<PAGE>
Goldman Sachs Funds
- --------------------------------------------------------------------------------
International Equity Fund Annual Report January 31, 1999
- --------------------------------------------------------------------------------
Long-term capital growth potential
[ARTWORK APPEARS HERE]
through investments in equity markets
located around the world.
-------
Goldman
Sachs
-------
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY 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 Fluctuate 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,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Asset Management Goldman Sachs Asset Management
International International
February 26, 1999
- -------------------
. NOT FDIC INSURED
. May Lose Value
. No Bank Guarantee
- -------------------
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Fund Basics
as of January 31, 1999
Assets Under Management
$1.1 Billion
Number of Holdings
77
NASDAQ Symbols
Class A Shares
GSIFX
Class B Shares
GSEBX
Class C Shares
GSICX
Institutional Shares
GSIEX
Service Shares
GSISX
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
January 31, 1998- Fund Total Return FT/S&P Actuaries
January 31, 1999 (without sales charge)1 Europe and Pacific Index2
- --------------------------------------------------------------------------------
Class A 16.39% 13.39%
Class B 15.80% 13.39%
Class C 15.70% 13.39%
Institutional 17.09% 13.39%
Service 16.49% 13.39%
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
TOTAL RETURN (WITH SALES CHARGE)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period ended 12/31/98 Class A Class B Class C Institutional Service
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 6 Months3 -6.53% -6.28% -2.39% -0.76%5 -1.03%5
One Year4 11.50% 12.05% 16.23% 18.72%5 18.09%5
Five Years4 8.90% N/A N/A N/A 10.21%5
Since Inception4 10.82% 9.04% 5.11% 13.62%5 11.91%5,6
(12/1/92) (5/1/96) (8/15/97) (2/7/96) (12/1/92)
- ---------------------------------------------------------------------------------------------------
</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, the assumed deferred sales
charge for Class B shares (5% maximum declining to 1% in the sixth year),
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 December 31, 1998 was $22.81 and represents the NAV plus the
maximum sales charge of 5.5%.
4 The Average Annual Total Return (with sales charge) is determined by
computing the annual 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 sales
charges.
5 Cumulative or Average Annual Total Returns as of 12/31/98.
6 Performance data for Service shares prior to 3/6/96 is that of Class A
shares (excluding the impact of front-end sales charges applicable to Class
A shares since Service shares are not subject to any sales charges).
Performance of Class A shares of the International Equity Fund reflects the
expenses applicable to the Fund's Class A shares. The fees applicable to
Services shares are different from those applicable to Class A shares which
impact performance ratings and rankings for a class of shares.
- --------------------------------------------------------------------------------
TOP 5 COMPANY HOLDINGS AS OF 1/31/99
- --------------------------------------------------------------------------------
% of Total
Company Holding Net Assets Country Line of Business
- --------------------------------------------------------------------------------
Misys PLC 3.3% Britain Business Services
Bank of Ireland 3.0% Ireland Commercial Banks
Rentokil Initial PLC 3.0% Britain Business Services
VNU 2.6% Netherlands Media & Communications
Societe Generale 2.5% France Banking
- --------------------------------------------------------------------------------
The top 5 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 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, 1999.
Performance Review
Over the 12-month period ended January 31, 1999, the Fund's Class A, B, C,
Institutional and Service shares generated annual total returns, without
sales charges, of 16.39%, 15.80%, 15.70%, 17.09% and 16.49%, respectively.
These figures outperformed the 13.39% annualized return of the Fund's
benchmark, the FT/S&P-Actuaries Europe & Pacific Index (unhedged).
The Fund's strong performance versus the benchmark during the fiscal period
can be attributed primarily to successful stock selection across regions.
Portfolio Composition
Throughout the year, we favored Europe, given the region's encouraging
economic prospects and good level of earnings growth relative to other
regions. Moreover, valuations were not excessive, and Europe benefited from
a shareholder awareness trend and consolidation process not seen in other
regions. In Asia, we maintained an overweight position in the Australian
market and an underweight position in Japan, although the extent of this
underweight was reduced somewhat during the course of the year. In
Australia, our optimistic outlook was supported by, among other things,
robust economic growth and strong corporate earnings. In Japan, we were
concerned about the corporate earnings outlook and the health of the banking
industry, and saw very little progress toward economic reform. Additionally,
the trend toward shareholder awareness seen in other regions has not yet
emerged, and there is little in the way of corporate restructuring taking
place.
Portfolio Highlights
. TDK Corp. -- TDK, an electronics components manufacturer, outperformed the
TOPIX by 7% over the last year. While the company's traditional components
business is suffering from a weak audiovisual market on a global basis, the
company has the potential to capitalize on its competitiveness as a producer
of the next generation of hard-disk drive (HDD) heads, the demand for which
is increasing among HDD makers.
