
AUGUST 15, 1997) -7.70%
--------------------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 93.5%
AUSTRALIAN DOLLAR - 0.5%
3,200 Coles Myer Ltd. (Retail)* $ 16,146
16,000 David Jones Ltd. (Retail)* 17,328
20,000 News Corporation (Media/Entertainment) 125,986
----------
159,460
------------------------------------------------------------
AUSTRIAN SCHILLING - 1.9%
650 Creditanstalt Bank (Bank) 46,192
750 Va Stahl AG (Steel) 26,941
8,350 Z Laenderbank Bank Austria AG (Bank) 471,473
----------
544,606
------------------------------------------------------------
BELGIAN FRANC - 0.8%
150 Generale de Banque (Bank) 64,881
1,700 Tractebel Inv International
(Conglomerate) 156,733
----------
221,614
------------------------------------------------------------
BRITISH POUND STERLING - 16.1%
7,000 Abbey National (Insurance) 140,558
19,300 Barclays (Bank) 581,309
8,800 Bat Industries (Tobacco) 80,162
9,500 British Aerospace (Aerospace &
Defense) 246,589
29,900 British Petroleum (Oil & Gas) 403,673
94,800 British Telecom (Telecommunications) 905,352
57,700 Cable & Wireless (Telecommunications) 546,333
31,800 Glaxo Wellcome (Pharmaceuticals) 852,939
19,300 HSBC Holdings (Bank) 475,888
22,500 Royal Bank of Scotland Group (Bank) 319,564
15,900 Tesco (Supermarkets) 139,907
----------
4,692,274
------------------------------------------------------------
DANISH KRONE - 1.2%
2,600 Tele Danmark AS (Telecommunications) 168,718
2,300 Unidanmark (Bank) 172,313
----------
341,031
------------------------------------------------------------
FINNISH MARKKA - 4.8%
68,500 Enso OY (Forest Products) $ 555,711
34,250 Finnair (Airlines) 307,493
37,250 Metsa Serla OY (Forest Products) 282,047
3,100 Nokia AB OY (Electronics) 241,659
1,386,910
------------------------------------------------------------
FRENCH FRANC - 6.8%
5,750 Axa Uap (Insurance) 476,848
1,900 Cie Financier de Paribas (Bank) 169,640
5,100 Elf Aquitaine (Oil & Gas Exploration) 573,799
1,800 Erid Beghin Say (Consumer Staples) 319,664
2,300 Rhone Poulenc SA (Chemical Products) 104,925
1,650 Suez Lyonn Eaux (Bank) 195,978
10,550 Usinor (Steel) 144,730
----------
1,985,584
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
GERMAN DEUTSCHE MARK - 10.1%
400 Allianz AG (Insurance) $ 119,002
2,400 Axa Colonia Konz (Insurance) 222,327
3,050 BASF AG (Chemical Products) 103,143
12,450 Commerzbank AG (Bank) 451,949
14,100 Deutsche Bank AG (Bank) 915,809
5,500 Deutsche Telekom (Telecommunications) 96,075
21,865 Deutz AG (Machinery) 155,164
2,100 Fag Kugelfischer (Industrial Machinery) 26,125
3,100 Hoechst AG (Pharmaceuticals) 108,811
10,600 Merck Kgaa (Pharmaceuticals) 374,376
2,600 Siemens AG (Electronics) 158,606
350 Viag AG (Conglomerate) 201,567
----------
2,932,954
---------------------------------------------------------------------------
HONG KONG DOLLAR - 2.7%
94,000 Hong Kong Electric (Utility) 335,931
68,000 Hong Kong Land Holdings ADR
(Real Estate) 109,290
7,000 Hutchison Whampoa (Conglomerate)* 41,166
63,000 Swire Pacific (Conglomerate)* 286,623
----------
773,010
---------------------------------------------------------------------------
ITALIAN LIRA - 3.6%
23,700 Banca Comm Italiana (Bank) 96,911
102,600 Fiat SPA (Auto/Vehicle) 338,641
113,600 Ist Naz Ass (Insurance) 250,175
22,000 Istit Fin Ind (Conglomerate) 363,370
----------
1,049,097
---------------------------------------------------------------------------
JAPANESE YEN - 22.2%
33,000 Citizen Watch Co. (Jewelry) 233,950
99 East Japan Railway (Railroads) 463,222
67,000 Fuji Bank (Bank) 420,166
31,000 Fujitsu (Computers and Business
Equipment) 354,076
87,000 Hino Motors (Industrial Machinery) 265,215
91,000 Hitachi (Electronics) 716,818
30,000 Izumiya Co. (Retail) 199,685
64,000 Konica Corporation (Computers and Business Equipment) 326,176
106,000 Long Credit Bank Japan (Bank) 237,968
205,000 Marubeni Corp. (Trading) 513,509
39,000 Matsushita Electric Industries (Retail) 588,557
150,000 Mitsubishi Chemical (Chemical Products) 264,671
30,000 Nippon Paper Industries (Forest Products) 134,935
15 Nippon Telephone Corp. (Telecommunications) 137,682
52,000 Nissan Motor Co. (Auto/Vehicle) 231,430
89,000 Snow Brand Milk (Food & Beverages) 279,023
32,000 Takashimaya Co (Retail) 247,783
4,000 Tokyo Electric Power (Utility) 74,675
45,000 Toppan Printing Co. (Business Services) 560,063
50,000 Toshiba Corp. (Industrial Machinery) 232,767
----------
6,482,371
---------------------------------------------------------------------------
</TABLE>
28 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
MALAYSIAN RINGGIT - 1.6%
793,000 Berjaya Group Berhad (Conglomerate) $ 146,153
236,000 Lion Land Berhad (Real Estate) 33,113
75,000 Malaysia Airline Systems (Airlines) 63,496
25,000 Malaysia International Shipping (Trucking) 28,775
26,000 Rothmans Pall Mall (Tobacco) 205,589
-----------
477,126
-----------------------------------------------------------------
NETHERLANDS GUILDER - 5.7%
1,300 Aegon NV (Insurance) 123,858
1,900 Asr Verzekeringsgr (Insurance) 118,112
12,800 Ing Groep NV (Financial Services) 585,270
9,200 KLM (Airlines) 318,617
9,000 Kon Hoogovensnv (Steel) 386,670
1,900 Philips Electronic (Retail) 128,105
-----------
1,660,632
-----------------------------------------------------------------
NORWEGIAN KRONE - 2.0%
8,000 Bergesen DY AS (Trucking) 173,115
2,700 Kvaerner ASA (Agriculture/Heavy Equipment) 95,187
1,700 Kvaerner ASA (Agriculture/Heavy Equipment) 65,522
5,400 Norsk Hydro AS (Oil & Gas Services) 242,710
-----------
576,534
-----------------------------------------------------------------
PORTUGUESE ESCUDO - 0.5%
7,500 Elec de Portugal (Utility) 154,964
-----------------------------------------------------------------
SINGAPORE DOLLAR - 0.4%
101,000 National Steel Ltd. (Steel) 83,651
7,000 Singapore Airlines (Airlines) 45,728
-----------
129,379
-----------------------------------------------------------------
SPANISH PESETA - 4.1%
2,100 Banco Santander (Bank) 73,986
12,800 Iberdrola SA (Utility)* 193,327
28,700 Telefonica de Espana
(Telecommunications) 937,251
-----------
1,204,564
-----------------------------------------------------------------
SWEDISH KRONA - 2.4%
2,100 Incentive AB (Agriculture/Heavy
Equipment) 186,929
13,700 Skand Enskilda Banken (Bank) 168,904
12,600 Volvo AB (Auto/Vehicle) 344,355
-----------
700,188
-----------------------------------------------------------------
SWISS FRANC - 6.1%
230 George Fischer AG (Industrial Machinery) 349,332
40 Jelmoli Holdings AG (Retail) 38,747
460 Novartis AG (Pharmaceuticals) 785,229
260 Novartis AG (Pharmaceuticals) 444,917
300 Zurich Versicherun (Insurance) 149,655
-----------
1,767,880
-----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $27,115,202) $27,240,178
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
<C> <S> <C>
SHORT-TERM OBLIGATIONS - 8.2%
$2,391,000 State Street Bank & Trust
Euro Time Deposit 5.563%, 02/02/98 $ 2,391,000
------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $2,391,000) $ 2,391,000
------------------------------------------------------------
TOTAL INVESTMENTS
(COST $29,506,202) (A) $29,631,178
------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 1,572,823
Gross unrealized loss for investments in which cost exceeds
value (1,504,964)
---------------------------------------------------------------------------
Net unrealized gain $ 67,859
---------------------------------------------------------------------------
</TABLE>
* Non Income Producing.
(a) The aggregate cost for federal income tax purposes is $29,563,319.
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
Aerospace & Defense 0.8%
Agriculture/Heavy Equipment 1.2
Airlines 2.5
Auto/Vehicle 3.1
Bank 16.8
Business Services 1.9
Chemical Products 1.6
Computers and Business Equipment 2.3
Conglomerate 4.1
Consumer Staples 1.1
Electronics 3.8
Financial Services 2.0
Food & Beverages 1.0
Forest Products 3.3
Industrial Machinery 3.0
Insurance 5.5
Jewelry 0.8
Machinery 0.5
Media/Entertainment 0.4
Oil & Gas 1.4
Oil & Gas Exploration 2.0
Oil & Gas Services 0.8
Pharmaceuticals 8.8
Railroads 1.6
Real Estate 0.5
Retail 4.2
Steel 2.2
Supermarkets 0.5
Telecommunications 9.7
Tobacco 1.0
Trading 1.8
Trucking 0.7
Utility 2.6
---------------------------------------------
TOTAL COMMON STOCKS 93.5%
---------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 29
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Assets and Liabilities
January 31, 1998
<TABLE>
<CAPTION>
GOLDMAN SACHS
CORE U.S.
EQUITY FUND
ASSETS:
<S> <C>
Investment in securities, at value (identified cost,
$520,501,426, $69,319,703, $30,830,473 and $29,506,202) $670,339,143
Cash 85,588
Receivables:
Investment securities sold --
Fund shares sold 5,092,731
Dividends and interest 606,916
Variation margin 3,850
Deferred organization expenses, net --
Other assets 7,229
-----------------------------------------------------------------------------
TOTAL ASSETS 676,135,457
-----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased --
Forward foreign currency exchange contracts --
Fund shares repurchased 306,950
Amounts owed to affiliates 1,099,005
Variation margin --
Accrued expenses and other liabilities 127,372
-----------------------------------------------------------------------------
TOTAL LIABILITIES 1,533,327
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 520,091,264
Accumulated undistributed (distributions in excess of) net
investment income (loss) 75,033
Accumulated undistributed (distributions in excess of) net
realized gain (loss) on investment and futures transactions 4,515,480
Accumulated net realized foreign currency loss --
Net unrealized gain on investments and futures 149,920,353
Net unrealized loss on translation of assets and liabilities,
as denominated in foreign currencies --
-----------------------------------------------------------------------------
NET ASSETS $674,602,130
-----------------------------------------------------------------------------
</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) 14,985,404 2,249,148 238,838
Net asset and Class A redemption value per
share(a) $26.59 $26.32 $26.24
Maximum public offering price per share
(Class A NAV X 1.0582) $28.14 $26.32 $26.24
-----------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SERVICE
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 7,573,189 295,570
Net asset value, offering and redemption
price per share $26.79 $26.53
-----------------------------------------------------------------------------
</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.
30 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP CORE SMALL CAP CORE INTERNATIONAL
GROWTH FUND EQUITY FUND EQUITY FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$74,329,935 $31,593,022 $29,631,178
99,811 91,563 1,303,278
-- -- 261,002
2,237,097 1,147,846 1,971,336
25,623 8,526 27,624
1,072 -- --
42,438 45,342 45,342
124,918 40,508 27,076
------------------------------------------------------------------------------
76,860,894 32,926,807 33,266,836
------------------------------------------------------------------------------
-- -- 3,842,039
-- -- 15,791
69,803 52,577 68,995
125,260 48,289 24,869
-- 2,918 --
119,678 162,648 179,635
------------------------------------------------------------------------------
314,741 266,432 4,131,329
------------------------------------------------------------------------------
72,037,383 32,319,133 29,722,894
(16,664) (35,674) (11,740)
(493,840) (386,027) (539,186)
-- -- (136,569)
5,019,274 762,943 632,463
-- -- (532,355)
------------------------------------------------------------------------------
$76,546,153 $32,660,375 $29,135,507
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4,491,866 1,162,113 346,492 1,049,487 942,850 242,025 768,392 295,542 174,438
$11.97 $11.92 $11.93 $10.59 $10.56 $10.57 $9.22 $9.21 $9.22
$12.67 $11.92 $11.93 $11.21 $10.56 $10.57 $9.76 $9.21 $9.22
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
388,928 9,619 850,858 160 1,920,464 161
$11.97 $11.95 $10.61 $10.60 $9.24 $9.23
----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 31
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Operations
For the Year Ended January 31, 1998
<TABLE>
<CAPTION>
GOLDMAN SACHS
CORE U.S.
EQUITY FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends(a) $ 8,627,109
Interest 756,432
-------------------------------------------------------------------------------
TOTAL INCOME 9,383,541
-------------------------------------------------------------------------------
EXPENSES:
Management fees 3,924,639
Distribution fees 1,051,090
Authorized dealer service fees 864,664
Service class fees 27,222
Transfer agent fees 483,534
Custodian fees 149,262
Professional fees 63,446
Registration fees 44,088
Amortization of deferred organization expenses --
Trustee fees 5,519
Other 131,103
-------------------------------------------------------------------------------
TOTAL EXPENSES 6,744,567
-------------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by
Goldman Sachs (951,935)
-------------------------------------------------------------------------------
NET EXPENSES 5,792,632
-------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 3,590,909
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT, FUTURES AND FOREIGN CUR-
RENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 50,034,399
Futures transactions 1,626,406
Foreign currency related transactions --
Net change in unrealized gain (loss) on:
Investments 58,744,545
Futures (9,164)
Translation of assets and liabilities denominated
in foreign currencies --
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS: 110,396,186
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $113,987,095
-------------------------------------------------------------------------------
</TABLE>
(a) For the CORE U.S. Equity, CORE Large Cap Growth and CORE International
Funds, taxes withheld on dividends were $47,374, $396 and $11,406, re-
spectively.
(b) Commencement dates of operations for the CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds were May 1, 1997,
August 15, 1997 and August 15, 1997, respectively.
32 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP CORE SMALL CAP CORE INTERNATIONAL
GROWTH FUND(B) EQUITY FUND(B) EQUITY FUND(B)
<S> <C> <C>
$ 258,531 $ 48,424 $ 69,116
50,565 35,771 31,547
---------------------------------------------------------------------------------------
309,096 84,195 100,663
---------------------------------------------------------------------------------------
228,283 74,140 57,835
103,136 31,000 11,569
75,661 14,932 5,688
256 -- --
108,014 62,625 36,474
73,860 35,519 57,237
65,445 30,526 31,272
57,476 63,025 73,316
7,562 4,658 4,658
372 233 284
40,064 23,361 19,825
---------------------------------------------------------------------------------------
760,129 340,019 298,158
---------------------------------------------------------------------------------------
(440,292) (216,739) (212,859)
---------------------------------------------------------------------------------------
319,837 123,280 85,299
---------------------------------------------------------------------------------------
(10,741) (39,085) 15,364
---------------------------------------------------------------------------------------
1,348,933 (254,571) (539,186)
(2,540) (21,950) --
-- -- (150,509)
5,010,232 762,549 632,463
9,042 394 --
-- -- (532,355)
---------------------------------------------------------------------------------------
6,365,667 486,422 (589,587)
---------------------------------------------------------------------------------------
$6,354,926 $ 447,337 $ 574,223
---------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 33
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
CORE U.S. EQUITY FUND CORE U.S. EQUITY FUND
FOR THE YEAR ENDED FOR THE YEAR ENDED
JANUARY 31, 1998 JANUARY 31, 1997
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 3,590,909 $ 3,164,879
Net realized gain (loss) on
investment and futures
transactions 51,660,805 15,032,718
Net realized loss on foreign
currency related transactions -- --
Net change in unrealized gain
on investments and futures 58,735,381 49,460,545
Net change in unrealized loss
on translation of assets and
liabilities denominated in
foreign currencies -- --
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 113,987,095 67,658,142
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (1,575,637) (1,515,575)
Class B shares -- (4,750)
Class C shares -- --
Institutional shares (1,709,339) (1,606,175)
Service shares (33,980) (6,666)
In excess of net investment
income
Class A shares (51,278) --
Class B shares (119,427) (118,421)
Class C shares (23,315) --
Institutional shares -- (34,205)
Service shares (2,900) (16,030)
From net realized gain on
investment, foreign currency
and futures transactions
Class A shares (30,719,012) (7,174,235)
Class B shares (3,604,362) (440,131)
Class C shares (101,633) --
Institutional shares (15,675,265) (4,675,726)
Service shares (556,742) (68,472)
In excess of net realized gain
on investment, foreign
currency and futures
transactions
Class A shares -- --
Class B shares (633,585) --
Class C shares (257,250) --
Institutional shares -- --
Service shares -- --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (55,063,725) (15,660,386)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of
shares 265,252,943 167,209,718
Reinvestment of dividends and
distributions 52,659,270 14,904,237
Cost of shares repurchased (98,067,148) (32,152,494)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 219,845,065 149,961,461
------------------------------------------------------------------------------
TOTAL INCREASE 278,768,435 201,959,217
------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 395,833,695 193,874,478
------------------------------------------------------------------------------
End of period $674,602,130 $395,833,695
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS OF)
NET INVESTMENT INCOME $ 75,033 $ --
------------------------------------------------------------------------------
</TABLE>
(a) Commencement dates of operations for the CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds were May 1, 1997,
August 15, 1997 and August 15, 1997, respectively.
