<PAGE>
Goldman Sachs Funds
INTERNATIONAL SMALL CAP FUND Annual Report January 31, 1999
Long-term capital growth
[GRAPHIC] potential through a portfolio of
smaller capitalization companies
located outside of the United States.
Goldman
Sachs
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Market Overview
Dear Shareholder,
During the review period,events that began in Asia in 1997 continued to roil
financial markets around the world.
[ ] Market Review:Global Markets Fluctuated Along With Investor
Confidence -- The arrival of 1998 heralded another step up in
the staircase pattern of global equity prices. Worries about
contagion from Asia and Japan receded rapidly from the prior
months, and the deflationary influence from the East helped cool
the U.S. and European economies, thereby lowering bond yields
and increasing equity valuations. In contrast, the second half
of the period was marked by a trend of escalating volatility.
Political and economic woes in Indonesia, Russia and Brazil
affected market performance around the globe, while the
continuing weakness of the Japanese yen placed further pressure
on the emerging Asian economies. The consequent implosion of
several hedge funds further upset the financial sector and, in
response, investors sought security in the form of fixed income
investments.
By period end, equity markets rebounded on renewed confidence
that concerted action from the G-7, including an easing of rates
by the Federal Reserve Board, would help avert a global
financial meltdown. Markets were further boosted by encouraging
news out of Japan, which appeared to indicate it may finally
begin to address its structural problems.
[ ] Market Outlook:Optimism Prevails -- In Europe, prospects for
equities are bright. In particular, the outlook for corporate
earnings growth remains good. Moreover, we see continued
opportunities for industrial restructuring and consolidation,
which should be broadly supportive of valuations. As companies
strive to lower their costs and to dominate in Europe, investors
stand to benefit. We expect that the recent advent of the single
currency, the euro, will act as a catalyst that will accelerate
this trend.
In Japan, it may take some time until we start to see clear
signs of a recovery. However, the government seems to moving in
the right direction by engineering, for example, cuts in taxes.
Also, a number of Japanese companies, including those that had
been reluctant to restructure their business, have finally come
to grips with their problems. This may mean that once corporate
revenues stop declining further, there could be a substantive
pick-up in bottom-line earnings for next year. As
investors' outlook for corporate profit improves, we believe the
equity market is likely to stabilize and move upward.
Going forward, macro risks to Asian markets include a slowing
of the U.S. and European economies and a possible renewed
weakness in the yen. We also believe that investors will begin
to focus on the timing of economic recoveries in Asian
countries, as well as a possible earnings recovery for many
companies. Therefore, stock selectivity will become more
important in the coming year, since not all companies or sectors
will participate equally in the economic recovery.
We encourage you to maintain your long term investment program
and look forward to serving you in the years ahead.
Sincerely,
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Asset Goldman Sachs Asset
Management International Management International
February 26, 1999
[ ] NOT FDIC
INSURED
[ ] May Lose Value
[ ] No Bank
Guarantee
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Fund Basics
as of January 31, 1999
Assets Under Management
$70.4 Million
Number of Holdings
121
NASDAQ SYMBOLS
Class A Shares
GISAX
Class B Shares
GISBX
Class C Shares
GISCX
Institutional Shares
GISIX
Service Shares
GISSX
PERFORMANCE REVIEW
Inception (May 1, 1998)- Fund Total Return MSCI
January 31,1999 (without sales charge)/1/ Small Cap EAFE/2/
- -------------------------------------------------------------------------------
Class A 6.20% -11.84%
Class B 6.10% -11.84%
Class C 6.10% -11.84%
Institutional 6.67% -11.84%
Service 6.10% -11.84%
- -------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares. The Fund's performance assumes the
investment of dividends and other distributions.
/2/ The MSCI EAFE Small Cap Index, incepted 1/15/98, includes 1,502 securities
from 23 developed markets with a capitalization range of $200-$800 million
and a general regional allocation of 60% Europe, 30% Japan and 10% Asia.
Total returns are calculated without dividends reinvested. In addition,
investors cannot invest directly in the Index.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN (WITH SALES CHARGE)
- -------------------------------------------------------------------------------------------------------------------
For the period ended 12/31/98 Class A Class B Class C Institutional Service
<S> <C> <C> <C> <C> <C>
Last 6 months/3/ -5.02% -4.52% -0.52% 0.84%/4/ 0.48%/4/
Since inception/3/ -1.70% -1.00% 3.00% 4.47%/4/ 4.00%/4/
(5/1/98)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
/3/ The Cumulative Total Return (with sales charge) is determined by computing
the percentage change in the value of $1,000 invested at the maximum public
offering price for the specified periods, assuming reinvestment of all
distributions at NAV. The total return calculation reflects a maximum
initial sales charge of 5.5% for Class A shares, and the assumed deferred
sales charge for Class B shares (5% maximum declining to 1% in the sixth
year) and Class C shares (1% if redeemed within 12 months of purchase). The
public offering price of the Class A shares on December 31, 1998 was $11.01
and represents the NAV plus the maximum sales charge of 5.5%.
/4/ Cumulative Total Return as of 12/31/98.
<TABLE>
<CAPTION>
TOP 10 COMPANY HOLDINGS AS OF 1/31/99
% of Total
Company Net Assets Country Line of Business
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Altran Technologies 2.1% France Business Services
Serco Group 1.9% Britain Business Services
Funespana 1.8% Spain Funeral Services
Lindt & Spruengli 1.7% Switzerland Food
The Capita Group 1.7% Britain Building Materials & Construction
Kamps AG 1.6% Germany Food
Europolitan Holdings 1.6% Sweden Utility
Coloplast 1.6% Denmark Medical Products & Supplies
Jarvis PLC 1.6% Britain Building Materials & Construction
GFI Informatique 1.6% France Computer Services & Software
- ------------------------------------------------------------------------------------------
</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. Performance reflects fee
waivers and expense limitations in effect. In their absence, performance would
be reduced.
