<PAGE>
As filed with the Securities and Exchange Commission on November 22, 1999
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 58( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 60( X )
(Check appropriate box or boxes)
__________
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-993-4400
____________
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Jeffrey A. Dalke, Esq.
85 Broad Street - 12th Floor Drinker Biddle & Reath LLP
New York, New York 10004 One Logan Square
18th and Cherry Streets
(Name and address of agent for service) Philadelphia, PA 19103
1
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
(X) On November 30, 1999 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
2
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GOLDMAN SACHS DOMESTIC EQUITY FUNDS
Prospectus
Class A, B
and C Shares
November 30, 1999
..Goldman Sachs
Balanced Fund
..Goldman Sachs
Growth and
Income Fund
..Goldman Sachs
CORE SM Large
Cap Value Fund
..Goldman Sachs
CORE SM U.S.
Equity Fund
..Goldman Sachs
CORE SM Large
Cap Growth
Fund
..Goldman Sachs
CORE SM Small
Cap Equity
Fund
..Goldman Sachs
Capital Growth
Fund
..Goldman Sachs
Strategic
Growth Fund
..Goldman Sachs
Growth
Opportunities
Fund
..Goldman Sachs
Mid Cap Value
Fund (formerly
"Mid Cap
Equity")
..Goldman Sachs
Small Cap
Value Fund
..Goldman Sachs
Large Cap
Value Fund
[LOGO OF GOLDMAN SACHS]
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
[ART]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the Balanced, Growth and Income, CORE Large Cap Value, CORE Large Cap
Growth, CORE Small Cap Equity, Strategic Growth, Growth Opportunities, Mid
Cap Value, Small Cap Value and Large Cap Value Funds. Goldman Sachs Funds
Management, L.P. serves as investment adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Asset Management and Goldman Sachs Funds
Management, L.P. are each referred to in this Prospectus as the "Investment
Adviser."
VALUE STYLE FUNDS
Goldman Sachs' Value Investment Philosophy:
Through intensive, hands-on research our portfolio team seeks to identify:
1. Attractive valuation opportunities where:
..The intrinsic value of the business is not reflected in the stock price
..The stock price is overdiscounted due to a temporary event
2. Well-positioned businesses that have:
..Attractive returns on capital
..Sustainable earnings and cash flow
..Strong company management focused on long-term returns to shareholders
Business quality, conservative valuation, and thoughtful portfolio construc-
tion are the key elements of our value approach.
- --------------------------------------------------------------------------------
GROWTH STYLE FUNDS
Goldman Sachs' Growth Investment Philosophy:
1. Invest as if buying the company/business, not simply trading its stock:
..Understand the business, management, products and competition.
..Perform intensive, hands-on fundamental research.
..Seek businesses with strategic competitive advantages.
..Over the long-term, expect each company's stock price ultimately to track
the growth in the value of the business.
1
<PAGE>
2. Buy high-quality growth businesses that possess strong business fran-
chises, favorable long-term prospects and excellent management.
3. Purchase superior long-term growth companies at a favorable price--seek
to purchase at a fair valuation, giving the investor the potential to
fully capture returns from above-average growth rates.
Growth companies have earnings expectations that exceed those of the stock
market as a whole.
- --------------------------------------------------------------------------------
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two build-
ing blocks of active management: stock selection and portfolio construction.
I. CORE Stock Selection
The CORE Funds use the Goldman Sachs' proprietary multifactor model
("Multifactor Model"), a rigorous computerized rating system, to forecast
the returns of securities held in each Fund's portfolio. The Multifactor
Model incorporates common variables covering measures of:
..Value (price-to-book, price-to-earnings, cash flow to enterprise value)
..Momentum (earnings momentum, price momentum, sustainable growth)
..Risk (market risk, company-specific risk, earnings risk)
..Research (fundamental research ratings of Goldman Sachs and other analysts)
All of the above factors are carefully evaluated within the Multifactor
Model since each has demonstrated a significant impact on the performance of
the securities and markets they were designed to forecast. Stock selection
in this process combines both our quantitative and qualitative analysis.
II. CORE Portfolio Construction
A proprietary computer optimizer calculates every security combination (at
every possible weighting) to construct the most efficient risk/return port-
folio given each CORE Fund benchmark. In this process, the Investment
Adviser manages risk by limiting deviations from the benchmark, running size
and sector neutral portfolios.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good founda-
tions on which to build a portfolio.
- --------------------------------------------------------------------------------
2
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Fund Investment Objectives and Strategies
Goldman Sachs
Balanced Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and current income
Benchmarks: S&P 500 Index and Lehman Brothers Aggregate Bond Index
Investment Focus: Large capitalization U.S. stocks and fixed-income securi-
ties
Investment Style: Asset Allocation, with growth and value (blend) equity
components
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital and current income.
The Fund seeks growth of capital primarily through investments in equity
securities (stocks). The Fund seeks to provide current income through
investment in fixed-income securities (bonds).
PRINCIPAL INVESTMENT STRATEGIES
Historically, stock and bond markets have often had different cycles, with
one asset class rising when the other is falling. A balanced objective seeks
to reduce the volatility associated with investing in a single market. There
is no guarantee, however, that market cycles will move in opposition to one
another or that a balanced investment program will successfully reduce vola-
tility.
The percentage of the portfolio invested in equity and fixed-income securi-
ties will vary from time to time as the Investment Adviser evaluates such
securities' relative attractiveness based on market valuations, economic
growth and inflation prospects. The allocation between equity and fixed-
income securities is subject to the Fund's intention to pay regular quar-
terly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and
the percentage of the Fund's assets invested in fixed-income securities.
3
<PAGE>
Equity Securities. The Fund invests, under normal circumstances, between 45%
and 65% of its total assets in equity securities. Although the Fund's equity
investments consist primarily of publicly traded U.S. securities, the Fund
may invest up to 10% of its total assets in the equity securities of foreign
issuers, including issuers in countries with emerging markets or economies
("emerging countries") and equity securities quoted in foreign currencies. A
portion of the Fund's portfolio of equity securities may be selected primar-
ily to provide current income (including interests in real estate investment
trusts ("REITs"), convertible securities, preferred stocks, utility stocks,
and interests in limited partnerships).
Fixed Income Securities. The Fund invests at least 25% of its total assets
in fixed-income senior securities. The remainder of the Fund's assets are
invested in other fixed-income securities and cash.
The Fund's fixed-income securities primarily include:
..Securities issued by the U.S. government, its agencies, instrumentalities
or sponsored enterprises
..Securities issued by corporations, banks and other issuers
..Mortgage-backed and asset-backed securities
The Fund may also invest up to 10% of its total assets in debt obligations
(U.S. dollar and non-U.S.-dollar denominated) issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities and foreign corporations or other entities. The issuers of
these securities may be located in emerging countries.
4
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FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Growth and Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and growth of income
Benchmark: S&P 500 Index
Investment Focus: Large capitalization U.S. equity securities with an
emphasis on undervalued stocks
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and growth of income.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or divi-
dend-paying ability. Although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations,
that offer the potential to further the Fund's investment objective.
5
<PAGE>
Goldman Sachs
CORE Large Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: Russell 1000 Value Index
Investment Focus: Diversified portfolio of equity securities of large-cap
U.S. issuers selling at low to modest valuations
Investment Style: Quantitative, applied to large-cap value stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of equity secu-
rities of large-cap U.S. issuers that are selling at low to modest valua-
tions relative to general market measures, such as earnings, book value and
other fundamental accounting measures, and that are expected to have favora-
ble prospects for capital appreciation and/or dividend-paying ability.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and low
to moderate valuations as measured by price/earnings ratios, book value and
other fundamental accounting measures.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
CORE U.S. Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities
Investment Style: Quantitative, applied to large-cap
growth and value (blend) stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of large-cap
and blue chip equity securities representing all major sectors of the U.S.
economy.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad repre-
sentation in most major sectors of the U.S. economy and a portfolio com-
prised of companies with average long-term earnings growth expectations and
dividend yields.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
7
<PAGE>
Goldman Sachs
CORE Large Cap Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital; dividend income is a
secondary consideration
Benchmark: Russell 1000 Growth Index
Investment Focus: Large-cap, growth-oriented U.S. stocks
Investment Style: Quantitative, applied to large-cap growth stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
U.S. issuers that are expected to have better prospects for earnings growth
than the growth rate of the general domestic economy. Dividend income is a
secondary consideration.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Investment Adviser emphasizes a company's growth prospects in analyzing
equity securities to be purchased by the Fund. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintain-
ing risk, style, capitalization and industry characteristics similar to the
Russell 1000 Growth Index. The Fund seeks a portfolio comprised of companies
with above average capitalizations and earnings growth expectations and
below average dividend yields.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
CORE Small Cap Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: Russell 2000 Index
Investment Focus: Stocks of small capitalization U.S. companies
Investment Style: Quantitative, applied to small-cap
growth and value (blend) stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of U.S. issuers
which are included in the Russell 2000 Index at the time of investment.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfo-
lio comprised of companies with small market capitalizations, strong
expected earnings growth and momentum, and better valuation and risk charac-
teristics than the Russell 2000 Index. If the issuer of a portfolio security
held by the Fund is no longer included in the Russell 2000 Index, the Fund
may, but is not required to, sell the security.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
9
<PAGE>
Goldman Sachs
Capital Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities that offer long-term
capital appreciation potential
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to have long-term capi-
tal appreciation potential. Although the Fund invests primarily in publicly
traded U.S. securities, it may invest up to 10% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Strategic Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities that are considered to
be strategically positioned for consistent long-term
growth
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to be strategically
positioned for consistent long-term growth. Although the Fund invests pri-
marily in publicly traded U.S. securities, it may invest up to 10% of its
total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies.
11
<PAGE>
Goldman Sachs
Growth Opportunities Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P Midcap 400 Index
Investment Focus: U.S. equity securities that offer long-term capital
appreciation with a primary focus on mid-capitalization
companies
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities with a primary focus on mid-cap
companies. The Fund seeks to achieve its investment objective by investing
in a diversified portfolio of equity securities that are considered by the
Investment Adviser to be strategically positioned for long-term growth.
Although the Fund invests primarily in publicly traded U.S. securities, it
may invest up to 10% of its total assets in foreign securities, including
securities of issuers in emerging countries and securities quoted in foreign
currencies.
12
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Mid Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: Russell Midcap Value Index
Investment Focus: Mid-capitalization U.S. stocks that are believed
to be undervalued or undiscovered by the marketplace
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all of its assets in equity securities and at least 65% of its total
assets in equity securities of mid-cap companies with public stock market
capitalizations (based upon shares available for trading on an unrestricted
basis) within the range of the market capitalization of companies constitut-
ing the Russell Midcap Value Index at the time of investment (currently
between $300 million and $15 billion). If the capitalization of an issuer
decreases below $300 million or increases above $15 billion after purchase,
the Fund may, but is not required to, sell the securities. Dividend income,
if any, is an incidental consideration. Although the Fund will invest pri-
marily in publicly traded U.S. securities, it may invest up to 25% of its
total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations.
13
<PAGE>
Goldman Sachs
Small Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: Russell 2000 Value Index
Investment Focus: Small-capitalization U.S. stocks that are believed to be
undervalued or undiscovered by the marketplace
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
65% of its total assets in equity securities of companies with public stock
market capitalizations of $1 billion or less at the time of investment.
Under normal circumstances, the Fund's investment horizon for ownership of
stocks will be two to three years. Dividend income, if any, is an incidental
consideration. If the market capitalization of a company held by the Fund
increases above $1 billion, the Fund may, consistent with its investment
objective, continue to hold the security.
The Fund invests in companies which the Investment Adviser believes are
well- managed niche businesses that have the potential to achieve high or
improving returns on capital and/or above average sustainable growth. The
Fund may invest in securities of small market capitalization companies which
may have experienced financial difficulties. Investments may also be made in
companies that are in the early stages of their life and that the Investment
Adviser believes have significant growth potential. The Investment Adviser
believes that the companies in which the Fund may invest offer greater
opportunity for growth of capital than larger, more mature, better known
companies. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 25% of its total assets in foreign securi-
ties, including securities of issuers in emerging countries and securities
quoted in foreign currencies.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
companies with public stock market capitalizations in excess of $1 billion
at the time of investment and in fixed-income securities, such as govern-
ment, corporate and bank debt obligations.
14
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Large Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: Russell 1000 Value Index
Investment Focus: Large capitalization U.S. equity securities that are
believed to be undervalued
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks its investment
objective by investing in value opportunities that the Investment Adviser
defines as companies with identifiable competitive advantages whose intrin-
sic value is not reflected in the stock price. Although the Fund will invest
primarily in publicly traded U.S. securities, it may invest up to 25% of its
total assets in foreign securities, including securities quoted in foreign
currencies.
Other. The Fund may invest up to 10% of its total assets in fixed-income
securities, such as government, corporate and bank debt obligations.
15
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Fund's annual/semi-annual reports. For more information see Appendix
A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No specific percentage
limitation on
usage;limited only by
the objectives and
strategies of the Fund
<TABLE>
<CAPTION>
Growth CORE CORE
Balanced and Income Large Cap U.S. Equity
Fund Fund Value Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3
Credit, currency, index, interest
rate and mortgage swaps* 15 -- -- --
Cross Hedging of Currencies . -- -- --
Custodial receipts . . . .
Equity Swaps* 15 15 15 15
Foreign Currency Transactions** ./1/ . . .
Futures Contracts and Options on
Futures Contracts . . ./2/ ./3/
Interest rate caps, floors and
collars . -- -- --
Investment Company Securities
(including World Equity Benchmark
Shares and Standard & Poor's
Depository Receipts) 10 10 10 10
Loan Participations . -- -- --
Mortgage Dollar Rolls . -- -- --
Options on Foreign Currencies/4/ . . . .
Options on Securities and
Securities Indices/5/ . . . .
Repurchase Agreements . . . .
Reverse Repurchase Agreements (for
investment purposes) . -- -- --
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3
Short Sales Against the Box 25 25 -- --
Unseasoned Companies . . . .
Warrants and Stock Purchase Rights . . . .
When-Issued Securities and Forward
Commitments . . . .
- ------------------------------------------------------------------------------
</TABLE>
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** Limited by the amount the Fund invests in foreign securities.
1 The Balanced Fund may also enter into forward foreign currency exchange
contracts to seek to increase total return.
2 The CORE Large Cap Value, CORE Large Cap Growth and CORE Small Cap Equity
Funds may enter into futures transactions only with respect to a represen-
tative index.
3 The CORE U.S. Equity Fund may enter into futures transactions only with
respect to the S&P 500 Index.
4 The Funds may purchase and sell call and put options.
5 The Funds may sell covered call and put options and purchase call and put
options.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
CORE CORE Capital Strategic Growth Mid Cap Small Cap Large Cap
Large Cap Small Cap Growth Growth Opportunities Value Value Value
Growth Fund Equity Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
33
1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
. . . . . . . .
15 15 15 15 15 15 15 15
. . . . . . . .
./2/ ./2/ . . . . . .
-- -- -- -- -- -- -- --
10 10 10 10 10 10 10 10
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
. . . . . . . .
. . . . . . . .
. . . . . . . .
-- -- -- -- -- -- -- --
33
1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
-- -- 25 25 25 25 25 25
. . . . . . . .
. . . . . . . .
. . . . . . . .
- ---------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No specific percentage
limitation on usage;
limited only by the
objectives andstrategies
of the Fund
<TABLE>
<CAPTION>
Growth CORE CORE
Balanced and Income Large Cap U.S. Equity
Fund Fund Value Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
American, European and Global
Depository Receipts . . ./6/ ./6/
Asset-Backed and Mortgage-
Backed Securities/7/ . . -- --
Bank Obligations/7/ . . . .
Convertible Securities/8/ . . . .
Corporate Debt Obligations/7/ . . . /9/ . /9/
Equity Securities 45-65 65+ 90+ 90+
Emerging Country Securities 10/10/ 25/10/ -- --
Fixed Income Securities/11/ 35-45/17/ 35 10 /9/ 10 /9/
Foreign Securities 10/10/ 25/10/ . /13/ . /13/
Foreign Government
Securities/7/ . -- -- --
Municipal Securities . -- -- --
Non-Investment Grade Fixed
Income Securities 10/14/ 10/15/ -- --
Real Estate Investment Trusts . . . .
Stripped Mortgage Backed
Securities/7/ . -- -- --
Structured Securities* . . . .
Temporary Investments 100 100 35 35
U.S. Government Securities/7/ . . . .
Yield Curve Options and
Inverse Floating Rate
Securities . -- -- --
- ------------------------------------------------------------------------------
</TABLE>
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
6 The CORE Funds may not invest in European Depository Receipts.
7 Limited by the amount the Fund invests in fixed-income securities.
8 Convertible securities purchased by the Balanced Fund must be B or higher by
Standard & Poor's Rating Group ("Standard & Poor's") or Moody's Investor's
Service, Inc. ("Moody's"). The CORE Funds have no minimum rating criteria
and all other Funds use the same rating criteria for convertible and non-
convertible debt securities.
9 Cash equivalents only.
10 The Balanced, Growth and Income, Capital Growth, Strategic Growth, Growth
Opportunities, Mid Cap Value and Small Cap Value Funds may invest in the
aggregate up to 10%, 25%, 10%, 10%, 10%, 25% and 25%, respectively, of their
total assets in foreign securities, including emerging country securities.
11 Except as noted under "Non-Investment Grade Fixed Income Securities," fixed-
income securities must be investment grade (i.e., BBB or higher by Standard
& Poor's or Baa or higher by Moody's).
12 The Small Cap Value Fund may invest in the aggregate up to 35% of its total
assets in: (1) the equity securities of companies with public stock market
capitalizations in excess of $1 billion at the time of investment; and (2)
fixed-income securities.
13 Equity securities of foreign issuers must be traded in the United States.
14 Must be at least BB or B by Standard & Poor's or Ba or B by Moody's.
18
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
CORE CORE Capital Strategic Growth Mid Cap Small Cap Large Cap
Large Cap Small Cap Growth Growth Opportunities Value Value Value
Growth Fund Equity Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
. /6/ . /6/ . . . . . .
-- -- . . . . . .
. . . . . . . .
. . . . . . . .
. /9/ . /9/ . . . . . .
90+ 90+ 90+ 90+ 90+ 65+ 65+ 90+
-- -- 10/10/ 10/10/ 10/10/ 25/10/ 25/10/ --
10 /9/ 10 /9/ . . . 35 35/12/ 10
. /13/ . /13/ 10/10/ 10/10/ 10/10/ 25/10/ 25/10/ 25
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- 10/15/ 10/15/ 10/15/ 10/16/ 35/15/ 10/15/
. . . . . . . .
-- -- -- -- -- -- -- --
. . . . . . . .
35 35 100 100 100 100 100 100
. . . . . . . .
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------
</TABLE>
15 Limited by the amount the Fund invests in fixed-income securities. May be BB
or lower by Standard & Poor's or Ba or lower by Moody's.
16 Must be B or higher by Standard & Poor's or B or higher by Moody's.
17 The Balanced Fund invests at least 25% of its total assets in fixed-income
senior securities; the remainder is invested in other fixed-income securi-
ties and cash.
19
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
CORE CORE CORE
Growth Large CORE Large Small
and Cap U.S. Cap Cap
..Applicable Balanced Income Value Equity Growth Equity
- --Not applicable Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credit/Default . . . . . .
Foreign . . . . . .
Emerging Countries . . . . . .
Small Cap/REIT -- -- -- -- -- .
Stock . . . . . .
Derivatives . . . . . .
Interest Rate . . . . . .
Management . . . . . .
Market . . . . . .
Liquidity . . . . . .
Other . . . . . .
- ------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Mid Small Large
Capital Strategic Growth Cap Cap Cap
Growth Growth Opportunities Value Value Value
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
. . . . . .
. . . . . .
. . . . . .
-- -- -- . . --
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
All Funds:
..Credit/Default Risk--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..Foreign Risks--The risk that when a Fund invests in foreign securities, it
will be subject to risk of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss may
also result from the imposition of exchange controls, confiscations and other
government restrictions. A Fund will also be subject to the risk of negative
foreign currency rate fluctuations. Foreign risks will normally be greatest
when a Fund invests in issuers located in emerging countries.
..Emerging Countries Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as extensive
and frequent accounting, financial and other reporting requirements as the
securities markets of more developed countries. Further, investment in equity
securities of issuers located in Russia and certain other emerging countries
involves risk of loss resulting from problems in share registration and cus-
tody and substantial economic and political disruptions. These risks are not
normally associated with investments in more developed countries.
..Stock Risk--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income secu-
rities will normally have more price volatility because of this risk than
short-term securities.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
22
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
..Liquidity Risk--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual mar-
ket conditions, an unusually high volume of redemption requests, or other rea-
sons. Funds that invest in non-investment grade fixed-income securities, small
capitalization stocks, REITs and emerging country issuers will be especially
subject to the risk that during certain periods the liquidity of particular
issuers or industries, or all securities within these investment categories,
will shrink or disappear suddenly and without warning as a result of adverse
economic, market or political events, or adverse investor perceptions whether
or not accurate. The Goldman Sachs Asset Allocation Portfolios (the "Asset
Allocation Portfolios") expect to invest a significant percentage of their
assets in the Funds and other funds for which Goldman Sachs now or in the
future acts as investment adviser or underwriter. Redemptions by an Asset
Allocation Portfolio of its position in a Fund may further increase liquidity
risk and may impact a Fund's net asset value ("NAV").
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..Small Cap Stock and REIT Risk--The securities of small capitalization stocks
and REITs involve greater risks than those associated with larger, more estab-
lished companies and may be subject to more abrupt or erratic price movements.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop in
price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
23
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Class A
Shares from year to year; and (b) how the average annual returns of a Fund's
Class A, B and C Shares compare to those of broad-based securities market
indices. The bar chart and table assume reinvestment of dividends and dis-
tributions. A Fund's past performance is not necessarily an indication of
how the Fund will perform in the future. The average annual total return
calculation reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed contingent deferred sales charge ("CDSC") for Class B
Shares (5% maximum declining to 0% after six years), and the assumed CDSC
for Class C Shares (1% if redeemed within 12 months of purchase). The bar
chart does not reflect the sales loads applicable to Class A Shares. If the
sales loads were reflected, returns would be less. Performance reflects
expense limitations in effect. If expense limitations were not in place, a
Fund's performance would have been reduced. The Large Cap Value Fund com-
menced operations as of the date of this Prospectus. The CORE Large Cap Val-
ue, Strategic Growth and Growth Opportunities Funds commenced operations on
December 31, 1998, May 24, 1999 and May 24, 1999, respectively. Since these
Funds have less than one calendar year's performance, no performance infor-
mation is provided in this section.
24
<PAGE>
Balanced Fund
FUND PERFORMANCE
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was 0.64%.
Best Quarter
Q2 '97 +9.92%
Worst Quarter
Q3 '98 -8.71%
[BAR GRAPH APPEARS HERE]
1995 28.09%
1996 17.68%
1997 19.63%
1998 3.59%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Class A (Inception 10/12/94)
Including Sales Charges (2.10)% 14.13%
S&P 500 Index* 28.57% 28.45%
Lehman Brothers Aggregate Bond Index** 8.69% 9.52%
-----------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (2.32)% 11.77%
S&P 500 Index* 28.57% 28.94%
Lehman Brothers Aggregate Bond Index** 8.69% 9.18%
-----------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 1.77% 3.18%
S&P 500 Index* 28.57% 24.80%
Lehman Brothers Aggregate Bond Index** 8.69% 9.67%
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
** The Lehman Brothers Aggregate Bond Index is an unmanaged index of bond
prices. The Index figures do not reflect any fees or expenses.
25
<PAGE>
Growth and Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was -
2.26%.
Best Quarter
Q2 '97 +15.18%
Worst Quarter
Q3 '98 -16.97%
[BAR GRAPH APPEARS HERE]
1994 5.91%
1995 33.49%
1996 25.98%
1997 27.89%
1998 -5.44%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 2/5/93)
Including Sales Charges (10.65)% 15.27% 14.24%
S&P 500 Index* 28.57% 24.05% 21.42%
--------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (10.74)% N/A 12.33%
S&P 500 Index* 28.57% N/A 28.94%
--------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (7.11)% N/A (4.64)%
S&P 500 Index* 28.57% N/A 24.80%
--------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
26
<PAGE>
CORE U.S. Equity Fund
FUND PERFORMANCE
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was 6.41%.
Best Quarter
Q4 '98 +21.44%
Worst Quarter
Q3 '98 -14.69%
[BAR GRAPH APPEARS HERE]
1992 -0.04%
1993 12.76%
1994 1.30%
1995 35.24%
1996 21.31%
1997 31.80%
1998 21.25%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 5/24/91)
Including Sales Charges 14.58% 20.21% 16.07%
S&P 500 Index* 28.57% 24.05% 19.72%
------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC 15.44% N/A 22.91%
S&P 500 Index* 28.57% N/A 28.94%
------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 19.52% N/A 18.16%
S&P 500 Index* 28.57% N/A 24.80%
------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
27
<PAGE>
CORE Large Cap Growth Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was 9.20%.
Best Quarter
Q4 '98 +25.47%
Worst Quarter
Q3 '98 -13.95%
[BAR GRAPH APPEARS HERE]
1998 30.39%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year Since Inception
----------------------------------------------------
<S> <C> <C>
Class A (Inception 5/1/97)
Including Sales Charges 23.26% 27.34%
Russell 1000 Growth Index* 38.72% 36.81%
----------------------------------------------------
Class B (Inception 5/1/97)
Including CDSC 24.39% 28.74%
Russell 1000 Growth Index* 38.72% 36.81%
----------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 28.39% 22.80%
Russell 1000 Growth Index* 38.72% 29.91%
----------------------------------------------------
</TABLE>
* The Russell 1000 Growth Index is an unmanaged index of common stock prices.
The Index figures do not reflect any fees or expenses.
28
<PAGE>
CORE Small Cap Equity Fund
FUND PERFORMANCE
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was 1.19%.
Best Quarter
Q4 '98 +14.49%
Worst Quarter
Q3 '98 -24.34%
[BAR GRAPH APPEARS HERE]
1998 -5.96%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year Since Inception
------------------------------------------------------
<S> <C> <C>
Class A (Inception 8/15/97)
Including Sales Charges (11.17)% (2.93)%
Russell 2000 Index* (2.55)% 2.84%
------------------------------------------------------
Class B (Inception 8/15/97)
Including CDSC (11.29)% (2.53)%
Russell 2000 Index* (2.55)% 2.84%
------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (7.47)% 0.47%
Russell 2000 Index* (2.55)% 2.84%
------------------------------------------------------
</TABLE>
* The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
29
<PAGE>
Capital Growth Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was 5.56%.
Best Quarter
Q4 '98 +24.31%
Worst Quarter
Q3 '98 -11.44%
[BAR GRAPH APPEARS HERE]
1991 31.92%
1992 23.35%
1993 14.17%
1994 -1.10%
1995 25.75%
1996 21.32%
1997 35.31%
1998 33.88%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 4/20/90)
Including Sales Charges 26.53% 20.89% 18.99%
S&P 500 Index* 28.57% 24.05% 19.14%
------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC 27.79% N/A 28.66%
S&P 500 Index* 28.57% N/A 28.94%
------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 31.95% N/A 28.67%
S&P 500 Index* 28.57% N/A 24.80%
------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
30
<PAGE>
Mid Cap Value Fund
FUND PERFORMANCE
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was -
1.88%.
Best Quarter
Q1 '98 +11.64%
Worst Quarter
Q3 '98 -20.87%
[BAR GRAPH APPEARS HERE]
1998 -5.86%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year Since Inception
------------------------------------------------------
<S> <C> <C>
Class A (Inception 8/15/97)
Including Sales Charges (11.04)% (6.85)%
Russell Midcap Value Index* 5.10% 11.33%
Russell Midcap Index** 10.09% 12.52%
------------------------------------------------------
Class B (Inception 8/15/97)
Including CDSC (11.18)% (6.34)%
Russell Midcap Value Index* 5.10% 11.33%
Russell Midcap Index** 10.09% 12.52%
------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (7.36)% (3.43)%
Russell Midcap Value Index* 5.10% 11.33%
Russell Midcap Index** 10.09% 12.52%
------------------------------------------------------
</TABLE>
*The Russell Midcap Value Index, an unmanaged index of common stock prices,
is replacing the Russell Midcap Index as the Mid Cap Value Fund's perfor-
mance benchmark. The Russell Midcap Value Index includes more value-oriented
stocks and, therefore, is expected to be a better benchmark comparison for
the Fund's performance. The Index figures do not reflect any fees or
expenses.
**The Russell Midcap Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
31
<PAGE>
Small Cap Value Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares
for the 9-month
period ended
September 30,
1999 was -
0.05%.
Best Quarter
Q2 '96 +15.57%
Worst Quarter
Q3 '98 -32.23%
[BAR GRAPH APPEARS HERE]
1993 31.16%
1994 -14.82%
1995 8.62%
1996 21.77%
1997 30.18%
1998 -16.87%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
---------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 10/22/92)
Including Sales Charges (21.44)% 2.89% 9.32%
Russell 2000 Value Index* (6.44)% 13.12% 16.64%
Russell 2000 Index** (2.55)% 11.89% 14.91%
---------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (21.64)% N/A 2.67%
Russell 2000 Value Index* (6.44)% N/A 13.29%
Russell 2000 Index** (2.55)% N/A 8.86%
---------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (18.26)% N/A (8.46)%
Russell 2000 Value Index* (6.44)% N/A 2.50%
Russell 2000 Index** (2.55)% N/A 2.84%
---------------------------------------------------------------
</TABLE>
*The Russell 2000 Value Index, an unmanaged index of common stock prices,
is replacing the Russell 2000 Index as the Small Cap Value Fund's perfor-
mance benchmark. The Russell 2000 Value Index includes more value-oriented
stocks and, therefore, is expected to be a better benchmark comparison for
the Fund's performance. The Index figures do not reflect any fees or
expenses.
**The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
32
<PAGE>
[This page intentionally left blank]
33
<PAGE>
Fund Fees and Expenses (Class A, B and C Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Class A, Class B, or Class C Shares of a Fund.
<TABLE>
<CAPTION>
Balanced Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.65% 0.65% 0.65%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.42% 0.42% 0.42%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.32% 2.07% 2.07%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations,
"Other Expenses" and "Total Fund Operating Expenses"
of the Fund which are actually incurred are as set
forth below. The expense limitations may be termi-
nated at any time at the option of the Investment
Adviser. If this occurs, "Other Expenses" and "Total
Fund Operating Expenses" may increase without share-
holder approval.
<TABLE>
<CAPTION>
Balanced Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.65% 0.65% 0.65%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.20% 0.20% 0.20%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.10% 1.85% 1.85%
------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Growth and Income Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.70% 0.70% 0.70%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.20% 1.95% 1.95%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Growth and Income Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.70% 0.70% 0.70%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.24% 0.24% 0.24%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.19% 1.94% 1.94%
------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
CORE Large Cap Value
Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.60% 0.60% 0.60%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.36% 0.36% 0.36%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.21% 1.96% 1.96%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
CORE Large Cap Value
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.60% 0.60% 0.60%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.04% 1.79% 1.79%
------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE U.S. Equity Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees7 0.75% 0.75% 0.75%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.24% 0.24% 0.24%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.24% 1.99% 1.99%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
CORE U.S. Equity Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees7 0.70% 0.70% 0.70%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 1.14% 1.89% 1.89%
------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
CORE Large Cap Growth
Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees7 0.75% 0.75% 0.75%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.26% 0.26% 0.26%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.26% 2.01% 2.01%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
CORE Large Cap Growth
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees7 0.60% 0.60% 0.60%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 1.04% 1.79% 1.79%
------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE Small Cap Equity
Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.85% 0.85% 0.85%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.57% 0.57% 0.57%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.67% 2.42% 2.42%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
CORE Small Cap Equity
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.85% 0.85% 0.85%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.23% 0.23% 0.23%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.33% 2.08% 2.08%
------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Capital Growth Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.22% 0.22% 0.22%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.47% 2.22% 2.22%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Capital Growth Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.44% 2.19% 2.19%
------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Strategic Growth Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 2.56% 2.56% 2.56%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 3.81% 4.56% 4.56%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Strategic Growth Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.44% 2.19% 2.19%
------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Growth Opportunities
Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 2.85% 2.85% 2.85%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 4.10% 4.85% 4.85%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Growth Opportunities
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.44% 2.19% 2.19%
------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Mid Cap Value Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.75% 0.75% 0.75%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.37% 0.37% 0.37%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.37% 2.12% 2.12%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Mid Cap Value Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.75% 0.75% 0.75%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.29% 0.29% 0.29%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.29% 2.04% 2.04%
------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Small Cap Value Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.36% 0.36% 0.36%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.61% 2.36% 2.36%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Small Cap Value Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.25% 0.25% 0.25%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.50% 2.25% 2.25%
------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Large Cap Value Fund
-----------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.75% 0.75% 0.75%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 1.16% 1.16% 1.16%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 2.16% 2.91% 2.91%
- --------------------------------------------------------------------------
</TABLE>
See page 46 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Large Cap Value Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):6
Management Fees 0.75% 0.75% 0.75%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses8 0.25% 0.25% 0.25%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 1.25% 2.00% 2.00%
------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Fund Fees and Expenses continued
/1/The maximum sales charge is a percentage of the offering price. A CDSC of
1% is imposed on certain redemptions (within 18 months of purchase) of
Class A Shares sold without an initial sales charge as part of an invest-
ment of $1 million or more.
/2/The maximum CDSC is a percentage of the lesser of the NAV at the time of
the redemption or the NAV when the shares were originally purchased.
/3/A CDSC is imposed upon Class B Shares redeemed within six years of pur-
chase at a rate of 5% in the first year, declining to 1% in the sixth
year, and eliminated thereafter.
/4/A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of
purchase.
/5/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or shares of the Goldman Sachs Insti-
tutional Liquid Assets Portfolios (the "ILA Portfolios") and free auto-
matic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each 12-month period. A fee of $12.50 may be
charged for each subsequent exchange during such period.
/6/The Fund's operating expenses for the current fiscal year have been
annualized for the seven-month period (February 1, 1999 through August 31,
1999). The operating expenses for the Strategic Growth, Growth Opportuni-
ties and Large Cap Value Funds are estimated for the current year.
/7/The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the CORE U.S. Equity Fund and the CORE Large Cap
Growth Fund equal to 0.05% and 0.15%, respectively, of such Funds' average
daily net assets. As a result of fee waivers, the current management fees
of the CORE U.S. Equity Fund and CORE Large Cap Growth Fund are 0.70% and
0.60%, respectively, of such Fund's average daily net assets. The waivers
may be terminated at any time at the option of the Investment Adviser.
/8/"Other Expenses" include transfer agency fees equal to 0.19% of the aver-
age daily net assets of each Fund's Class A, B and C Shares, plus all
other ordinary expenses not detailed above. The Investment Adviser has
voluntarily agreed to reduce or limit "Other Expenses" (excluding manage-
ment fees, distribution and service fees, transfer agency fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to the following percentages of each Fund's aver-
age daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
---------------------------
<S> <C>
Balanced 0.01%
Growth and
Income 0.05%
CORE Large Cap
Value 0.00%
CORE U.S. Equity 0.00%
CORE Large Cap
Growth 0.00%
CORE Small Cap
Equity 0.04%
Capital Growth 0.00%
Strategic Growth 0.00%
Growth
Opportunities 0.00%
Mid Cap Value 0.10%
Small Cap Value 0.06%
Large Cap Value 0.06%
</TABLE>
46
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Class A,
B or C Shares of a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced
Class A Shares $677 $945 $1,234 $2,053
Class B Shares
- Assuming complete
redemption at end of
period $710 $949 $1,314 $2,208
- Assuming no redemption $210 $649 $1,114 $2,208
Class C Shares
- Assuming complete
redemption at end of
period $310 $649 $1,114 $2,400
- Assuming no redemption $210 $649 $1,114 $2,400
- ---------------------------------------------------------
Growth and Income
Class A Shares $666 $910 $1,173 $1,925
Class B Shares
- Assuming complete
redemption at end of
period $698 $912 $1,252 $2,080
- Assuming no redemption $198 $612 $1,052 $2,080
Class C Shares
- Assuming complete
redemption at end of
period $298 $612 $1,052 $2,275
- Assuming no redemption $198 $612 $1,052 $2,275
- ---------------------------------------------------------
CORE Large Cap Value
Class A Shares $667 $913 1,178 1,935
Class B Shares
- Assuming complete
redemption at end of
period $699 $915 1,257 2,091
- Assuming no redemption $199 $615 1,057 2,091
Class C Shares
- Assuming complete
redemption at end of
period $299 $615 1,057 2,285
- Assuming no redemption $199 $615 1,057 2,285
- ---------------------------------------------------------
</TABLE>
47
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
CORE U.S. Equity
Class A Shares $669 $ 922 $1,194 $1,967
Class B Shares
- Assuming complete
redemption at end of
period $702 $ 924 $1,273 $2,123
- Assuming no redemption $202 $ 624 $1,073 $2,123
Class C Shares
- Assuming complete
redemption at end of
period $302 $ 624 $1,073 $2,317
- Assuming no redemption $202 $ 624 $1,073 $2,317
- ---------------------------------------------------------
CORE Large Cap Growth
Class A Shares $671 $ 928 $1,204 $1,989
Class B Shares
- Assuming complete
redemption at end of
period $704 $ 930 $1,283 $2,144
- Assuming no redemption $204 $ 630 $1,083 $2,144
Class C Shares
- Assuming complete
redemption at end of
period $304 $ 630 $1,083 $2,338
- Assuming no redemption $204 $ 630 $1,083 $2,338
- ---------------------------------------------------------
CORE Small Cap Equity
Class A Shares $710 $1,048 $1,407 $2,417
Class B Shares
- Assuming complete
redemption at end of
period $745 $1,055 $1,491 $2,571
- Assuming no redemption $245 $ 755 $1,291 $2,571
Class C Shares
- Assuming complete
redemption at end of
period $345 $ 755 $1,291 $2,756
- Assuming no redemption $245 $ 755 $1,291 $2,756
- ---------------------------------------------------------
Capital Growth
Class A Shares $691 $ 989 $1,309 $2,211
Class B Shares
- Assuming complete
redemption at end of
period $725 $ 994 $1,390 $2,365
- Assuming no redemption $225 $ 694 $1,190 $2,365
Class C Shares
- Assuming complete
redemption at end of
period $325 $ 694 $1,190 $2,554
- Assuming no redemption $225 $ 694 $1,190 $2,554
- ---------------------------------------------------------
Strategic Growth
Class A Shares $912 $1,650 N/A N/A
Class B Shares
- Assuming complete
redemption at end of
period $957 $1,677 N/A N/A
- Assuming no redemption $457 $1,377 N/A N/A
Class C Shares
- Assuming complete
redemption at end of
period $557 $1,377 N/A N/A
- Assuming no redemption $457 $1,377 N/A N/A
- ---------------------------------------------------------
</TABLE>
48
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Opportunities
Class A Shares $930 $1,725 N/A N/A
Class B Shares
- Assuming complete
redemption at end of
period $985 $1,758 N/A N/A
- Assuming no redemption $485 $1,458 N/A N/A
Class C Shares
- Assuming complete
redemption at end of
period $585 $1,458 N/A N/A
- Assuming no redemption $485 $1,458 N/A N/A
- ---------------------------------------------------------
Mid Cap Value
Class A Shares $682 $ 960 $1,259 $2,106
Class B Shares
- Assuming complete
redemption at end of
period $715 $ 964 $1,339 $2,261
- Assuming no redemption $215 $ 664 $1,139 $2,261
Class C Shares
- Assuming complete
redemption at end of
period $315 $ 664 $1,139 $2,452
- Assuming no redemption $215 $ 664 $1,139 $2,452
- ---------------------------------------------------------
Small Cap Value
Class A Shares $705 $1,030 $1,378 $2,356
Class B Shares
- Assuming complete
redemption at end of
period $739 $1,036 $1,460 $2,510
- Assuming no redemption $239 $ 736 $1,260 $2,510
Class C Shares
- Assuming complete
redemption at end of
period $339 $ 736 $1,260 $2,696
- Assuming no redemption $239 $ 736 $1,260 $2,696
- ---------------------------------------------------------
Large Cap Value
Class A Shares $757 $1,189 N/A N/A
Class B Shares
- Assuming complete
redemption at end of
period $794 $1,201 N/A N/A
- Assuming no redemption $294 $ 901 N/A N/A
Class C Shares
- Assuming complete
redemption at end of
period $394 $ 901 N/A N/A
- Assuming no redemption $294 $ 901 N/A N/A
- ---------------------------------------------------------
</TABLE>
49
<PAGE>
Fund Fees and Expenses continued
The hypothetical example assumes that a CDSC will not apply to redemptions
of Class A Shares within the first 18 months. Class B Shares convert to
Class A Shares eight years after purchase; therefore, Class A expenses are
used in the hypothetical example after year eight.
Certain institutions that sell Fund shares and/or their salespersons may
receive other compensation in connection with the sale and distribution of
Class A, Class B and Class C Shares for services to their customers'
accounts and/or the Funds. For additional information regarding such
compensation, see "What Should I Know When I Purchase Shares Through An
Authorized Dealer?"
50
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
---------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Balanced
32 Old Slip Growth and Income
New York, New York 10005 CORE Large Cap Value
CORE Large Cap Growth
CORE Small Cap Equity
Strategic Growth
Growth Opportunities
Mid Cap Value
Small Cap Value
Large Cap Value
---------------------------------------------------------------------
Goldman Sachs Funds Management, L.P. ("GSFM") CORE U.S. Equity
32 Old Slip Capital Growth
New York, New York 10005
---------------------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSFM. Goldman Sachs registered as an investment
adviser in 1981. GSFM, a registered investment adviser since 1990, is a Del-
aware limited partnership which is an affiliate of Goldman Sachs. The
Goldman Sachs Group, L.P., which controlled the Investment Advisers, merged
into the Goldman Sachs Group, Inc. as a result of an initial public offer-
ing. As of September 30, 1999, GSAM and GSFM, along with other units of IMD,
have assets under management of $203 billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
51
<PAGE>
The Investment Adviser also performs the following additional services for
the Funds:
.. Supervises all non-advisory operations of the Funds
.. Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
.. Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the
"SEC") and other regulatory authorities
.. Maintains the records of each Fund
.. Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
Actual Rate
For the Fiscal
Period Ended
Contractual Rate August 31, 1999
---------------------------------------------------------
<S> <C> <C>
GSAM:
---------------------------------------------------------
Balanced 0.65% 0.65%
---------------------------------------------------------
Growth and Income 0.70% 0.70%
---------------------------------------------------------
CORE Large Cap Value 0.60% 0.60%
---------------------------------------------------------
CORE Large Cap Growth 0.75% 0.60%
---------------------------------------------------------
CORE Small Cap Equity 0.85% 0.85%
---------------------------------------------------------
Strategic Growth 1.00% 1.00%
---------------------------------------------------------
Growth Opportunities 1.00% 1.00%
---------------------------------------------------------
Mid Cap Value 0.75% 0.75%
---------------------------------------------------------
Small Cap Value 1.00% 1.00%
---------------------------------------------------------
Large Cap Value 0.75% N/A
---------------------------------------------------------
GSFM:
---------------------------------------------------------
CORE U.S. Equity 0.75% 0.70%
---------------------------------------------------------
Capital Growth 1.00% 1.00%
---------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
52
<PAGE>
SERVICE PROVIDERS
FUND MANAGERS
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981, Mr. Hillenbrand
has been President of Commodities Corporation LLC, of which Goldman Sachs is
the parent company. Over the course of his 19-year career at Commodities
Corporation, Mr. Hillenbrand has had extensive experience in dealing with
internal and external investment managers who have managed a range of
futures and equities strategies across multiple markets, using a variety of
styles.
Value Team
..Thirteen portfolio managers/analysts compose the Investment Adviser's value
investment team
..Multi-sector focus provides a balanced perspective
..Across all value products, the Investment Adviser leverages the industry
research expertise of its small, mid and large cap investment teams
- --------------------------------------------------------------------------------
Value Team
<TABLE>
<CAPTION>
Years
Fund Primarily
Name and Title Responsibility Responsible Five Year Employment History
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Eileen A. Portfolio Since Ms. Aptman joined the Investment
Aptman Manager-- 1996 Adviser as a research analyst in
Vice President Mid Cap Value 1997 1993. She became a portfolio
Small Cap Value manager in 1996.
- -------------------------------------------------------------------------------
Matthew B. Portfolio Since Mr. McLennan joined the
McLennan Manager-- 1996 Investment Adviser as a research
Vice President Small Cap Value 1998 analyst in 1995 and became a
Mid Cap Value portfolio manager in 1996. From
1994 to 1995, he worked in the
Investment Banking Division of
Goldman Sachs in Australia. From
1991 to 1994, Mr. McLennan
worked at Queensland Investment
Corporation in Australia.
- -------------------------------------------------------------------------------
Eileen Rominger Senior Portfolio Since Ms. Rominger joined the
Managing Manager-- Growth 1999 Investment Adviser as a senior
Director and Income 1999 portfolio manager in 1999. From
Mid Cap Value 1999 1981 to 1999, she worked at
Small Cap Value 1999 Oppenheimer Capital, most
Large Cap Value 1999 recently as a senior portfolio
Balanced manager.
(Equity)
- -------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Years
Fund Primarily
Name and Title Responsibility Responsible Five Year Employment History
- ---------------------------------------------------------------------------
<C> <C> <C> <S>
Karma Wilson Portfolio Since Ms. Wilson joined the
Vice President Manager-- 1998 Investment Adviser as a
Balanced 1998 portfolio manager in 1994.
(Equity) 1998 Prior to 1994, she was an
Growth and 1999 investment analyst with
Income Bankers Trust Australia Ltd.
Mid Cap Value
Large Cap Value
- ---------------------------------------------------------------------------
</TABLE>
Quantitative Equity Team
..A stable and growing team supported by an extensive internal staff
..Access to the research ideas of Goldman Sachs' renowned Global Investment
Research Department
..More than $23 billion in equities currently under management
- --------------------------------------------------------------------------------
Quantitative Equity Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE Large Cap Value 1998 Investment Adviser as a
CORE U.S. Equity 1998 portfolio manager in
CORE Large Cap Growth 1998 1998. From
CORE Small Cap Equity 1998 1984 to 1998, she was
the
director of Quantitative
Equity Research and
served on the Investment
Policy Committee at
Prudential Securities.
- ------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Managing CORE U.S. Equity 1996 Investment Adviser as a
Director CORE Large Cap Growth 1997 portfolio manager in the
CORE Small Cap Equity 1997 quantitative equity
CORE Large Cap Value 1998 management team in 1992.
- ------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing CORE U.S. Equity 1991 Investment Adviser as a
Director CORE Large Cap Growth 1997 portfolio manager in
CORE Small Cap Equity 1997 1989.
CORE Large Cap Value 1998
- ------------------------------------------------------------------------------------------
Victor H. Senior Portfolio Manager-- Since Mr. Pinter joined the
Pinter CORE U.S. Equity 1996 Investment Adviser as a
Vice President CORE Large Cap Growth 1997 research analyst in
CORE Small Cap Equity 1997 1990. He became a
CORE Large Cap Value 1998 portfolio manager in
1992.
- ------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
SERVICE PROVIDERS
Growth Equity Investment Team
..18 year consistent investment style applied through diverse and complete
market cycles
..More than $12 billion in equities currently under management
..More than 250 client account relationships
..A portfolio management and analytical team with more than 150 years com-
bined investment experience
- --------------------------------------------------------------------------------
Growth Equity Investment Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
George D. Adler Senior Portfolio Manager-- Since Mr. Adler joined the
Vice President Balanced (Equity) 1997 Investment Adviser as a
Capital Growth 1997 portfolio manager in
Strategic Growth 1999 1997. From 1990 to 1997,
Growth Opportunities 1999 he was a portfolio
manager at Liberty
Investment Management,
Inc. ("Liberty").
- ------------------------------------------------------------------------------------------
Steve Barry Senior Portfolio Manager-- Since Mr. Barry joined the
Vice President Growth Opportunities 1999 Investment Adviser as a
portfolio manager in
1999. From 1988 to 1999,
he was a portfolio
manager at Alliance
Capital Management.
- ------------------------------------------------------------------------------------------
Robert G. Senior Portfolio Manager-- Since Mr. Collins joined the
Collins Capital Growth 1997 Investment Adviser as
Vice President Balanced (Equity) 1998 portfolio manager and
Strategic Growth 1999 Co-Chair of the Growth
Growth Opportunities 1999 Equity Investment
Committee in 1997. From
1991 to 1997, he was a
portfolio manager at
Liberty. His past
experience includes work
as a special situations
analyst with
Raymond James &
Associates for
five years.
- ------------------------------------------------------------------------------------------
Herbert E. Senior Portfolio Manager-- Since Mr. Ehlers joined the
Ehlers Capital Growth 1997 Investment Adviser as a
Managing Balanced (Equity) 1998 senior portfolio manager
Director Strategic Growth 1999 and Chief Investment
Growth Opportunities 1999 Officer of the Growth
Equity team in 1997.
From 1994 to 1997, he
was the Chief Investment
Officer and Chairman of
Liberty. He was a
portfolio manager and
President at Liberty's
predecessor firm, Eagle
Asset Management
("Eagle"), from 1984 to
1994.
- ------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Gregory H. Senior Portfolio Manager-- Since Mr. Ekizian joined the
Ekizian Capital Growth 1997 Investment Adviser as
Vice President Balanced (Equity) 1998 portfolio manager and
Strategic Growth 1999 Co-Chair of the Growth
Growth Opportunities 1999 Equity Investment
Committee in 1997. From
1990 to 1997, he was a
portfolio manager at
Liberty and its
predecessor firm, Eagle.
- ------------------------------------------------------------------------------------------
Scott Kolar Portfolio Manager--Capital Since Mr. Kolar joined the
Associate Growth 1999 Investment Adviser as an
Strategic Growth equity analyst in 1997
and became a portfolio
manager in 1999. From
1994 to 1997, he was an
equity analyst and
information systems
specialist at Liberty.
- ------------------------------------------------------------------------------------------
David G. Shell Senior Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser as a
Balanced (Equity) 1998 portfolio manager in
Strategic Growth 1999 1997. From 1987 to 1997,
Growth Opportunities 1999 he was a portfolio
manager at Liberty and
its predecessor firm,
Eagle.
- ------------------------------------------------------------------------------------------
Ernest C. Senior Portfolio Manager-- Since Mr. Segundo joined the
Segundo, Jr. Capital Growth 1997 Investment Adviser as a
Vice President Balanced (Equity) 1998 portfolio manager in
Strategic Growth 1999 1997. From 1992 to 1997,
Growth Opportunities 1999 he was a portfolio
manager at Liberty.
- ------------------------------------------------------------------------------------------
</TABLE>
Fixed-Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing inter-
est rate anticipation and focusing on security selection and sector alloca-
tion
..The team manages approximately $29 billion in fixed-income assets for
retail, institutional and high net worth clients
- --------------------------------------------------------------------------------
Fixed-Income Portfolio Management Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- --------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. Senior Portfolio Since Mr. Beinner joined the
Beinner Manager-- 1994 Investment Adviser as a
Managing Balanced (Fixed- portfolio manager in 1990.
Director and Income)
Co-Head U.S.
Fixed Income
- --------------------------------------------------------------------------------
C. Richard Lucy Senior Portfolio Since Mr. Lucy joined the Investment
Managing Manager-- 1994 Adviser as a portfolio manager
Director and Balanced (Fixed- in 1992.
Co-Head U.S. Income)
Fixed Income
- --------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
SERVICE PROVIDERS
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly
57
<PAGE>
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to
January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Fund service providers do not adequately address this prob-
lem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group which analyzed
these issues and implemented system modifications to prepare for the Year
2000 Problem.
..The Investment Adviser has either tested with or received assurance from
the Fund's other service providers to confirm that they are taking reason-
able steps to avoid Year 2000 Problems, and the Investment Adviser contin-
ues to monitor the situation.
..The Investment Adviser has developed broad and comprehensive contingency
plans, as well as event management plans that will help manage the Fund
through the date change by allowing the Investment Adviser to closely moni-
tor and respond to Year 2000-related events as they unfold around the
world.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
58
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions from
net realized capital gains. You may choose to have dividends and distributions
paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund. Spe-
cial restrictions may apply for certain ILA Portfolios. See the Additional
Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from net capital gains
are declared and paid as follows:
<TABLE>
<CAPTION>
Investment Capital Gains
Fund Income Dividends Distributions
- -----------------------------------------------------
<S> <C> <C>
Balanced Quarterly Annually
- -----------------------------------------------------
Growth and Income Quarterly Annually
- -----------------------------------------------------
CORE Large Cap Value Quarterly Annually
- -----------------------------------------------------
CORE U.S. Equity Annually Annually
- -----------------------------------------------------
CORE Large Cap Growth Annually Annually
- -----------------------------------------------------
CORE Small Cap Equity Annually Annually
- -----------------------------------------------------
Capital Growth Annually Annually
- -----------------------------------------------------
Strategic Growth Annually Annually
- -----------------------------------------------------
Growth Opportunities Annually Annually
- -----------------------------------------------------
Mid Cap Value Annually Annually
- -----------------------------------------------------
Small Cap Value Annually Annually
- -----------------------------------------------------
Large Cap Value Annually Annually
- -----------------------------------------------------
</TABLE>
59
<PAGE>
DIVIDENDS
From time to time a portion of a Fund's dividends may constitute a return of
capital.
At the time of an investor's purchase of shares of a Fund, a portion of the NAV
per share may be represented by undistributed income or undistributed realized
appreciation of the Fund's portfolio securities. Therefore, subsequent distri-
butions on such shares from such income or realized appreciation may be taxable
to you even if the NAV of the shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions there-
of) represent a return of a portion of the purchase price.
60
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' shares.
HOW TO BUY SHARES
How Can I Purchase Class A, Class B And Class C Shares Of The Funds?