34 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH FUND CORE SMALL CAP EQUITY FUND CORE INTERNATIONAL EQUITY FUND
FOR THE PERIOD ENDED FOR THE PERIOD ENDED FOR THE PERIOD ENDED
JANUARY 31, 1998(A) JANUARY 31, 1998(A) JANUARY 31, 1998(A)
<S> <C> <C>
$ (10,741) $ (39,085) $ 15,364
1,346,393 (276,521) (539,186)
-- -- (150,509)
5,019,274 762,943 632,463
-- -- (532,355)
--------------------------------------------------------------------------------------------
6,354,926 447,337 (574,223)
--------------------------------------------------------------------------------------------
(10,499) -- --
-- -- --
-- -- --
(3) -- (13,900)
-- -- --
-- -- (1,401)
-- -- --
(461) -- --
-- -- --
(2) -- --
(1,161,485) -- --
(165,444) -- --
(16,967) -- --
(79) -- --
(1,739) -- --
(230,942) (37,526) --
(194,227) (34,574) --
(67,511) (7,527) --
-- (29,872) --
(1,839) (7) --
--------------------------------------------------------------------------------------------
(1,851,198) (109,506) (15,301)
--------------------------------------------------------------------------------------------
79,057,752 32,949,538 30,283,218
1,734,068 94,459 15,251
(8,749,395) (721,453) (573,438)
--------------------------------------------------------------------------------------------
72,042,425 32,322,544 29,725,031
--------------------------------------------------------------------------------------------
76,546,153 32,660,375 29,135,507
--------------------------------------------------------------------------------------------
-- -- --
--------------------------------------------------------------------------------------------
$76,546,153 $32,660,375 $29,135,507
--------------------------------------------------------------------------------------------
(16,664) $ (35,674) $ (11,740)
--------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 35
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- -----------------------------------------------------
NET REALIZED FROM NET IN EXCESS OF
NET ASSET AND UNREALIZED IN EXCESS REALIZED GAIN NET REALIZED GAIN NET INCREASE/
VALUE, NET GAIN (LOSS) ON FROM NET OF NET ON INVESTMENT ON INVESTMENT (DECREASE)
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET ASSET
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27
1998 - Class B
Shares 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14
1998 - Class C
Shares(b) 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24)
1998 - Institu-
tional Shares 23.44 0.30 5.65 (0.24) (.01) (1.33) (1.02) 3.35
1998 - Service
Shares 23.27 0.19 5.57 (0.07) (.08) (2.35) -- 3.26
--------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66
1997 - Class B
Shares(b) 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74
1997 - Institu-
tional Shares 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73
1997 - Service
Shares(b) 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25
--------------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05
1996 - Institu-
tional Shares(b) 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74
--------------------------------------------------------------------------------------------------------------------------
1995 - Class A
Shares 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32)
--------------------------------------------------------------------------------------------------------------------------
1994 - Class A
Shares 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47
--------------------------------------------------------------------------------------------------------------------------
1993 - Class A
Shares 15.05 0.22 0.41 (0.22) -- -- -- 0.41
FOR THE PERIOD ENDED JANUARY 31,
1992 - Class A
Shares(b) 14.17 0.11 0.88 (0.11) -- -- -- 0.88
--------------------------------------------------------------------------------------------------------------------------
</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 Sevice share activity
commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15,
1995 and June 7, 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.
36 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$26.59 24.96% 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
26.32 24.28 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
26.24 4.85(d) 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
26.79 25.76 65.89 .0651 202,893 0.65 1.16 0.82 0.99
26.53 25.11 65.89 .0651 7,841 1.15 0.62 1.32 0.45
- ------------------------------------------------------------------------------------------------------------------------------
23.32 23.75 37.78 .0417 225,968 1.29 0.91 1.53 0.67
23.18 18.59(d) 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
23.44 24.63 37.28 .0417 148,942 0.65 1.52 0.85 1.32
23.27 15.92(d) 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
- ------------------------------------------------------------------------------------------------------------------------------
19.66 38.63 39.35 -- 129,045 1.25 1.01 1.55 0.71
19.71 20.14(d) 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
- ------------------------------------------------------------------------------------------------------------------------------
14.61 (1.10) 56.18 -- 94,968 1.38 1.33 1.63 1.08
- ------------------------------------------------------------------------------------------------------------------------------
15.93 15.12 87.73 -- 92,769 1.42 0.92 1.67 0.67
- ------------------------------------------------------------------------------------------------------------------------------
15.46 4.30 144.93 -- 117,757 1.28 1.30 1.53 1.05
- ------------------------------------------------------------------------------------------------------------------------------
15.05 7.01(d) 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------------- ----------------------------------------------------
NET REALIZED FROM NET IN EXCESS OF NET
NET ASSET AND UNREALIZED IN EXCESS REALIZED GAIN REALIZED GAIN
VALUE, NET GAIN (LOSS) ON FROM NET OF NET ON INVESTMENT ON INVESTMENT NET INCREASE
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET ASSET
OF PERIOD INCOME (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
FOR THE PERIOD ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares(b) $10.00 $ 0.01 $2.35 $(0.01) -- $(0.32) $(0.06) $1.97
1998 - Class B
Shares(b) 10.00 (0.03) 2.33 -- -- (0.18) (0.20) 1.92
1998 - Class C
Shares(b) 11.80 (0.02) 0.54 -- (.01) (0.38) -- 0.13
1998 - Institu-
tional Shares(b) 10.00 0.01 2.35 (0.01) -- (0.19) (0.19) 1.97
1998 - Service
Shares(b) 10.00 (0.02) 2.35 -- -- (0.08) (0.30) 1.95
</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 Institutional and Service share activity commenced
on May 1, 1997. Class C share activity commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
38 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF
NET ASSETS RATIO OF RATIO OF RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES NET INVESTMENT EXPENSES TO LOSS TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE INCOME TO AVERAGE NET AVERAGE NET
OF PERIOD RETURN(A) RATE RATE (IN 000S) NET ASSETS AVERAGE NET ASSETS ASSETS ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$11.97 23.79%(d) 74.97% $.0282 $53,786 0.91%(c) 0.12%(c) 2.40%(c) (1.37)%(c)
11.92 23.26(d) 74.97 .0282 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c)
11.93 4.56(d) 74.97 .0282 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00)(c)
11.97 23.89(d) 74.97 .0282 4,656 0.72(c) 0.42(c) 1.96(c) (0.82)(c)
11.95 23.56(d) 74.97 .0282 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------- ------------------------
NET REALIZED
AND UNREALIZED FROM NET
NET ASSET GAIN (LOSS) ON REALIZED GAIN
VALUE, NET INVESTMENT FROM NET ON INVESTMENT NET INCREASE
BEGINNING INVESTMENT AND FUTURES INVESTMENT AND FUTURES IN NET ASSET
OF PERIOD INCOME (LOSS) TRANSACTIONS INCOME TRANSACTIONS VALUE
FOR THE PERIOD ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares(b) $10.00 $(0.01) $0.65 -- $(0.05) $0.59
1998 - Class B Shares(b) 10.00 (0.03) 0.64 -- (0.05) 0.56
1998 - Class C Shares(b) 10.00 (0.02) 0.64 -- (0.05) 0.57
1998 - Institutional
Shares(b) 10.00 0.01 0.65 -- (0.05) 0.61
1998 - Service Shares(b) 10.00 0.01 0.64 -- (0.05) 0.60
</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) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
40 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET AVERAGE NET
OF PERIOD RETURN(A) RATE RATE (IN 000S) NET ASSETS ASSETS ASSETS ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.59 6.37%(d) 37.65% $.0370 $11,118 1.25%(c) (0.36)%(c) 3.92%(c) (3.03)%(c)
10.56 6.07(d) 37.65 .0370 9,957 1.95(c) (1.04)(c) 4.37(c) (3.46)(c)
10.57 6.17(d) 37.65 .0370 2,557 1.95(c) (1.07)(c) 4.37(c) (3.49)(c)
10.61 6.57(d) 37.65 .0370 9,026 0.95(c) 0.15(c) 3.37(c) (2.27)(c)
10.60 6.47(d) 37.65 .0370 2 1.45(c) 0.40(c) 3.87(c) (2.02)(c)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------------------ ------------------------
NET REALIZED
AND UNREALIZED NET REALIZED FROM NET
NET ASSET GAIN (LOSS) ON AND UNREALIZED REALIZED GAIN
VALUE, NET INVESTMENTS GAIN (LOSS) ON FROM NET ON INVESTMENT NET DECREASE
BEGINNING INVESTMENT AND FUTURES CURRENCY RELATED INVESTMENT AND FUTURES IN NET ASSET
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS INCOME TRANSACTIONS VALUE
FOR THE PERIOD ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares(b) $10.00 $ -- $0.13 $(0.91) $ -- -- $(0.78)
1998 - Class B Shares(b) 10.00 (0.02) 0.13 (0.90) -- -- (0.79)
1998 - Class C Shares(b) 10.00 (0.02) 0.13 (0.89) -- -- (0.78)
1998 - Institutional
Shares(b) 10.00 0.02 0.13 (0.89) (0.02) -- (0.76)
1998 - Service Shares(b) 10.00 0.01 0.13 (0.91) -- -- (0.77)
</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) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
42 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET AVERAGE NET
OF PERIOD RETURN(A) RATE RATE (IN 000S) NET ASSETS ASSETS ASSETS ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$9.22 (7.66)%(d) 25.16% $.0069 $ 7,087 1.50%(c) (0.27)%(c) 4.87%(c) (3.90)%(c)
9.21 (7.90)(d) 25.16 .0069 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c)
9.22 (7.80)(d) 25.16 .0069 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c)
9.24 (7.45)(d) 25.16 .0069 17,719 1.00(c) 0.59 (c) 4.12(c) (2.53)(c)
9.23 (7.70)(d) 25.16 .0069 1 1.50(c) 0.26 (c) 4.62(c) (2.86)(c)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
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 CORE U.S. Equity Fund (for-
merly known as the Goldman Sachs Select Equity Fund), CORE Large Cap Growth
Fund, CORE Small Cap Equity Fund and the CORE International Equity Fund, col-
lectively the "Funds" or individually a "Fund". The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end, management
investment company. At January 31, 1998, the Funds 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 Funds. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded or
NASDAQ. If no sale occurs, securities traded on a U.S. exchange or NASDAQ are
valued at the mean between the closing bid and asked price, and securities
traded on a foreign exchange will be valued at the official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on valuation date, or if no sale occurs at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned. In addition, it
is the Funds' policy to accrue for estimated capital gains taxes on foreign
securities held by the Funds subject to such taxes.
C. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Funds are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment 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 -- Certain of the Funds are
authorized to enter into forward foreign currency exchange contracts for the
purchase of a specific foreign currency at a fixed price on a future date as
a hedge or cross-hedge against either specific transactions or portfolio po-
sitions. The CORE International Equity Fund may enter into such contracts to
seek to increase total return. All commitments are "marked to market" daily
at the applicable translation rates and any resulting unrealized gains or
losses are recorded in the funds' financial statements. The Funds record re-
alized
44
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
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. FEDERAL TAXES -- It is each 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 their shareholders. Accordingly, no federal tax
provisions are required. The characterization of distributions to sharehold-
ers for financial reporting purposes is determined in accordance with income
tax rules. Therefore, the source of each Fund's distributions may be shown in
the accompanying financial statements as either from or in excess of net in-
vestment income or net realized gain on investment transactions, or from cap-
ital, 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.
F. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
G. EXPENSES -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are generally 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. Service shares sepa-
rately bear a service class fee payable monthly, at an annual rate equal to
..50% of the average daily net assets of the service class.
H. OPTION ACCOUNTING PRINCIPLES -- When the Funds write call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Funds enter
into a closing purchase transaction, the Funds realize a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Funds realize a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium 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
Funds purchase upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Funds have purchased expires on the stipulated expiration date, the Funds
will realize a loss in the amount of the cost of the option. If the Funds en-
ter into a closing sale transaction, the Funds will realize a gain or loss,
depending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Funds exercise a pur-
chased put option, the Funds will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Funds exercise a purchased call option, the
cost of the security which the Funds purchase upon exercise will be increased
by the premium originally paid.
I. FUTURES CONTRACTS -- The Funds may enter into futures transactions to
hedge against changes in interest rates, securities prices or to seek to in-
crease total return.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the respective futures exchange. Subsequent payments
for futures contracts ("variation margin") are paid or received by the Funds
daily, 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 Funds realize a gain or loss which is reported
in the Statement of Operations.
45
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements
January 31, 1998
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
hedging strategies and potentially result in a loss.
3. AGREEMENTS
As of May 1, 1997, the Funds' 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 Manage-
ment ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser to the CORE Large Cap Growth,
CORE Small Cap Equity and CORE International Equity Funds; Goldman Sachs
Funds Management L.P. ("GSFM"), an affiliate of Goldman Sachs, acts as in-
vestment adviser to the CORE U.S. Equity Fund. Under the Agreements, GSAM and
GSFM, subject to the general supervision of the Trust's Board of Trustees,
manage the Funds' portfolios. As compensation for the services rendered under
the Agreements, the assumption of the expenses related thereto and adminis-
tering the Funds' business affairs, including providing facilities, GSAM is
entitled to a fee, computed daily and payable monthly, at an annual rate
equal to .75%, .85% and .85% of the average daily net assets of the CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds,
respectively. GSFM is entitled to a fee of .75% of the average daily net as-
sets of the CORE U.S. Equity Fund.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other Ex-
penses" for the CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Eq-
uity and CORE International Equity Funds (excluding management, service,
distribution and authorized dealer service fees and litigation and indemnifi-
cation costs, taxes, interest, brokerage commissions and extraordinary ex-
penses and transfer agent fees in the case of the CORE U.S. Equity Fund)
until further notice to the extent such expenses exceed .06%, .05%, .20% and
..25% of the average daily net assets of the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds 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 imposed
and has advised the Funds that it retained approximately $566,000, $129,000,
$49,000 and $24,000 during the period ended January 31, 1998 for the CORE
U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE Interna-
tional Equity Funds, respectively.
The Trust, on behalf of each Fund, has adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs is entitled to receive a quarterly fee from each Fund for dis-
tribution services equal, on an annual basis, to .25%, .75% and .75% of the
Funds' average daily net assets attributable to Class A, Class B and Class C
shares, respectively.
The Trust, on behalf of each 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. Each Fund pays a fee under its Service Plan equal, on an annual basis,
to .25% of its average daily net assets attributable to Class A, Class B and
Class C shares. Goldman Sachs also serves as the Transfer Agent of the funds
for a fee.
For the period ended January 31, 1998 Goldman Sachs, GSAM, GSFM and the Dis-
tributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
<TABLE>
<CAPTION>
WAIVERS
------------------
CLASS A REIMBURSEMENT
FUND MANAGEMENT 12B-1 REIMBURSEMENT OUTSTANDING
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORE U.S. Equity 837 51 64 --
-------------------------------------------------------------------------
CORE Large Cap Growth 46 62 332 124
-------------------------------------------------------------------------
CORE Small Cap Equity 9 6 202 40
-------------------------------------------------------------------------
CORE International Equity 7 -- 206 25
-------------------------------------------------------------------------
</TABLE>
GSAM and GSFM may discontinue or modify this waiver in the future at its dis-
cretion.
46
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
At January 31, 1998, the amounts owed to affiliates were as follows (in thou-
sands):
<TABLE>
<CAPTION>
AUTHORIZED
DEALER TRANSFER
FUND MANAGEMENT DISTRIBUTOR SERVICE AGENT TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE U.S. Equity 349 342 266 142 1,099
---------------------------------------------------------------------------
CORE Large Cap Growth 32 26 35 32 125
---------------------------------------------------------------------------
CORE Small Cap Equity 18 19 11 -- 48
---------------------------------------------------------------------------
CORE International Equity 12 8 5 -- 25
---------------------------------------------------------------------------
</TABLE>
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options) for the period ended January 31, 1998,
were as follows:
<TABLE>
<CAPTION>
SALES OR
FUND PURCHASES MATURITIES
----------------------------------------------------------------------------------------
<S> <C> <C>
CORE U.S. Equity $500,903,526 $334,451,033
----------------------------------------------------------------------------------------
CORE Large Cap Growth 97,206,589 31,560,546
----------------------------------------------------------------------------------------
CORE Small Cap Equity 37,277,847 7,057,754
----------------------------------------------------------------------------------------
CORE International Equity 31,642,851 3,863,704
----------------------------------------------------------------------------------------
</TABLE>
At January 31, 1998, the CORE International Equity Fund had the following
outstanding forward foreign currency exchange contracts:
<TABLE>
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN/LOSS
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Austrian Schilling expiring 2/02/98 $ 22,775 $ 22,493 $ (282)
Belgian Franc expiring 2/02/98 54,961 54,192 (769)
Deutsche Mark expiring 2/06/98 208,827 208,342 (485)
Finnish Markka expiring 2/02/98 31,108 30,676 (432)
Finnish Markka expiring 2/04/98 93,293 93,001 (292)
French Franc expiring 2/27/98 100,006 98,496 (1,510)
French Franc expiring 2/27/98 66,620 66,443 (177)
Hong Kong Dollar expiring 2/03/98 94,147 94,147 --
Italian Lira expiring 2/04/98 50,615 49,894 (721)
Japanese Yen expiring 2/02/98 304,107 299,316 (4,791)
Japanese Yen expiring 2/04/98 472,273 473,501 1,228
Netherlands Guilder expiring 2/02/98 101,195 99,771 (1,424)
Netherlands Guilder expiring 2/04/98 93,350 93,138 (212)
Norwegian Krone expiring 2/04/98 22,327 22,263 (64)
Portugese Escudo expiring 2/02/98 158,437 155,097 (3,340)
Pound Sterling expiring 2/06/98 9,991 9,988 (3)
Spanish Peseta expiring 2/02/98 45,698 45,107 (591)
Spanish Peseta expiring 2/04/98 55,662 55,569 (93)
Swedish Krona expiring 2/04/98 65,233 65,182 (51)
Swiss Franc expiring 2/02/98 107,314 105,763 (1,551)
Swiss Franc expiring 2/06/98 85,244 85,013 (231)
-----------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY PURCHASE CONTRACTS $2,243,183 $2,227,392 $(15,791)
-----------------------------------------------------------------------------
</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 January 31,
1998, the CORE International Equity Fund had sufficient cash and securities
to cover any commitments under these contracts.
CORE International Equity Fund has recorded a "Payable for forward foreign
currency exchange contracts" resulting from open forward foreign currency ex-
change contracts of $15,791, in the accompanying Statements of Assets and Li-
abilities.
For the period ended January 31, 1998, Goldman Sachs earned approximately
$300 of brokerage commissions from portfolio transactions executed on behalf
of the CORE Large Cap Growth Fund.
47
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements
January 31, 1998
5. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended January 31, 1998 is as follows:
<TABLE>
<CAPTION>
GOLDMAN SACHS
CORE U.S. EQUITY FUND
---------------------
SHARES DOLLARS
---------------------
<S> <C> <C>
CLASS A SHARES
Shares sold 6,317,528 $166,483,899
Reinvestment of dividends and distributions 1,196,100 30,986,861
Shares repurchased (2,217,030) (58,462,482)
---------------------
5,296,598 139,008,278
----------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,587,418 41,644,211
Reinvestment of dividends and distributions 160,708 4,120,872
Shares repurchased (243,200) (6,477,303)
---------------------
1,504,926 39,287,780
----------------------------------------------------------------------
CLASS C SHARES
Shares sold 301,152 8,133,714
Reinvestment of dividends and distributions 13,010 332,320
Shares repurchased (75,324) (2,069,721)
---------------------
238,838 6,396,313
----------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,723,166 45,504,817
Reinvestment of dividends and distributions 637,429 16,625,599
Shares repurchased (1,139,364) (30,605,181)
---------------------
1,221,231 31,525,235
----------------------------------------------------------------------
SERVICE SHARES
Shares sold 132,991 3,486,302
Reinvestment of dividends and distributions 22,975 593,618
Shares repurchased (17,860) (452,461)
---------------------
138,106 3,627,459
----------------------------------------------------------------------
NET INCREASE IN SHARES 8,399,699 $219,845,065
----------------------------------------------------------------------
</TABLE>
(a) Commencement dates of operations for the CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds were May 1, 1997,
August 15, 1997 and August 15, 1997, respectively.