. TNT Post Group -- TNT Post Group, located in the Netherlands, is one
of the most efficient postal groups in the world. The company has been
proactive in reinvesting its strong cash flow back into the related and
synergistic business areas of express parcel delivery and logistics, thereby
positioning itself at the forefront of the postal services industry in the
run-up to European postal deregulation.
Key New Acquisitions
. Singapore Press Holdings Ltd. (SPH) -- SPH is the monopoly newspaper
operator in Singapore. This monopoly position has enabled SPH to enjoy
abnormally large operating margins over the years. The Asian downturn has
brought SPH's defensive qualities to the fore-- namely its ability to
generate strong cash flow and its rock-solid balance sheet.
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:
. Expected
Stock Returns
. Expected
Market Returns
. Earnings
Momentum
. Economic and
Political Risks
Quantitative
Research/Asset
Allocation Team
Proprietary
Models:
. Expected
Country Returns
. Regional
Optimization
Portfolio
Construction
. Risk Control BARRA
. Currency
Management
Optimal
Portfolio
. Kao Corp. -- Kao is the leading manufacturer of personal products, including
sanitary and cleansing goods. Kao's management announced a restructuring
plan that entailed exiting its loss-making recording media business and
reallocating its resources to its personal care business -- the company's
core domain -- in order to raise return on capital.
Portfolio Outlook
We believe that prospects for Europe's equity markets are bright. In
particular, the outlook for corporate earnings growth remains good,
especially in the telecommunications, media and business services sectors --
areas in which the Fund maintains substantial investment exposure. Moreover,
we see continued opportunities for industrial restructuring and
consolidation, which should be broadly supportive of valuations. We expect
that the recent advent of the euro will act as a catalyst that will
accelerate this trend. As a result, we intend to overweight Continental
Europe, which, from a research perspective, we increasingly view as a single
region. In comparison, the U.K. economy has slowed considerably, and our
expectations for earnings growth there are modest. We will remain
underweight in this market.
Since the outlook for corporate earnings in Japan remains uncertain, we
will maintain a cautious stance. We intend to overweight defensive stocks
that are expected to show resilient earnings over the next two years. We
also favor companies whose managers have announced credible business
restructuring plans to restore medium-term profitability. Although such
restructuring measures will likely depress short-term earnings, it is clear
that these steps have the potential to enhance the medium-term value of
these companies. It is also becoming evident that the deterioration in the
domestic economy seems to have slowed since late last year. As we gain a
clearer view on corporate earnings recovery next year, we will increase our
exposure to more economic-sensitive companies.
The economies of Australia and Asia (ex-Japan) are a mixed bag. Australia
continues to deliver strong economic growth, causing us to favor consumer
and financial stocks, while in Hong Kong we believe that asset prices and
employment have further to fall, and thus favor a more defensive portfolio.
In Singapore, our weightings in the transportation and banking sectors
reinforce our conviction that the economy will benefit from increased
intra-Asian trade and a recovery in selected regional economies. Overall,
however, we believe that bottom-up stock selectivity will become more
important in the coming year, since not all companies or sectors will
participate equally in an Asian economic recovery. To this end, we intend to
continue to focus on finding companies whose earnings are likely to grow
sharply as these economies recover.
We thank you for your investment and look forward to your continued
confidence.
Goldman Sachs International Equity Team
London, Tokyo, Singapore
February 26, 1999
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY 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?
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.
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.
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.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY 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%) in Class A shares on
December 1, 1992 (commencement of operations) of the Goldman Sachs Interna-
tional Equity Fund. For comparative purposes, the performance of the Fund's
benchmark (FT/S&P Euro-Pac Unhedged) and the FT/S&P Europac 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 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.