You may purchase shares of the Funds through:
.. Goldman Sachs;
.. Authorized Dealers; or
.. Directly from Goldman Sachs Trust (the "Trust").
In order to make an initial investment in a Fund, you must furnish to the
Fund, Goldman Sachs or your Authorized Dealer the information in the Account
Application attached to this Prospectus.
To Open an Account:
.. Complete the enclosed Account Application
.. Mail your payment and Account Application to:
Your Authorized Dealer
- Purchases by check or Federal Reserve draft should be made payable to
your Authorized Dealer
- Your Authorized Dealer is responsible for forwarding payment promptly
(within three business days) to the Fund
or
Goldman Sachs Funds c/o National Financial Data Services, Inc. ("NFDS"),
P.O. Box 219711, Kansas City, MO 64121-9711
- Purchases by check or Federal Reserve draft should be made payable to
Goldman Sachs Funds - (Name of Fund and Class of Shares)
- NFDS will not accept a check drawn on a foreign bank, a third-party
check, cash, money orders, travelers checques or credit card checks
- Federal funds wire, Automated Clearing House Network ("ACH") transfer or
bank wires should be sent to State Street Bank and Trust Company ("State
Street") (each Fund's custodian). Please call the Funds at 1-800-526-
7384 to get detailed instructions on how to wire your money.
61
<PAGE>
What Is My Minimum Investment In The Funds?
<TABLE>
<CAPTION>
Initial Additional
------------------------------------------------------------------------------
<S> <C> <C>
Regular Accounts $1,000 $50
------------------------------------------------------------------------------
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) $250 $50
------------------------------------------------------------------------------
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts $250 $50
------------------------------------------------------------------------------
403(b) Plan Accounts $200 $50
------------------------------------------------------------------------------
SIMPLE IRAs and Education IRAs $50 $50
------------------------------------------------------------------------------
Automatic Investment Plan Accounts $50 $50
------------------------------------------------------------------------------
</TABLE>
What Alternative Sales Arrangements Are Available?
The Funds offer three classes of shares through this Prospectus.
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------
Maximum Amount You Can Buy In The Class A No limit
Aggregate Across Funds
------------------------------------------------
Class B $250,000
------------------------------------------------
Class C $1,000,000
------------------------------------------------------------------------
Initial Sales Charge Class A Applies to purchases of less
than $1 million--varies by
size of investment with a
maximum of 5.5%
------------------------------------------------
Class B None
------------------------------------------------
Class C None
------------------------------------------------------------------------
CDSC Class A 1.00% on certain investments
of $1 million or more if you
sell within 18 months
------------------------------------------------
Class B 6 year declining CDSC with a
maximum of 5%
------------------------------------------------
Class C 1% if shares are redeemed
within 12 months of purchase
------------------------------------------------------------------------
Conversion Feature Class A None
------------------------------------------------
Class B Class B Shares convert to
Class A Shares after 8 years
------------------------------------------------
Class C None
------------------------------------------------------------------------
</TABLE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
.. Refuse to open an account if you fail to (i) provide a social security
number or other taxpayer identification number; or (ii) certify that such
number is correct (if required to do so under applicable law).
.. Reject or restrict any purchase or exchange order by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of
62
<PAGE>
SHAREHOLDER GUIDE
frequent purchases, sales or exchanges of shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of a Fund.
.. Modify or waive the minimum investment amounts.
.. Modify the manner in which shares are offered.
.. Modify the sales charge rates applicable to future purchases of shares.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange shares is deter-
mined by a Fund's NAV and share class. Each class calculates its NAV as fol-
lows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = ________________________________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or if accurate
quotations are not readily available, the fair value of the Fund's invest-
ments may be determined in good faith under procedures established by the
Trustees.
.. NAV per share of each share class is calculated by the Fund's custodian on
each business day as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time). Fund shares will not be
priced on any day the New York Stock Exchange is closed.
.. When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form, plus any applicable sales charge.
.. When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form, less any applicable CDSC.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next
63
<PAGE>
determined NAV unless the Trust, in its discretion, makes an adjustment in
light of the nature and materiality of the event, its effect on Fund opera-
tions and other relevant factors.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
What Is The Offering Price Of Class A Shares?
The offering price of Class A Shares of each Fund is the next determined NAV
per share plus an initial sales charge paid to Goldman Sachs at the time of
purchase of shares. The sales charge varies depending upon the amount you
purchase. In some cases, described below, the initial sales charge may be
eliminated altogether, and the offering price will be the NAV per share. The
current sales charges and commissions paid to Authorized Dealers are as fol-
lows:
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 up to (but less than)
$100,000 4.75 4.99 4.00
$100,000 up to (but less than)
$250,000 3.75 3.90 3.00
$250,000 up to (but less than)
$500,000 2.75 2.83 2.25
$500,000 up to (but less than)
$1 million 2.00 2.04 1.75
$1 million or more 0.00** 0.00** ***
---------------------------------------------------------------------------------
</TABLE>
* Dealer's allowance may be changed periodically. During special promo-
tions, the entire sales charge may be allowed to Authorized Dealers.
Authorized Dealers to whom substantially the entire sales charge is
allowed may be deemed to be "underwriters" under the Securities Act of
1933.
** No sales charge is payable at the time of purchase of Class A Shares of
$1 million or more, but a CDSC of 1% may be imposed in the event of
certain redemptions within 18 months of purchase.
*** The Distributor pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of
shares of the Funds equal to 1.00% of the amount under $3 million,
0.50% of the next $2 million, and 0.25% thereafter. The Distributor may
also pay, with respect to all or a portion of the amount purchased, a
commission in accordance with the foregoing schedule to Authorized
Dealers who initiate or are responsible for purchases of $500,000 or
more by certain pension and profit sharing plans, pension funds and
other company-sponsored benefit plans investing in the Funds which sat-
isfy the criteria set forth below in "When Are Class A Shares Not Sub-
ject To A Sales Load?" or $1 million or more by certain "wrap"
accounts. Purchases by such plans will be made at NAV with no initial
sales charge, but if all of the shares held are redeemed within 18
months after the end of the calendar month in which such purchase was
made, a CDSC of 1% may be imposed upon the plan sponsor or the third
party administrator. In addition, Authorized Dealers will remit to the
Distributor such payments received in connection with "wrap" accounts
in the event that shares are redeemed within 18 months after the end of
the calendar month in which the purchase was made.
64
<PAGE>
SHAREHOLDER GUIDE
What Else Do I Need To Know About Class A Shares' CDSC?
Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge. However, if you redeem shares within 18 months
after the end of the calendar month in which the purchase was made, exclud-
ing any period of time in which the shares were exchanged into and remained
invested in an equivalent class of an ILA Portfolio, a CDSC of 1% may be
imposed. The CDSC may not be imposed if your Authorized Dealer enters into
an agreement with the Distributor to return all or an applicable prorated
portion of its commission to the Distributor. The CDSC is waived on redemp-
tions in certain circumstances. See "In What Situations May The CDSC On
Class A, B Or C Shares Be Waived Or Reduced?" below.
When Are Class A Shares Not Subject To A Sales Load?
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to the following individuals and entities:
.. Goldman Sachs, its affiliates or their respective officers, partners,
directors or employees (including retired employees and former partners),
any partnership of which Goldman Sachs is a general partner, any Trustee
or officer of the Trust and designated family members of any of these
individuals;
.. Qualified retirement plans of Goldman Sachs;
.. Trustees or directors of investment companies for which Goldman Sachs or
an affiliate acts as sponsor;
.. Any employee or registered representative of any Authorized Dealer or
their respective spouses, children and parents;
.. Banks, trust companies or other types of depository institutions investing
for their own account or investing for discretionary or non-discretionary
accounts;
.. Any state, county or city, or any instrumentality, department, authority
or agency thereof, which is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of a Fund;
.. Pension and profit sharing plans, pension funds and other company-spon-
sored benefit plans that:
. Buy shares of Goldman Sachs Funds worth $500,000 or more; or
. Have 100 or more eligible employees at the time of purchase; or
. Certify that they expect to have annual plan purchases of shares of
Goldman Sachs Funds of $200,000 or more; or
. Are provided administrative services by certain third-party administra-
tors that have entered into a special service arrangement with Goldman
Sachs relating to such plans; or
. Have at the time of purchase aggregate assets of at least $2,000,000;
65
<PAGE>
.. "Wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards;
.. Registered investment advisers investing for accounts for which they
receive asset-based fees;
.. Accounts over which GSAM or its advisory affiliates have investment dis-
cretion; or
.. Shareholders receiving distributions from a qualified retirement plan
invested in the Goldman Sachs Funds and reinvesting such proceeds in a
Goldman Sachs IRA.
You must certify eligibility for any of the above exemptions on your Account
Application and notify the Fund if you no longer are eligible for the exemp-
tion. The Fund will grant you an exemption subject to confirmation of your
entitlement. You may be charged a fee if you effect your transactions
through a broker or agent.
How Can The Sales Charge On Class A Shares Be Reduced?
.. Right of Accumulation: When buying Class A Shares in Goldman Sachs Funds,
your current aggregate investment determines the initial sales load you
pay. You may qualify for reduced sales charges when the current market
value of holdings (shares at current offering price), plus new purchases,
reaches $50,000 or more. Class A Shares of any of the Goldman Sachs Funds
may be combined under the Right of Accumulation. To qualify for a reduced
sales load, you or your Authorized Dealer must notify the Funds' Transfer
Agent at the time of investment that a quantity discount is applicable.
Use of this service is subject to a check of appropriate records. The
Additional Statement has more information about the Right of Accumulation.
.. Statement of Intention: You may obtain a reduced sales charge by means of
a written Statement of Intention which expresses your non-binding commit-
ment to invest in the aggregate $50,000 or more (not counting reinvest-
ments of dividends and distributions) within a period of 13 months in
Class A Shares of one or more Goldman Sachs Fund. Any investments you make
during the period will receive the discounted sales load based on the full
amount of your investment commitment. If the investment commitment of the
Statement of Intention is not met prior to the expiration of the 13-month
period, the entire amount will be subject to the higher applicable sales
charge. By signing the Statement of Intention, you authorize the Transfer
Agent to escrow and redeem Class A Shares in your account to pay this
additional charge. The Additional Statement has more information about the
Statement of Intention, which you should read carefully.
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SHAREHOLDER GUIDE
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
What Is The Offering Price Of Class B Shares?
You may purchase Class B Shares of the Funds at the next determined NAV
without an initial sales charge. However, Class B Shares redeemed within six
years of purchase will be subject to a CDSC at the rates shown in the table
below based on how long you held your shares.
The CDSC schedule is as follows:
<TABLE>
<CAPTION>
CDSC as a
Percentage of
Dollar Amount
Year Since Purchase Subject to CDSC
----------------------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter None
----------------------------------------
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B Shares, including the payment of compensation to Authorized Dealers.
A commission equal to 4% of the amount invested is paid to Authorized Deal-
ers.
What Should I Know About The Automatic Conversion Of Class B Shares?
Class B Shares of a Fund will automatically convert into Class A Shares of
the same Fund at the end of the calendar quarter that is eight years after
the purchase date.
If you acquire Class B Shares of a Fund by exchange from Class B Shares of
another Goldman Sachs Fund, your Class B Shares will convert into Class A
Shares of such Fund based on the date of the initial purchase and the CDSC
schedule of that purchase.
If you acquire Class B Shares through reinvestment of distributions, your
Class B Shares will convert into Class A Shares based on the date of the
initial purchase of the shares on which the distribution was paid.
The conversion of Class B Shares to Class A Shares will not occur at any
time the Funds are advised that such conversions may constitute taxable
events for federal tax purposes, which the Funds believe is unlikely. If
conversions do not occur as a
67
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result of possible taxability, Class B Shares would continue to be subject
to higher expenses than Class A Shares for an indeterminate period.
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
What Is The Offering Price Of Class C Shares?
You may purchase Class C Shares of the Funds at the next determined NAV
without paying an initial sales charge. However, if you redeem Class C
Shares within 12 months of purchase, a CDSC of 1% will normally be deducted
from the redemption proceeds; provided that in connection with purchases by
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans, where all of the Class C Shares are redeemed within 12 months
of purchase, a CDSC of 1% may be imposed upon the plan sponsor or third
party administrator.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers.
An amount equal to 1% of the amount invested is normally paid by the Dis-
tributor to Authorized Dealers.
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B
AND C SHARES
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
.. The CDSC is based on the lesser of the NAV of the shares at the time of
redemption or the original offering price (which is the original NAV).
. No CDSC is charged on shares acquired from reinvested dividends or capi-
tal gains distributions.
. No CDSC is charged on the per share appreciation of your account over
the initial purchase price.
. When counting the number of months since a purchase of Class B or Class
C Shares was made, all payments made during a month will be combined and
considered to have been made on the first day of that month.
.. To keep your CDSC as low as possible, each time you place a request to
sell shares, the Funds will first sell any shares in your account that do
not carry a CDSC and then the shares in your account that have been held
the longest.
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SHAREHOLDER GUIDE
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or
Reduced?
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to:
.. Retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-spon-
sored benefit plans (each a "Retirement Plan");
.. The death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a participant or benefi-
ciary in a Retirement Plan;
.. Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
.. Satisfying the minimum distribution requirements of the Code;
.. Establishing "substantially equal periodic payments" as described under
Section 72(t)(2) of the Code;
.. The separation from service by a participant or beneficiary in a Retire-
ment Plan;
.. The death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event;
.. Excess contributions distributed from a Retirement Plan;
.. Distributions from a qualified Retirement Plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; or
.. Redemption proceeds which are to be reinvested in accounts or non-regis-
tered products over which GSAM or its advisory affiliates have investment
discretion.
In addition, Class A, B and C Shares subject to a systematic withdrawal plan
may be redeemed without a CDSC. The Funds reserve the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B
and C Shares and 10% of the value of your Class A Shares.
How Do I Decide Whether To Buy Class A, B Or C Shares?
The decision as to which Class to purchase depends on the amount you invest,
the intended length of the investment and your personal situation.
.. Class A Shares. If you are making an investment of $50,000 or more that
qualifies for a reduced sales charge, you should consider purchasing Class
A Shares.
.. Class B Shares. If you plan to hold your investment for at least six years
and would prefer not to pay an initial sales charge, you might consider
purchasing Class B Shares. By not paying a front-end sales charge, your
entire investment in Class B Shares is available to work for you from the
time you make your initial investment. However, the distribution and serv-
ice fee paid by Class B
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<PAGE>
Shares will cause your Class B Shares (until conversion to Class A Shares)
to have a higher expense ratio, and thus lower performance and lower divi-
dend payments (to the extent dividends are paid) than Class A Shares. A
maximum purchase limitation of $250,000 in the aggregate normally applies
to Class B Shares.
.. Class C Shares. If you are unsure of the length of your investment or plan
to hold your investment for less than six years and would prefer not to
pay an initial sales charge, you may prefer Class C Shares. By not paying
a front-end sales charge, your entire investment in Class C Shares is
available to work for you from the time you make your initial investment.
However, the distribution and service fee paid by Class C Shares will
cause your Class C Shares to have a higher expense ratio, and thus lower
performance and lower dividend payments (to the extent dividends are paid)
than Class A Shares (or Class B Shares after conversion to Class A
Shares).
Although Class C Shares are subject to a CDSC for only 12 months, Class C
Shares do not have the conversion feature applicable to Class B Shares and
your investment will therefore pay higher distribution fees indefinitely.
A maximum purchase limitation of $1,000,000 in the aggregate normally
applies to purchases of Class C Shares.
Note: Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C Shares.
In addition to Class A, Class B and Class C Shares, each Fund also offers
other classes of shares to investors. These other share classes are subject
to different fees and expenses (which affect performance), have different
minimum investment requirements and are entitled to different services.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
HOW TO SELL SHARES
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Each Fund will redeem its shares upon request on
any business day at the NAV next determined after receipt of such request in
proper form, subject to any applicable CDSC. You may request that redemption
proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
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SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Instructions For Redemptions:
--------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (see details below)
.Mail your request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
--------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege on your Account Application:
.1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time)
.You may redeem up to $50,000 of your shares
within any 7 calendar day period
.Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the
$50,000 limit
--------------------------------------------------------------------
</TABLE>
When Do I Need A Signature Guarantee To Redeem Shares?
A signature guarantee is required if:
.. You are requesting in writing to redeem shares in an amount over $50,000;
.. You would like the redemption proceeds sent to an address that is not your
address of record; or
.. You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
Additional documentation may be required for executors, trustees or corpora-
tions or when deemed appropriate by the Transfer Agent.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person iden-
tifying himself
71
<PAGE>
or herself as the owner of an account or the owner's registered representa-
tive where the owner has not declined in writing to use this service. Thus,
you risk possible losses if a telephone redemption is not authorized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable proce-
dures specified by the Trust to confirm that such instructions are genuine.
If reasonable procedures are not employed, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
.. All telephone requests are recorded.
.. Proceeds of telephone redemption requests will be sent only to your
address of record or authorized bank account designated in the Account
Application (unless you provide written instructions and a signature guar-
antee, indicating another address or account) and exchanges of shares nor-
mally will be made only to an identically registered account.
.. Telephone redemptions will not be accepted during the 30-day period fol-
lowing any change in your address of record.
.. The telephone redemption option does not apply to shares held in a "street
name" account. "Street name" accounts are accounts maintained and serviced
by your Authorized Dealer. If your account is held in "street name," you
should contact your registered representative of record, who may make tel-
ephone redemptions on your behalf.
.. The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
.. Redemption proceeds will normally be wired on the next business day in
federal funds (for a total of one business day delay), but may be paid up
to three business days following receipt of a properly executed wire
transfer redemption request. If you are selling shares you recently paid
for by check, the Fund will pay you when your check has cleared, which may
take up to 15 days. If the Federal Reserve Bank is closed on the day that
the redemption proceeds would ordinarily be wired, wiring the redemption
proceeds may be delayed one additional business day.
.. A transaction fee of $7.50 may be charged for payments of redemption pro-
ceeds by wire. Your bank may also charge wiring fees. You should contact
your bank directly to learn whether it charges such fees.
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<PAGE>
SHAREHOLDER GUIDE
.. To change the bank designated on your Account Application, you must send
written instructions (with your signature guaranteed) to the Transfer
Agent.
.. Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you
should deal directly with your bank or any such intermediaries.
By Check: You may elect to receive your redemption proceeds by check.
Redemption proceeds paid by check will normally be mailed to the address of
record within three business days of a properly executed redemption request.
If you are selling shares you recently paid for by check, the Fund will pay
you when your check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
.. Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
.. Redeem your shares if your account balance is less than $50 as a result of
a redemption. The Funds will not redeem your shares on this basis if the
value of your account falls below the minimum account balance solely as a
result of market conditions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
.. Redeem your shares in other circumstances determined by the Board of
Trustees to be in the best interests of the Trust.
.. Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs
Fund?
You may redeem shares of a Fund and reinvest a portion or all of the redemp-
tion proceeds (plus any additional amounts needed to round off purchases to
the nearest full share) at NAV. To be eligible for this privilege, you must
hold the shares you want to redeem for at least 30 days and you must rein-
vest the share proceeds within 90 days after you redeem. You may reinvest as
follows:
.. Class A or B Shares--Class A Shares of the same Fund or any other Goldman
Sachs Fund
.. Class C Shares--Class C Shares of the same Fund or any other Goldman Sachs
Fund
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<PAGE>
.. You should obtain and read the applicable prospectuses before investing in
any other Funds.
.. If you pay a CDSC upon redemption of Class A or Class C Shares and then
reinvest in Class A or Class C Shares as described above, your account
will be credited with the amount of the CDSC you paid. The reinvested
shares will, however, continue to be subject to a CDSC. The holding period
of the shares acquired through reinvestment will include the holding
period of the redeemed shares for purposes of computing the CDSC payable
upon a subsequent redemption. For Class B Shares, you may reinvest the
redemption proceeds in Class A Shares at NAV but the amount of the CDSC
paid upon redemption of the Class B Shares will not be credited to your
account.
.. The reinvestment privilege may be exercised at any time in connection with
transactions in which the proceeds are reinvested at NAV in a tax-shel-
tered retirement plan. In other cases, the reinvestment privilege may be
exercised once per year upon receipt of a written request.
.. You may be subject to tax as a result of a redemption. You should consult
your tax adviser concerning the tax consequences of a redemption and rein-
vestment.
Can I Exchange My Investment From One Fund To Another?
You may exchange shares of a Fund at NAV without the imposition of an ini-
tial sales charge or CDSC at the time of exchange for shares of the same
class or an equivalent class of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days'
written notice to you.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names and Class of Shares
.The dollar amount you want to exchange
.Obtain a signature guarantee (see details above)
.Mail the request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
or for overnight delivery -
Goldman Sachs Funds
c/o NFDS
330 West 9th St.
Poindexter Bldg., 1st Floor
Kansas City, MO 64105
-------------------------------------------------------------------
By Telephone: If you have not declined the telephone exchange
privilege on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
-------------------------------------------------------------------
</TABLE>
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SHAREHOLDER GUIDE
You should keep in mind the following factors when making or considering an
exchange:
.. You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.. Six free exchanges are allowed in each 12 month period.
.. A $12.50 fee may be charged for each subsequent exchange.
.. There is no charge for exchanges made pursuant to the Automatic Exchange
Program.
.. The exchanged shares may later be exchanged for shares of the same class
(or an equivalent class) of the original Fund at the next determined NAV
without the imposition of an initial sales charge or CDSC if the amount in
the Fund resulting from such exchanges is less than the largest amount on
which you have previously paid the applicable sales charge.
.. When you exchange shares subject to a CDSC, no CDSC will be charged at
that time. The exchanged shares will be subject to the CDSC of the shares
originally held. For purposes of determining the amount of the applicable
CDSC, the length of time you have owned the shares will be measured from
the date you acquired the original shares subject to a CDSC and will not
be affected by a subsequent exchange.
.. Eligible investors may exchange certain classes of shares for another
class of shares of the same Fund. For further information, call Goldman
Sachs Funds at 1-800-526-7384.
.. All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund.
.. Exchanges are available only in states where exchanges may be legally
made.
.. It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
.. Goldman Sachs and NFDS may use reasonable procedures described under "What
Do I Need to Know About Telephone Redemption Requests?" in an effort to
prevent unauthorized or fraudulent telephone exchange requests.
.. Telephone exchanges normally will be made only to an identically regis-
tered account. Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification num-
bers only if the exchange instructions are in writing and accompanied by a
signature guarantee.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
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<PAGE>
SHAREHOLDER SERVICES
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
You may be able to make systematic cash investments through your bank via
ACH transfer or your checking account via bank draft each month. Forms for
this option are available from Goldman Sachs, your Authorized Dealer or you
may check the appropriate box on the Account Application.
Can My Dividends And Distributions From A Fund Be Invested In Other Funds?
You may elect to cross-reinvest dividends and capital gain distributions
paid by a Fund in shares of the same class or an equivalent class of any
other Goldman Sachs Fund.
.. Shares will be purchased at NAV.
.. No initial sales charge or CDSC will be imposed.
.. You may elect cross-reinvestment into an identically registered account or
an account registered in a different name or with a different address,
social security number or taxpayer identification number provided that the
account has been properly established, appropriate signature guarantees
obtained and the minimum initial investment has been satisfied.
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
You may elect to exchange automatically a specified dollar amount of shares
of a Fund for shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
.. Shares will be purchased at NAV.
.. No initial sales charge is imposed.
.. Shares subject to a CDSC acquired under this program may be subject to a
CDSC at the time of redemption from the Fund into which the exchange is
made depending upon the date and value of your original purchase.
.. Automatic exchanges are made monthly on the 15th day of each month or the
first business day thereafter.
.. Minimum dollar amount: $50 per month.
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
Cross-reinvestments and automatic exchanges are subject to the following
conditions:
.. You must hold $5,000 or more in the Fund which is paying the dividend or
from which the exchange is being made.
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<PAGE>
SHAREHOLDER GUIDE
.. You must invest an amount in the Fund into which cross-reinvestments or
automatic exchanges are being made that is equal to that Fund's minimum
initial investment or continue to cross-reinvest or to make automatic
exchanges until such minimum initial investment is met.
.. You should obtain and read the prospectus of the Fund into which dividends
are invested or automatic exchanges are made.
Can I Have Automatic Withdrawals Made On A Regular Basis?
You may draw on your account systematically via check or ACH transfer in any
amount of $50 or more.
.. It is normally undesirable to maintain a systematic withdrawal plan at the
same time that you are purchasing additional Class A, Class B or Class C
Shares because of the sales charge imposed on your purchases of Class A
Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares.
.. You must have a minimum balance of $5,000 in a Fund.
.. Checks are mailed on or about the 25th day of each month.
.. Each systematic withdrawal is a redemption and therefore a taxable trans-
action.
.. The CDSC applicable to Class A, Class B or Class C Shares redeemed under
the systematic withdrawal plan may be waived.
What Types of Reports Will I Be Sent Regarding My Investment?
You will be provided with a printed confirmation of each transaction in your
account and an individual quarterly account statement. A year-to-date state-
ment for your account will be provided upon request made to Goldman Sachs.
If your account is held in "street name" you may receive your statement and
confirmations on a different schedule.
You will also receive an annual shareholder report containing audited finan-
cial statements and a semi-annual shareholder report. If you have consented
to the delivery of a single copy of shareholder reports, prospectuses and
other information to all shareholders who share the same mailing address
with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds by phone at 1-800-526-7384 or by mail at Goldman Sachs
Funds, 4900 Sears Tower--60th Floor, Chicago, IL 60606-6372. The Funds will
begin sending individual copies to you within 30 days after receipt of your
revocation.
The Funds do not generally provide sub-accounting services.
What Should I Know When I Purchase Shares Through An Authorized Dealer?
Authorized Dealers and other financial intermediaries may provide varying
arrangements for their clients to purchase and redeem Fund shares. They may
charge additional fees not described in this Prospectus to their customers
for such services.
77
<PAGE>
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distribu-
tions relating to your account will be performed by the Authorized Dealer,
and not by the Fund and its Transfer Agent. Since the Funds will have no
record of your transactions, you should contact the Authorized Dealer to
purchase, redeem or exchange shares, to make changes in or give instructions
concerning the account or to obtain information about your account. The
transfer of shares in a "street name" account to an account with another
dealer or to an account directly with the Fund involves special procedures
and will require you to obtain historical purchase information about the
shares in the account from the Authorized Dealer.
Authorized Dealers and other financial intermediaries may be authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust, to
designate other intermediaries to accept such orders. In these cases:
.. A Fund will be deemed to have received an order that is in proper form
when the order is accepted by an Authorized Dealer or intermediary on a
business day, and the order will be priced at the Fund's NAV per share
(adjusted for any applicable sales charge) next determined after such
acceptance.
.. Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Funds within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary to learn whether
it is authorized to accept orders for the Trust.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of
the amount invested.
DISTRIBUTION SERVICES AND FEES
What Are The Different Distribution And Service Fees Paid By Class A, B and
C Shares?
The Trust has adopted distribution and service plans (each a "Plan") under
which Class A, Class B and Class C Shares bear distribution and service fees
paid to Authorized Dealers and Goldman Sachs. If the fees received by
Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may
realize a profit from their arrangements. Goldman Sachs pays the distribu-
tion and service fees on a quarterly basis.
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<PAGE>
SHAREHOLDER GUIDE
Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund
for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributed to
Class A, Class B and Class C Shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types of
such charges.
The distribution fees are subject to the requirements of Rule 12b-1 under
the Act, and may be used (among other things) for:
.. Compensation paid to and expenses incurred by Authorized Dealers, Goldman
Sachs and their respective officers, employees and sales representatives;
.. Commissions paid to Authorized Dealers;
.. Allocable overhead;
.. Telephone and travel expenses;
.. Interest and other costs associated with the financing of such compensa-
tion and expenses;
.. Printing of prospectuses for prospective shareholders;
.. Preparation and distribution of sales literature or advertising of any
type; and
.. All other expenses incurred in connection with activities primarily
intended to result in the sale of Class A, Class B and Class C Shares.
In connection with the sale of Class C Shares, Goldman Sachs normally begins
paying the 0.75% distribution fee as an ongoing commission to Authorized
Dealers after the shares have been held for one year.
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
Under the Plans, Goldman Sachs is also entitled to receive a separate fee
equal on an annual basis to 0.25% of each Fund's average daily net assets
attributed to Class B or Class C Shares. This fee is for personal and
account maintenance services, and may be used to make payments to Goldman
Sachs, Authorized Dealers and their officers, sales representatives and
employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or simi-
lar services not otherwise provided on behalf of the Funds. If the fees
received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman
Sachs may realize a profit from this arrangement.
In connection with the sale of Class C Shares, Goldman Sachs normally begins
paying the 0.25% ongoing service fee to Authorized Dealers after the shares
have been held for one year.
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Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Funds are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Funds' income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. A percentage
of the Funds' dividends paid to corporate shareholders may be eligible for
the corporate dividends-received deduction. The Funds will inform sharehold-
ers of the source and tax status of all distributions promptly after the
close of each calendar year.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds may
deduct these taxes in computing their taxable income.
If you buy shares of a Fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a portion
of your investment. This is known as "buying a dividend."
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TAXATION
TAXES ON SALES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
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Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with equity securities.
"Equity securities" include common stocks, preferred stocks, interests in
real estate investment trusts, convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, warrants and stock pur-
chase rights. In general, stock values fluctuate in response to the activi-
ties of individual companies and in response to general market and economic
conditions. Accordingly, the value of the stocks that a Fund holds may
decline over short or extended periods. The stock markets tend to be cycli-
cal, with periods when stock prices generally rise and periods when prices
generally decline. The volatility of equity securities means that the value
of your investment in the Funds may increase or decrease. As of the date of
this Prospectus, certain stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue.
To the extent that a Fund invests in fixed-income securities, that Fund will
also be subject to the risks associated with its fixed-income securities.
These risks include interest rate risk, credit risk and call/extension risk.
In general, interest rate risk involves the risk that when interest rates
decline, the market value of fixed-income securities tends to increase (al-
though many mortgage related securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that an issuer
could default on its obligations, and a Fund will not recover its invest-
ment. Call risk and extension risk are normally present in mortgage-backed
securities and asset-backed securities. For example, homeowners have the
option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (exten-
sion risk). In general, if interest rates on new mortgage loans fall suffi-
ciently below the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease. In
either case, a change in the prepayment rate can result in losses to invest-
ors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turn-
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APPENDIX A
over (100% or more) involves correspondingly greater expenses which must be
borne by a Fund and its shareholders. The portfolio turnover rate is calcu-
lated by dividing the lesser of the dollar amount of sales or purchases of
portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase
of one year or less. See "Financial Highlights" in Appendix B for a state-
ment of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of
your then current financial position and needs.
B. Other Portfolio Risks
Risks of Investing in Small Capitalization Companies and REITs. Each Fund
may invest in small capitalization companies and REITs. Investments in small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the rea-
sons for the greater price volatility of these investments are the less cer-
tain growth prospects of smaller firms and the lower degree of liquidity in
the markets for such securities. Small capitalization companies and REITs
may be thinly traded and may have to be sold at a discount from current mar-
ket prices or in small lots over an extended period of time. In addition,
these securities are subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities in these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic or market conditions, or adverse investor
perceptions whether or not accurate. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Small capitalization companies and REITs include "unseasoned" issuers
that do not have an established financial history; often have limited prod-
uct lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of
bankruptcy. Transaction costs for these investments are often higher than
those of larger capitalization companies. Investments
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in small capitalization companies and REITs may be more difficult to price
precisely than other types of securities because of their characteristics
and lower trading volumes.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
assets held by the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may
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APPENDIX A
be less publicly available information about a foreign issuer than about a
U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and secu-
rities of many foreign issuers are less liquid and more volatile than secu-
rities of comparable domestic issuers. Efforts in foreign countries to reme-
diate potential Year 2000 problems are not as extensive as those in the
United States. As a result, the operations of foreign markets, foreign
issuers and foreign governments may be disrupted by the Year 2000 Problem,
and the investment portfolio of a Fund may be adversely affected. Further-
more, with respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of with-
holding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, and political or social instability or diplomatic developments which
could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts
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evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not neces-
sarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
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APPENDIX A
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by the Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
A Fund's investments in emerging countries are subject to the risk that the
liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor per-
ceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Invest-
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ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Derivative Investments. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and currency transactions involve additional risk of
loss. Loss can result from a lack of correlation between changes in the
value of derivative instruments and the portfolio assets (if any) being
hedged, the potential illiquidity of the markets for derivative instruments,
or the risks arising from margin requirements and related leverage factors
associated with such transactions. The use of these management techniques
also involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices, interest rates or currency
prices. Each Fund may also invest in derivative investments for non-hedging
purposes (that is, to seek to increase total return). Investing for non-
hedging purposes is considered a speculative practice and presents even
greater risk of loss.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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APPENDIX A
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. government securities
..Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
..Certificates of deposit
..Bankers' acceptances
..Repurchase agreements
..Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
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C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
Convertible Securities. Each Fund may invest in convertible securities. Con-
vertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. A Fund may, to the extent consistent with its
investment policies, purchase or sell foreign currencies on a cash basis or
through forward contracts. A forward contract involves an obligation to pur-
chase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, certain Funds may also
enter into such transactions to seek to increase total return, which is con-
sidered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
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APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities. Each Fund may invest in structured securities. Struc-
tured securities are securities whose value is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative
change in two or more References. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities and may be more vol-
atile, less liquid and more difficult to price accurately than less complex
securities.
REITs. Each Fund may invest in REITS. REITS are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.
The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable income tax
treatment. REITs are also subject to risks generally associated with invest-
ments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other
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respects, these risks may be heightened. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which they may invest or on any securities index comprised of
securities in which they may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the-counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
government securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund
92
<PAGE>
APPENDIX A
invests in foreign securities, currency exchange rates, or to otherwise man-
age their term structures, sector selection and durations in accordance with
their investment objectives and policies. Each Fund may also enter into
closing purchase and sale transactions with respect to such contracts and
options. A Fund will engage in futures and related options transactions for
bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or to seek to increase total return to the extent
permitted by such regulations. A Fund may not purchase or sell futures con-
tracts or purchase or sell related options to seek to increase total return,
except for closing purchase or sale transactions, if immediately thereafter
the sum of the amount of initial margin deposits and premiums paid on the
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
Equity Swaps. Each Fund may invest in equity swaps. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other compo-
nents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are
93
<PAGE>
derivatives and their value can be very volatile. To the extent that the
Investment Adviser does not accurately analyze and predict the potential
relative fluctuation of the components swapped with another party, a Fund
may suffer a loss. The value of some components of an equity swap (such as
the dividends on a common stock) may also be sensitive to changes in inter-
est rates. Furthermore, a Fund may suffer a loss if the counterparty
defaults.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. When-issued
securities are securities that have been authorized, but not yet issued.
When-issued securities are purchased in order to secure what is considered
to be an advantageous price and yield to the Fund at the time of entering
into the transaction. A forward commitment involves the entering into a con-
tract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash
94
<PAGE>
APPENDIX A
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loan continuously with cash, cash equivalents, U.S.
government securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market deprecia-
tion or appreciation, and a Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund
(including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
Short Sales Against-the-Box. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Preferred Stock, Warrants and Rights. Each Fund may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Other Investment Companies. Each Fund may invest in securities of other
investment companies (including SPDRs and WEBs, as defined below) subject to
statutory limitations prescribed by the Act. These limitations include a
prohibition on
95
<PAGE>
any Fund acquiring more than 3% of the voting shares of any other investment
company, and a prohibition on investing more than 5% of a Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. A Fund will indi-
rectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Such other investment com-
panies will have investment objectives, policies and restrictions substan-
tially similar to those of the acquiring Fund and will be subject to sub-
stantially the same risks.
..Standard & Poor's Depository Receipts. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
..World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specified countries.
WEBS are listed on the AMEX and were initially offered to the public in
1996. The market prices of WEBS are expected to fluctuate in accordance
with both changes in the NAVs of their underlying indices and supply and
demand of WEBS on the AMEX. To date, WEBS have traded at relatively modest
discounts and premiums to their NAVs. However, WEBS have a limited operat-
ing history and information is lacking regarding the actual performance and
trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the
AMEX necessary to maintain the listing of WEBS will continue to be met or
will remain unchanged. In the event substantial market or other disruptions
affecting WEBS should occur in the future, the liquidity and value of a
Fund's shares could also be substantially and adversely affected. If such
disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
Unseasoned Companies. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments
in unseasoned compa -
96
<PAGE>
APPENDIX A
nies are more speculative and entail greater risk than do investments in
companies with an established operating record.
Corporate Debt Obligations. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of corporations to pay
interest and repay principal, and include securities issued by banks and
other financial institutions. Each Fund may invest in corporate debt obliga-
tions issued by U.S. and certain non-U.S. issuers which issue securities
denominated in the U.S. dollar (including Yankee and Euro obligations). In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions and suprana-
tional entities (i.e., the World Bank, the International Monetary Fund,
etc.).
Bank Obligations. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be gen-
eral obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulations. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. government securities and related custodial receipts. U.S.
government securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. government securities may be supported by (a) the
full faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association); (c) the discretionary authority of the U.S. government to pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")); or (d) only the credit of the issuer. U.S. government
securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. government securities, where the interest and principal compo-
nents of stripped U.S. government securities are traded independently.
Interests in U.S. government securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments
97
<PAGE>
or both on certain notes or bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. For certain securities law purposes, custodial
receipts are not considered obligations of the U.S. government.
Mortgage-Backed Securities. Certain Funds may invest in mortgage-backed
securities. Mortgage-backed securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-backed securities can be backed by either
fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. Privately issued
mortgage-backed securities are normally structured with one or more types of
"credit enhancement." However, these mortgage-backed securities typically do
not have the same credit standing as U.S. government guaranteed mortgage-
backed securities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other mortgage-backed securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment and invests in cer-
tain mortgages principally secured by interests in real property and other
permitted investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other mortgage-backed securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Certain Funds may invest in asset-backed securi-
ties. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often sub-
98
<PAGE>
APPENDIX A
ject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the under-
lying loans. During periods of declining interest rates, prepayment of loans
underlying asset-backed securities can be expected to accelerate. According-
ly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Asset-backed securities present credit risks that are not presented by
mortgage-backed securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Borrowings. Each Fund can borrow money from banks and other financial insti-
tutions in amounts not exceeding one-third of its total assets for temporary
or emergency purposes. A Fund may not make additional investments if
borrowings exceed 5% of its total assets.
Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A
mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
99
<PAGE>
Yield Curve Options. Certain Funds may enter into options on the yield
"spread" or differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options,
a yield curve option is based on the difference between the yields of desig-
nated securities, rather than the prices of the individual securities, and
is settled through cash payments. Accordingly, a yield curve option is prof-
itable to the holder if this differential widens (in the case of a call) or
narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent
which was not anticipated.
Reverse Repurchase Agreements. Certain Funds may enter into reverse repur-
chase agreements. Reverse repurchase agreements involve the sale of securi-
ties held by a Fund subject to the Fund's agreement to repurchase them at a
mutually agreed upon date and price (including interest). These transactions
may be entered into as a temporary measure for emergency purposes or to meet
redemption requests. Reverse repurchase agreements may also be entered into
when the Investment Adviser expects that the interest income to be earned
from the investment of the transaction proceeds will be greater than the
related interest expense. Reverse repurchase agreements involve leveraging.
If the securities held by a Fund decline in value while these transactions
are outstanding, the NAV of the Fund's outstanding shares will decline in
value by proportionately more than the decline in value of the securities.
In addition, reverse repurchase agreements involve the risk that the inter-
est income earned by a Fund (from the investment of the proceeds) will be
less than the interest expense of the transaction, that the market value of
the securities sold by a Fund will decline below the price the Fund is obli-
gated to pay to repurchase the securities, and that the securities may not
be returned to the Fund.
Municipal Securities. Certain Funds may invest in securities and instruments
issued by state and local government issuers. Municipal securities in which
a Fund may invest consist of bonds, notes, commercial paper and other
instruments (including participating interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies or instrumentalities. Such securities may pay fixed, variable or float-
ing rates of interest. Municipal securities are often issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass trans-
portation, schools, streets and water and sewer works. Other public
100
<PAGE>
APPENDIX A
purposes for which municipal securities may be issued include refunding out-
standing obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and facilities. Munici-
pal securities in which a Fund may invest include private activity bonds,
municipal leases, certificates of participation, pre-funded municipal secu-
rities and auction rate securities.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional princi-
pal amount, however, is tied to a reference pool or pools of mortgages.
Credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a
payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates.
Certain Funds may enter into swap transactions for hedging purposes or to
seek to increase total return. The use of interest rate, mortgage, credit
and currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
Loan Participations. Certain Funds may invest in loan participations. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. A Fund
may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan participation interests may take the form of a direct or co-
lending relationship with the
101
<PAGE>
corporate borrower, an assignment of an interest in the loan by a co-lender
or another participant, or a participation in the seller's share of the
loan. When a Fund acts as co-lender in connection with a participation
interest or when it acquires certain participation interests, the Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit reme-
dies against the borrower. In these cases, the Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower. Moreover, under the terms of the loan participa-
tion, the Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the Fund may also be subject
to the risk that the agent bank may become insolvent.
Inverse Floaters. Certain Funds may invest in inverse floating rate debt
securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The
higher the degree of leverage of an inverse floater, the greater the vola-
tility of its market value.
102
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103
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has not
been in operation for less than five years). Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an invest-
ment in a Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Arthur Andersen LLP, whose report,
along with a Fund's financial statements, is included in the Fund's annual
report (available upon request). No financial highlights are included for
the Large Cap Value Fund because it had no operating history prior to the
date of this prospectus.