48
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH FUND(A) CORE SMALL CAP EQUITY FUND(A) CORE INTERNATIONAL EQUITY FUND(A)
----------------------------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,984,608 $ 55,490,159 1,082,435 $ 11,495,763 794,938 $ 7,369,683
116,958 1,326,300 2,621 26,811 156 1,407
(609,700) (7,218,956) (35,569) (376,899) (26,702) (238,798)
----------------------------------------------------------------------------------------------------
4,491,866 49,597,503 1,049,487 11,145,675 768,392 7,132,236
----------------------------------------------------------------------------------------------------
1,245,868 14,674,329 952,128 10,018,888 307,513 2,897,478
29,355 331,745 3,118 31,832 -- --
(113,110) (1,345,680) (12,396) (128,919) (11,971) (110,882)
----------------------------------------------------------------------------------------------------
1,162,113 13,660,394 942,850 9,921,801 295,542 2,786,596
----------------------------------------------------------------------------------------------------
351,956 4,181,116 259,583 2,755,067 192,766 1,797,901
6,404 72,365 582 5,937 -- --
(11,868) (140,832) (18,140) (190,833) (18,328) (161,309)
----------------------------------------------------------------------------------------------------
346,492 4,112,649 242,025 2,570,171 174,438 1,636,592
----------------------------------------------------------------------------------------------------
392,622 4,603,030 850,292 8,678,220 1,925,620 18,216,557
7 79 2,917 29,872 1,603 13,900
(3,701) (43,927) (2,351) (24,802) (6,759) (62,449)
----------------------------------------------------------------------------------------------------
388,928 4,559,182 850,858 8,683,290 1,920,464 18,168,008
----------------------------------------------------------------------------------------------------
9,303 109,118 160 1,600 161 1,599
316 3,579 -- 7 -- --
-- -- -- -- -- --
----------------------------------------------------------------------------------------------------
9,619 112,697 160 1,607 161 1,599
----------------------------------------------------------------------------------------------------
6,399,018 $ 72,042,425 3,085,380 $ 32,322,544 3,158,997 $ 29,725,031
----------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements
January 31, 1998
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
GOLDMAN SACHS
CORE U.S. EQUITY FUND
-----------------------
SHARES DOLLARS
-----------------------
<S> <C> <C>
CLASS A SHARES
Shares sold 3,862,697 $ 81,642,386
Reinvestment of dividends and distributions 370,586 8,175,333
Shares repurchased (1,109,202) (23,823,146)
-----------------------
3,124,081 65,994,573
----------------------------------------------------------------------
CLASS B SHARES
Shares sold 733,802 15,946,016
Reinvestment of dividends and distributions 24,314 535,407
Shares repurchased (13,894) (310,118)
-----------------------
744,222 16,171,305
----------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 3,151,881 66,277,175
Reinvestment of dividends and distributions 275,197 6,102,331
Shares repurchased (363,536) (7,991,198)
-----------------------
3,063,542 64,388,308
----------------------------------------------------------------------
SERVICE SHARES
Shares sold 154,590 3,344,141
Reinvestment of dividends and distributions 4,126 91,166
Shares repurchased (1,252) (28,032)
-----------------------
157,464 3,407,275
----------------------------------------------------------------------
NET INCREASE IN SHARES 7,089,309 $149,961,461
----------------------------------------------------------------------
</TABLE>
50
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at each Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having advi-
sory agreements with GSAM or its affiliates, transfer uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements. The underlying securities for the repurchase
agreements are U.S. Treasury and agency obligations. At January 31, 1998, the
CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds had
undivided interests in the repurchase agreements in the following joint ac-
count which equaled $5,300,000, $2,100,000 and $800,000, respectively, in
principal amount. At January 31, 1998, the repurchase agreements held in this
joint account, along with the corresponding underlying securities (including
the type of security, market value, interest rate and maturity date) were as
follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC., $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 consisting of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA:
6.50%-8.00%, 05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
------------------------------------------------------------------------------
LEHMAN BROTHERS INC., 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA:
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
------------------------------------------------------------------------------
NOMURA SECURITIES INTERNATION-
AL, 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-01/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
------------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL, 270,000,000 5.64 02/02/98 270,000,000
dated 01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC
discount note: 03/06/98; FFCB: 6.30%, 08/08/07)
------------------------------------------------------------------------------
SALOMON-SMITH BARNEY, 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.88%, 08/15/01)
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
------------------------------------------------------------------------------
</TABLE>
8. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Funds participate 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 Funds must own securities having a market value in ex-
cess of 300% of the total bank borrowings. The interest rate on the
borrowings is based on the Federal Funds rate. The committed facility also
requires a fee to be paid based on the amount of the commitment which has not
been utilized. During the period ended January 31, 1998, the Funds did not
have any borrowings under these facilities.
9. CERTAIN RECLASSIFICATIONS
In accordance with statement of Position 93-2, the CORE Large Cap Growth,
CORE Small Cap Equity and CORE International Equity Funds have reclassified
$5,042, $3,411 and $2,137, respectively, from paid-in capital to distribu-
tions in excess of net investment income (loss). Additionally, the CORE In-
ternational Equity Fund reclassified $13,940 from accumulated net realized
foreign currency loss to distributions in excess of net investment income.
These reclassifications have no impact on the net asset value of the funds
and are designed to present the Funds' capital accounts on a tax basis.
51
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust - CORE Eq-
uity Funds
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs CORE U.S. Equity Fund, CORE Large Cap Growth Fund, CORE Small
Cap Equity, and CORE International Equity Fund, portfolios of Goldman Sachs
Trust--Equity Funds (a Delaware Business Trust), including the statements of
investments, as of January 31, 1998, and the related statements of operations
and the statements of changes in net assets and the financial highlights for
the periods presented. These financial statements and the financial high-
lights are the responsibility of the Funds' management. Our responsibility is
to express an opinion on these financial statements and the financial high-
lights 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 Trust - CORE Equity Funds as of January 31, 1998, the
results of its operations, 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
52
<PAGE>
GOLDMAN SACHS CORE EQUITY FUNDS
For Best Results,
It's Time in the Market That Counts
For optimal long-term investment results, time in the market can make the
difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- can do more harm than good
to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
- --------------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has generated negative returns only
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than attempting to time the market.
For More Information
A diversified portfolio of different stock types is one of the best ways to
reduce the effects of market fluctuations on a portfolio. For most
investors, diversification is most easily acquired through mutual funds.
Goldman Sachs Asset Management offers a broad spectrum of equity mutual
funds that can help investors weather market ups and downs. For more
information on these and other Goldman Sachs Funds, contact your investment
professional.
<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
Investment Adviser,
Distributor and Transfer Agent
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 stocks of smaller companies are often associated with higher risks than
stocks of larger companies, including higher volatility.
Funds that invest in foreign securities and utilize active management techniques
are subject to risks in addition to those customarily associated with investing
in dollar-denominated securities of U.S. issuers. Compared with U.S. securities
markets, foreign markets may be less liquid, more volatile and less subject to
governmental regulation, and may make available less public information about
issuers. Funds that invest in foreign issues 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 COREAR / 114K / 3-98
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
Included in the Prospectus:
Financial Highlights for the Financial Square Treasury Obligations
Fund, Financial Square Prime Obligations Fund, Financial Square
Premium Money Market Fund, Financial Square Government Fund, Financial
Square Money Market Fund, Financial Square Treasury Instruments Fund,
Financial Square Federal Fund and Financial Square Tax-Free Money
Market Fund (collectively, the "Financial Square Funds") for the
period ended December 31, 1997 (audited); and
Incorporated by Reference into the Additional Statement:
Report of Independent Public Accountants.
Statement of Investments as of January 31, 1998 for Goldman Sachs Capital
Growth Fund, Goldman Sachs CORE U.S. Equity Fund (formerly Select Equity
Fund), Goldman Sachs CORE Small Cap Equity Fund, Golman Sachs CORE
International Equity Fund, Goldman Sachs Small Cap Value Fund, Golman Sachs
International Equity Fund, Goldman Sachs Growth and Income Fund, Goldman
Sachs Asia Growth Fund, Goldman Sachs Balanced Fund, Goldman Sachs Mid-Cap
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund and Goldman Sachs
Emerging Markets Equtiy Fund.
<PAGE>
Statement of Assets and Liabilities as of January 31, 1998 for Goldman Sachs
Capital Growth Fund, Golman Sachs CORE U.S. Equity fund (formerly Select Equity
Fund), Golman Sachs CORE Small Cap Equity Fund, Golman Sachs CORE International
Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs International
Equity Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs Asia Growth
Fund, Golman Sachs Balanced Fund, Goldman Sachs Mid-Cap Equity Fund, Golman
Sachs CORE Large Cap Growth Fund and Goldman Sachs Emerging Markets Equity Fund.
Statement of Operations for the year ended January 31, 1998 for Goldman Sachs
Capital Growth Fund, Golman Sachs CORE U.S. Equity fund (formerly Select Equity
Fund), Golman Sachs CORE Small Cap Equity Fund, Golman Sachs CORE International
Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs International
Equity Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs Asia Growth
Fund, Golman Sachs Balanced Fund, Goldman Sachs Mid-Cap Equity Fund, Golman
Sachs CORE Large Cap Growth Fund and Goldman Sachs Emerging Markets Equity Fund.
Statement of Change in Net Assets for the years ended January 31, 1997 and
January 31, 1998 for Goldman Sachs Capital Growth Fund, Golman Sachs CORE U.S.
Equity fund (formerly Select Equity Fund), Golman Sachs CORE Small Cap Equity
Fund, Golman Sachs CORE International Equity Fund, Goldman Sachs Small Cap Value
Fund, Goldman Sachs International Equity Fund, Goldman Sachs Growth and Income
Fund, Goldman Sachs Asia Growth Fund, Golman Sachs Balanced Fund, Goldman Sachs
Mid-Cap Equity Fund, Golman Sachs CORE Large Cap Growth Fund and Goldman Sachs
Emerging Markets Equity Fund.
Financial Highlights ended January 31, 1998 for Goldman Sachs Capital Growth
Fund, Golman Sachs CORE U.S. Equity fund (formerly Select Equity Fund), Golman
Sachs CORE Small Cap Equity Fund, Golman Sachs CORE International Equity Fund,
Goldman Sachs Small Cap Value Fund, Goldman Sachs International Equity Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Asia Growth Fund, Golman
Sachs Balanced Fund, Goldman Sachs Mid-Cap Equity Fund, Golman Sachs CORE Large
Cap Growth Fund and Goldman Sachs Emerging Markets Equity Fund.
2
<PAGE>
Notes to Financial Statements.
Report of Independent Public Accountants
The following exhibits relating to the Goldman Sachs Money Market Funds are
incorporated herein by reference to Post-Effective Amendment No. 26 to
Goldman Sachs Trust's Registration Statement on Form N-1A (Accession No.
0000950130-95-002856); to Post-Effective Amendment No. 27 to such
Registration Statement (Accession No. 0000950130-96-004931); to Post-
Effective Amendment No. 29 to such Registration Statement (Accession No.
0000950130-97-000573); to Post-Effective Amendment No. 31 to such
Registration Statement (Accession No. 0000950130-97-000805); to Post-
Effective Amendment No. 33 to such Registration Statement (Accession No.
0000950130-97-0001867); to Post-Effective Amendment No. 40 to such
Registration Statement (Accession No. 0000950130-97-004495); and to Post-
Effective Amendment No. 41 to such Registration Statement (Accession No.
0000-950130-98-000676); Post-Effective Amendment No. 43 to such
Registration Statement. (Accession No. 0000950130- 98 - 000965)
1(a). Agreement and Declaration of Trust. (Accession No.
0000950130-97-000573)
1(b). Amendment No. 1 to Agreement and Declaration of Trust.
(Accession No. 0000950130-97-004495)
1(c). Amendment No. 2 to Agreement and Declaration of Trust.
(Accession No. 0000950130-97-004495)
1(d). Amendment No.3 dated January 28, 1997 to the Agreement and
Declaration of Trust. (Accession No. 0000950130-98-000676)
1(e). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676)
2. By-laws of the Delaware business trust. (Accession No.
0000950130-97-000573)
3. Not applicable.
4. Not applicable.
3
<PAGE>
5(a). Management Agreement dated April 30, 1997 between Registrant on
behalf of Goldman Sachs Short Duration Government Fund and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676)
5(b). Management Agreement dated April 30, 1997 between Registrant on
behalf of Goldman Sachs Adjustable Rate Government Fund and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676)
5(b). Advisory Agreement between Registrant and Goldman, Sachs & Co.,
filed as Exhibit A.(Accession No. 0000950130 - 98 - 000965)
5(c). Management Agreement dated April 30, 1997 between Registrant on
behalf of Goldman Sachs Short Duration Tax-Free Fund and Goldman
Sachs Asset Management. (Accession No. 0000950130-98-000676)
5(d). Management Agreement dated April 30, 1997 between Registrant on
behalf of Goldman Sachs Core Fixed Income Fund and Goldman Sachs
Asset Management. (Accession No. 0000950130-98-000676)
5(d). Consent dated June 20, 1987 to change in duties under the
Advisory Agreement and Distribution Agreement between Registrant
and Goldman, Sachs & Co. (Accession No. 0000950130 - 98 - 000965)
5(e). Management Agreement dated January 28, 1998 on behalf of the
Registrant and Goldman Sachs Asset Management, Goldman Sachs
Funds Management L.P. and Goldman Sachs Asset Management
International. (Accession No. 0000950130-98-000676)
5(f). Management Agreement dated January 1, 1998 on behalf of the
Goldman Sachs Asset Allocation Portfolios and Goldman Sachs Asset
Management. (Accession No. 0000950130-98-000676)
5(g). Management Agreement dated April 30, 1997 between the Registrant
on behalf of Goldman Sachs - Institutional Liquid Assets and
Goldman Sachs Asset Management. (Accession No. 0000950130-98-
000676)
5(i). Consent pursuant to paragraph 1 of each Advisory Agreement and
Distribution Agreement regarding Treasury Instruments, Tax-Exempt
New Jersey and Tax-Exempt New York Portfolio (Accession No.
0000950130 - 98 - 000965)
4
<PAGE>
6. Distribution Agreement dated April 30, 1997 as amended October 21,
1997 between Registrant and Goldman, Sachs & Co. (Accession No.
0000950130-97-004495)
7. Not applicable.
8(a). Custodian Agreement between Registrant and State Street Bank and
Trust Company. (Accession No. 0000950130-95-002856)
8(b). Custodian Agreement between Registrant and State Street Bank and
Trust Company, filed as Exhibit 1(e) (Accession No. 0000950130 -
98 - 000965)
8(c). Letter-agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company pertaining to the fees
payable by Registrant pursuant to the Custodian Agreement, filed
as Exhibit 8(c) (Accession No. 0000950130 - 98 - 000965)
8(d). Amendment dated May 28, 1981 to the Custodian Agreement referred to
above as Exhibit 8(a) (Accession No. 0000950130 - 98 - 000965)
8(e). Fee schedule relating to the Custodian Agreement between Registrant
on behalf of the Goldman Sachs Asset Allocation Portfolios and
State Street Bank and Trust Company. (Accession No. 0000950130-97-
004495)
8(f). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company pertaining to a change in wire
charges under the Custodian Agreement, filed as Exhibit 8(f)
(Accession No. 0000950130 - 98 - 000965)
5
<PAGE>
8(g). Letter Agreement dated March 28, 1983 between Registrant and State
Street Bank and Trust Company pertaining to the latter's
designation of Bank of America, N.T. and S.A. as its subcustodian
and certain other matters, filed as Exhibit 8(d) (Accession No.
0000950130 - 98 - 000965)
8(h). Letter Agreement dated March 21, 1985 between Registrant and State
Street Bank and Trust Company pertaining to the creation of a joint
repurchase agreement account, filed as Exhibit 8(g) (Accession No.
0000950130 - 98 - 000965)
8(i). Letter Agreement dated November 7, 1985, with attachments, between
Registrant and State Street Bank and Trust Company authorizing
State Street Bank and Trust Company to permit redemption of units
by check, filed as Exhibit 8(h) (Accession No. 0000950130 - 98 -
000965)
8(j). Money Transfer Services Agreement dated November 14, 1985,
including attachment, between Registrant and State Street Bank and
Trust Company pertaining to transfers of funds on deposit with
State Street Bank and Trust Company, filed as Exhibit 8(i)
(Accession No. 0000950130 - 98 - 000965)
8(k). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company amending the Custodian
Agreement (Accession No. 0000950130 - 98 - 000965)
Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company pertaining to a change in wire
charges (Accession No. 0000950130 - 98 - 000965)
8(l). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust Company
(Accession No. 0000950130 - 98 - 000965)
8(m). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company amending the Custodian Agreement
(Accession No. 0000950130 - 98 - 000965)
8(n). Letter Agreement dated June 20, 1987 regarding use
6
<PAGE>
of checking account between Registrant and The Northern Trust
Company (Accession No. 0000950130 - 98 - 000965)
8(o). Letter Agreement between Registrant and State Street Bank and Trust
Company pertaining to the latter's designation of Security Pacific
National Bank as its sub-custodian and certain other matters
(Accession No. 0000950130 - 98 - 000965)
8(p). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company (Accession No.
0000950130 - 98 - 000965)
8(q). Amendment dated September 15, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company
(Accession No. 0000950130 - 98 - 000965)
9(a). Transfer Agency Agreement between Registrant and Goldman, Sachs &
Co. (Accession No. 0000950130-95-002856)
9(b). Fee schedule relating to Transfer Agency Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and Goldman, Sachs & Co. (Accession No. 0000950130-97-
004495)
9(c). Transfer Agency Agreement dated May 1, 1988 between Registrant and
Goldman, Sachs & Co. and schedule of fees pertaining thereto
(Accession No. 0000950130 - 98 - 000965)
10(a). Opinion of Drinker Biddle and Reath. (Accession No. 0000950130-97-
004495)
10(b). Opinion of Morris, Nichols, Arsht & Tunnell - (Accession No.
0000950130-97-001846).
12. Not applicable.
14. Not applicable.
15(a). Class A Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998. (Accession No. 0000950130-98-000676)
15(b). Class B Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998. (Accession No. 0000950130-98-000676)
15(c) Class C Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998. (Accession No. 0000950130-98-000676)
7
<PAGE>
16. Schedule for Computation of Performance Data. (Reference V)
-
18(a). Plan entered into by Registrant pursuant to Rule 18f-3. (Accession
No. 0000950130-95-000628)
19. Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Sringer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor. (Accession No.
0000950130-97-000805)
19(a). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak. (Accession No. 0000950130-98-
000676)
The following exhibits relating to Goldman Sachs Trust is filed herewith
electronically pursuant to EDGAR rules:
11. Consent of Independent Auditors & GS - Equity
27. Financial Data Schedules.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not Applicable.
8
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES.