1
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Performance Overview
Dear Shareholder,
The following is a report on the performance of the Goldman Sachs International
Small Cap Fund. This report covers the period since the Fund's inception on May
1, 1998, through January 31, 1999.
Performance Review
During the period of time covered by this report, the Fund's Class A, B, C,
Institutional and Service shares generated cumulative total returns, without
sales charges, of 6.20%, 6.10%, 6.10%, 6.67% and 6.10%, respectively. All of the
share classes substantially outperformed the -11.84% cumulative total return of
the Fund's benchmark, the Morgan Stanley Capital International (MSCI) Small Cap
Europe, Australasia, Far East Index (EAFE).
The Fund's strong performance is primarily attributable to a significant
contribution from individual stock selection.
Portfolio Composition
The Fund's weightings in each of the three key regions of Europe, Japan and Asia
were 63.8%, 22.4% and 9.0%, respectively, as of January 31, 1999. Our objective
is to add value more through stock selection within each region than through
asset allocation. However, given that Europe is larger than the other regions in
which the Fund invests, the most significant impact on the Fund's performance
came from European stocks during the period under review.
Portfolio Highlights
[ ] Sondagsavisn A/S -- Sondagsavisn is Denmark's leading free newspaper
company. It achieves attractive operating margins of 30% in regions where it
has been operating for long periods of time. It is continuing to roll out
its highly attractive niche growth concept in Scandinavia, and may also
benefit from its highly popular Internet site.
[ ] Kadokawa Shoten Publishing -- Kadokawa Shoten, a Japan-based publisher of
books and magazines that is also involved in the software business,
performed strongly over the period. Since its purchase, the company's share
price has increased by more than 50%.
[ ] Europolitan Holdings AB -- Europolitan, Sweden's leading mobile phone
operator, is gaining market share in Sweden. As a result, the company's
stock performed well over the period, increasing by 95%.
2
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
INVESTMENT
PROCESS OVERVIEW
Company visits form the core
of the investment process
for the Goldman Sachs
International Small Cap Fund.
Company Visits
--------------
Internal Research
-----------------
Return Expectations
[DOWN ARROW]
Stock Selection
[DOWN ARROW]
Portfolio
Construction
[ ] Stock,Industry
& Country Views
Relative to
Benchmark
[DOWN ARROW]
Portfolio Review [UP ARROW]
& Analysis
[ ] Performance
Measurement
& Attribution
[ ] Risk Control
[ ] Currency
Management
New Acquisitions
[ ] Kamps AG -- The Fund continued to acquire attractively valued niche growth
companies and companies benefiting from structural changes over the period.
One example of this type of company is Kamps, a German bakery chain that is
precipitating a consolidation of the German bakery market. The company has
performed very strongly since our purchase.
[ ] Funespana -- The company is a leading Spanish funeral services provider.
Funespana occupies a strong position in an attractive market niche that is
currently undergoing consolidation. Additionally, the company is benefiting
from structural changes caused by the privatization of funeral parlors,
which had previously been owned by municipalities.
[ ] Trafficmaster PLC -- Trafficmaster is a leading provider of traffic
information in the U.K. The company is in the process of expanding into
Germany, where the highway network is significantly larger. As a result, the
company is well positioned to sign a number of interesting licensing
agreements.
[ ] Rapala -- Rapala, located in Finland, is a world leader in the fishing
tackle market. The company has attractive niche growth characteristics in a
highly fragmented sector. They also have the ability to improve earnings
through productivity improvements.
Portfolio Outlook
Our strategy aims to identify fast growing companies benefiting either from a
structural change within their market -- for example, outsourcing of services --
or companies that operate in a particularly attractive market niche. At a time
when bond yields remain very low, the strong growth rates for the companies held
by the Fund, as well as the attractive valuations per unit of growth relative to
other growth stocks, leaves the Fund, in our opinion, well placed for the longer
term.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs International Small Cap Equity Team
London
February 26, 1999
3
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
The Goldman Sachs Advantage
Founded in 1869, Goldman, Sachs & Co. is a premier financial services firm
traditionally known on Wall Street and around the world for its institutional
expertise.
Today, the firm's Asset Management Division provides individual
investors the opportunity to tap the resources of a global institutional
powerhouse -- and put this expertise to work in their individual
portfolios.
What Sets Goldman Sachs Funds Apart?
1
Resources and Relationships
Our portfolio management teams are located on-site, around the world, in
New York, London, Tokyo and Singapore. Their understanding of local
economies, markets, industries and cultures helps deliver what many
investors want: access to global investment opportunities and
consistent, risk-adjusted performance.
2
In-Depth Research
Our portfolio management teams make on-site visits to hundreds of
companies each month, then construct selective portfolios with an
emphasis on their best ideas. Our teams also have access to Goldman,
Sachs & Co.'s Global Investment Research Department.
3
Risk Management
In this, our institutional heritage is clear. Institutions, as well as
many individual investors, often look to us to manage the risks of
global investing over time in different market environments.
To learn more about the Goldman Sachs Family of Funds, call your investment
professional today.