BALANCED FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month Period Ended August
31,
1999 - Class A Shares $20.48 $0.32 $(0.19)
1999 - Class B Shares 20.37 0.22 (0.18)
1999 - Class C Shares 20.34 0.23 (0.19)
1999 - Institutional Shares 20.48 0.53 (0.35)
1999 - Service Shares 20.47 1.22 (1.14)
- ----------------------------------------------------------------------------
For The Years Ended January 31,
1999 - Class A Shares 20.29 0.58 0.20
1999 - Class B Shares 20.20 0.41 0.21
1999 - Class C Shares 20.17 0.41 0.21
1999 - Institutional Shares 20.29 0.64 0.20
1999 - Service Shares 20.28 0.53 0.21
- ----------------------------------------------------------------------------
1998 - Class A Shares 18.78 0.57 2.66
1998 - Class B Shares 18.73 0.50 2.57
1998 - Class C Shares (commenced August
15, 1997) 21.10 0.25 0.24
1998 - Institutional Shares (commenced
August 15, 1997) 21.18 0.26 0.32
1998 - Service Shares (commenced August
15, 1997) 21.18 0.22 0.32
- ----------------------------------------------------------------------------
1997 - Class A Shares 17.31 0.66 2.47
1997 - Class B Shares (commenced May 1,
1996) 17.46 0.42 2.34
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.22 0.51 3.43
- ----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
104
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------
Ratio of Ratio of
Net assets Ratio of net investment Ratio of net investment
Net asset at end of net expenses income to expenses to income to Portfolio
value, end Total period to average average net average average net turnover
of period returnb (in 000s) net assets assets net assets assets ratee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$20.38 0.62%d $169,395 1.10%c 2.58%c 1.32%c 2.36%c 90.41%d
20.26 0.20d 40,515 1.85c 1.83c 2.07c 1.61c 90.41d
20.23 0.18d 11,284 1.85c 1.84c 2.07c 1.62c 90.41d
20.39 0.86d 2,361 0.70c 2.96c 0.92c 2.74c 90.41d
20.37 0.39d 15 1.20c 2.46c 1.42c 2.24c 90.41d
- -------------------------------------------------------------------------------------------------------------------
20.48 3.94 192,453 1.04 2.90 1.45 2.49 175.06
20.37 3.15 43,926 1.80 2.16 2.02 1.94 175.06
20.34 3.14 14,286 1.80 2.17 2.02 1.95 175.06
20.48 4.25 8,010 0.73 3.22 0.95 3.00 175.06
20.47 3.80 490 1.23 2.77 1.45 2.55 175.06
- -------------------------------------------------------------------------------------------------------------------
20.29 17.54 163,636 1.00 2.94 1.57 2.37 190.43
20.20 16.71 23,639 1.76 2.14 2.07 1.83 190.43
20.17 2.49d 8,850 1.77c 2.13c 2.08c 1.82c 190.43
20.29 2.93d 8,367 0.76c 3.13c 1.07c 2.82c 190.43
20.28 2.66d 16 1.26c 2.58c 1.57c 2.27c 190.43
- -------------------------------------------------------------------------------------------------------------------
18.78 18.59 81,410 1.00 3.76 1.77 2.99 208.11
18.73 16.22d 2,110 1.75c 2.59c 2.27c 2.07c 208.11
- -------------------------------------------------------------------------------------------------------------------
17.31 28.10 50,928 1.00 3.65 1.90 2.75 197.10
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
105
<PAGE>
BALANCED FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income to expenses to income to Portfolio
average net average average net turnover
assets net assets assets rate/e/
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For The Seven-Month
Period Ended August 31,
1999 - Class A Shares 2.58%c 1.32%c 2.36%c 90.41%d
1999 - Class B Shares 1.83c 2.07c 1.61c 90.41d
1999 - Class C Shares 1.84c 2.07c 1.62c 90.41d
1999 - Institutional
Shares 2.96c 0.92c 2.74c 90.41d
1999 - Service Shares 2.46c 1.42c 2.24c 90.41d
- -----------------------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 2.90 1.45 2.49 175.06
1999 - Class B Shares 2.16 2.02 1.94 175.06
1999 - Class C Shares 2.17 2.02 1.95 175.06
1999 - Institutional
Shares 3.22 0.95 3.00 175.06
1999 - Service Shares 2.77 1.45 2.55 175.06
- -----------------------------------------------------------------------------------------------
1998 - Class A Shares 2.94 1.57 2.37 190.43
1998 - Class B Shares 2.14 2.07 1.83 190.43
1998 - Class C Shares
(commenced August 15,
1997) 2.13c 2.08c 1.82c 190.43
1998 - Institutional
Shares (commenced August
15, 1997) 3.13c 1.07c 2.82c 190.43
1998 - Service Shares
(commenced August 15,
1997) 2.58c 1.57c 2.27c 190.43
- -----------------------------------------------------------------------------------------------
1997 - Class A Shares 3.76 1.77 2.99 208.11
1997 - Class B Shares
(commenced May 1, 1996) 2.59c 2.27c 2.07c 208.11
- -----------------------------------------------------------------------------------------------
1996 - Class A Shares 3.65 1.90 2.75 197.10
- -----------------------------------------------------------------------------------------------
</TABLE>
106
<PAGE>
[This page intentionally left blank]
107
<PAGE>
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/ Distributions to shareholders
------------------------ ------------------------------
Net
realized
Net asset and In excess
value, Net unrealized From net of net From net
beginning investment gain investment investment realized
of period income (loss) (loss) income income gains
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For The Seven-Month
Period Ended August 31,
1999 - Class A Shares $24.33 $ 0.19 $0.31 $(0.15) $ -- $ --
1999 - Class B Shares 24.13 0.08 0.31 (0.06) -- --
1999 - Class C Shares 24.08 0.08 0.30 (0.05) -- --
1999 - Institutional
Shares 24.35 0.34 0.23 (0.20) -- --
1999 - Service Shares 24.33 0.17 0.32 (0.14) -- --
- -------------------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 25.93 0.20 (1.60) (0.19) (0.01) --
1999 - Class B Shares 25.73 0.02 (1.58) (0.04) -- --
1999 - Class C Shares 25.70 0.02 (1.59) (0.05) -- --
1999 - Institutional
Shares 25.95 0.29 (1.58) (0.30) (0.01) --
1999 - Service Shares 25.92 0.17 (1.58) (0.17) (0.01) --
- -------------------------------------------------------------------------------------------
1998 - Class A Shares 23.18 0.11 5.27 (0.11) -- (2.52)
1998 - Class B Shares 23.10 0.04 5.14 -- (0.03) (2.52)
1998 - Class C Shares
(commenced August 15,
1997) 28.20 (0.01) 0.06 -- (0.03) (2.52)
1998 - Institutional
Shares 23.19 0.27 5.23 (0.22) -- (2.52)
1998 - Service Shares 23.17 0.14 5.23 (0.06) (0.04) (2.52)
- -------------------------------------------------------------------------------------------
1997 - Class A Shares 19.98 0.35 5.18 (0.35) (0.01) (1.97)
1997 - Class B Shares
(commenced May 1, 1996) 20.82 0.17 4.31 (0.17) (0.06) (1.97)
1997 - Institutional
Shares
(commenced June 3,
1996) 21.25 0.29 3.96 (0.30) (0.04) (1.97)
1997 - Service Shares
(commenced March 6,
1996) 20.71 0.28 4.50 (0.28) (0.07) (1.97)
- -------------------------------------------------------------------------------------------
1996 - Class A Shares 15.80 0.33 4.75 (0.30) -- (0.60)
- -------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
108
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratio of
Net increase Net assets Ratio of net investment
(decrease) Net asset at end of net expenses income (loss)
in net value, end Total period to average to average net
asset value of period return/b/ (in 000s) net assets assets
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.35 $24.68 2.05%d $ 855,174 1.19%c 1.26%c
0.33 24.46 1.60d 271,912 1.94c 0.51c
0.33 24.41 1.58d 31,328 1.94c 0.51c
0.37 24.72 2.32d 32,181 0.79c 1.72c
0.35 24.68 2.01d 10,008 1.29c 1.16c
- -------------------------------------------------------------------------
(1.60) 24.33 (5.40) 1,122,157 1.22 0.78
(1.60) 24.13 (6.07) 349,662 1.92 0.09
(1.62) 24.08 (6.12) 48,146 1.92 0.10
(1.60) 24.35 (5.00) 173,696 0.80 1.25
(1.59) 24.33 (5.44) 11,943 1.30 0.72
- -------------------------------------------------------------------------
2.75 25.93 23.71 1,216,582 1.25 0.43
2.63 25.73 22.87 307,815 1.94 (0.35)
(2.50) 25.70 0.51d 31,686 1.99c (0.48)c
2.76 25.95 24.24 36,225 0.83 0.76
2.75 25.92 23.63 8,893 1.32 0.32
- -------------------------------------------------------------------------
3.20 23.18 28.42 615,103 1.22 1.60
2.28 23.10 22.23d 17,346 1.93c 0.15c
1.94 23.19 20.77d 193 0.82c 1.36c
2.46 23.17 23.87d 3,174 1.32c 0.94c
- -------------------------------------------------------------------------
4.18 19.98 32.45 436,757 1.20 1.67
- -------------------------------------------------------------------------
</TABLE>
109
<PAGE>
GROWTH AND INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of Ratio of
expenses to net investment Portfolio
average net income (loss) to turnover
assets average net assets rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month
Period Ended
August 31,
1999 - Class A Shares 1.20%c 1.25%c 55.43%d
1999 - Class B Shares 1.95c 0.50c 55.43d
1999 - Class C Shares 1.95c 0.50c 55.43d
1999 - Institutional
Shares 0.80c 1.71c 55.43d
1999 - Service Shares 1.30c 1.15c 55.43d
- -------------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 1.32 0.68 125.79
1999 - Class B Shares 1.92 0.09 125.79
1999 - Class C Shares 1.92 0.10 125.79
1999 - Institutional
Shares 0.80 1.25 125.79
1999 - Service Shares 1.30 0.72 125.79
- -------------------------------------------------------------------------------------
1998 - Class A Shares 1.42 0.26 61.95
1998 - Class B Shares 1.94 (0.35) 61.95
1998 - Class C Shares
(commenced August 15,
1997) 1.99c (0.48)c 61.95
1998 - Institutional
Shares 0.83 0.76 61.95
1998 - Service Shares 1.32 0.32 61.95
- -------------------------------------------------------------------------------------
1997 - Class A Shares 1.43 1.39 53.03
1997 - Class B Shares
(commenced May 1, 1996) 1.93c 0.15c 53.03
1997 - Institutional
Shares
(commenced June 3,
1996) 0.82c 1.36c 53.03
1997 - Service Shares
(commenced March 6,
1996) 1.32c 0.94c 53.03
- -------------------------------------------------------------------------------------
1996 - Class A Shares 1.45 1.42 57.93
- -------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
110
<PAGE>
[This page intentionally left blank]
111
<PAGE>
CORE LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $10.15 $0.04 $0.40
1999 - Class B Shares 10.15 0.01 0.36
1999 - Class C Shares 10.15 0.01 0.37
1999 - Institutional Shares 10.16 0.06 0.38
1999 - Service Shares 10.16 0.02 0.40
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced December
31, 1998) 10.00 0.01 0.14
1999 - Class B Shares (commenced December
31, 1998) 10.00 -- 0.15
1999 - Class C Shares (commenced December
31, 1998) 10.00 -- 0.15
1999 - Institutional Shares (commenced
December 31, 1998) 10.00 0.01 0.15
1999 - Service Shares (commenced December
31, 1998) 10.00 0.02 0.14
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
112
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
----------------------------
Net assets
From net Net increase Net asset at end of Ratio of
investment From net in net asset value, end Total period net expenses to
income realized gains value of period return/b/,/d/ (in 000s) average net assets/c/
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.04) $ -- $0.40 $10.55 4.31% 91,072 1.04%
(0.02) -- 0.35 10.50 3.68 14,464 1.79
(0.02) -- 0.36 10.51 3.73 8,032 1.79
(0.05) -- 0.39 10.55 4.35 189,540 0.64
(0.03) -- 0.39 10.55 4.11 13 1.14
- ----------------------------------------------------------------------------------------------------
-- -- 0.15 10.15 1.50 6,665 1.08
-- -- 0.15 10.15 1.50 340 1.82
-- -- 0.15 10.15 1.50 268 1.83
-- -- 0.16 10.16 1.60 53,396 0.66
-- -- 0.16 10.16 1.60 2 1.16
- ----------------------------------------------------------------------------------------------------
</TABLE>
113
<PAGE>
CORE LARGE CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income to expenses to income to Portfolio
average net average net average net turnover
assets/c/ assets/c/ assets/c/ rate/d/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares 0.87% 1.21% 0.70% 36.10%
1999 - Class B Shares 0.05 1.96 (0.12) 36.10
1999 - Class C Shares 0.09 1.96 (0.08) 36.10
1999 - Institutional
Shares 1.29 0.81 1.12 36.10
1999 - Service Shares 0.72 1.31 0.55 36.10
- ----------------------------------------------------------------------------------------------
For the Period Ended
January 31,
1999 - Class A
Shares(commenced December
31, 1998) 1.45 8.03 (5.50) 0.00
1999 - Class B
Shares(commenced December
31, 1998) 0.84 8.77 (6.11) 0.00
1999 - Class C
Shares(commenced December
31, 1998) 0.70 8.78 (6.25) 0.00
1999 - Institutional
Shares(commenced December
31, 1998) 1.97 7.61 (4.98) 0.00
1999 - Service
Shares(commenced December
31, 1998) 2.17 8.11 (4.78) 0.00
- ----------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
114
<PAGE>
[This page intentionally left blank]
115
<PAGE>
CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
--------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month Period Ended August
31,
1999 - Class A Shares $32.98 $ 0.03 $1.20
1999 - Class B Shares 32.50 (0.11) 1.17
1999 - Class C Shares 32.40 (0.10) 1.16
1999 - Institutional Shares 33.29 0.11 1.21
1999 - Service Shares 32.85 0.01 1.19
- -----------------------------------------------------------------------------
For The Years Ended January 31,
1999 - Class A Shares 26.59 0.04 7.02
1999 - Class B Shares 26.32 (0.10) 6.91
1999 - Class C Shares 26.24 (0.10) 6.89
1999 - Institutional Shares 26.79 0.20 7.11
1999 - Service Shares 26.53 0.06 7.01
- -----------------------------------------------------------------------------
1998 - Class A Shares 23.32 0.11 5.63
1998 - Class B Shares 23.18 0.11 5.44
1998 - Class C Shares (commenced August
15, 1997) 27.48 0.03 1.22
1998 - Institutional Shares 23.44 0.30 5.65
1998 - Service Shares 23.27 0.19 5.57
- -----------------------------------------------------------------------------
1997 - Class A Shares 19.66 0.16 4.46
1997 - Class B Shares (commenced May 1,
1996) 20.44 0.04 3.70
1997 - Institutional Shares 19.71 0.30 4.51
1997 - Service Shares (commenced June 7,
1996) 21.02 0.13 3.15
- -----------------------------------------------------------------------------
1996 - Class A Shares 14.61 0.19 5.43
1996 - Institutional Shares (commenced
June 15, 1995) 16.97 0.16 3.23
- -----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
116
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- -------------------------------------
Ratio of
In excess Net increase Net assets Ratio of net investment
From net of net (decrease) Net asset at end of net expenses income (loss)
investment investment From net in net asset value, end Total period to average to average
income income realized gains value of period return/b/ (in 000s) net assets net assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1.23 $34.21 3.73%d $614,310 1.14%c 0.15%c
-- -- -- 1.06 33.56 3.26d 214,087 1.89c (0.60)c
-- -- -- 1.06 33.46 3.27d 43,361 1.89c (0.61)c
-- -- -- 1.32 34.61 3.97d 335,465 0.74c 0.54c
-- -- -- 1.20 34.05 3.65d 11,204 1.24c 0.06c
- -------------------------------------------------------------------------------------------------------------
(0.03) (0.01) (0.63) 6.39 32.98 26.89 605,566 1.23 0.15
-- -- (0.63) 6.18 32.50 26.19 152,347 1.85 (0.50)
-- -- (0.63) 6.16 32.40 26.19 26,912 1.87 (0.53)
(0.15) (0.03) (0.63) 6.50 33.29 27.65 307,200 0.69 0.69
(0.10) (0.02) (0.63) 6.32 32.85 27.00 11,600 1.19 0.19
- -------------------------------------------------------------------------------------------------------------
(0.12) -- (2.35) 3.27 26.59 24.96 398,393 1.28 0.51
-- (0.06) (2.35) 3.14 26.32 24.28 59,208 1.79 (0.05)
-- (0.14) (2.35) (1.24) 26.24 4.85d 6,267 1.78c (0.21)c
(0.24) (0.01) (2.35) 3.35 26.79 25.76 202,893 0.65 1.16
(0.07) (0.08) (2.35) 3.26 26.53 25.11 7,841 1.15 0.62
- -------------------------------------------------------------------------------------------------------------
(0.16) -- (0.80) 3.66 23.32 23.75 225,968 1.29 0.91
(0.04) (0.16) (0.80) 2.74 23.18 18.59d 17,258 1.83c 0.06c
(0.28) -- (0.80) 3.73 23.44 24.63 148,942 0.65 1.52
(0.13) (0.10) (0.80) 2.25 23.27 15.92d 3,666 1.15c 0.69c
- -------------------------------------------------------------------------------------------------------------
(0.16) -- (0.41) 5.05 19.66 38.63 129,045 1.25 1.01
(0.24) -- (0.41) 2.74 19.71 20.14d 64,829 0.65c 1.49c
- -------------------------------------------------------------------------------------------------------------
</TABLE>
117
<PAGE>
CORE U.S. EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of
Ratio of net investment
expenses to income (loss) to Portfolio
average net average turnover
assets net assets rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.24%c 0.05%c 41.84%d
1999 - Class B Shares 1.99c (0.70)c 41.84d
1999 - Class C Shares 1.99c (0.71)c 41.84d
1999 - Institutional
Shares 0.84c 0.44c 41.84d
1999 - Service Shares 1.34c (0.04)c 41.84d
- ---------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 1.36 0.02 63.79
1999 - Class B Shares 1.98 (0.63) 63.79
1999 - Class C Shares 2.00 (0.66) 63.79
1999 - Institutional
Shares 0.82 0.56 63.79
1999 - Service Shares 1.32 0.06 63.79
- ---------------------------------------------------------------------------------
1998 - Class A Shares 1.47 0.32 65.89
1998 - Class B Shares 1.96 (0.22) 65.89
1998 - Class C Shares
(commenced August 15,
1997) 1.95c (0.38)c 65.89
1998 - Institutional
Shares 0.82 0.99 65.89
1998 - Service Shares 1.32 0.45 65.89
- ---------------------------------------------------------------------------------
1997 - Class A Shares 1.53 0.67 37.28
1997 - Class B Shares
(commenced May 1, 1996) 2.00c (0.11)c 37.28
1997 - Institutional
Shares 0.85 1.32 37.28
1997 - Service Shares
(commenced June 7, 1996) 1.35c 0.49c 37.28
- ---------------------------------------------------------------------------------
1996 - Class A Shares 1.55 0.71 39.35
1996 - Institutional
Shares (commenced June
15, 1995) 0.96c 1.18c 39.35
- ---------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
118
<PAGE>
[This page intentionally left blank]
119
<PAGE>
CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $16.17 $(0.01) $0.86
1999 - Class B Shares 15.98 (0.07) 0.84
1999 - Class C Shares 15.99 (0.07) 0.83
1999 - Institutional Shares 16.21 0.03 0.86
1999 - Service Shares 16.11 (0.02) 0.86
- -------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 11.97 0.01 4.19
1999 - Class B Shares 11.92 (0.06) 4.12
1999 - Class C Shares 11.93 (0.05) 4.11
1999 - Institutional Shares 11.97 0.02 4.23
1999 - Service Shares 11.95 (0.01) 4.17
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced May 1,
1997) 10.00 0.01 2.35
1998 - Class B Shares (commenced May 1,
1997) 10.00 (0.03) 2.33
1998 - Class C Shares (commenced August
15, 1997) 11.80 (0.02) 0.54
1998 - Institutional Shares (commenced May
1, 1997) 10.00 0.01 2.35
1998 - Service Shares (commenced May 1,
1997) 10.00 (0.02) 2.35
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
120
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
Shareholders
---------------------------------
From In excess Net Net asset Net assets Ratio of
Net of net From net increase value, at end of net expenses
Investment investment realized in net end of Total period to average
Income income gains asset value period return/b/ (in 000s) net assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.85 $17.02 5.26%d $300,684 1.04%c
-- -- -- 0.77 16.75 4.82d 181,626 1.79c
-- -- -- 0.76 16.75 4.75d 75,502 1.79c
-- -- -- 0.89 17.10 5.49d 310,704 0.64c
-- -- -- 0.84 16.95 5.21d 2,510 1.14c
- -------------------------------------------------------------------------------------------
-- -- -- 4.20 16.17 35.10 175,510 0.97
-- -- -- 4.06 15.98 34.07 93,711 1.74
-- -- -- 4.06 15.99 34.04 37,081 1.74
-- (0.01) -- 4.24 16.21 35.54 295,734 0.65
-- -- -- 4.16 16.11 34.85 1,663 1.15
- -------------------------------------------------------------------------------------------
(0.01) -- (0.38) 1.97 11.97 23.79d 53,786 0.91c
-- -- (0.38) 1.92 11.92 23.26d 13,857 1.67c
-- (0.01) (0.38) 0.13 11.93 4.56d 4,132 1.68c
(0.01) -- (0.38) 1.97 11.97 23.89d 4,656 0.72c
-- -- (0.38) 1.95 11.95 23.56d 115 1.17c
- -------------------------------------------------------------------------------------------
</TABLE>
121
<PAGE>
CORE LARGE CAP GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of Ratio of net
net investment Ratio of investment
income (loss) to expenses to (loss) to Portfolio
average net average net average net turnover
assets assets assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.11)%c 1.26%c (0.33)%c 32.74%d
1999 - Class B Shares (0.87)c 2.01c (1.09)c 32.74d
1999 - Class C Shares (0.87)c 2.01c (1.09)c 32.74d
1999 - Institutional
Shares 0.31c 0.86c 0.09c 32.74d
1999 - Service Shares (0.21)c 1.36c (0.43)c 32.74d
- -------------------------------------------------------------------------------
For the Year Ended January
31,
1999 - Class A Shares 0.05 1.46 (0.44) 63.15
1999 - Class B Shares (0.73) 2.11 (1.10) 63.15
1999 - Class C Shares (0.74) 2.11 (1.11) 63.15
1999 - Institutional
Shares 0.35 1.02 (0.02) 63.15
1999 - Service Shares (0.16) 1.52 (0.53) 63.15
- -------------------------------------------------------------------------------
For the Period Ended
January 31,
1998 - Class A Shares
(commenced May 1, 1997) 0.12 c 2.40c (1.37)c 74.97d
1998 - Class B Shares
(commenced May 1, 1997) (0.72)c 2.91c (1.96)c 74.97d
1998 - Class C Shares
(commenced August 15,
1997) (0.76)c 2.92c (2.00)c 74.97d
1998 - Institutional
Shares (commenced May 1,
1997) 0.42 c 1.96c (0.82)c 74.97d
1998 - Service Shares
(commenced May 1, 1997) (0.21)c 2.41c (1.45)c 74.97d
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
122
<PAGE>
[This page intentionally left blank]
123
<PAGE>
CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net Net
value, investment realized and
beginning income unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August 31,
1999 - Class A Shares $10.16 $(0.01) $0.08
1999 - Class B Shares 10.07 (0.05) 0.07
1999 - Class C Shares 10.08 (0.05) 0.07
1999 - Institutional Shares 10.20 0.02 0.08
1999 - Service Shares 10.16 (0.01) 0.07
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 10.59 0.01 (0.43)
1999 - Class B Shares 10.56 (0.05) (0.44)
1999 - Class C Shares 10.57 (0.04) (0.45)
1999 - Institutional Shares 10.61 0.04 (0.43)
1999 - Service Shares 10.60 0.01 (0.44)
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced August 15,
1997) 10.00 (0.01) 0.65
1998 - Class B Shares (commenced August 15,
1997) 10.00 (0.03) 0.64
1998 - Class C Shares (commenced August 15,
1997) 10.00 (0.02) 0.64
1998 - Institutional Shares (commenced
August 15, 1997) 10.00 0.01 0.65
1998 - Service Shares (commenced August 15,
1997) 10.00 0.01 0.64
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
124
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
Shareholders
----------------------------
From Net Net asset Net assets Ratio of
net increase value, at end of net expenses
investment From net in net end of Total period to average
income realized gains asset value period return/b/ (in 000s) net assets
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $0.07 $10.23 0.69%d $52,660 1.33%c
-- -- 0.02 10.09 0.20d 13,711 2.08c
-- -- 0.02 10.10 0.20d 6,274 2.08c
-- -- 0.10 10.30 0.98d 62,633 0.93c
-- -- 0.06 10.22 0.59d 64 1.43c
- --------------------------------------------------------------------------------------
(0.01) -- (0.43) 10.16 (3.97) 64,087 1.31
-- -- (0.49) 10.07 (4.64) 15,406 2.00
-- -- (0.49) 10.08 (4.64) 6,559 2.01
(0.02) -- (0.41) 10.20 (3.64) 62,763 0.94
(0.01) -- (0.44) 10.16 (4.07) 54 1.44
- --------------------------------------------------------------------------------------
-- (0.05) 0.59 10.59 6.37d 11,118 1.25c
-- (0.05) 0.56 10.56 6.07d 9,957 1.95c
-- (0.05) 0.57 10.57 6.17d 2,557 1.95c
-- (0.05) 0.61 10.61 6.57d 9,026 0.95c
-- (0.05) 0.60 10.60 6.47d 2 1.45c
- --------------------------------------------------------------------------------------
</TABLE>
125
<PAGE>
CORE SMALL CAP EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of net Ratio of net
investment Ratio of investment
income (loss) expenses to loss Portfolio
to average average net to average turnover
net assets assets net assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.12)%c 1.67%c (0.46)%c 52.03%d
1999 - Class B Shares (0.86)c 2.42c (1.20)c 52.03d
1999 - Class C Shares (0.86)c 2.42c (1.20)c 52.03d
1999 - Institutional Shares 0.28c 1.27c (0.06)c 52.03d
1999 - Service Shares (0.22)c 1.77c (0.56)c 52.03d
- ------------------------------------------------------------------------------
For the Year Ended January
31,
1999 - Class A Shares 0.08 2.00 (0.61) 75.38
1999 - Class B Shares (0.55) 2.62 (1.17) 75.38
1999 - Class C Shares (0.56) 2.63 (1.18) 75.38
1999 - Institutional Shares 0.60 1.56 (0.02) 75.38
1999 - Service Shares 0.01 2.06 (0.61) 75.38
- ------------------------------------------------------------------------------
For the Period Ended January
31,
1998 - Class A Shares
(commenced August 15, 1997) (0.36)c 3.92c (3.03)c 37.65d
1998 - Class B Shares
(commenced August 15, 1997) (1.04)c 4.37c (3.46)c 37.65d
1998 - Class C Shares
(commenced August 15, 1997) (1.07)c 4.37c (3.49)c 37.65d
1998 - Institutional Shares
(commenced August 15, 1997) 0.15c 3.37c (2.27)c 37.65d
1998 - Service Shares
(commenced August 15, 1997) 0.40c 3.87c (2.02)c 37.65d
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
126
<PAGE>
[This page intentionally left blank]
127
<PAGE>
CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $24.03 $(0.08) $1.01
1999 - Class B Shares 23.57 (0.17) 0.97
1999 - Class C Shares 23.52 (0.16) 0.97
1999 - Institutional Shares 24.07 (0.02) 1.01
1999 - Service Shares 23.96 (0.08) 1.00
- ----------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 18.48 (0.03) 6.35
1999 - Class B Shares 18.27 (0.12) 6.19
1999 - Class C Shares 18.24 (0.10) 6.15
1999 - Institutional Shares 18.45 0.01 6.38
1999 - Service Shares 18.46 (0.04) 6.31
- ----------------------------------------------------------------------------
1998 - Class A Shares 16.73 0.02 4.78
1998 - Class B Shares 16.67 0.02 4.61
1998 - Class C Shares (commenced August
15, 1997) 19.73 (0.02) 1.60
1998 - Institutional Shares (commenced
August 15, 1997) 19.88 0.02 1.66
1998 - Service Shares (commenced August
15, 1997) 19.88 (0.01) 1.66
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.91 0.10 3.56
1997 - Class B Shares (commenced May 1,
1996) 15.67 0.01 2.81
- ----------------------------------------------------------------------------
1996 - Class A Shares 13.67 0.12 3.93
- ----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
128
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net value, end Total period to average
income income realized gain asset value of period return/b/ (in 000s) net assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.93 $24.96 3.87%d $1,971,097 1.44%c
-- -- -- 0.80 24.37 3.39d 329,870 2.19c
-- -- -- 0.81 24.33 3.44d 87,284 2.19c
-- -- -- 0.99 25.06 4.11d 255,210 1.04c
-- -- -- 0.92 24.88 3.84d 6,466 1.54c
- --------------------------------------------------------------------------------------------------
-- -- (0.77) 5.55 24.03 34.58 1,992,716 1.42
-- -- (0.77) 5.30 23.57 33.60 236,369 2.19
-- -- (0.77) 5.28 23.52 33.55 60,234 2.19
-- -- (0.77) 5.62 24.07 35.02 41,817 1.07
-- -- (0.77) 5.50 23.96 34.34 3,085 1.57
- --------------------------------------------------------------------------------------------------
(0.01) (0.01) (3.03) 1.75 18.48 29.71 1,256,595 1.40
-- -- (3.03) 1.60 18.27 28.73 40,827 2.18
-- (0.04) (3.03) (1.49) 18.24 8.83d 5,395 2.21c
(0.01) (0.07) (3.03) (1.43) 18.45 9.31d 7,262 1.16c
-- (0.04) (3.03) (1.42) 18.46 9.18d 2 1.50c
- --------------------------------------------------------------------------------------------------
(0.10) (0.02) (1.72) 1.82 16.73 25.97 920,646 1.40
(0.01) (0.09) (1.72) 1.00 16.67 19.39d 3,221 2.15c
- --------------------------------------------------------------------------------------------------
(0.12) -- (2.69) 1.24 14.91 30.45 881,056 1.36
- --------------------------------------------------------------------------------------------------
</TABLE>
129
<PAGE>
CAPITAL GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) expenses to income (loss) Portfolio
to average average net to average turnover
net assets assets net assets rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.53)%c 1.47%c (0.56)%c 18.16%d
1999 - Class B Shares (1.29)c 2.22c (1.32)c 18.16d
1999 - Class C Shares (1.29)c 2.22c (1.32)c 18.16d
1999 - Institutional
Shares (0.20)c 1.07c (0.23)c 18.16d
1999 - Service Shares (0.65)c 1.57c (0.68)c 18.16d
- ---------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.18) 1.58 (0.34) 30.17
1999 - Class B Shares (0.98) 2.21 (1.00) 30.17
1999 - Class C Shares (1.00) 2.21 (1.02) 30.17
1999 - Institutional
Shares 0.11 1.09 0.09 30.17
1999 - Service Shares (0.37) 1.59 (0.39) 30.17
- ---------------------------------------------------------------------------------
1998 - Class A Shares 0.08 1.65 (0.17) 61.50
1998 - Class B Shares (0.77) 2.18 (0.77) 61.50
1998 - Class C Shares
(commenced August 15,
1997) (0.86)c 2.21c (0.86)c 61.50
1998 - Institutional
Shares (commenced August
15, 1997) 0.18c 1.16c 0.18c 61.50
1998 - Service Shares
(commenced August 15, 1997) (0.16)c 1.50c (0.16)c 61.50
- ---------------------------------------------------------------------------------
1997 - Class A Shares 0.62 1.65 0.37 52.92
1997 - Class B Shares
(commenced May 1, 1996) (0.39)c 2.15c (0.39)c 52.92
- ---------------------------------------------------------------------------------
1996 - Class A Shares 0.65 1.61 0.40 63.90
- ---------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
130
<PAGE>
[This page intentionally left blank]
131
<PAGE>
STRATEGIC GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
----------------------------
Net asset Net
value, investment
beginning income Net realized and
of period (loss) unrealized gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For The Period Ended August 31,
1999 - Class A Shares (commenced May 24) $10.00 $ -- $0.06
1999 - Class B Shares (commenced May 24) 10.00 (0.03)e 0.07e
1999 - Class C Shares (commenced May 24) 10.00 (0.03)e 0.08e
1999 - Institutional Shares (commenced
May 24) 10.00 0.01 0.06
1999 - Service Shares (commenced May 24) 10.00 (0.01) 0.07
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
132
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net assets
From net of net Net increase Net asset at end of Ratio of
investment investment From net in net asset value, end Total period net expenses to
income income realized gains value of period returnb (in 000s) average net assets
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.06 $10.06 0.60%d $10,371 1.44%c
-- -- -- 0.04 10.04 0.40d 3,393 2.19c
-- -- -- 0.05 10.05 0.50d 2,388 2.19c
-- -- -- 0.07 10.07 0.70d 5,981 1.04c
-- -- -- 0.06 10.06 0.60d 2 1.54c
- ------------------------------------------------------------------------------------------------------
</TABLE>
133
<PAGE>
STRATEGIC GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees or expense
limitations
--------------------
Ratio of
net Ratio of Ratio of
investment expenses net
income to investment
(loss) to average loss to Portfolio
average net average turnover
net assets assets net assets rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For The Period Ended August 31,
1999 - Class A Shares (commenced
May 24) (0.17)%c 11.70%c (10.43)%c 6.98%d
1999 - Class B Shares (commenced
May 24) (0.97)c 12.45c (11.23)c 6.98d
1999 - Class C Shares (commenced
May 24) (0.99)c 12.45c (11.25)c 6.98d
1999 - Institutional Shares
(commenced May 24) 0.24c 11.30c (10.02)c 6.98d
1999 - Service Shares (commenced
May 24) (0.24)c 11.80c (10.50)c 6.98d
- -----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
134
<PAGE>
[This page intentionally left blank]
135
<PAGE>
GROWTH OPPORTUNITIES FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain
- -------------------------------------------------------------------------------
For the Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares (commenced May 24) $10.00 $(0.01)e $0.14e
1999 - Class B Shares (commenced May 24) 10.00 (0.03)e 0.21e
1999 - Class C Shares (commenced May 24) 10.00 (0.03)e 0.13e
1999 - Institutional Shares (commenced May
24) 10.00 0.01 0.12
1999 - Service Shares (commenced May 24) 10.00 -- 0.12
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
136
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period returnb (in 000s) net assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.13 $10.13 1.30%d $8,204 1.44%c
-- -- -- 0.18 10.18 1.80d 520 2.19c
-- -- -- 0.10 10.10 1.00d 256 2.19c
-- -- -- 0.13 10.13 1.30d 5,223 1.04c
-- -- -- 0.12 10.12 1.20d 2 1.54c
- -------------------------------------------------------------------------------------------------
</TABLE>
137
<PAGE>
GROWTH OPPORTUNITIES FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio Ratio
of net of net
investment Ratio of investment
income (loss) expenses to loss to Portfolio
to average average net average turnover
net assets assets net assets rate
- -------------------------------------------------------------------------------------
For the Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares
(commenced May 24) (0.27)%c 14.15%c (12.98)%c 26.53%d
1999 - Class B Shares
(commenced May 24) (1.04)c 14.90c (13.75)c 26.53d
1999 - Class C Shares
(commenced May 24) (1.12)c 14.90c (13.83)c 26.53d
1999 - Institutional
Shares (commenced May
24) 0.39c 13.75c (12.32)c 26.53d
1999 - Service Shares
(commenced May 24) 0.03c 14.25c (12.68)c 26.53d
- -------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
138
<PAGE>
[This page intentionally left blank]
139
<PAGE>
MID CAP VALUE FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $18.38 $0.06 $1.71
1999 - Class B Shares 18.29 (0.04) 1.71
1999 - Class C Shares 18.30 (0.04) 1.71
1999 - Institutional Shares 18.37 0.09 1.72
1999 - Service Shares 18.29 0.05 1.70
- ------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 21.61 0.10 (2.38)
1999 - Class B Shares 21.57 (0.05) (2.35)
1999 - Class C Shares 21.59 (0.05) (2.34)
1999 - Institutional Shares 21.65 0.19 (2.38)
1999 - Service Shares 21.62 0.03 (2.31)
- ------------------------------------------------------------------------------
1998 - Class A Shares (commenced August
15, 1997) 23.63 0.09 0.76
1998 - Class B Shares (commenced August
15, 1997) 23.63 0.06 0.74
1998 - Class C Shares (commenced August
15, 1997) 23.63 0.06 0.76
1998 - Institutional Shares 18.73 0.16 5.66
1998 - Service Shares (commenced July 18,
1997) 23.01 0.09 1.40
- ------------------------------------------------------------------------------
1997 - Institutional Shares 15.91 0.24 3.77
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1996 - Institutional Shares (commenced
August 1, 1995) 15.00 0.13 0.90
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
140
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $(1.73) $ 0.04 $18.42 9.04%d $49,081 1.29%c
-- -- (1.73) (0.06) 18.23 8.53d 31,824 2.04c
-- -- (1.73) (0.06) 18.24 8.52d 9,807 2.04c
-- -- (1.73) 0.08 18.45 9.26d 190,549 0.89c
-- -- (1.73) 0.02 18.31 8.97d 190 1.39c
- ---------------------------------------------------------------------------------------------------
(0.07) -- (0.88) (3.23) 18.38 (10.48) 70,578 1.33
-- -- (0.88) (3.28) 18.29 (11.07) 37,821 1.93
(0.02) -- (0.88) (3.29) 18.30 (11.03) 10,800 1.93
(0.21) -- (0.88) (3.28) 18.37 (10.07) 196,512 0.87
(0.17) -- (0.88) (3.33) 18.29 (10.48) 289 1.37
- ---------------------------------------------------------------------------------------------------
(0.06) (0.04) (2.77) (2.02) 21.61 3.42d 90,588 1.35c
(0.09) -- (2.77) (2.06) 21.57 3.17d 28,743 1.85c
(0.09) -- (2.77) (2.04) 21.59 3.27d 6,445 1.85c
(0.13) -- (2.77) 2.92 21.65 30.86 236,440 0.85
(0.11) -- (2.77) (1.39) 21.62 6.30d 8 1.35c
- ---------------------------------------------------------------------------------------------------
(0.24) (0.93) (0.02) 2.82 18.73 25.63 145,253 0.85
- ---------------------------------------------------------------------------------------------------
(0.12) -- -- 0.91 15.91 6.89d 135,671 0.85c
- ---------------------------------------------------------------------------------------------------
</TABLE>
141
<PAGE>
MID CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
expense limitations
--------------------------
Ratio of
net
investment Ratio of
income Ratio of net investment
(loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares 0.43%c 1.37%c 0.35%c 68.84%d
1999 - Class B Shares (0.33)c 2.12c (0.41)c 68.84d
1999 - Class C Shares (0.34)c 2.12c (0.42)c 68.84d
1999 - Institutional Shares 0.79c 0.97c 0.71c 68.84d
1999 - Service Shares 0.38c 1.47c 0.30c 68.84d
- ------------------------------------------------------------------------------
For the Years Ended January
31,
1999 - Class A Shares 0.38 1.41 0.30 92.18
1999 - Class B Shares (0.22) 2.01 (0.30) 92.18
1999 - Class C Shares (0.22) 2.01 (0.30) 92.18
1999 - Institutional Shares 0.83 0.95 0.75 92.18
1999 - Service Shares 0.32 1.45 0.24 92.18
- ------------------------------------------------------------------------------
1998 - Class A Shares
(commenced August 15, 1997) 0.33c 1.47c 0.21c 62.60
1998 - Class B Shares
(commenced August 15, 1997) (0.20)c 1.97c (0.32)c 62.60
1998 - Class C Shares
(commenced August 15, 1997) (0.23)c 1.97c (0.35)c 62.60
1998 - Institutional Shares 0.78 0.97 0.66 62.60
1998 - Service Shares
(commenced July 18, 1997) 0.63c 1.43c 0.51c 62.60
- ------------------------------------------------------------------------------
1997 - Institutional Shares 1.35 0.91 1.29 74.03
- ------------------------------------------------------------------------------
For the Period Ended January
31,
1996 - Institutional Shares
(commenced August 1, 1995) 1.67c 0.98c 1.54c 58.77d
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
142
<PAGE>
[This page intentionally left blank]
143
<PAGE>
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operations/a/
--------------------------------
Net asset
value, Net Net realized and
beginning investment unrealized
of period income (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended
August 31,
1999 - Class A Shares $18.51 $(0.05) $1.34
1999 - Class B Shares 18.10 (0.12) 1.29
1999 - Class C Shares 18.12 (0.11) 1.27
1999 - Institutional Shares 18.62 -- 1.33
1999 - Service Shares 18.50 (0.13) 1.39
- ------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 24.05 (0.06) (4.48)
1999 - Class B Shares 23.73 (0.21) (4.42)
1999 - Class C Shares 23.73 (0.18) (4.43)
1999 - Institutional Shares 24.09 0.03 (4.50)
1999 - Service Shares 24.05 (0.04) (4.51)
- ------------------------------------------------------------------------------
1998 - Class A Shares 20.91 0.14 5.33
1998 - Class B Shares 20.80 (0.01) 5.27
1998 - Class C Shares (commenced
August 15, 1997) 24.69 (0.06) 1.43
1998 - Institutional Shares
(commenced August 15, 1997) 24.91 0.03 1.48
1998 - Service Shares (commenced
August 15, 1997) 24.91 (0.01) 1.48
- ------------------------------------------------------------------------------
1997 - Class A Shares 17.29 (0.21) 4.92
1997 - Class B Shares (commenced May
1, 1996) 20.79 (0.11) 1.21
- ------------------------------------------------------------------------------
1996 - Class A Shares 16.14 (0.23) 1.39
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
144
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
----------------------------
In excess Net increase Net asset Net assets Ratio of
of net (decrease) value, at end of net expenses
investment From net in net asset end of Total period to average
income realized gains value period return/b/ (in 000s) net assets
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $1.29 $19.80 6.97%d $210,500 1.50%c
-- -- 1.17 19.27 6.46d 37,386 2.25c
-- -- 1.16 19.28 6.40d 8,079 2.25c
-- -- 1.33 19.95 7.14d 27,023 1.10c
-- -- 1.26 19.76 6.81d 57 1.60c
- ----------------------------------------------------------------------------------------
-- (1.00) (5.54) 18.51 (17.37) 261,661 1.50
-- (1.00) (5.63) 18.10 (18.00) 42,879 2.25
-- (1.00) (5.61) 18.12 (17.91) 8,212 2.25
-- (1.00) (5.47) 18.62 (17.04) 15,351 1.13
-- (1.00) (5.55) 18.50 (17.41) 261 1.62
- ----------------------------------------------------------------------------------------
-- (2.33) 3.14 24.05 26.17 370,246 1.54
-- (2.33) 2.93 23.73 25.29 42,677 2.29
(0.34) (1.99) (0.96) 23.73 5.51d 5,604 2.09c
(0.28) (2.05) (0.82) 24.09 6.08d 14,626 1.16c
(0.31) (2.02) (0.86) 24.05 5.91d 2 1.45c
- ----------------------------------------------------------------------------------------
-- (1.09) 3.62 20.91 27.28 212,061 1.60
-- (1.09) 0.01 20.80 5.39d 3,674 2.35c
- ----------------------------------------------------------------------------------------
-- (0.01) 1.15 17.29 7.20 204,994 1.41
- ----------------------------------------------------------------------------------------
</TABLE>
145
<PAGE>
SMALL CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
-----------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares (0.35)%c 1.61%c (0.46)%c 46.95%d
1999 - Class B Shares (1.10)c 2.36c (1.21)c 46.95d
1999 - Class C Shares (1.10)c 2.36c (1.21)c 46.95d
1999 - Institutional
Shares 0.05c 1.21c (0.06)c 46.95d
1999 - Service Shares (0.41)c 1.71c (0.52)c 46.95d
- -----------------------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.24) 1.74 (0.48) 98.46
1999 - Class B Shares (0.99) 2.29 (1.03) 98.46
1999 - Class C Shares (0.99) 2.29 (1.03) 98.46
1999 - Institutional
Shares 0.13 1.17 0.09 98.46
1999 - Service Shares (0.47) 1.66 (0.51) 98.46
- -----------------------------------------------------------------------------------------------
1998 - Class A Shares (0.28) 1.76 (0.50) 84.81
1998 - Class B Shares (0.92) 2.29 (0.92) 84.81
1998 - Class C Shares
(commenced August
15, 1997) (0.79)c 2.09c (0.79)c 84.81
1998 - Institutional
Shares (commenced
August 15, 1997) 0.27c 1.16c 0.27c 84.81
1998 - Service Shares
(commenced August 15,
1997) (0.07)c 1.45c (0.07)c 84.81
- -----------------------------------------------------------------------------------------------
1997 - Class A Shares (0.72) 1.85 (0.97) 99.46
1997 - Class B Shares
(commenced May 1, 1996) (1.63)c 2.35c (1.63)c 99.46
- -----------------------------------------------------------------------------------------------
1996 - Class A Shares (0.59) 1.66 (0.84) 57.58
- -----------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
146
<PAGE>
Appendix C
Prior Performance of Similarly Advised Accounts of the Investment Adviser
CORE LARGE CAP VALUE FUND
The following table sets forth the Investment Adviser's composite perfor-
mance data relating to the historical performance of all discretionary pri-
vate accounts managed by the Investment Adviser that have investment objec-
tives, policies, and strategies substantially similar to the CORE Large Cap
Value Fund. The information is provided to illustrate the past performance
of the Investment Adviser in managing substantially similar accounts as mea-
sured against the Russell 1000 Value Index and does not represent the per-
formance of the CORE Large Cap Value Fund. Investors should not consider
this performance data as a substitute for the performance of the CORE Large
Cap Value Fund nor should investors consider this data as an indication of
future performance of the CORE Large Cap Value Fund or of the Investment
Adviser. The Russell 1000 Value Index is unmanaged and investors cannot
invest directly in the Index.
<TABLE>
<CAPTION>
Private Account Private Account Private Account Private Account
Net Composite Net Composite Net Composite Net Composite Russell
Performance Performance Performance Performance 1000
(including Class A (including Class B (including Class C (excluding Value
sales charge) sales charge) sales charge) sales charges) Index
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 5.27% 6.40% 10.40% 11.40% 15.64%
1997 25.30% 27.59% 31.59% 32.59% 35.18%
1996 19.46% 21.41% 25.41% 26.41% 21.64%
1995 30.34% 32.92% 36.92% 37.92% 38.35%
1994 (7.55)% (7.06)% (3.14)% (2.17)% (2.01)%
1993 10.48% 11.90% 15.90% 16.90% 18.12%
8/1/92 - 12/31/92 (0.41)% 0.39% 4.39% 5.39% 4.01%
- -----------------------------------------------------------------------------------------------------
</TABLE>
147
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for
the
Period Ended 12/31/98
Since
Inception
1 Year 3 Years 5 Years (8/1/92)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private Account Net Composite Performance
(including Class A sales charge) 5.27% 20.82% 18.92% 18.67%
Private Account Net Composite Performance
(including Class B sales charge) 6.40% 22.61% 20.11% 19.30%
Private Account Net Composite Performance
(including Class C sales charge) 10.40% 23.13% 20.30% 19.30%
Private Account Net Composite Performance
(excluding sales charges) 11.40% 23.13% 20.30% 19.30%
Russell 1000 Value Index 15.64% 23.88% 20.85% 19.68%
- -----------------------------------------------------------------------------
</TABLE>
The Investment Adviser's composite performance information was calculated on
a time-weighted and asset-weighted total return basis which includes real-
ized and unrealized gains and losses plus income, as recommended by the
Association for Investment Management and Research ("AIMR"). The composite
performance is net of applicable investment management fees, brokerage com-
missions, execution costs and custodial fees, without provision for federal
and state taxes, if any. Total return performance of the CORE Large Cap
Value Fund will be calculated in accordance with the regulations of the SEC.
The SEC standardized average annualized total return is neither time-
weighted nor asset-weighted and is determined for specified periods by com-
puting the annualized percentage change in the value of an initial amount
that is invested in a share class of the Fund at the maximum public offering
price. Investors should be aware that the differences in methodology between
AIMR and SEC requirements could result in different performance data for
identical time periods.
Performance reflects the deduction of the maximum 5.5% front-end sales
charge with respect to Class A Shares and the maximum CDSC with respect to
Class B (5%) and Class C Shares (1%). All returns presented reflect the
reinvestment of dividends and other earnings. The weighted-average expenses
of the private accounts used in calculating the Investment Adviser's net
composite performance data were 0.59% annualized, which are lower than the
estimated expenses of Class A, Class B and Class C Shares of the CORE Large
Cap Value Fund stated under "Fund Fees and Expenses" above. The performance
of the private accounts
148
<PAGE>
APPENDIX C
would have been lower if they had been subject to the expenses of the CORE
Large Cap Value Fund. In addition, the private accounts are not subject to
the same diversification requirements, specific tax restrictions and invest-
ment limitations imposed on the CORE Large Cap Value Fund by the Act and
Subchapter M of the Code. Consequently, the performance results of the
Investment Adviser's composite could have been adversely affected if the
private accounts had been regulated as investment companies under the fed-
eral securities laws.
149
<PAGE>
Appendix D
Prior Performance of Similarly Advised Accounts of the Investment Adviser
STRATEGIC GROWTH FUND
The following table sets forth the Investment Adviser's composite perfor-
mance data relating to the historical performance of all discretionary pri-
vate accounts managed by the Investment Adviser that have investment objec-
tives, policies, and strategies substantially similar to the Strategic
Growth Fund. The information is provided to illustrate the past performance
of the Investment Adviser in managing substantially similar accounts as mea-
sured against the S&P 500 Index and does not represent the performance of
the Strategic Growth Fund. Investors should not consider this performance
data as a substitute for the performance of the Strategic Growth Fund nor
should investors consider this data as an indication of future performance
of the Strategic Growth Fund or of the Investment Adviser. The S&P 500 Index
is unmanaged and investors cannot invest directly in the Index.
<TABLE>
<CAPTION>
Private Account Private Account Private Account Private Account
Net Composite Net Composite Net Composite Net Composite
Performance Performance Performance Performance
(including Class A (including Class B (including Class C (excluding S&P 500
sales charge) sales charge) sales charge) sales charges) Index
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 27.91% 30.35% 34.35% 35.35% 28.57%
1997 33.37% 36.14% 40.14% 41.14% 33.37%
1996 15.12% 16.79% 20.79% 21.79% 22.95%
1995 21.02% 23.07% 27.07% 28.07% 37.58%
1994 -7.11% -6.69% -2.69% -1.69% 1.32%
1993 10.66% 12.10% 16.10% 17.10% 10.08%
1992 3.21% 4.22% 8.22% 9.22% 7.62%
1991 29.88% 32.44% 36.44% 37.44% 30.47%
1990 -14.31% -14.32% -10.32% -9.32% -3.05%
1989 26.46% 28.82% 32.82% 33.82% 31.70%
1988 16.83v% 18.63% 22.63% 23.63% 16.61%
1987 -0.45% 0.34% 4.34% 5.34% 5.25%
1986 12.44% 13.99% 17.99% 18.99% 18.67%
1985 30.39% 32.98% 36.98% 37.98% 31.73%
1984 2.55v% 3.52% 7.52% 8.52% 6.19%
1983 27.02% 29.41% 33.41% 34.41% 22.56%
1982 27.04% 29.43% 33.43% 34.43% 21.55%
1981 -4.54% -3.98% 0.02% 1.02% -4.97%
- ----------------------------------------------------------------------------------------
</TABLE>
150
<PAGE>
APPENDIX D
<TABLE>
<CAPTION>
Average Annual Total Return for the
Period Ended 12/31/98
Since
Inception
1 Year 3 Years 5 Years 10 Years (1/1/81)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private Account Net Composite
Performance
(including Class A sales
charge) 27.91% 30.01% 22.56% 19.43% 19.57%
Private Account Net Composite
Performance
(including Class B sales
charge) 30.35% 32.07% 23.37% 20.11% 19.96%
Private Account Net Composite
Performance
(including Class C sales
charge) 34.35% 32.51% 23.98% 20.11% 19.96%
Private Account Net Composite
Performance
(excluding sales charges) 35.35% 32.51% 23.98% 20.11% 19.96%
S&P 500 Index 28.57% 28.23% 24.06% 19.22% 16.94%
- ----------------------------------------------------------------------------
</TABLE>
The Investment Adviser's composite performance information was calculated on
a time-weighted and asset-weighted total return basis which includes real-
ized and unrealized gains and losses plus income, as recommended by the
Association for Investment Management and Research ("AIMR"). The composite
performance is net of applicable investment management fees, brokerage com-
missions, execution costs and custodial fees, without provision for federal
and state taxes, if any. Total return performance of the Strategic Growth
Fund will be calculated in accordance with the regulations of the SEC. The
SEC standardized average annual total return is neither time-weighted nor
asset-weighted and is determined for specified periods by computing the
annualized percentage change in the value of an initial amount that is
invested in a share class of the Fund at the maximum public offering price.
Investors should be aware that the differences in methodology between AIMR
and SEC requirements could result in different performance data for identi-
cal time periods.
Performance reflects the deduction of the maximum 5.5% front-end sales
charge with respect to Class A Shares and the maximum CDSC with respect to
Class B (5%) and Class C Shares (1%). All returns presented reflect the
reinvestment of dividends and other earnings. The weighted-average expenses
of the private accounts used in calculating the Investment Adviser's net
composite performance data were 0.76% annualized, which are lower than the
estimated expenses of Class A, Class B and Class C Shares of the Strategic
Growth Fund stated under "Fund Fees and Expenses" above. The performance of
the private accounts
151
<PAGE>
would have been lower if they had been subject to the expenses of the Stra-
tegic Growth Fund. In addition, the private accounts are not subject to the
same diversification requirements, specific tax restrictions and investment
limitations imposed on the Strategic Growth Fund by the Act and Subchapter M
of the Code. Consequently, the performance results of the Investment Advis-
er's composite could have been adversely affected if the private accounts
had been regulated as investment companies under the federal securities
laws.
152
<PAGE>
Index
<TABLE>
<C> <C> <S>
1 General Investment
Management Approach
3 Fund Investment Objectives
and Strategies
3 Goldman Sachs Balanced
Fund
5 Goldman Sachs Growth and
Income Fund
6 Goldman Sachs CORE Large
Cap Value Fund
7 Goldman Sachs CORE U.S.
Equity Fund
8 Goldman Sachs CORE Large
Cap Growth Fund
9 Goldman Sachs CORE Small
Cap Equity Fund
10 Goldman Sachs Capital
Growth Fund
11 Goldman Sachs Strategic
Growth Fund
12 Goldman Sachs Growth
Opportunities Fund
13 Goldman Sachs Mid Cap
Value Fund
14 Goldman Sachs Small Cap
Value Fund
15 Goldman Sachs Large Cap Value Fund
</TABLE>
<TABLE>
<C> <C> <S>
16 Other Investment
Practices and
Securities
20 Principal Risks of the
Funds
24 Fund Performance
34 Fund Fees and Expenses
51 Service Providers
59 Dividends
61 Shareholder Guide
61 How To Buy Shares
70 How To Sell Shares
80 Taxation
82 Appendix A
Additional Information
on Portfolio Risks,
Securities and
Techniques
104 Appendix B
Financial Highlights
147 Appendix C
CORE Large Cap Value
Fund-Prior Performance
of Similarly Advised
Accounts of the
Investment Adviser
150 Appendix D
Strategic Growth Fund-
Prior Performance of
Similarly Advised
Accounts of the
Investment Adviser
</TABLE>
<PAGE>
Domestic Equity Funds
Prospectus (Class A, B and C Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this Pro-
spectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-526-7384.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-526-7384
By mail - Goldman Sachs Funds, 4900 Sears Tower - 60th Floor, Chicago, IL
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
The Funds' investment company registration number is 811-5349.
CORE/SM/ is a service mark of Goldman, Sachs & Co.
511044
EQDOMPROABC
<PAGE>
Prospectus
GOLDMAN SACHS DOMESTIC EQUITY FUNDS
Institutional
Shares
November 30, 1999
..Goldman Sachs
Balanced Fund
..Goldman Sachs
Growth and
Income Fund
..Goldman Sachs
CORE SM
Large Cap Value
Fund
..Goldman Sachs
CORE SM U.S.
Equity Fund
..Goldman Sachs
CORE SM Large
Cap Growth
Fund
..Goldman Sachs
CORE SM Small
Cap Equity
Fund
..Goldman Sachs
Capital Growth
Fund
..Goldman Sachs
Strategic
Growth Fund
..Goldman Sachs
Growth
Opportunities
Fund
..Goldman Sachs
Mid Cap Value
Fund (formerly
Mid
Cap Equity)
..Goldman Sachs
Small Cap
Value Fund
..Goldman Sachs
Large Cap
Value Fund
[LOGO OF GOLDMAN SACHS]
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
[ART]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the Balanced, Growth and Income, CORE Large Cap Value, CORE Large Cap
Growth, CORE Small Cap Equity, Strategic Growth, Growth Opportunities, Mid
Cap Value, Small Cap Value and Large Cap Value Funds. Goldman Sachs Funds
Management, L.P. serves as investment adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Asset Management and Goldman Sachs Funds
Management, L.P. are each referred to in this Prospectus as the "Investment
Adviser."
VALUE STYLE FUNDS
Goldman Sachs' Value Investment Philosophy:
Through intensive, hands-on research our portfolio team seeks to identify:
1. Attractive valuation opportunities where:
..The intrinsic value of the business is not reflected in the stock price
..The stock price is overdiscounted due to a temporary event
2. Well-positioned businesses that have:
..Attractive returns on capital
..Sustainable earnings and cash flow
..Strong company management focused on long-term returns to shareholders
Business quality, conservative valuation, and thoughtful portfolio construc-
tion are the key elements of our value approach.
- --------------------------------------------------------------------------------
GROWTH STYLE FUNDS
Goldman Sachs' Growth Investment Philosophy:
1. Invest as if buying the company/business, not simply trading its stock:
..Understand the business, management, products and competition.
..Perform intensive, hands-on fundamental research.
..Seek businesses with strategic competitive advantages.
..Over the long-term, expect each company's stock price ultimately to track
the growth in the value of the business.
1
<PAGE>
2. Buy high-quality growth businesses that possess strong business fran-
chises, favorable long-term prospects and excellent management.
3. Purchase superior long-term growth companies at a favorable price--seek
to purchase at a fair valuation, giving the investor the potential to
fully capture returns from above-average growth rates.
Growth companies have earnings expectations that exceed those of the stock
market as a whole.
- --------------------------------------------------------------------------------
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two build-
ing blocks of active management: stock selection and portfolio construction.
I. CORE Stock Selection
The CORE Funds use the Goldman Sachs' proprietary multifactor model
("Multifactor Model"), a rigorous computerized rating system, to forecast
the returns of securities held in each Fund's portfolio. The Multifactor
Model incorporates common variables covering measures of:
..Value (price-to-book, price-to-earnings, cash flow to enterprise value)
..Momentum (earnings momentum, price momentum, sustainable growth)
..Risk (market risk, company-specific risk, earnings risk)
..Research (fundamental research ratings of Goldman Sachs and other analysts)
All of the above factors are carefully evaluated within the Multifactor
Model since each has demonstrated a significant impact on the performance of
the securities and markets they were designed to forecast. Stock selection
in this process combines both our quantitative and qualitative analysis.
II. CORE Portfolio Construction
A proprietary computer optimizer calculates every security combination (at
every possible weighting) to construct the most efficient risk/return port-
folio given each CORE Fund benchmark. In this process, the Investment
Adviser manages risk by limiting deviations from the benchmark, running size
and sector neutral portfolios.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good founda-
tions on which to build a portfolio.
- --------------------------------------------------------------------------------
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs
Balanced Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and current income
Benchmarks: S&P 500 Index and Lehman Brothers Aggregate Bond Index
Investment Focus: Large capitalization U.S. stocks and fixed-income securi-
ties
Investment Style: Asset Allocation, with growth and value (blend) equity
components
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital and current income.
The Fund seeks growth of capital primarily through investments in equity
securities (stocks). The Fund seeks to provide current income through
investment in fixed-income securities (bonds).
PRINCIPAL INVESTMENT STRATEGIES
Historically, stock and bond markets have often had different cycles, with
one asset class rising when the other is falling. A balanced objective seeks
to reduce the volatility associated with investing in a single market. There
is no guarantee, however, that market cycles will move in opposition to one
another or that a balanced investment program will successfully reduce vola-
tility.
The percentage of the portfolio invested in equity and fixed-income securi-
ties will vary from time to time as the Investment Adviser evaluates such
securities' relative attractiveness based on market valuations, economic
growth and inflation prospects. The allocation between equity and fixed-
income securities is subject to the Fund's intention to pay regular quar-
terly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and
the percentage of the Fund's assets invested in fixed-income securities.
3
<PAGE>
Equity Securities. The Fund invests, under normal circumstances, between 45%
and 65% of its total assets in equity securities. Although the Fund's equity
investments consist primarily of publicly traded U.S. securities, the Fund
may invest up to 10% of its total assets in the equity securities of foreign
issuers, including issuers in countries with emerging markets or economies
("emerging countries") and equity securities quoted in foreign currencies. A
portion of the Fund's portfolio of equity securities may be selected primar-
ily to provide current income (including interests in real estate investment
trusts ("REITs"), convertible securities, preferred stocks, utility stocks,
and interests in limited partnerships).
Fixed Income Securities. The Fund invests at least 25% of its total assets
in fixed-income senior securities. The remainder of the Fund's assets are
invested in other fixed-income securities and cash.
The Fund's fixed-income securities primarily include:
..Securities issued by the U.S. government, its agencies, instrumentalities
or sponsored enterprises
..Securities issued by corporations, banks and other issuers
..Mortgage-backed and asset-backed securities
The Fund may also invest up to 10% of its total assets in debt obligations
(U.S. dollar and non-U.S.-dollar denominated) issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities and foreign corporations or other entities. The issuers of
these securities may be located in emerging countries.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Growth and Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and growth of income
Benchmark: S&P 500 Index
Investment Focus: Large capitalization U.S. equity securities with an
emphasis on undervalued stocks
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and growth of income.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or divi-
dend-paying ability. Although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations,
that offer the potential to further the Fund's investment objective.
5
<PAGE>
Goldman Sachs
CORE Large Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: Russell 1000 Value Index
Investment Focus: Diversified portfolio of equity securities of large-cap
U.S. issuers selling at low to modest valuations
Investment Style: Quantitative, applied to large-cap value stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of equity secu-
rities of large-cap U.S. issuers that are selling at low to modest valua-
tions relative to general market measures, such as earnings, book value and
other fundamental accounting measures, and that are expected to have favora-
ble prospects for capital appreciation and/or dividend-paying ability.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and low
to moderate valuations as measured by price/earnings ratios, book value and
other fundamental accounting measures.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
CORE U.S. Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities
Investment Style: Quantitative, applied to large-cap
growth and value (blend) stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of large-cap
and blue chip equity securities representing all major sectors of the U.S.
economy.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad repre-
sentation in most major sectors of the U.S. economy and a portfolio com-
prised of companies with average long-term earnings growth expectations and
dividend yields.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
7
<PAGE>
Goldman Sachs
CORE Large Cap Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital; dividend income is a
secondary consideration
Benchmark: Russell 1000 Growth Index
Investment Focus: Large-cap, growth-oriented U.S. stocks
Investment Style: Quantitative, applied to large-cap growth stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
U.S. issuers that are expected to have better prospects for earnings growth
than the growth rate of the general domestic economy. Dividend income is a
secondary consideration.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Investment Adviser emphasizes a company's growth prospects in analyzing
equity securities to be purchased by the Fund. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintain-
ing risk, style, capitalization and industry characteristics similar to the
Russell 1000 Growth Index. The Fund seeks a portfolio comprised of companies
with above average capitalizations and earnings growth expectations and
below average dividend yields.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
CORE Small Cap Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: Russell 2000 Index
Investment Focus: Stocks of small capitalization U.S. companies
Investment Style: Quantitative, applied to small-cap
growth and value (blend) stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of U.S. issuers
which are included in the Russell 2000 Index at the time of investment.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfo-
lio comprised of companies with small market capitalizations, strong
expected earnings growth and momentum, and better valuation and risk charac-
teristics than the Russell 2000 Index. If the issuer of a portfolio security
held by the Fund is no longer included in the Russell 2000 Index, the Fund
may, but is not required to, sell the security.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
9
<PAGE>
Goldman Sachs
Capital Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities that offer long-term
capital appreciation potential
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to have long-term capi-
tal appreciation potential. Although the Fund invests primarily in publicly
traded U.S. securities, it may invest up to 10% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Strategic Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities that are considered to
be strategically positioned for consistent long-term
growth
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to be strategically
positioned for consistent long-term growth. Although the Fund invests pri-
marily in publicly traded U.S. securities, it may invest up to 10% of its
total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies.
11
<PAGE>
Goldman Sachs
Growth Opportunities Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P Midcap 400 Index
Investment Focus: U.S. equity securities that offer long-term capital
appreciation with a primary focus on mid-capitalization
companies
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities with a primary focus on mid-cap
companies. The Fund seeks to achieve its investment objective by investing
in a diversified portfolio of equity securities that are considered by the
Investment Adviser to be strategically positioned for long-term growth.
Although the Fund invests primarily in publicly traded U.S. securities, it
may invest up to 10% of its total assets in foreign securities, including
securities of issuers in emerging countries and securities quoted in foreign
currencies.
12
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Mid Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: Russell Midcap Value Index
Investment Focus: Mid-capitalization U.S. stocks that are believed
to be undervalued or undiscovered by the marketplace
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all of its assets in equity securities and at least 65% of its total
assets in equity securities of mid-cap companies with public stock market
capitalizations (based upon shares available for trading on an unrestricted
basis) within the range of the market capitalization of companies constitut-
ing the Russell Midcap Value Index at the time of investment (currently
between $300 million and $15 billion). If the capitalization of an issuer
decreases below $300 million or increases above $15 billion after purchase,
the Fund may, but is not required to, sell the securities. Dividend income,
if any, is an incidental consideration. Although the Fund will invest pri-
marily in publicly traded U.S. securities, it may invest up to 25% of its
total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations.