-------------------------------
Number of
Title of Class Record Holders
- -------------- --------------
Treasury Obligations Portfolio
ILA Units 702
ILA Administration Units 87
ILA Service Units 8
Treasury Instruments Portfolio
ILA Units 320
ILA Administration Units 43
ILA Service Units 18
Federal Portfolio
ILA Units 3,344
ILA Administration Units 602
ILA Service Units 139
Government Portfolio
ILA Units 792
ILA Administration Units 71
ILA Service Units 5
Prime Obligations Portfolio
ILA Class A 646
ILA Units 755
ILA Class B 132
ILA Class C 30
ILA Administration Units 101
ILA Service Units 19
Money Market Portfolio
ILA Units 1,922
ILA Administration Units 884
ILA Service Units 6
Tax-Exempt Diversified Portfolio
ILA Class A 68
ILA Units 2,514
ILA Administration Units 27
ILA Service Units 20
Tax-Exempt California Portfolio
ILA Units 1,005
ILA Administration Units 4
ILA Service Units 2
Tax-Exempt New York Portfolio
ILA Units
ILA Administration Units 265
ILA Service Units 63
Financial Square Treasury Obligations Fund 3
FST Shares 520
FST Administration Shares 258
FST Service Shares 749
FST Preferred Shares 19
Financial Square Prime Obligations Fund
FST Shares 607
FST Administration Shares 206
FST Service Shares 391
9
<PAGE>
FST Preferred Shares 23
Financial Square Government Fund
FST Shares 980
FST Administration Shares 250
FST Service Shares 111
FST Preferred Shares 27
Financial Square Money Market Fund
FST Shares 591
FST Administration Shares 355
FST Service Shares 189
FST Preferred Shares 47
Financial Square Tax-Free Money Market Fund
FST Shares 566
FST Administration Shares 67
FST Service Shares 101
FST Preferred Shares 15
Financial Square Treasury Instruments Fund
FST Shares 161
FST Administration Shares 15
FST Service Shares 10
FST Preferred Shares 4
Financial Square Federal Fund
FST Shares 285
FST Administration Shares 84
FST Service Shares 213
FST Preferred Shares 13
Financial Square Municipal Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Premium Money Market Fund
FST Shares 68
FST Administration Shares 6
FST Service Shares 7
FST Preferred Shares 8
Goldman Sachs Short Duration Government Fund
Class A 120
Class B 48
Class C 37
Institutional Shares 261
Administration Shares 15
Service Shares 6
Goldman Sachs Adjustable Rate Government Fund
Class A 406
Institutional Shares 836
Administration Shares 20
Service Shares 5
Goldman Sachs Short Duration Tax-Free Fund
Class A 119
Class B 15
Class C 13
Institutional Shares 302
Administration Shares 9
10
<PAGE>
Service Shares 0
Goldman Sachs Core Fixed Income Fund
Class A 387
Class B 128
Class C 67
Institutional Shares 217
Administration Shares 50
Service Shares 2
Goldman Sachs Global Income Fund
Class A 3,575
Class B 431
Class C 78
Institutional Shares 55
Service Shares 4
Goldman Sachs Government Income Fund
Class A 1,557
Class B 472
Class C 97
Institutional Shares 5
Service Shares 2
Goldman Sachs Municipal Income Fund
Class A 16,422
Class B 91
Class C 30
Institutional Shares 3
Service Shares 1
Goldman Sachs High Yield Fund
Class A 2,033
Class B 757
Class C 263
Institutional Shares 4
Service Shares 1
Goldman Sachs Capital Growth Fund
Class A 40,993
Class B 4,833
Class C 772
Institutional Shares 16
Service Shares 7
Goldman Sachs CORE U.S. Equity Fund
Class A 18,374
Class B 4,875
Class C 551
Institutional Shares 39
Service Shares 9
Goldman Sachs Small Cap Value Fund
Class A 22,523
Class B 4,465
Class C 622
Institutional Shares 12
Service Shares 5
Goldman Sachs International Equity Fund
Class A 29,151
Class B 5,679
11
<PAGE>
Class C 362
Institutional Shares 53
Service Shares 12
Goldman Sachs Growth and Income Fund
Class A 64,580
Class B 24,337
Class C 2,578
Institutional Shares 42
Service Shares 15
Goldman Sachs Asia Growth Fund
Class A 9,366
Class B 842
Class C 131
Institutional Shares 9
Service Shares 3
Goldman Sachs Balanced Fund
Class A 7,421
Class B 1,879
Class C 540
Institutional Shares 12
Service Shares 6
Goldman Sachs Mid Cap Equity Fund
Class A 4,565
Class B 2,597
Class C 584
Institutional Shares 50
Service Shares 6
Goldman Sachs CORE Large Cap Growth Fund
Class A 2,891
Class B 1,396
Class C 379
Institutional Shares 24
Service Shares 7
Goldman Sachs Emerging Markets Equity Fund
Class A 379
Class B 31
Class C 21
Institutional Shares 15
Service Shares 5
Goldman Sachs CORE Small Cap Equity Fund
Class A 1,158
Class B 547
Class C 224
Institutional Shares 12
Service Shares 5
Goldman Sachs CORE International Equity Fund
Class A 844
Class B 370
Class C 137
Institutional Shares 17
Service Shares 5
Goldman Sachs Japanese Equity Fund
Class A 0
Class B 0
12
<PAGE>
Class C 0
Institutional Shares 0
Service Shares 0
Goldman Sachs International Small Cap Fund
Class A 0
Class B 0
Class C 0
Institutional Shares 0
Service Shares 0
Goldman Sachs Real Estate Securities Fund
Class A 0
Class B 0
Class C 0
Institutional Shares 0
Service Shares 0
Goldman Sachs Income Strategy Portfolio
Class A 207
Class B 169
Class C 89
Institutional Shares 5
Service Shares 6
Goldman Sachs Growth & Income Strategy Portfolio
Class A 1,206
Class B 1,051
Class C 540
Institutional Shares 7
Service Shares 6
Goldman Sachs Growth Strategy Portfolio
Class A 1,296
Class B 1,216
Class C 476
Institutional Shares 7
Service Shares 5
Goldman Sachs Aggressive Growth Strategy Portfolio
Class A 815
Class B 681
Class C 325
Institutional Shares 5
Service Shares 6
(Information supplied as of April 15, 1998)
ITEM 27. INDEMNIFICATION
---------------
Article III of the Declaration of Trust of Goldman Sachs Trust, Delaware
business trust, provides for indemnification of the Trustees, officers and
agents of the Trust, subject to certain limitations. The Declaration of Trust is
filed as Exhibit 1.
The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or
13
<PAGE>
for any loss suffered by a Fund, except a loss resulting from wilful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
or from reckless disregard by the Investment Adviser of its obligations or
duties under the Management Agreement. Section 7 of the Management Agreement
with respect to the ILA Portfolios provides that the ILA Portfolios will
indemnify the Adviser against certain liabilities; provided, however, that such
indemnification does not apply to any loss by reason of its willful misfeasance,
bad faith or gross negligence or the Adviser's reckless disregard of its
obligation under the Management Agreement. The Management Agreements are filed
as Exhibits 5(a) through 5(g);
Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs
dated April 30, 1997 and Section 7 of the Transfer Agency Agreement between the
Registrant and Goldman, Sachs & Co. dated July 15, 1991 each provides that the
Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A
copy of such Agreements were filed as Exhibits 6 and 9(a), respectively, to the
Registrant's Registration Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Goldman Sachs Money Market Trust, Goldman Sachs Equity
Portfolios, Inc., Trust for Credit Unions, The Benchmark Funds, Goldman Sachs
Variable Insurance Trust and The Commerce Funds and Goldman, Sachs & Co. insure
such persons and their respective trustees, partners, officers and employees,
subject to the policies' coverage limits and exclusions and varying deductibles,
against loss resulting from claims by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the text of which are hereby incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
(a). Goldman, Sachs & Co. or an affiliate or a division thereof currently
serves as investment adviser and distributor of the units of Trust for Credit
Unions, for shares of Goldman Sachs Trust and for shares of Goldman Sachs
Variable Insurance Trust. Goldman, Sachs & Co., or a division thereof currently
serves as administrator and distributor of the units or shares of The Benchmark
Funds and The Commerce Funds.
(b). Set forth below is certain information pertaining to the Managing
Directors of Goldman, Sachs & Co., the Registrant's
14
<PAGE>
principal underwriter, who are members of Goldman, Sachs & Co.'s Executive
Committee. None of the members of the executive committee holds a position or
office with the Registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
Name and Principal
Business Address Position
---------------- --------
Jon S. Corzine (1) Chief Executive Officer
Robert J. Hurst (1) Managing Director
Henry M. Paulson, Jr. (1) Chief Operating Officer
John A. Thain (1)(3) Chief Financial Officer
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director
_______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Declaration of Trust, By-laws, minute books of the Registrant and certain
investment adviser records are in the physical possession of Goldman Sachs Asset
Management, One New York Plaza, New York, New York 10004. All other accounts,
books and other documents required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rule promulgated thereunder are in the
physical possession of State Street Bank and Trust Company, P.O. Box 1713,
Boston, Massachusetts 02105 except for certain transfer agency records which are
maintained by Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES
-------------------
Not applicable.
ITEM 32. UNDERTAKINGS
------------
(a) The Portfolios undertake to furnish each person to whom a prospectus is
delivered with the latest Annual Report.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Post-Effective Amendment No.
45 to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and State of New York on the 29th day of
April, 1998.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/ Michael J. Richman
----------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 45 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
NAME TITLE DATE
- ---- ----- ----
*Douglas C. Grip President and
Douglas C. Grip Trustee April 29, 1998
*Scott M. Gilman Principal Accounting
Scott M. Gilman Officer And Principal
Financial Officer April 29, 1998
*David B. Ford Trustee April 29, 1998
David B. Ford
*Mary Patterson McPherson Trustee April 29, 1998
Mary Patterson McPherson
*Ashok N. Bakhru Trustee April 29, 1998
Ashok N. Bakhru
*Alan A. Shuch Trustee April 29, 1998
Alan A. Shuch
*Jackson W. Smart Trustee April 29, 1998
Jackson W. Smart, Jr.
*John P. McNulty Trustee April 29, 1998
John P. McNulty
*William H. Springer Trustee April 29, 1998
William H. Springer
*Richard P. Strubel Trustee April 29, 1998
Richard P. Strubel
Richard P. Strubel
*By:/s/ Michael J. Richman
----------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
16
<PAGE>
GOLDMAN SACHS TRUST
(a Delaware Business Trust)
CERTIFICATE OF SECRETARY
The foregoing resolution was duly adopted by the Board of Trustees of
Goldman Sachs Trust at a Meeting of the Board of Trustees held on April 23,
1998, and remains in effect on the date hereof:
RESOLVED, that the trustees and officers of the Trust who may be
required to execute any amendments to the Trust's Registration Statement be, and
each hereby is, authorized to execute a power of attorney appointing Michael J.
Richman, Howard B. Surloff and Valerie A. Zondorak their true and lawful
attorney or attorneys, to execute in their name, place and stead, in their
capacity as trustee or officer, or both, of the Trust any and all amendments to
the Registration Statement, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and either of said attorneys shall have the power to act thereunder
with or without the other said attorney and shall have full power of
substitution and resubstitution; and to do in the name and on behalf of said
trustees and officers, or any or all of them, in any and all capacities, every
act whatsoever requisite or necessary to be done in the premises, as fully and
to all intents and purposes as each of said trustees or officers, or any or all
of them, might or could do in person, said acts of said attorneys, being hereby
ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 29, day of April,
1998.
/s/ Michael R. Richman
Secretary
17
<PAGE>
Index To Exhibits
11 Consent of Independent Auditors of G/S - Equity
27. Financial Data Schedules.
<PAGE>
EXHIBIT 11
Consent Of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
for Goldman Sachs Trust Equity Funds dated March 12, 1998 (and to all references
to our firm) included in or made a part of the Post-Effective Amendment No. 45
and Amendment No. 47 to Registration Statement File Nos. 33-17619 and 811-5349,
respectively.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFEENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 581
<NAME> GOLDMAN SACHS EMERGING MARKETS EQUITY FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> DEC-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 36,034,862
<INVESTMENTS-AT-VALUE> 35,179,242
<RECEIVABLES> 3,032,473
<ASSETS-OTHER> 71,870
<OTHER-ITEMS-ASSETS> 1,553,153
<TOTAL-ASSETS> 39,836,738
<PAYABLE-FOR-SECURITIES> 2,662,464
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235,236
<TOTAL-LIABILITIES> 2,897,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,805,183
<SHARES-COMMON-STOCK> 1,824,207
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19,872
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 22,454
<ACCUM-APPREC-OR-DEPREC> 863,563
<NET-ASSETS> 36,939,038
<DIVIDEND-INCOME> 10,077
<INTEREST-INCOME> 55,754
<OTHER-INCOME> 0
<EXPENSES-NET> 45,959
<NET-INVESTMENT-INCOME> 19,872
<REALIZED-GAINS-CURRENT> 22,454
<APPREC-INCREASE-CURRENT> (863,563)
<NET-CHANGE-FROM-OPS> (886,017)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,824,207
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (866,145)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,840
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,587
<AVERAGE-NET-ASSETS> 10,284,320
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.31)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 582
<NAME> GOLDMAN SACHS EMERGING MARKETS EQUITY FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> DEC-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 36,034,862
<INVESTMENTS-AT-VALUE> 35,179,242
<RECEIVABLES> 3,032,473
<ASSETS-OTHER> 71,870
<OTHER-ITEMS-ASSETS> 1,553,153
<TOTAL-ASSETS> 39,836,738
<PAYABLE-FOR-SECURITIES> 2,662,464
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235,236
<TOTAL-LIABILITIES> 2,897,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,805,183
<SHARES-COMMON-STOCK> 6,579
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19,872
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 22,454
<ACCUM-APPREC-OR-DEPREC> 863,563
<NET-ASSETS> 36,939,038
<DIVIDEND-INCOME> 10,077
<INTEREST-INCOME> 55,754
<OTHER-INCOME> 0
<EXPENSES-NET> 45,959
<NET-INVESTMENT-INCOME> 19,872
<REALIZED-GAINS-CURRENT> 22,454
<APPREC-INCREASE-CURRENT> (863,563)
<NET-CHANGE-FROM-OPS> (886,017)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,579
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (866,145)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,840
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,587
<AVERAGE-NET-ASSETS> 38,394
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.31)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 2.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 587
<NAME> GOLDMAN SACHS EMERGING MARKETS EQUITY FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> DEC-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 36,034,862
<INVESTMENTS-AT-VALUE> 35,179,242
<RECEIVABLES> 3,032,473
<ASSETS-OTHER> 71,870
<OTHER-ITEMS-ASSETS> 1,553,153
<TOTAL-ASSETS> 39,836,738
<PAYABLE-FOR-SECURITIES> 2,662,464
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235,236
<TOTAL-LIABILITIES> 2,897,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,805,183
<SHARES-COMMON-STOCK> 7,520
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19,872
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 22,454
<ACCUM-APPREC-OR-DEPREC> 863,563
<NET-ASSETS> 36,939,038
<DIVIDEND-INCOME> 10,077
<INTEREST-INCOME> 55,754
<OTHER-INCOME> 0
<EXPENSES-NET> 45,959
<NET-INVESTMENT-INCOME> 19,872
<REALIZED-GAINS-CURRENT> 22,454
<APPREC-INCREASE-CURRENT> (863,563)
<NET-CHANGE-FROM-OPS> (886,017)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,579
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (866,145)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,840
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,587
<AVERAGE-NET-ASSETS> 29,164
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.30)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 2.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 583
<NAME> GOLDMAN SACHS EMERGING MARKETS EQUITY FUND-INST.
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> DEC-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 36,034,862
<INVESTMENTS-AT-VALUE> 35,179,242
<RECEIVABLES> 3,032,473
<ASSETS-OTHER> 71,870
<OTHER-ITEMS-ASSETS> 1,553,153
<TOTAL-ASSETS> 39,836,738
<PAYABLE-FOR-SECURITIES> 2,662,464
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235,236
<TOTAL-LIABILITIES> 2,897,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,805,183
<SHARES-COMMON-STOCK> 1,971,850
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19,872
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 22,454
<ACCUM-APPREC-OR-DEPREC> 863,563
<NET-ASSETS> 36,939,038
<DIVIDEND-INCOME> 10,077
<INTEREST-INCOME> 55,754
<OTHER-INCOME> 0
<EXPENSES-NET> 45,959
<NET-INVESTMENT-INCOME> 19,872
<REALIZED-GAINS-CURRENT> 22,454
<APPREC-INCREASE-CURRENT> (863,563)
<NET-CHANGE-FROM-OPS> (886,017)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,973,802
<NUMBER-OF-SHARES-REDEEMED> 1,952
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (866,145)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,840
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,587
<AVERAGE-NET-ASSETS> 11,723,990
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.31)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 586
<NAME> GOLDMAN SACHS EMERGING MARKETS EQUITY FUND-SERV.