International Equity Fund's Lifetime Performance
Growth of a $10,000 Investment, Distributions Reinvested December 1, 1992 to
January 31, 1999
[GRAPHIC]
FT Euro-Pac Unit FT Euro-Pac Co Class A
---------------- ----------- ----------
12/1/92 10,000 10,000 9,450
Dec-92 10,054 10,057 9,547
1/93 10,055 10,063 9,567
Feb-93 10,401 10,256 9,780
Mar-93 11,342 10,861 9,827
Apr-93 12,441 11,542 9,800
May-93 12,790 11,635 9,980
Jun-93 12,458 11,550 10,000
7/93 13,028 12,079 10,347
Aug-93 13,680 12,578 10,827
Sep-93 13,301 12,223 10,580
Oct-93 13,621 12,734 11,020
Nov-93 12,377 11,676 10,820
Dec-93 13,226 12,599 11,527
1/94 14,399 13,498 12,067
Feb-94 14,422 13,186 11,947
Mar-94 13,871 12,519 11,273
Apr-94 14,439 12,878 11,567
May-94 14,388 12,994 11,187
Jun-94 14,613 12,664 10,720
7/94 14,725 12,857 10,987
Aug-94 15,041 13,113 11,240
Sep-94 14,588 12,718 11,080
Oct-94 15,081 13,148 11,167
Nov-94 14,309 12,475 10,613
Dec-94 14,434 12,584 10,736
1/95 13,903 12,121 10,058
Feb-95 13,774 12,008 10,203
Mar-95 14,644 12,767 10,785
Apr-95 15,219 13,268 11,173
May-95 15,003 13,079 11,117
Jun-95 14,703 12,818 11,394
7/95 15,858 13,651 11,817
Aug-95 15,046 13,117 11,734
Sep-95 15,317 13,353 12,253
Oct-95 14,917 13,005 12,032
Nov-95 15,362 13,392 12,108
Dec-95 15,972 13,924 12,769
1/96 16,042 13,988 12,942
Feb-96 16,079 14,018 13,318
Mar-96 16,416 14,311 13,807
Apr-96 16,963 14,788 14,229
May-96 16,658 14,520 14,372
Jun-96 16,749 14,602 14,522
7/98 16,228 14,147 14,214
Aug-96 16,277 14,190 14,214
Sep-96 16,714 14,572 14,522
Oct-96 16,517 14,440 14,432
Nov-96 17,150 14,951 15,019
Dec-96 16,899 14,733 15,163
1/97 16,244 14,161 14,691
Feb-97 16,530 14,410 15,034
Mar-97 16,522 14,404 15,262
Apr-97 16,596 14,468 15,361
May-97 17,781 15,501 16,311
Jun-97 18,705 16,307 17,079
7/97 18,960 16,529 17,748
Aug-97 17,532 15,284 16,319
Sep-97 18,451 16,085 17,239
Oct-97 17,061 14,874 15,999
Nov-97 18,807 14,652 15,756
Dec-97 16,861 14,699 15,840
1/98 17,667 15,402 16,326
Feb-98 18,796 16,386 17,493
Mar-98 19,326 16,848 18,522
Apr-98 19,531 17,027 18,785
5/98 19,489 16,991 19,221
6/98 19,515 17,013 18,892
7/98 19,640 17,122 18,892
8/98 17,218 15,011 16,786
9/98 16,757 14,608 16,178
10/98 18,541 16,164 16,885
11/98 19,557 17,050 17,773
12/98 20,256 17,659 18,689
1/99 20,172 17,586 19,001
<TABLE>
<CAPTION>
Average Annual Total Return through
January 31, 1999 Since Inception Five Years One Year
<S> <C> <C> <C>
Class A (commenced December 1, 1992)
Excluding sales charges 11.98% 9.50% 16.39%
Including sales charges 10.96% 8.27% 9.96%
-----------------------------------------------------------------------------
Class B (commenced May 1, 1996)
Excluding contingent deferred sales
charges 10.47% n/a 15.80%
Including contingent deferred sales
charges 9.41% n/a 10.53%
-----------------------------------------------------------------------------
Class C (commenced August 15, 1997)
Excluding contingent deferred sales
charges 5.96% n/a 15.70%
Including contingent deferred sales
charges 5.96% n/a 14.65%
-----------------------------------------------------------------------------
Institutional Class (commenced February
7, 1996) 13.86% n/a 17.09%
-----------------------------------------------------------------------------
Service Class (commenced March 6, 1996) 12.98% n/a 16.49%
-----------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Investments
January 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 93.9%
<C> <S> <C>
Australia - 3.0%
274,700 AMP Ltd.* (Electronics) $ 3,330,102
742,970 Australia & New Zealand Banking Group Ltd. (Banking) 4,897,355
129,100 Brambles Industries Ltd. (Transportation/Storage) 3,516,500
1,311,400 Fosters Brewing Group Ltd. (Alcohol) 3,856,738
239,647 Lend Lease Corp. (Financial Services) 3,177,722
321,970 Tab Corp Holdings Ltd. (Entertainment & Leisure) 2,293,222
714,700 Telstra Corp. (Utilities) 3,888,711
756,893 Westpac Banking Corp. (Banking) 5,243,186
1,175,923 Woolworths Ltd. (Retail) 4,102,577
------------
34,306,113
------------------------------------------------------------------------------
Britain - 15.7%
727,300 Glaxo Wellcome PLC (Pharmaceuticals) 24,500,910
1,151,671 Great Universal Stores PLC (Retail) 14,754,953
2,333,042 Hays PLC (Business Services) 23,036,930
3,621,339 Misys PLC (Business Services) 37,873,507
4,613,378 Rentokil Initial PLC (Business Services) 34,089,150
1,726,571 Select Appointments Holdings PLC (Business Services) 19,378,475
1,312,566 Vodafone Group PLC (Utilities) 25,597,072
------------
179,230,997
------------------------------------------------------------------------------
Denmark - 1.3%
208,172 ISS International Service System (Business Services) 14,801,220
------------------------------------------------------------------------------
France - 13.5%
155,911 Axa (Insurance) 22,650,225
186,255 Dexia France (Banking) 28,582,922
219,500 Elf Aquitaine (Oil & Gas) 23,803,883
160,010 Societe Generale (Banking) 28,738,833
233,990 ST Microelectronics* (Electronics) 24,497,504
90,632 Vivendi (Utilities) 26,518,870
------------
154,792,237
------------------------------------------------------------------------------