13
<PAGE>
Goldman Sachs
Small Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: Russell 2000 Value Index
Investment Focus: Small-capitalization U.S. stocks that are believed to be
undervalued or undiscovered by the marketplace
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
65% of its total assets in equity securities of companies with public stock
market capitalizations of $1 billion or less at the time of investment.
Under normal circumstances, the Fund's investment horizon for ownership of
stocks will be two to three years. Dividend income, if any, is an incidental
consideration. If the market capitalization of a company held by the Fund
increases above $1 billion, the Fund may, consistent with its investment
objective, continue to hold the security.
The Fund invests in companies which the Investment Adviser believes are
well- managed niche businesses that have the potential to achieve high or
improving returns on capital and/or above average sustainable growth. The
Fund may invest in securities of small market capitalization companies which
may have experienced financial difficulties. Investments may also be made in
companies that are in the early stages of their life and that the Investment
Adviser believes have significant growth potential. The Investment Adviser
believes that the companies in which the Fund may invest offer greater
opportunity for growth of capital than larger, more mature, better known
companies. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 25% of its total assets in foreign securi-
ties, including securities of issuers in emerging countries and securities
quoted in foreign currencies.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
companies with public stock market capitalizations in excess of $1 billion
at the time of investment and in fixed-income securities, such as govern-
ment, corporate and bank debt obligations.
14
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Large Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: Russell 1000 Value Index
Investment Focus: Large capitalization U.S. equity securities that are
believed to be undervalued
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks its investment
objective by investing in value opportunities that the Investment Adviser
defines as companies with identifiable competitive advantages whose intrin-
sic value is not reflected in the stock price. Although the Fund will invest
primarily in publicly traded U.S. securities, it may invest up to 25% of its
total assets in foreign securities, including securities quoted in foreign
currencies.
Other. The Fund may invest up to 10% of its total assets in fixed-income
securities, such as government, corporate and bank debt obligations.
15
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Fund's annual/semi-annual reports. For more information see Appendix
A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No specific percentage
limitation on
usage;limited only by
the objectives and
strategies of the Fund
<TABLE>
<CAPTION>
Growth CORE CORE
Balanced and Income Large Cap U.S. Equity
Fund Fund Value Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3
Credit, currency, index, interest
rate and mortgage swaps* 15 -- -- --
Cross Hedging of Currencies . -- -- --
Custodial receipts . . . .
Equity Swaps* 15 15 15 15
Foreign Currency Transactions** ./1/ . . .
Futures Contracts and Options on
Futures Contracts . . ./2/ ./3/
Interest rate caps, floors and
collars . -- -- --
Investment Company Securities
(including World Equity Benchmark
Shares and Standard & Poor's
Depository Receipts) 10 10 10 10
Loan Participations . -- -- --
Mortgage Dollar Rolls . -- -- --
Options on Foreign Currencies/4/ . . . .
Options on Securities and
Securities Indices/5/ . . . .
Repurchase Agreements . . . .
Reverse Repurchase Agreements (for
investment purposes) . -- -- --
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3
Short Sales Against the Box 25 25 -- --
Unseasoned Companies . . . .
Warrants and Stock Purchase Rights . . . .
When-Issued Securities and Forward
Commitments . . . .
- ------------------------------------------------------------------------------
</TABLE>
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** Limited by the amount the Fund invests in foreign securities.
1 The Balanced Fund may also enter into forward foreign currency exchange
contracts to seek to increase total return.
2 The CORE Large Cap Value, CORE Large Cap Growth and CORE Small Cap Equity
Funds may enter into futures transactions only with respect to a represen-
tative index.
3 The CORE U.S. Equity Fund may enter into futures transactions only with
respect to the S&P 500 Index.
4 The Funds may purchase and sell call and put options.
5 The Funds may sell covered call and put options and purchase call and put
options.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
CORE CORE Capital Strategic Growth Mid Cap Small Cap Large Cap
Large Cap Small Cap Growth Growth Opportunities Value Value Value
Growth Fund Equity Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
33
1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
. . . . . . . .
15 15 15 15 15 15 15 15
. . . . . . . .
./2/ ./2/ . . . . . .
-- -- -- -- -- -- -- --
10 10 10 10 10 10 10 10
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
. . . . . . . .
. . . . . . . .
. . . . . . . .
-- -- -- -- -- -- -- --
33
1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
-- -- 25 25 25 25 25 25
. . . . . . . .
. . . . . . . .
. . . . . . . .
- ---------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage
limitation on usage;
limited only by the
objectives and strategies Growth CORE CORE
of the Fund Balanced and Income Large Cap U.S. Equity
- -- Not permitted Fund Fund Value Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
American, European and Global
Depository Receipts . . ./6/ ./6/
Asset-Backed and Mortgage-
Backed Securities/7/ . . -- --
Bank Obligations/7/ . . . .
Convertible Securities/8/ . . . .
Corporate Debt Obligations/7/ . . . /9/ . /9/
Equity Securities 45-65 65+ 90+ 90+
Emerging Country Securities 10/10/ 25/10/ -- --
Fixed Income Securities/11/ 35-45/17/ 35 10 /9/ 10 /9/
Foreign Securities 10/10/ 25/10/ . /13/ . /13/
Foreign Government
Securities/7/ . -- -- --
Municipal Securities . -- -- --
Non-Investment Grade Fixed
Income Securities 10/14/ 10/15/ -- --
Real Estate Investment Trusts . . . .
Stripped Mortgage Backed
Securities/7/ . -- -- --
Structured Securities* . . . .
Temporary Investments 100 100 35 35
U.S. Government Securities/7/ . . . .
Yield Curve Options and
Inverse Floating Rate
Securities . -- -- --
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
6 The CORE Funds may not invest in European Depository Receipts.
7 Limited by the amount the Fund invests in fixed-income securities.
8 Convertible securities purchased by the Balanced Fund must be B or higher by
Standard & Poor's Rating Group ("Standard & Poor's") or Moody's Investor's
Service, Inc. ("Moody's"). The CORE Funds have no minimum rating criteria
and all other Funds use the same rating criteria for convertible and non-
convertible debt securities.
9 Cash equivalents only.
10 The Balanced, Growth and Income, Capital Growth, Strategic Growth, Growth
Opportunities, Mid Cap Value and Small Cap Value Funds may invest in the
aggregate up to 10%, 25%, 10%, 10%, 10%, 25% and 25%, respectively, of their
total assets in foreign securities, including emerging country securities.
11 Except as noted under "Non-Investment Grade Fixed Income Securities," fixed-
income securities must be investment grade (i.e., BBB or higher by Standard
& Poor's or Baa or higher by Moody's).
12 The Small Cap Value Fund may invest in the aggregate up to 35% of its total
assets in: (1) the equity securities of companies with public stock market
capitalizations in excess of $1 billion at the time of investment; and (2)
fixed-income securities.
13 Equity securities of foreign issuers must be traded in the United States.
14 Must be at least BB or B by Standard & Poor's or Ba or B by Moody's.
18
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
CORE CORE Capital Strategic Growth Mid Cap Small Cap Large Cap
Large Cap Small Cap Growth Growth Opportunities Value Value Value
Growth Fund Equity Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
. /6/ . /6/ . . . . . .
-- -- . . . . . .
. . . . . . . .
. . . . . . . .
. /9/ . /9/ . . . . . .
90+ 90+ 90+ 90+ 90+ 65+ 65+ 90+
-- -- 10/10/ 10/10/ 10/10/ 25/10/ 25/10/ --
10 /9/ 10 /9/ . . . 35 35/12/ 10
. /13/ . /13/ 10/10/ 10/10/ 10/10/ 25/10/ 25/10/ 25
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- 10/15/ 10/15/ 10/15/ 10/16/ 35/15/ 10/15/
. . . . . . . .
-- -- -- -- -- -- -- --
. . . . . . . .
35 35 100 100 100 100 100 100
. . . . . . . .
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------
</TABLE>
15 Limited by the amount the Fund invests in fixed-income securities. May be BB
or lower by Standard & Poor's or Ba or lower by Moody's.
16 Must be B or higher by Standard & Poor's or B or higher by Moody's.
17 The Balanced Fund invests at least 25% of its total assets in fixed-income
senior securities; the remainder is invested in other fixed-income securi-
ties and cash.
19
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
CORE CORE CORE
Growth Large CORE Large Small
and Cap U.S. Cap Cap
..Applicable Balanced Income Value Equity Growth Equity
- --Not applicable Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credit/Default . . . . . .
Foreign . . . . . .
Emerging Countries . . . . . .
Small Cap/REIT -- -- -- -- -- .
Stock . . . . . .
Derivatives . . . . . .
Interest Rate . . . . . .
Management . . . . . .
Market . . . . . .
Liquidity . . . . . .
Other . . . . . .
- ------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Mid Small Large
Capital Strategic Growth Cap Cap Cap
Growth Growth Opportunities Value Value Value
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
. . . . . .
. . . . . .
. . . . . .
-- -- -- . . --
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
All Funds:
..Credit/Default Risk--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..Foreign Risks--The risk that when a Fund invests in foreign securities, it
will be subject to risk of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss may
also result from the imposition of exchange controls, confiscations and other
government restrictions. A Fund will also be subject to the risk of negative
foreign currency rate fluctuations. Foreign risks will normally be greatest
when a Fund invests in issuers located in emerging countries.
..Emerging Countries Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as extensive
and frequent accounting, financial and other reporting requirements as the
securities markets of more developed countries. Further, investment in equity
securities of issuers located in Russia and certain other emerging countries
involves risk of loss resulting from problems in share registration and cus-
tody and substantial economic and political disruptions. These risks are not
normally associated with investments in more developed countries.
..Stock Risk--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income secu-
rities will normally have more price volatility because of this risk than
short-term securities.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
22
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
..Liquidity Risk--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual mar-
ket conditions, an unusually high volume of redemption requests, or other rea-
sons. Funds that invest in non-investment grade fixed-income securities, small
capitalization stocks, REITs and emerging country issuers will be especially
subject to the risk that during certain periods the liquidity of particular
issuers or industries, or all securities within these investment categories,
will shrink or disappear suddenly and without warning as a result of adverse
economic, market or political events, or adverse investor perceptions whether
or not accurate. The Goldman Sachs Asset Allocation Portfolios (the "Asset
Allocation Portfolios") expect to invest a significant percentage of their
assets in the Funds and other funds for which Goldman Sachs now or in the
future acts as investment adviser or underwriter. Redemptions by an Asset
Allocation Portfolio of its position in a Fund may further increase liquidity
risk and may impact a Fund's net asset value ("NAV").
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..Small Cap Stock and REIT Risk--The securities of small capitalization stocks
and REITs involve greater risks than those associated with larger, more estab-
lished companies and may be subject to more abrupt or erratic price movements.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop in
price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
23
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Insti-
tutional Shares from year to year; and (b) how the average annual returns of
a Fund's Institutional Shares compare to those of broad-based securities
market indices. The bar chart and table assume reinvestment of dividends and
distributions. A Fund's past performance is not necessarily an indication of
how the Fund will perform in the future. Performance reflects expense limi-
tations in effect. If expense limitations were not in place, a Fund's per-
formance would have been reduced. The Large Cap Value Fund commenced opera-
tions as of the date of this Prospectus. The CORE Large Cap Value, Strategic
Growth and Growth Opportunities Funds commenced operations on December 31,
1998, May 24, 1999 and May 24, 1999, respectively. Since these Funds have
less than one calendar year's performance, no performance information is
provided in this section.
24
<PAGE>
FUND PERFORMANCE
Balanced Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was
0.94%.
Best Quarter
Q4 "98 +8.12%
Worst Quarter
Q3 "98 -8.69%
[BAR GRAPH APPEARS HERE]
1998
----
3.90%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) 3.90% 4.23%
S&P 500 Index* 28.57% 24.80%
Lehman Brothers Aggregate Bond Index** 8.69% 9.67%
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
** The Lehman Brothers Aggregate Bond Index is an unmanaged index of bond
prices. The Index figures do not reflect any fees or expenses.
25
<PAGE>
Growth and Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was -
2.00%.
Best Quarter
Q2 '97 +15.24%
Worst Quarter
Q3 '98 -16.86%
[BAR GRAPH APPEARS HERE]
1997 1998
----- -----
28.44% 3.90%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 6/3/96) (4.98)% 14.35%
S&P 500 Index* 28.57% 28.82%
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
26
<PAGE>
FUND PERFORMANCE
CORE U.S. Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was
6.73%.
Best Quarter
Q4 "98 +21.60%
Worst Quarter
Q3 "98 -14.57%
[BAR GRAPH APPEARS HERE]
1996 1997 1998
----- ----- -----
22.09% 32.67% 21.95%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 6/15/95) 21.95% 26.23%
S&P 500 Index* 28.57% 28.75%
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
27
<PAGE>
CORE Large Cap Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was
9.58%.
Best Quarter
Q4 "98 +25.61%
Worst Quarter
Q3 "98 -13.87%
[BAR GRAPH APPEARS HERE]
1998
-----
30.64%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 5/1/97) 30.64% 31.98%
Russell 1000 Growth Index* 38.72% 36.81%
----------------------------------------------------------------
</TABLE>
* The Russell 1000 Growth Index is an unmanaged index of common stock prices.
The Index figures do not reflect any fees or expenses.
28
<PAGE>
FUND PERFORMANCE
CORE Small Cap Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was
1.58%.
Best Quarter
Q4 "98 +14.48%
Worst Quarter
Q3 "98 -24.25%
[BAR GRAPH APPEARS HERE]
1998
-----
-5.63%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) (5.63)% 1.44%
Russell 2000 Index* (2.55)% 2.84%
------------------------------------------------------------------
</TABLE>
* The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
29
<PAGE>
Capital Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was
5.89%.
Best Quarter
Q4 '98 +24.46%
Worst Quarter
Q3 '98 -11.40%
[BAR GRAPH APPEARS HERE]
1998
-----
34.34%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) 34.34% 30.00%
S&P 500 Index* 28.57% 24.80%
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
30
<PAGE>
FUND PERFORMANCE
Mid Cap Value Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was -
1.61%.
Best Quarter
Q2 '97 +19.64%
Worst Quarter
Q3 '98 -20.78%
[BAR GRAPH APPEARS HERE]
1996 1997 1998
----- ----- -----
21.34% 36.04% -5.43%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/1/95) (5.43)% 15.53%
Russell Midcap Value Index* 5.10% 19.73%
Russell Midcap Index** 10.09% 18.95%
-----------------------------------------------------------------
</TABLE>
* The Russell Midcap Value Index, an unmanaged index of common stock prices,
is replacing the Russell Midcap Index as the Mid Cap Value Fund's perfor-
mance benchmark. The Russell Midcap Value Index includes more value-ori-
ented stocks and, therefore, is expected to be a better benchmark compari-
son for the Fund's performance. The Index figures do not reflect any fees
or expenses.
** The Russell Midcap Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
31
<PAGE>
Small Cap Value Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September
30, 1999 was
0.21%.
Best Quarter
Q4 '98 +13.43%
Worst Quarter
Q3 '98 -32.16%
[BAR GRAPH APPEARS HERE]
1998
-----
-16.56%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) (16.56)% (7.50)%
Russell 2000 Value Index * (6.44)% 2.50%
Russell 2000 Index ** (2.55)% 2.84%
-------------------------------------------------------------------
</TABLE>
* The Russell 2000 Value Index, an unmanaged index of common stock prices, is
replacing the Russell 2000 Index as the Small Cap Value Fund's performance
benchmark. The Russell 2000 Value Index includes more value-oriented stocks
and, therefore, is expected to be a better benchmark comparison for the
Fund's performance. The Index figures do not reflect any fees or expenses.
** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
32
<PAGE>
[This page intentionally left blank]
33
<PAGE>
Fund Fees and Expenses (Institutional Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Institutional Shares of a Fund.
<TABLE>
<CAPTION>
CORE
Growth and Large Cap CORE
Balanced Income Value U.S. Equity
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases None None None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None None
Redemption Fees None None None None
Exchange Fees None None None None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):1
Management Fees2 0.65% 0.70% 0.60% 0.75%
Distribution and Service Fees None None None None
Other Expenses3 0.27% 0.10% 0.21% 0.09%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses* 0.92% 0.80% 0.81% 0.84%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See page 36 for all other footnotes.
* As a result of current waivers and expense limitations, "Other Expenses" and
"Total Fund Operating Expenses" of the Funds which are actually incurred are
as set forth below. The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase without
shareholder approval.
<TABLE>
<CAPTION>
CORE
Growth and Large Cap CORE
Balanced Income Value U.S. Equity
Fund Fund Fund Fund
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):1
Management Fees2 0.65% 0.70% 0.60% 0.70%
Distribution and Services Fees None None None None
Other Expenses3 0.05% 0.09% 0.04% 0.04%
----------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers and expense limitations) 0.70% 0.79% 0.64% 0.74%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE CORE
Large Cap Small Cap Capital Strategic Growth Mid Cap Small Cap Large Cap
Growth Equity Growth Growth Opportunities Value Value Value
Fund Fund Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
None None None None None None None None
None None None None None None None None
None None None None None None None None
None None None None None None None None
0.75% 0.85% 1.00% 1.00% 1.00% 0.75% 1.00% 0.75%
None None None None None None None None
0.11% 0.42% 0.07% 2.41% 2.70% 0.22% 0.21% 1.01%
- --------------------------------------------------------------------------------------------------
0.86% 1.27% 1.07% 3.41% 3.70% 0.97% 1.21% 1.76%
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CORE CORE
Large Cap Small Cap Capital Strategic Growth Mid Cap Small Cap Large Cap
Growth Equity Growth Growth Opportunities Value Value Value
Fund Fund Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0.60% 0.85% 1.00% 1.00% 1.00% 0.75% 1.00% 0.75%
None None None None None None None None
0.04% 0.08% 0.04% 0.04% 0.04% 0.14% 0.10% 0.10%
- --------------------------------------------------------------------------------------------------
0.64% 0.93% 1.04% 1.04% 1.04% 0.89% 1.10% 0.85%
- --------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Fund Fees and Expenses continued
/1/The Fund's operating expenses for the current fiscal year have been
annualized for the seven-month period (February 1, 1999 through August 31,
1999). The operating expenses for the Strategic Growth, Growth Opportunities
and Large Cap Value Funds are estimated for the current year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the CORE U.S. Equity Fund and the CORE Large Cap Growth Fund
equal to 0.05% and 0.15%, respectively, of such Funds' average daily net
assets. As a result of fee waivers, the current management fees of the CORE
U.S. Equity Fund and CORE Large Cap Growth Fund are 0.70% and 0.60%, respec-
tively, of such Funds' average daily net assets. The waivers may be terminated
at any time at the option of the Investment Adviser.
/3/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Institutional Shares plus all other ordinary
expenses not detailed above. The Investment Adviser has voluntarily agreed to
reduce or limit "Other Expenses"(excluding management fees, transfer agency
fees, taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) to the following percentages of each Fund's aver-
age daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
- --------------------------
<S> <C>
Balanced 0.01%
Growth and
Income 0.05%
CORE Large Cap
Value 0.00%
CORE U.S. Equity 0.00%
CORE Large Cap
Growth 0.00%
CORE Small Cap
Equity 0.04%
Capital Growth 0.00%
Strategic Growth 0.00%
Growth
Opportunities 0.00%
Mid Cap Value 0.10%
Small Cap Value 0.06%
Large Cap Value 0.06%
</TABLE>
36
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Institu-
tional Shares of a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced $ 94 $ 293 $509 $1,131
- ------------------------------------------------------
Growth and Income $ 82 $ 255 $444 $ 990
- ------------------------------------------------------
CORE Large Cap Value $ 83 $ 259 $450 $1,002
- ------------------------------------------------------
CORE U.S. Equity $ 86 $ 268 $466 $1,037
- ------------------------------------------------------
CORE Large Cap Growth $ 88 $ 274 $477 $1,061
- ------------------------------------------------------
CORE Small Cap Equity $129 $ 403 $697 $1,534
- ------------------------------------------------------
Capital Growth $109 $ 340 $590 $1,306
- ------------------------------------------------------
Strategic Growth $344 $1,048 N/A N/A
- ------------------------------------------------------
Growth Opportunities $372 $1,132 N/A N/A
- ------------------------------------------------------
Mid Cap Value $ 99 $ 309 $536 $1,190
- ------------------------------------------------------
Small Cap Value $123 $ 384 $665 $1,466
- ------------------------------------------------------
Large Cap Value $179 $ 554 N/A N/A
- ------------------------------------------------------
</TABLE>
Institutions that invest in Institutional Shares on behalf of their customers
may charge other fees directly to their customer accounts in connection with
their investments. You should contact your institution for information regard-
ing such charges. Such fees, if any, may affect the return such customers real-
ize with respect to their investments.
Certain institutions that invest in Institutional Shares may receive other com-
pensation in connection with the sale and distribution of Institutional Shares
or for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Shareholder Guide" in the Pro-
spectus and "Other Information" in the Statement of Additional Information
("Additional Statement").
37
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
---------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Balanced
32 Old Slip Growth and Income
New York, New York 10005 CORE Large Cap Value
CORE Large Cap Growth
CORE Small Cap Equity
Strategic Growth
Growth Opportunities
Mid Cap Value
Small Cap Value
Large Cap Value
---------------------------------------------------------------------
Goldman Sachs Funds Management, L.P. ("GSFM") CORE U.S. Equity
32 Old Slip Capital Growth
New York, New York 10005
---------------------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSFM. Goldman Sachs registered as an investment
adviser in 1981. GSFM, a registered investment adviser since 1990, is a Del-
aware limited partnership which is an affiliate of Goldman Sachs. The
Goldman Sachs Group, L.P., which controlled the Investment Advisers, merged
into the Goldman Sachs Group, Inc. as a result of an initial public offer-
ing. As of September 30, 1999, GSAM and GSFM, along with other units of IMD,
have assets under management of $203 billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
38
<PAGE>
SERVICE PROVIDERS
The Investment Adviser also performs the following additional services for
the Funds:
.. Supervises all non-advisory operations of the Funds
.. Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
.. Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the
"SEC") and other regulatory authorities
.. Maintains the records of each Fund
.. Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
Actual Rate
For the Fiscal
Period Ended
Contractual Rate August 31, 1999
---------------------------------------------------------
<S> <C> <C>
GSAM:
---------------------------------------------------------
Balanced 0.65% 0.65%
---------------------------------------------------------
Growth and Income 0.70% 0.70%
---------------------------------------------------------
CORE Large Cap Value 0.60% 0.60%
---------------------------------------------------------
CORE Large Cap Growth 0.75% 0.60%
---------------------------------------------------------
CORE Small Cap Equity 0.85% 0.85%
---------------------------------------------------------
Strategic Growth 1.00% 1.00%
---------------------------------------------------------
Growth Opportunities 1.00% 1.00%
---------------------------------------------------------
Mid Cap Value 0.75% 0.75%
---------------------------------------------------------
Small Cap Value 1.00% 1.00%
---------------------------------------------------------
Large Cap Value 0.75% N/A
---------------------------------------------------------
GSFM:
---------------------------------------------------------
CORE U.S. Equity 0.75% 0.70%
---------------------------------------------------------
Capital Growth 1.00% 1.00%
---------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
39
<PAGE>
FUND MANAGERS
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981, Mr. Hillenbrand
has been President of Commodities Corporation LLC, of which Goldman Sachs is
the parent company. Over the course of his 19-year career at Commodities
Corporation, Mr. Hillenbrand has had extensive experience in dealing with
internal and external investment managers who have managed a range of
futures and equities strategies across multiple markets, using a variety of
styles.
Value Team
..Thirteen portfolio managers/analysts compose the Investment Adviser's value
investment team
..Multi-sector focus provides a balanced perspective
..Across all value products, the Investment Adviser leverages the industry
research expertise of its small, mid and large cap investment teams
- --------------------------------------------------------------------------------
Value Team
<TABLE>
<CAPTION>
Years
Fund Primarily
Name and Title Responsibility Responsible Five Year Employment History
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Eileen A. Portfolio Since Ms. Aptman joined the Investment
Aptman Manager-- 1996 Adviser as a research analyst in
Vice President Mid Cap Value 1997 1993. She became a portfolio
Small Cap Value manager in 1996.
- -------------------------------------------------------------------------------
Matthew B. Portfolio Since Mr. McLennan joined the
McLennan Manager-- 1996 Investment Adviser as a research
Vice President Small Cap Value 1998 analyst in 1995 and became a
Mid Cap Value portfolio manager in 1996. From
1994 to 1995, he worked in the
Investment Banking Division of
Goldman Sachs in Australia. From
1991 to 1994, Mr. McLennan
worked at Queensland Investment
Corporation in Australia.
- -------------------------------------------------------------------------------
Eileen Rominger Senior Portfolio Since Ms. Rominger joined the
Managing Manager-- Growth 1999 Investment Adviser as a senior
Director and Income 1999 portfolio manager in 1999. From
Mid Cap Value 1999 1981 to 1999, she worked at
Small Cap Value 1999 Oppenheimer Capital, most
Large Cap Value 1999 recently as a senior portfolio
Balanced manager.
(Equity)
- -------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years
Fund Primarily
Name and Title Responsibility Responsible Five Year Employment History
- ---------------------------------------------------------------------------
<C> <C> <C> <S>
Karma Wilson Portfolio Since Ms. Wilson joined the
Vice President Manager-- 1998 Investment Adviser as a
Balanced 1998 portfolio manager in 1994.
(Equity) 1998 Prior to 1994, she was an
Growth and 1999 investment analyst with
Income Bankers Trust Australia Ltd.
Mid Cap Value
Large Cap Value
- ---------------------------------------------------------------------------
</TABLE>
Quantitative Equity Team
..A stable and growing team supported by an extensive internal staff
..Access to the research ideas of Goldman Sachs' renowned Global Investment
Research Department
..More than $23 billion in equities currently under management
- --------------------------------------------------------------------------------
Quantitative Equity Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE Large Cap Value 1998 Investment Adviser as a
CORE U.S. Equity 1998 portfolio manager in
CORE Large Cap Growth 1998 1998. From
CORE Small Cap Equity 1998 1984 to 1998, she was
the
director of Quantitative
Equity Research and
served on the Investment
Policy Committee at
Prudential Securities.
- ------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Managing CORE U.S. Equity 1996 Investment Adviser as a
Director CORE Large Cap Growth 1997 portfolio manager in the
CORE Small Cap Equity 1997 quantitative equity
CORE Large Cap Value 1998 management team in 1992.
- ------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing CORE U.S. Equity 1991 Investment Adviser as a
Director CORE Large Cap Growth 1997 portfolio manager in
CORE Small Cap Equity 1997 1989.
CORE Large Cap Value 1998
- ------------------------------------------------------------------------------------------
Victor H. Senior Portfolio Manager-- Since Mr. Pinter joined the
Pinter CORE U.S. Equity 1996 Investment Adviser as a
Vice President CORE Large Cap Growth 1997 research analyst in
CORE Small Cap Equity 1997 1990. He became a
CORE Large Cap Value 1998 portfolio manager in
1992.
- ------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Growth Equity Investment Team
..18 year consistent investment style applied through diverse and complete
market cycles
..More than $12 billion in equities currently under management
..More than 250 client account relationships
..A portfolio management and analytical team with more than 150 years com-
bined investment experience
- --------------------------------------------------------------------------------
Growth Equity Investment Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
George D. Adler Senior Portfolio Manager-- Since Mr. Adler joined the
Vice President Balanced (Equity) 1997 Investment Adviser as a
Capital Growth 1997 portfolio manager in
Strategic Growth 1999 1997. From 1990 to 1997,
Growth Opportunities 1999 he was a portfolio
manager at Liberty
Investment Management,
Inc. ("Liberty").
- ------------------------------------------------------------------------------------------
Steve Barry Senior Portfolio Manager-- Since Mr. Barry joined the
Vice President Growth Opportunities 1999 Investment Adviser as a
portfolio manager in
1999. From 1988 to 1999,
he was a portfolio
manager at Alliance
Capital Management.
- ------------------------------------------------------------------------------------------
Robert G. Senior Portfolio Manager-- Since Mr. Collins joined the
Collins Capital Growth 1997 Investment Adviser as
Vice President Balanced (Equity) 1998 portfolio manager and
Strategic Growth 1999 Co-Chair of the Growth
Growth Opportunities 1999 Equity Investment
Committee in 1997. From
1991 to 1997, he was a
portfolio manager at
Liberty. His past
experience includes work
as a special situations
analyst with
Raymond James &
Associates for
five years.
- ------------------------------------------------------------------------------------------
Herbert E. Senior Portfolio Manager-- Since Mr. Ehlers joined the
Ehlers Capital Growth 1997 Investment Adviser as a
Managing Balanced (Equity) 1998 senior portfolio manager
Director Strategic Growth 1999 and Chief Investment
Growth Opportunities 1999 Officer of the Growth
Equity team in 1997.
From 1994 to 1997, he
was the Chief Investment
Officer and Chairman of
Liberty. He was a
portfolio manager and
President at Liberty's
predecessor firm, Eagle
Asset Management
("Eagle"), from 1984 to
1994.
- ------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Gregory H. Senior Portfolio Manager-- Since Mr. Ekizian joined the
Ekizian Capital Growth 1997 Investment Adviser as
Vice President Balanced (Equity) 1998 portfolio manager and
Strategic Growth 1999 Co-Chair of the Growth
Growth Opportunities 1999 Equity Investment
Committee in 1997. From
1990 to 1997, he was a
portfolio manager at
Liberty and its
predecessor firm, Eagle.
- ------------------------------------------------------------------------------------------
Scott Kolar Portfolio Manager-- Since Mr. Kolar joined the
Associate Capital Growth 1999 Investment Adviser as an
Strategic Growth 1999 equity analyst in 1997
and became a portfolio
manager in 1999. From
1994 to 1997, he was an
equity analyst and
information systems
specialist at Liberty.
- ------------------------------------------------------------------------------------------
David G. Shell Senior Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser as a
Balanced (Equity) 1998 portfolio manager in
Strategic Growth 1999 1997. From 1987 to 1997,
Growth Opportunities 1999 he was a portfolio
manager at Liberty and
its predecessor firm,
Eagle.
- ------------------------------------------------------------------------------------------
Ernest C. Senior Portfolio Manager-- Since Mr. Segundo joined the
Segundo, Jr. Capital Growth 1997 Investment Adviser as a
Vice President Balanced (Equity) 1998 portfolio manager in
Strategic Growth 1999 1997. From 1992 to 1997,
Growth Opportunities 1999 he was a portfolio
manager at Liberty.
- ------------------------------------------------------------------------------------------
</TABLE>
Fixed-Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing inter-
est rate anticipation and focusing on security selection and sector alloca-
tion
..The team manages approximately $29 billion in fixed-income assets for
retail, institutional and high net worth clients
- --------------------------------------------------------------------------------
Fixed-Income Portfolio Management Team
<TABLE>
<CAPTION>
Years
Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- --------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. Senior Portfolio Since Mr. Beinner joined the
Beinner Manager-- 1994 Investment Adviser as a
Managing Balanced (Fixed- portfolio manager in 1990.
Director and Income)
Co-Head U.S.
Fixed Income
- --------------------------------------------------------------------------------
C. Richard Lucy Senior Portfolio Since Mr. Lucy joined the Investment
Managing Manager-- 1994 Adviser as a portfolio manager
Director and Balanced (Fixed- in 1992.
Co-Head U.S. Income)
Fixed Income
- --------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly
44
<PAGE>
SERVICE PROVIDERS
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to
January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Fund service providers do not adequately address this prob-
lem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group which analyzed
these issues and implemented system modifications to prepare for the Year
2000 Problem.
..The Investment Adviser has either tested with or received assurance from
the Fund's other service providers to confirm that they are taking reason-
able steps to avoid Year 2000 Problems, and the Investment Adviser contin-
ues to monitor the situation.
..The Investment Adviser has developed broad and comprehensive contingency
plans, as well as event management plans that will help manage the Fund
through the date change by allowing the Investment Adviser to closely moni-
tor and respond to Year 2000-related events as they unfold around the
world.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
45
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions from
net realized capital gains. You may choose to have dividends and distributions
paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund. Spe-
cial restrictions may apply for certain ILA Portfolios. See the Additional
Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from net capital gains
are declared and paid as follows:
<TABLE>
<CAPTION>
Investment Capital Gains
Fund Income Dividends Distributions
- -----------------------------------------------------
<S> <C> <C>
Balanced Quarterly Annually
- -----------------------------------------------------
Growth and Income Quarterly Annually
- -----------------------------------------------------
CORE Large Cap Value Quarterly Annually
- -----------------------------------------------------
CORE U.S. Equity Annually Annually
- -----------------------------------------------------
CORE Large Cap Growth Annually Annually
- -----------------------------------------------------
CORE Small Cap Equity Annually Annually
- -----------------------------------------------------
Capital Growth Annually Annually
- -----------------------------------------------------
Strategic Growth Annually Annually
- -----------------------------------------------------
Growth Opportunities Annually Annually
- -----------------------------------------------------
Mid Cap Value Annually Annually
- -----------------------------------------------------
Small Cap Value Annually Annually
- -----------------------------------------------------
Large Cap Value Annually Annually
- -----------------------------------------------------
</TABLE>
46
<PAGE>
DIVIDENDS
From time to time a portion of a Fund's dividends may constitute a return of
capital.
At the time of an investor's purchase of shares of a Fund, a portion of the NAV
per share may be represented by undistributed income or undistributed realized
appreciation of the Fund's portfolio securities. Therefore, subsequent distri-
butions on such shares from such income or realized appreciation may be taxable
to you even if the NAV of the shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions there-
of) represent a return of a portion of the purchase price.
47
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Institutional
Shares.
HOW TO BUY SHARES
How Can I Purchase Institutional Shares Of The Funds?
You may purchase Institutional Shares on any business day at their NAV next
determined after receipt of an order. No sales load is charged. You should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
Purchases of Institutional Shares must be settled within three business days
of receipt of a complete purchase order.
How Do I Purchase Shares Through A Financial Institution?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of Goldman Sachs
Trust (the "Trust"), purchase, redemption and exchange orders placed by or
on behalf of their customers, and may designate other intermediaries to
accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
..Authorized institutions and intermediaries will be responsible for trans-
mitting accepted orders and payments to the Trust within the time period
agreed upon by them.
48
<PAGE>
SHAREHOLDER GUIDE
You should contact your institution or intermediary to learn whether it is
authorized to accept orders for the Trust.
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Funds' Institutional
Shares. These payments may be in addition to other payments borne by the
Funds.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to certain institutions and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs Funds. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the
amount invested.
In addition to Institutional Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Institutional
Shares. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
back cover of this Prospectus.
49
<PAGE>
What is My Minimum Investment in the Funds?
<TABLE>
<CAPTION>
Type of Investor Minimum Investment
-------------------------------------------------------------------------------
<S> <C>
.Banks, trust companies or $1,000,000 in Institutional Shares of a Fund
other depository alone or in combination with other assets
institutions investing for under the management of GSAM and its affiliates
their own account or on
behalf of clients
.Pension and profit sharing
plans, pension funds and
other company-sponsored
benefit plans
.State, county, city or any
instrumentality, department,
authority or agency thereof
.Corporations with at least
$100 million in assets or in
outstanding publicly traded
securities
."Wrap" account sponsors
(provided they have an
agreement covering the
arrangement with GSAM)
.Registered investment
advisers investing for
accounts for which they
receive asset-based fees
-------------------------------------------------------------------------------
.Individual investors $10,000,000
.Qualified non-profit
organizations, charitable
trusts, foundations and
endowments
.Accounts over which GSAM or
its advisory affiliates have
investment discretion
-------------------------------------------------------------------------------
</TABLE>
The minimum investment requirement may be waived for current and former
officers, partners, directors or employees of Goldman Sachs or any of its
affiliates or for other investors at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment amounts.
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Institutional Shares
of a Fund is evident, or if purchases, sales or exchanges are, or a subse-
quent abrupt redemption might be, of a size that would disrupt the manage-
ment of a Fund.
50
<PAGE>
SHAREHOLDER GUIDE
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Institutional
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
NAV = - (Liabilities of the Class)
----------------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or, if accurate
quotations are not readily available, the fair value of the Fund's invest-
ments may be determined in good faith under procedures established by the
Trustees.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). Fund shares will not be priced on any day
the New York Stock Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of the nature and materiality of the
event, its effect on Fund operations and other relevant factors.
51
<PAGE>
HOW TO SELL SHARES
How Can I Sell Institutional Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its Institu-
tional Shares upon request on any business day at their NAV next determined
after receipt of such request in proper form. You may request that redemp-
tion proceeds be sent to you by check or by wire (if the wire instructions
are on record). Redemptions may be requested in writing or by telephone.
<TABLE>
<CAPTION>
Instructions For Redemptions:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Mail your request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have elected the telephone
redemption privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-----------------------------------------------------------------------
</TABLE>
Certain institutions and intermediaries are authorized to accept redemption
requests on behalf of the Funds as described under "How Do I Purchase Shares
Through A Financial Institution?"
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The
52
<PAGE>
SHAREHOLDER GUIDE
written request may be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If you are selling shares you recently paid for by
check, the Fund will pay you when your check has cleared, which may take up
to 15 days. If the Federal Reserve Bank is closed on the day that the
redemption proceeds would ordinarily be wired, wiring the redemption pro-
ceeds may be delayed one additional business day.
..To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
account application to the Transfer Agent.
..Neither the Trust, Goldman Sachs nor any other institution assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
By Check: You may elect in writing to receive your redemption proceeds by
check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of a properly executed redemp-
tion request. If you are selling shares you recently paid for by check, the
Fund will pay you when your check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests
by their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions may set times by
which they must receive
53
<PAGE>
redemption requests. These institutions may also require additional docu-
mentation from you.
The Trust reserves the right to:
..Redeem your shares if your account balance falls below $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Fund will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
You may exchange Institutional Shares of a Fund at NAV for Institutional
Shares of any other Goldman Sachs Fund. The exchange privilege may be mate-
rially modified or withdrawn at any time upon 60 days' written notice to
you.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-------------------------------------------------------------------
By Telephone: If you have elected the telephone exchange
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
54
<PAGE>
SHAREHOLDER GUIDE
..Telephone exchanges normally will be made only to an identically registered
account.
..Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will I Be Sent Regarding Investments In Institutional
Shares?
You will receive an annual report containing audited financial statements
and a semi-annual report. To eliminate unnecessary duplication, only one
copy of such reports will be sent to shareholders with the same mailing
address. If you would like a duplicate copy to be mailed to you, please con-
tact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly
account statement. The Funds do not generally provide sub-accounting servic-
es.
55
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Funds are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Funds' income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. A percentage
of the Funds' dividends paid to corporate shareholders may be eligible for
the corporate dividends-received deduction. The Funds will inform sharehold-
ers of the source and tax status of all distributions promptly after the
close of each calendar year.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds may
deduct these taxes in computing their taxable income.
If you buy shares of a Fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a portion
of your investment. This is known as "buying a dividend."
56
<PAGE>
TAXATION
TAXES ON SALES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
57
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with equity securities.
"Equity securities" include common stocks, preferred stocks, interests in
real estate investment trusts, convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, warrants and stock pur-
chase rights. In general, stock values fluctuate in response to the activi-
ties of individual companies and in response to general market and economic
conditions. Accordingly, the value of the stocks that a Fund holds may
decline over short or extended periods. The stock markets tend to be cycli-
cal, with periods when stock prices generally rise and periods when prices
generally decline. The volatility of equity securities means that the value
of your investment in the Funds may increase or decrease. As of the date of
this Prospectus, certain stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue.
To the extent that a Fund invests in fixed-income securities, that Fund will
also be subject to the risks associated with its fixed-income securities.
These risks include interest rate risk, credit risk and call/extension risk.
In general, interest rate risk involves the risk that when interest rates
decline, the market value of fixed-income securities tends to increase (al-
though many mortgage related securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that an issuer
could default on its obligations, and a Fund will not recover its invest-
ment. Call risk and extension risk are normally present in mortgage-backed
securities and asset-backed securities. For example, homeowners have the
option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (exten-
sion risk). In general, if interest rates on new mortgage loans fall suffi-
ciently below the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease. In
either case, a change in the prepayment rate can result in losses to invest-
ors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turn-
58
<PAGE>
APPENDIX A
over (100% or more) involves correspondingly greater expenses which must be
borne by a Fund and its shareholders. The portfolio turnover rate is calcu-
lated by dividing the lesser of the dollar amount of sales or purchases of
portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase
of one year or less. See "Financial Highlights" in Appendix B for a state-
ment of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of
your then current financial position and needs.
B. Other Portfolio Risks
Risks of Investing in Small Capitalization Companies and REITs. Each Fund
may invest in small capitalization companies and REITs. Investments in small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the rea-
sons for the greater price volatility of these investments are the less cer-
tain growth prospects of smaller firms and the lower degree of liquidity in
the markets for such securities. Small capitalization companies and REITs
may be thinly traded and may have to be sold at a discount from current mar-
ket prices or in small lots over an extended period of time. In addition,
these securities are subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities in these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic or market conditions, or adverse investor
perceptions whether or not accurate. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Small capitalization companies and REITs include "unseasoned" issuers
that do not have an established financial history; often have limited prod-
uct lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of
bankruptcy. Transaction costs for these investments are often higher than
those of larger capitalization companies. Investments
59
<PAGE>
in small capitalization companies and REITs may be more difficult to price
precisely than other types of securities because of their characteristics
and lower trading volumes.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
assets held by the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may
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APPENDIX A
be less publicly available information about a foreign issuer than about a
U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and secu-
rities of many foreign issuers are less liquid and more volatile than secu-
rities of comparable domestic issuers. Efforts in foreign countries to reme-
diate potential Year 2000 problems are not as extensive as those in the
United States. As a result, the operations of foreign markets, foreign
issuers and foreign governments may be disrupted by the Year 2000 Problem,
and the investment portfolio of a Fund may be adversely affected. Further-
more, with respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of with-
holding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, and political or social instability or diplomatic developments which
could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts
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evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not neces-
sarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
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APPENDIX A
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by the Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
A Fund's investments in emerging countries are subject to the risk that the
liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor per-
ceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Invest-
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ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Derivative Investments. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and currency transactions involve additional risk of
loss. Loss can result from a lack of correlation between changes in the
value of derivative instruments and the portfolio assets (if any) being
hedged, the potential illiquidity of the markets for derivative instruments,
or the risks arising from margin requirements and related leverage factors
associated with such transactions. The use of these management techniques
also involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices, interest rates or currency
prices. Each Fund may also invest in derivative investments for non-hedging
purposes (that is, to seek to increase total return). Investing for non-
hedging purposes is considered a speculative practice and presents even
greater risk of loss.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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APPENDIX A
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. government securities
..Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
..Certificates of deposit
..Bankers' acceptances
..Repurchase agreements
..Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
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C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
Convertible Securities. Each Fund may invest in convertible securities. Con-
vertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. A Fund may, to the extent consistent with its
investment policies, purchase or sell foreign currencies on a cash basis or
through forward contracts. A forward contract involves an obligation to pur-
chase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, certain Funds may also
enter into such transactions to seek to increase total return, which is con-
sidered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
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APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities. Each Fund may invest in structured securities. Struc-
tured securities are securities whose value is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative
change in two or more References. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities and may be more vol-
atile, less liquid and more difficult to price accurately than less complex
securities.
REITs. Each Fund may invest in REITS. REITS are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.
The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable income tax
treatment. REITs are also subject to risks generally associated with invest-
ments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other
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<PAGE>
respects, these risks may be heightened. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which they may invest or on any securities index comprised of
securities in which they may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the-counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
government securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund
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APPENDIX A
invests in foreign securities, currency exchange rates, or to otherwise man-
age their term structures, sector selection and durations in accordance with
their investment objectives and policies. Each Fund may also enter into
closing purchase and sale transactions with respect to such contracts and
options. A Fund will engage in futures and related options transactions for
bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or to seek to increase total return to the extent
permitted by such regulations. A Fund may not purchase or sell futures con-
tracts or purchase or sell related options to seek to increase total return,
except for closing purchase or sale transactions, if immediately thereafter
the sum of the amount of initial margin deposits and premiums paid on the
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
Equity Swaps. Each Fund may invest in equity swaps. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other compo-
nents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are
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derivatives and their value can be very volatile. To the extent that the
Investment Adviser does not accurately analyze and predict the potential
relative fluctuation of the components swapped with another party, a Fund
may suffer a loss. The value of some components of an equity swap (such as
the dividends on a common stock) may also be sensitive to changes in inter-
est rates. Furthermore, a Fund may suffer a loss if the counterparty
defaults.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. When-issued
securities are securities that have been authorized, but not yet issued.
When-issued securities are purchased in order to secure what is considered
to be an advantageous price and yield to the Fund at the time of entering
into the transaction. A forward commitment involves the entering into a con-
tract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash
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APPENDIX A
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loan continuously with cash, cash equivalents, U.S.
government securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market deprecia-
tion or appreciation, and a Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund
(including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
Short Sales Against-the-Box. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Preferred Stock, Warrants and Rights. Each Fund may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Other Investment Companies. Each Fund may invest in securities of other
investment companies (including SPDRs and WEBs, as defined below) subject to
statutory limitations prescribed by the Act. These limitations include a
prohibition on
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any Fund acquiring more than 3% of the voting shares of any other investment
company, and a prohibition on investing more than 5% of a Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. A Fund will indi-
rectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Such other investment com-
panies will have investment objectives, policies and restrictions substan-
tially similar to those of the acquiring Fund and will be subject to sub-
stantially the same risks.
..Standard & Poor's Depository Receipts. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
..World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specified countries.
WEBS are listed on the AMEX and were initially offered to the public in
1996. The market prices of WEBS are expected to fluctuate in accordance
with both changes in the NAVs of their underlying indices and supply and
demand of WEBS on the AMEX. To date, WEBS have traded at relatively modest
discounts and premiums to their NAVs. However, WEBS have a limited operat-
ing history and information is lacking regarding the actual performance and
trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the
AMEX necessary to maintain the listing of WEBS will continue to be met or
will remain unchanged. In the event substantial market or other disruptions
affecting WEBS should occur in the future, the liquidity and value of a
Fund's shares could also be substantially and adversely affected. If such
disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
Unseasoned Companies. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments
in unseasoned compa -
72
<PAGE>
APPENDIX A
nies are more speculative and entail greater risk than do investments in
companies with an established operating record.
Corporate Debt Obligations. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of corporations to pay
interest and repay principal, and include securities issued by banks and
other financial institutions. Each Fund may invest in corporate debt obliga-
tions issued by U.S. and certain non-U.S. issuers which issue securities
denominated in the U.S. dollar (including Yankee and Euro obligations). In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions and suprana-
tional entities (i.e., the World Bank, the International Monetary Fund,
etc.).
Bank Obligations. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be gen-
eral obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulations. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. government securities and related custodial receipts. U.S.
government securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. government securities may be supported by (a) the
full faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association); (c) the discretionary authority of the U.S. government to pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")); or (d) only the credit of the issuer. U.S. government
securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. government securities, where the interest and principal compo-
nents of stripped U.S. government securities are traded independently.
Interests in U.S. government securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments
73
<PAGE>
or both on certain notes or bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. For certain securities law purposes, custodial
receipts are not considered obligations of the U.S. government.
Mortgage-Backed Securities. Certain Funds may invest in mortgage-backed
securities. Mortgage-backed securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-backed securities can be backed by either
fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. Privately issued
mortgage-backed securities are normally structured with one or more types of
"credit enhancement." However, these mortgage-backed securities typically do
not have the same credit standing as U.S. government guaranteed mortgage-
backed securities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other mortgage-backed securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment and invests in cer-
tain mortgages principally secured by interests in real property and other
permitted investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other mortgage-backed securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Certain Funds may invest in asset-backed securi-
ties. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often sub-
74
<PAGE>
APPENDIX A
ject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the under-
lying loans. During periods of declining interest rates, prepayment of loans
underlying asset-backed securities can be expected to accelerate. According-
ly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Asset-backed securities present credit risks that are not presented by
mortgage-backed securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Borrowings. Each Fund can borrow money from banks and other financial insti-
tutions in amounts not exceeding one-third of its total assets for temporary
or emergency purposes. A Fund may not make additional investments if
borrowings exceed 5% of its total assets.
Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A
mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
75
<PAGE>
Yield Curve Options. Certain Funds may enter into options on the yield
"spread" or differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options,
a yield curve option is based on the difference between the yields of desig-
nated securities, rather than the prices of the individual securities, and
is settled through cash payments. Accordingly, a yield curve option is prof-
itable to the holder if this differential widens (in the case of a call) or
narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent
which was not anticipated.
Reverse Repurchase Agreements. Certain Funds may enter into reverse repur-
chase agreements. Reverse repurchase agreements involve the sale of securi-
ties held by a Fund subject to the Fund's agreement to repurchase them at a
mutually agreed upon date and price (including interest). These transactions
may be entered into as a temporary measure for emergency purposes or to meet
redemption requests. Reverse repurchase agreements may also be entered into
when the Investment Adviser expects that the interest income to be earned
from the investment of the transaction proceeds will be greater than the
related interest expense. Reverse repurchase agreements involve leveraging.
If the securities held by a Fund decline in value while these transactions
are outstanding, the NAV of the Fund's outstanding shares will decline in
value by proportionately more than the decline in value of the securities.
In addition, reverse repurchase agreements involve the risk that the inter-
est income earned by a Fund (from the investment of the proceeds) will be
less than the interest expense of the transaction, that the market value of
the securities sold by a Fund will decline below the price the Fund is obli-
gated to pay to repurchase the securities, and that the securities may not
be returned to the Fund.
Municipal Securities. Certain Funds may invest in securities and instruments
issued by state and local government issuers. Municipal securities in which
a Fund may invest consist of bonds, notes, commercial paper and other
instruments (including participating interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies or instrumentalities. Such securities may pay fixed, variable or float-
ing rates of interest. Municipal securities are often issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass trans-
portation, schools, streets and water and sewer works. Other public
76
<PAGE>
APPENDIX A
purposes for which municipal securities may be issued include refunding out-
standing obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and facilities. Munici-
pal securities in which a Fund may invest include private activity bonds,
municipal leases, certificates of participation, pre-funded municipal secu-
rities and auction rate securities.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional princi-
pal amount, however, is tied to a reference pool or pools of mortgages.
Credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a
payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates.
Certain Funds may enter into swap transactions for hedging purposes or to
seek to increase total return. The use of interest rate, mortgage, credit
and currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
Loan Participations. Certain Funds may invest in loan participations. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. A Fund
may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan participation interests may take the form of a direct or co-
lending relationship with the
77
<PAGE>
corporate borrower, an assignment of an interest in the loan by a co-lender
or another participant, or a participation in the seller's share of the
loan. When a Fund acts as co-lender in connection with a participation
interest or when it acquires certain participation interests, the Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit reme-
dies against the borrower. In these cases, the Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower. Moreover, under the terms of the loan participa-
tion, the Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the Fund may also be subject
to the risk that the agent bank may become insolvent.
Inverse Floaters. Certain Funds may invest in inverse floating rate debt
securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The
higher the degree of leverage of an inverse floater, the greater the vola-
tility of its market value.
78
<PAGE>
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79
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has not
been in operation for less than five years). Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an invest-
ment in a Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Arthur Andersen LLP, whose report,
along with a Fund's financial statements, is included in the Fund's annual
report (available upon request). No financial highlights are included for
the Large Cap Value Fund because it had no operating history prior to the
date of this prospectus.
BALANCED FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month Period Ended August
31,
1999 - Class A Shares $20.48 $0.32 $(0.19)
1999 - Class B Shares 20.37 0.22 (0.18)
1999 - Class C Shares 20.34 0.23 (0.19)
1999 - Institutional Shares 20.48 0.53 (0.35)
1999 - Service Shares 20.47 1.22 (1.14)
- ----------------------------------------------------------------------------
For The Years Ended January 31,
1999 - Class A Shares 20.29 0.58 0.20
1999 - Class B Shares 20.20 0.41 0.21
1999 - Class C Shares 20.17 0.41 0.21
1999 - Institutional Shares 20.29 0.64 0.20
1999 - Service Shares 20.28 0.53 0.21
- ----------------------------------------------------------------------------
1998 - Class A Shares 18.78 0.57 2.66
1998 - Class B Shares 18.73 0.50 2.57
1998 - Class C Shares (commenced August
15, 1997) 21.10 0.25 0.24
1998 - Institutional Shares (commenced
August 15, 1997) 21.18 0.26 0.32
1998 - Service Shares (commenced August
15, 1997) 21.18 0.22 0.32
- ----------------------------------------------------------------------------
1997 - Class A Shares 17.31 0.66 2.47
1997 - Class B Shares (commenced May 1,
1996) 17.46 0.42 2.34
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.22 0.51 3.43
- ----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
80
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- -------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period returnb (in 000s) net assets
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.23) $ -- $ -- $(0.10) $20.38 0.62%d $169,395 1.10%c
(0.15) -- -- (0.11) 20.26 0.20d 40,515 1.85c
(0.15) -- -- (0.11) 20.23 0.18d 11,284 1.85c
(0.27) -- -- (0.09) 20.39 0.86d 2,361 0.70c
(0.18) -- -- (0.10) 20.37 0.39d 15 1.20c
- ----------------------------------------------------------------------------------------------
(0.59) -- -- 0.19 20.48 3.94 192,453 1.04
(0.45) -- -- 0.17 20.37 3.15 43,926 1.80
(0.45) -- -- 0.17 20.34 3.14 14,286 1.80
(0.65) -- -- 0.19 20.48 4.25 8,010 0.73
(0.55) -- -- 0.19 20.47 3.80 490 1.23
- ----------------------------------------------------------------------------------------------
(0.56) -- (1.16) 1.51 20.29 17.54 163,636 1.00
(0.42) (0.02) (1.16) 1.47 20.20 16.71 23,639 1.76
(0.22) (0.04) (1.16) (0.93) 20.17 2.49d 8,850 1.77c
(0.23) (0.08) (1.16) (0.89) 20.29 2.93d 8,367 0.76c
(0.22) (0.06) (1.16) (0.90) 20.28 2.66d 16 1.26c
- ----------------------------------------------------------------------------------------------
(0.66) -- (1.00) 1.47 18.78 18.59 81,410 1.00
(0.42) (0.07) (1.00) 1.27 18.73 16.22d 2,110 1.75c
- ----------------------------------------------------------------------------------------------
(0.50) -- (0.35) 3.09 17.31 28.10 50,928 1.00
- ----------------------------------------------------------------------------------------------
</TABLE>
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions.