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> DEC-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 36,034,862
<INVESTMENTS-AT-VALUE> 35,179,242
<RECEIVABLES> 3,032,473
<ASSETS-OTHER> 71,870
<OTHER-ITEMS-ASSETS> 1,553,153
<TOTAL-ASSETS> 39,836,738
<PAYABLE-FOR-SECURITIES> 2,662,464
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235,236
<TOTAL-LIABILITIES> 2,897,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,805,183
<SHARES-COMMON-STOCK> 160
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19,872
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 22,454
<ACCUM-APPREC-OR-DEPREC> 863,563
<NET-ASSETS> 36,939,038
<DIVIDEND-INCOME> 10,077
<INTEREST-INCOME> 55,754
<OTHER-INCOME> 0
<EXPENSES-NET> 45,959
<NET-INVESTMENT-INCOME> 19,872
<REALIZED-GAINS-CURRENT> 22,454
<APPREC-INCREASE-CURRENT> (863,563)
<NET-CHANGE-FROM-OPS> (886,017)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 160
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (866,145)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,840
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,587
<AVERAGE-NET-ASSETS> 1,557
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.31)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 2.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 551
<NAME> GOLDMAN SACHS INTERNATIONAL EQUITY FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 695,518,696
<INVESTMENTS-AT-VALUE> 814,030,729
<RECEIVABLES> 19,114,760
<ASSETS-OTHER> 350,734
<OTHER-ITEMS-ASSETS> 168,187
<TOTAL-ASSETS> 833,664,410
<PAYABLE-FOR-SECURITIES> 4,696,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,387,515
<TOTAL-LIABILITIES> 18,084,221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 725,610,554
<SHARES-COMMON-STOCK> 35,149,596
<SHARES-COMMON-PRIOR> 27,765,580
<ACCUMULATED-NII-CURRENT> 772,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 27,613,162
<ACCUM-APPREC-OR-DEPREC> 116,810,713
<NET-ASSETS> 815,580,189
<DIVIDEND-INCOME> 8,798,407
<INTEREST-INCOME> 1,698,940
<OTHER-INCOME> 0
<EXPENSES-NET> 12,483,760
<NET-INVESTMENT-INCOME> (1,986,413)
<REALIZED-GAINS-CURRENT> 32,896,260
<APPREC-INCREASE-CURRENT> 36,728,856
<NET-CHANGE-FROM-OPS> 67,638,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 28,622,667
<DISTRIBUTIONS-OTHER> 21,496,431
<NUMBER-OF-SHARES-SOLD> 21,390,200
<NUMBER-OF-SHARES-REDEEMED> 16,346,724
<SHARES-REINVESTED> 2,340,540
<NET-CHANGE-IN-ASSETS> 67,638,703
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,612,885
<OVERDISTRIB-NII-PRIOR> 25,666
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,525,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,452,788
<AVERAGE-NET-ASSETS> 653,097,870
<PER-SHARE-NAV-BEGIN> 19.32
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 2.04
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.85
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 552
<NAME> GOLDMAN SACHS INTERNATIONAL EQUITY FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 695,518,696
<INVESTMENTS-AT-VALUE> 814,030,729
<RECEIVABLES> 19,114,760
<ASSETS-OTHER> 350,734
<OTHER-ITEMS-ASSETS> 168,187
<TOTAL-ASSETS> 833,664,410
<PAYABLE-FOR-SECURITIES> 4,696,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,387,515
<TOTAL-LIABILITIES> 18,084,221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 725,610,554
<SHARES-COMMON-STOCK> 2,808,047
<SHARES-COMMON-PRIOR> 997,807
<ACCUMULATED-NII-CURRENT> 772,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 27,613,162
<ACCUM-APPREC-OR-DEPREC> 116,810,713
<NET-ASSETS> 815,580,189
<DIVIDEND-INCOME> 8,798,407
<INTEREST-INCOME> 1,698,940
<OTHER-INCOME> 0
<EXPENSES-NET> 12,483,760
<NET-INVESTMENT-INCOME> (1,986,413)
<REALIZED-GAINS-CURRENT> 32,896,260
<APPREC-INCREASE-CURRENT> 36,728,856
<NET-CHANGE-FROM-OPS> 67,638,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,220,047
<DISTRIBUTIONS-OTHER> 2,621,560
<NUMBER-OF-SHARES-SOLD> 1,885,737
<NUMBER-OF-SHARES-REDEEMED> 267,333
<SHARES-REINVESTED> 191,836
<NET-CHANGE-IN-ASSETS> 67,638,703
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,612,885
<OVERDISTRIB-NII-PRIOR> 25,666
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,525,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,452,788
<AVERAGE-NET-ASSETS> 41,943,734
<PER-SHARE-NAV-BEGIN> 19.24
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 2.02
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.70
<EXPENSE-RATIO> 2.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST DATED JANUARY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 557
<NAME> GOLDMAN SACHS INTERNATIONAL EQUITY FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 695,518,696
<INVESTMENTS-AT-VALUE> 814,030,729
<RECEIVABLES> 19,114,760
<ASSETS-OTHER> 350,734
<OTHER-ITEMS-ASSETS> 168,187
<TOTAL-ASSETS> 833,664,410
<PAYABLE-FOR-SECURITIES> 4,696,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,387,515
<TOTAL-LIABILITIES> 18,084,221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 725,610,554
<SHARES-COMMON-STOCK> 172,210
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 772,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 27,613,162
<ACCUM-APPREC-OR-DEPREC> 116,810,713
<NET-ASSETS> 815,580,189
<DIVIDEND-INCOME> 8,798,407
<INTEREST-INCOME> 1,698,940
<OTHER-INCOME> 0
<EXPENSES-NET> 12,483,760
<NET-INVESTMENT-INCOME> (1,986,413)
<REALIZED-GAINS-CURRENT> 32,896,260
<APPREC-INCREASE-CURRENT> 36,728,856
<NET-CHANGE-FROM-OPS> 67,638,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 247,769
<NUMBER-OF-SHARES-SOLD> 196,809
<NUMBER-OF-SHARES-REDEEMED> 35,076
<SHARES-REINVESTED> 10,477
<NET-CHANGE-IN-ASSETS> 67,638,703
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,612,885
<OVERDISTRIB-NII-PRIOR> 25,666
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,525,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,452,788
<AVERAGE-NET-ASSETS> 2,143,498
<PER-SHARE-NAV-BEGIN> 22.60
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> (1.38)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.62
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.56
<EXPENSE-RATIO> 2.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 553
<NAME> GOLDMAN SACHS INTERNATIONAL EQUITY FUND-INST.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 695,518,696
<INVESTMENTS-AT-VALUE> 814,030,729
<RECEIVABLES> 19,114,760
<ASSETS-OTHER> 350,734
<OTHER-ITEMS-ASSETS> 168,187
<TOTAL-ASSETS> 833,664,410
<PAYABLE-FOR-SECURITIES> 4,696,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,387,515
<TOTAL-LIABILITIES> 18,084,221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 725,610,554
<SHARES-COMMON-STOCK> 2,817,977
<SHARES-COMMON-PRIOR> 3,524,169
<ACCUMULATED-NII-CURRENT> 772,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 27,613,162
<ACCUM-APPREC-OR-DEPREC> 116,810,713
<NET-ASSETS> 815,580,189
<DIVIDEND-INCOME> 8,798,407
<INTEREST-INCOME> 1,698,940
<OTHER-INCOME> 0
<EXPENSES-NET> 12,483,760
<NET-INVESTMENT-INCOME> (1,986,413)
<REALIZED-GAINS-CURRENT> 32,896,260
<APPREC-INCREASE-CURRENT> 36,728,856
<NET-CHANGE-FROM-OPS> 67,638,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 161,909
<DISTRIBUTIONS-OF-GAINS> 2,452,650
<DISTRIBUTIONS-OTHER> 1,534,383
<NUMBER-OF-SHARES-SOLD> 1,616,872
<NUMBER-OF-SHARES-REDEEMED> 2,433,763
<SHARES-REINVESTED> 110,699
<NET-CHANGE-IN-ASSETS> 67,638,703
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,612,885
<OVERDISTRIB-NII-PRIOR> 25,666
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,525,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,452,788
<AVERAGE-NET-ASSETS> 54,649,155
<PER-SHARE-NAV-BEGIN> 19.40
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 2.92
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.97
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 556
<NAME> GOLDMAN SACHS INTERNATIONAL EQUITY FUND-SERV.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 695,518,696
<INVESTMENTS-AT-VALUE> 814,030,729
<RECEIVABLES> 19,114,760
<ASSETS-OTHER> 350,734
<OTHER-ITEMS-ASSETS> 168,187
<TOTAL-ASSETS> 833,664,410
<PAYABLE-FOR-SECURITIES> 4,696,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,387,515
<TOTAL-LIABILITIES> 18,084,221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 725,610,554
<SHARES-COMMON-STOCK> 152,953
<SHARES-COMMON-PRIOR> 34,830
<ACCUMULATED-NII-CURRENT> 772,084
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 27,613,162
<ACCUM-APPREC-OR-DEPREC> 116,810,713
<NET-ASSETS> 815,580,189
<DIVIDEND-INCOME> 8,798,407
<INTEREST-INCOME> 1,698,940
<OTHER-INCOME> 0
<EXPENSES-NET> 12,483,760
<NET-INVESTMENT-INCOME> (1,986,413)
<REALIZED-GAINS-CURRENT> 32,896,260
<APPREC-INCREASE-CURRENT> 36,728,856
<NET-CHANGE-FROM-OPS> 67,638,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 23,952
<DISTRIBUTIONS-OTHER> 185,496
<NUMBER-OF-SHARES-SOLD> 118,403
<NUMBER-OF-SHARES-REDEEMED> 11,421
<SHARES-REINVESTED> 11,141
<NET-CHANGE-IN-ASSETS> 67,638,703
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,612,885
<OVERDISTRIB-NII-PRIOR> 25,666
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,525,362
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,452,788
<AVERAGE-NET-ASSETS> 1,847,127
<PER-SHARE-NAV-BEGIN> 19.34
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 2.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.58
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.84
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 541
<NAME> GOLDMAN SACHS SMALL CAP VALUE FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 424,132,831
<INVESTMENTS-AT-VALUE> 438,668,181
<RECEIVABLES> 2,805,052
<ASSETS-OTHER> 55,163
<OTHER-ITEMS-ASSETS> 4,286
<TOTAL-ASSETS> 441,532,682
<PAYABLE-FOR-SECURITIES> 6,870,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,507,290
<TOTAL-LIABILITIES> 8,377,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,203,466
<SHARES-COMMON-STOCK> 15,394,383
<SHARES-COMMON-PRIOR> 10,140,493
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,416,487
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535,350
<NET-ASSETS> 433,155,303
<DIVIDEND-INCOME> 2,210,842
<INTEREST-INCOME> 1,879,477
<OTHER-INCOME> 0
<EXPENSES-NET> 5,092,220
<NET-INVESTMENT-INCOME> (1,001,901)
<REALIZED-GAINS-CURRENT> 54,033,025
<APPREC-INCREASE-CURRENT> 9,929,833
<NET-CHANGE-FROM-OPS> 62,960,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 30,853,322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,020,650
<NUMBER-OF-SHARES-REDEEMED> 2,963,020
<SHARES-REINVESTED> 1,196,260
<NET-CHANGE-IN-ASSETS> 217,420,497
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,385,605
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,206,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,819,518
<AVERAGE-NET-ASSETS> 290,919,029
<PER-SHARE-NAV-BEGIN> 20.91
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 5.33
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.05
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 542
<NAME> GOLDMAN SACHS SMALL CAP VALUE FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 424,132,831
<INVESTMENTS-AT-VALUE> 438,668,181
<RECEIVABLES> 2,805,052
<ASSETS-OTHER> 55,163
<OTHER-ITEMS-ASSETS> 4,286
<TOTAL-ASSETS> 441,532,682
<PAYABLE-FOR-SECURITIES> 6,870,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,507,290
<TOTAL-LIABILITIES> 8,377,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,203,466
<SHARES-COMMON-STOCK> 1,798,680
<SHARES-COMMON-PRIOR> 176,544
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,416,487
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535,350
<NET-ASSETS> 433,155,303
<DIVIDEND-INCOME> 2,210,842
<INTEREST-INCOME> 1,879,477
<OTHER-INCOME> 0
<EXPENSES-NET> 5,092,220
<NET-INVESTMENT-INCOME> (1,011,901)
<REALIZED-GAINS-CURRENT> 54,033,025
<APPREC-INCREASE-CURRENT> 9,929,833
<NET-CHANGE-FROM-OPS> 62,960,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,473,153
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,538,327
<NUMBER-OF-SHARES-REDEEMED> 94,963
<SHARES-REINVESTED> 133,772
<NET-CHANGE-IN-ASSETS> 217,420,497
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,385,605
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,206,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,819,518
<AVERAGE-NET-ASSETS> 21,414,341
<PER-SHARE-NAV-BEGIN> 20.80
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 5.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.73
<EXPENSE-RATIO> 2.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 547
<NAME> GOLDMAN SACHS SMALL CAP VALUE FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 424,132,831
<INVESTMENTS-AT-VALUE> 438,668,181
<RECEIVABLES> 2,805,052
<ASSETS-OTHER> 55,163
<OTHER-ITEMS-ASSETS> 4,286
<TOTAL-ASSETS> 441,532,682
<PAYABLE-FOR-SECURITIES> 6,870,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,507,290
<TOTAL-LIABILITIES> 8,377,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,203,466
<SHARES-COMMON-STOCK> 236,148
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,416,487
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535,350
<NET-ASSETS> 433,155,303
<DIVIDEND-INCOME> 2,210,842
<INTEREST-INCOME> 1,879,477
<OTHER-INCOME> 0
<EXPENSES-NET> 5,092,220
<NET-INVESTMENT-INCOME> (1,001,901)
<REALIZED-GAINS-CURRENT> 54,033,025
<APPREC-INCREASE-CURRENT> 9,929,833
<NET-CHANGE-FROM-OPS> 62,960,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 325,092
<DISTRIBUTIONS-OTHER> 56,555
<NUMBER-OF-SHARES-SOLD> 237,741
<NUMBER-OF-SHARES-REDEEMED> 14,344
<SHARES-REINVESTED> 12,751
<NET-CHANGE-IN-ASSETS> 217,420,497
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,385,605
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,206,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,819,518
<AVERAGE-NET-ASSETS> 3,480,781
<PER-SHARE-NAV-BEGIN> 24.69
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 1.43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.73
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIREYT BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 543
<NAME> GOLDMAN SACHS SMALL CAP VALUE FUND-INST.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 424,132,831
<INVESTMENTS-AT-VALUE> 438,668,181
<RECEIVABLES> 2,805,052
<ASSETS-OTHER> 55,163
<OTHER-ITEMS-ASSETS> 4,286
<TOTAL-ASSETS> 441,532,682
<PAYABLE-FOR-SECURITIES> 6,870,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,507,290
<TOTAL-LIABILITIES> 8,377,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,203,466
<SHARES-COMMON-STOCK> 607,122
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,416,487
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535,350
<NET-ASSETS> 433,155,303
<DIVIDEND-INCOME> 2,210,842
<INTEREST-INCOME> 1,879,477
<OTHER-INCOME> 0
<EXPENSES-NET> 5,092,220
<NET-INVESTMENT-INCOME> (1,001,901)
<REALIZED-GAINS-CURRENT> 54,033,025
<APPREC-INCREASE-CURRENT> 9,929,833
<NET-CHANGE-FROM-OPS> 62,960,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,149,003
<DISTRIBUTIONS-OTHER> 156,436
<NUMBER-OF-SHARES-SOLD> 553,727
<NUMBER-OF-SHARES-REDEEMED> 61
<SHARES-REINVESTED> 53,456
<NET-CHANGE-IN-ASSETS> 217,420,497
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,385,605
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,206,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,819,518
<AVERAGE-NET-ASSETS> 13,354,706
<PER-SHARE-NAV-BEGIN> 24.91
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.09
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 546
<NAME> GOLDMAN SACHS SMALL CAP VALUE FUND-SERV.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 424,132,831
<INVESTMENTS-AT-VALUE> 438,668,181
<RECEIVABLES> 2,805,052
<ASSETS-OTHER> 55,163
<OTHER-ITEMS-ASSETS> 4,286
<TOTAL-ASSETS> 441,532,682
<PAYABLE-FOR-SECURITIES> 6,870,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,507,290
<TOTAL-LIABILITIES> 8,377,379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,203,466
<SHARES-COMMON-STOCK> 70
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,416,487
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,535,350
<NET-ASSETS> 433,155,303
<DIVIDEND-INCOME> 2,210,842
<INTEREST-INCOME> 1,879,477
<OTHER-INCOME> 0
<EXPENSES-NET> 5,092,220
<NET-INVESTMENT-INCOME> (1,001,901)
<REALIZED-GAINS-CURRENT> 54,033,025
<APPREC-INCREASE-CURRENT> 9,929,833
<NET-CHANGE-FROM-OPS> 62,960,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 130
<DISTRIBUTIONS-OTHER> 19
<NUMBER-OF-SHARES-SOLD> 64
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> 217,420,497
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,385,605
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,206,411
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,819,518
<AVERAGE-NET-ASSETS> 1,633
<PER-SHARE-NAV-BEGIN> 24.91
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.05
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 531
<NAME> GOLDMAN SACHS CAPITAL GROWTH FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 944,367,127
<INVESTMENTS-AT-VALUE> 1,307,391,418
<RECEIVABLES> 5,956,700
<ASSETS-OTHER> 16,729
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,462,349
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,381,656
<TOTAL-LIABILITIES> 3,381,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 943,792,262
<SHARES-COMMON-STOCK> 67,981,133
<SHARES-COMMON-PRIOR> 54,480,662
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,264,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 363,024,291
<NET-ASSETS> 1,310,080,693
<DIVIDEND-INCOME> 14,709,637
<INTEREST-INCOME> 1,485,991
<OTHER-INCOME> 0
<EXPENSES-NET> (15,449,381)
<NET-INVESTMENT-INCOME> 746,247
<REALIZED-GAINS-CURRENT> 171,487,631
<APPREC-INCREASE-CURRENT> 110,348,766
<NET-CHANGE-FROM-OPS> 282,582,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,509,637)
<DISTRIBUTIONS-OF-GAINS> (175,320,995)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 268,104,441
<NUMBER-OF-SHARES-REDEEMED> (150,961,069)
<SHARES-REINVESTED> 169,448,560
<NET-CHANGE-IN-ASSETS> 286,591,932
<ACCUMULATED-NII-PRIOR> 3,918,068
<ACCUMULATED-GAINS-PRIOR> 81,054,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,913,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,127,751
<AVERAGE-NET-ASSETS> 1,091,322,448
<PER-SHARE-NAV-BEGIN> 16.73
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 4.78
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> (3.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.48
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 532
<NAME> GOLDMAN SACHS CAPITAL GROWTH FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 944,367,127
<INVESTMENTS-AT-VALUE> 1,307,391,418
<RECEIVABLES> 5,956,700
<ASSETS-OTHER> 16,729
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,462,349
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,381,656
<TOTAL-LIABILITIES> 3,381,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 943,792,262
<SHARES-COMMON-STOCK> 2,234,279
<SHARES-COMMON-PRIOR> 57,043
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,264,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 363,024,291
<NET-ASSETS> 1,310,080,693
<DIVIDEND-INCOME> 14,709,637
<INTEREST-INCOME> 1,485,991
<OTHER-INCOME> 0
<EXPENSES-NET> (15,449,381)
<NET-INVESTMENT-INCOME> 746,247
<REALIZED-GAINS-CURRENT> 171,487,631
<APPREC-INCREASE-CURRENT> 110,348,766
<NET-CHANGE-FROM-OPS> 282,582,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (4,612,854)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 268,104,441
<NUMBER-OF-SHARES-REDEEMED> (150,961,069)
<SHARES-REINVESTED> 169,448,560
<NET-CHANGE-IN-ASSETS> 286,591,932
<ACCUMULATED-NII-PRIOR> 3,918,068
<ACCUMULATED-GAINS-PRIOR> 81,054,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,913,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,127,751
<AVERAGE-NET-ASSETS> 1,091,322,448
<PER-SHARE-NAV-BEGIN> 16.67
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 4.61
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.27
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 537
<NAME> GOLDMAN SACHS CAPITAL GROWTH FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 944,367,127