4
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Performance Summary
January 31, 1999
The following graph shows the value as of January 31, 1999, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5% for Class A and contin-
gent deferred sales charges of 5.0% and 1.0% for Class B and C, respectively
and at NAV for the Institutional and Service Classes) on May 1, 1998 (com-
mencement of operations) of Goldman Sachs International Small Cap Fund. For
comparative purposes, the performance of the Fund's benchmarks (Morgan Stan-
ley Capital International EAFE Small Cap Index ("MSCI Small Cap EAFE")) 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.
International Small Cap Fund's Lifetime Performance
Growth of a $10,000 Investment, May 1, 1998 to January 31, 1999
[GRAPH APPEARS HERE]
MSCI Institutional Service
Small Cap Class A Class B Class C Class Class
5/1/98 10,000 9,450 10,000 10,000 10,000 10,000
5/98 10,033 9,830 10,400 10,400 10,400 10,400
6/98 9,634 9,783 10,350 10,350 10,360 10,350
7/98 9,502 10,038 10,620 10,620 10,630 10,620
8/98 8,237 8,856 9,370 9,370 9,400 9,370
9/98 7,858 8,384 8,870 8,870 8,900 8,870
10/98 8,488 9,008 9,520 9,520 9,560 9,530
11/98 8,893 9,348 9,880 9,880 9,930 9,890
12/98 8,927 9,830 10,400 10,400 10,447 10,400
1/99 8,815 10,038 10,110 10,510 10,667 10,610
<TABLE>
<CAPTION>
Aggregate Total Return through January 31,
1999(a) Since Inception
<S> <C>
Class A
Excluding sales charges 6.20%
Including sales charges 0.38%
-------------------------------------------------------------
Class B
Excluding contingent deferred sales charges 6.10%
Including contingent deferred sales charges 1.10%
-------------------------------------------------------------
Class C
Excluding contingent deferred sales charges 6.10%
Including contingent deferred sales charges 5.10%
-------------------------------------------------------------
Institutional Class 6.67%
-------------------------------------------------------------
Service Class 6.10%
-------------------------------------------------------------
</TABLE>
(a) All classes commenced operations on May 1, 1998.
5
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Investments
January 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 92.3%
<C> <S> <C>
Australia - 2.9%
69,972 Cochlear Ltd. (Drugs) $ 396,584
42,000 Leighton Holdings (Construction) 170,599
35,000 Macquarie Bank Ltd. (Banking) 380,212
228,000 Reinsurance Australia (Insurance) 308,703
44,000 Rothmans Holdings (Food & Beverages) 355,784
61,000 Tab Corp Holdings Ltd. (Entertainment & Leisure) 434,471
----------
2,046,353
----------------------------------------------------------------------------
Britain - 13.9%
3,600,000 Belgo Group (Food & Grocery) 577,641
125,000 Capita Group PLC (Building Materials & Construction) 1,164,333
82,475 Dialog Corporation PLC* (Commercial Services) 103,833
125,000 F.I. Group PLC (Computer Services/ Software) 746,737
26,200 Icon PLC ADR* (Financial Services) 759,798
254,975 Independent Insurance Group (Financial Services) 1,053,227
36,950 Itnet PLC* (Computer Services/ Software) 283,064
114,000 Jarvis PLC (Building Materials & Construction) 1,135,040
153,480 KBC Advanced Technologies (Oil & Gas Services) 656,713
174,785 Mayflower Corporation PLC (Auto/ Original Equipment
Manufacturer) 389,757
198,755 Partco Group (Wholesale Trade) 490,637
29,351 Select Appointments Holdings PLC (Business Services) 329,426
65,300 Serco Group (Business Services) 1,327,183
400,000 TBI (Recreational Services) 602,326
14,000 Trafficmaster PLC* (Computers/Office) 131,480
----------
9,751,195
----------------------------------------------------------------------------
Denmark - 6.9%
16,345 Carli Gray International (Manufacturing) 749,771
10,103 Coloplast (Medical Products and Supplies) 1,150,877
12,654 Falck A/S (Security) 1,025,477
14,482 ISS International Service System (Business Services) 1,029,683
11,424 Sondagsavisn A/S (Publishing) 873,395
----------
4,829,203
----------------------------------------------------------------------------
Finland - 2.5%
3,080 Konecranes International (Machinery) 101,535
85,295 Rapala Normark Corporation* (Retail) 765,977
20,605 Tieto Corp. (Business Services) 884,442
----------
1,751,954
----------------------------------------------------------------------------