Germany - 0.8%
62,247 Mannesmann AG (Industrial Machinery) 8,802,453
------------------------------------------------------------------------------
Hong Kong - 2.0%
1,569,000 Cheung Kong Holdings Ltd. (Real Estate) 10,883,459
4,240,000 China Telecom Ltd.* (Telecommunications) 7,578,464
904,000 CLP Holdings Ltd. (Utilities) 4,106,546
------------
22,568,469
------------------------------------------------------------------------------
Ireland - 3.0%
1,548,366 Bank of Ireland (Banking) 34,762,070
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Italy - 2.8%
317,480 Arnoldo Mondadori Editore SpA (Utilities) $ 5,269,072
9,444,971 Seat Pagine Gialle SpA (Business Services) 8,589,256
2,743,240 Telecom Italia Mobile SpA (Utilities) 18,679,083
------------
32,537,411
-------------------------------------------------------------------------
Japan - 20.8%
250,959 Aderans Company Ltd. (Retail) 7,139,043
570,265 Canon Inc. (Computers/Office) 12,363,402
334,400 Circle K Japan Co. (Retail) 14,989,698
330,000 Fuji Photo Film Ltd. (Entertainment & Leisure) 12,203,784
252 Hoya Corp. (Electronics) 12,925
60,108 Inaba Denkisangyo (Electronics) 510,378
146,100 Ito En Ltd. (Food & Beverages) 7,128,365
611,000 Kao Corp. (Consumer Goods) 12,377,483
989,000 Kirin Brewery Ltd. (Alcohol) 12,012,421
560,497 Kokuyo Company Ltd. (Computers/Office) 8,455,409
305,776 Max Co. (Electronics) 2,965,372
243,750 Mirai Industry Company Ltd. (Electronics) 2,038,166
2,874,790 Mitsui Marine & Fire (Insurance) 14,868,962
957,000 NGK Insulators Ltd. (Diversified Industrial
Manufacturing) 11,376,259
140,142 Nintendo Company Ltd. (Entertainment & Leisure) 13,047,141
357 NTT Mobile Communications* (Utilities) 15,079,522
162,000 Rohm Co. (Electronics) 15,291,582
559,000 Sankyo Company Ltd. (Pharmaceuticals) 11,709,581
54 Shimachu Co. (Retail) 1,026
122,311 SMC Corp. (Machinery) 9,078,037
199,100 Takefuji Corp. (Financial Services) 13,696,116
179,037 TDK Corp. (Consumer Goods) 14,754,482
938,000 Toppan Forms Company Ltd. (Printing) 15,565,277
375,000 Yamanouchi Pharmaceutical (Pharmaceuticals) 11,475,798
------------
238,140,229
-------------------------------------------------------------------------
Netherlands - 11.1%
111,159 Aegon NV (Insurance) 12,219,010
297,627 Benckiser NV (Food & Grocery) 17,643,777
277,970 Fortis Netherlands (Insurance) 11,359,566
804,162 TNT Post Group NV (Business Services) 27,926,704
734,956 VNU (Media & Communications) 30,076,601
140,140 Wolters Kluwer NV (Media & Communications) 27,710,953
------------
126,936,611
-------------------------------------------------------------------------
</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>
Portugal - 1.6%
746,303 Electricidade de Portugal SA (Utilities) $ 18,239,737
---------------------------------------------------------------------------
Singapore - 0.7%
306,000 Singapore Airlines Ltd. (Airlines) 2,079,787
388,000 Singapore Press Holdings Ltd. (Media &
Communications) 4,402,837
256,000 United Overseas Bank (Banking) 1,528,132
--------------
8,010,756
---------------------------------------------------------------------------
Spain - 3.2%
993,332 Banco Santander SA (Banking) 19,195,890
383,097 Telefonica de Espana SA (Telecommunications) 17,528,277
--------------
36,724,167
---------------------------------------------------------------------------
Sweden - 7.2%
586,130 Ericsson Telecommunications (Telecommunications
Equipment) 15,877,348
957,612 ForeningsSparbanken AB (Banking) 25,448,459
1,518,455 Securitas AB (Business Services) 23,782,819
1,034,401 Skandia Forsakring (Insurance) 16,865,306
--------------
81,973,932
---------------------------------------------------------------------------
Switzerland - 7.2%
42,840 Adecco SA (Business Services) 20,310,634
11,601 Nestle SA (Food & Beverages) 21,270,822
11,852 Novartis AG (Pharmaceuticals) 22,241,865
55,684 UBS AG (Banking) 18,059,038
--------------
81,882,359
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $900,311,351) $1,073,708,761
---------------------------------------------------------------------------
Preferred Stocks - 1.6%
Germany - 1.6%
258,964 Henkel KGAA--Vorzug, Non Voting (Chemical
Products) $ 17,809,824
---------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $18,609,958) $ 17,809,824
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligation - 3.6%
<S> <C> <C> <C>
State Street Bank & Trust Euro-Time Deposit(a)
$41,275,893 4.75% 02/01/1999 $ 41,275,893
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $41,275,893) $ 41,275,893
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $960,197,202)(b) $1,132,794,478
----------------------------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $211,809,772
Gross unrealized loss for investments in
which cost exceeds value (41,705,368)
----------------------------------------------------------------------------------------------
Net unrealized gain $170,104,404
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) Portions of this security are being segregated for when-issued
securities.