<INVESTMENTS-AT-VALUE> 1,307,391,418
<RECEIVABLES> 5,956,700
<ASSETS-OTHER> 16,729
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,462,349
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,381,656
<TOTAL-LIABILITIES> 3,381,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 943,792,262
<SHARES-COMMON-STOCK> 295,829
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,264,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 363,024,291
<NET-ASSETS> 1,310,080,693
<DIVIDEND-INCOME> 14,709,637
<INTEREST-INCOME> 1,485,991
<OTHER-INCOME> 0
<EXPENSES-NET> (15,449,381)
<NET-INVESTMENT-INCOME> 746,247
<REALIZED-GAINS-CURRENT> 171,487,631
<APPREC-INCREASE-CURRENT> 110,348,766
<NET-CHANGE-FROM-OPS> 282,582,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,981)
<DISTRIBUTIONS-OF-GAINS> (595,780)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 268,104,441
<NUMBER-OF-SHARES-REDEEMED> (150,961,069)
<SHARES-REINVESTED> 169,448,560
<NET-CHANGE-IN-ASSETS> 286,591,932
<ACCUMULATED-NII-PRIOR> 3,918,068
<ACCUMULATED-GAINS-PRIOR> 81,054,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,913,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,127,751
<AVERAGE-NET-ASSETS> 1,091,322,448
<PER-SHARE-NAV-BEGIN> 19.73
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> (.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.24
<EXPENSE-RATIO> 2.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 533
<NAME> GOLDMAN SACHS CAPITAL GROWTH FUND-INST.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 944,367,127
<INVESTMENTS-AT-VALUE> 1,307,391,418
<RECEIVABLES> 5,956,700
<ASSETS-OTHER> 16,729
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,462,349
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,381,656
<TOTAL-LIABILITIES> 3,381,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 943,792,262
<SHARES-COMMON-STOCK> 393,638
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,264,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 363,024,291
<NET-ASSETS> 1,310,080,693
<DIVIDEND-INCOME> 14,709,637
<INTEREST-INCOME> 1,485,991
<OTHER-INCOME> 0
<EXPENSES-NET> (15,449,381)
<NET-INVESTMENT-INCOME> 746,247
<REALIZED-GAINS-CURRENT> 171,487,631
<APPREC-INCREASE-CURRENT> 110,348,766
<NET-CHANGE-FROM-OPS> 282,582,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,870)
<DISTRIBUTIONS-OF-GAINS> (887,545)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 268,104,441
<NUMBER-OF-SHARES-REDEEMED> (150,961,069)
<SHARES-REINVESTED> 169,448,560
<NET-CHANGE-IN-ASSETS> 286,591,932
<ACCUMULATED-NII-PRIOR> 3,918,068
<ACCUMULATED-GAINS-PRIOR> 81,054,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,913,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,127,751
<AVERAGE-NET-ASSETS> 1,091,322,448
<PER-SHARE-NAV-BEGIN> 19.88
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> (.08)
<PER-SHARE-DISTRIBUTIONS> (.41)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.45
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 536
<NAME> GOLDMAN SACHS CAPITAL GROWTH FUND-SERV.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 944,367,127
<INVESTMENTS-AT-VALUE> 1,307,391,418
<RECEIVABLES> 5,956,700
<ASSETS-OTHER> 16,729
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,313,462,349
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,381,656
<TOTAL-LIABILITIES> 3,381,656
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 943,792,262
<SHARES-COMMON-STOCK> 94
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,264,140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 363,024,291
<NET-ASSETS> 1,310,080,693
<DIVIDEND-INCOME> 14,709,637
<INTEREST-INCOME> 1,485,991
<OTHER-INCOME> 0
<EXPENSES-NET> (15,449,381)
<NET-INVESTMENT-INCOME> 746,247
<REALIZED-GAINS-CURRENT> 171,487,631
<APPREC-INCREASE-CURRENT> 110,348,766
<NET-CHANGE-FROM-OPS> 282,582,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4)
<DISTRIBUTIONS-OF-GAINS> (244)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 268,104,441
<NUMBER-OF-SHARES-REDEEMED> (150,961,069)
<SHARES-REINVESTED> 169,448,560
<NET-CHANGE-IN-ASSETS> 286,591,932
<ACCUMULATED-NII-PRIOR> 3,918,068
<ACCUMULATED-GAINS-PRIOR> 81,054,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,913,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,127,751
<AVERAGE-NET-ASSETS> 1,091,322,448
<PER-SHARE-NAV-BEGIN> 19.88
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> (.76)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.46
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 571
<NAME> GOLDMAN SACHS MID-CAP EQUITY FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 323,999,308
<INVESTMENTS-AT-VALUE> 357,177,734
<RECEIVABLES> 7,959,036
<ASSETS-OTHER> 182,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 365,362,282
<PAYABLE-FOR-SECURITIES> 2,176,758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 961,909
<TOTAL-LIABILITIES> 3,138,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,226,803
<SHARES-COMMON-STOCK> 4,191,937
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 130,093
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,688,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,178,426
<NET-ASSETS> 362,223,615
<DIVIDEND-INCOME> 2,931,678
<INTEREST-INCOME> 680,409
<OTHER-INCOME> 0
<EXPENSES-NET> (2,086,887)
<NET-INVESTMENT-INCOME> 1,525,200
<REALIZED-GAINS-CURRENT> 33,414,228
<APPREC-INCREASE-CURRENT> 11,262,563
<NET-CHANGE-FROM-OPS> 46,201,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (152,691)
<DISTRIBUTIONS-OF-GAINS> (2,003,140)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 219,499,016
<NUMBER-OF-SHARES-REDEEMED> (48,291,135)
<SHARES-REINVESTED> 27,184,097
<NET-CHANGE-IN-ASSETS> 198,391,978
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,502,660
<OVERDISTRIB-NII-PRIOR> (25,142)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,653,946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,351,265
<AVERAGE-NET-ASSETS> 220,525,983
<PER-SHARE-NAV-BEGIN> 23.63
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .76
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (2.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.61
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 572
<NAME> GOLDMAN SACHS MID-CAP EQUITY FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 323,999,308
<INVESTMENTS-AT-VALUE> 357,177,734
<RECEIVABLES> 7,959,036
<ASSETS-OTHER> 182,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 365,362,282
<PAYABLE-FOR-SECURITIES> 2,176,758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 961,909
<TOTAL-LIABILITIES> 3,138,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,226,803
<SHARES-COMMON-STOCK> 1,332,295
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 130,093
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,688,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,178,426
<NET-ASSETS> 362,223,615
<DIVIDEND-INCOME> 2,931,678
<INTEREST-INCOME> 680,409
<OTHER-INCOME> 0
<EXPENSES-NET> (2,086,887)
<NET-INVESTMENT-INCOME> 1,525,200
<REALIZED-GAINS-CURRENT> 33,414,228
<APPREC-INCREASE-CURRENT> 11,262,563
<NET-CHANGE-FROM-OPS> 46,201,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36,518)
<DISTRIBUTIONS-OF-GAINS> (739,050)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 219,499,016
<NUMBER-OF-SHARES-REDEEMED> (48,291,135)
<SHARES-REINVESTED> 27,184,097
<NET-CHANGE-IN-ASSETS> 198,391,978
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,502,660
<OVERDISTRIB-NII-PRIOR> (25,142)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,653,946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,351,265
<AVERAGE-NET-ASSETS> 220,525,983
<PER-SHARE-NAV-BEGIN> 23.63
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .74
<PER-SHARE-DIVIDEND> (.09)
<PER-SHARE-DISTRIBUTIONS> (2.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.57
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 577
<NAME> GOLDMAN SACHS MID-CAP EQUITY FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 323,999,308
<INVESTMENTS-AT-VALUE> 357,177,734
<RECEIVABLES> 7,959,036
<ASSETS-OTHER> 182,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 365,362,282
<PAYABLE-FOR-SECURITIES> 2,176,758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 961,909
<TOTAL-LIABILITIES> 3,318,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,226,803
<SHARES-COMMON-STOCK> 298,521
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 130,093
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,688,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,178,426
<NET-ASSETS> 362,223,615
<DIVIDEND-INCOME> 2,931,678
<INTEREST-INCOME> 680,409
<OTHER-INCOME> 0
<EXPENSES-NET> (2,086,887)
<NET-INVESTMENT-INCOME> 1,525,200
<REALIZED-GAINS-CURRENT> 33,414,228
<APPREC-INCREASE-CURRENT> 11,262,563
<NET-CHANGE-FROM-OPS> 46,201,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,184)
<DISTRIBUTIONS-OF-GAINS> (118,344)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 219,499,016
<NUMBER-OF-SHARES-REDEEMED> (48,291,135)
<SHARES-REINVESTED> 27,184,097
<NET-CHANGE-IN-ASSETS> 198,391,978
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,502,660
<OVERDISTRIB-NII-PRIOR> (25,142)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,653,946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,351,265
<AVERAGE-NET-ASSETS> 220,525,983
<PER-SHARE-NAV-BEGIN> 23.63
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .76
<PER-SHARE-DIVIDEND> (.09)
<PER-SHARE-DISTRIBUTIONS> (2.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.59
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 573
<NAME> GOLDMAN SACHS MID-CAP EQUITY FUND-INST.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 323,999,308
<INVESTMENTS-AT-VALUE> 357,177,734
<RECEIVABLES> 7,959,036
<ASSETS-OTHER> 182,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 365,362,282
<PAYABLE-FOR-SECURITIES> 2,176,758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 961,909
<TOTAL-LIABILITIES> 3,138,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,226,803
<SHARES-COMMON-STOCK> 10,921,229
<SHARES-COMMON-PRIOR> 7,755,774
<ACCUMULATED-NII-CURRENT> 130,093
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,688,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,178,426
<NET-ASSETS> 362,223,615
<DIVIDEND-INCOME> 2,931,678
<INTEREST-INCOME> 680,409
<OTHER-INCOME> 0
<EXPENSES-NET> (2,086,887)
<NET-INVESTMENT-INCOME> 1,525,200
<REALIZED-GAINS-CURRENT> 33,414,228
<APPREC-INCREASE-CURRENT> 11,262,563
<NET-CHANGE-FROM-OPS> 46,201,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,204,893)
<DISTRIBUTIONS-OF-GAINS> (23,361,534)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 219,499,016
<NUMBER-OF-SHARES-REDEEMED> (48,291,135)
<SHARES-REINVESTED> 27,184,097
<NET-CHANGE-IN-ASSETS> 198,391,978
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,502,660
<OVERDISTRIB-NII-PRIOR> (25,142)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,653,946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,351,265
<AVERAGE-NET-ASSETS> 220,525,983
<PER-SHARE-NAV-BEGIN> 18.73
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 5.66
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> (2.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.65
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED INITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 576
<NAME> GOLDMAN SACHS MID-CAP EQUITY FUND-SERV.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JUL-18-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 323,999,308
<INVESTMENTS-AT-VALUE> 357,177,734
<RECEIVABLES> 7,959,036
<ASSETS-OTHER> 182,622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 365,362,282
<PAYABLE-FOR-SECURITIES> 2,176,758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 961,909
<TOTAL-LIABILITIES> 3,138,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,226,803
<SHARES-COMMON-STOCK> 360
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 130,093
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,688,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,178,426
<NET-ASSETS> 362,223,615
<DIVIDEND-INCOME> 2,931,678
<INTEREST-INCOME> 680,409
<OTHER-INCOME> 0
<EXPENSES-NET> (2,086,887)
<NET-INVESTMENT-INCOME> 1,525,200
<REALIZED-GAINS-CURRENT> 33,414,228
<APPREC-INCREASE-CURRENT> 11,262,563
<NET-CHANGE-FROM-OPS> 46,201,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23)
<DISTRIBUTIONS-OF-GAINS> (307)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 219,499,016
<NUMBER-OF-SHARES-REDEEMED> (48,291,135)
<SHARES-REINVESTED> 27,184,097
<NET-CHANGE-IN-ASSETS> 198,391,978
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,502,660
<OVERDISTRIB-NII-PRIOR> (25,142)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,653,946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,351,265
<AVERAGE-NET-ASSETS> 220,525,983
<PER-SHARE-NAV-BEGIN> 23.01
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.40
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (2.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.62
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 521
<NAME> GOLDMAN SACHS GROWTH AND INCOME FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 1,438,070,463
<INVESTMENTS-AT-VALUE> 1,582,875,373
<RECEIVABLES> 32,344,628
<ASSETS-OTHER> 78,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,615,298,207
<PAYABLE-FOR-SECURITIES> 9,325,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,771,748
<TOTAL-LIABILITIES> 14,097,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,396,713,617
<SHARES-COMMON-STOCK> 46,918,649
<SHARES-COMMON-PRIOR> 23,131,801
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (614,031)
<ACCUMULATED-NET-GAINS> 60,296,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144,804,910
<NET-ASSETS> 1,601,201,131
<DIVIDEND-INCOME> 15,481,524
<INTEREST-INCOME> 2,863,267
<OTHER-INCOME> 0
<EXPENSES-NET> (14,821,672)
<NET-INVESTMENT-INCOME> 3,523,119
<REALIZED-GAINS-CURRENT> 172,955,906
<APPREC-INCREASE-CURRENT> 19,463,359
<NET-CHANGE-FROM-OPS> 195,942,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,826,646)
<DISTRIBUTIONS-OF-GAINS> (101,878,845)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 918,965,833
<NUMBER-OF-SHARES-REDEEMED> (142,245,348)
<SHARES-REINVESTED> 127,012,752
<NET-CHANGE-IN-ASSETS> 965,385,139
<ACCUMULATED-NII-PRIOR> 1,608,067
<ACCUMULATED-GAINS-PRIOR> 28,763,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,740,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,423,008
<AVERAGE-NET-ASSETS> 1,105,768,628
<PER-SHARE-NAV-BEGIN> 23.18
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 5.27
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (2.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.93
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 522
<NAME> GOLDMAN SACHS GROWTH AND INCOME FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 1,438,070,463
<INVESTMENTS-AT-VALUE> 1,582,875,373
<RECEIVABLES> 32,344,628
<ASSETS-OTHER> 78,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,615,298,207
<PAYABLE-FOR-SECURITIES> 9,325,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,771,748
<TOTAL-LIABILITIES> 14,097,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,396,713,617
<SHARES-COMMON-STOCK> 11,963,607
<SHARES-COMMON-PRIOR> 106,312
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (614,031)
<ACCUMULATED-NET-GAINS> 60,296,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144,804,910
<NET-ASSETS> 1,601,201,131
<DIVIDEND-INCOME> 15,481,524
<INTEREST-INCOME> 2,863,267
<OTHER-INCOME> 0
<EXPENSES-NET> (14,821,672)
<NET-INVESTMENT-INCOME> 3,523,119
<REALIZED-GAINS-CURRENT> 172,955,906
<APPREC-INCREASE-CURRENT> 19,463,359
<NET-CHANGE-FROM-OPS> 195,942,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (72,045)
<DISTRIBUTIONS-OF-GAINS> (23,537,191)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 918,965,833
<NUMBER-OF-SHARES-REDEEMED> (142,245,348)
<SHARES-REINVESTED> 127,012,752
<NET-CHANGE-IN-ASSETS> 965,385,139
<ACCUMULATED-NII-PRIOR> 1,608,067
<ACCUMULATED-GAINS-PRIOR> 28,763,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,740,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,423,008
<AVERAGE-NET-ASSETS> 1,105,768,628
<PER-SHARE-NAV-BEGIN> 23.10
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 5.14
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (2.45)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.73
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 527
<NAME> GOLDMAN SACHS GROWTH AND INCOME FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 1,438,070,463
<INVESTMENTS-AT-VALUE> 1,582,875,373
<RECEIVABLES> 32,344,628
<ASSETS-OTHER> 78,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,615,298,207
<PAYABLE-FOR-SECURITIES> 9,325,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,771,748
<TOTAL-LIABILITIES> 14,097,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,396,713,617
<SHARES-COMMON-STOCK> 1,233,014
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (614,031)
<ACCUMULATED-NET-GAINS> 60,296,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144,804,910
<NET-ASSETS> 1,601,201,131
<DIVIDEND-INCOME> 15,481,524
<INTEREST-INCOME> 2,863,267
<OTHER-INCOME> 0
<EXPENSES-NET> (14,821,672)
<NET-INVESTMENT-INCOME> 3,523,119
<REALIZED-GAINS-CURRENT> 172,955,906
<APPREC-INCREASE-CURRENT> 19,463,359
<NET-CHANGE-FROM-OPS> 195,942,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,576)
<DISTRIBUTIONS-OF-GAINS> (2,142,196)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 918,965,833
<NUMBER-OF-SHARES-REDEEMED> (142,245,348)
<SHARES-REINVESTED> 127,012,752
<NET-CHANGE-IN-ASSETS> 965,385,139
<ACCUMULATED-NII-PRIOR> 1,608,067
<ACCUMULATED-GAINS-PRIOR> 28,763,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,740,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,423,008
<AVERAGE-NET-ASSETS> 1,105,768,628
<PER-SHARE-NAV-BEGIN> 28.20
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (1.42)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.70
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 523
<NAME> GOLDMAN SACHS GROWTH AND INCOME FUND-INST.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 1,438,070,463
<INVESTMENTS-AT-VALUE> 1,582,875,373
<RECEIVABLES> 32,344,628
<ASSETS-OTHER> 78,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,615,298,207
<PAYABLE-FOR-SECURITIES> 9,325,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,771,748
<TOTAL-LIABILITIES> 14,097,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,396,713,617
<SHARES-COMMON-STOCK> 1,396,153
<SHARES-COMMON-PRIOR> 624
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (614,031)
<ACCUMULATED-NET-GAINS> 60,296,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144,804,910
<NET-ASSETS> 1,601,201,131
<DIVIDEND-INCOME> 15,481,524
<INTEREST-INCOME> 2,863,267
<OTHER-INCOME> 0
<EXPENSES-NET> (14,821,672)
<NET-INVESTMENT-INCOME> 3,523,119
<REALIZED-GAINS-CURRENT> 172,955,906
<APPREC-INCREASE-CURRENT> 19,463,359
<NET-CHANGE-FROM-OPS> 195,942,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (92,867)
<DISTRIBUTIONS-OF-GAINS> (1,915,213)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 918,965,833
<NUMBER-OF-SHARES-REDEEMED> (142,245,348)
<SHARES-REINVESTED> 127,012,752
<NET-CHANGE-IN-ASSETS> 965,385,139
<ACCUMULATED-NII-PRIOR> 1,608,067
<ACCUMULATED-GAINS-PRIOR> 28,763,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,740,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,423,008
<AVERAGE-NET-ASSETS> 1,105,768,628
<PER-SHARE-NAV-BEGIN> 23.19
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> 5.23
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> (.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.95
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 526
<NAME> GOLDMAN SACHS GROWTH AND INCOME FUND-SERV.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 1,438,070,463
<INVESTMENTS-AT-VALUE> 1,582,875,373
<RECEIVABLES> 32,344,628
<ASSETS-OTHER> 78,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,165,298,207