France - 10.6%
5,000 Altran Technologies (Business Services) 1,482,322
10,270 BIC (Textiles) 618,744
7,119 Cider Sante SA (Business Services) 453,181
11,400 Dassault Systemes (Computer Services/Software) 531,317
9,854 Europeenne de Casinos (Gaming) 582,480
9,584 Genset SA* (Medical/Biotechnology) 642,782
9,418 GFI Informatique* (Computer Services/ Software) 1,129,474
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
France - (continued)
1,824 Penauille Polyservices (Commercial Services) $ 532,872
20,200 Royal Canin SA (Food Products) 1,104,489
2,818 Serp Recyclage SA* (Waste Management) 390,490
----------
7,468,151
------------------------------------------------------------------------
Germany - 6.9%
11,511 Allbecon AG* (Human Resources) 549,575
1,165 Bien-Haus AG (Building Materials & Construction) 284,727
6,534 Dis Deutscher Industrie (Business Services) 274,818
10,500 Kamps AG* (Food) 1,157,780
1,000 MLP (Insurance) 608,161
4,000 Rhoen-Klinikum AG (Health Care) 364,669
30,651 Rinol AG (Building Materials & Construction) 878,032
6,519 Wanderer Werke AG* (Machinery) 733,637
----------
4,851,399
------------------------------------------------------------------------
Greece - 0.3%
6,000 Panafon Hellenic Telecom* (Telecommunications) 205,488
------------------------------------------------------------------------
Hong Kong - 3.3%
121,000 Asia Satellite Telecom Holdings Ltd. (Utility) 202,218
165,200 Dah Sing Financial (Banking) 310,198
418,000 Esprit Holdings (Textiles) 178,015
1,074,000 First Tractor Co. (Farm Machinery) 218,991
680,000 Hengan International* (Health Care) 245,715
850,400 HKR International Ltd. (Real Estate) 466,421
778,000 Legend Holdings (Electronics) 306,228
500,000 Ng Fung Hong (Consumer Goods) 377,478
----------
2,305,264
------------------------------------------------------------------------
Indonesia - 0.3%
116,000 Datacraft Asia ADR (Electrical Services) 228,520
------------------------------------------------------------------------
Ireland - 0.4%
15,713 CBT Group ADR* (Software & Services) 280,870
------------------------------------------------------------------------
Italy - 4.1%
78,121 Banca Lombarda (Banking) 1,092,290
140,000 Gruppo Buffetti (Restaurants) 585,654
45,958 Industrie Natuzzi SpA ADR (Household Durables) 976,608
84,000 Sol SpA* (Chemicals) 232,988
----------
2,887,540
------------------------------------------------------------------------
Japan - 22.5%
17,000 Able, Inc.* (Real Estate) 526,098
18,000 Aderans Company Ltd. (Retail) 512,047
46,400 Aiphone Co. (Wire & Cable Products) 407,982
1,200 Bell System 24 Inc. (Business Services) 323,779
18,000 Citizen Electronic (Electronics) 516,702
131,000 Daiwa Electronics (Consumer Goods) 399,759
5,500 Fuji Seal (Industrial Machinery) 369,812
28,000 Hakuto Co. (Wholesale Trade) 543,080
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Japan - (continued)
95,000 Hitachi Powdered Metals
(Metal Powder
Manufacturer) $ 410,284
60,000 Inaba Denkisangyo
(Electronics) 509,461
4,300 Ito En Ltd. (Food &
Beverages) 209,801
25,000 Iuchi Seiedo Co.
(Electronics--
Instrumentation) 489,203
56,000 Japan Business Computer
(Computer
Services/Software) 531,012
33,000 Japan Chemical Corp.
(Electronics--
Instrumentation) 398,259
10,900 Kadokawa Shoten
Publishing* (Publishing) 751,692
31,000 Kawasumi Labs, Inc.
(Chemical Products) 518,426
32,000 Komeri Co. Ltd.
(Consumer Goods) 523,839
18,000 Meitec Corporation
(Business Services) 442,222
21,000 Ministop Co. Ltd.
(Retail--Food Chains) 524,977
60,000 Mirai Industry Company
Ltd. (Electronics) 501,702
26,000 Misumi Corporation
(Metal Products) 493,082
10,500 Nichii Gakkan Co.
(Business Services) 464,333
38,000 Nippon Kanzai Co.
(Business Services) 556,873
18,000 Oiles Corporation (Metal
Products) 441,446
3,500 Otsuka Kagu Ltd.
(Retail--Furniture) 282,703
12,000 Riso Kagaku Corp.
(Office Equipment and
Supplies) 486,186
2,200 Ryohin Keikaku Co. Ltd.
(Retail-- Department
Stores) 287,315
28,000 Sato Corp. (Machinery
and Equipment) 445,326
44,000 Sumitomo Real Estate
(Retail Trade) 546,183
9,000 Taiyo Ink Manufacturing
Co. (Chemicals) 543,080
90,500 Toyo Kohan Company Ltd.
(Metal Products) 312,056
30,000 Trusco Nakayama
(Wholesale Trade) 338,778
2,700 Union Tool Co.