(b) The aggregate cost for federal income tax purposes is $962,690,074.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
<TABLE>
<CAPTION>
As a % of total
net assets
<S> <C>
Common and Preferred Stock Industry Classifications
Airlines 0.2%
Alcohol 1.4
Banking 14.5
Business Services 18.3
Chemical Products 1.6
Computers/Office 1.8
Consumer Goods 2.4
Diversified Industrial Manu-
facturing 1.0
Electronics 4.3
Entertainment & Leisure 2.4
Financial Services 1.5
Food & Beverages 4.0
Industrial Machinery 0.8
Insurance 6.8
Machinery 0.8
Media & Communications 5.4
Oil & Gas 2.1
Pharmaceuticals 6.1
Printing 1.4
Real Estate 1.0
Retail 3.6
Telecommunications 2.2
Telecommunications Equipment 1.4
Transportation/ Storage 0.3
Utilities 10.2
-----------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 95.5%
-----------------------------------------------------------
</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, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$960,197,202) $1,132,794,478
Cash, at value 157,923
Receivables:
Investment securities sold, at value 1,053,414
Dividends and interest, at value 1,219,780
Fund shares sold 14,109,109
Forward foreign currency exchange contracts, at value 771,471
Reimbursement from investment adviser 194,516
Other assets, at value 6,954
-----------------------------------------------------------------------------
Total assets 1,150,307,645
-----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities, at value 749,525
Fund shares repurchased 1,959,502
Amounts owed to affiliates 1,571,286
Forward foreign currency exchange contracts, at value 1,978,326
Accrued expenses and other liabilities 343,447
-----------------------------------------------------------------------------
Total liabilities 6,602,086
-----------------------------------------------------------------------------
Net Assets:
Paid-in capital 949,639,943
Accumulated undistributed net investment income 1,040,126
Accumulated net realized gain on investment, options,
futures and foreign currency related transactions 20,936,494
Net unrealized gain on investments and translation of
assets and liabilities denominated in foreign currencies 172,088,996
-----------------------------------------------------------------------------
NET ASSETS $1,143,705,559
-----------------------------------------------------------------------------
</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) $21.92 $21.63 $21.45
Net asset value, offering and redemption price
per share(a) 43,237,037 3,201,016 541,619
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Institutional Service
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) $22.20 $21.93
Net asset value, offering and redemption price per
share 5,014,842 162,658
--------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $23.20 (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.
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, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 12,034,000
Interest 2,132,238
-----------------------------------------------------------------------------
Total income 14,166,238
-----------------------------------------------------------------------------
Expenses:
Management fees 9,814,989
Distribution and service fees(b) 4,818,533
Custodian fees 1,336,913
Transfer agent fees 1,292,384
Registration fees 149,542
Professional fees 86,504
Trustee fees 6,484
Service share fees 17,786
Other 223,566
-----------------------------------------------------------------------------
Total expenses 17,746,701
-----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (866,057)
-----------------------------------------------------------------------------
Net expenses 16,880,644
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (2,714,406)
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 100,688,605
Foreign currency related transactions (4,684,591)
Net change in unrealized gain on:
Investments 54,085,243
Translation of assets and liabilities denominated in foreign
currencies 1,193,040
-----------------------------------------------------------------------------
Net realized and unrealized gain on investment and foreign
currency transactions 151,282,297
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 148,567,891
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $1,720,402.
(b) Class A, Class B and Class C had distribution and service fees of
$4,090,492, $653,844 and $74,197, respectively.