<PAYABLE-FOR-SECURITIES> 9,325,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,771,748
<TOTAL-LIABILITIES> 14,097,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,396,713,617
<SHARES-COMMON-STOCK> 343,095
<SHARES-COMMON-PRIOR> 30,041
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (614,031)
<ACCUMULATED-NET-GAINS> 60,296,635
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144,804,910
<NET-ASSETS> 1,601,201,131
<DIVIDEND-INCOME> 15,481,524
<INTEREST-INCOME> 2,863,267
<OTHER-INCOME> 0
<EXPENSES-NET> (14,821,672)
<NET-INVESTMENT-INCOME> 3,523,119
<REALIZED-GAINS-CURRENT> 172,955,906
<APPREC-INCREASE-CURRENT> 19,463,359
<NET-CHANGE-FROM-OPS> 195,942,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,774)
<DISTRIBUTIONS-OF-GAINS> (761,129)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 918,965,833
<NUMBER-OF-SHARES-REDEEMED> (142,245,348)
<SHARES-REINVESTED> 127,012,752
<NET-CHANGE-IN-ASSETS> 965,385,139
<ACCUMULATED-NII-PRIOR> 1,608,067
<ACCUMULATED-GAINS-PRIOR> 28,763,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,740,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,423,008
<AVERAGE-NET-ASSETS> 1,105,768,628
<PER-SHARE-NAV-BEGIN> 23.17
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 5.23
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (2.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.92
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 561
<NAME> GOLDMAN SACHS ASIA GROWTH FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 110,553,383
<INVESTMENTS-AT-VALUE> 84,920,018
<RECEIVABLES> 4,639,905
<ASSETS-OTHER> 14,334
<OTHER-ITEMS-ASSETS> 3,678,542
<TOTAL-ASSETS> 93,252,799
<PAYABLE-FOR-SECURITIES> 134,703
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,012,569
<TOTAL-LIABILITIES> 1,147,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 191,631,821
<SHARES-COMMON-STOCK> 10,430,282
<SHARES-COMMON-PRIOR> 16,122,122
<ACCUMULATED-NII-CURRENT> 137,887
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 73,629,726
<ACCUM-APPREC-OR-DEPREC> (26,034,455)
<NET-ASSETS> 92,105,527
<DIVIDEND-INCOME> 3,567,537
<INTEREST-INCOME> 909,396
<OTHER-INCOME> 0
<EXPENSES-NET> 3,777,890
<NET-INVESTMENT-INCOME> 699,043
<REALIZED-GAINS-CURRENT> (57,330,108)
<APPREC-INCREASE-CURRENT> (57,053,599)
<NET-CHANGE-FROM-OPS> (113,684,664)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (455,983)
<NUMBER-OF-SHARES-SOLD> 7,223,511
<NUMBER-OF-SHARES-REDEEMED> 12,959,028
<SHARES-REINVESTED> 43,677
<NET-CHANGE-IN-ASSETS> (187,470,404)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,316,323)
<OVERDIST-NET-GAINS-PRIOR> (16,439,588)
<GROSS-ADVISORY-FEES> 2,179,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,290,994
<AVERAGE-NET-ASSETS> 205,423,844
<PER-SHARE-NAV-BEGIN> 16.31
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (7.90)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.38
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 562
<NAME> GOLDMAN SACHS ASIA GROWTH FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 110,553,383
<INVESTMENTS-AT-VALUE> 84,920,018
<RECEIVABLES> 4,639,905
<ASSETS-OTHER> 14,334
<OTHER-ITEMS-ASSETS> 3,678,542
<TOTAL-ASSETS> 93,252,799
<PAYABLE-FOR-SECURITIES> 134,703
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,012,569
<TOTAL-LIABILITIES> 1,147,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 191,631,821
<SHARES-COMMON-STOCK> 404,337
<SHARES-COMMON-PRIOR> 206,387
<ACCUMULATED-NII-CURRENT> 137,887
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 73,629,726
<ACCUM-APPREC-OR-DEPREC> (26,034,455)
<NET-ASSETS> 92,105,527
<DIVIDEND-INCOME> 3,567,537
<INTEREST-INCOME> 909,396
<OTHER-INCOME> 0
<EXPENSES-NET> 3,777,890
<NET-INVESTMENT-INCOME> 699,043
<REALIZED-GAINS-CURRENT> (57,330,108)
<APPREC-INCREASE-CURRENT> (57,053,599)
<NET-CHANGE-FROM-OPS> (113,684,664)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (10,435)
<NUMBER-OF-SHARES-SOLD> 303,767
<NUMBER-OF-SHARES-REDEEMED> 106,535
<SHARES-REINVESTED> 718
<NET-CHANGE-IN-ASSETS> (187,470,404)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,316,323)
<OVERDIST-NET-GAINS-PRIOR> (16,439,588)
<GROSS-ADVISORY-FEES> 2,179,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,290,994
<AVERAGE-NET-ASSETS> 3,806,733
<PER-SHARE-NAV-BEGIN> 16.24
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (7.91)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.31
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 567
<NAME> GOLDMAN SACHS ASIA GROWTH FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1998
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 110,553,383
<INVESTMENTS-AT-VALUE> 84,920,018
<RECEIVABLES> 4,639,905
<ASSETS-OTHER> 14,334
<OTHER-ITEMS-ASSETS> 3,678,542
<TOTAL-ASSETS> 93,252,799
<PAYABLE-FOR-SECURITIES> 134,703
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,012,569
<TOTAL-LIABILITIES> 1,147,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 191,631,821
<SHARES-COMMON-STOCK> 52,511
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 137,887
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 73,629,726
<ACCUM-APPREC-OR-DEPREC> (26,034,455)
<NET-ASSETS> 92,105,527
<DIVIDEND-INCOME> 3,567,537
<INTEREST-INCOME> 909,396
<OTHER-INCOME> 0
<EXPENSES-NET> 3,777,890
<NET-INVESTMENT-INCOME> 699,043
<REALIZED-GAINS-CURRENT> (57,330,108)
<APPREC-INCREASE-CURRENT> (57,053,599)
<NET-CHANGE-FROM-OPS> (113,684,664)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (617)
<NUMBER-OF-SHARES-SOLD> 70,257
<NUMBER-OF-SHARES-REDEEMED> 17,794
<SHARES-REINVESTED> 48
<NET-CHANGE-IN-ASSETS> (817,470,404)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,316,323)
<OVERDIST-NET-GAINS-PRIOR> (16,439,588)
<GROSS-ADVISORY-FEES> 2,179,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,290,994
<AVERAGE-NET-ASSETS> 817,142
<PER-SHARE-NAV-BEGIN> 15.73
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (7.42)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.29
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 563
<NAME> GOLDMAN SACHS ASIA GROWTH FUND-INST.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 110,553,383
<INVESTMENTS-AT-VALUE> 84,920,018
<RECEIVABLES> 4,639,905
<ASSETS-OTHER> 14,334
<OTHER-ITEMS-ASSETS> 3,678,542
<TOTAL-ASSETS> 93,252,799
<PAYABLE-FOR-SECURITIES> 134,703
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,012,569
<TOTAL-LIABILITIES> 1,147,272
<SENIOR-EQUITY> 091,631,821
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 103,588
<SHARES-COMMON-PRIOR> 815,499
<ACCUMULATED-NII-CURRENT> 137,887
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 73,629,726
<ACCUM-APPREC-OR-DEPREC> (26,034,455)
<NET-ASSETS> 92,105,527
<DIVIDEND-INCOME> 3,567,537
<INTEREST-INCOME> 909,396
<OTHER-INCOME> 0
<EXPENSES-NET> 3,777,890
<NET-INVESTMENT-INCOME> 699,043
<REALIZED-GAINS-CURRENT> (57,330,108)
<APPREC-INCREASE-CURRENT> (57,053,599)
<NET-CHANGE-FROM-OPS> (113,684,664)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (22,635)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163,318
<NUMBER-OF-SHARES-REDEEMED> 875,506
<SHARES-REINVESTED> 277
<NET-CHANGE-IN-ASSETS> (817,470,404)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,316,323)
<OVERDIST-NET-GAINS-PRIOR> (16,439,588)
<GROSS-ADVISORY-FEES> 2,179,299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,290,994
<AVERAGE-NET-ASSETS> 8,318,773
<PER-SHARE-NAV-BEGIN> 16.33
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 7.96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.44
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 511
<NAME> GOLDMAN SACHS BALANCED FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 206,265,978
<INVESTMENTS-AT-VALUE> 217,081,749
<RECEIVABLES> 14,631,666
<ASSETS-OTHER> 103,966
<OTHER-ITEMS-ASSETS> 30,564
<TOTAL-ASSETS> 231,847,945
<PAYABLE-FOR-SECURITIES> 25,762,034
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,577,666
<TOTAL-LIABILITIES> 27,339,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,861,586
<SHARES-COMMON-STOCK> 8,064,620
<SHARES-COMMON-PRIOR> 4,336,101
<ACCUMULATED-NII-CURRENT> 410,404
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,386,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,850,250
<NET-ASSETS> 204,508,245
<DIVIDEND-INCOME> 1,068,241
<INTEREST-INCOME> 4,207,232
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,281
<NET-INVESTMENT-INCOME> 3,841,192
<REALIZED-GAINS-CURRENT> 13,321,612
<APPREC-INCREASE-CURRENT> 2,251,255
<NET-CHANGE-FROM-OPS> 19,414,059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,280,878
<DISTRIBUTIONS-OF-GAINS> 8,192,911
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,149,265
<NUMBER-OF-SHARES-REDEEMED> 942,243
<SHARES-REINVESTED> 521,497
<NET-CHANGE-IN-ASSETS> 120,988,118
<ACCUMULATED-NII-PRIOR> 180,204
<ACCUMULATED-GAINS-PRIOR> 990,062
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 870,444
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,156,337
<AVERAGE-NET-ASSETS> 120,558,886
<PER-SHARE-NAV-BEGIN> 18.78
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> 2.66
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.72
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.29
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 512
<NAME> GOLDMAN SACHS BALANCED FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 206,265,978
<INVESTMENTS-AT-VALUE> 217,081,749
<RECEIVABLES> 14,631,666
<ASSETS-OTHER> 103,966
<OTHER-ITEMS-ASSETS> 30,564
<TOTAL-ASSETS> 231,847,945
<PAYABLE-FOR-SECURITIES> 25,762,034
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,577,666
<TOTAL-LIABILITIES> 27,339,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,861,586
<SHARES-COMMON-STOCK> 1,170,246
<SHARES-COMMON-PRIOR> 112,660
<ACCUMULATED-NII-CURRENT> 410,404
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,386,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,850,250
<NET-ASSETS> 204,508,245
<DIVIDEND-INCOME> 1,068,241
<INTEREST-INCOME> 4,207,232
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,281
<NET-INVESTMENT-INCOME> 3,841,192
<REALIZED-GAINS-CURRENT> 13,321,612
<APPREC-INCREASE-CURRENT> 2,251,255
<NET-CHANGE-FROM-OPS> 19,414,059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 212,816
<DISTRIBUTIONS-OF-GAINS> 995,615
<DISTRIBUTIONS-OTHER> 503
<NUMBER-OF-SHARES-SOLD> 1,042,755
<NUMBER-OF-SHARES-REDEEMED> 41,140
<SHARES-REINVESTED> 55,971
<NET-CHANGE-IN-ASSETS> 120,988,118
<ACCUMULATED-NII-PRIOR> 180,204
<ACCUMULATED-GAINS-PRIOR> 990,062
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 870,444
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,156,337
<AVERAGE-NET-ASSETS> 9,942,537
<PER-SHARE-NAV-BEGIN> 18.73
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> 2.57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.60
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.20
<EXPENSE-RATIO> 1.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 517
<NAME> GOLDMAN SACHS BALANCED FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 206,265,978
<INVESTMENTS-AT-VALUE> 217,081,749
<RECEIVABLES> 14,631,666
<ASSETS-OTHER> 103,966
<OTHER-ITEMS-ASSETS> 30,564
<TOTAL-ASSETS> 231,847,945
<PAYABLE-FOR-SECURITIES> 25,762,034
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,577,666
<TOTAL-LIABILITIES> 27,339,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,861,586
<SHARES-COMMON-STOCK> 438,867
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 410,404
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,386,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,850,250
<NET-ASSETS> 204,508,245
<DIVIDEND-INCOME> 1,068,241
<INTEREST-INCOME> 4,207,232
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,281
<NET-INVESTMENT-INCOME> 3,841,192
<REALIZED-GAINS-CURRENT> 13,321,612
<APPREC-INCREASE-CURRENT> 2,251,255
<NET-CHANGE-FROM-OPS> 19,414,059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37,737
<DISTRIBUTIONS-OF-GAINS> 180,689
<DISTRIBUTIONS-OTHER> 152,487
<NUMBER-OF-SHARES-SOLD> 441,362
<NUMBER-OF-SHARES-REDEEMED> 17,257
<SHARES-REINVESTED> 14,762
<NET-CHANGE-IN-ASSETS> 120,988,118
<ACCUMULATED-NII-PRIOR> 180,204
<ACCUMULATED-GAINS-PRIOR> 990,062
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 870,444
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,156,337
<AVERAGE-NET-ASSETS> 3,804,700
<PER-SHARE-NAV-BEGIN> 21.10
<PER-SHARE-NII> .25
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.17
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 513
<NAME> GOLDMAN SACHS BALANCED FUND-INST.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 206,265,978
<INVESTMENTS-AT-VALUE> 217,081,749
<RECEIVABLES> 14,631,666
<ASSETS-OTHER> 103,966
<OTHER-ITEMS-ASSETS> 30,564
<TOTAL-ASSETS> 231,847,945
<PAYABLE-FOR-SECURITIES> 25,762,034
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,577,666
<TOTAL-LIABILITIES> 27,339,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188,861,586
<SHARES-COMMON-STOCK> 412,422
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 410,404
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,386,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,850,250
<NET-ASSETS> 204,508,245
<DIVIDEND-INCOME> 1,068,241
<INTEREST-INCOME> 4,207,232
<OTHER-INCOME> 0
<EXPENSES-NET> 1,434,281
<NET-INVESTMENT-INCOME> 3,841,192
<REALIZED-GAINS-CURRENT> 13,321,612
<APPREC-INCREASE-CURRENT> 2,251,255
<NET-CHANGE-FROM-OPS> 19,414,059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51,094
<DISTRIBUTIONS-OF-GAINS> 164,436
<DISTRIBUTIONS-OTHER> 279,473
<NUMBER-OF-SHARES-SOLD> 422,391
<NUMBER-OF-SHARES-REDEEMED> 34,951
<SHARES-REINVESTED> 24,982
<NET-CHANGE-IN-ASSETS> 120,988,118
<ACCUMULATED-NII-PRIOR> 180,204
<ACCUMULATED-GAINS-PRIOR> 990,062
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 870,444
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,156,337
<AVERAGE-NET-ASSETS> 3,510,122
<PER-SHARE-NAV-BEGIN> 21.18
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.47
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.29
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 611
<NAME> GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 29,506,202
<INVESTMENTS-AT-VALUE> 29,631,178
<RECEIVABLES> 2,259,962
<ASSETS-OTHER> 27,076
<OTHER-ITEMS-ASSETS> 1,348,620
<TOTAL-ASSETS> 33,266,836
<PAYABLE-FOR-SECURITIES> 3,842,039
<SENIOR-LONG-TERM-DEBT> 289,290
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 4,131,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,772,894
<SHARES-COMMON-STOCK> 768,392
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,740
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 675,755
<ACCUM-APPREC-OR-DEPREC> 100,108
<NET-ASSETS> 29,135,507
<DIVIDEND-INCOME> 69,116
<INTEREST-INCOME> 31,547
<OTHER-INCOME> 0
<EXPENSES-NET> 85,299
<NET-INVESTMENT-INCOME> 15,364
<REALIZED-GAINS-CURRENT> (689,695)
<APPREC-INCREASE-CURRENT> 100,108
<NET-CHANGE-FROM-OPS> 574,223
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1,401
<NUMBER-OF-SHARES-SOLD> 794,938
<NUMBER-OF-SHARES-REDEEMED> 26,072
<SHARES-REINVESTED> 156
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 298,158
<AVERAGE-NET-ASSETS> 2,362,248
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 612
<NAME> GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 29,506,202
<INVESTMENTS-AT-VALUE> 29,631,178
<RECEIVABLES> 2,259,962
<ASSETS-OTHER> 27,076
<OTHER-ITEMS-ASSETS> 1,348,620
<TOTAL-ASSETS> 33,266,836
<PAYABLE-FOR-SECURITIES> 3,842,039
<SENIOR-LONG-TERM-DEBT> 289,290
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 4,131,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,772,894
<SHARES-COMMON-STOCK> 295,542
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,740
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 675,755
<ACCUM-APPREC-OR-DEPREC> 100,108
<NET-ASSETS> 29,135,507
<DIVIDEND-INCOME> 69,116
<INTEREST-INCOME> 31,547
<OTHER-INCOME> 0
<EXPENSES-NET> 85,299
<NET-INVESTMENT-INCOME> 15,364
<REALIZED-GAINS-CURRENT> (689,695)
<APPREC-INCREASE-CURRENT> 100,108
<NET-CHANGE-FROM-OPS> 574,223
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 307,513
<NUMBER-OF-SHARES-REDEEMED> 11,971
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 298,158
<AVERAGE-NET-ASSETS> 1,631,716
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.21
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 617
<NAME> GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 29,506,202
<INVESTMENTS-AT-VALUE> 29,631,178
<RECEIVABLES> 2,259,962
<ASSETS-OTHER> 27,076
<OTHER-ITEMS-ASSETS> 1,348,620
<TOTAL-ASSETS> 33,266,836
<PAYABLE-FOR-SECURITIES> 3,842,039
<SENIOR-LONG-TERM-DEBT> 289,290
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 4,131,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,772,894
<SHARES-COMMON-STOCK> 174,438
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,740
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 675,755
<ACCUM-APPREC-OR-DEPREC> 100,108
<NET-ASSETS> 29,135,507
<DIVIDEND-INCOME> 69,116
<INTEREST-INCOME> 31,547
<OTHER-INCOME> 0
<EXPENSES-NET> 85,299
<NET-INVESTMENT-INCOME> 15,364
<REALIZED-GAINS-CURRENT> (689,695)
<APPREC-INCREASE-CURRENT> 100,108
<NET-CHANGE-FROM-OPS> 574,223
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 192,766
<NUMBER-OF-SHARES-REDEEMED> 18,328
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 298,158
<AVERAGE-NET-ASSETS> 893,487
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .76
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.22
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 613
<NAME> GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND-INST.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 29,506,202
<INVESTMENTS-AT-VALUE> 29,631,178
<RECEIVABLES> 2,259,962
<ASSETS-OTHER> 27,076
<OTHER-ITEMS-ASSETS> 1,348,620
<TOTAL-ASSETS> 33,266,836
<PAYABLE-FOR-SECURITIES> 3,842,039
<SENIOR-LONG-TERM-DEBT> 289,290
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 4,131,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,772,894
<SHARES-COMMON-STOCK> 1,920,464
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,740
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 675,755
<ACCUM-APPREC-OR-DEPREC> 100,108
<NET-ASSETS> 29,135,507
<DIVIDEND-INCOME> 69,116
<INTEREST-INCOME> 31,547
<OTHER-INCOME> 0
<EXPENSES-NET> 85,299
<NET-INVESTMENT-INCOME> 15,364
<REALIZED-GAINS-CURRENT> (689,695)
<APPREC-INCREASE-CURRENT> 100,108
<NET-CHANGE-FROM-OPS> 574,223
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,900
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,925,620
<NUMBER-OF-SHARES-REDEEMED> 6,759
<SHARES-REINVESTED> 1,603
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 298,158
<AVERAGE-NET-ASSETS> 9,723,517
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .76
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.24
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 616
<NAME> GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND-SERV.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 29,506,202
<INVESTMENTS-AT-VALUE> 29,631,178
<RECEIVABLES> 2,259,962
<ASSETS-OTHER> 27,076
<OTHER-ITEMS-ASSETS> 1,348,620
<TOTAL-ASSETS> 33,266,836
<PAYABLE-FOR-SECURITIES> 3,842,039
<SENIOR-LONG-TERM-DEBT> 289,290
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 4,131,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,772,894
<SHARES-COMMON-STOCK> 161
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,740
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 675,755
<ACCUM-APPREC-OR-DEPREC> 100,108
<NET-ASSETS> 29,135,507
<DIVIDEND-INCOME> 69,116
<INTEREST-INCOME> 31,547
<OTHER-INCOME> 0
<EXPENSES-NET> 85,299
<NET-INVESTMENT-INCOME> 15,364
<REALIZED-GAINS-CURRENT> (689,695)
<APPREC-INCREASE-CURRENT> 100,108
<NET-CHANGE-FROM-OPS> 574,223
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 161
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 298,158
<AVERAGE-NET-ASSETS> 1,418
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .78
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 621
<NAME> GOLDMAN SACHS CORE SMALL CAP EQUITY FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 30,830,473