81
<PAGE>
BALANCED FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income to expenses to income to Portfolio
average net average average net turnover
assets net assets assets ratee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For The Seven-Month
Period Ended August 31,
1999 - Class A Shares 2.58%c 1.32%c 2.36%c 90.41%d
1999 - Class B Shares 1.83c 2.07c 1.61c 90.41d
1999 - Class C Shares 1.84c 2.07c 1.62c 90.41d
1999 - Institutional
Shares 2.96c 0.92c 2.74c 90.41d
1999 - Service Shares 2.46c 1.42c 2.24c 90.41d
- -----------------------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 2.90 1.45 2.49 175.06
1999 - Class B Shares 2.16 2.02 1.94 175.06
1999 - Class C Shares 2.17 2.02 1.95 175.06
1999 - Institutional
Shares 3.22 0.95 3.00 175.06
1999 - Service Shares 2.77 1.45 2.55 175.06
- -----------------------------------------------------------------------------------------------
1998 - Class A Shares 2.94 1.57 2.37 190.43
1998 - Class B Shares 2.14 2.07 1.83 190.43
1998 - Class C Shares
(commenced August 15,
1997) 2.13c 2.08c 1.82c 190.43
1998 - Institutional
Shares (commenced August
15, 1997) 3.13c 1.07c 2.82c 190.43
1998 - Service Shares
(commenced August 15,
1997) 2.58c 1.57c 2.27c 190.43
- -----------------------------------------------------------------------------------------------
1997 - Class A Shares 3.76 1.77 2.99 208.11
1997 - Class B Shares
(commenced May 1, 1996) 2.59c 2.27c 2.07c 208.11
- -----------------------------------------------------------------------------------------------
1996 - Class A Shares 3.65 1.90 2.75 197.10
- -----------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE>
[This page intentionally left blank]
83
<PAGE>
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Income from
investment operationsa Distributions to shareholders
------------------------ ------------------------------
Net
realized
Net asset and In excess
value, Net unrealized From net of net From net
beginning investment gain investment investment realized
of period income (loss) (loss) income income gains
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For The Seven-Month
Period Ended August 31,
1999 - Class A Shares $24.33 $ 0.19 $0.31 $(0.15) $ -- $ --
1999 - Class B Shares 24.13 0.08 0.31 (0.06) -- --
1999 - Class C Shares 24.08 0.08 0.30 (0.05) -- --
1999 - Institutional
Shares 24.35 0.34 0.23 (0.20) -- --
1999 - Service Shares 24.33 0.17 0.32 (0.14) -- --
- -------------------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 25.93 0.20 (1.60) (0.19) (0.01) --
1999 - Class B Shares 25.73 0.02 (1.58) (0.04) -- --
1999 - Class C Shares 25.70 0.02 (1.59) (0.05) -- --
1999 - Institutional
Shares 25.95 0.29 (1.58) (0.30) (0.01) --
1999 - Service Shares 25.92 0.17 (1.58) (0.17) (0.01) --
- -------------------------------------------------------------------------------------------
1998 - Class A Shares 23.18 0.11 5.27 (0.11) -- (2.52)
1998 - Class B Shares 23.10 0.04 5.14 -- (0.03) (2.52)
1998 - Class C Shares
(commenced August 15,
1997) 28.20 (0.01) 0.06 -- (0.03) (2.52)
1998 - Institutional
Shares 23.19 0.27 5.23 (0.22) -- (2.52)
1998 - Service Shares 23.17 0.14 5.23 (0.06) (0.04) (2.52)
- -------------------------------------------------------------------------------------------
1997 - Class A Shares 19.98 0.35 5.18 (0.35) (0.01) (1.97)
1997 - Class B Shares
(commenced May 1, 1996) 20.82 0.17 4.31 (0.17) (0.06) (1.97)
1997 - Institutional
Shares
(commenced June 3,
1996) 21.25 0.29 3.96 (0.30) (0.04) (1.97)
1997 - Service Shares
(commenced March 6,
1996) 20.71 0.28 4.50 (0.28) (0.07) (1.97)
- -------------------------------------------------------------------------------------------
1996 - Class A Shares 15.80 0.33 4.75 (0.30) -- (0.60)
- -------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
84
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratio of
Net increase Net assets Ratio of net investment
(decrease) Net asset at end of net expenses income (loss)
in net value, end Total period to average to average net
asset value of period returnb (in 000s) net assets assets
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.35 $24.68 2.05%d $ 855,174 1.19%c 1.26%c
0.33 24.46 1.60d 271,912 1.94c 0.51c
0.33 24.41 1.58d 31,328 1.94c 0.51c
0.37 24.72 2.32d 32,181 0.79c 1.72c
0.35 24.68 2.01d 10,008 1.29c 1.16c
- -------------------------------------------------------------------------
(1.60) 24.33 (5.40) 1,122,157 1.22 0.78
(1.60) 24.13 (6.07) 349,662 1.92 0.09
(1.62) 24.08 (6.12) 48,146 1.92 0.10
(1.60) 24.35 (5.00) 173,696 0.80 1.25
(1.59) 24.33 (5.44) 11,943 1.30 0.72
- -------------------------------------------------------------------------
2.75 25.93 23.71 1,216,582 1.25 0.43
2.63 25.73 22.87 307,815 1.94 (0.35)
(2.50) 25.70 0.51d 31,686 1.99c (0.48)c
2.76 25.95 24.24 36,225 0.83 0.76
2.75 25.92 23.63 8,893 1.32 0.32
- -------------------------------------------------------------------------
3.20 23.18 28.42 615,103 1.22 1.60
2.28 23.10 22.23d 17,346 1.93c 0.15c
1.94 23.19 20.77d 193 0.82c 1.36c
2.46 23.17 23.87d 3,174 1.32c 0.94c
- -------------------------------------------------------------------------
4.18 19.98 32.45 436,757 1.20 1.67
- -------------------------------------------------------------------------
</TABLE>
85
<PAGE>
GROWTH AND INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of Ratio of
expenses to net investment Portfolio
average net income (loss) to turnover
assets average net assets rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month
Period Ended
August 31,
1999 - Class A Shares 1.20%c 1.25%c 55.43%d
1999 - Class B Shares 1.95c 0.50c 55.43d
1999 - Class C Shares 1.95c 0.50c 55.43d
1999 - Institutional
Shares 0.80c 1.71c 55.43d
1999 - Service Shares 1.30c 1.15c 55.43d
- -------------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 1.32 0.68 125.79
1999 - Class B Shares 1.92 0.09 125.79
1999 - Class C Shares 1.92 0.10 125.79
1999 - Institutional
Shares 0.80 1.25 125.79
1999 - Service Shares 1.30 0.72 125.79
- -------------------------------------------------------------------------------------
1998 - Class A Shares 1.42 0.26 61.95
1998 - Class B Shares 1.94 (0.35) 61.95
1998 - Class C Shares
(commenced August 15,
1997) 1.99c (0.48)c 61.95
1998 - Institutional
Shares 0.83 0.76 61.95
1998 - Service Shares 1.32 0.32 61.95
- -------------------------------------------------------------------------------------
1997 - Class A Shares 1.43 1.39 53.03
1997 - Class B Shares
(commenced May 1, 1996) 1.93c 0.15c 53.03
1997 - Institutional
Shares
(commenced June 3,
1996) 0.82c 1.36c 53.03
1997 - Service Shares
(commenced March 6,
1996) 1.32c 0.94c 53.03
- -------------------------------------------------------------------------------------
1996 - Class A Shares 1.45 1.42 57.93
- -------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
86
<PAGE>
[This page intentionally left blank]
87
<PAGE>
CORE LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $10.15 $0.04 $0.40
1999 - Class B Shares 10.15 0.01 0.36
1999 - Class C Shares 10.15 0.01 0.37
1999 - Institutional Shares 10.16 0.06 0.38
1999 - Service Shares 10.16 0.02 0.40
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced December
31, 1998) 10.00 0.01 0.14
1999 - Class B Shares (commenced December
31, 1998) 10.00 -- 0.15
1999 - Class C Shares (commenced December
31, 1998) 10.00 -- 0.15
1999 - Institutional Shares (commenced
December 31, 1998) 10.00 0.01 0.15
1999 - Service Shares (commenced December
31, 1998) 10.00 0.02 0.14
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
88
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
----------------------------
Net assets
From net Net increase Net asset at end of Ratio of
investment From net in net asset value, end Total period net expenses to
income realized gains value of period return/b/,/d/ (in 000s) average net assets/c/
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.04) $ -- $0.40 $10.55 4.31% $ 91,072 1.04%
(0.02) -- 0.35 10.50 3.68 14,464 1.79
(0.02) -- 0.36 10.51 3.73 8,032 1.79
(0.05) -- 0.39 10.55 4.35 189,540 0.64
(0.03) -- 0.39 10.55 4.11 13 1.14
- ----------------------------------------------------------------------------------------------------
-- -- 0.15 10.15 1.50 6,665 1.08
-- -- 0.15 10.15 1.50 340 1.82
-- -- 0.15 10.15 1.50 268 1.83
-- -- 0.16 10.16 1.60 53,396 0.66
-- -- 0.16 10.16 1.60 2 1.16
- ----------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE>
CORE LARGE CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income to expenses to income to Portfolio
average net average net average net turnover
assets/c/ assets/c/ assets/c/ rate/d/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares 0.87% 1.21% 0.70% 36.10%
1999 - Class B Shares 0.05 1.96 (0.12) 36.10
1999 - Class C Shares 0.09 1.96 (0.08) 36.10
1999 - Institutional
Shares 1.29 0.81 1.12 36.10
1999 - Service Shares 0.72 1.31 0.55 36.10
- ----------------------------------------------------------------------------------------------
For the Period Ended
January 31,
1999 - Class A
Shares(commenced December
31, 1998) 1.45 8.03 (5.50) 0.00
1999 - Class B
Shares(commenced December
31, 1998) 0.84 8.77 (6.11) 0.00
1999 - Class C
Shares(commenced December
31, 1998) 0.70 8.78 (6.25) 0.00
1999 - Institutional
Shares(commenced December
31, 1998) 1.97 7.61 (4.98) 0.00
1999 - Service
Shares(commenced December
31, 1998) 2.17 8.11 (4.78) 0.00
- ----------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
90
<PAGE>
[This page intentionally left blank]
91
<PAGE>
CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month Period Ended August
31,
1999 - Class A Shares $32.98 $ 0.03 $1.20
1999 - Class B Shares 32.50 (0.11) 1.17
1999 - Class C Shares 32.40 (0.10) 1.16
1999 - Institutional Shares 33.29 0.11 1.21
1999 - Service Shares 32.85 0.01 1.19
- -----------------------------------------------------------------------------
For The Years Ended January 31,
1999 - Class A Shares 26.59 0.04 7.02
1999 - Class B Shares 26.32 (0.10) 6.91
1999 - Class C Shares 26.24 (0.10) 6.89
1999 - Institutional Shares 26.79 0.20 7.11
1999 - Service Shares 26.53 0.06 7.01
- -----------------------------------------------------------------------------
1998 - Class A Shares 23.32 0.11 5.63
1998 - Class B Shares 23.18 0.11 5.44
1998 - Class C Shares (commenced August
15, 1997) 27.48 0.03 1.22
1998 - Institutional Shares 23.44 0.30 5.65
1998 - Service Shares 23.27 0.19 5.57
- -----------------------------------------------------------------------------
1997 - Class A Shares 19.66 0.16 4.46
1997 - Class B Shares (commenced May 1,
1996) 20.44 0.04 3.70
1997 - Institutional Shares 19.71 0.30 4.51
1997 - Service Shares (commenced June 7,
1996) 21.02 0.13 3.15
- -----------------------------------------------------------------------------
1996 - Class A Shares 14.61 0.19 5.43
1996 - Institutional Shares (commenced
June 15, 1995) 16.97 0.16 3.23
- -----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
92
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- -------------------------------------
Ratio of
In excess Net increase Net assets Ratio of net investment
From net of net (decrease) Net asset at end of net expenses income (loss)
investment investment From net in net asset value, end Total period to average to average
income income realized gains value of period return/b/ (in 000s) net assets net assets
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1.23 $34.21 3.73%d $614,310 1.14%c 0.15%c
-- -- -- 1.06 33.56 3.26d 214,087 1.89c (0.60)c
-- -- -- 1.06 33.46 3.27d 43,361 1.89c (0.61)c
-- -- -- 1.32 34.61 3.97d 335,465 0.74c 0.54c
-- -- -- 1.20 34.05 3.65d 11,204 1.24c 0.06c
- ---------------------------------------------------------------------------------------------------------------
(0.03) (0.01) (0.63) 6.39 32.98 26.89 605,566 1.23 0.15
-- -- (0.63) 6.18 32.50 26.19 152,347 1.85 (0.50)
-- -- (0.63) 6.16 32.40 26.19 26,912 1.87 (0.53)
(0.15) (0.03) (0.63) 6.50 33.29 27.65 307,200 0.69 0.69
(0.10) (0.02) (0.63) 6.32 32.85 27.00 11,600 1.19 0.19
- ---------------------------------------------------------------------------------------------------------------
(0.12) -- (2.35) 3.27 26.59 24.96 398,393 1.28 0.51
-- (0.06) (2.35) 3.14 26.32 24.28 59,208 1.79 (0.05)
-- (0.14) (2.35) (1.24) 26.24 4.85d 6,267 1.78c (0.21)c
(0.24) (0.01) (2.35) 3.35 26.79 25.76 202,893 0.65 1.16
(0.07) (0.08) (2.35) 3.26 26.53 25.11 7,841 1.15 0.62
- ---------------------------------------------------------------------------------------------------------------
(0.16) -- (0.80) 3.66 23.32 23.75 225,968 1.29 0.91
(0.04) (0.16) (0.80) 2.74 23.18 18.59d 17,258 1.83c 0.06c
(0.28) -- (0.80) 3.73 23.44 24.63 148,942 0.65 1.52
(0.13) (0.10) (0.80) 2.25 23.27 15.92d 3,666 1.15c 0.69c
- ---------------------------------------------------------------------------------------------------------------
(0.16) -- (0.41) 5.05 19.66 38.63 129,045 1.25 1.01
(0.24) -- (0.41) 2.74 19.71 20.14d 64,829 0.65c 1.49c
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
CORE U.S. EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of
Ratio of net investment
expenses to income (loss) to Portfolio
average net average turnover
assets net assets rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
For The Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.24%c 0.05%c 41.84%d
1999 - Class B Shares 1.99c (0.70)c 41.84d
1999 - Class C Shares 1.99c (0.71)c 41.84d
1999 - Institutional
Shares 0.84c 0.44c 41.84d
1999 - Service Shares 1.34c (0.04)c 41.84d
- ---------------------------------------------------------------------------------
For The Years Ended
January 31,
1999 - Class A Shares 1.36 0.02 63.79
1999 - Class B Shares 1.98 (0.63) 63.79
1999 - Class C Shares 2.00 (0.66) 63.79
1999 - Institutional
Shares 0.82 0.56 63.79
1999 - Service Shares 1.32 0.06 63.79
- ---------------------------------------------------------------------------------
1998 - Class A Shares 1.47 0.32 65.89
1998 - Class B Shares 1.96 (0.22) 65.89
1998 - Class C Shares
(commenced August 15,
1997) 1.95c (0.38)c 65.89
1998 - Institutional
Shares 0.82 0.99 65.89
1998 - Service Shares 1.32 0.45 65.89
- ---------------------------------------------------------------------------------
1997 - Class A Shares 1.53 0.67 37.28
1997 - Class B Shares
(commenced May 1, 1996) 2.00c (0.11)c 37.28
1997 - Institutional
Shares 0.85 1.32 37.28
1997 - Service Shares
(commenced June 7, 1996) 1.35c 0.49c 37.28
- ---------------------------------------------------------------------------------
1996 - Class A Shares 1.55 0.71 39.35
1996 - Institutional
Shares (commenced June
15, 1995) 0.96c 1.18c 39.35
- ---------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
94
<PAGE>
[This page intentionally left blank]
95
<PAGE>
CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $16.17 $(0.01) $0.86
1999 - Class B Shares 15.98 (0.07) 0.84
1999 - Class C Shares 15.99 (0.07) 0.83
1999 - Institutional Shares 16.21 0.03 0.86
1999 - Service Shares 16.11 (0.02) 0.86
- -------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 11.97 0.01 4.19
1999 - Class B Shares 11.92 (0.06) 4.12
1999 - Class C Shares 11.93 (0.05) 4.11
1999 - Institutional Shares 11.97 0.02 4.23
1999 - Service Shares 11.95 (0.01) 4.17
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced May 1,
1997) 10.00 0.01 2.35
1998 - Class B Shares (commenced May 1,
1997) 10.00 (0.03) 2.33
1998 - Class C Shares (commenced August
15, 1997) 11.80 (0.02) 0.54
1998 - Institutional Shares (commenced May
1, 1997) 10.00 0.01 2.35
1998 - Service Shares (commenced May 1,
1997) 10.00 (0.02) 2.35
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
96
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
Shareholders
---------------------------------
From In excess Net Net asset Net assets Ratio of
Net of net From net increase value, at end of net expenses
Investment investment realized in net end of Total period to average
Income income gains asset value period return/b/ (in 000s) net assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.85 $17.02 5.26%d $300,684 1.04%c
-- -- -- 0.77 16.75 4.82d 181,626 1.79c
-- -- -- 0.76 16.75 4.75d 75,502 1.79c
-- -- -- 0.89 17.10 5.49d 310,704 0.64c
-- -- -- 0.84 16.95 5.21d 2,510 1.14c
- -------------------------------------------------------------------------------------------
-- -- -- 4.20 16.17 35.10 175,510 0.97
-- -- -- 4.06 15.98 34.07 93,711 1.74
-- -- -- 4.06 15.99 34.04 37,081 1.74
-- (0.01) -- 4.24 16.21 35.54 295,734 0.65
-- -- -- 4.16 16.11 34.85 1,663 1.15
- -------------------------------------------------------------------------------------------
(0.01) -- (0.38) 1.97 11.97 23.79d 53,786 0.91c
-- -- (0.38) 1.92 11.92 23.26d 13,857 1.67c
-- (0.01) (0.38) 0.13 11.93 4.56d 4,132 1.68c
(0.01) -- (0.38) 1.97 11.97 23.89d 4,656 0.72c
-- -- (0.38) 1.95 11.95 23.56d 115 1.17c
- -------------------------------------------------------------------------------------------
</TABLE>
97
<PAGE>
CORE LARGE CAP GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of Ratio of net
net investment Ratio of investment
income (loss) to expenses to (loss) to Portfolio
average net average net average net turnover
assets assets assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.11)%c 1.26%c (0.33)%c 32.74%d
1999 - Class B Shares (0.87)c 2.01c (1.09)c 32.74d
1999 - Class C Shares (0.87)c 2.01c (1.09)c 32.74d
1999 - Institutional
Shares 0.31c 0.86c 0.09c 32.74d
1999 - Service Shares (0.21)c 1.36c (0.43)c 32.74d
- -------------------------------------------------------------------------------
For the Year Ended January
31,
1999 - Class A Shares 0.05 1.46 (0.44) 63.15
1999 - Class B Shares (0.73) 2.11 (1.10) 63.15
1999 - Class C Shares (0.74) 2.11 (1.11) 63.15
1999 - Institutional
Shares 0.35 1.02 (0.02) 63.15
1999 - Service Shares (0.16) 1.52 (0.53) 63.15
- -------------------------------------------------------------------------------
For the Period Ended
January 31,
1998 - Class A Shares
(commenced May 1, 1997) 0.12 c 2.40c (1.37)c 74.97d
1998 - Class B Shares
(commenced May 1, 1997) (0.72)c 2.91c (1.96)c 74.97d
1998 - Class C Shares
(commenced August 15,
1997) (0.76)c 2.92c (2.00)c 74.97d
1998 - Institutional
Shares (commenced May 1,
1997) 0.42 c 1.96c (0.82)c 74.97d
1998 - Service Shares
(commenced May 1, 1997) (0.21)c 2.41c (1.45)c 74.97d
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
98
<PAGE>
[This page intentionally left blank]
99
<PAGE>
CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-----------------------
Net asset Net Net
value, investment realized and
beginning income unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August 31,
1999 - Class A Shares $10.16 $(0.01) $0.08
1999 - Class B Shares 10.07 (0.05) 0.07
1999 - Class C Shares 10.08 (0.05) 0.07
1999 - Institutional Shares 10.20 0.02 0.08
1999 - Service Shares 10.16 (0.01) 0.07
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 10.59 0.01 (0.43)
1999 - Class B Shares 10.56 (0.05) (0.44)
1999 - Class C Shares 10.57 (0.04) (0.45)
1999 - Institutional Shares 10.61 0.04 (0.43)
1999 - Service Shares 10.60 0.01 (0.44)
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced August 15,
1997) 10.00 (0.01) 0.65
1998 - Class B Shares (commenced August 15,
1997) 10.00 (0.03) 0.64
1998 - Class C Shares (commenced August 15,
1997) 10.00 (0.02) 0.64
1998 - Institutional Shares (commenced
August 15, 1997) 10.00 0.01 0.65
1998 - Service Shares (commenced August 15,
1997) 10.00 0.01 0.64
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
100
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
Shareholders
----------------------------
From Net Net asset Net assets Ratio of
net increase value, at end of net expenses
investment From net in net end of Total period to average
income realized gains asset value period return/b/ (in 000s) net assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $0.07 $10.23 0.69%d $52,660 1.33%c
-- -- 0.02 10.09 0.20d 13,711 2.08c
-- -- 0.02 10.10 0.20d 6,274 2.08c
-- -- 0.10 10.30 0.98d 62,633 0.93c
-- -- 0.06 10.22 0.59d 64 1.43c
- ------------------------------------------------------------------------------------
(0.01) -- (0.43) 10.16 (3.97) 64,087 1.31
-- -- (0.49) 10.07 (4.64) 15,406 2.00
-- -- (0.49) 10.08 (4.64) 6,559 2.01
(0.02) -- (0.41) 10.20 (3.64) 62,763 0.94
(0.01) -- (0.44) 10.16 (4.07) 54 1.44
- ------------------------------------------------------------------------------------
-- (0.05) 0.59 10.59 6.37d 11,118 1.25c
-- (0.05) 0.56 10.56 6.07d 9,957 1.95c
-- (0.05) 0.57 10.57 6.17d 2,557 1.95c
-- (0.05) 0.61 10.61 6.57d 9,026 0.95c
-- (0.05) 0.60 10.60 6.47d 2 1.45c
- ------------------------------------------------------------------------------------
</TABLE>
101
<PAGE>
CORE SMALL CAP EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of net Ratio of net
investment Ratio of investment
income (loss) expenses to loss Portfolio
to average average net to average turnover
net assets assets net assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.12)%c 1.67%c (0.46)%c 52.03%d
1999 - Class B Shares (0.86)c 2.42c (1.20)c 52.03d
1999 - Class C Shares (0.86)c 2.42c (1.20)c 52.03d
1999 - Institutional Shares 0.28c 1.27c (0.06)c 52.03d
1999 - Service Shares (0.22)c 1.77c (0.56)c 52.03d
- ------------------------------------------------------------------------------
For the Year Ended January
31,
1999 - Class A Shares 0.08 2.00 (0.61) 75.38
1999 - Class B Shares (0.55) 2.62 (1.17) 75.38
1999 - Class C Shares (0.56) 2.63 (1.18) 75.38
1999 - Institutional Shares 0.60 1.56 (0.02) 75.38
1999 - Service Shares 0.01 2.06 (0.61) 75.38
- ------------------------------------------------------------------------------
For the Period Ended January
31,
1998 - Class A Shares
(commenced August 15, 1997) (0.36)c 3.92c (3.03)c 37.65d
1998 - Class B Shares
(commenced August 15, 1997) (1.04)c 4.37c (3.46)c 37.65d
1998 - Class C Shares
(commenced August 15, 1997) (1.07)c 4.37c (3.49)c 37.65d
1998 - Institutional Shares
(commenced August 15, 1997) 0.15c 3.37c (2.27)c 37.65d
1998 - Service Shares
(commenced August 15, 1997) 0.40c 3.87c (2.02)c 37.65d
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
102
<PAGE>
[This page intentionally left blank]
103
<PAGE>
CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $24.03 $(0.08) $1.01
1999 - Class B Shares 23.57 (0.17) 0.97
1999 - Class C Shares 23.52 (0.16) 0.97
1999 - Institutional Shares 24.07 (0.02) 1.01
1999 - Service Shares 23.96 (0.08) 1.00
- ----------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 18.48 (0.03) 6.35
1999 - Class B Shares 18.27 (0.12) 6.19
1999 - Class C Shares 18.24 (0.10) 6.15
1999 - Institutional Shares 18.45 0.01 6.38
1999 - Service Shares 18.46 (0.04) 6.31
- ----------------------------------------------------------------------------
1998 - Class A Shares 16.73 0.02 4.78
1998 - Class B Shares 16.67 0.02 4.61
1998 - Class C Shares (commenced August
15, 1997) 19.73 (0.02) 1.60
1998 - Institutional Shares (commenced
August 15, 1997) 19.88 0.02 1.66
1998 - Service Shares (commenced August
15, 1997) 19.88 (0.01) 1.66
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.91 0.10 3.56
1997 - Class B Shares (commenced May 1,
1996) 15.67 0.01 2.81
- ----------------------------------------------------------------------------
1996 - Class A Shares 13.67 0.12 3.93
- ----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
104
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net value, end Total period to average
income income realized gain asset value of period return/b/ (in 000s) net assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 0.93 $24.96 3.87%d $1,971,097 1.44%c
-- -- -- 0.80 24.37 3.39d 329,870 2.19c
-- -- -- 0.81 24.33 3.44d 87,284 2.19c
-- -- -- 0.99 25.06 4.11d 255,210 1.04c
-- -- -- 0.92 24.88 3.84d 6,466 1.54c
- ----------------------------------------------------------------------------------------------------
-- -- (0.77) 5.55 24.03 34.58 1,992,716 1.42
-- -- (0.77) 5.30 23.57 33.60 236,369 2.19
-- -- (0.77) 5.28 23.52 33.55 60,234 2.19
-- -- (0.77) 5.62 24.07 35.02 41,817 1.07
-- -- (0.77) 5.50 23.96 34.34 3,085 1.57
- ----------------------------------------------------------------------------------------------------
(0.01) (0.01) (3.03) 1.75 18.48 29.71 1,256,595 1.40
-- -- (3.03) 1.60 18.27 28.73 40,827 2.18
-- (0.04) (3.03) (1.49) 18.24 8.83d 5,395 2.21c
(0.01) (0.07) (3.03) (1.43) 18.45 9.31d 7,262 1.16c
-- (0.04) (3.03) (1.42) 18.46 9.18d 2 1.50c
- ----------------------------------------------------------------------------------------------------
(0.10) (0.02) (1.72) 1.82 16.73 25.97 920,646 1.40
(0.01) (0.09) (1.72) 1.00 16.67 19.39d 3,221 2.15c
- ----------------------------------------------------------------------------------------------------
(0.12) -- (2.69) 1.24 14.91 30.45 881,056 1.36
- ----------------------------------------------------------------------------------------------------
</TABLE>
105
<PAGE>
CAPITAL GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) expenses to income (loss) Portfolio
to average average net to average turnover
net assets assets net assets rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.53)%c 1.47%c (0.56)%c 18.16%d
1999 - Class B Shares (1.29)c 2.22c (1.32)c 18.16d
1999 - Class C Shares (1.29)c 2.22c (1.32)c 18.16d
1999 - Institutional
Shares (0.20)c 1.07c (0.23)c 18.16d
1999 - Service Shares (0.65)c 1.57c (0.68)c 18.16d
- ---------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.18) 1.58 (0.34) 30.17
1999 - Class B Shares (0.98) 2.21 (1.00) 30.17
1999 - Class C Shares (1.00) 2.21 (1.02) 30.17
1999 - Institutional
Shares 0.11 1.09 0.09 30.17
1999 - Service Shares (0.37) 1.59 (0.39) 30.17
- ---------------------------------------------------------------------------------
1998 - Class A Shares 0.08 1.65 (0.17) 61.50
1998 - Class B Shares (0.77) 2.18 (0.77) 61.50
1998 - Class C Shares
(commenced August 15,
1997) (0.86)c 2.21c (0.86)c 61.50
1998 - Institutional
Shares (commenced August
15, 1997) 0.18c 1.16c 0.18c 61.50
1998 - Service Shares
(commenced August 15, 1997) (0.16)c 1.50c (0.16)c 61.50
- ---------------------------------------------------------------------------------
1997 - Class A Shares 0.62 1.65 0.37 52.92
1997 - Class B Shares
(commenced May 1, 1996) (0.39)c 2.15c (0.39)c 52.92
- ---------------------------------------------------------------------------------
1996 - Class A Shares 0.65 1.61 0.40 63.90
- ---------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
106
<PAGE>
[This page intentionally left blank]
107
<PAGE>
STRATEGIC GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment
beginning income Net realized and
of period (loss) unrealized gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For The Period Ended August 31,
1999 - Class A Shares (commenced May 24) $10.00 $ -- $0.06
1999 - Class B Shares (commenced May 24) 10.00 (0.03)e 0.07e
1999 - Class C Shares (commenced May 24) 10.00 (0.03)e 0.08e
1999 - Institutional Shares (commenced
May 24) 10.00 0.01 0.06
1999 - Service Shares (commenced May 24) 10.00 (0.01) 0.07
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
108
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net assets
From net of net Net increase Net asset at end of Ratio of
investment investment From net in net asset value, end Total period net expenses to
income income realized gains value of period return/b/ (in 000s) average net assets
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.06 $10.06 0.60%d $10,371 1.44%c
-- -- -- 0.04 10.04 0.40d 3,393 2.19c
-- -- -- 0.05 10.05 0.50d 2,388 2.19c
-- -- -- 0.07 10.07 0.70d 5,981 1.04c
-- -- -- 0.06 10.06 0.60d 2 1.54c
- ------------------------------------------------------------------------------------------------------
</TABLE>
109
<PAGE>
STRATEGIC GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees or expense
limitations
--------------------
Ratio of
net Ratio of Ratio of
investment expenses net
income to investment
(loss) to average loss to Portfolio
average net average turnover
net assets assets net assets rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For The Period Ended August 31,
1999 - Class A Shares (commenced
May 24) (0.17)%c 11.70%c (10.43)%c 6.98%d
1999 - Class B Shares (commenced
May 24) (0.97)c 12.45c (11.23)c 6.98d
1999 - Class C Shares (commenced
May 24) (0.99)c 12.45c (11.25)c 6.98d
1999 - Institutional Shares
(commenced May 24) 0.24c 11.30c (10.02)c 6.98d
1999 - Service Shares (commenced
May 24) (0.24)c 11.80c (10.50)c 6.98d
- -----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
110
<PAGE>
[This page intentionally left blank]
111
<PAGE>
GROWTH OPPORTUNITIES FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain
- -------------------------------------------------------------------------------
For the Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares (commenced May 24) $10.00 $(0.01)e $0.14e
1999 - Class B Shares (commenced May 24) 10.00 (0.03)e 0.21e
1999 - Class C Shares (commenced May 24) 10.00 (0.03)e 0.13e
1999 - Institutional Shares (commenced May
24) 10.00 0.01 0.12
1999 - Service Shares (commenced May 24) 10.00 -- 0.12
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
112
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.13 $10.13 1.30%d $8,204 1.44%c
-- -- -- 0.18 10.18 1.80d 520 2.19c
-- -- -- 0.10 10.10 1.00d 256 2.19c
-- -- -- 0.13 10.13 1.30d 5,223 1.04c
-- -- -- 0.12 10.12 1.20d 2 1.54c
- -------------------------------------------------------------------------------------------------
</TABLE>
113
<PAGE>
GROWTH OPPORTUNITIES FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio Ratio
of net of net
investment Ratio of investment
income (loss) expenses to loss to Portfolio
to average average net average turnover
net assets assets net assets rate
- -------------------------------------------------------------------------------------
For the Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares
(commenced May 24) (0.27)%c 14.15%c (12.98)%c 26.53%d
1999 - Class B Shares
(commenced May 24) (1.04)c 14.90c (13.75)c 26.53d
1999 - Class C Shares
(commenced May 24) (1.12)c 14.90c (13.83)c 26.53d
1999 - Institutional
Shares (commenced May
24) 0.39c 13.75c (12.32)c 26.53d
1999 - Service Shares
(commenced May 24) 0.03c 14.25c (12.68)c 26.53d
- -------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
114
<PAGE>
[This page intentionally left blank]
115
<PAGE>
MID CAP VALUE FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended
August 31,
1999 - Class A Shares $18.38 $ 0.06 $ 1.71
1999 - Class B Shares 18.29 (0.04) 1.71
1999 - Class C Shares 18.30 (0.04) 1.71
1999 - Institutional Shares 18.37 0.09 1.72
1999 - Service Shares 18.29 0.05 1.70
- -------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 21.61 0.10 (2.38)
1999 - Class B Shares 21.57 (0.05) (2.35)
1999 - Class C Shares 21.59 (0.05) (2.34)
1999 - Institutional Shares 21.65 0.19 (2.38)
1999 - Service Shares 21.62 0.03 (2.31)
- -------------------------------------------------------------------------------
1998 - Class A Shares (commenced
August 15, 1997) 23.63 0.09 0.76
1998 - Class B Shares (commenced
August 15, 1997) 23.63 0.06 0.74
1998 - Class C Shares (commenced
August 15, 1997) 23.63 0.06 0.76
1998 - Institutional Shares 18.73 0.16 5.66
1998 - Service Shares (commenced July
18, 1997) 23.01 0.09 1.40
- -------------------------------------------------------------------------------
1997 - Institutional Shares 15.91 0.24 3.77
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1996 - Institutional Shares (commenced
August 1, 1995) 15.00 0.13 0.90
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
116
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $(1.73) $ 0.04 $18.42 9.04%d $ 49,081 1.29%c
-- -- (1.73) (0.06) 18.23 8.53d 31,824 2.04c
-- -- (1.73) (0.06) 18.24 8.52d 9,807 2.04c
-- -- (1.73) 0.08 18.45 9.26d 190,549 0.89c
-- -- (1.73) 0.02 18.31 8.97d 190 1.39c
- -------------------------------------------------------------------------------------------------
(0.07) -- (0.88) (3.23) 18.38 (10.48) 70,578 1.33
-- -- (0.88) (3.28) 18.29 (11.07) 37,821 1.93
(0.02) -- (0.88) (3.29) 18.30 (11.03) 10,800 1.93
(0.21) -- (0.88) (3.28) 18.37 (10.07) 196,512 0.87
(0.17) -- (0.88) (3.33) 18.29 (10.48) 289 1.37
- -------------------------------------------------------------------------------------------------
(0.06) (0.04) (2.77) (2.02) 21.61 3.42d 90,588 1.35c
(0.09) -- (2.77) (2.06) 21.57 3.17d 28,743 1.85c
(0.09) -- (2.77) (2.04) 21.59 3.27d 6,445 1.85c
(0.13) -- (2.77) 2.92 21.65 30.86 236,440 0.85
(0.11) -- (2.77) (1.39) 21.62 6.30d 8 1.35c
- -------------------------------------------------------------------------------------------------
(0.24) (0.93) (0.02) 2.82 18.73 25.63 145,253 0.85
- -------------------------------------------------------------------------------------------------
(0.12) -- -- 0.91 15.91 6.89d 135,671 0.85c
- -------------------------------------------------------------------------------------------------
</TABLE>
117
<PAGE>
MID CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
expense limitations
--------------------------
Ratio of
net
investment Ratio of
income Ratio of net investment
(loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares 0.43%c 1.37%c 0.35%c 68.84%d
1999 - Class B Shares (0.33)c 2.12c (0.41)c 68.84d
1999 - Class C Shares (0.34)c 2.12c (0.42)c 68.84d
1999 - Institutional Shares 0.79c 0.97c 0.71c 68.84d
1999 - Service Shares 0.38c 1.47c 0.30c 68.84d
- ------------------------------------------------------------------------------
For the Years Ended January
31,
1999 - Class A Shares 0.38 1.41 0.30 92.18
1999 - Class B Shares (0.22) 2.01 (0.30) 92.18
1999 - Class C Shares (0.22) 2.01 (0.30) 92.18
1999 - Institutional Shares 0.83 0.95 0.75 92.18
1999 - Service Shares 0.32 1.45 0.24 92.18
- ------------------------------------------------------------------------------
1998 - Class A Shares
(commenced August 15, 1997) 0.33c 1.47c 0.21c 62.60
1998 - Class B Shares
(commenced August 15, 1997) (0.20)c 1.97c (0.32)c 62.60
1998 - Class C Shares
(commenced August 15, 1997) (0.23)c 1.97c (0.35)c 62.60
1998 - Institutional Shares 0.78 0.97 0.66 62.60
1998 - Service Shares
(commenced July 18, 1997) 0.63c 1.43c 0.51c 62.60
- ------------------------------------------------------------------------------
1997 - Institutional Shares 1.35 0.91 1.29 74.03
- ------------------------------------------------------------------------------
For the Period Ended January
31,
1996 - Institutional Shares
(commenced August 1, 1995) 1.67c 0.98c 1.54c 58.77d
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
118
<PAGE>
[This page intentionally left blank]
119
<PAGE>
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operations/a/
------------------------------
Net asset
value, Net Net realized and
beginning investment unrealized
of period income (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended
August 31,
1999 - Class A Shares $18.51 $(0.05) $ 1.34
1999 - Class B Shares 18.10 (0.12) 1.29
1999 - Class C Shares 18.12 (0.11) 1.27
1999 - Institutional Shares 18.62 -- 1.33
1999 - Service Shares 18.50 (0.13) 1.39
- ------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 24.05 (0.06) (4.48)
1999 - Class B Shares 23.73 (0.21) (4.42)
1999 - Class C Shares 23.73 (0.18) (4.43)
1999 - Institutional Shares 24.09 0.03 (4.50)
1999 - Service Shares 24.05 (0.04) (4.51)
- ------------------------------------------------------------------------------
1998 - Class A Shares 20.91 0.14 5.33
1998 - Class B Shares 20.80 (0.01) 5.27
1998 - Class C Shares (commenced
August 15, 1997) 24.69 (0.06) 1.43
1998 - Institutional Shares
(commenced August 15, 1997) 24.91 0.03 1.48
1998 - Service Shares (commenced
August 15, 1997) 24.91 (0.01) 1.48
- ------------------------------------------------------------------------------
1997 - Class A Shares 17.29 (0.21) 4.92
1997 - Class B Shares (commenced May
1, 1996) 20.79 (0.11) 1.21
- ------------------------------------------------------------------------------
1996 - Class A Shares 16.14 (0.23) 1.39
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
120
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
----------------------------
In excess Net increase Net asset Net assets Ratio of
of net (decrease) value, at end of net expenses
investment From net in net asset end of Total period to average
income realized gains value period return/b/ (in 000s) net assets
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 1.29 $19.80 6.97%d $210,500 1.50%c
-- -- 1.17 19.27 6.46d 37,386 2.25c
-- -- 1.16 19.28 6.40d 8,079 2.25c
-- -- 1.33 19.95 7.14d 27,023 1.10c
-- -- 1.26 19.76 6.81d 57 1.60c
- --------------------------------------------------------------------------------------
-- (1.00) (5.54) 18.51 (17.37) 261,661 1.50
-- (1.00) (5.63) 18.10 (18.00) 42,879 2.25
-- (1.00) (5.61) 18.12 (17.91) 8,212 2.25
-- (1.00) (5.47) 18.62 (17.04) 15,351 1.13
-- (1.00) (5.55) 18.50 (17.41) 261 1.62
- --------------------------------------------------------------------------------------
-- (2.33) 3.14 24.05 26.17 370,246 1.54
-- (2.33) 2.93 23.73 25.29 42,677 2.29
(0.34) (1.99) (0.96) 23.73 5.51d 5,604 2.09c
(0.28) (2.05) (0.82) 24.09 6.08d 14,626 1.16c
(0.31) (2.02) (0.86) 24.05 5.91d 2 1.45c
- --------------------------------------------------------------------------------------
-- (1.09) 3.62 20.91 27.28 212,061 1.60
-- (1.09) 0.01 20.80 5.39d 3,674 2.35c
- --------------------------------------------------------------------------------------
-- (0.01) 1.15 17.29 7.20 204,994 1.41
- --------------------------------------------------------------------------------------
</TABLE>
121
<PAGE>
SMALL CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
-----------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares (0.35)%c 1.61%c (0.46)%c 46.95%d
1999 - Class B Shares (1.10)c 2.36c (1.21)c 46.95d
1999 - Class C Shares (1.10)c 2.36c (1.21)c 46.95d
1999 - Institutional
Shares 0.05c 1.21c (0.06)c 46.95d
1999 - Service Shares (0.41)c 1.71c (0.52)c 46.95d
- -----------------------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.24) 1.74 (0.48) 98.46
1999 - Class B Shares (0.99) 2.29 (1.03) 98.46
1999 - Class C Shares (0.99) 2.29 (1.03) 98.46
1999 - Institutional
Shares 0.13 1.17 0.09 98.46
1999 - Service Shares (0.47) 1.66 (0.51) 98.46
- -----------------------------------------------------------------------------------------------
1998 - Class A Shares (0.28) 1.76 (0.50) 84.81
1998 - Class B Shares (0.92) 2.29 (0.92) 84.81
1998 - Class C Shares
(commenced August
15, 1997) (0.79)c 2.09c (0.79)c 84.81
1998 - Institutional
Shares (commenced
August 15, 1997) 0.27c 1.16c 0.27c 84.81
1998 - Service Shares
(commenced August 15,
1997) (0.07)c 1.45c (0.07)c 84.81
- -----------------------------------------------------------------------------------------------
1997 - Class A Shares (0.72) 1.85 (0.97) 99.46
1997 - Class B Shares
(commenced May 1, 1996) (1.63)c 2.35c (1.63)c 99.46
- -----------------------------------------------------------------------------------------------
1996 - Class A Shares (0.59) 1.66 (0.84) 57.58
- -----------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
122
<PAGE>
Appendix C
Prior Performance of Similarly Advised Accounts of the Investment Adviser
CORE LARGE CAP VALUE FUND
The following table sets forth the Investment Adviser's composite perfor-
mance data relating to the historical performance of all discretionary pri-
vate accounts managed by the Investment Adviser that have investment objec-
tives, policies, and strategies substantially similar to the CORE Large Cap
Value Fund. The information is provided to illustrate the past performance
of the Investment Adviser in managing substantially similar accounts as mea-
sured against the Russell 1000 Value Index and does not represent the per-
formance of the CORE Large Cap Value Fund. Investors should not consider
this performance data as a substitute for the performance of the CORE Large
Cap Value Fund nor should investors consider this data as an indication of
future performance of the CORE Large Cap Value Fund or of the Investment
Adviser. The Russell 1000 Value Index is unmanaged and investors cannot
invest directly in the Index.
<TABLE>
<CAPTION>
Private
Account Net
Composite Russell 1000
Performance Value Index
- -------------------------------------------
<S> <C> <C>
1998 11.40 % 15.64 %
1997 32.59 % 35.18 %
1996 26.41 % 21.64 %
1995 37.92 % 38.35 %
1994 (2.17)% (2.01)%
1993 16.90 % 18.12 %
8/1/92-12/31/92 5.39 % 4.01 %
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Annual
Total Return for the Period
Ended 12/31/98
Since
3 5 Inception
1 Year Years Years (8/1/92)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private Account Net Composite Performance 11.40% 23.13% 20.30% 19.30%
Russell 1000 Value Index 15.64% 23.88% 20.85% 19.68%
- ---------------------------------------------------------------------------
</TABLE>
The Investment Adviser's composite performance information was calculated on
a time-weighted and asset-weighted total return basis which includes real-
ized and unrealized gains and losses plus income, as recommended by the
Association for Investment Management and Research ("AIMR"). The composite
performance is
123
<PAGE>
net of applicable investment management fees, brokerage commissions, execu-
tion costs and custodial fees, without provision for federal and state tax-
es, if any. Total return performance of the CORE Large Cap Value Fund will
be calculated in accordance with the regulations of the SEC. The SEC stan-
dardized average annual total return is neither time-weighted nor asset-
weighted and is determined for specified periods by computing the annualized
percentage change in the value of an initial amount that is invested in a
share class of the Fund at the maximum public offering price. Investors
should be aware that the differences in methodology between AIMR and SEC
requirements could result in different performance data for identical time
periods.
All returns presented reflect the reinvestment of dividends and other earn-
ings. The weighted-average expenses of the private accounts used in calcu-
lating the Investment Adviser's net composite performance data were 0.59%
annualized, which are lower than the estimated expenses of Institutional
Shares of the CORE Large Cap Value Fund stated under "Fund Fees and
Expenses" above. The performance of the private accounts would have been
lower if they had been subject to the expenses of the CORE Large Cap Value
Fund. In addition, the private accounts are not subject to the same diversi-
fication requirements, specific tax restrictions and investment limitations
imposed on the CORE Large Cap Value Fund by the Act and Subchapter M of the
Code. Consequently, the performance results of the Investment Adviser's com-
posite could have been adversely affected if the private accounts had been
regulated as investment companies under the federal securities laws.
124
<PAGE>
Appendix D
Prior Performance of Similarly Advised Accounts of the Investment Adviser
STRATEGIC GROWTH FUND
The following table sets forth the Investment Adviser's composite perfor-
mance data relating to the historical performance of all discretionary pri-
vate accounts managed by the Investment Adviser that have investment objec-
tives, policies, and strategies substantially similar to the Strategic
Growth Fund. The information is provided to illustrate the past performance
of the Investment Adviser in managing substantially similar accounts as mea-
sured against the S&P 500 Index and does not represent the performance of
the Strategic Growth Fund. Investors should not consider this performance
data as a substitute for the performance of the Strategic Growth Fund nor
should investors consider this data as an indication of future performance
of the Strategic Growth Fund or of the Investment Adviser. The S&P 500 Index
is unmanaged and investors cannot invest directly in the Index.
<TABLE>
<CAPTION>
Private Account
Net Composite S&P 500
Performance Index
- -------------------------------
<S> <C> <C>
1998 35.35% 28.57%
1997 41.14% 33.37%
1996 21.79% 22.95%
1995 28.07% 37.58%
1994 -1.69% 1.32%
1993 17.10% 10.08%
1992 9.22% 7.62%
1991 37.44% 30.47%
1990 -9.32% -3.05%
1989 33.82% 31.70%
1988 23.63% 16.61%
1987 5.34% 5.25%
1986 18.99% 18.67%
1985 37.98% 31.73%
1984 8.52% 6.19%
1983 34.41% 22.56%
1982 34.43% 21.55%
1981 1.02% -4.97%
- -------------------------------
</TABLE>
125
<PAGE>
<TABLE>
<CAPTION>
Average Annual
Total Return for the Period Ended
12/31/98
Since
Inception
1 Year 3 Years 5 Years 10 Years (1/1/81)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private Account Net Composite
Performance 35.35% 32.51% 23.98% 20.11% 19.46%
S&P 500 Index 28.57% 28.23% 24.06% 19.22% 16.94%
-------------------------------------------------------------------------
</TABLE>
The Investment Adviser's composite performance information was calculated on
a time-weighted and asset-weighted total return basis which includes real-
ized and unrealized gains and losses plus income, as recommended by the
Association for Investment Management and Research ("AIMR"). The composite
performance is net of applicable investment management fees, brokerage com-
missions, execution costs and custodial fees, without provision for federal
and state taxes, if any. Total return performance of the Strategic Growth
Fund will be calculated in accordance with the regulations of the SEC. The
SEC standardized average annual total return is neither time-weighted nor
asset-weighted and is determined for specified periods by computing the
annualized percentage change in the value of an initial amount that is
invested in a share class of the Fund at the maximum public offering price.
Investors should be aware that the differences in methodology between AIMR
and SEC requirements could result in different performance data for identi-
cal time periods.
All returns presented reflect the reinvestment of dividends and other earn-
ings. The weighted-average expenses of the private accounts used in calcu-
lating the Investment Adviser's net composite performance data were 0.76%
annualized, which are lower than the estimated expenses of Institutional
Shares of the Strategic Growth Fund stated under "Fund Fees and Expenses"
above. The performance of the private accounts would have been lower if they
had been subject to the expenses of the Strategic Growth Fund. In addition,
the private accounts are not subject to the same diversification require-
ments, specific tax restrictions and investment limitations imposed on the
Strategic Growth Fund by the Act and Subchapter M of the Code. Consequently,
the performance results of the Investment Adviser's composite could have
been adversely affected if the private accounts had been regulated as
investment companies under the federal securities laws.
126
<PAGE>
Index
<TABLE>
<C> <C> <S>
1 General Investment
Management Approach
3 Fund Investment Objectives
and Strategies
3 Goldman Sachs Balanced
Fund
5 Goldman Sachs Growth and
Income Fund
6 Goldman Sachs CORE Large
Cap Value Fund
7 Goldman Sachs CORE U.S.
Equity Fund
8 Goldman Sachs CORE Large
Cap Growth Fund
9 Goldman Sachs CORE Small
Cap Equity Fund
10 Goldman Sachs Capital
Growth Fund
11 Goldman Sachs Strategic
Growth Fund
12 Goldman Sachs Growth
Opportunities Fund
13 Goldman Sachs Mid Cap
Value Fund
14 Goldman Sachs Small Cap
Value Fund
15 Goldman Sachs Large Cap Value Fund
16 Other Investment
Practices and
Securities
20 Principal Risks of the
Funds
24 Fund Performance
34 Fund Fees and Expenses
38 Service Providers
46 Dividends
48 Shareholder Guide
48 How To Buy Shares
52 How To Sell Shares
56 Taxation
58 Appendix A
Additional Information
on Portfolio Risks,
Securities and
Techniques
80 Appendix B
Financial Highlights
123 Appendix C
CORE Large Cap Value
Fund-Prior Performance
of Similarly Advised
Accounts of the
Investment Adviser
125 Appendix D
Strategic Growth Fund-
Prior Performance of
Similarly Advised
Accounts of the
Investment Adviser
</TABLE>
<PAGE>
Domestic Equity Funds
Prospectus (Institutional Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this Pro-
spectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman Sachs Funds, 4900 Sears Tower - 60th Floor, Chicago, IL
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
CORE/SM/ is a service mark of Goldman, Sachs & Co.
EQDOMPROINST
<PAGE>
Prospectus
GOLDMAN SACHS DOMESTIC EQUITY FUNDS
SERVICE
SHARES
November 30, 1999
.. Goldman Sachs
Balanced Fund
.. Goldman Sachs
Growth and
Income Fund
.. Goldman Sachs CORE SM
Large Cap
Value Fund
.. Goldman Sachs CORE SM
U.S. Equity
Fund
.. Goldman Sachs CORE SM
Large Cap
Growth Fund
.. Goldman Sachs CORE SM
Small Cap
Equity Fund
.. Goldman Sachs
Capital
Growth Fund
.. Goldman Sachs
Strategic
Growth Fund
.. Goldman Sachs
Growth
Opportunities
Fund
.. Goldman Sachs
Mid Cap Value
Fund
(formerly Mid
Cap Equity)
.. Goldman Sachs
Small Cap
Value Fund
.. Goldman Sachs
Large Cap
Value Fund
[LOGO OF GOLDMAN SACHS]
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
[ART]
<PAGE>
NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the Balanced, Growth and Income, CORE Large Cap Value, CORE Large Cap
Growth, CORE Small Cap Equity, Strategic Growth, Growth Opportunities, Mid
Cap Value, Small Cap Value and Large Cap Value Funds. Goldman Sachs Funds
Management, L.P. serves as investment adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Asset Management and Goldman Sachs Funds
Management, L.P. are each referred to in this Prospectus as the "Investment
Adviser."
VALUE STYLE FUNDS
Goldman Sachs' Value Investment Philosophy:
THROUGH INTENSIVE, HANDS-ON RESEARCH OUR PORTFOLIO TEAM SEEKS TO IDENTIFY:
1. ATTRACTIVE VALUATION OPPORTUNITIES WHERE:
..The intrinsic value of the business is not reflected in the stock price
..The stock price is overdiscounted due to a temporary event
2. WELL-POSITIONED BUSINESSES THAT HAVE:
..Attractive returns on capital
..Sustainable earnings and cash flow
..Strong company management focused on long-term returns to shareholders
Business quality, conservative valuation, and thoughtful portfolio construc-
tion are the key elements of our value approach.
- --------------------------------------------------------------------------------
GROWTH STYLE FUNDS
Goldman Sachs' Growth Investment Philosophy:
1. INVEST AS IF BUYING THE COMPANY/BUSINESS, NOT SIMPLY TRADING ITS STOCK:
..Understand the business, management, products and competition.
..Perform intensive, hands-on fundamental research.
..Seek businesses with strategic competitive advantages.
..Over the long-term, expect each company's stock price ultimately to track
the growth in the value of the business.
1
<PAGE>
2. BUY HIGH-QUALITY GROWTH BUSINESSES THAT POSSESS STRONG BUSINESS FRAN-
CHISES, FAVORABLE LONG-TERM PROSPECTS AND EXCELLENT MANAGEMENT.