The accompanying notes are an integral part of these financial statements. 9
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Year Ended
January 31, 1999
<S> <C>
From operations:
Net investment loss $ (2,714,406)
Net realized gain on investment and foreign currency re-
lated transactions 96,004,014
Net change in unrealized gain (loss) on investments and
translation of assets and liabilities denominated in
foreign currencies 55,278,283
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations 148,567,891
-----------------------------------------------------------------------------
Distributions to shareholders:
From net realized gain on investment and foreign currency
transactions
Class A shares (41,132,351)
Class B shares (3,418,683)
Class C shares (556,864)
Institutional shares (4,927,209)
Service shares (179,258)
-----------------------------------------------------------------------------
Total distributions to shareholders (50,214,365)
-----------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 2,171,378,743
Reinvestment of dividends and distributions 40,976,198
Cost of shares repurchased (1,982,583,097)
-----------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 229,771,844
-----------------------------------------------------------------------------
TOTAL INCREASE 328,125,370
-----------------------------------------------------------------------------
Net assets:
Beginning of year 815,580,189
-----------------------------------------------------------------------------
End of year $ 1,143,705,559
-----------------------------------------------------------------------------
Accumulated undistributed net investment income $ 1,040,126
-----------------------------------------------------------------------------
</TABLE>
10 The accompanying notes are an integral part of these financial statements.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Year Ended
January 31, 1998
<S> <C> <C>
From operations:
Net investment loss $ (1,986,413)
Net realized gain on investment and foreign currency
related transactions 32,896,260
Net change in unrealized gain on investments and
translation of assets and liabilities denominated in
foreign currencies 36,728,856
----------------------------------------------------------------------------
Net increase in net assets resulting from operations 67,638,703
----------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Institutional shares (161,909)
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 (40,344,062)
Class B shares (3,203,154)
Class C shares (189,719)
Institutional shares (3,140,681)
Service shares (163,043)
----------------------------------------------------------------------------
Total distributions to shareholders (58,566,864)
----------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 529,546,180
Reinvestment of dividends and distributions 50,151,260
Cost of shares repurchased (397,718,119)
----------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 181,979,321
----------------------------------------------------------------------------
TOTAL INCREASE 191,051,160
----------------------------------------------------------------------------
Net assets:
Beginning of year 624,529,029
----------------------------------------------------------------------------
End of year $ 815,580,189
----------------------------------------------------------------------------
Accumulated undistributed net investment income $ 772,084
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(d) Distributions to shareholders
--------------------------- --------------------------------------
Net realized
and unrealized From net
gain (loss) on realized gain
Net asset Net investments and In excess on investment
value, investment foreign From net of net and foreign
beginning income currency related investment investment currency related
of period (loss) transactions income income transactions
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $19.85 $(0.06) $3.24 $ -- $ -- $(1.11)
1999 - Class B Shares 19.70 (0.17) 3.21 -- -- (1.11)
1999 - Class C Shares 19.56 (0.15) 3.15 -- -- (1.11)
1999 - Institutional
Shares 19.97 0.03 3.31 -- -- (1.11)
1999 - Service Shares 19.84 (0.04) 3.24 -- -- (1.11)
-------------------------------------------------------------------------------------------------------
1998 - Class A Shares 19.32 0.03 2.04 -- (0.30) (1.24)
1998 - Class B Shares 19.24 (0.08) 2.02 -- (0.25) (1.23)
1998 - Class C Shares
(commenced August 15,
1997) 22.60 (0.04) (1.38) -- (0.38) (1.24)
1998 - Institutional
Shares 19.40 0.10 2.11 (0.07) (0.33) (1.24)
1998 - Service Shares 19.34 0.02 2.06 -- (0.35) (1.23)
-------------------------------------------------------------------------------------------------------
1997 - Class A Shares 17.20 0.10 2.23 -- -- (0.21)
1997 - Class B Shares
(commenced May 1, 1996) 18.91 (0.06) 0.60 -- -- (0.21)
1997 - Institutional
Shares (commenced Febru-
ary 7, 1996) 17.45 0.04 2.15 (0.03) -- (0.21)
1997 - Service Shares
(commenced March 6,
1996) 17.70 (0.02) 1.87 -- -- (0.21)
-------------------------------------------------------------------------------------------------------
1996 - Class A Shares 14.52 0.13 4.00 (0.58) -- (0.87)
-------------------------------------------------------------------------------------------------------
1995 - Class A Shares 18.10 0.06 (3.05) -- -- (0.59)
-------------------------------------------------------------------------------------------------------
</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.