<INVESTMENTS-AT-VALUE> 31,593,022
<RECEIVABLES> 1,156,372
<ASSETS-OTHER> 40,508
<OTHER-ITEMS-ASSETS> 136,905
<TOTAL-ASSETS> 32,926,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 266,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,319,133
<SHARES-COMMON-STOCK> 1,049,487
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35,674
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386,027
<ACCUM-APPREC-OR-DEPREC> 762,943
<NET-ASSETS> 32,660,375
<DIVIDEND-INCOME> 48,424
<INTEREST-INCOME> 35,771
<OTHER-INCOME> 0
<EXPENSES-NET> 123,280
<NET-INVESTMENT-INCOME> (39,085)
<REALIZED-GAINS-CURRENT> 276,521
<APPREC-INCREASE-CURRENT> 762,943
<NET-CHANGE-FROM-OPS> 447,337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 37,526
<NUMBER-OF-SHARES-SOLD> 1,082,435
<NUMBER-OF-SHARES-REDEEMED> 35,569
<SHARES-REINVESTED> 2,621
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 340,019
<AVERAGE-NET-ASSETS> 5,924,621
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 622
<NAME> GOLDMAN SACHS CORE SMALL CAP EQUITY FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 30,830,473
<INVESTMENTS-AT-VALUE> 31,593,022
<RECEIVABLES> 1,156,372
<ASSETS-OTHER> 40,508
<OTHER-ITEMS-ASSETS> 136,905
<TOTAL-ASSETS> 32,926,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 266,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,319,133
<SHARES-COMMON-STOCK> 942,850
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35,674
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386,027
<ACCUM-APPREC-OR-DEPREC> 762,943
<NET-ASSETS> 32,660,375
<DIVIDEND-INCOME> 48,424
<INTEREST-INCOME> 35,771
<OTHER-INCOME> 0
<EXPENSES-NET> 123,280
<NET-INVESTMENT-INCOME> (39,085)
<REALIZED-GAINS-CURRENT> 276,521
<APPREC-INCREASE-CURRENT> 762,943
<NET-CHANGE-FROM-OPS> 447,337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 34,574
<NUMBER-OF-SHARES-SOLD> 952,128
<NUMBER-OF-SHARES-REDEEMED> 12,396
<SHARES-REINVESTED> 3,118
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 340,019
<AVERAGE-NET-ASSETS> 5,743,747
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> .64
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 627
<NAME> GOLDMAN SACHS CORE SMALL CAP EQUITY FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 30,830,473
<INVESTMENTS-AT-VALUE> 31,593,022
<RECEIVABLES> 1,156,372
<ASSETS-OTHER> 40,508
<OTHER-ITEMS-ASSETS> 136,905
<TOTAL-ASSETS> 32,926,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 266,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,319,133
<SHARES-COMMON-STOCK> 242,025
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35,674
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386,027
<ACCUM-APPREC-OR-DEPREC> 762,943
<NET-ASSETS> 32,660,375
<DIVIDEND-INCOME> 48,424
<INTEREST-INCOME> 35,771
<OTHER-INCOME> 0
<EXPENSES-NET> 123,280
<NET-INVESTMENT-INCOME> (39,085)
<REALIZED-GAINS-CURRENT> 276,521
<APPREC-INCREASE-CURRENT> 762,943
<NET-CHANGE-FROM-OPS> 447,337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 7,527
<NUMBER-OF-SHARES-SOLD> 259,583
<NUMBER-OF-SHARES-REDEEMED> 18,140
<SHARES-REINVESTED> 582
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 340,019
<AVERAGE-NET-ASSETS> 1,155,876
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .64
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 623
<NAME> GOLDMAN SACHS CORE SMALL CAP EQUITY FUND-INST.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 30,830,473
<INVESTMENTS-AT-VALUE> 31,593,022
<RECEIVABLES> 1,156,372
<ASSETS-OTHER> 40,508
<OTHER-ITEMS-ASSETS> 136,905
<TOTAL-ASSETS> 32,926,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 266,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,319,133
<SHARES-COMMON-STOCK> 850,858
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35,674
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386,027
<ACCUM-APPREC-OR-DEPREC> 762,943
<NET-ASSETS> 32,660,375
<DIVIDEND-INCOME> 48,424
<INTEREST-INCOME> 35,771
<OTHER-INCOME> 0
<EXPENSES-NET> 123,280
<NET-INVESTMENT-INCOME> (39,085)
<REALIZED-GAINS-CURRENT> 276,521
<APPREC-INCREASE-CURRENT> 762,943
<NET-CHANGE-FROM-OPS> 447,337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 29,872
<NUMBER-OF-SHARES-SOLD> 850,292
<NUMBER-OF-SHARES-REDEEMED> 2,351
<SHARES-REINVESTED> 2,917
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 340,019
<AVERAGE-NET-ASSETS> 5,901,722
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 626
<NAME> GOLDMAN SACHS CORE SMALL CAP EQUITY FUND-SERV.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 30,830,473
<INVESTMENTS-AT-VALUE> 31,593,022
<RECEIVABLES> 1,156,372
<ASSETS-OTHER> 40,508
<OTHER-ITEMS-ASSETS> 136,905
<TOTAL-ASSETS> 32,926,807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 266,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,319,133
<SHARES-COMMON-STOCK> 160
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35,674
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386,027
<ACCUM-APPREC-OR-DEPREC> 762,943
<NET-ASSETS> 32,660,375
<DIVIDEND-INCOME> 48,424
<INTEREST-INCOME> 35,771
<OTHER-INCOME> 0
<EXPENSES-NET> 123,280
<NET-INVESTMENT-INCOME> (39,085)
<REALIZED-GAINS-CURRENT> 276,521
<APPREC-INCREASE-CURRENT> 762,943
<NET-CHANGE-FROM-OPS> 447,337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 7
<NUMBER-OF-SHARES-SOLD> 160
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 340,019
<AVERAGE-NET-ASSETS> 1,613
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .63
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 601
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 69,319,703
<INVESTMENTS-AT-VALUE> 74,329,935
<RECEIVABLES> 2,263,792
<ASSETS-OTHER> 124,918
<OTHER-ITEMS-ASSETS> 142,249
<TOTAL-ASSETS> 76,860,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 314,741
<TOTAL-LIABILITIES> 314,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,037,383
<SHARES-COMMON-STOCK> 4,491,866
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,664
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 493,840
<ACCUM-APPREC-OR-DEPREC> 5,019,274
<NET-ASSETS> 76,546,153
<DIVIDEND-INCOME> 258,531
<INTEREST-INCOME> 50,565
<OTHER-INCOME> 0
<EXPENSES-NET> 319,837
<NET-INVESTMENT-INCOME> (10,741)
<REALIZED-GAINS-CURRENT> 1,346,393
<APPREC-INCREASE-CURRENT> 5,019,274
<NET-CHANGE-FROM-OPS> 6,354,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,499
<DISTRIBUTIONS-OF-GAINS> 1,161,485
<DISTRIBUTIONS-OTHER> 230,942
<NUMBER-OF-SHARES-SOLD> 4,984,608
<NUMBER-OF-SHARES-REDEEMED> 609,700
<SHARES-REINVESTED> 116,958
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 228,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 760,129
<AVERAGE-NET-ASSETS> 32,756,696
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 2.35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 602
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 69,319,703
<INVESTMENTS-AT-VALUE> 74,329,935
<RECEIVABLES> 2,263,792
<ASSETS-OTHER> 124,918
<OTHER-ITEMS-ASSETS> 142,249
<TOTAL-ASSETS> 76,860,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 314,741
<TOTAL-LIABILITIES> 314,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,037,383
<SHARES-COMMON-STOCK> 1,162,113
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,664
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 493,840
<ACCUM-APPREC-OR-DEPREC> 5,019,274
<NET-ASSETS> 76,546,153
<DIVIDEND-INCOME> 258,531
<INTEREST-INCOME> 50,565
<OTHER-INCOME> 0
<EXPENSES-NET> 319,837
<NET-INVESTMENT-INCOME> (10,741)
<REALIZED-GAINS-CURRENT> 1,346,393
<APPREC-INCREASE-CURRENT> 5,019,274
<NET-CHANGE-FROM-OPS> 6,354,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 165,444
<DISTRIBUTIONS-OTHER> 194,227
<NUMBER-OF-SHARES-SOLD> 1,245,868
<NUMBER-OF-SHARES-REDEEMED> 113,110
<SHARES-REINVESTED> 29,355
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 228,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 760,129
<AVERAGE-NET-ASSETS> 6,053,662
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 2.33
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .38
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.92
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 607
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 69,319,703
<INVESTMENTS-AT-VALUE> 74,329,935
<RECEIVABLES> 2,263,792
<ASSETS-OTHER> 124,918
<OTHER-ITEMS-ASSETS> 142,249
<TOTAL-ASSETS> 76,860,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 314,741
<TOTAL-LIABILITIES> 314,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,037,383
<SHARES-COMMON-STOCK> 346,492
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,664
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 493,840
<ACCUM-APPREC-OR-DEPREC> 5,019,274
<NET-ASSETS> 76,546,153
<DIVIDEND-INCOME> 258,531
<INTEREST-INCOME> 50,565
<OTHER-INCOME> 0
<EXPENSES-NET> 319,837
<NET-INVESTMENT-INCOME> (10,741)
<REALIZED-GAINS-CURRENT> 1,346,393
<APPREC-INCREASE-CURRENT> 5,019,274
<NET-CHANGE-FROM-OPS> 6,354,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 16,967
<DISTRIBUTIONS-OTHER> 67,972
<NUMBER-OF-SHARES-SOLD> 351,956
<NUMBER-OF-SHARES-REDEEMED> 11,868
<SHARES-REINVESTED> 6,404
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 228,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 760,129
<AVERAGE-NET-ASSETS> 1,969,597
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.34
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.93
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 603
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-INST.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 69,319,703
<INVESTMENTS-AT-VALUE> 74,329,935
<RECEIVABLES> 2,263,792
<ASSETS-OTHER> 124,918
<OTHER-ITEMS-ASSETS> 142,249
<TOTAL-ASSETS> 76,860,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 314,741
<TOTAL-LIABILITIES> 314,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,037,383
<SHARES-COMMON-STOCK> 388,928
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,664
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 493,840
<ACCUM-APPREC-OR-DEPREC> 5,019,274
<NET-ASSETS> 76,546,153
<DIVIDEND-INCOME> 259,531
<INTEREST-INCOME> 50,565
<OTHER-INCOME> 0
<EXPENSES-NET> 319,837
<NET-INVESTMENT-INCOME> (10,741)
<REALIZED-GAINS-CURRENT> 1,346,393
<APPREC-INCREASE-CURRENT> 5,019,274
<NET-CHANGE-FROM-OPS> 6,354,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 79
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 392,622
<NUMBER-OF-SHARES-REDEEMED> 3,701
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 228,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 760,129
<AVERAGE-NET-ASSETS> 161,755
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 2.35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 606
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-SERV.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 69,319,703
<INVESTMENTS-AT-VALUE> 74,329,935
<RECEIVABLES> 2,263,792
<ASSETS-OTHER> 124,918
<OTHER-ITEMS-ASSETS> 142,249
<TOTAL-ASSETS> 76,860,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 314,741
<TOTAL-LIABILITIES> 314,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,037,383
<SHARES-COMMON-STOCK> 9,619
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,664
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 493,840
<ACCUM-APPREC-OR-DEPREC> 5,019,274
<NET-ASSETS> 76,546,153
<DIVIDEND-INCOME> 258,531
<INTEREST-INCOME> 50,565
<OTHER-INCOME> 0
<EXPENSES-NET> 319,837
<NET-INVESTMENT-INCOME> (10,741)
<REALIZED-GAINS-CURRENT> 1,346,393
<APPREC-INCREASE-CURRENT> 5,019,274
<NET-CHANGE-FROM-OPS> 6,354,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,739
<DISTRIBUTIONS-OTHER> 1,841
<NUMBER-OF-SHARES-SOLD> 9,303
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 316
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 228,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 760,129
<AVERAGE-NET-ASSETS> 67,861
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 2.35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.95
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 591
<NAME> GOLDMAN SACHS CORE US EQUITY FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 520,501,426
<INVESTMENTS-AT-VALUE> 670,339,143
<RECEIVABLES> 5,703,497
<ASSETS-OTHER> 7,229
<OTHER-ITEMS-ASSETS> 85,588
<TOTAL-ASSETS> 676,135,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,533,327
<TOTAL-LIABILITIES> 1,533,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 520,091,264
<SHARES-COMMON-STOCK> 14,985,404
<SHARES-COMMON-PRIOR> 9,688,806
<ACCUMULATED-NII-CURRENT> 75,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,515,480
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,920,353
<NET-ASSETS> 674,602,130
<DIVIDEND-INCOME> 8,627,109
<INTEREST-INCOME> 756,432
<OTHER-INCOME> 0
<EXPENSES-NET> 5,792,632
<NET-INVESTMENT-INCOME> 3,590,909
<REALIZED-GAINS-CURRENT> 51,660,805
<APPREC-INCREASE-CURRENT> 58,735,381
<NET-CHANGE-FROM-OPS> 113,987,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,596,139
<DISTRIBUTIONS-OF-GAINS> 30,719,012
<DISTRIBUTIONS-OTHER> 30,776
<NUMBER-OF-SHARES-SOLD> 6,317,528
<NUMBER-OF-SHARES-REDEEMED> 2,217,030
<SHARES-REINVESTED> 1,196,100
<NET-CHANGE-IN-ASSETS> 278,768,435
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,402,524
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,924,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,744,567
<AVERAGE-NET-ASSETS> 308,580,547
<PER-SHARE-NAV-BEGIN> 23.32
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 5.63
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.47
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.59
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 592
<NAME> GOLDMAN SACHS CORE US EQUITY FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 520,501,426
<INVESTMENTS-AT-VALUE> 670,339,143
<RECEIVABLES> 5,703,497
<ASSETS-OTHER> 7,229
<OTHER-ITEMS-ASSETS> 85,588
<TOTAL-ASSETS> 676,135,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,533,327
<TOTAL-LIABILITIES> 1,533,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 520,091,264
<SHARES-COMMON-STOCK> 2,249,148
<SHARES-COMMON-PRIOR> 744,222
<ACCUMULATED-NII-CURRENT> 75,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,515,480
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,920,353
<NET-ASSETS> 674,602,130
<DIVIDEND-INCOME> 8,627,109
<INTEREST-INCOME> 756,432
<OTHER-INCOME> 0
<EXPENSES-NET> 5,792,632
<NET-INVESTMENT-INCOME> 3,590,909
<REALIZED-GAINS-CURRENT> 51,660,805
<APPREC-INCREASE-CURRENT> 58,735,381
<NET-CHANGE-FROM-OPS> 113,987,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 4,237,947
<DISTRIBUTIONS-OTHER> 676,325
<NUMBER-OF-SHARES-SOLD> 1,587,418
<NUMBER-OF-SHARES-REDEEMED> 243,200
<SHARES-REINVESTED> 160,708
<NET-CHANGE-IN-ASSETS> 278,768,435
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,402,524
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,924,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,744,567
<AVERAGE-NET-ASSETS> 35,336,714
<PER-SHARE-NAV-BEGIN> 23.18
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 5.42
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.32
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 597
<NAME> GOLDMAN SACHS CORE US EQUITY FUND-CLASS C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-15-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 520,501,426
<INVESTMENTS-AT-VALUE> 670,339,143
<RECEIVABLES> 5,703,497
<ASSETS-OTHER> 7,229
<OTHER-ITEMS-ASSETS> 85,588
<TOTAL-ASSETS> 676,135,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,533,327
<TOTAL-LIABILITIES> 1,533,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 520,091,264
<SHARES-COMMON-STOCK> 238,838
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 75,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,515,480
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,920,353
<NET-ASSETS> 674,602,130
<DIVIDEND-INCOME> 8,627,109
<INTEREST-INCOME> 756,432
<OTHER-INCOME> 0
<EXPENSES-NET> 5,792,632
<NET-INVESTMENT-INCOME> 3,590,909
<REALIZED-GAINS-CURRENT> 51,660,805
<APPREC-INCREASE-CURRENT> 58,735,381
<NET-CHANGE-FROM-OPS> 113,987,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 358,883
<DISTRIBUTIONS-OTHER> 276,166
<NUMBER-OF-SHARES-SOLD> 301,152
<NUMBER-OF-SHARES-REDEEMED> 75,324
<SHARES-REINVESTED> 13,010
<NET-CHANGE-IN-ASSETS> 278,768,435
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,402,524
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,924,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,744,567
<AVERAGE-NET-ASSETS> 4,183,614
<PER-SHARE-NAV-BEGIN> 27.48
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.50
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.24
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 593
<NAME> GOLDMAN SACHS CORE US EQUITY FUND-INST.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 520,501,426
<INVESTMENTS-AT-VALUE> 670,339,143
<RECEIVABLES> 5,703,497
<ASSETS-OTHER> 7,229
<OTHER-ITEMS-ASSETS> 85,588
<TOTAL-ASSETS> 676,135,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,533,327
<TOTAL-LIABILITIES> 1,533,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 520,091,264
<SHARES-COMMON-STOCK> 7,573,189
<SHARES-COMMON-PRIOR> 6,351,958
<ACCUMULATED-NII-CURRENT> 75,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,515,480
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,920,353
<NET-ASSETS> 674,602,130
<DIVIDEND-INCOME> 8,627,109
<INTEREST-INCOME> 756,432
<OTHER-INCOME> 0
<EXPENSES-NET> 5,792,632
<NET-INVESTMENT-INCOME> 3,590,909
<REALIZED-GAINS-CURRENT> 51,660,805
<APPREC-INCREASE-CURRENT> 58,735,381
<NET-CHANGE-FROM-OPS> 113,987,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,709,339
<DISTRIBUTIONS-OF-GAINS> 15,675,265
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,723,166
<NUMBER-OF-SHARES-REDEEMED> 1,139,364
<SHARES-REINVESTED> 637,429
<NET-CHANGE-IN-ASSETS> 278,768,435
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,402,524
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,924,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,744,567
<AVERAGE-NET-ASSETS> 171,974,911
<PER-SHARE-NAV-BEGIN> 23.44
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 5.65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.60
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.79
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF GOLDMAN SACHS TRUST ON BEHALF OF THE EQUITY FUNDS DATED JANUARY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 596
<NAME> GOLDMAN SACHS CORE US EQUITY FUND-SERV.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 520,501,426
<INVESTMENTS-AT-VALUE> 670,339,143
<RECEIVABLES> 5,703,497
<ASSETS-OTHER> 7,229
<OTHER-ITEMS-ASSETS> 85,588
<TOTAL-ASSETS> 676,135,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,533,327
<TOTAL-LIABILITIES> 1,533,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 520,091,264
<SHARES-COMMON-STOCK> 295,570
<SHARES-COMMON-PRIOR> 157,464
<ACCUMULATED-NII-CURRENT> 75,033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,515,480
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 149,920,353
<NET-ASSETS> 674,602,130
<DIVIDEND-INCOME> 8,627,109
<INTEREST-INCOME> 756,432
<OTHER-INCOME> 0
<EXPENSES-NET> 5,792,632
<NET-INVESTMENT-INCOME> 3,590,909
<REALIZED-GAINS-CURRENT> 51,660,805
<APPREC-INCREASE-CURRENT> 58,735,381
<NET-CHANGE-FROM-OPS> 113,987,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34,331
<DISTRIBUTIONS-OF-GAINS> 556,742
<DISTRIBUTIONS-OTHER> 2,549
<NUMBER-OF-SHARES-SOLD> 132,991
<NUMBER-OF-SHARES-REDEEMED> 17,860
<SHARES-REINVESTED> 22,975
<NET-CHANGE-IN-ASSETS> 278,768,435
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,402,524
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,924,639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,744,567
<AVERAGE-NET-ASSETS> 5,444,487
<PER-SHARE-NAV-BEGIN> 23.27
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> 5.57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.50
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.53
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