3. PURCHASE SUPERIOR LONG-TERM GROWTH COMPANIES AT A FAVORABLE PRICE--SEEK
TO PURCHASE AT A FAIR VALUATION, GIVING THE INVESTOR THE POTENTIAL TO
FULLY CAPTURE RETURNS FROM ABOVE-AVERAGE GROWTH RATES.
Growth companies have earnings expectations that exceed those of the stock
market as a whole.
- --------------------------------------------------------------------------------
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two build-
ing blocks of active management: STOCK SELECTION and PORTFOLIO CONSTRUCTION.
I. CORE Stock Selection
The CORE Funds use the Goldman Sachs' proprietary multifactor model
("Multifactor Model"), a rigorous computerized rating system, to forecast
the returns of securities held in each Fund's portfolio. The Multifactor
Model incorporates common variables covering measures of:
..VALUE (price-to-book, price-to-earnings, cash flow to enterprise value)
..MOMENTUM (earnings momentum, price momentum, sustainable growth)
..RISK (market risk, company-specific risk, earnings risk)
..RESEARCH (fundamental research ratings of Goldman Sachs and other analysts)
ALL OF THE ABOVE FACTORS ARE CAREFULLY EVALUATED WITHIN THE MULTIFACTOR
MODEL SINCE EACH HAS DEMONSTRATED A SIGNIFICANT IMPACT ON THE PERFORMANCE OF
THE SECURITIES AND MARKETS THEY WERE DESIGNED TO FORECAST. STOCK SELECTION
IN THIS PROCESS COMBINES BOTH OUR QUANTITATIVE AND QUALITATIVE ANALYSIS.
II. CORE Portfolio Construction
A proprietary COMPUTER OPTIMIZER calculates every security combination (at
every possible weighting) to CONSTRUCT THE MOST EFFICIENT RISK/RETURN PORT-
FOLIO given each CORE Fund benchmark. In this process, the Investment
Adviser manages risk by limiting deviations from the benchmark, running size
and sector neutral portfolios.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good founda-
tions on which to build a portfolio.
- --------------------------------------------------------------------------------
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs
Balanced Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and current income
Benchmarks: S&P 500 Index and Lehman Brothers Aggregate Bond Index
Investment Focus: Large capitalization U.S. stocks and fixed-income securi-
ties
Investment Style: Asset Allocation, with growth and value (blend) equity
components
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital and current income.
The Fund seeks growth of capital primarily through investments in equity
securities (stocks). The Fund seeks to provide current income through
investment in fixed-income securities (bonds).
PRINCIPAL INVESTMENT STRATEGIES
Historically, stock and bond markets have often had different cycles, with
one asset class rising when the other is falling. A balanced objective seeks
to reduce the volatility associated with investing in a single market. There
is no guarantee, however, that market cycles will move in opposition to one
another or that a balanced investment program will successfully reduce vola-
tility.
The percentage of the portfolio invested in equity and fixed-income securi-
ties will vary from time to time as the Investment Adviser evaluates such
securities' relative attractiveness based on market valuations, economic
growth and inflation prospects. The allocation between equity and fixed-
income securities is subject to the Fund's intention to pay regular quar-
terly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and
the percentage of the Fund's assets invested in fixed-income securities.
3
<PAGE>
Equity Securities. The Fund invests, under normal circumstances, between 45%
and 65% of its total assets in equity securities. Although the Fund's equity
investments consist primarily of publicly traded U.S. securities, the Fund
may invest up to 10% of its total assets in the equity securities of foreign
issuers, including issuers in countries with emerging markets or economies
("emerging countries") and equity securities quoted in foreign currencies. A
portion of the Fund's portfolio of equity securities may be selected primar-
ily to provide current income (including interests in real estate investment
trusts ("REITs"), convertible securities, preferred stocks, utility stocks,
and interests in limited partnerships).
Fixed Income Securities. The Fund invests at least 25% of its total assets
in fixed-income senior securities. The remainder of the Fund's assets are
invested in other fixed-income securities and cash.
The Fund's fixed-income securities primarily include:
..Securities issued by the U.S. government, its agencies, instrumentalities
or sponsored enterprises
..Securities issued by corporations, banks and other issuers
..Mortgage-backed and asset-backed securities
The Fund may also invest up to 10% of its total assets in debt obligations
(U.S. dollar and non-U.S.-dollar denominated) issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities and foreign corporations or other entities. The issuers of
these securities may be located in emerging countries.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Growth and Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and growth of income
Benchmark: S&P 500 Index
Investment Focus: Large capitalization U.S. equity securities with an
emphasis on undervalued stocks
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and growth of income.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or divi-
dend-paying ability. Although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations,
that offer the potential to further the Fund's investment objective.
5
<PAGE>
Goldman Sachs
CORE Large Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: Russell 1000 Value Index
Investment Focus: Diversified portfolio of equity securities of large-cap
U.S. issuers selling at low to modest valuations
Investment Style: Quantitative, applied to large-cap value stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of equity secu-
rities of large-cap U.S. issuers that are selling at low to modest valua-
tions relative to general market measures, such as earnings, book value and
other fundamental accounting measures, and that are expected to have favora-
ble prospects for capital appreciation and/or dividend-paying ability.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and low
to moderate valuations as measured by price/earnings ratios, book value and
other fundamental accounting measures.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
CORE U.S. Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital and dividend income
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities
Investment Style: Quantitative, applied to large-cap
growth and value (blend) stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and dividend income. The Fund
seeks this objective through a broadly diversified portfolio of large-cap
and blue chip equity securities representing all major sectors of the U.S.
economy.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad repre-
sentation in most major sectors of the U.S. economy and a portfolio com-
prised of companies with average long-term earnings growth expectations and
dividend yields.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
7
<PAGE>
Goldman Sachs
CORE Large Cap Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital; dividend income is a
secondary consideration
Benchmark: Russell 1000 Growth Index
Investment Focus: Large-cap, growth-oriented U.S. stocks
Investment Style: Quantitative, applied to large-cap growth stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
U.S. issuers that are expected to have better prospects for earnings growth
than the growth rate of the general domestic economy. Dividend income is a
secondary consideration.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Investment Adviser emphasizes a company's growth prospects in analyzing
equity securities to be purchased by the Fund. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintain-
ing risk, style, capitalization and industry characteristics similar to the
Russell 1000 Growth Index. The Fund seeks a portfolio comprised of companies
with above average capitalizations and earnings growth expectations and
below average dividend yields.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
CORE Small Cap Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: Russell 2000 Index
Investment Focus: Stocks of small capitalization U.S. companies
Investment Style: Quantitative, applied to small-cap
growth and value (blend) stocks
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of U.S. issuers
which are included in the Russell 2000 Index at the time of investment.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of U.S. issuers, including for-
eign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's
expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfo-
lio comprised of companies with small market capitalizations, strong
expected earnings growth and momentum, and better valuation and risk charac-
teristics than the Russell 2000 Index. If the issuer of a portfolio security
held by the Fund is no longer included in the Russell 2000 Index, the Fund
may, but is not required to, sell the security.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
9
<PAGE>
Goldman Sachs
Capital Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities that offer long-term
capital appreciation potential
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to have long-term capi-
tal appreciation potential. Although the Fund invests primarily in publicly
traded U.S. securities, it may invest up to 10% of its total assets in for-
eign securities, including securities of issuers in emerging countries and
securities quoted in foreign currencies.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Strategic Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P 500 Index
Investment Focus: Large-cap U.S. equity securities that are considered to
be strategically positioned for consistent long-term
growth
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity secu-
rities that are considered by the Investment Adviser to be strategically
positioned for consistent long-term growth. Although the Fund invests pri-
marily in publicly traded U.S. securities, it may invest up to 10% of its
total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies.
11
<PAGE>
Goldman Sachs
Growth Opportunities Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark: S&P Midcap 400 Index
Investment Focus: U.S. equity securities that offer long-term capital
appreciation with a primary focus on mid-capitalization
companies
Investment Style: Growth
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities with a primary focus on mid-cap
companies. The Fund seeks to achieve its investment objective by investing
in a diversified portfolio of equity securities that are considered by the
Investment Adviser to be strategically positioned for long-term growth.
Although the Fund invests primarily in publicly traded U.S. securities, it
may invest up to 10% of its total assets in foreign securities, including
securities of issuers in emerging countries and securities quoted in foreign
currencies.
12
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Mid Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark:
Russell Midcap Value Index
Investment Focus: Mid-capitalization U.S. stocks that are believed
to be undervalued or undiscovered by the marketplace
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all of its assets in equity securities and at least 65% of its total
assets in equity securities of mid-cap companies with public stock market
capitalizations (based upon shares available for trading on an unrestricted
basis) within the range of the market capitalization of companies constitut-
ing the Russell Midcap Value Index at the time of investment (currently
between $300 million and $15 billion). If the capitalization of an issuer
decreases below $300 million or increases above $15 billion after purchase,
the Fund may, but is not required to, sell the securities. Dividend income,
if any, is an incidental consideration. Although the Fund will invest pri-
marily in publicly traded U.S. securities, it may invest up to 25% of its
total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations.
13
<PAGE>
Goldman Sachs
Small Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmark:
Russell 2000 Value Index
Investment Focus: Small-capitalization U.S. stocks that are believed to be
undervalued or undiscovered by the marketplace
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
65% of its total assets in equity securities of companies with public stock
market capitalizations of $1 billion or less at the time of investment.
Under normal circumstances, the Fund's investment horizon for ownership of
stocks will be two to three years. Dividend income, if any, is an incidental
consideration. If the market capitalization of a company held by the Fund
increases above $1 billion, the Fund may, consistent with its investment
objective, continue to hold the security.
The Fund invests in companies which the Investment Adviser believes are
well- managed niche businesses that have the potential to achieve high or
improving returns on capital and/or above average sustainable growth. The
Fund may invest in securities of small market capitalization companies which
may have experienced financial difficulties. Investments may also be made in
companies that are in the early stages of their life and that the Investment
Adviser believes have significant growth potential. The Investment Adviser
believes that the companies in which the Fund may invest offer greater
opportunity for growth of capital than larger, more mature, better known
companies. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 25% of its total assets in foreign securi-
ties, including securities of issuers in emerging countries and securities
quoted in foreign currencies.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
companies with public stock market capitalizations in excess of $1 billion
at the time of investment and in fixed-income securities, such as govern-
ment, corporate and bank debt obligations.
14
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
Large Cap Value Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: Russell 1000 Value Index
Investment Focus: Large capitalization U.S. equity securities that are
believed to be undervalued
Investment Style: Value
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities. The Fund seeks its investment
objective by investing in value opportunities that the Investment Adviser
defines as companies with identifiable competitive advantages whose intrin-
sic value is not reflected in the stock price. Although the Fund will invest
primarily in publicly traded U.S. securities, it may invest up to 25% of its
total assets in foreign securities, including securities quoted in foreign
currencies.
Other. The Fund may invest up to 10% of its total assets in fixed-income
securities, such as government, corporate and bank debt obligations.
15
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Fund's annual/semi-annual reports. For more information see Appendix
A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage;limited only by the objectives
and strategies of the Fund
- -- Not permitted
<TABLE>
<CAPTION>
GROWTH CORE CORE
BALANCED AND INCOME LARGE CAP U.S. EQUITY
FUND FUND VALUE FUND FUND
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3
Credit, currency, index, interest
rate and mortgage swaps* 15 -- -- --
Cross Hedging of Currencies . -- -- --
Custodial receipts . . . .
Equity Swaps* 15 15 15 15
Foreign Currency Transactions** ./1/ . . .
Futures Contracts and Options on
Futures Contracts . . ./2/ ./3/
Interest rate caps, floors and
collars . -- -- --
Investment Company Securities
(including World Equity Benchmark
Shares and Standard & Poor's
Depository Receipts) 10 10 10 10
Loan Participations . -- -- --
Mortgage Dollar Rolls . -- -- --
Options on Foreign Currencies/4/ . . . .
Options on Securities and
Securities Indices/5/ . . . .
Repurchase Agreements . . . .
Reverse Repurchase Agreements (for
investment purposes) . -- -- --
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3
Short Sales Against the Box 25 25 -- --
Unseasoned Companies . . . .
Warrants and Stock Purchase Rights . . . .
When-Issued Securities and Forward
Commitments . . . .
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** Limited by the amount the Fund invests in foreign securities.
1 The Balanced Fund may also enter into forward foreign currency exchange
contracts to seek to increase total return.
2 The CORE Large Cap Value, CORE Large Cap Growth and CORE Small Cap Equity
Funds may enter into futures transactions only with respect to a represen-
tative index.
3 The CORE U.S. Equity Fund may enter into futures transactions only with
respect to the S&P 500 Index.
4 The Funds may purchase and sell call and put options.
5 The Funds may sell covered call and put options and purchase call and put
options.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
CORE CORE CAPITAL STRATEGIC GROWTH MID CAP SMALL CAP LARGE CAP
LARGE CAP SMALL CAP GROWTH GROWTH OPPORTUNITIES VALUE VALUE VALUE
GROWTH FUND EQUITY FUND FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
33
1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
. . . . . . . .
15 15 15 15 15 15 15 15
. . . . . . . .
./2/ ./2/ . . . . . .
-- -- -- -- -- -- -- --
10 10 10 10 10 10 10 10
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
. . . . . . . .
. . . . . . . .
. . . . . . . .
-- -- -- -- -- -- -- --
33
1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
-- -- 25 25 25 25 25 25
. . . . . . . .
. . . . . . . .
. . . . . . . .
- ---------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
andstrategies of the Fund
- -- Not permitted
<TABLE>
<CAPTION>
GROWTH CORE CORE
BALANCED AND INCOME LARGE CAP U.S. EQUITY
FUND FUND VALUE FUND FUND
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
American, European and Global
Depository Receipts . . ./6/ ./6/
Asset-Backed and Mortgage-
Backed Securities/7/ . . -- --
Bank Obligations/7/ . . . .
Convertible Securities/8/ . . . .
Corporate Debt Obligations/7/ . . . /9/ . /9/
Equity Securities 45-65 65+ 90+ 90+
Emerging Country Securities 10/10/ 25/10/ -- --
Fixed Income Securities/11/ 35-45/17/ 35 10 /9/ 10 /9/
Foreign Securities 10/10/ 25/10/ . /13/ . /13/
Foreign Government
Securities/7/ . -- -- --
Municipal Securities . -- -- --
Non-Investment Grade Fixed
Income Securities 10/14/ 10/15/ -- --
Real Estate Investment Trusts . . . .
Stripped Mortgage Backed
Securities/7/ . -- -- --
Structured Securities* . . . .
Temporary Investments 100 100 35 35
U.S. Government Securities/7/ . . . .
Yield Curve Options and
Inverse Floating Rate
Securities . -- -- --
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
6 The CORE Funds may not invest in European Depository Receipts.
7 Limited by the amount the Fund invests in fixed-income securities.
8 Convertible securities purchased by the Balanced Fund must be B or higher by
Standard & Poor's Rating Group ("Standard & Poor's") or Moody's Investor's
Service, Inc. ("Moody's"). The CORE Funds have no minimum rating criteria
and all other Funds use the same rating criteria for convertible and non-
convertible debt securities.
9 Cash equivalents only.
10 The Balanced, Growth and Income, Capital Growth, Strategic Growth, Growth
Opportunities, Mid Cap Value and Small Cap Value Funds may invest in the
aggregate up to 10%, 25%, 10%, 10%, 10%, 25% and 25%, respectively, of their
total assets in foreign securities, including emerging country securities.
11 Except as noted under "Non-Investment Grade Fixed Income Securities," fixed-
income securities must be investment grade (i.e., BBB or higher by Standard
& Poor's or Baa or higher by Moody's).
12 The Small Cap Value Fund may invest in the aggregate up to 35% of its total
assets in: (1) the equity securities of companies with public stock market
capitalizations in excess of $1 billion at the time of investment; and (2)
fixed-income securities.
13 Equity securities of foreign issuers must be traded in the United States.
14 Must be at least BB or B by Standard & Poor's or Ba or B by Moody's.
18
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
CORE CORE CAPITAL STRATEGIC GROWTH MID CAP SMALL CAP LARGE CAP
LARGE CAP SMALL CAP GROWTH GROWTH OPPORTUNITIES VALUE VALUE VALUE
GROWTH FUND EQUITY FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
. /6/ . /6/ . . . . . .
-- -- . . . . . .
. . . . . . . .
. . . . . . . .
. /9/ . /9/ . . . . . .
90+ 90+ 90+ 90+ 90+ 65+ 65+ 90+
-- -- 10/10/ 10/10/ 10/10/ 25/10/ 25/10/ --
10 /9/ 10 /9/ . . . 35 35/12/ 10
. /13/ . /13/ 10/10/ 10/10/ 10/10/ 25/10/ 25/10/ 25
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- 10/15/ 10/15/ 10/15/ 10/16/ 35/15/ 10/15/
. . . . . . . .
-- -- -- -- -- -- -- --
. . . . . . . .
35 35 100 100 100 100 100 100
. . . . . . . .
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------
</TABLE>
15 Limited by the amount the Fund invests in fixed-income securities. May be BB
or lower by Standard & Poor's or Ba or lower by Moody's.
16 Must be B or higher by Standard & Poor's or B or higher by Moody's.
17 The Balanced Fund invests at least 25% of its total assets in fixed-income
senior securities; the remainder is invested in other fixed-income securi-
ties and cash.
19
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
CORE CORE CORE
GROWTH LARGE CORE LARGE SMALL
AND CAP U.S. CAP CAP
..APPLICABLE BALANCED INCOME VALUE EQUITY GROWTH EQUITY
- --NOT APPLICABLE FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Credit/Default . . . . . .
Foreign . . . . . .
Emerging Countries . . . . . .
Small Cap/REIT -- -- -- -- -- .
Stock . . . . . .
Derivatives . . . . . .
Interest Rate . . . . . .
Management . . . . . .
Market . . . . . .
Liquidity . . . . . .
Other . . . . . .
- ------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
MID SMALL LARGE
CAPITAL STRATEGIC GROWTH CAP CAP CAP
GROWTH GROWTH OPPORTUNITIES VALUE VALUE VALUE
FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
. . . . . .
. . . . . .
. . . . . .
-- -- -- . . --
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
All Funds:
..CREDIT/DEFAULT RISK--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..FOREIGN RISKS--The risk that when a Fund invests in foreign securities, it
will be subject to risk of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss may
also result from the imposition of exchange controls, confiscations and other
government restrictions. A Fund will also be subject to the risk of negative
foreign currency rate fluctuations. Foreign risks will normally be greatest
when a Fund invests in issuers located in emerging countries.
..EMERGING COUNTRIES RISK--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as extensive
and frequent accounting, financial and other reporting requirements as the
securities markets of more developed countries. Further, investment in equity
securities of issuers located in Russia and certain other emerging countries
involves risk of loss resulting from problems in share registration and cus-
tody and substantial economic and political disruptions. These risks are not
normally associated with investments in more developed countries.
..STOCK RISK--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.
..DERIVATIVES RISK--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
..INTEREST RATE RISK--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income secu-
rities will normally have more price volatility because of this risk than
short-term securities.
..MANAGEMENT RISK--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..MARKET RISK--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
22
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
..LIQUIDITY RISK--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual mar-
ket conditions, an unusually high volume of redemption requests, or other rea-
sons. Funds that invest in non-investment grade fixed-income securities, small
capitalization stocks, REITs and emerging country issuers will be especially
subject to the risk that during certain periods the liquidity of particular
issuers or industries, or all securities within these investment categories,
will shrink or disappear suddenly and without warning as a result of adverse
economic, market or political events, or adverse investor perceptions whether
or not accurate. The Goldman Sachs Asset Allocation Portfolios (the "Asset
Allocation Portfolios") expect to invest a significant percentage of their
assets in the Funds and other funds for which Goldman Sachs now or in the
future acts as investment adviser or underwriter. Redemptions by an Asset
Allocation Portfolio of its position in a Fund may further increase liquidity
risk and may impact a Fund's net asset value ("NAV").
..OTHER RISKS--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..SMALL CAP STOCK AND REIT RISK--The securities of small capitalization stocks
and REITs involve greater risks than those associated with larger, more estab-
lished companies and may be subject to more abrupt or erratic price movements.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop in
price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
23
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Service
Shares from year to year; and (b) how the average annual returns of a Fund's
Service Shares compare to those of broad-based securities market indices.
The bar chart and table assume reinvestment of dividends and distributions.
A Fund's past performance is not necessarily an indication of how the Fund
will perform in the future. Performance reflects expense limitations in
effect. If expense limitations were not in place, a Fund's performance would
have been reduced. The Large Cap Value Fund commenced operations as of the
date of this Prospectus. The CORE Large Cap Value, Strategic Growth and
Growth Opportunities Funds commenced operations on December 31, 1998, May
24, 1999 and May 24, 1999, respectively. Since these Funds have less than
one calendar year's performance, no performance information is provided in
this section.
24
<PAGE>
FUND PERFORMANCE
Balanced Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
0.38%.
Best Quarter
Q4 '98 +7.99%
Worst Quarter
Q3 '98 -8.76%
[BAR GRAPH APPEARS HERE]
1998 3.40%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
----------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/15/97) 3.40% 3.74%
S&P 500 Index* 28.57% 24.80%
Lehman Brothers Aggregate Bond Index** 8.69% 9.67%
----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
** The Lehman Brothers Aggregate Bond Index is an unmanaged index of bond
prices. The Index figures do not reflect any fees or expenses.
25
<PAGE>
Growth and Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
-2.36 %.
Best Quarter
Q2 '97 +15.16%
Worst Quarter
Q3 '98 -16.98%
[BAR GRAPH APPEARS HERE]
1997 27.87%
1998 -5.45%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 3/6/96) (5.45)% 13.69%
S&P 500 Index* 28.57% 28.08%
------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
26
<PAGE>
FUND PERFORMANCE
CORE U.S. Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
6.30%.
Best Quarter
Q4 '98 +21.46%
Worst Quarter
Q3 '98 -14.68%
[BAR GRAPH APPEARS HERE]
1997 32.02%
1998 21.32%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 6/7/96) 21.32% 24.39%
S&P 500 Index* 28.57% 28.72%
-----------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
27
<PAGE>
CORE Large Cap Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
9.17%.
Best Quarter
Q4 '98 +25.52%
Worst Quarter
Q3 '98 -14.00%
[BAR GRAPH APPEARS HERE]
1998 30.13%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 5/1/97) 30.13% 31.40%
Russell 1000 Growth Index* 38.72% 36.81%
-----------------------------------------------------------
</TABLE>
* The Russell 1000 Growth Index is an unmanaged index of common stock prices.
The Index figures do not reflect any fees or expenses.
28
<PAGE>
FUND PERFORMANCE
CORE Small Cap Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
1.19%.
Best Quarter
Q4 '98 +14.37%
Worst Quarter
Q3 '98 -24.34%
[BAR GRAPH APPEARS HERE]
1998 -6.06%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/15/97) (6.06)% 1.04%
Russell 2000 Index* (2.55)% 2.84%
------------------------------------------------------------
</TABLE>
* The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
29
<PAGE>
Capital Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
5.48%.
Best Quarter
Q4 '98 +24.32%
Worst Quarter
Q3 '98 -11.51%
[BAR GRAPH APPEARS HERE]
1998 33.69%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/15/97) 33.69% 29.49%
S&P 500 Index* 28.57% 24.80%
-----------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
30
<PAGE>
FUND PERFORMANCE
Mid Cap Value Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
-2.00%.
Best Quarter
Q1 '98 +11.59%
Worst Quarter
Q3 '98 -20.81%
[BAR GRAPH APPEARS HERE]
1998 -5.90%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 7/18/97) (5.90)% (0.93)%
Russell Midcap Value Index* 5.10% 12.23%
Russell Midcap Index** 10.09% 13.00%
------------------------------------------------------------
</TABLE>
* The Russell Midcap Value Index, an unmanaged index of common stock prices,
is replacing the Russell Midcap Index as the Mid Cap Value Fund's perfor-
mance benchmark. The Russell Midcap Value Index includes more value-ori-
ented stocks and, therefore, is expected to be a better benchmark compari-
son for the Fund's performance. The Index figures do not reflect any fees
or expenses.
** The Russell Midcap Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
31
<PAGE>
Small Cap Value Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30,
1999 was
-0.21%.
Best Quarter
Q4 '98 +13.32%
Worst Quarter
Q3 '98 -32.23%
[BAR GRAPH APPEARS HERE]
1998 -16.92%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/15/97) (16.92)% (7.86)%
Russell 2000 Value Index* (6.44)% 2.50%
Russell 2000 Index** (2.55)% 2.84%
-------------------------------------------------------------
</TABLE>
* The Russell 2000 Value Index, an unmanaged index of common stock prices, is
replacing the Russell 2000 Index as the Small Cap Value Fund's performance
benchmark. The Russell 2000 Value Index includes more value-oriented stocks
and, therefore, is expected to be a better benchmark comparison for the
Fund's performance. The Index figures do not reflect any fees or expenses.
** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
32
<PAGE>
[This page intentionally left blank]
33
<PAGE>
Fund Fees and Expenses (Service Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Service Shares of a Fund.
<TABLE>
<CAPTION>
GROWTH CORE CORE
AND LARGE CAP U.S.
BALANCED INCOME VALUE EQUITY
FUND FUND FUND FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed
on Purchases None None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None None
Redemption Fees None None None None
Exchange Fees None None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS):1
Management Fees2 0.65% 0.70% 0.60% 0.75%
Service Fees3 0.50% 0.50% 0.50% 0.50%
Other Expenses4 0.27% 0.10% 0.21% 0.09%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 1.42% 1.30% 1.31% 1.34%
- ----------------------------------------------------------------------------
</TABLE>
See page 36 for all other footnotes.
* As a result of current waivers and expense
limitations, "Other Expenses" and "Total Fund
Operating Expenses" of the Funds which are actually
incurred are as set forth below. The waivers and
expense limitations may be terminated at any time at
the option of the Investment Adviser. If this occurs,
"Other Expenses" and "Total Fund Operating Expenses"
may increase without shareholder approval.
<TABLE>
<CAPTION>
GROWTH CORE CORE
AND LARGE CAP U.S.
BALANCED INCOME VALUE EQUITY
FUND FUND FUND FUND
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):1
Management Fees2 0.65% 0.70% 0.60% 0.70%
Service Fees3 0.50% 0.50% 0.50% 0.50%
Other Expenses4 0.05% 0.09% 0.04% 0.04%
----------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 1.20% 1.29% 1.14% 1.24%
----------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE CORE
LARGE CAP SMALL CAP CAPITAL STRATEGIC GROWTH MID CAP SMALL CAP LARGE CAP
GROWTH EQUITY GROWTH GROWTH OPPORTUNITIES VALUE VALUE VALUE
FUND FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
None None None None None None None None
None None None None None None None None
None None None None None None None None
None None None None None None None None
0.75% 0.85% 1.00% 1.00% 1.00% 0.75% 1.00% 0.75%
0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
0.11% 0.42% 0.07% 2.41% 2.70% 0.22% 0.21% 1.01%
- -----------------------------------------------------------------------------------
1.36% 1.77% 1.57% 3.91% 4.20% 1.47% 1.71% 2.26%
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CORE CORE
LARGE CAP SMALL CAP CAPITAL STRATEGIC GROWTH MID CAP SMALL CAP LARGE CAP
GROWTH EQUITY GROWTH GROWTH OPPORTUNITIES VALUE VALUE VALUE
FUND FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0.60% 0.85% 1.00% 1.00% 1.00% 0.75% 1.00% 0.75%
0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
0.04% 0.08% 0.04% 0.04% 0.04% 0.14% 0.10% 0.10%
- -----------------------------------------------------------------------------------
1.14% 1.43% 1.54% 1.54% 1.54% 1.39% 1.60% 1.35%
- -----------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Fund Fees and Expenses continued
/1/The Fund's operating expenses for the current fiscal year have been
annualized for the seven-month period (February 1, 1999 through August 31,
1999). The operating expenses for the Strategic Growth, Growth Opportunities
and Large Cap Value Funds are estimated for the current year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the CORE U.S. Equity Fund and the CORE Large Cap Growth
Fund equal to 0.05% and 0.15%, respectively, of such Funds' average daily net
assets. AS A RESULT OF FEE WAIVERS, THE CURRENT MANAGEMENT FEES OF THE CORE
U.S. EQUITY FUND AND CORE LARGE CAP GROWTH FUND ARE 0.70% AND 0.60%, RESPEC-
TIVELY, OF SUCH FUNDS' AVERAGE DAILY NET ASSETS. THE WAIVERS MAY BE TERMI-
NATED AT ANY TIME AT THE OPTION OF THE INVESTMENT ADVISER.
/3/Service Organizations may charge other fees to their customers who are bene-
ficial owners of Service Shares in connection with their customers' accounts.
Such fees may affect the return customers realize with respect to their
investments.
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Service Shares, plus all other ordinary
expenses not detailed above. The Investment Adviser has voluntarily agreed to
reduce or limit "Other Expenses" (excluding management fees, transfer agency
fees, service fees, taxes, interest and brokerage fees and litigation, indem-
nification and other extraordinary expenses) to the following percentages of
each Fund's average daily net assets:
<TABLE>
<CAPTION>
OTHER
FUND EXPENSES
<S> <C>
- -----------------------
Balanced 0.01%
Growth and
Income 0.05%
CORE Large Cap
Value 0.00%
CORE U.S. Equity 0.00%
CORE Large Cap
Growth 0.00%
CORE Small Cap
Equity 0.04%
Capital Growth 0.00%
Strategic Growth 0.00%
Growth
Opportunities 0.00%
Mid Cap Value 0.10%
Small Cap Value 0.06%
Large Cap Value 0.06%
</TABLE>
36
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Service
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCED $145 $449 $776 $1,702
- -----------------------------------------------------------------------------
GROWTH AND INCOME $132 $412 $713 $1,568
- -----------------------------------------------------------------------------
CORE LARGE CAP VALUE $133 $415 $718 $1,579
- -----------------------------------------------------------------------------
CORE U.S. EQUITY $136 $425 $734 $1,613
- -----------------------------------------------------------------------------
CORE LARGE CAP GROWTH $138 $431 $745 $1,635
- -----------------------------------------------------------------------------
CORE SMALL CAP EQUITY $180 $557 $959 $2,084
- -----------------------------------------------------------------------------
CAPITAL GROWTH $160 $496 $855 $1,867
- -----------------------------------------------------------------------------
STRATEGIC GROWTH $393 $1,192 N/A N/A
- -----------------------------------------------------------------------------
GROWTH OPPORTUNITIES $422 $1,275 N/A N/A
- -----------------------------------------------------------------------------
MID CAP VALUE $150 $465 $803 $1,757
- -----------------------------------------------------------------------------
SMALL CAP VALUE $174 $539 $928 $2,019
- -----------------------------------------------------------------------------
LARGE CAP VALUE $229 $706 N/A N/A
- -----------------------------------------------------------------------------
</TABLE>
Service Organizations that invest in Service Shares on behalf of their custom-
ers may charge other fees directly to their customer accounts in connection
with their investments. You should contact your Service Organization for infor-
mation regarding such charges. Such fees, if any, may affect the return such
customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other
compensation in connection with the sale and distribution of Service Shares or
for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Shareholder Guide" in the Pro-
spectus and "Other Information" in the Statement of Additional Information
("Additional Statement").
37
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
INVESTMENT ADVISER FUND
---------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Balanced
32 Old Slip Growth and Income
New York, New York 10005 CORE Large Cap Value
CORE Large Cap Growth
CORE Small Cap Equity
Strategic Growth
Growth Opportunities
Mid Cap Value
Small Cap Value
Large Cap Value
---------------------------------------------------------------------
Goldman Sachs Funds Management, L.P. ("GSFM") CORE U.S. Equity
32 Old Slip Capital Growth
New York, New York 10005
---------------------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSFM. Goldman Sachs registered as an investment
adviser in 1981. GSFM, a registered investment adviser since 1990, is a Del-
aware limited partnership which is an affiliate of Goldman Sachs. The
Goldman Sachs Group, L.P., which controlled the Investment Advisers, merged
into the Goldman Sachs Group, Inc. as a result of an initial public offer-
ing. As of September 30, 1999, GSAM and GSFM, along with other units of IMD,
have assets under management of $203 billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
38
<PAGE>
SERVICE PROVIDERS
The Investment Adviser also performs the following additional services for
the Funds:
.. Supervises all non-advisory operations of the Funds
.. Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
.. Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the
"SEC") and other regulatory authorities
.. Maintains the records of each Fund
.. Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
ACTUAL RATE
FOR THE FISCAL
PERIOD ENDED
CONTRACTUAL RATE AUGUST 31, 1999
-------------------------------------------------------------------------------
<S> <C> <C>
GSAM:
-------------------------------------------------------------------------------
Balanced 0.65% 0.65%
-------------------------------------------------------------------------------
Growth and Income 0.70% 0.70%
-------------------------------------------------------------------------------
CORE Large Cap Value 0.60% 0.60%
-------------------------------------------------------------------------------
CORE Large Cap Growth 0.75% 0.60%
-------------------------------------------------------------------------------
CORE Small Cap Equity 0.85% 0.85%
-------------------------------------------------------------------------------
Strategic Growth 1.00% 1.00%
-------------------------------------------------------------------------------
Growth Opportunities 1.00% 1.00%
-------------------------------------------------------------------------------
Mid Cap Value 0.75% 0.75%
-------------------------------------------------------------------------------
Small Cap Value 1.00% 1.00%
-------------------------------------------------------------------------------
Large Cap Value 0.75% N/A
-------------------------------------------------------------------------------
GSFM:
-------------------------------------------------------------------------------
CORE U.S. Equity 0.75% 0.70%
-------------------------------------------------------------------------------
Capital Growth 1.00% 1.00%
-------------------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
39
<PAGE>
FUND MANAGERS
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981, Mr. Hillenbrand
has been President of Commodities Corporation LLC, of which Goldman Sachs is
the parent company. Over the course of his 19-year career at Commodities
Corporation, Mr. Hillenbrand has had extensive experience in dealing with
internal and external investment managers who have managed a range of
futures and equities strategies across multiple markets, using a variety of
styles.
Value Team
..Thirteen portfolio managers/analysts compose the Investment Adviser's value
investment team
..Multi-sector focus provides a balanced perspective
..Across all value products, the Investment Adviser leverages the industry
research expertise of its small, mid and large cap investment teams
- --------------------------------------------------------------------------------
Value Team
<TABLE>
<CAPTION>
YEARS
FUND PRIMARILY
NAME AND TITLE RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Eileen A. PORTFOLIO SINCE MS. APTMAN JOINED THE INVESTMENT
Aptman MANAGER-- 1996 ADVISER AS A RESEARCH ANALYST IN
VICE PRESIDENT MID CAP VALUE 1997 1993. SHE BECAME A PORTFOLIO
SMALL CAP VALUE MANAGER IN 1996.
- -------------------------------------------------------------------------------
Matthew B. PORTFOLIO SINCE MR. MCLENNAN JOINED THE
McLennan MANAGER-- 1996 INVESTMENT ADVISER AS A RESEARCH
VICE PRESIDENT SMALL CAP VALUE 1998 ANALYST IN 1995 AND BECAME A
MID CAP VALUE PORTFOLIO MANAGER IN 1996. FROM
1994 TO 1995, HE WORKED IN THE
INVESTMENT BANKING DIVISION OF
GOLDMAN SACHS IN AUSTRALIA. FROM
1991 TO 1994, MR. MCLENNAN
WORKED AT QUEENSLAND INVESTMENT
CORPORATION IN AUSTRALIA.
- -------------------------------------------------------------------------------
Eileen Rominger SENIOR PORTFOLIO SINCE MS. ROMINGER JOINED THE
MANAGING MANAGER-- GROWTH 1999 INVESTMENT ADVISER AS A SENIOR
DIRECTOR AND INCOME 1999 PORTFOLIO MANAGER IN 1999. FROM
MID CAP VALUE 1999 1981 TO 1999, SHE WORKED AT
SMALL CAP VALUE 1999 OPPENHEIMER CAPITAL, MOST
LARGE CAP VALUE 1999 RECENTLY AS A SENIOR PORTFOLIO
BALANCED MANAGER.
(EQUITY)
- -------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
YEARS
FUND PRIMARILY
NAME AND TITLE RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ---------------------------------------------------------------------------
<C> <C> <C> <S>
Karma Wilson PORTFOLIO SINCE MS. WILSON JOINED THE
VICE PRESIDENT MANAGER-- 1998 INVESTMENT ADVISER AS A
BALANCED 1998 PORTFOLIO MANAGER IN 1994.
(EQUITY) 1998 PRIOR TO 1994, SHE WAS AN
GROWTH AND 1999 INVESTMENT ANALYST WITH
INCOME BANKERS TRUST AUSTRALIA LTD.
MID CAP VALUE
LARGE CAP VALUE
- ---------------------------------------------------------------------------
</TABLE>
Quantitative Equity Team
..A stable and growing team supported by an extensive internal staff
..Access to the research ideas of Goldman Sachs' renowned Global Investment
Research Department
..More than $23 billion in equities currently under management
- --------------------------------------------------------------------------------
Quantitative Equity Team
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Melissa Brown SENIOR PORTFOLIO MANAGER-- SINCE MS. BROWN JOINED THE
VICE PRESIDENT CORE LARGE CAP VALUE 1998 INVESTMENT ADVISER AS A
CORE U.S. EQUITY 1998 PORTFOLIO MANAGER IN
CORE LARGE CAP GROWTH 1998 1998. FROM
CORE SMALL CAP EQUITY 1998 1984 TO 1998, SHE WAS
THE
DIRECTOR OF QUANTITATIVE
EQUITY RESEARCH AND
SERVED ON THE INVESTMENT
POLICY COMMITTEE AT
PRUDENTIAL SECURITIES.
- ------------------------------------------------------------------------------------------
Kent A. Clark SENIOR PORTFOLIO MANAGER-- SINCE MR. CLARK JOINED THE
MANAGING CORE U.S. EQUITY 1996 INVESTMENT ADVISER AS A
DIRECTOR CORE LARGE CAP GROWTH 1997 PORTFOLIO MANAGER IN THE
CORE SMALL CAP EQUITY 1997 QUANTITATIVE EQUITY
CORE LARGE CAP VALUE 1998 MANAGEMENT TEAM IN 1992.
- ------------------------------------------------------------------------------------------
Robert C. Jones SENIOR PORTFOLIO MANAGER-- SINCE MR. JONES JOINED THE
MANAGING CORE U.S. EQUITY 1991 INVESTMENT ADVISER AS A
DIRECTOR CORE LARGE CAP GROWTH 1997 PORTFOLIO MANAGER IN
CORE SMALL CAP EQUITY 1997 1989.
CORE LARGE CAP VALUE 1998
- ------------------------------------------------------------------------------------------
Victor H. SENIOR PORTFOLIO MANAGER-- SINCE MR. PINTER JOINED THE
Pinter CORE U.S. EQUITY 1996 INVESTMENT ADVISER AS A
VICE PRESIDENT CORE LARGE CAP GROWTH 1997 RESEARCH ANALYST IN
CORE SMALL CAP EQUITY 1997 1990. HE BECAME A
CORE LARGE CAP VALUE 1998 PORTFOLIO MANAGER IN
1992.
- ------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Growth Equity Investment Team
..18 year consistent investment style applied through diverse and complete
market cycles
..More than $12 billion in equities currently under management
..More than 250 client account relationships
..A portfolio management and analytical team with more than 150 years com-
bined investment experience
- --------------------------------------------------------------------------------
Growth Equity Investment Team
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------------------------------------------------------------
<C> <C> <C> <S>
George D. Adler SENIOR PORTFOLIO MANAGER-- SINCE MR. ADLER JOINED THE
VICE PRESIDENT BALANCED (EQUITY) 1997 INVESTMENT ADVISER AS A
CAPITAL GROWTH 1997 PORTFOLIO MANAGER IN
STRATEGIC GROWTH 1999 1997. FROM 1990 TO 1997,
GROWTH OPPORTUNITIES 1999 HE WAS A PORTFOLIO
MANAGER AT LIBERTY
INVESTMENT MANAGEMENT,
INC. ("LIBERTY").
- ------------------------------------------------------------------------------------------
Steve Barry SENIOR PORTFOLIO MANAGER-- SINCE MR. BARRY JOINED THE
VICE PRESIDENT GROWTH OPPORTUNITIES 1999 INVESTMENT ADVISER AS A
PORTFOLIO MANAGER IN
1999. FROM 1988 TO 1999,
HE WAS A PORTFOLIO
MANAGER AT ALLIANCE
CAPITAL MANAGEMENT.
- ------------------------------------------------------------------------------------------
Robert G. SENIOR PORTFOLIO MANAGER-- SINCE MR. COLLINS JOINED THE
Collins CAPITAL GROWTH 1997 INVESTMENT ADVISER AS
VICE PRESIDENT BALANCED (EQUITY) 1998 PORTFOLIO MANAGER AND
STRATEGIC GROWTH 1999 CO-CHAIR OF THE GROWTH
GROWTH OPPORTUNITIES 1999 EQUITY INVESTMENT
COMMITTEE IN 1997. FROM
1991 TO 1997, HE WAS A
PORTFOLIO MANAGER AT
LIBERTY. HIS PAST
EXPERIENCE INCLUDES WORK
AS A SPECIAL SITUATIONS
ANALYST WITH
RAYMOND JAMES &
ASSOCIATES FOR
FIVE YEARS.
- ------------------------------------------------------------------------------------------
Herbert E. SENIOR PORTFOLIO MANAGER-- SINCE MR. EHLERS JOINED THE
Ehlers CAPITAL GROWTH 1997 INVESTMENT ADVISER AS A
MANAGING BALANCED (EQUITY) 1998 SENIOR PORTFOLIO MANAGER
DIRECTOR STRATEGIC GROWTH 1999 AND CHIEF INVESTMENT
GROWTH OPPORTUNITIES 1999 OFFICER OF THE GROWTH
EQUITY TEAM IN 1997.
FROM 1994 TO 1997, HE
WAS THE CHIEF INVESTMENT
OFFICER AND CHAIRMAN OF
LIBERTY. HE WAS A
PORTFOLIO MANAGER AND
PRESIDENT AT LIBERTY'S
PREDECESSOR FIRM, EAGLE
ASSET MANAGEMENT
("EAGLE"), FROM 1984 TO
1994.
- ------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- --------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Gregory H. SENIOR PORTFOLIO MANAGER-- SINCE MR. EKIZIAN JOINED THE
Ekizian CAPITAL GROWTH 1997 INVESTMENT ADVISER AS
VICE PRESIDENT BALANCED (EQUITY) 1998 PORTFOLIO MANAGER AND
STRATEGIC GROWTH 1999 CO-CHAIR OF THE GROWTH
GROWTH OPPORTUNITIES 1999 EQUITY INVESTMENT
COMMITTEE IN 1997. FROM
1990 TO 1997, HE WAS A
PORTFOLIO MANAGER AT
LIBERTY AND ITS
PREDECESSOR FIRM, EAGLE.
- --------------------------------------------------------------------------------------------
Scott Kolar PORTFOLIO MANAGER-- SINCE MR. KOLAR JOINED THE
ASSOCIATE CAPITAL GROWTH 1999 INVESTMENT ADVISER AS AN
STRATEGIC GROWTH EQUITY ANALYST IN 1997
AND BECAME A PORTFOLIO
MANAGER IN 1999. FROM
1994 TO 1997, HE WAS AN
EQUITY ANALYST AND
INFORMATION SYSTEMS
SPECIALIST AT LIBERTY.
- --------------------------------------------------------------------------------------------
David G. Shell SENIOR PORTFOLIO MANAGER-- SINCE MR. SHELL JOINED THE
VICE PRESIDENT CAPITAL GROWTH 1997 INVESTMENT ADVISER AS A
BALANCED (EQUITY) 1998 PORTFOLIO MANAGER IN
STRATEGIC GROWTH 1999 1997. FROM 1987 TO 1997,
GROWTH OPPORTUNITIES 1999 HE WAS A PORTFOLIO
MANAGER AT LIBERTY AND
ITS PREDECESSOR FIRM,
EAGLE.
- --------------------------------------------------------------------------------------------
Ernest C. SENIOR PORTFOLIO MANAGER-- SINCE MR. SEGUNDO JOINED THE
Segundo, Jr. CAPITAL GROWTH 1997 INVESTMENT ADVISER AS A
VICE PRESIDENT BALANCED (EQUITY) 1998 PORTFOLIO MANAGER IN
STRATEGIC GROWTH 1999 1997. FROM 1992 TO 1997,
GROWTH OPPORTUNITIES 1999 HE WAS A PORTFOLIO
MANAGER AT LIBERTY.
- --------------------------------------------------------------------------------------------
</TABLE>
Fixed-Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing inter-
est rate anticipation and focusing on security selection and sector alloca-
tion
..The team manages approximately $29 billion in fixed-income assets for
retail, institutional and high net worth clients
- --------------------------------------------------------------------------------
Fixed-Income Portfolio Management Team
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- --------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. SENIOR PORTFOLIO SINCE MR. BEINNER JOINED THE
Beinner MANAGER-- 1994 INVESTMENT ADVISER AS A
MANAGING BALANCED (FIXED- PORTFOLIO MANAGER IN 1990.
DIRECTOR AND INCOME)
CO-HEAD U.S.
FIXED INCOME
- --------------------------------------------------------------------------------
C. Richard Lucy SENIOR PORTFOLIO SINCE MR. LUCY JOINED THE INVESTMENT
MANAGING MANAGER-- 1994 ADVISER AS A PORTFOLIO MANAGER
DIRECTOR AND BALANCED (FIXED- IN 1992.
CO-HEAD U.S. INCOME)
FIXED INCOME
- --------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly
44
<PAGE>
SERVICE PROVIDERS
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to
January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Fund service providers do not adequately address this prob-
lem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group which analyzed
these issues and implemented system modifications to prepare for the Year
2000 Problem.
..The Investment Adviser has either tested with or received assurance from
the Fund's other service providers to confirm that they are taking reason-
able steps to avoid Year 2000 Problems, and the Investment Adviser contin-
ues to monitor the situation.
..The Investment Adviser has developed broad and comprehensive contingency
plans, as well as event management plans that will help manage the Fund
through the date change by allowing the Investment Adviser to closely moni-
tor and respond to Year 2000-related events as they unfold around the
world.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
45
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions from
net realized capital gains. You may choose to have dividends and distributions
paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund. Spe-
cial restrictions may apply for certain ILA Portfolios. See the Additional
Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from net capital gains
are declared and paid as follows:
<TABLE>
<CAPTION>
INVESTMENT CAPITAL GAINS
FUND INCOME DIVIDENDS DISTRIBUTIONS
- -------------------------------------------------------------------------------
<S> <C> <C>
Balanced QUARTERLY ANNUALLY
- -------------------------------------------------------------------------------
Growth and Income QUARTERLY ANNUALLY
- -------------------------------------------------------------------------------
CORE Large Cap Value QUARTERLY ANNUALLY
- -------------------------------------------------------------------------------
CORE U.S. Equity ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
CORE Large Cap Growth ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
CORE Small Cap Equity ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
Capital Growth ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
Strategic Growth ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
Growth Opportunities ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
Mid Cap Value ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
Small Cap Value ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
Large Cap Value ANNUALLY ANNUALLY
- -------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
DIVIDENDS
From time to time a portion of a Fund's dividends may constitute a return of
capital.
At the time of an investor's purchase of shares of a Fund, a portion of the NAV
per share may be represented by undistributed income or undistributed realized
appreciation of the Fund's portfolio securities. Therefore, subsequent distri-
butions on such shares from such income or realized appreciation may be taxable
to you even if the NAV of the shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions there-
of) represent a return of a portion of the purchase price.
47
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their NAV next determined after receipt of an order by
Goldman Sachs from a Service Organization. No sales load is charged. Pur-
chases of Service Shares must be settled within three business days of
receipt of a complete purchase order.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; OR
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
48
<PAGE>
SHAREHOLDER GUIDE
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of Goldman Sachs Trust (the "Trust"), purchase, redemption
and exchange orders placed by or on behalf of their customers, and may des-
ignate other intermediaries to accept such orders, if approved by the Trust.
In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payment for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, which are attributable to or held
in the name of the Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of
the amount invested.
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and
are entitled to different services than Service Shares. Information regard-
ing these other share classes may be obtained from your sales representative
or from Goldman Sachs by calling the number on the back cover of this Pro-
spectus.
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
mini-
49
<PAGE>
mum amount for initial and subsequent investments in Service Shares, and may
establish other requirements such as a minimum account balance. A Service
Organization may redeem Service Shares held by non-complying accounts, and
may impose a charge for any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Service Shares of a
Fund is evident, or if purchases, sales or exchanges are, or a subsequent
abrupt redemption might be, of a size that would disrupt the management of
a Fund.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV =
--------------------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or, if accurate
quotations are not readily available, the fair value of the Fund's invest-
ments may be determined in good faith under procedures established by the
Trustees.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). Fund shares will not be priced on any day
the New York Stock Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME BY
WHICH ORDERS MUST BE RECEIVED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF
REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE IS STOPPED AT A TIME OTHER
THAN 4:00 P.M. NEW YORK TIME.
50
<PAGE>
SHAREHOLDER GUIDE
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of the nature and materiality of the
event, its effect on Fund operations and other relevant factors.
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. GENERALLY,
EACH FUND WILL REDEEM ITS SERVICE SHARES UPON REQUEST ON ANY BUSINESS DAY AT
THEIR NAV NEXT DETERMINED AFTER RECEIPT OF SUCH REQUEST IN PROPER FORM.
Redemption proceeds may be sent to recordholders by check or by wire (if the
wire instructions are on record).
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account
Application.
<TABLE>
------------------------------------------------
<S> <C>
BY WRITING: Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
------------------------------------------------
BY TELEPHONE: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York
time)
------------------------------------------------
</TABLE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
51
<PAGE>
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request may be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
NOTE: IT MAY BE DIFFICULT TO MAKE TELEPHONE REDEMPTIONS IN TIMES OF DRASTIC
ECONOMIC OR MARKET CONDITIONS.
How Are Redemption Proceeds Paid?
BY WIRE: The Funds will arrange for redemption proceeds to be wired as fed-
eral funds to the bank account designated in the recordholder's Account
Application. The following general policies govern wiring redemption pro-
ceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If the shares to be sold were recently paid for by
check, the Fund will pay the redemption proceeds when the check has
cleared, which may take up to 15 days. If the Federal Reserve Bank is
closed on the day that the redemption proceeds would ordinarily be wired,
wiring the redemption proceeds may be delayed one additional business day.
..To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
Account Application to the Service Organization.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organization.
BY CHECK: A recordholder may elect in writing to receive redemption proceeds
by check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of receipt of a properly exe-
cuted redemption request. If the shares to be sold were recently paid for by
check, the Fund will pay the redemption proceeds when the check has cleared,
which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
.. Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
52
<PAGE>
SHAREHOLDER GUIDE
.. Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate the timely transmittal of redemption requests, Service Organi-
zations may set times by which they must receive redemption requests.
Service Organizations may also require additional documentation from you.
The Trust reserves the right to:
.. Redeem the Service Shares of any Service Organization whose account bal-
ance falls below $50 as a result of a redemption. The Funds will not
redeem Service Shares on this basis if the value of the account falls
below the minimum account balance solely as a result of market conditions.
The Fund will give 60 days' prior written notice to allow a Service Organ-
ization to purchase sufficient additional shares of the Fund in order to
avoid such redemption.
.. Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
.. Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
Service Shares of any other Goldman Sachs Fund. The exchange privilege may
be materially modified or withdrawn at any time upon 60 days' written
notice.
<TABLE>
<CAPTION>
INSTRUCTIONS FOR EXCHANGING SHARES:
-------------------------------------------------------------------
<S> <C> <C>
BY WRITING: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-------------------------------------------------------------------
BY TELEPHONE: If you have elected the telephone exchange
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
53
<PAGE>
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirement of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account.
..Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will Be Sent Regarding Investments In Service Shares?
Service Organizations will receive from the Funds annual reports containing
audited financial statements and semi-annual reports. Service Organizations
will also be provided with a printed confirmation for each transaction in
their account and a monthly account statement. Service Organizations are
responsible for providing these or other reports to their customers who are
the beneficial owners of Service Shares in accordance with the rules that
apply to their accounts with the Service Organizations.
54
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Funds are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Funds' income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. A percentage
of the Funds' dividends paid to corporate shareholders may be eligible for
the corporate dividends-received deduction. The Funds will inform sharehold-
ers of the source and tax status of all distributions promptly after the
close of each calendar year.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds may
deduct these taxes in computing their taxable income.
If you buy shares of a Fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a portion
of your investment. This is known as "buying a dividend."
55
<PAGE>
TAXES ON SALES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
56
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with equity securities.
"Equity securities" include common stocks, preferred stocks, interests in
real estate investment trusts, convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, warrants and stock pur-
chase rights. In general, stock values fluctuate in response to the activi-
ties of individual companies and in response to general market and economic
conditions. Accordingly, the value of the stocks that a Fund holds may
decline over short or extended periods. The stock markets tend to be cycli-
cal, with periods when stock prices generally rise and periods when prices
generally decline. The volatility of equity securities means that the value
of your investment in the Funds may increase or decrease. As of the date of
this Prospectus, certain stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue.
To the extent that a Fund invests in fixed-income securities, that Fund will
also be subject to the risks associated with its fixed-income securities.
These risks include interest rate risk, credit risk and call/extension risk.
In general, interest rate risk involves the risk that when interest rates
decline, the market value of fixed-income securities tends to increase (al-
though many mortgage related securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that an issuer
could default on its obligations, and a Fund will not recover its invest-
ment. Call risk and extension risk are normally present in mortgage-backed
securities and asset-backed securities. For example, homeowners have the
option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (exten-
sion risk). In general, if interest rates on new mortgage loans fall suffi-
ciently below the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease. In
either case, a change in the prepayment rate can result in losses to invest-
ors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turn-
57
<PAGE>
over (100% or more) involves correspondingly greater expenses which must be
borne by a Fund and its shareholders. The portfolio turnover rate is calcu-
lated by dividing the lesser of the dollar amount of sales or purchases of
portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase
of one year or less. See "Financial Highlights" in Appendix B for a state-
ment of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of
your then current financial position and needs.