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of
Net increase Net assets Ratio of net investment
(decrease) Net asset at end of net expenses income (loss) to
in net asset value, end Total period to average average net
value of period return(a) (in 000s) net assets assets
<S> <C> <C> <C> <C> <C>
$2.07 $21.92 16.39% $947,973 1.73% (0.28)%
1.93 21.63 15.80 69,231 2.24 (0.79)
1.89 21.45 15.70 11,619 2.24 (0.98)
2.23 22.20 17.09 111,315 1.13 0.23
2.09 21.93 16.49 3,568 1.63 (0.18)
- ------------------------------------------------------------------------------
0.53 19.85 11.12 697,590 1.67 (0.27)
0.46 19.70 10.51 55,324 2.20 (0.90)
(3.04) 19.56 (5.92)(c) 3,369 2.27(b) (1.43)(b)
0.57 19.97 11.82 56,263 1.08 0.30
0.50 19.84 11.25 3,035 1.55 (0.36)
- ------------------------------------------------------------------------------
2.12 19.32 13.48 536,283 1.69 (0.07)
0.33 19.24 2.83(c) 19,198 2.23(b) (0.97)(b)
1.95 19.40 12.53(c) 68,374 1.10(b) 0.43(b)
1.64 19.34 10.42(c) 674 1.60(b) (0.40)(b)
- ------------------------------------------------------------------------------
2.68 17.20 28.68 330,860 1.52 0.26
- ------------------------------------------------------------------------------
(3.58) 14.52 (16.65) 275,086 1.73 0.40
- ------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net increase Ratio of net investment
(decrease) expenses to income (loss) to Portfolio
in net asset average net average net turnover
value assets assets rate
<S> <C> <C> <C>
$2.07 1.82% (0.37)% 113.79%
1.93 2.32 (0.87) 113.79
1.89 2.32 (1.06) 113.79
2.23 1.21 0.15 113.79
2.09 1.71 (0.26) 113.79
- ------------------------------------------------------------------------------
0.53 1.80 (0.40) 40.82
0.46 2.30 (1.00) 40.82
(3.04) 2.37(b) (1.53)(b) 40.82
0.57 1.18 0.20 40.82
0.50 1.65 (0.46) 40.82
- ------------------------------------------------------------------------------
2.12 1.88 (0.26) 38.01
0.33 2.38(b) (1.12)(b) 38.01
1.95 1.25(b) 0.28(b) 38.01
1.64 1.75(b) (0.55)(b) 38.01
- ------------------------------------------------------------------------------
2.68 1.77 0.01 68.48
- ------------------------------------------------------------------------------
(3.58) 1.98 0.15 84.54
- ------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY 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
Equity Fund (the "Fund"). At January 31, 1999, the Fund offered five classes
of shares -- Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts. Certain
reclassifications have been made to the prior period amounts to conform with
the current period presentation. Such reclassifications have no effect on
previously reported net asset values of the Fund.
A. Investment Valuation -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded.
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 realizes gains or losses at the time a
forward contract is offset by entry into a closing transaction or extin-
guished by delivery of the currency. Risks may arise
14
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
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 report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of the Fund's distributions may be shown in the accompanying fi-
nancial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital, de-
pending 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. 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
the distribution and authorized dealer service plans. Each class of shares
separately 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. 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, 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
15
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1999
("variation margin") are paid or received by the Fund, depending on the fluc-
tuations in the value of the contracts, and are recorded for financial re-
porting purposes 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-
tracts may not directly correlate with changes in the value of the underlying
securities. This risk may decrease the effectiveness of the Fund's hedging
strategies and potentially result in a loss.
3. AGREEMENTS
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 1.00% of the average daily net assets of the Fund.
For the year ended January 31, 1999 the Manager has agreed to waive $572,000
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 and service fees, transfer agent fees, taxes,
interest, brokerage, litigation, Service share fees, indemnification costs
and other extraordinary expenses) to the extent such expenses exceeded .20%
of the average daily net assets of the Fund through August 31, 1998. Effec-
tive September 1, 1998, this expense limitation was modified to .10%. Goldman
Sachs has reimbursed approximately $236,000 for the year 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 $1,227,000 for the year 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. For the year ended January 31,
1999, the Distributor has voluntarily agreed to waive approximately $58,000
of 12b-1 fees attributable to the Class A shares.
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 each 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 agent 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
16
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
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
$944,000, $459,000 and $168,000 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 year ended January 31, 1999, were
$1,222,844,892 and $1,075,718,635, respectively.