(Machinery) 151,287
32,000 Yonekyu Corp. (Food
Products) 518,874
43 Yoshinoya Co.
(Restaurants) 552,304
-----------
15,829,963
-----------------------------------------------
Netherlands - 3.0%
29,236 Aalberts Industries NV
(Diversified
Manufacturing) 731,148
39,075 Computer Services
Solutions (Computer
Services/Software) 746,231
30,559 Unique International NV
(Human Resources) 665,232
-----------
2,142,611
-----------------------------------------------
New Zealand - 0.5%
194,300 Sky Network Television*
(Media) 350,870
-----------------------------------------------
Norway - 2.0%
25,048 Netcom ASA*
(Telecommunications) 875,979
15,514 Tomra Systems ASA
(Manufacturing) 523,989
-----------
1,399,968
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Portugal - 0.8%
69,130 Seguros Imperio SA (Insurance) $ 554,800
-------------------------------------------------------------------------------
Singapore - 1.4%
52,000 Elec & Eltek International Co. Ltd. ADR
(Computers/Computer Peripherals & Software) 301,600
225,000 Marco Polo Development Ltd. (Hotels & Restaurants) 230,053
239,000 Parkway Holdings (Conglomerates) 449,184
-----------
980,837
-------------------------------------------------------------------------------
Spain - 2.7%
12,392 Banco Pastor (Banking) 683,200
69,700 Funespana* (Funeral Services) 1,242,349
-----------
1,925,549
-------------------------------------------------------------------------------
Sweden - 2.6%
70,045 Citymail* (Business Services) 584,510
148 Esselte (Broadcast Media) 2,451
9,590 Europolitan Holdings AB (Utility) 1,151,150
14,400 Iro AB (Diversified) 120,165
-----------
1,858,276
-------------------------------------------------------------------------------
Switzerland - 4.7%
554 Bachem AG* (Chemicals) 861,160
2,642 Belimo Automation AG-REG (Building Materials &
Construction) 868,035
454 Lindt & Spruengli (Food Products) 1,194,906
1,694 Straumann Holdings Ltd.* (Medical Products and Supplies) 359,076
-----------
3,283,177
-------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $62,480,136) $64,931,988
-------------------------------------------------------------------------------
Preferred Stocks - 3.3%
Australia - 0.5%
382,000 Star City Holdings LTD* (Recreational Services) $ 381,295
-------------------------------------------------------------------------------
Germany - 2.8%
17,485 Fielmann AG, Non-Voting (Health Care) 779,142
17,500 Krones AG, Non-Voting (Machinery) 487,382
7,700 Rhoen-Klinikum AG, Non-Voting (Health Care) 673,979
-----------
1,940,503
-------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $2,254,470) $ 2,321,798
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Investments (continued)
January 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligation - 18.8%
<C> <S> <C> <C>
State Street Bank & Trust Eu-
ro-Time Deposit(a)
$13,257,053 4.75% 02/01/99 $13,257,053
---------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(cost $13,257,053) $13,257,053
---------------------------------------------
TOTAL INVESTMENTS
(cost $77,991,659)(b) $80,510,839
---------------------------------------------
Federal Income Tax Informa-
tion:
Gross unrealized gain for
investments in which value
exceeds cost $ 6,583,718
Gross unrealized loss for
investments in which cost
exceeds value (4,105,023)
---------------------------------------------
Net unrealized gain $ 2,478,695
---------------------------------------------
</TABLE>
* Non-income producing security.
(a) Portions of these securities are being segregated for extended settlement
securities.
(b) The aggregate cost for federal income tax purposes is $78,032,144.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
<TABLE>
<S> <C> <C>
As a % of
total net assets
Common and Preferred Stock Industry Classifications
Auto/Original Equipment Manufacturer 0.6%
Banking 3.6
Broadcast Media 0.0
Building Materials & Construction 6.3
Business Services 11.7
Chemical Products 3.0
Commercial Services 0.9
Computer Services/Software 5.7
Computers/Computer Peripherals & Software 0.4
Computers/Office 0.2
Conglomerates 0.6
Construction 0.2
Consumer Goods 1.8
Diversified 0.2
Diversified Manufacturing 1.0
Drugs 0.6
Electrical Services 0.3
Electronics 2.6
Electronics-Instrumentation 1.3
Entertainment & Leisure 0.6
Farm Machinery 0.3
Financial Services 2.6
Food 7.3
</TABLE>
<TABLE>
<S> <C> <C>
As a % of
total net assets
Common and Preferred Stock Industry
Classifications - (continued)
Funeral Services 1.8%
Gaming 0.8
Health Care 2.9
Hotels & Restaurants 0.3
Household Durables 1.4
Human Resources 1.7
Industrial Machinery 0.5
Insurance 2.1
Machinery and Equipment 2.7
Manufacturing 1.8
Media 0.5
Medical Products and Supplies 2.1
Medical/Biotechnology 0.9
Metal Powder Manufacturer 0.6
Metal Products 1.8
Office Equipment and Supplies 0.7
Oil & Gas Services 0.9
Publishing 2.3
Real Estate 1.4
Recreational Services 1.4
Restaurants 1.6
Retail 1.8
Retail-Department Stores 0.4
Retail-Food Chains 0.7
Retail-Furniture 0.4
Retail Trade 0.8
Security 1.5
Software & Services 0.4
Telecommunications 1.5
Textiles 1.1
Utilities 1.9
Waste Management 0.6
Wholesale Trade 1.9
Wire & Cable Products 0.6
--------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 95.6%
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Assets and Liabilities
January 31, 1999
Assets:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$77,991,659) $80,510,839
Cash, at value 12,922
Receivables:
Dividends and interest, at value 17,676
Fund shares sold 225,551
Deferred organization expenses, net 12,891
Reimbursement from investment adviser 126,190
Other assets, at value 44,529
------------------------------------------------------------------------------
Total assets 80,950,598
------------------------------------------------------------------------------
Liabilities:
Due to bank 2,834,221
Payables:
Investment securities purchased, at value 7,566,969
Fund shares repurchased 14,041
Amounts owed to affiliates 81,778
Accrued expenses and other liabilities, at value 69,136
------------------------------------------------------------------------------
Total liabilities 10,566,145
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 67,759,384
Accumulated distributions in excess of net investment loss (106,697)
Accumulated undistributed net realized gain on investment,
futures and foreign currency related transactions 174,252
Net unrealized gain on investments, futures and translation
of assets and liabilities denominated in foreign currencies 2,557,514
------------------------------------------------------------------------------
NET ASSETS $70,384,453
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class Class
Class A B C
----------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 3,108,876 20,099 16,459
Net asset value, offering and redemption price per
share(a) $10.62 $10.61 $10.61
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Institutional Service
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 3,469,496 161
Net asset value, offering and redemption price per
share $10.66 $10.61
--------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $11.24 (NAV
per share X 1.0582). At redemption, Class B and Class C shares are sub-
ject 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 INTERNATIONAL SMALL CAP FUND
Statement of Operations
For the Period Ended January 31, 1999(a)
<TABLE>
<S> <C>
Investment income:
Dividends(b) $ 153,016
Interest 113,944
---------------------------------------------------------------------------
Total income 266,960
---------------------------------------------------------------------------
Expenses:
Management fees 287,765
Custodian fees 128,838
Printing 81,705
Transfer agent fees 79,694
Registration fees 67,995
Professional fees 67,079
Distribution and service fees(c) 64,437
Trustee fees 7,630
Amortization of deferred organization expenses 2,296
Other 6,379
---------------------------------------------------------------------------
Total expenses 793,818
---------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (378,964)
---------------------------------------------------------------------------
Net expenses 414,854
---------------------------------------------------------------------------
NET INVESTMENT LOSS (147,894)
---------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions 235,463
Futures transactions 20,249
Foreign currency related transactions (23,552)
Net change in unrealized gain on:
Investments 2,519,180
Translation of assets and liabilities denominated in foreign
currencies 38,334
---------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures and
foreign currency transactions 2,789,674
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 2,641,780
---------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998.