B. Other Portfolio Risks
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS. Each Fund
may invest in small capitalization companies and REITs. Investments in small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the rea-
sons for the greater price volatility of these investments are the less cer-
tain growth prospects of smaller firms and the lower degree of liquidity in
the markets for such securities. Small capitalization companies and REITs
may be thinly traded and may have to be sold at a discount from current mar-
ket prices or in small lots over an extended period of time. In addition,
these securities are subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities in these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic or market conditions, or adverse investor
perceptions whether or not accurate. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Small capitalization companies and REITs include "unseasoned" issuers
that do not have an established financial history; often have limited prod-
uct lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of
bankruptcy. Transaction costs for these investments are often higher than
those of larger capitalization companies. Investments
58
<PAGE>
APPENDIX A
in small capitalization companies and REITs may be more difficult to price
precisely than other types of securities because of their characteristics
and lower trading volumes.
RISKS OF FOREIGN INVESTMENTS. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
assets held by the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may
59
<PAGE>
be less publicly available information about a foreign issuer than about a
U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and secu-
rities of many foreign issuers are less liquid and more volatile than secu-
rities of comparable domestic issuers. Efforts in foreign countries to reme-
diate potential Year 2000 problems are not as extensive as those in the
United States. As a result, the operations of foreign markets, foreign
issuers and foreign governments may be disrupted by the Year 2000 Problem,
and the investment portfolio of a Fund may be adversely affected. Further-
more, with respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of with-
holding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, and political or social instability or diplomatic developments which
could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts
60
<PAGE>
APPENDIX A
evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not neces-
sarily quoted in the same currency as the underlying security.
RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
61
<PAGE>
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by the Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
A Fund's investments in emerging countries are subject to the risk that the
liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor per-
ceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Invest-
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APPENDIX A
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and currency transactions involve additional risk of
loss. Loss can result from a lack of correlation between changes in the
value of derivative instruments and the portfolio assets (if any) being
hedged, the potential illiquidity of the markets for derivative instruments,
or the risks arising from margin requirements and related leverage factors
associated with such transactions. The use of these management techniques
also involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices, interest rates or currency
prices. Each Fund may also invest in derivative investments for non-hedging
purposes (that is, to seek to increase total return). Investing for non-
hedging purposes is considered a speculative practice and presents even
greater risk of loss.
RISKS OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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CREDIT RISKS. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
TEMPORARY INVESTMENT RISKS. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. government securities
..Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
..Certificates of deposit
..Bankers' acceptances
..Repurchase agreements
..Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
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APPENDIX A
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities. Con-
vertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
FOREIGN CURRENCY TRANSACTIONS. A Fund may, to the extent consistent with its
investment policies, purchase or sell foreign currencies on a cash basis or
through forward contracts. A forward contract involves an obligation to pur-
chase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, certain Funds may also
enter into such transactions to seek to increase total return, which is con-
sidered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
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Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. Struc-
tured securities are securities whose value is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative
change in two or more References. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities and may be more vol-
atile, less liquid and more difficult to price accurately than less complex
securities.
REITS. Each Fund may invest in REITS. REITS are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.
The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable income tax
treatment. REITs are also subject to risks generally associated with invest-
ments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other
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APPENDIX A
respects, these risks may be heightened. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which they may invest or on any securities index comprised of
securities in which they may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the-counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
government securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund
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invests in foreign securities, currency exchange rates, or to otherwise man-
age their term structures, sector selection and durations in accordance with
their investment objectives and policies. Each Fund may also enter into
closing purchase and sale transactions with respect to such contracts and
options. A Fund will engage in futures and related options transactions for
bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or to seek to increase total return to the extent
permitted by such regulations. A Fund may not purchase or sell futures con-
tracts or purchase or sell related options to seek to increase total return,
except for closing purchase or sale transactions, if immediately thereafter
the sum of the amount of initial margin deposits and premiums paid on the
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
EQUITY SWAPS. Each Fund may invest in equity swaps. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other compo-
nents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are
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APPENDIX A
derivatives and their value can be very volatile. To the extent that the
Investment Adviser does not accurately analyze and predict the potential
relative fluctuation of the components swapped with another party, a Fund
may suffer a loss. The value of some components of an equity swap (such as
the dividends on a common stock) may also be sensitive to changes in inter-
est rates. Furthermore, a Fund may suffer a loss if the counterparty
defaults.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. When-issued
securities are securities that have been authorized, but not yet issued.
When-issued securities are purchased in order to secure what is considered
to be an advantageous price and yield to the Fund at the time of entering
into the transaction. A forward commitment involves the entering into a con-
tract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
REPURCHASE AGREEMENTS. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash
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<PAGE>
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loan continuously with cash, cash equivalents, U.S.
government securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market deprecia-
tion or appreciation, and a Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund
(including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
SHORT SALES AGAINST-THE-BOX. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
PREFERRED STOCK, WARRANTS AND RIGHTS. Each Fund may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
OTHER INVESTMENT COMPANIES. Each Fund may invest in securities of other
investment companies (including SPDRs and WEBs, as defined below) subject to
statutory limitations prescribed by the Act. These limitations include a
prohibition on
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APPENDIX A
any Fund acquiring more than 3% of the voting shares of any other investment
company, and a prohibition on investing more than 5% of a Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. A Fund will indi-
rectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Such other investment com-
panies will have investment objectives, policies and restrictions substan-
tially similar to those of the acquiring Fund and will be subject to sub-
stantially the same risks.
..STANDARD & POOR'S DEPOSITORY RECEIPTS. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
..WORLD EQUITY BENCHMARK SHARES. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specified countries.
WEBS are listed on the AMEX and were initially offered to the public in
1996. The market prices of WEBS are expected to fluctuate in accordance
with both changes in the NAVs of their underlying indices and supply and
demand of WEBS on the AMEX. To date, WEBS have traded at relatively modest
discounts and premiums to their NAVs. However, WEBS have a limited operat-
ing history and information is lacking regarding the actual performance and
trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the
AMEX necessary to maintain the listing of WEBS will continue to be met or
will remain unchanged. In the event substantial market or other disruptions
affecting WEBS should occur in the future, the liquidity and value of a
Fund's shares could also be substantially and adversely affected. If such
disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
UNSEASONED COMPANIES. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments
in unseasoned compa -
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nies are more speculative and entail greater risk than do investments in
companies with an established operating record.
CORPORATE DEBT OBLIGATIONS. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of corporations to pay
interest and repay principal, and include securities issued by banks and
other financial institutions. Each Fund may invest in corporate debt obliga-
tions issued by U.S. and certain non-U.S. issuers which issue securities
denominated in the U.S. dollar (including Yankee and Euro obligations). In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions and suprana-
tional entities (i.e., the World Bank, the International Monetary Fund,
etc.).
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be gen-
eral obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulations. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.
U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS. Each Fund may
invest in U.S. government securities and related custodial receipts. U.S.
government securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. government securities may be supported by (a) the
full faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association); (c) the discretionary authority of the U.S. government to pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")); or (d) only the credit of the issuer. U.S. government
securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. government securities, where the interest and principal compo-
nents of stripped U.S. government securities are traded independently.
Interests in U.S. government securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments
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APPENDIX A
or both on certain notes or bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. For certain securities law purposes, custodial
receipts are not considered obligations of the U.S. government.
MORTGAGE-BACKED SECURITIES. Certain Funds may invest in mortgage-backed
securities. Mortgage-backed securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-backed securities can be backed by either
fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. Privately issued
mortgage-backed securities are normally structured with one or more types of
"credit enhancement." However, these mortgage-backed securities typically do
not have the same credit standing as U.S. government guaranteed mortgage-
backed securities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other mortgage-backed securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment and invests in cer-
tain mortgages principally secured by interests in real property and other
permitted investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other mortgage-backed securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
ASSET-BACKED SECURITIES. Certain Funds may invest in asset-backed securi-
ties. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often sub-
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ject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the under-
lying loans. During periods of declining interest rates, prepayment of loans
underlying asset-backed securities can be expected to accelerate. According-
ly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Asset-backed securities present credit risks that are not presented by
mortgage-backed securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
BORROWINGS. Each Fund can borrow money from banks and other financial insti-
tutions in amounts not exceeding one-third of its total assets for temporary
or emergency purposes. A Fund may not make additional investments if
borrowings exceed 5% of its total assets.
MORTGAGE DOLLAR ROLLS. Certain Funds may enter into mortgage dollar rolls. A
mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
74
<PAGE>
APPENDIX A
YIELD CURVE OPTIONS. Certain Funds may enter into options on the yield
"spread" or differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options,
a yield curve option is based on the difference between the yields of desig-
nated securities, rather than the prices of the individual securities, and
is settled through cash payments. Accordingly, a yield curve option is prof-
itable to the holder if this differential widens (in the case of a call) or
narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent
which was not anticipated.
REVERSE REPURCHASE AGREEMENTS. Certain Funds may enter into reverse repur-
chase agreements. Reverse repurchase agreements involve the sale of securi-
ties held by a Fund subject to the Fund's agreement to repurchase them at a
mutually agreed upon date and price (including interest). These transactions
may be entered into as a temporary measure for emergency purposes or to meet
redemption requests. Reverse repurchase agreements may also be entered into
when the Investment Adviser expects that the interest income to be earned
from the investment of the transaction proceeds will be greater than the
related interest expense. Reverse repurchase agreements involve leveraging.
If the securities held by a Fund decline in value while these transactions
are outstanding, the NAV of the Fund's outstanding shares will decline in
value by proportionately more than the decline in value of the securities.
In addition, reverse repurchase agreements involve the risk that the inter-
est income earned by a Fund (from the investment of the proceeds) will be
less than the interest expense of the transaction, that the market value of
the securities sold by a Fund will decline below the price the Fund is obli-
gated to pay to repurchase the securities, and that the securities may not
be returned to the Fund.
MUNICIPAL SECURITIES. Certain Funds may invest in securities and instruments
issued by state and local government issuers. Municipal securities in which
a Fund may invest consist of bonds, notes, commercial paper and other
instruments (including participating interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies or instrumentalities. Such securities may pay fixed, variable or float-
ing rates of interest. Municipal securities are often issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass trans-
portation, schools, streets and water and sewer works. Other public
75
<PAGE>
purposes for which municipal securities may be issued include refunding out-
standing obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and facilities. Munici-
pal securities in which a Fund may invest include private activity bonds,
municipal leases, certificates of participation, pre-funded municipal secu-
rities and auction rate securities.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND INTER-
EST RATE CAPS, FLOORS AND COLLARS. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional princi-
pal amount, however, is tied to a reference pool or pools of mortgages.
Credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a
payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates.
Certain Funds may enter into swap transactions for hedging purposes or to
seek to increase total return. The use of interest rate, mortgage, credit
and currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
LOAN PARTICIPATIONS. Certain Funds may invest in loan participations. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. A Fund
may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan participation interests may take the form of a direct or co-
lending relationship with the
76
<PAGE>
APPENDIX A
corporate borrower, an assignment of an interest in the loan by a co-lender
or another participant, or a participation in the seller's share of the
loan. When a Fund acts as co-lender in connection with a participation
interest or when it acquires certain participation interests, the Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit reme-
dies against the borrower. In these cases, the Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower. Moreover, under the terms of the loan participa-
tion, the Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the Fund may also be subject
to the risk that the agent bank may become insolvent.
INVERSE FLOATERS. Certain Funds may invest in inverse floating rate debt
securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The
higher the degree of leverage of an inverse floater, the greater the vola-
tility of its market value.
77
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has not
been in operation for less than five years). Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an invest-
ment in a Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by Arthur Andersen LLP, whose report,
along with a Fund's financial statements, is included in the Fund's annual
report (available upon request). No financial highlights are included for
the Large Cap Value Fund because it had no operating history prior to the
date of this prospectus.
BALANCED FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET
VALUE, NET NET REALIZED
BEGINNING INVESTMENT AND UNREALIZED
OF PERIOD INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
1999 - Class A Shares $20.48 $0.32 $(0.19)
1999 - Class B Shares 20.37 0.22 (0.18)
1999 - Class C Shares 20.34 0.23 (0.19)
1999 - Institutional Shares 20.48 0.53 (0.35)
1999 - Service Shares 20.47 1.22 (1.14)
- ----------------------------------------------------------------------------
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 20.29 0.58 0.20
1999 - Class B Shares 20.20 0.41 0.21
1999 - Class C Shares 20.17 0.41 0.21
1999 - Institutional Shares 20.29 0.64 0.20
1999 - Service Shares 20.28 0.53 0.21
- ----------------------------------------------------------------------------
1998 - Class A Shares 18.78 0.57 2.66
1998 - Class B Shares 18.73 0.50 2.57
1998 - Class C Shares (commenced August
15, 1997) 21.10 0.25 0.24
1998 - Institutional Shares (commenced
August 15, 1997) 21.18 0.26 0.32
1998 - Service Shares (commenced August
15, 1997) 21.18 0.22 0.32
- ----------------------------------------------------------------------------
1997 - Class A Shares 17.31 0.66 2.47
1997 - Class B Shares (commenced May 1,
1996) 17.46 0.42 2.34
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.22 0.51 3.43
- ----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
78
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------
IN EXCESS NET INCREASE NET ASSETS RATIO OF
FROM NET OF NET (DECREASE) NET ASSET AT END OF NET EXPENSES
INVESTMENT INVESTMENT FROM NET IN NET ASSET VALUE, END TOTAL PERIOD TO AVERAGE
INCOME INCOME REALIZED GAINS VALUE OF PERIOD RETURNB (IN 000S) NET ASSETS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.23) $ -- $ -- $(0.10) $20.38 0.62%d $169,395 1.10%c
(0.15) -- -- (0.11) 20.26 0.20d 40,515 1.85c
(0.15) -- -- (0.11) 20.23 0.18d 11,284 1.85c
(0.27) -- -- (0.09) 20.39 0.86d 2,361 0.70c
(0.18) -- -- (0.10) 20.37 0.39d 15 1.20c
- -------------------------------------------------------------------------------------------------
(0.59) -- -- 0.19 20.48 3.94 192,453 1.04
(0.45) -- -- 0.17 20.37 3.15 43,926 1.80
(0.45) -- -- 0.17 20.34 3.14 14,286 1.80
(0.65) -- -- 0.19 20.48 4.25 8,010 0.73
(0.55) -- -- 0.19 20.47 3.80 490 1.23
- -------------------------------------------------------------------------------------------------
(0.56) -- (1.16) 1.51 20.29 17.54 163,636 1.00
(0.42) (0.02) (1.16) 1.47 20.20 16.71 23,639 1.76
(0.22) (0.04) (1.16) (0.93) 20.17 2.49d 8,850 1.77c
(0.23) (0.08) (1.16) (0.89) 20.29 2.93d 8,367 0.76c
(0.22) (0.06) (1.16) (0.90) 20.28 2.66d 16 1.26c
- -------------------------------------------------------------------------------------------------
(0.66) -- (1.00) 1.47 18.78 18.59 81,410 1.00
(0.42) (0.07) (1.00) 1.27 18.73 16.22d 2,110 1.75c
- -------------------------------------------------------------------------------------------------
(0.50) -- (0.35) 3.09 17.31 28.10 50,928 1.00
- -------------------------------------------------------------------------------------------------
</TABLE>
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions.
79
<PAGE>
BALANCED FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
------------------------------
RATIO OF RATIO OF
NET INVESTMENT RATIO OF NET INVESTMENT
INCOME TO EXPENSES TO INCOME TO PORTFOLIO
AVERAGE NET AVERAGE AVERAGE NET TURNOVER
ASSETS NET ASSETS ASSETS RATEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH
PERIOD ENDED AUGUST 31,
1999 - Class A Shares 2.58%c 1.32%c 2.36%c 90.41%d
1999 - Class B Shares 1.83c 2.07c 1.61c 90.41d
1999 - Class C Shares 1.84c 2.07c 1.62c 90.41d
1999 - Institutional
Shares 2.96c 0.92c 2.74c 90.41d
1999 - Service Shares 2.46c 1.42c 2.24c 90.41d
- -----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
JANUARY 31,
1999 - Class A Shares 2.90 1.45 2.49 175.06
1999 - Class B Shares 2.16 2.02 1.94 175.06
1999 - Class C Shares 2.17 2.02 1.95 175.06
1999 - Institutional
Shares 3.22 0.95 3.00 175.06
1999 - Service Shares 2.77 1.45 2.55 175.06
- -----------------------------------------------------------------------------------------------
1998 - Class A Shares 2.94 1.57 2.37 190.43
1998 - Class B Shares 2.14 2.07 1.83 190.43
1998 - Class C Shares
(commenced
August 15, 1997) 2.13c 2.08c 1.82c 190.43
1998 - Institutional Shares
(commenced August
15, 1997) 3.13c 1.07c 2.82c 190.43
1998 - Service Shares
(commenced August
15, 1997) 2.58c 1.57c 2.27c 190.43
- -----------------------------------------------------------------------------------------------
1997 - Class A Shares 3.76 1.77 2.99 208.11
1997 - Class B Shares
(commenced May
1, 1996) 2.59c 2.27c 2.07c 208.11
- -----------------------------------------------------------------------------------------------
1996 - Class A Shares 3.65 1.90 2.75 197.10
- -----------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
[This page intentionally left blank]
81
<PAGE>
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/ DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ------------------------------
NET
REALIZED
NET ASSET AND IN EXCESS
VALUE, NET UNREALIZED FROM NET OF NET FROM NET
BEGINNING INVESTMENT GAIN INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME (LOSS) (LOSS) INCOME INCOME GAINS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SEVEN-MONTH
PERIOD ENDED AUGUST 31,
1999 - Class A Shares $24.33 $ 0.19 $0.31 $(0.15) $ -- $ --
1999 - Class B Shares 24.13 0.08 0.31 (0.06) -- --
1999 - Class C Shares 24.08 0.08 0.30 (0.05) -- --
1999 - Institutional
Shares 24.35 0.34 0.23 (0.20) -- --
1999 - Service Shares 24.33 0.17 0.32 (0.14) -- --
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
JANUARY 31,
1999 - Class A Shares 25.93 0.20 (1.60) (0.19) (0.01) --
1999 - Class B Shares 25.73 0.02 (1.58) (0.04) -- --
1999 - Class C Shares 25.70 0.02 (1.59) (0.05) -- --
1999 - Institutional
Shares 25.95 0.29 (1.58) (0.30) (0.01) --
1999 - Service Shares 25.92 0.17 (1.58) (0.17) (0.01) --
- -------------------------------------------------------------------------------------------
1998 - Class A Shares 23.18 0.11 5.27 (0.11) -- (2.52)
1998 - Class B Shares 23.10 0.04 5.14 -- (0.03) (2.52)
1998 - Class C Shares
(commenced August 15,
1997) 28.20 (0.01) 0.06 -- (0.03) (2.52)
1998 - Institutional
Shares 23.19 0.27 5.23 (0.22) -- (2.52)
1998 - Service Shares 23.17 0.14 5.23 (0.06) (0.04) (2.52)
- -------------------------------------------------------------------------------------------
1997 - Class A Shares 19.98 0.35 5.18 (0.35) (0.01) (1.97)
1997 - Class B Shares
(commenced May 1, 1996) 20.82 0.17 4.31 (0.17) (0.06) (1.97)
1997 - Institutional
Shares
(commenced June 3,
1996) 21.25 0.29 3.96 (0.30) (0.04) (1.97)
1997 - Service Shares
(commenced March 6,
1996) 20.71 0.28 4.50 (0.28) (0.07) (1.97)
- -------------------------------------------------------------------------------------------
1996 - Class A Shares 15.80 0.33 4.75 (0.30) -- (0.60)
- -------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
82
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
RATIO OF
NET INCREASE NET ASSETS RATIO OF NET INVESTMENT
(DECREASE) NET ASSET AT END OF NET EXPENSES INCOME (LOSS)
IN NET VALUE, END TOTAL PERIOD TO AVERAGE TO AVERAGE NET
ASSET VALUE OF PERIOD RETURN/B/ (IN 000S) NET ASSETS ASSETS
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.35 $24.68 2.05%d $ 855,174 1.19%c 1.26%c
0.33 24.46 1.60d 271,912 1.94c 0.51c
0.33 24.41 1.58d 31,328 1.94c 0.51c
0.37 24.72 2.32d 32,181 0.79c 1.72c
0.35 24.68 2.01d 10,008 1.29c 1.16c
- -------------------------------------------------------------------------
(1.60) 24.33 (5.40) 1,122,157 1.22 0.78
(1.60) 24.13 (6.07) 349,662 1.92 0.09
(1.62) 24.08 (6.12) 48,146 1.92 0.10
(1.60) 24.35 (5.00) 173,696 0.80 1.25
(1.59) 24.33 (5.44) 11,943 1.30 0.72
- -------------------------------------------------------------------------
2.75 25.93 23.71 1,216,582 1.25 0.43
2.63 25.73 22.87 307,815 1.94 (0.35)
(2.50) 25.70 0.51d 31,686 1.99c (0.48)c
2.76 25.95 24.24 36,225 0.83 0.76
2.75 25.92 23.63 8,893 1.32 0.32
- -------------------------------------------------------------------------
3.20 23.18 28.42 615,103 1.22 1.60
2.28 23.10 22.23d 17,346 1.93c 0.15c
1.94 23.19 20.77d 193 0.82c 1.36c
2.46 23.17 23.87d 3,174 1.32c 0.94c
- -------------------------------------------------------------------------
4.18 19.98 32.45 436,757 1.20 1.67
- -------------------------------------------------------------------------
</TABLE>
83
<PAGE>
GROWTH AND INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
EXPENSES TO NET INVESTMENT PORTFOLIO
AVERAGE NET INCOME (LOSS) TO TURNOVER
ASSETS AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH
PERIOD ENDED
AUGUST 31,
1999 - Class A Shares 1.20%c 1.25%c 55.43%d
1999 - Class B Shares 1.95c 0.50c 55.43d
1999 - Class C Shares 1.95c 0.50c 55.43d
1999 - Institutional
Shares 0.80c 1.71c 55.43d
1999 - Service Shares 1.30c 1.15c 55.43d
- -------------------------------------------------------------------------------------
FOR THE YEARS ENDED
JANUARY 31,
1999 - Class A Shares 1.32 0.68 125.79
1999 - Class B Shares 1.92 0.09 125.79
1999 - Class C Shares 1.92 0.10 125.79
1999 - Institutional
Shares 0.80 1.25 125.79
1999 - Service Shares 1.30 0.72 125.79
- -------------------------------------------------------------------------------------
1998 - Class A Shares 1.42 0.26 61.95
1998 - Class B Shares 1.94 (0.35) 61.95
1998 - Class C Shares
(commenced August 15,
1997) 1.99c (0.48)c 61.95
1998 - Institutional
Shares 0.83 0.76 61.95
1998 - Service Shares 1.32 0.32 61.95
- -------------------------------------------------------------------------------------
1997 - Class A Shares 1.43 1.39 53.03
1997 - Class B Shares
(commenced May 1, 1996) 1.93c 0.15c 53.03
1997 - Institutional
Shares
(commenced June 3,
1996) 0.82c 1.36c 53.03
1997 - Service Shares
(commenced March 6,
1996) 1.32c 0.94c 53.03
- -------------------------------------------------------------------------------------
1996 - Class A Shares 1.45 1.42 57.93
- -------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
84
<PAGE>
[This page intentionally left blank]
85
<PAGE>
CORE LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET
VALUE, NET NET REALIZED
BEGINNING INVESTMENT AND UNREALIZED
OF PERIOD INCOME GAIN
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST
31,
1999 - Class A Shares $10.15 $0.04 $0.40
1999 - Class B Shares 10.15 0.01 0.36
1999 - Class C Shares 10.15 0.01 0.37
1999 - Institutional Shares 10.16 0.06 0.38
1999 - Service Shares 10.16 0.02 0.40
- ------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
1999 - Class A Shares (commenced December
31, 1998) 10.00 0.01 0.14
1999 - Class B Shares (commenced December
31, 1998) 10.00 -- 0.15
1999 - Class C Shares (commenced December
31, 1998) 10.00 -- 0.15
1999 - Institutional Shares (commenced
December 31, 1998) 10.00 0.01 0.15
1999 - Service Shares (commenced December
31, 1998) 10.00 0.02 0.14
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
86
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
----------------------------
NET ASSETS
FROM NET NET INCREASE NET ASSET AT END OF RATIO OF
INVESTMENT FROM NET IN NET ASSET VALUE, END TOTAL PERIOD NET EXPENSES TO
INCOME REALIZED GAINS VALUE OF PERIOD RETURN/B/,/D/ (IN 000S) AVERAGE NET ASSETS/C/
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.04) $ -- $0.40 $10.55 4.31% 91,072 1.04%
(0.02) -- 0.35 10.50 3.68 14,464 1.79
(0.02) -- 0.36 10.51 3.73 8,032 1.79
(0.05) -- 0.39 10.55 4.35 189,540 0.64
(0.03) -- 0.39 10.55 4.11 13 1.14
- ------------------------------------------------------------------------------------------------------
-- -- 0.15 10.15 1.50 6,665 1.08
-- -- 0.15 10.15 1.50 340 1.82
-- -- 0.15 10.15 1.50 268 1.83
-- -- 0.16 10.16 1.60 53,396 0.66
-- -- 0.16 10.16 1.60 2 1.16
- ------------------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
CORE LARGE CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
------------------------------------
RATIO OF RATIO OF
NET INVESTMENT RATIO OF NET INVESTMENT
INCOME TO EXPENSES TO INCOME TO PORTFOLIO
AVERAGE NET AVERAGE NET AVERAGE NET TURNOVER
ASSETS/C/ ASSETS/C/ ASSETS/C/ RATE/D/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD
ENDED AUGUST 31,
1999 - Class A Shares 0.87% 1.21% 0.70% 36.10%
1999 - Class B Shares 0.05 1.96 (0.12) 36.10
1999 - Class C Shares 0.09 1.96 (0.08) 36.10
1999 - Institutional
Shares 1.29 0.81 1.12 36.10
1999 - Service Shares 0.72 1.31 0.55 36.10
- ----------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED
JANUARY 31,
1999 - Class A
Shares(commenced December
31, 1998) 1.45 8.03 (5.50) 0.00
1999 - Class B
Shares(commenced December
31, 1998) 0.84 8.77 (6.11) 0.00
1999 - Class C
Shares(commenced December
31, 1998) 0.70 8.78 (6.25) 0.00
1999 - Institutional
Shares(commenced December
31, 1998) 1.97 7.61 (4.98) 0.00
1999 - Service
Shares(commenced December
31, 1998) 2.17 8.11 (4.78) 0.00
- ----------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
88
<PAGE>
[This page intentionally left blank]
89
<PAGE>
CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET NET
VALUE, INVESTMENT NET REALIZED
BEGINNING INCOME AND UNREALIZED
OF PERIOD (LOSS) GAIN (LOSS)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST
31,
1999 - Class A Shares $32.98 $ 0.03 $1.20
1999 - Class B Shares 32.50 (0.11) 1.17
1999 - Class C Shares 32.40 (0.10) 1.16
1999 - Institutional Shares 33.29 0.11 1.21
1999 - Service Shares 32.85 0.01 1.19
- -----------------------------------------------------------------------------
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 26.59 0.04 7.02
1999 - Class B Shares 26.32 (0.10) 6.91
1999 - Class C Shares 26.24 (0.10) 6.89
1999 - Institutional Shares 26.79 0.20 7.11
1999 - Service Shares 26.53 0.06 7.01
- -----------------------------------------------------------------------------
1998 - Class A Shares 23.32 0.11 5.63
1998 - Class B Shares 23.18 0.11 5.44
1998 - Class C Shares (commenced August
15, 1997) 27.48 0.03 1.22
1998 - Institutional Shares 23.44 0.30 5.65
1998 - Service Shares 23.27 0.19 5.57
- -----------------------------------------------------------------------------
1997 - Class A Shares 19.66 0.16 4.46
1997 - Class B Shares (commenced May 1,
1996) 20.44 0.04 3.70
1997 - Institutional Shares 19.71 0.30 4.51
1997 - Service Shares (commenced June 7,
1996) 21.02 0.13 3.15
- -----------------------------------------------------------------------------
1996 - Class A Shares 14.61 0.19 5.43
1996 - Institutional Shares (commenced
June 15, 1995) 16.97 0.16 3.23
- -----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
90
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------
RATIO OF
IN EXCESS NET INCREASE NET ASSETS RATIO OF NET INVESTMENT
FROM NET OF NET (DECREASE) NET ASSET AT END OF NET EXPENSES INCOME (LOSS)
INVESTMENT INVESTMENT FROM NET IN NET ASSET VALUE, END TOTAL PERIOD TO AVERAGE TO AVERAGE
INCOME INCOME REALIZED GAINS VALUE OF PERIOD RETURN/B/ (IN 000S) NET ASSETS NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1.23 $34.21 3.73%d $614,310 1.14%c 0.15%c
-- -- -- 1.06 33.56 3.26d 214,087 1.89c (0.60)c
-- -- -- 1.06 33.46 3.27d 43,361 1.89c (0.61)c
-- -- -- 1.32 34.61 3.97d 335,465 0.74c 0.54c
-- -- -- 1.20 34.05 3.65d 11,204 1.24c 0.06c
- ----------------------------------------------------------------------------------------------------------------
(0.03) (0.01) (0.63) 6.39 32.98 26.89 605,566 1.23 0.15
-- -- (0.63) 6.18 32.50 26.19 152,347 1.85 (0.50)
-- -- (0.63) 6.16 32.40 26.19 26,912 1.87 (0.53)
(0.15) (0.03) (0.63) 6.50 33.29 27.65 307,200 0.69 0.69
(0.10) (0.02) (0.63) 6.32 32.85 27.00 11,600 1.19 0.19
- ----------------------------------------------------------------------------------------------------------------
(0.12) -- (2.35) 3.27 26.59 24.96 398,393 1.28 0.51
-- (0.06) (2.35) 3.14 26.32 24.28 59,208 1.79 (0.05)
-- (0.14) (2.35) (1.24) 26.24 4.85d 6,267 1.78c (0.21)c
(0.24) (0.01) (2.35) 3.35 26.79 25.76 202,893 0.65 1.16
(0.07) (0.08) (2.35) 3.26 26.53 25.11 7,841 1.15 0.62
- ----------------------------------------------------------------------------------------------------------------
(0.16) -- (0.80) 3.66 23.32 23.75 225,968 1.29 0.91
(0.04) (0.16) (0.80) 2.74 23.18 18.59d 17,258 1.83c 0.06c
(0.28) -- (0.80) 3.73 23.44 24.63 148,942 0.65 1.52
(0.13) (0.10) (0.80) 2.25 23.27 15.92d 3,666 1.15c 0.69c
- ----------------------------------------------------------------------------------------------------------------
(0.16) -- (0.41) 5.05 19.66 38.63 129,045 1.25 1.01
(0.24) -- (0.41) 2.74 19.71 20.14d 64,829 0.65c 1.49c
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE>
CORE U.S. EQUITY FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES TO INCOME (LOSS) TO PORTFOLIO
AVERAGE NET AVERAGE TURNOVER
ASSETS NET ASSETS RATE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH
PERIOD ENDED AUGUST 31,
1999 - Class A Shares 1.24%c 0.05%c 41.84%d
1999 - Class B Shares 1.99c (0.70)c 41.84d
1999 - Class C Shares 1.99c (0.71)c 41.84d
1999 - Institutional
Shares 0.84c 0.44c 41.84d
1999 - Service Shares 1.34c (0.04)c 41.84d
- ---------------------------------------------------------------------------------
FOR THE YEARS ENDED
JANUARY 31,
1999 - Class A Shares 1.36 0.02 63.79
1999 - Class B Shares 1.98 (0.63) 63.79
1999 - Class C Shares 2.00 (0.66) 63.79
1999 - Institutional
Shares 0.82 0.56 63.79
1999 - Service Shares 1.32 0.06 63.79
- ---------------------------------------------------------------------------------
1998 - Class A Shares 1.47 0.32 65.89
1998 - Class B Shares 1.96 (0.22) 65.89
1998 - Class C Shares
(commenced August 15,
1997) 1.95c (0.38)c 65.89
1998 - Institutional
Shares 0.82 0.99 65.89
1998 - Service Shares 1.32 0.45 65.89
- ---------------------------------------------------------------------------------
1997 - Class A Shares 1.53 0.67 37.28
1997 - Class B Shares
(commenced May 1, 1996) 2.00c (0.11)c 37.28
1997 - Institutional
Shares 0.85 1.32 37.28
1997 - Service Shares
(commenced June 7, 1996) 1.35c 0.49c 37.28
- ---------------------------------------------------------------------------------
1996 - Class A Shares 1.55 0.71 39.35
1996 - Institutional
Shares (commenced June
15, 1995) 0.96c 1.18c 39.35
- ---------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
92
<PAGE>
[This page intentionally left blank]
93
<PAGE>
CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET NET
VALUE, INVESTMENT NET REALIZED
BEGINNING INCOME AND UNREALIZED
OF PERIOD (LOSS) GAIN
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST
31,
1999 - Class A Shares $16.17 $(0.01) $0.86
1999 - Class B Shares 15.98 (0.07) 0.84
1999 - Class C Shares 15.99 (0.07) 0.83
1999 - Institutional Shares 16.21 0.03 0.86
1999 - Service Shares 16.11 (0.02) 0.86
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
1999 - Class A Shares 11.97 0.01 4.19
1999 - Class B Shares 11.92 (0.06) 4.12
1999 - Class C Shares 11.93 (0.05) 4.11
1999 - Institutional Shares 11.97 0.02 4.23
1999 - Service Shares 11.95 (0.01) 4.17
- -------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
1998 - Class A Shares (commenced May 1,
1997) 10.00 0.01 2.35
1998 - Class B Shares (commenced May 1,
1997) 10.00 (0.03) 2.33
1998 - Class C Shares (commenced August
15, 1997) 11.80 (0.02) 0.54
1998 - Institutional Shares (commenced May
1, 1997) 10.00 0.01 2.35
1998 - Service Shares (commenced May 1,
1997) 10.00 (0.02) 2.35
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
94
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
---------------------------------
FROM IN EXCESS NET NET ASSET NET ASSETS RATIO OF
NET OF NET FROM NET INCREASE VALUE, AT END OF NET EXPENSES
INVESTMENT INVESTMENT REALIZED IN NET END OF TOTAL PERIOD TO AVERAGE
INCOME INCOME GAINS ASSET VALUE PERIOD RETURN/B/ (IN 000S) NET ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.85 $17.02 5.26%d $300,684 1.04%c
-- -- -- 0.77 16.75 4.82d 181,626 1.79c
-- -- -- 0.76 16.75 4.75d 75,502 1.79c
-- -- -- 0.89 17.10 5.49d 310,704 0.64c
-- -- -- 0.84 16.95 5.21d 2,510 1.14c
- --------------------------------------------------------------------------------------------
-- -- -- 4.20 16.17 35.10 175,510 0.97
-- -- -- 4.06 15.98 34.07 93,711 1.74
-- -- -- 4.06 15.99 34.04 37,081 1.74
-- (0.01) -- 4.24 16.21 35.54 295,734 0.65
-- -- -- 4.16 16.11 34.85 1,663 1.15
- --------------------------------------------------------------------------------------------
(0.01) -- (0.38) 1.97 11.97 23.79d 53,786 0.91c
-- -- (0.38) 1.92 11.92 23.26d 13,857 1.67c
-- (0.01) (0.38) 0.13 11.93 4.56d 4,132 1.68c
(0.01) -- (0.38) 1.97 11.97 23.89d 4,656 0.72c
-- -- (0.38) 1.95 11.95 23.56d 115 1.17c
- --------------------------------------------------------------------------------------------
</TABLE>
95
<PAGE>
CORE LARGE CAP GROWTH FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF NET
NET INVESTMENT RATIO OF INVESTMENT
INCOME (LOSS) TO EXPENSES TO (LOSS) TO PORTFOLIO
AVERAGE NET AVERAGE NET AVERAGE NET TURNOVER
ASSETS ASSETS ASSETS RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD
ENDED AUGUST 31,
1999 - Class A Shares (0.11)%c 1.26%c (0.33)%c 32.74%d
1999 - Class B Shares (0.87)c 2.01c (1.09)c 32.74d
1999 - Class C Shares (0.87)c 2.01c (1.09)c 32.74d
1999 - Institutional
Shares 0.31c 0.86c 0.09c 32.74d
1999 - Service Shares (0.21)c 1.36c (0.43)c 32.74d
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY
31,
1999 - Class A Shares 0.05 1.46 (0.44) 63.15
1999 - Class B Shares (0.73) 2.11 (1.10) 63.15
1999 - Class C Shares (0.74) 2.11 (1.11) 63.15
1999 - Institutional
Shares 0.35 1.02 (0.02) 63.15
1999 - Service Shares (0.16) 1.52 (0.53) 63.15
- -------------------------------------------------------------------------------
FOR THE PERIOD ENDED
JANUARY 31,
1998 - Class A Shares
(commenced May 1, 1997) 0.12 c 2.40c (1.37)c 74.97d
1998 - Class B Shares
(commenced May 1, 1997) (0.72)c 2.91c (1.96)c 74.97d
1998 - Class C Shares
(commenced August 15,
1997) (0.76)c 2.92c (2.00)c 74.97d
1998 - Institutional
Shares (commenced May 1,
1997) 0.42 c 1.96c (0.82)c 74.97d
1998 - Service Shares
(commenced May 1, 1997) (0.21)c 2.41c (1.45)c 74.97d
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
96
<PAGE>
[This page intentionally left blank]
97
<PAGE>
CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-----------------------
NET ASSET NET NET
VALUE, INVESTMENT REALIZED AND
BEGINNING INCOME UNREALIZED
OF PERIOD (LOSS) GAIN (LOSS)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
1999 - Class A Shares $10.16 $(0.01) $0.08
1999 - Class B Shares 10.07 (0.05) 0.07
1999 - Class C Shares 10.08 (0.05) 0.07
1999 - Institutional Shares 10.20 0.02 0.08
1999 - Service Shares 10.16 (0.01) 0.07
- ------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
1999 - Class A Shares 10.59 0.01 (0.43)
1999 - Class B Shares 10.56 (0.05) (0.44)
1999 - Class C Shares 10.57 (0.04) (0.45)
1999 - Institutional Shares 10.61 0.04 (0.43)
1999 - Service Shares 10.60 0.01 (0.44)
- ------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
1998 - Class A Shares (commenced August 15,
1997) 10.00 (0.01) 0.65
1998 - Class B Shares (commenced August 15,
1997) 10.00 (0.03) 0.64
1998 - Class C Shares (commenced August 15,
1997) 10.00 (0.02) 0.64
1998 - Institutional Shares (commenced
August 15, 1997) 10.00 0.01 0.65
1998 - Service Shares (commenced August 15,
1997) 10.00 0.01 0.64
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
98
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
----------------------------
FROM NET NET ASSET NET ASSETS RATIO OF
NET INCREASE VALUE, AT END OF NET EXPENSES
INVESTMENT FROM NET IN NET END OF TOTAL PERIOD TO AVERAGE
INCOME REALIZED GAINS ASSET VALUE PERIOD RETURN/B/ (IN 000S) NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $0.07 $10.23 0.69%d $52,660 1.33%c
-- -- 0.02 10.09 0.20d 13,711 2.08c
-- -- 0.02 10.10 0.20d 6,274 2.08c
-- -- 0.10 10.30 0.98d 62,633 0.93c
-- -- 0.06 10.22 0.59d 64 1.43c
- --------------------------------------------------------------------------------------
(0.01) -- (0.43) 10.16 (3.97) 64,087 1.31
-- -- (0.49) 10.07 (4.64) 15,406 2.00
-- -- (0.49) 10.08 (4.64) 6,559 2.01
(0.02) -- (0.41) 10.20 (3.64) 62,763 0.94
(0.01) -- (0.44) 10.16 (4.07) 54 1.44
- --------------------------------------------------------------------------------------
-- (0.05) 0.59 10.59 6.37d 11,118 1.25c
-- (0.05) 0.56 10.56 6.07d 9,957 1.95c
-- (0.05) 0.57 10.57 6.17d 2,557 1.95c
-- (0.05) 0.61 10.61 6.57d 9,026 0.95c
-- (0.05) 0.60 10.60 6.47d 2 1.45c
- --------------------------------------------------------------------------------------
</TABLE>
99
<PAGE>
CORE SMALL CAP EQUITY FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
------------------------
RATIO OF NET RATIO OF NET
INVESTMENT RATIO OF INVESTMENT
INCOME (LOSS) EXPENSES TO LOSS PORTFOLIO
TO AVERAGE AVERAGE NET TO AVERAGE TURNOVER
NET ASSETS ASSETS NET ASSETS RATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD
ENDED AUGUST 31,
1999 - Class A Shares (0.12)%c 1.67%c (0.46)%c 52.03%d
1999 - Class B Shares (0.86)c 2.42c (1.20)c 52.03d
1999 - Class C Shares (0.86)c 2.42c (1.20)c 52.03d
1999 - Institutional Shares 0.28c 1.27c (0.06)c 52.03d
1999 - Service Shares (0.22)c 1.77c (0.56)c 52.03d
- ------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY
31,
1999 - Class A Shares 0.08 2.00 (0.61) 75.38
1999 - Class B Shares (0.55) 2.62 (1.17) 75.38
1999 - Class C Shares (0.56) 2.63 (1.18) 75.38
1999 - Institutional Shares 0.60 1.56 (0.02) 75.38
1999 - Service Shares 0.01 2.06 (0.61) 75.38
- ------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY
31,
1998 - Class A Shares
(commenced August 15, 1997) (0.36)c 3.92c (3.03)c 37.65d
1998 - Class B Shares
(commenced August 15, 1997) (1.04)c 4.37c (3.46)c 37.65d
1998 - Class C Shares
(commenced August 15, 1997) (1.07)c 4.37c (3.49)c 37.65d
1998 - Institutional Shares
(commenced August 15, 1997) 0.15c 3.37c (2.27)c 37.65d
1998 - Service Shares
(commenced August 15, 1997) 0.40c 3.87c (2.02)c 37.65d
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
100
<PAGE>
[This page intentionally left blank]
101
<PAGE>
CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET NET
VALUE, INVESTMENT NET REALIZED
BEGINNING INCOME AND UNREALIZED
OF PERIOD (LOSS) GAIN (LOSS)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST
31,
1999 - Class A Shares $24.03 $(0.08) $1.01
1999 - Class B Shares 23.57 (0.17) 0.97
1999 - Class C Shares 23.52 (0.16) 0.97
1999 - Institutional Shares 24.07 (0.02) 1.01
1999 - Service Shares 23.96 (0.08) 1.00
- ----------------------------------------------------------------------------
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 18.48 (0.03) 6.35
1999 - Class B Shares 18.27 (0.12) 6.19
1999 - Class C Shares 18.24 (0.10) 6.15
1999 - Institutional Shares 18.45 0.01 6.38
1999 - Service Shares 18.46 (0.04) 6.31
- ----------------------------------------------------------------------------
1998 - Class A Shares 16.73 0.02 4.78
1998 - Class B Shares 16.67 0.02 4.61
1998 - Class C Shares (commenced August
15, 1997) 19.73 (0.02) 1.60
1998 - Institutional Shares (commenced
August 15, 1997) 19.88 0.02 1.66
1998 - Service Shares (commenced August
15, 1997) 19.88 (0.01) 1.66
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.91 0.10 3.56
1997 - Class B Shares (commenced May 1,
1996) 15.67 0.01 2.81
- ----------------------------------------------------------------------------
1996 - Class A Shares 13.67 0.12 3.93
- ----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
102
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
--------------------------------------
IN EXCESS NET INCREASE NET ASSETS RATIO OF
FROM NET OF NET (DECREASE) NET ASSET AT END OF NET EXPENSES
INVESTMENT INVESTMENT FROM NET IN NET VALUE, END TOTAL PERIOD TO AVERAGE
INCOME INCOME REALIZED GAIN ASSET VALUE OF PERIOD RETURN/B/ (IN 000S) NET ASSETS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.93 $24.96 3.87%d $1,971,097 1.44%c
-- -- -- 0.80 24.37 3.39d 329,870 2.19c
-- -- -- 0.81 24.33 3.44d 87,284 2.19c
-- -- -- 0.99 25.06 4.11d 255,210 1.04c
-- -- -- 0.92 24.88 3.84d 6,466 1.54c
- --------------------------------------------------------------------------------------------------
-- -- (0.77) 5.55 24.03 34.58 1,992,716 1.42
-- -- (0.77) 5.30 23.57 33.60 236,369 2.19
-- -- (0.77) 5.28 23.52 33.55 60,234 2.19
-- -- (0.77) 5.62 24.07 35.02 41,817 1.07
-- -- (0.77) 5.50 23.96 34.34 3,085 1.57
- --------------------------------------------------------------------------------------------------
(0.01) (0.01) (3.03) 1.75 18.48 29.71 1,256,595 1.40
-- -- (3.03) 1.60 18.27 28.73 40,827 2.18
-- (0.04) (3.03) (1.49) 18.24 8.83d 5,395 2.21c
(0.01) (0.07) (3.03) (1.43) 18.45 9.31d 7,262 1.16c
-- (0.04) (3.03) (1.42) 18.46 9.18d 2 1.50c
- --------------------------------------------------------------------------------------------------
(0.10) (0.02) (1.72) 1.82 16.73 25.97 920,646 1.40
(0.01) (0.09) (1.72) 1.00 16.67 19.39d 3,221 2.15c
- --------------------------------------------------------------------------------------------------
(0.12) -- (2.69) 1.24 14.91 30.45 881,056 1.36
- --------------------------------------------------------------------------------------------------
</TABLE>
103
<PAGE>
CAPITAL GROWTH FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
--------------------------
RATIO OF RATIO OF
NET INVESTMENT RATIO OF NET INVESTMENT
INCOME (LOSS) EXPENSES TO INCOME (LOSS) PORTFOLIO
TO AVERAGE AVERAGE NET TO AVERAGE TURNOVER
NET ASSETS ASSETS NET ASSETS RATE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD
ENDED AUGUST 31,
1999 - Class A Shares (0.53)%c 1.47%c (0.56)%c 18.16%d
1999 - Class B Shares (1.29)c 2.22c (1.32)c 18.16d
1999 - Class C Shares (1.29)c 2.22c (1.32)c 18.16d
1999 - Institutional
Shares (0.20)c 1.07c (0.23)c 18.16d
1999 - Service Shares (0.65)c 1.57c (0.68)c 18.16d
- ---------------------------------------------------------------------------------
FOR THE YEARS ENDED
JANUARY 31,
1999 - Class A Shares (0.18) 1.58 (0.34) 30.17
1999 - Class B Shares (0.98) 2.21 (1.00) 30.17
1999 - Class C Shares (1.00) 2.21 (1.02) 30.17
1999 - Institutional
Shares 0.11 1.09 0.09 30.17
1999 - Service Shares (0.37) 1.59 (0.39) 30.17
- ---------------------------------------------------------------------------------
1998 - Class A Shares 0.08 1.65 (0.17) 61.50
1998 - Class B Shares (0.77) 2.18 (0.77) 61.50
1998 - Class C Shares
(commenced August 15,
1997) (0.86)c 2.21c (0.86)c 61.50
1998 - Institutional
Shares (commenced August
15, 1997) 0.18c 1.16c 0.18c 61.50
1998 - Service Shares
(commenced August 15, 1997) (0.16)c 1.50c (0.16)c 61.50
- ---------------------------------------------------------------------------------
1997 - Class A Shares 0.62 1.65 0.37 52.92
1997 - Class B Shares
(commenced May 1, 1996) (0.39)c 2.15c (0.39)c 52.92
- ---------------------------------------------------------------------------------
1996 - Class A Shares 0.65 1.61 0.40 63.90
- ---------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
104
<PAGE>
[This page intentionally left blank]
105
<PAGE>
STRATEGIC GROWTH FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
---------------------------
NET ASSET NET
VALUE, INVESTMENT
BEGINNING INCOME NET REALIZED AND
OF PERIOD (LOSS) UNREALIZED GAIN
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD ENDED AUGUST 31,
1999 - Class A Shares (commenced May 24) $10.00 $ -- $0.06
1999 - Class B Shares (commenced May 24) 10.00 (0.03)e 0.07e
1999 - Class C Shares (commenced May 24) 10.00 (0.03)e 0.08e
1999 - Institutional Shares (commenced
May 24) 10.00 0.01 0.06
1999 - Service Shares (commenced May 24) 10.00 (0.01) 0.07
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
106
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------
IN EXCESS NET ASSETS
FROM NET OF NET NET INCREASE NET ASSET AT END OF RATIO OF
INVESTMENT INVESTMENT FROM NET IN NET ASSET VALUE, END TOTAL PERIOD NET EXPENSES TO
INCOME INCOME REALIZED GAINS VALUE OF PERIOD RETURN/B/ (IN 000S) AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.06 $10.06 0.60%d $10,371 1.44%c
-- -- -- 0.04 10.04 0.40d 3,393 2.19c
-- -- -- 0.05 10.05 0.50d 2,388 2.19c
-- -- -- 0.07 10.07 0.70d 5,981 1.04c
-- -- -- 0.06 10.06 0.60d 2 1.54c
- --------------------------------------------------------------------------------------------------------
</TABLE>
107
<PAGE>
STRATEGIC GROWTH FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF
NET RATIO OF RATIO OF
INVESTMENT EXPENSES NET
INCOME TO INVESTMENT
(LOSS) TO AVERAGE LOSS TO PORTFOLIO
AVERAGE NET AVERAGE TURNOVER
NET ASSETS ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE PERIOD ENDED AUGUST 31,
1999 - Class A Shares (commenced
May 24) (0.17)%c 11.70%c (10.43)%c 6.98%d
1999 - Class B Shares (commenced
May 24) (0.97)c 12.45c (11.23)c 6.98d
1999 - Class C Shares (commenced
May 24) (0.99)c 12.45c (11.25)c 6.98d
1999 - Institutional Shares
(commenced May 24) 0.24c 11.30c (10.02)c 6.98d
1999 - Service Shares (commenced
May 24) (0.24)c 11.80c (10.50)c 6.98d
- -----------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
108
<PAGE>
[This page intentionally left blank]
109
<PAGE>
GROWTH OPPORTUNITIES FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET NET
VALUE, INVESTMENT NET REALIZED
BEGINNING INCOME AND UNREALIZED
OF PERIOD (LOSS) GAIN
- -------------------------------------------------------------------------------
FOR THE PERIOD ENDED AUGUST 31,
<S> <C> <C> <C>
1999 - Class A Shares (commenced May 24) $10.00 $(0.01)e $0.14e
1999 - Class B Shares (commenced May 24) 10.00 (0.03)e 0.21e
1999 - Class C Shares (commenced May 24) 10.00 (0.03)e 0.13e
1999 - Institutional Shares (commenced May
24) 10.00 0.01 0.12
1999 - Service Shares (commenced May 24) 10.00 -- 0.12
- -------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
110
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------
IN EXCESS NET ASSETS RATIO OF
FROM NET OF NET NET INCREASE NET ASSET AT END OF NET EXPENSES
INVESTMENT INVESTMENT FROM NET IN NET ASSET VALUE, END TOTAL PERIOD TO AVERAGE
INCOME INCOME REALIZED GAINS VALUE OF PERIOD RETURN/B/ (IN 000S) NET ASSETS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $0.13 $10.13 1.30%d $8,204 1.44%c
-- -- -- 0.18 10.18 1.80d 520 2.19c
-- -- -- 0.10 10.10 1.00d 256 2.19c
-- -- -- 0.13 10.13 1.30d 5,223 1.04c
-- -- -- 0.12 10.12 1.20d 2 1.54c
- ----------------------------------------------------------------------------------------------------
</TABLE>
111
<PAGE>
GROWTH OPPORTUNITIES FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF FEES OR
EXPENSE LIMITATIONS
----------------------------
RATIO RATIO
OF NET OF NET
INVESTMENT RATIO OF INVESTMENT
INCOME (LOSS) EXPENSES TO LOSS TO PORTFOLIO
TO AVERAGE AVERAGE NET AVERAGE TURNOVER
NET ASSETS ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
FOR THE PERIOD ENDED AUGUST 31,
1999 - Class A Shares
(commenced May 24) (0.27)%c 14.15%c (12.98)%c 26.53%d
1999 - Class B Shares
(commenced May 24) (1.04)c 14.90c (13.75)c 26.53d
1999 - Class C Shares
(commenced May 24) (1.12)c 14.90c (13.83)c 26.53d
1999 - Institutional
Shares (commenced May
24) 0.39c 13.75c (12.32)c 26.53d
1999 - Service Shares
(commenced May 24) 0.03c 14.25c (12.68)c 26.53d
- -------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares outstanding methodology.