At January 31, 1999, the Fund had the following outstanding forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
Value on
Foreign Currency Settlement Current Unrealized
Sale Contracts Date Value Gain (Loss)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Swiss Franc
expiring 2/17/99 $25,008,869 $24,426,441 $ 582,428
-------------------------------------------------------------------------------
British Pound
expiring 3/26/99 13,029,169 12,958,032 71,137
-------------------------------------------------------------------------------
Hong Kong Dollar
expiring 12/8/99 19,735,847 19,814,992 (79,145)
-------------------------------------------------------------------------------
Japanese Yen
expiring 3/4/99 13,188,795 13,592,972 (404,177)
-------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CONTRACTS $70,962,680 $70,792,437 $ 170,243
-------------------------------------------------------------------------------
<CAPTION>
Value on
Foreign Currency Settlement Current Unrealized
Purchase Contracts Date Value Gain (Loss)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Euro
expiring 2/17/99 $24,653,941 $24,065,558 $(588,383)
expiring 3/26/99 11,177,703 10,960,933 (216,770)
-------------------------------------------------------------------------------
Japanese Yen
expiring 2/10/99 13,439,120 13,557,026 117,906
-------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY PURCHASE CONTRACTS $49,270,764 $48,583,517 $(687,247)
-------------------------------------------------------------------------------
</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,
1999, 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 sold" and "Payable for forward foreign currency exchange contracts
purchased" of $771,471 ($771,471 of unrealized gains relating to open forward
foreign currency exchange contracts as detailed in the table above) and
$1,978,326 (comprised of $689,851 of realized losses relating to forward for-
eign currency exchange contracts closed but not settled as of January 31,
1999 and $1,288,475 of unrealized losses relating to open forward foreign
currency exchange contracts as detailed in the table above), respectively, in
the accompanying Statement of Assets and Liabilities.
17
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1999
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, 1999, the Fund did not have
any borrowings under these facilities.
6. OTHER MATTERS
On January 1, 1999, the European Monetary Union "EMU" introduced a new single
currency, the euro, which will replace the national currencies of the partic-
ipating member countries. Until 2002, the national currencies will continue
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, including
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.
7. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified
$5,742,455 from paid-in capital to accumulated undistributed net investment
income and $2,760,007 from undistributed net investment income to accumulated
net realized gain on investment, option, futures and foreign currency related
transactions. 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.
Goldman Sachs International Equity Fund -- Tax Information (unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$50,214,235 as capital gain dividends for its year ended January 31, 1999.
18
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
8. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended:
<TABLE>
<CAPTION>
January 31, 1999 January 31, 1998
---------------------------- --------------------------
Shares Dollars Shares Dollars
- ----------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 90,785,418 $ 1,949,815,404 21,390,200 $ 449,374,247
Reinvestments of divi-
dends and distributions 1,669,818 34,480,481 2,340,540 44,048,417
Shares repurchased (84,367,795) (1,819,683,956) (16,346,724) (341,975,833)
---------------------------- --------------------------
8,087,441 164,611,929 7,384,016 151,446,831
===================================================== ==========================
Class B Shares
Shares sold 794,593 17,488,784 1,885,737 40,135,556
Reinvestments of divi-
dends and distributions 156,073 3,180,373 191,836 3,585,408
Shares repurchased (557,697) (11,834,003) (267,333) (5,559,324)
---------------------------- --------------------------
392,969 8,835,154 1,810,240 38,161,640
===================================================== ==========================
Class C Shares
Shares sold 6,644,608 139,922,460 196,809 4,156,146
Reinvestments of divi-
dends and distributions 19,517 394,623 10,477 194,343
Shares repurchased (6,294,716) (133,220,855) (35,076) (669,597)
---------------------------- --------------------------
369,409 7,096,228 172,210 3,680,892
===================================================== ==========================
Institutional Shares
Shares sold 2,805,737 62,386,145 1,616,872 33,368,427
Reinvestments of divi-
dends and distributions 131,238 2,741,464 110,699 2,113,646
Shares repurchased (740,110) (16,145,728) (2,433,763) (49,275,451)
---------------------------- --------------------------
2,196,865 48,981,881 (706,192) (13,793,378)
===================================================== ==========================
Service Shares
Shares sold 78,227 1,765,950 118,403 2,511,804
Reinvestments of divi-
dends and distributions 8,677 179,257 11,141 209,446
Shares repurchased (77,199) (1,698,555) (11,421) (237,914)
---------------------------- --------------------------
9,705 246,652 118,123 2,483,336
===================================================== ==========================
NET INCREASE 11,056,389 $ 229,771,844 8,778,397 $ 181,979,321
===================================================== ==========================
</TABLE>
19
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Interna-
tional 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, 1999, and the related state-
ment of operations, the statements 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, 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 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, 1999, 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 19, 1999
20
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY 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 Fluctuate 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,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Asset Management Goldman Sachs Asset Management
International International
February 26, 1999
- -------------------
. NOT FDIC INSURED
. May Lose Value
. No Bank Guarantee
- -------------------
<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 higher risks,
including greater volatility, than stocks of larger companies.
An investment in a money market fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that any money market fund will be
able to maintain a net asset value of $1.00 per share.
Copyright 1999 Goldman, Sachs & Co. All rights reserved. Date of first use:
March 31, 1999 INTLAR / 74K / 3-99