(b) Taxes withheld on dividends were $17,954.
(c) Class A, Class B and Class C had distribution and service fees of
$62,146, $1,566 and $725, respectively.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Changes in Net Assets
For the Period Ended January 31, 1999(a)
<TABLE>
<S> <C>
From operations:
Net investment loss $ (147,894)
Net realized gain on investment, futures and foreign currency
related transactions 232,160
Net change in unrealized gain on investments, futures and
translation of assets and liabilities 2,557,514
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,641,780
-----------------------------------------------------------------------------
Distributions to shareholders:
In excess of net investment income
Institutional shares (21,659)
-----------------------------------------------------------------------------
Total distributions to shareholders (21,659)
-----------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 81,743,079
Reinvestment of dividends and distributions 8,522
Cost of shares repurchased (13,987,269)
-----------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 67,764,332
-----------------------------------------------------------------------------
TOTAL INCREASE 70,384,453
-----------------------------------------------------------------------------
Net assets:
Beginning of period --
-----------------------------------------------------------------------------
End of period $ 70,384,453
-----------------------------------------------------------------------------
Accumulated distributions in excess of net investment loss $ (106,697)
-----------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Income from
investment operations(d) Distributions to shareholders
------------------------------- ------------------------------------------
Net realized From net
and unrealized realized gain
gain on on investment,
Net asset investments, In excess futures
value, Net futures and From net of net and foreign
beginning investment foreign currency investment investment currency related
of period loss related transactions income income transactions
FOR THE PERIOD ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares
(commenced May 1, 1998) $10.00 $(0.04) $0.66 $ -- $ -- $ --
1999 - Class B Shares
(commenced May 1, 1998) 10.00 (0.10) 0.71 -- -- --
1999 - Class C Shares
(commenced May 1, 1998) 10.00 (0.06) 0.67 -- -- --
1999 - Institutional
Shares (commenced May 1,
1998) 10.00 -- 0.67 -- (0.01) --
1999 - Service Shares
(commenced May 1, 1998) 10.00 (0.02) 0.63 -- -- --
---------------------------------------------------------------------------------------------------------------
</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) Annualized.
(c) Not annualized.
(d) Includes the balancing effect of calculating per share amounts.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of
Net assets Ratio of net investment Ratio of Ratio of net
Net increase Net asset at end of net expenses loss to expenses to investment loss to Portfolio
in net asset value, end Total period to average average net average net average net turnover
value of period return(a) (in 000s) net assets assets assets assets rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.62 $10.62 6.20%(c) $33,002 2.02%(b) (1.03)%(b) 3.60%(b) (2.61)%(b) 96.11%(c)
0.61 10.61 6.10(c) 213 2.51(b) (1.30)(b) 4.09(b) (2.88)(b) 96.11(c)
0.61 10.61 6.10(c) 175 2.51(b) (1.45)(b) 4.09(b) (3.03)(b) 96.11(c)
0.66 10.66 6.67(c) 36,992 1.40(b) (0.19)(b) 2.98(b) (1.77)(b) 96.11(c)
0.61 10.61 6.10(c) 2 1.90(b) (0.26)(b) 3.48(b) (1.84)(b) 96.11(c)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Notes to Financial Statements
January 31, 1999
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs International
Small Cap Fund (the "Fund"). At January 31, 1999, the Fund offered five clas-
ses 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.
If no sale occurs, securities are valued at the mean between the closing bid
and asked price. Debt securities are valued at prices supplied by an indepen-
dent pricing service, which reflect broker / dealer-supplied valuations or
matrix pricing systems. Unlisted 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 pric-
es. Short-term debt obligations maturing in sixty days or less are valued at
amortized cost. Restricted securities, and other securities for which quota-
tions are not readily available, are valued at fair value using methods ap-
proved by the Board of Trustees of the Trust.
B. Security Transactions and Investment Income -- Security transactions are
recorded as of the trade date. Realized gains and losses on sales of portfo-
lio securities are calculated using the identified-cost basis. Dividend in-
come is recorded on the ex-dividend date. Dividends for which the Fund has
the choice to receive either cash or stock are recognized as investment in-
come in an amount equal to the cash dividend. Interest income is recorded 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, foreign currency and 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 ex-
change rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) currency gains and losses between trade date
and settlement date on investment securities transactions and forward ex-
change contracts; and (iii) gains and losses from the difference between
amounts of dividends, interest and foreign withholding taxes recorded and the
amounts actually received.
D. Forward Foreign Currency Exchange Contracts -- The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale 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 also purchase and sell such contracts to seek to increase total re-
turn. All commitments are "marked-to-market" daily at the applicable transla-
tion 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
14
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
time a forward contract is offset by entry into a closing transaction or ex-
tinguished by delivery of the currency. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. Short Securities 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 paid-in
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.
The Fund had approximately $15,000 at October 31, 1998 (the Fund's tax year
end) of capital loss carryforward expiring 2006 for federal tax purposes.
This amount is available to be carried forward to offset future capital gains
to the extent permitted by applicable laws or regulations.
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 a
straight-line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shares bear all expenses and fees relating to
their respective distribution and service plans. Each class of shares sepa-
rately bears its respective class-specific transfer agency fees. Service
shares bear all expenses and fees paid to service organizations for their
services with respect to such shares.
H. Deferred Organization Expenses -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
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
15
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Notes to Financial Statements (continued)
January 31, 1999
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 orig-
inally paid.
J. Futures Contracts -- The Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
or to seek to increase total return.
Upon entering into a futures contract, the Fund is required to deposit with
a broker an amount of cash or securities equal to the minimum "initial mar-
gin" requirement of the associated futures exchange. Subsequent payments for
futures contracts ("variation margin") are paid or received by the Fund, de-
pending on the fluctuations in the value of the contracts, and are recorded
for financial reporting purposes as unrealized gains or losses. When con-
tracts 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
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), serves as the investment adviser to the Fund. Un-
der the Agreement, GSAMI, 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, GSAMI 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, 1999, the Manager agreed to waive $7,000 of
its management fee. The Manager may discontinue or modify this waiver in the
future at its discretion.
The adviser voluntarily agreed to limit certain "Other Expenses" (excluding
management fees, distribution, authorized dealer service fees, taxes, inter-
est, brokerage, litigation, Service share fees, indemnification costs and
other extraordinary expenses) to the extent such expenses exceeded .30% of
the average daily net assets of the Fund through August 31, 1998. Effective
September 1, 1998, this expense limitation was modified to .16% (excluding
management fees, distribution and service fees, transfer agent fees, taxes,
interest, brokerage, litigation, Service share fees, indemnification costs
and other extraordinary expenses). Goldman Sachs has reimbursed approximately
$372,000 for the period ended January 31, 1999.
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to a
Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $267,000 for the period ended
January 31, 1999.
Prior to September 1, 1998, the Trust, on behalf of the Fund, had adopted
Distribution Plans (the "Distribution Plans") pursuant to Rule 12b-1. Under
the Distribution Plans, Goldman Sachs was 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 attributable to Class A,
Class B and Class C shares, respectively.
16
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Prior to September 1, 1998, the Trust, on behalf of the Fund, had adopted
Authorized Dealer Service Plans (the "Dealer Service Plans") pursuant to
which Goldman Sachs and Authorized Dealers were compensated for providing
personal and account maintenance services. The Fund paid a fee under the
Dealer Service Plans equal, on an annual basis, up to .25% of its average
daily net assets attributable to Class A, Class B and Class C shares.
Effective September 1, 1998, the Distribution Plans and Dealer Service
Plans were combined into Distribution and Service Plans. Under the Distribu-
tion and Service Plans, Goldman Sachs and/or Authorized Dealers are entitled
to a monthly fee from the Fund for distribution and shareholder maintenance
services equal, on an annual basis, to .50%, 1.00%, and 1.00% of the Fund's
average daily net assets attributable to Class A, Class B and Class C shares,
respectively.
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Ef-
fective September 1, 1998, the fees charged for such transfer agency services
are calculated daily and payable monthly at an annual rate as follows: 0.19%
of average daily net assets for Class A, Class B and Class C shares and 0.04%
of average daily net assets for Institutional and Service shares.
The Trust, on behalf of the Fund, has adopted a Service Plan. This Plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who
are beneficial owners of such shares. The Service Plan provides for compensa-
tion to the service organizations in an amount up to .50% (on an annualized
basis), of the average daily net asset value of the Service shares.
As of January 31, 1999, the amounts owed to affiliates were approximately
$61,000, $11,000 and $10,000 for Management, Distribution and 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 period ended January 31, 1999, were
$96,589,042 and $32,089,898, respectively.
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, 1999, the Fund did not
have any borrowings under these facilities.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified $4,948
paid-in capital to accumulated distributions in excess of net investment loss
and $57,908 from accumulated net realized gain on investment, futures and
foreign currency related transactions to accumulated net investment loss.
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.
17
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Notes to Financial Statements (continued)
January 31, 1999
7. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended January 31, 1999 is as follows(a):
<TABLE>
<CAPTION>
Shares Dollars
--------------------------------------------------------------------
<S> <C> <C>
Class A Shares
Shares sold 3,789,828 $39,461,070
Shares repurchased (680,952) (6,496,553)
--------------------------
3,108,876 32,964,517
--------------------------------------------------------------------
Class B Shares
Shares sold 24,738 250,752
Shares repurchased (4,639) (43,306)
--------------------------
20,099 207,446
--------------------------------------------------------------------
Class C Shares
Shares sold 19,740 196,453
Shares repurchased (3,281) (32,610)
--------------------------
16,459 163,843
--------------------------------------------------------------------
Institutional Shares
Shares sold 4,172,165 41,833,210
Reinvestment of dividends and distributions 851 8,522
Shares repurchased (703,520) (7,414,800)
--------------------------
3,469,496 34,426,932
--------------------------------------------------------------------
Service Shares
Shares sold 161 1,594
--------------------------
161 1,594
--------------------------------------------------------------------
NET INCREASE 6,615,091 $67,764,332
--------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998.
18
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
8. OTHER MATTERS
As of January 31, 1999 the Goldman Sachs Growth and Income Strategy Portfo-
lio, the Goldman Sachs Growth Strategy Portfolio, the Goldman Sachs Aggres-
sive Growth Strategy Portfolio and the Goldman Sachs Group LP were the
beneficial owners of approximately 13%, 11%, 7% and 5% of the outstanding
shares of the Fund, respectively.
On January 1, 1999, the European Monetary Union "EMU" introduced a new sin-
gle currency, the euro, which will replace the national currencies of the
participating member countries. Until 2002, the national currencies will con-
tinue to exist, but exchange rates will be tied to the euro. The introduction
of the euro is likely to affect all stages of the investment process, includ-
ing trading, foreign exchange and accounting. Because this change to a single
currency is new, the introduction of the euro may result in market volatility
and may affect the business or financial conditions of European issuers or of
a Portfolio investing in European issuers. In addition, while the conversion
will eliminate currency risk among participating nations, currency risk be-
tween the euro and the U.S. dollar remains a factor.
Goldman Sachs International Small Cap Equity Fund -- Tax Information
(unaudited)
For its fiscal year ended January 31, 1999, the total amount of
income received by the Fund from sources within foreign countries
and possessions of the United States was $.0306 per share all of
which is attributable to qualified passive income. The total
amount of taxes paid by the Fund to such countries was less than
$.0039 per share. A separate notice containing the country by
country components of these totals has been previously mailed to
shareholders.
19
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Interna-
tional Small Cap Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs International Small Cap 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, 1999, and the related state-
ment of operations, the statement of changes in net assets and the financial
highlights for the period 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 audit.
We conducted our audit 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, 1999 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 audit provides 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 Small Cap Fund as of January 31, 1999,
the results of its operations, the changes in its net assets and the finan-
cial highlights for the period presented, in conformity with generally ac-
cepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 19, 1999
20
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs
International Small Cap Fund
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 Small Cap Fund provides investors
access to the benefits associated with international investing.
The Fund seeks long-term capital growth, primarily through
equity securities of smaller capitalization companies located
outside of the United States.
Target Your Needs
The Goldman Sachs International Small Cap Fund has a distinct
investment objective and a defined place on the risk/return
spectrum. As your investment objectives change, you can exchange
shares within Goldman Sachs Funds without any additional
charge./*/ (Please note: in general, greater returns are
associated with greater risk.)
Goldman Sachs Funds
Goldman Sachs Funds offers more
than 30 investment options for
global diversification across borders,
investment styles, asset classes and
security capitalizations.
INTERNATIONAL
EQUITY
[ ] Goldman Sachs
International
Small Cap
Fund
DOMESTIC
EQUITY
FIXED
INCOME
MONEY
MARKET
[RIGHT ARROW] Higher Risk/Return [LEFT ARROW] Lower Risk/Return
ASSET ALLOCATION
SPECIALTY
For More Information
To learn more about the Goldman Sachs International Small Cap
Fund and other Goldman Sachs Funds, call your investment
professional today.
/*/ The exchange privilege is subject to termination and its
terms are subject to change.
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 10004
TRUSTEES OFFICERS
Ashok N. Bakhru, Chairman Douglas C. Grip, President
David B. Ford Jesse H. Cole, Vice President
Douglas C. Grip James A. Fitzpatrick, Vice President
John P. McNulty Anne E. Marcel, Vice President
Mary P. McPherson Nancy L. Mucker, Vice President
Alan A. Shuch John M. Perlowski, Treasurer
Jackson W. Smart, Jr. Philip V. Giuca, Jr., Assistant Treasurer
William H. Springer Michael J. Richman, Secretary
Richard P. Strubel Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN, SACHS & CO.
Distributor and Transfer Agent
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Investment Adviser
GOLDMAN SACHS INTERNATIONAL
Peterborough Court, 133 Fleet Street
London EC4A 2BB, England
Visit our internet address: www.gs.com/funds
This material is not authorized for distribution to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
Asia Growth Fund's Emerging Markets Equity Fund's and International Equity
Fund's investment in securities of foreign issuers and foreign currencies
entails certain risks not customarily associated with investing in securities of
U.S. issuers quoted in U.S. dollars. In particular, the securities market of
emerging countries in which the Funds may invest without limit are less liquid,
are subject to greater price volatility, have smaller market capitalizations,
have problems with share registration and custody, have less government
regulation, and are not subject to as extensive and frequent accounting,
financial and other reporting requirements as the securities markets of more
developed countries.
Asia Growth Fund's Japanese Equity Fund's International Small Cap Equity Fund's
European Equity Fund's and CORE International Equity Fund's foreign investments
and active management techniques entail risks in addition to those customarily
associated with investing in dollar-denominated securities of U.S. issuers.
Compared with domestic securities markets, foreign markets may be less liquid,
more volatile and less subject to government regulation, and may make available
less public information about issuers. The Funds may incur losses because of
changes in securities prices expressed in local currencies, movements in
exchange rates or both. Concentration of the Japanese Equity and Asia Growth
Fund's assets in one or a few countries and currencies will subject the Fund to
greater risk than if a Fund's assets were not geographically concentrated.
The stocks of smaller companies are often associated with high risks, including
greater volatility, than stocks of larger companies.
An investment in a money market fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that any money market fund will be
able to maintain a net asset value of $1.00 per share.
Copyright 1999 Goldman, Sachs & Co. All rights reserved. DAte of first use:
March 31, 1999 INTLSMCAPAR/11K/3-99