112
<PAGE>
[This page intentionally left blank]
113
<PAGE>
MID CAP VALUE FUND
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS/A/
-------------------------
NET ASSET NET
VALUE, INVESTMENT NET REALIZED
BEGINNING INCOME AND UNREALIZED
OF PERIOD (LOSS) GAIN (LOSS)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST
31,
1999 - Class A Shares $18.38 $0.06 $1.71
1999 - Class B Shares 18.29 (0.04) 1.71
1999 - Class C Shares 18.30 (0.04) 1.71
1999 - Institutional Shares 18.37 0.09 1.72
1999 - Service Shares 18.29 0.05 1.70
- ------------------------------------------------------------------------------
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 21.61 0.10 (2.38)
1999 - Class B Shares 21.57 (0.05) (2.35)
1999 - Class C Shares 21.59 (0.05) (2.34)
1999 - Institutional Shares 21.65 0.19 (2.38)
1999 - Service Shares 21.62 0.03 (2.31)
- ------------------------------------------------------------------------------
1998 - Class A Shares (commenced August
15, 1997) 23.63 0.09 0.76
1998 - Class B Shares (commenced August
15, 1997) 23.63 0.06 0.74
1998 - Class C Shares (commenced August
15, 1997) 23.63 0.06 0.76
1998 - Institutional Shares 18.73 0.16 5.66
1998 - Service Shares (commenced July 18,
1997) 23.01 0.09 1.40
- ------------------------------------------------------------------------------
1997 - Institutional Shares 15.91 0.24 3.77
- ------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
1996 - Institutional Shares (commenced
August 1, 1995) 15.00 0.13 0.90
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
114
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------
IN EXCESS NET INCREASE NET ASSETS RATIO OF
FROM NET OF NET (DECREASE) NET ASSET AT END OF NET EXPENSES
INVESTMENT INVESTMENT FROM NET IN NET ASSET VALUE, END TOTAL PERIOD TO AVERAGE
INCOME INCOME REALIZED GAINS VALUE OF PERIOD RETURNB (IN 000S) NET ASSETS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $(1.73) $ 0.04 $18.42 9.04%d $49,081 1.29%c
-- -- (1.73) (0.06) 18.23 8.53d 31,824 2.04c
-- -- (1.73) (0.06) 18.24 8.52d 9,807 2.04c
-- -- (1.73) 0.08 18.45 9.26d 190,549 0.89c
-- -- (1.73) 0.02 18.31 8.97d 190 1.39c
- -------------------------------------------------------------------------------------------------
(0.07) -- (0.88) (3.23) 18.38 (10.48) 70,578 1.33
-- -- (0.88) (3.28) 18.29 (11.07) 37,821 1.93
(0.02) -- (0.88) (3.29) 18.30 (11.03) 10,800 1.93
(0.21) -- (0.88) (3.28) 18.37 (10.07) 196,512 0.87
(0.17) -- (0.88) (3.33) 18.29 (10.48) 289 1.37
- -------------------------------------------------------------------------------------------------
(0.06) (0.04) (2.77) (2.02) 21.61 3.42d 90,588 1.35c
(0.09) -- (2.77) (2.06) 21.57 3.17d 28,743 1.85c
(0.09) -- (2.77) (2.04) 21.59 3.27d 6,445 1.85c
(0.13) -- (2.77) 2.92 21.65 30.86 236,440 0.85
(0.11) -- (2.77) (1.39) 21.62 6.30d 8 1.35c
- -------------------------------------------------------------------------------------------------
(0.24) (0.93) (0.02) 2.82 18.73 25.63 145,253 0.85
- -------------------------------------------------------------------------------------------------
(0.12) -- -- 0.91 15.91 6.89d 135,671 0.85c
- -------------------------------------------------------------------------------------------------
</TABLE>
115
<PAGE>
MID CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
--------------------------
RATIO OF
NET
INVESTMENT RATIO OF
INCOME RATIO OF NET INVESTMENT
(LOSS) TO EXPENSES TO INCOME (LOSS) PORTFOLIO
AVERAGE NET AVERAGE NET TO AVERAGE NET TURNOVER
ASSETS ASSETS ASSETS RATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD
ENDED AUGUST 31,
1999 - Class A Shares 0.43%c 1.37%c 0.35%c 68.84%d
1999 - Class B Shares (0.33)c 2.12c (0.41)c 68.84d
1999 - Class C Shares (0.34)c 2.12c (0.42)c 68.84d
1999 - Institutional Shares 0.79c 0.97c 0.71c 68.84d
1999 - Service Shares 0.38c 1.47c 0.30c 68.84d
- ------------------------------------------------------------------------------
FOR THE YEARS ENDED JANUARY
31,
1999 - Class A Shares 0.38 1.41 0.30 92.18
1999 - Class B Shares (0.22) 2.01 (0.30) 92.18
1999 - Class C Shares (0.22) 2.01 (0.30) 92.18
1999 - Institutional Shares 0.83 0.95 0.75 92.18
1999 - Service Shares 0.32 1.45 0.24 92.18
- ------------------------------------------------------------------------------
1998 - Class A Shares
(commenced August 15, 1997) 0.33c 1.47c 0.21c 62.60
1998 - Class B Shares
(commenced August 15, 1997) (0.20)c 1.97c (0.32)c 62.60
1998 - Class C Shares
(commenced August 15, 1997) (0.23)c 1.97c (0.35)c 62.60
1998 - Institutional Shares 0.78 0.97 0.66 62.60
1998 - Service Shares
(commenced July 18, 1997) 0.63c 1.43c 0.51c 62.60
- ------------------------------------------------------------------------------
1997 - Institutional Shares 1.35 0.91 1.29 74.03
- ------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY
31,
1996 - Institutional Shares
(commenced August 1, 1995) 1.67c 0.98c 1.54c 58.77d
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
116
<PAGE>
[This page intentionally left blank]
117
<PAGE>
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
------------------------------
NET ASSET
VALUE, NET NET REALIZED AND
BEGINNING INVESTMENT UNREALIZED
OF PERIOD INCOME (LOSS) GAIN (LOSS)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SEVEN-MONTH PERIOD ENDED
AUGUST 31,
1999 - Class A Shares $18.51 $(0.05) $1.34
1999 - Class B Shares 18.10 (0.12) 1.29
1999 - Class C Shares 18.12 (0.11) 1.27
1999 - Institutional Shares 18.62 -- 1.33
1999 - Service Shares 18.50 (0.13) 1.39
- ------------------------------------------------------------------------------
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 24.05 (0.06) (4.48)
1999 - Class B Shares 23.73 (0.21) (4.42)
1999 - Class C Shares 23.73 (0.18) (4.43)
1999 - Institutional Shares 24.09 0.03 (4.50)
1999 - Service Shares 24.05 (0.04) (4.51)
- ------------------------------------------------------------------------------
1998 - Class A Shares 20.91 0.14 5.33
1998 - Class B Shares 20.80 (0.01) 5.27
1998 - Class C Shares (commenced
August 15, 1997) 24.69 (0.06) 1.43
1998 - Institutional Shares
(commenced August 15, 1997) 24.91 0.03 1.48
1998 - Service Shares (commenced
August 15, 1997) 24.91 (0.01) 1.48
- ------------------------------------------------------------------------------
1997 - Class A Shares 17.29 (0.21) 4.92
1997 - Class B Shares (commenced May
1, 1996) 20.79 (0.11) 1.21
- ------------------------------------------------------------------------------
1996 - Class A Shares 16.14 (0.23) 1.39
- ------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
118
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
----------------------------
IN EXCESS NET INCREASE NET ASSET NET ASSETS RATIO OF
OF NET (DECREASE) VALUE, AT END OF NET EXPENSES
INVESTMENT FROM NET IN NET ASSET END OF TOTAL PERIOD TO AVERAGE
INCOME REALIZED GAINS VALUE PERIOD RETURN/B/ (IN 000S) NET ASSETS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $1.29 $19.80 6.97%d $210,500 1.50%c
-- -- 1.17 19.27 6.46d 37,386 2.25c
-- -- 1.16 19.28 6.40d 8,079 2.25c
-- -- 1.33 19.95 7.14d 27,023 1.10c
-- -- 1.26 19.76 6.81d 57 1.60c
- -----------------------------------------------------------------------------------------
-- (1.00) (5.54) 18.51 (17.37) 261,661 1.50
-- (1.00) (5.63) 18.10 (18.00) 42,879 2.25
-- (1.00) (5.61) 18.12 (17.91) 8,212 2.25
-- (1.00) (5.47) 18.62 (17.04) 15,351 1.13
-- (1.00) (5.55) 18.50 (17.41) 261 1.62
- -----------------------------------------------------------------------------------------
-- (2.33) 3.14 24.05 26.17 370,246 1.54
-- (2.33) 2.93 23.73 25.29 42,677 2.29
(0.34) (1.99) (0.96) 23.73 5.51d 5,604 2.09c
(0.28) (2.05) (0.82) 24.09 6.08d 14,626 1.16c
(0.31) (2.02) (0.86) 24.05 5.91d 2 1.45c
- -----------------------------------------------------------------------------------------
-- (1.09) 3.62 20.91 27.28 212,061 1.60
-- (1.09) 0.01 20.80 5.39d 3,674 2.35c
- -----------------------------------------------------------------------------------------
-- (0.01) 1.15 17.29 7.20 204,994 1.41
- -----------------------------------------------------------------------------------------
</TABLE>
119
<PAGE>
SMALL CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF FEES OR
EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET INVESTMENT RATIO OF NET INVESTMENT
INCOME (LOSS) TO EXPENSES TO INCOME (LOSS) PORTFOLIO
AVERAGE NET AVERAGE NET TO AVERAGE NET TURNOVER
ASSETS ASSETS ASSETS RATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE SEVEN-MONTH
PERIOD ENDED AUGUST 31,
1999 - Class A Shares (0.35)%c 1.61%c (0.46)%c 46.95%d
1999 - Class B Shares (1.10)c 2.36c (1.21)c 46.95d
1999 - Class C Shares (1.10)c 2.36c (1.21)c 46.95d
1999 - Institutional
Shares 0.05c 1.21c (0.06)c 46.95d
1999 - Service Shares (0.41)c 1.71c (0.52)c 46.95d
- -----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
JANUARY 31,
1999 - Class A Shares (0.24) 1.74 (0.48) 98.46
1999 - Class B Shares (0.99) 2.29 (1.03) 98.46
1999 - Class C Shares (0.99) 2.29 (1.03) 98.46
1999 - Institutional
Shares 0.13 1.17 0.09 98.46
1999 - Service Shares (0.47) 1.66 (0.51) 98.46
- -----------------------------------------------------------------------------------------------
1998 - Class A Shares (0.28) 1.76 (0.50) 84.81
1998 - Class B Shares (0.92) 2.29 (0.92) 84.81
1998 - Class C Shares
(commenced August
15, 1997) (0.79)c 2.09c (0.79)c 84.81
1998 - Institutional
Shares (commenced
August 15, 1997) 0.27c 1.16c 0.27c 84.81
1998 - Service Shares
(commenced August 15,
1997) (0.07)c 1.45c (0.07)c 84.81
- -----------------------------------------------------------------------------------------------
1997 - Class A Shares (0.72) 1.85 (0.97) 99.46
1997 - Class B Shares
(commenced May 1, 1996) (1.63)c 2.35c (1.63)c 99.46
- -----------------------------------------------------------------------------------------------
1996 - Class A Shares (0.59) 1.66 (0.84) 57.58
- -----------------------------------------------------------------------------------------------
</TABLE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
120
<PAGE>
Appendix C
Prior Performance of Similarly Advised Accounts of the Investment Adviser
CORE LARGE CAP VALUE FUND
The following table sets forth the Investment Adviser's composite perfor-
mance data relating to the historical performance of all discretionary pri-
vate accounts managed by the Investment Adviser that have investment objec-
tives, policies, and strategies substantially similar to the CORE Large Cap
Value Fund. The information is provided to illustrate the past performance
of the Investment Adviser in managing substantially similar accounts as mea-
sured against the Russell 1000 Value Index and does not represent the per-
formance of the CORE Large Cap Value Fund. Investors should not consider
this performance data as a substitute for the performance of the CORE Large
Cap Value Fund nor should investors consider this data as an indication of
future performance of the CORE Large Cap Value Fund or of the Investment
Adviser. The Russell 1000 Value Index is unmanaged and investors cannot
invest directly in the Index.
<TABLE>
<CAPTION>
PRIVATE RUSSELL
ACCOUNT NET 1000
COMPOSITE VALUE
PERFORMANCE INDEX
----------------------------------------------------------------------------
<S> <C> <C>
1998 11.40 % 15.64 %
1997 32.59 % 35.18 %
1996 26.41 % 21.64 %
1995 37.92 % 38.35 %
1994 (2.17)% (2.01)%
1993 16.90 % 18.12 %
8/1/92-12/31/92 5.39 % 4.01 %
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/98
SINCE
INCEPTION
1 YEAR 3 YEARS 5 YEARS (8/1/92)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private Account Net Composite Performance 11.40% 23.13% 20.30% 19.30%
Russell 1000 Value Index 15.64% 23.88% 20.85% 19.68%
----------------------------------------------------------------------------
</TABLE>
The Investment Adviser's composite performance information was calculated on
a time-weighted and asset-weighted total return basis which includes real-
ized and unrealized gains and losses plus income, as recommended by the
Association for
121
<PAGE>
Investment Management and Research ("AIMR"). The composite performance is
net of applicable investment management fees, brokerage commissions, execu-
tion costs and custodial fees, without provision for federal and state tax-
es, if any. Total return performance of the CORE Large Cap Value Fund will
be calculated in accordance with the regulations of the SEC. The SEC stan-
dardized average annual total return is neither time-weighted nor asset-
weighted and is determined for specified periods by computing the annualized
percentage change in the value of an initial amount that is invested in a
share class of the Fund at the maximum public offering price. Investors
should be aware that the differences in methodology between AIMR and SEC
requirements could result in different performance data for identical time
periods.
All returns presented reflect the reinvestment of dividends and other earn-
ings. The weighted-average expenses of the private accounts used in calcu-
lating the Investment Adviser's net composite performance data were 0.59%
annualized, which are lower than the estimated expenses of Service Shares of
the CORE Large Cap Value Fund stated under "Fund Fees and Expenses" above.
The performance of the private accounts would have been lower if they had
been subject to the expenses of the CORE Large Cap Value Fund. In addition,
the private accounts are not subject to the same diversification require-
ments, specific tax restrictions and investment limitations imposed on the
CORE Large Cap Value Fund by the Act and Subchapter M of the Code. Conse-
quently, the performance results of the Investment Adviser's composite could
have been adversely affected if the private accounts had been regulated as
investment companies under the federal securities laws.
122
<PAGE>
Appendix D
Prior Performance of Similarly Advised Accounts of the Investment Adviser
STRATEGIC GROWTH FUND
The following table sets forth the Investment Adviser's composite perfor-
mance data relating to the historical performance of all discretionary pri-
vate accounts managed by the Investment Adviser that have investment objec-
tives, policies, and strategies substantially similar to the Strategic
Growth Fund. The information is provided to illustrate the past performance
of the Investment Adviser in managing substantially similar accounts as mea-
sured against the S&P 500 Index and does not represent the performance of
the Strategic Growth Fund. Investors should not consider this performance
data as a substitute for the performance of the Strategic Growth Fund nor
should investors consider this data as an indication of future performance
of the Strategic Growth Fund or of the Investment Adviser. The S&P 500 Index
is unmanaged and investors cannot invest directly in the Index.
<TABLE>
<CAPTION>
PRIVATE ACCOUNT
NET COMPOSITE S&P 500
PERFORMANCE INDEX
--------------------------------------------------------------------------
<S> <C> <C>
1998 35.35% 28.57%
1997 41.14% 33.37%
1996 21.79% 22.95%
1995 28.07% 37.58%
1994 -1.69% 1.32%
1993 17.10% 10.08%
1992 9.22% 7.62%
1991 37.44% 30.47%
1990 -9.32% -3.05%
1989 33.82% 31.70%
1988 23.63% 16.61%
1987 5.34% 5.25%
1986 18.99% 18.67%
1985 37.98% 31.73%
1984 8.52% 6.19%
1983 34.41% 22.56%
1982 34.43% 21.55%
1981 1.02% -4.97%
--------------------------------------------------------------------------
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/98
SINCE
INCEPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS (1/1/81)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private Account Net Composite
Performance 35.35% 32.51% 23.98% 20.11% 19.96%
S&P 500 Index 28.57% 28.23% 24.06% 19.22% 16.94%
-------------------------------------------------------------------------
</TABLE>
The Investment Adviser's composite performance information was calculated on
a time-weighted and asset-weighted total return basis which includes real-
ized and unrealized gains and losses plus income, as recommended by the
Association for Investment Management and Research ("AIMR"). The composite
performance is net of applicable investment management fees, brokerage com-
missions, execution costs and custodial fees, without provision for federal
and state taxes, if any. Total return performance of the Strategic Growth
Fund will be calculated in accordance with the regulations of the SEC. The
SEC standardized average annual total return is neither time-weighted nor
asset-weighted and is determined for specified periods by computing the
annualized percentage change in the value of an initial amount that is
invested in a share class of the Fund at the maximum public offering price.
Investors should be aware that the differences in methodology between AIMR
and SEC requirements could result in different performance data for identi-
cal time periods.
All returns presented reflect the reinvestment of dividends and other earn-
ings. The weighted-average expenses of the private accounts used in calcu-
lating the Investment Adviser's net composite performance data were 0.76%
annualized, which are lower than the estimated expenses of Service Shares of
the Strategic Growth Fund stated under "Fund Fees and Expenses" above. The
performance of the private accounts would have been lower if they had been
subject to the expenses of the Strategic Growth Fund. In addition, the pri-
vate accounts are not subject to the same diversification requirements, spe-
cific tax restrictions and investment limitations imposed on the Strategic
Growth Fund by the Act and Subchapter M of the Code. Consequently, the per-
formance results of the Investment Adviser's composite could have been
adversely affected if the private accounts had been regulated as investment
companies under the federal securities laws.
124
<PAGE>
Index
<TABLE>
<C> <S>
1 General Investment
Management Approach
3 Fund Investment Objectives
and Strategies
3 Goldman Sachs Balanced
Fund
5 Goldman Sachs Growth and
Income Fund
6 Goldman Sachs CORE Large
Cap Value Fund
7 Goldman Sachs CORE U.S.
Equity Fund
8 Goldman Sachs CORE Large
Cap Growth Fund
9 Goldman Sachs CORE Small
Cap Equity Fund
10 Goldman Sachs Capital
Growth Fund
11 Goldman Sachs Strategic
Growth Fund
12 Goldman Sachs Growth
Opportunities Fund
13 Goldman Sachs Mid Cap
Value Fund
14 Goldman Sachs Small Cap
Value Fund
15 Goldman Sachs Large Cap Value Fund
16 Other Investment Practices
and Securities
20 Principal Risks of the
Funds
24 Fund Performance
34 Fund Fees and Expenses
38 Service Providers
46 Dividends
48 Shareholder Guide
48 How To Buy Shares
51 How To Sell Shares
55 Taxation
57 Appendix A
Additional Information
on Portfolio Risks,
Securities and
Techniques
78 Appendix B
Financial Highlights
121 Appendix C
CORE Large Cap Value
Fund--Prior Performance
of Similarly Advised
Accounts of the
Investment Adviser
123 Appendix D
Strategic Growth Fund--
Prior Performance of
Similarly Advised
Accounts of the
Investment Adviser
</TABLE>
<PAGE>
Domestic Equity Funds
Prospectus (Service Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this Pro-
spectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman Sachs Funds, 4900 Sears Tower - 60th Floor, Chicago, IL
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
CORESM is a service mark of Goldman, Sachs & Co.
EQDOMPROSVC
<PAGE>
Prospectus
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
Class A, B
and C Shares
November 30, 1999
..Goldman Sachs
CORE/SM/
International
Equity Fund
..Goldman Sachs
International
Equity Fund
..Goldman Sachs
European
Equity Fund
..Goldman Sachs
Japanese
Equity Fund
..Goldman Sachs
International
Small Cap Fund
..Goldman Sachs
Emerging
Markets Equity
Fund
..Goldman Sachs
Asia Growth
Fund
[LOGO OF GOLDMAN SACHS]
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
[ART]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the CORE International Equity Fund. Goldman Sachs Asset Management Interna-
tional serves as investment adviser to International Equity, European Equi-
ty, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International are each referred to in this Prospectus as the "In-
vestment Adviser."
ACTIVE INTERNATIONAL STYLE FUNDS
Goldman Sachs' Active International Investment Philosophy:
<TABLE>
<CAPTION>
How the Investment Adviser Acts on
Belief Belief
- ----------------------------------------------------------------------------
<S> <C>
.Equity markets are inefficient Seeks excess return through team
driven, research intensive and
bottom-up stock selection.
.Returns are variable Seeks to capitalize on variability
of market and regional returns
through asset allocation decisions.
.Corporate fundamentals ultimately Seeks to conduct rigorous, first-
drive share price hand research of business and
company management.
.A business' intrinsic value will be Seeks to realize value through a
achieved over time long-term investment horizon.
.Portfolio risk must be carefully Seeks to systematically monitor and
analyzed and monitored manage risk through diversification,
multifactor risk models and currency
management.
</TABLE>
The Investment Adviser attempts to manage risk in these Funds through disci-
plined portfolio construction and continual portfolio review and analysis.
As a result, bottom-up stock selection, driven by fundamental research,
should be a main driver of returns.
- --------------------------------------------------------------------------------
1
<PAGE>
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two build-
ing blocks of active management: stock selection and portfolio construction.
I. CORE STOCK SELECTION
The CORE Fund uses the Goldman Sachs proprietary multifactor model
("Multifactor Model"), a rigorous computerized rating system, to forecast
the returns of securities held in the Fund's portfolio. The Multifactor
Model incorporates common variables covering measures of:
..Value (price-to-book, price-to-earnings, cash flow to enterprise value)
..Momentum (earnings momentum, price momentum, sustainable growth)
..Risk (market risk, company-specific risk, earnings risk)
All of the above factors are carefully evaluated within the Multifactor
Model since each has demonstrated a significant impact on the performance of
the securities and markets they were designed to forecast.
II. CORE PORTFOLIO CONSTRUCTION
A proprietary computer optimizer calculates every security combination (at
every possible weighting) to construct the most efficient risk/return port-
folio given the CORE Fund benchmark. In this process, the Investment Adviser
manages risk by limiting deviations from the benchmark. In addition, the
CORE International Equity Fund utilizes proprietary quantitative models to
allocate assets across countries.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good founda-
tions on which to build a portfolio.
- --------------------------------------------------------------------------------
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs CORE International Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmarks: MSCI Europe, Australasia, Far East ("EAFE") Index
(unhedged)
Investment Focus: Large-capitalization equity securities of companies that
are organized outside the United States or whose securi-
ties are primarily traded outside the United States
Investment Style: Quantitative
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
companies that are organized outside the United States or whose securities
are principally traded outside the United States.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of companies that are organized
outside the United States or whose securities are principally traded outside
the United States.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are
invested in at least three foreign countries. The Fund may invest in the
securities of issuers in countries with emerging markets or economies
("emerging countries").
The Fund seeks broad representation of large-cap issuers across major coun-
tries and sectors of the international economy. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintain-
ing risk, style, capitalization and industry characteristics similar to the
EAFE Index. In addition, the Fund seeks a portfolio composed of companies
with attractive valuations and stronger momentum characteristics than the
EAFE Index.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered to be cash equivalents.
3
<PAGE>
Goldman Sachs International Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Long-term capital appreciation
Objective:
Benchmark: MSCI EAFE Index (unhedged)
Equity securities of companies organized outside the
Investment Focus: United States or whose securities are principally traded
outside the United States
Active International
Investment Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund intends to invest
in companies with public stock market capitalizations that are larger than
$1 billion at the time of investment.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries.
The Fund expects to invest a substantial portion of its assets in the secu-
rities of issuers located in the developed countries of Western Europe and
in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and in emerging countries. Cur-
rently, emerging countries include, among others, most Latin American, Afri-
can, Asian and Eastern European nations.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs European Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI Europe Index (unhedged)
Investment Focus: Equity securities of European companies
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
European companies. Because of its focus, the Fund will be more susceptible
to European economic, market, political and local risks than a fund that is
more geographically diversified.
A European issuer is a company that either:
..Has a class of its securities whose principal securities markets is in a
European country;
..Is organized under the laws of, or has a principal office in, a European
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more of the European countries; or
..Maintains 50% or more of its assets in one or more of the European coun-
tries.
The Fund may allocate its assets among different countries as determined by
the Investment Adviser from time to time, provided that the Fund's assets
are invested in at least three European countries. It is currently antici-
pated that a majority of the Fund's assets will be invested in the equity
securities of large cap companies located in the developed countries of
Western Europe. However, the Fund may also invest, without limit, in mid cap
companies and small cap companies, as well as companies located in emerging
countries. Currently, emerging countries include among others, most Latin
American, African, Asian, most Eastern European nations, including the
states that formerly comprised the Soviet Union and Yugoslavia.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-European countries and in fixed-income securities,
such as government, corporate and bank debt obligations.
5
<PAGE>
Goldman Sachs Japanese Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Long-term capital appreciation
Objective:
Tokyo Price Index ("TOPIX") (unhedged)
Benchmark:
Equity securities of Japanese companies
Investment Focus:
Active International
Investment Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
Japanese companies. A Japanese issuer is a company that either:
..Has a class of its securities whose principal securities markets is in
Japan;
..Is organized under the laws of, or has a principal office in Japan;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in Japan; or
..Maintains 50% or more of its assets in Japan.
The Fund's concentration in Japanese companies will expose it to the risk of
adverse social, political and economic events which occur in Japan or affect
the Japanese markets.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Japan's economic growth in the 1990's has been
substantially below the level of earlier decades. Its economy has drifted
between modest growth and recession. In calendar year 1998, Japan's gross
national product contracted by 2.8% -- its worst performance in the post-war
period. In addition to this economic downturn, Japan is undergoing struc-
tural adjustments related to high wages and taxes, currency valuations and
structural rigidities. Japan has also been experiencing notable uncertainty
and loss of public confidence in connection
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
with the reform of its political process and the deregulation of its econo-
my. These conditions present risks to the Japanese Equity Fund and its abil-
ity to attain its investment objective.
Japan's economy is heavily dependent upon international trade, and is espe-
cially sensitive to trade barriers and disputes. In particular, Japan relies
on large imports of agricultural products, raw materials and fuels. A sub-
stantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. Japan's banking industry has recently suffered from non-perform-
ing loans, declining real estate values and lower valuations of securities
holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are also not always
equally enforced.
For most of this decade, Japanese securities markets have experienced sig-
nificant declines. Although the stock market exhibited some strength recent-
ly, it is not possible to determine whether this will continue.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the United States. In general, however, reported net income in
Japan is understated relative to U.S. accounting standards and this is one
reason price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the United States.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities,
such as government, corporate and bank debt obligations.
7
<PAGE>
Goldman Sachs International Small Cap Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI EAFE Small Cap Index (unhedged)
Investment Focus: Equity securities of foreign companies with public stock
market capitalizations of $1 billion or less at the time
of investment
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
companies:
..With public stock market capitalizations of $1 billion or less at the time
of investment; and
..That are organized outside the United States or whose securities are prin-
cipally traded outside the United States.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries. The Fund expects to invest a
substantial portion of its assets in small cap securities of companies in
the developed countries of Western Europe, Japan and Asia. However, the Fund
may also invest in the securities of issuers located in Australia, Canada,
New Zealand and in emerging countries. Currently, emerging countries
include, among others, most Latin American, African, Asian and Eastern Euro-
pean nations.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger-cap companies with public stock market capital-
izations of more than $1 billion at the time of investment and in fixed-
income securities, such as government, corporate and bank debt obligations.
If the market capitalization of a company held by the Fund increases above
$1 billion, the Fund may, consistent with its investment objective, continue
to hold the security.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Emerging Markets Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI Emerging Markets Free Index
Investment Focus: Equity securities of emerging country issuers
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
emerging country issuers. The Investment Adviser may consider classifica-
tions by the World Bank, the International Finance Corporation or the United
Nations and its agencies in determining whether a country is emerging or
developed. Currently, emerging countries include, among others, most Latin
American, African, Asian and Eastern European nations. The Investment
Adviser currently intends that the Fund's investment focus will be in the
following emerging countries as well as any other emerging country to the
extent that foreign investors are permitted by applicable law to make such
investments:
<TABLE>
<S> <C> <C> <C> <C>
.Argentina .Egypt .Jordan .Philippines .Sri Lanka
.Botswana .Greece .Kenya .Poland .Taiwan
.Brazil .Hong Kong .Malaysia .Portugal .Thailand
.Chile .Hungary .Mexico .Russia .Turkey
.China .India .Morocco .Singapore .Venezuela
.Colombia .Indonesia .Pakistan .South Africa .Zimbabwe
.Czech Republic .Israel .Peru .South Korea
</TABLE>
9
<PAGE>
Goldman Sachs Emerging Markets Equity Fund continued
An emerging country issuer is any company that either:
..Has a class of its securities whose principal securities market is in an
emerging country;
..Is organized under the laws of, or has a principal office in, an emerging
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more emerging countries; or
..Maintains 50% or more of its assets in one or more of the emerging coun-
tries.
Under normal circumstances, the Fund maintains investments in at least six
emerging countries, and will not invest more than 35% of its total assets in
securities of issuers in any one emerging country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the emerging
country markets and particular issuers. In addition, macro-economic factors
and the portfolio managers' and Goldman Sachs economists' views of the rela-
tive attractiveness of emerging countries and currencies are considered in
allocating the Fund's assets among emerging countries.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
(i) fixed-income securities of private and government emerging country
issuers; and (ii) equity and fixed-income securities, such as government,
corporate and bank debt obligations, of issuers in developed countries.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Asia Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI All County Asia Free ex-Japan Index (unhedged)
Investment Focus: Equity securities of companies in Asian countries
Investment Process: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
Asian issuers.
An Asian issuer is any company that either:
..Has a class of its securities whose principal securities markets is in one
or more Asian countries;
..Is organized under the laws of, or has a principal office in, an Asian
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more Asian countries; or
..Maintains 50% or more of its assets in one or more Asian countries.
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are:
..China .Malaysia .South Korea
..Hong Kong .Pakistan .Sri Lanka
..India .Philippines .Taiwan
..Indonesia .Singapore .Thailand
as well as any other country in Asia (other than Japan) to the extent that
foreign investors are permitted by applicable law to make such investments.
11
<PAGE>
Goldman Sachs Asia Growth Fund continued
Allocation of the Fund's investments will depend upon the Investment Advis-
er's views of the relative attractiveness of the Asian markets and particu-
lar issuers.
Concentration of the Fund's assets in one or a few of the Asian countries
and Asian currencies will subject the Fund to greater risks than if the
Fund's assets were not so concentrated. For example, on August 31, 1999 (the
end of the Fund's last fiscal year), more than 25% of the Fund's assets were
invested in securities that traded in Hong Kong.
Starting in mid-1997 some Pacific region countries began to experience cur-
rency devaluations that resulted in high interest rate levels and sharp
reductions in economic activity. This situation resulted in a significant
drop in the securities prices of companies located in the region. Some coun-
tries have experienced government intervention, have sought assistance from
the International Monetary Fund and have experienced substantial domestic
unrest. Although some countries are taking steps to restructure their finan-
cial sectors in a manner that may facilitate a return to long-term economic
growth, there can be no assurance that these efforts will be successful or
that their current problems will not persist. At the end of its last fiscal
year, a substantial portion of the Asia Growth Fund was invested in securi-
ties traded in the Hong Kong market. In 1997, the sovereignty of Hong Kong
reverted from the United Kingdom to China. Hong Kong's financial prospects
depend, in large part, on its ability to retain the legal, financial and
monetary systems that allow economic freedom and market expansion. Although
Hong Kong is, by law, to maintain a high degree of autonomy, there can also
be no assurance that the general economic position of Hong Kong will not be
adversely affected as a result of the exercise of Chinese sovereignty over
Hong Kong. In particular, business confidence in Hong Kong can be signifi-
cantly affected by political developments and statements by public figures
in China, which can in turn affect the performance of the securities mar-
kets. In addition, the reversion of Hong Kong to China has created uncer-
tainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of issuers in non-Asian countries and Japan, and in fixed-
income securities, such as government, corporate and bank debt obligations.
12
<PAGE>
[This page intentionally left blank]
13
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Fund's annual/semi-annual reports. For more information see Appendix
A.
<TABLE>
<CAPTION>
10 Percent of total assets
(italic type)
10 Percent of net assets
(roman type)
.. No specific percentage limitation
on usage; limited only by the CORE
objectives and strategies of the International International European
Fund Equity Equity Equity
- -- Not permitted Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3
Cross Hedging of Currencies . . .
Currency Swaps* 15 15 15
Custodial Receipts . . .
Equity Swaps* 15 15 15
Foreign Currency Transactions . . .
Futures Contracts and Options on Futures
Contracts . . .
Investment Company Securities (including
World Equity Benchmark Shares and
Standard & Poor's Depository Receipts) 10 10 10
Options on Foreign Currencies/1/ . . .
Options on Securities and Securities
Indices/2/ . . .
Unseasoned Companies . . .
Warrants and Stock Purchase Rights . . .
Repurchase Agreements . . .
Securities Lending 33 1/3 33 1/3 33 1/3
Short Sales Against the Box -- 25 25
When-Issued Securities and Forward
Commitments . . .
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 The Funds may purchase and sell call and put options.
2 The Funds may sell covered call and put options and purchase call and put
options.
14
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Japanese International Emerging Asia
Equity Small Cap Markets Growth
Fund Fund Equity Fund Fund
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
33 1/3 33 1/3 33 1/3 33 1/3
. . . .
15 15 15 15
. . . .
15 15 15 15
. . . .
. . . .
10 10 10 10
. . . .
. . . .
. . . .
. . . .
. . . .
33 1/3 33 1/3 33 1/3 33 1/3
25 25 25 25
. . . .
- ------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on CORE
usage; limited only by the objectives International International European
and strategies of the Fund Equity Equity Equity
- -- Not permitted Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities
American, European and Global Depository
Receipts . . .
Asset-Backed and Mortgage-Backed
Securities/2/ -- . .
Bank Obligations/1/,/2/ . . .
Convertible Securities . . .
Corporate Debt Obligations/2/ ./4/ . .
Equity Securities 90+ 65+ 65+
Emerging Country Securities 25 . .
Fixed Income Securities/3/ 10/4/ 35 35/5/
Foreign Securities . . .
Foreign Government Securities/2/ . . .
Non-Investment Grade Fixed Income
Securities/2/ -- ./6/ ./6/
Real Estate Investment Trusts . . .
Structured Securities* . . .
Temporary Investments 35 100 100
U.S. Government Securities/2/ . . .
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 Issued by U.S. or foreign banks.
2 Limited by the amount the Fund invests in fixed-income securities.
3 Except as noted under "Non-Investment Grade Fixed Income Securities,"
fixed-income securities are investment grade (e.g., BBB or higher by Stan-
dard & Poor's Rating Group ("Standard & Poor's") or Baa or higher by
Moody's Investor's Service, Inc. ("Moody's")).
4 Cash equivalents only.
5 The European Equity Fund may invest in the aggregate up to 35% of its total
assets in: (1) equity securities of non-European countries; and (2) fixed-
income securities.
6 May be BB or lower by Standard & Poor's or Ba or lower by Moody's.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Japanese International Emerging
Equity Small Cap Markets Asia Growth
Fund Fund Equity Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
. . . .
. . . .
. . . .
. . . .
65+ 65+ 65+ 65+
. . . .
35/7/ 35/8/ 35/9/ 35/10/
. . . .
. . . .
./6/ ./6/ ./6/ ./6/
. . . .
. . . .
100 100 35 100
. . . .
- ---------------------------------------------------------------------------------------------
</TABLE>
7 The Japanese Equity Fund may invest in the aggregate up to 35% of its total
assets in: (1) fixed-income securities; and (2) equity securities of non-
Japanese companies.
8 The International Small Cap Fund may invest in the aggregate up to 35% of
its total assets in (1) fixed-income securities; and (2) equity securities
of larger cap companies with public stock market capitalizations of more
than $1 billion at the time of investment.
9 The Emerging Markets Equity Fund may invest in the aggregate up to 35% of
its total assets in: (1) fixed-income securities of private and government
emerging country issuers; and (2) equity and fixed-income securities of
issuers in developed countries.
10 The Asia Growth Fund may invest in the aggregate up to 35% of its total
assets in: (1) fixed-income securities; and (2) equity securities of
issuers in non-Asian countries and Japan.
17
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund will achieve its
investment objective.
<TABLE>
<CAPTION>
CORE International Emerging
.. Applicable International International European Japanese Small Cap Markets Asia
- --Not applicable Equity Equity Equity Equity Equity Equity Growth
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Credit/Default . . . . . . .
Emerging Countries . . . . . . .
Interest Rate . . . . . . .
Small Cap -- -- . -- . -- --
Foreign . . . . . . .
Derivatives . . . . . . .
Management . . . . . . .
Market . . . . . . .
Liquidity . . . . . . .
Stock . . . . . . .
Geographic . . . . . . .
Other . . . . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
All Funds:
..Credit/Default Risk--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..Emerging Countries Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as extensive
and frequent accounting, financial and other reporting requirements as the
securities markets of more developed countries. Further, investment in equity
securities of issuers located in Russia and certain other emerging countries
involves risk of loss resulting from problems in share registration and cus-
tody and substantial economic and political disrup-
18
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
tions. These risks are not normally associated with investment in more devel-
oped countries.
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income secu-
rities will normally have more price volatility because of this risk than
short-term securities.
..Foreign Risks--The risk that when a Fund invests in foreign securities, it
will be subject to risk of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss may
also result from the imposition of exchange controls, confiscations and other
government restrictions. A Fund will also be subject to the risk of negative
foreign currency rate fluctuations. Foreign risks will normally be greatest
when a Fund invests in issuers located in emerging countries.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..Liquidity Risk--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual mar-
ket conditions, an unusually high volume of redemption requests, or other rea-
sons. Funds that invest in small capitalization stocks and emerging country
issuers will be especially subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities within these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse
investor perceptions whether or not accurate. The Goldman Sachs Asset Alloca-
tion Portfolios (the "Asset Allocation Portfolios") expect to invest a signif-
icant percentage of their assets in the Funds and other funds for which
Goldman Sachs now or in the future acts as investment adviser or underwriter.
Redemptions by an Asset Allocation Portfolio of its position in a Fund may
further increase liquidity risk and may impact a Fund's net asset value
("NAV").
..Stock Risk--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.
19
<PAGE>
..Geographic Risk--The European Equity Fund invests primarily in equity securi-
ties of European companies. The Japanese Equity Fund invests primarily in
equity securities of Japanese equity companies. The Asia Growth Fund invests
primarily in equity securities of Asian issuers. Concentration of the invest-
ments of these or other Funds in issuers located in a particular country or
region will subject the Fund, to a greater extent than if investments were
less concentrated, to the risks of adverse securities markets, exchange rates
and social, political, regulatory or economic events which may occur in that
country or region.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..Small Cap Stock Risk--The securities of small capitalization stocks involve
greater risks than those associated with larger, more established companies
and may be subject to more abrupt or erratic price movements. Securities of
such issuers may lack sufficient market liquidity to enable a Fund to effect
sales at an advantageous time or without a substantial drop in price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
20
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Class A
Shares from year to year; and (b) how the average annual returns of a Fund's
Class A, B and C Shares compare to those of broad-based securities market
indices. The bar chart and table assume reinvestment of dividends and dis-
tributions. A Fund's past performance is not necessarily an indication of
how the Fund will perform in the future. The average annual total return
calculation reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed contingent deferred sales charge ("CDSC") for Class B
Shares (5% maximum declining to 0% after six years), and the assumed CDSC
for Class C Shares (1% if redeemed within 12 months of purchase). The bar
chart does not reflect the sales loads applicable to Class A Shares. If the
sales loads were reflected, returns would be less. Performance reflects
expense limitations in effect. If expense limitations were not in place, a
Fund's performance would have been reduced. The European Equity, Japanese
Equity and International Small Cap Funds did not commence operations until
October 1, 1998, May 1, 1998 and May 1, 1998. Since these Funds have less
than one calendar year's performance, no performance information is provided
in this section.
21
<PAGE>
CORE International Equity Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares [BAR CHART]
for the 9-month
period ended 1998
September 30, ------
1999 was 9.24%. 13.83%
Best Quarter
Q4 '98 +18.84%
Worst Quarter
Q3 '98 -16.00%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
----------------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 8/15/97)
Including Sales Charges 7.57% (4.09)%
Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East (EAFE) Index* 20.33% 8.44%
----------------------------------------------------------------------------
Class B (Inception 8/15/97)
Including CDSC 8.36% (3.41)%
MSCI EAFE Index* 20.33% 8.44%
----------------------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 12.34% (0.44)%
MSCI EAFE Index* 20.33% 8.44%
----------------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI EAFE Index is a market capitalization-weighted composite
of securities in 20 developed markets. The Index figures do not reflect any
fees or expenses.
22
<PAGE>
FUND PERFORMANCE
International Equity Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares [BAR CHART]
for the 9-month
period ended 1993 1994 1995 1996 1997 1998
September 30, ------ ------ ------ ------ ----- ------
1999 was 7.61%. 20.74% -6.86% 18.93% 18.69% 4.47% 17.98%
Best Quarter
Q1 '98 +16.93%
Worst Quarter
Q3 '98 -14.37%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 12/1/92)
Including Sales Charges 11.50% 8.90% 10.82%
MSCI EAFE Index (unhedged)* 20.33% 9.49% 13.00%
FT/S&P Actuaries Europe & Pacific Index
(unhedged)** 19.31% 6.84% 9.67%
------------------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC 12.05% N/A 9.04%
MSCI EAFE Index (unhedged)* 20.33% N/A 8.13%
FT/S&P Actuaries Europe & Pacific Index
(unhedged)** 19.31% N/A 6.60%
------------------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 16.23% N/A 5.11%
MSCI EAFE Index (unhedged)* 20.33% N/A 8.44%
FT/S&P Actuaries Europe & Pacific Index
(unhedged)** 19.31% N/A 6.71%
------------------------------------------------------------------------
</TABLE>
* The MSCI EAFE Index, an unmanaged index of common stock prices, is replac-
ing the FT/S&P Actuaries Europe & Pacific Index ("EuroPac") as the Interna-
tional Equity Fund's performance benchmark. The MSCI EAFE Index is widely
used throughout the investment management industry to represent the invest-
ment opportunities available to a large-cap, developed country interna-
tional equity strategy and, in the Investment Adviser's opinion, is a more
appropriate benchmark against which to measure the performance of the
International Equity Fund. The Index figures do not reflect any fees or
expenses.
** The unmanaged FT/S&P EuroPac Index is a market capitalization-weighted com-
posite of approximately 1,500 stocks from 20 countries in Europe and the
Asia-Pacific region. From the inception of the Fund until 8/31/94, the Fund
was managed using the hedged EuroPac as a benchmark, and after such date,
the unhedged EuroPac as a benchmark. The Index figures do not reflect any
fees or expenses.
23
<PAGE>
Emerging Markets Equity Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares [BAR CHART]
for the 9-month
period ended
September 30, 1998
1999 -------
was 25.24%. -27.06%
Best Quarter
Q4 '98 +14.03%
Worst Quarter
Q3 '98 -22.94%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 12/15/97)
Including Sales Charges (31.10)% (28.30)%
MSCI Emerging Markets Free (EMF) Index* (25.33)% (19.87)%
------------------------------------------------------------------
Class B (Inception 12/15/97)
Including CDSC (30.88)% (27.40)%
MSCI EMF Index* (25.33)% (19.87)%
------------------------------------------------------------------
Class C (Inception 12/15/97)
Including CDSC (27.82)% (24.36)%
MSCI EMF Index* (25.33)% (19.87)%
------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI EMF Index is a market capitalization-weighted composite
of securities in over 30 emerging markets countries. "Free" indicates an
index that excludes shares in otherwise free markets that are not purchas-
able by foreigners. The Index figures do not reflect any fees or expenses.
24
<PAGE>
FUND PERFORMANCE
Asia Growth Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares [BAR CHART]
for the 9-month
period ended 1995 1996 1997 1998
September 30, -------- -------- -------- --------
1999 6.55% 7.95% -41.07% -15.26%
was 27.99%.
Best Quarter
Q4 '98 +21.59%
Worst Quarter
Q4 '97 -27.33%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year Since Inception
---------------------------------------------------------------
<S> <C> <C>
Class A (Inception 7/8/94)
Including Sales Charges (19.94)% (12.21)%
MSCI All Country Asia Free ex-Japan* (10.27)% (11.22)%
---------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (19.93)% (25.86)%
MSCI All Country Asia Free ex-Japan* (10.27)% (22.76)%
---------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (16.84)% (38.72)%
MSCI All Country Asia Free ex-Japan* (10.27)% (36.20)%
---------------------------------------------------------------
</TABLE>
* The unmanaged MSCI All Country Asia Free ex-Japan Index is a market capi-
talization-weighted composite of securities in ten Asian countries. "Free"
indicates an index that excludes shares in otherwise free markets that are
not purchasable by foreigners. The Index figures do not reflect any fees or
expenses.
25
<PAGE>
Fund Fees and Expenses (Class A, B and C Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Class A, Class B, or Class C Shares of a Fund.
<TABLE>
<CAPTION>
CORE International
Equity Fund
-------------------------
Class A Class B Class C
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.85% 0.85% 0.85%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.41% 0.41% 0.41%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 1.76% 2.26% 2.26%
- ----------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations,
"Other Expenses" and "Total Fund Operating Expenses"
of the Fund which are actually incurred are as set
forth below. The expense limitations may be termi-
nated at any time at the option of the Investment
Adviser. If this occurs, "Other Expenses" and "Total
Fund Operating Expenses" may increase without share-
holder approval.
<TABLE>
<CAPTION>
CORE International
Equity Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.85% 0.85% 0.85%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.31% 0.31% 0.31%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.66% 2.16% 2.16%
------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
International Equity
Fund
-----------------------------------------
Class A Class B Class C
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.34% 0.34% 0.34%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 1.84% 2.34% 2.34%
- ----------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
International Equity
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.29% 0.29% 0.29%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.79% 2.29% 2.29%
------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
European Equity Fund
---------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.79% 0.79% 0.79%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 2.29% 2.79% 2.79%
- --------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
European Equity Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.29% 0.29% 0.29%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.79% 2.29% 2.29%
------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Japanese Equity Fund
---------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 1.12% 1.12% 1.12%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 2.62% 3.12% 3.12%
- --------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Japanese Equity Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.20% 0.20% 0.20%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.70% 2.20% 2.20%
------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
International Small Cap
Fund
---------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.20% 1.20% 1.20%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.72% 0.72% 0.72%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 2.42% 2.92% 2.92%
- --------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
International Small Cap
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.20% 1.20% 1.20%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.35% 0.35% 0.35%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 2.05% 2.55% 2.55%
------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Emerging Markets Equity
Fund
---------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.20% 1.20% 1.20%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.71% 0.71% 0.71%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 2.41% 2.91% 2.91%
- --------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Emerging Markets Equity
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.20% 1.20% 1.20%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.34% 0.34% 0.34%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 2.04% 2.54% 2.54%
------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Asia Growth Fund
---------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%1 None None
Maximum Deferred Sales Charge (Load)2 None1 5.0%3 1.0%4
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees5 None None None
Exchange Fees5 None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.77% 0.77% 0.77%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 2.27% 2.77% 2.77%
- --------------------------------------------------------------------------
</TABLE>
See page 33 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Asia Growth Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 1.00% 1.00% 1.00%
Distribution and Service Fees 0.50% 1.00% 1.00%
Other Expenses7 0.35% 0.35% 0.35%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.85% 2.35% 2.35%
------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
FUND FEES AND EXPENSES
/1/The maximum sales charge is a percentage of the offering price. A CDSC of 1%
is imposed on certain redemptions (within 18 months of purchase) of Class A
Shares sold without an initial sales charge as part of an investment of $1 mil-
lion or more.
/2/The maximum CDSC is a percentage of the lesser of the NAV at the time of the
redemption or the NAV when the shares were originally purchased.
/3/A CDSC is imposed upon Class B Shares redeemed within six years of purchase
at a rate of 5% in the first year, declining to 1% in the sixth year, and elim-
inated thereafter.
/4/A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of pur-
chase.
/5/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or shares of the Goldman Sachs Institu-
tional Liquid Assets Portfolios (the "ILA Portfolios") and free automatic
exchanges pursuant to the Automatic Exchange Program, six free exchanges are
permitted in each 12- month period. A fee of $12.50 may be charged for each
subsequent exchange during such period.
/6/The Funds' operating expenses for the current fiscal year have been
annualized for the seven-month period (February 1, 1999 through August 31,
1999).
/7/"Other Expenses" include transfer agency fees equal to 0.19% of the average
daily net assets of each Fund's Class A, B and C Shares, plus all other ordi-
nary expenses not detailed above. The Investment Adviser has voluntarily agreed
to reduce or limit certain "Other Expenses" (excluding management fees, distri-
bution and service fees, transfer agency fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses) to the
following percentages of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
- --------------------------
<S> <C>
CORE
International
Equity 0.12%
International
Equity 0.10%
European Equity 0.10%
Japanese Equity 0.01%
International
Small Cap 0.16%
Emerging Markets
Equity 0.15%
Asia Growth 0.16%
</TABLE>
33
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without expense limitations) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in Class A, B or C Shares of
a Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that a Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
CORE International Equity
Class A Shares $719 $1,074 $1,452 $2,509
Class B Shares
- Assuming complete
redemption at end of
period $729 $1,006 $1,410 $2,470
- Assuming no redemption $229 $ 706 $1,210 $2,470
Class C Shares
- Assuming complete
redemption at end of
period $329 $ 706 $1,210 $2,595
- Assuming no redemption $229 $ 706 $1,210 $2,595
- ----------------------------------------------------------
International Equity
Class A Shares $727 $1,097 $1,491 $2,590
Class B Shares
- Assuming complete
redemption at end of
period $737 $1,030 $1,450 $2,552
- Assuming no redemption $237 $ 730 $1,250 $2,552
Class C Shares
- Assuming complete
redemption at end of
period $337 $ 730 $1,250 $2,676
- Assuming no redemption $237 $ 730 $1,250 $2,676
- ----------------------------------------------------------
European Equity
Class A Shares $769 $1,226 $1,708 $3,031
Class B Shares
- Assuming complete
redemption at end of
period $782 $1,165 $1,674 $3,000
- Assuming no redemption $282 $ 865 $1,474 $3,000
Class C Shares
- Assuming complete
redemption at end of
period $382 $ 865 $1,474 $3,119
- Assuming no redemption $282 $ 865 $1,474 $3,119
- ----------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Equity
Class A Shares $801 $1,320 $1,864 $3,341
Class B Shares
- Assuming complete
redemption at end of
period $815 $1,263 $1,835 $3,314
- Assuming no redemption $315 $ 963 $1,635 $3,314
Class C Shares
- Assuming complete
redemption at end of
period $415 $ 963 $1,635 $3,430
- Assuming no redemption $315 $ 963 $1,635 $3,430
- ---------------------------------------------------------
International Small Cap
Class A Shares $782 $1,263 $1,770 $3,155
Class B Shares
- Assuming complete
redemption at end of
period $795 $1,204 $1,738 $3,125
- Assuming no redemption $295 $ 904 $1,538 $3,125
Class C Shares
- Assuming complete
redemption at end of
period $395 $ 904 $1,538 $3,242
- Assuming no redemption $295 $ 904 $1,538 $3,242
- ---------------------------------------------------------
Emerging Markets Equity
Class A Shares $781 $1,260 $1,765 $3,145
Class B Shares
- Assuming complete
redemption at end of
period $794 $1,201 $1,733 $3,115
- Assuming no redemption $294 $ 901 $1,533 $3,115
Class C Shares
- Assuming complete
redemption at end of
period $394 $ 901 $1,533 $3,233
- Assuming no redemption $294 $ 901 $1,533 $3,233
- ---------------------------------------------------------
Asia Growth
Class A Shares $767 $1,220 $1,698 $3,012
Class B Shares
- Assuming complete
redemption at end of
period $780 $1,159 $1,664 $2,980
- Assuming no redemption $280 $ 859 $1,464 $2,980
Class C Shares
- Assuming complete
redemption at end of
period $380 $ 859 $1,464 $3,099
- Assuming no redemption $280 $ 859 $1,464 $3,099
- ---------------------------------------------------------
</TABLE>
The hypothetical example assumes that a CDSC will not apply to redemptions of
Class A Shares within the first 18 months. Class B Shares convert to Class A
Shares eight years after purchase; therefore, Class A expenses are used in the
hypothetical example after year eight.
Certain institutions that sell Fund shares and/or their salespersons may
receive other compensation in connection with the sale and distribution of
Class A, Class B and Class C Shares for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"What Should I Know When I Purchase Shares Through An Authorized Dealer?"
35
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") CORE International Equity
32 Old Slip
New York, New York 10005
------------------------------------------------------------------------
Goldman Sachs Asset Management International
("GSAMI") International Equity
133 Peterborough Court European Equity
London, England EC4A 2BB Japanese Equity
International Small Cap
Emerging Markets Equity
Asia Growth
------------------------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSAMI. Goldman Sachs registered as an investment
adviser in 1981. GSAMI, a member of the Investment Management Regulatory
Organization Limited since 1990 and a registered investment adviser since
1991, is an affiliate of Goldman Sachs. The Goldman Sachs Group, L.P., which
controlled the Investment Advisers, merged into the Goldman Sachs Group,
Inc. as a result of an initial public offering. As of September 30, 1999,
GSAM and GSAMI, along with other units of IMD, had assets under management
of $203 billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and cler-
ical services to the Funds
36
<PAGE>
SERVICE PROVIDERS
..Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information and other
reports filed with the Securities and Exchange Commission (the "SEC") and
other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates (as a percentage of each respective
portfolio's average daily net assets) listed below:
<TABLE>
<CAPTION>
Actual Rate
For the Fiscal
Year Ended
Contractual Rate August 31, 1999
------------------------------------------------------------
<S> <C> <C>
GSAM:
------------------------------------------------------------
CORE International Equity 0.85% 0.85%
------------------------------------------------------------
GSAMI:
------------------------------------------------------------
International Equity 1.00% 1.00%
------------------------------------------------------------
European Equity 1.00% 1.00%
------------------------------------------------------------
Japanese Equity 1.00% 1.00%
------------------------------------------------------------
International Small Cap 1.20% 1.20%
------------------------------------------------------------
Emerging Markets Equity 1.20% 1.20%
------------------------------------------------------------
Asia Growth 1.00% 1.00%
------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
FUND MANAGERS
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981 Mr. Hillenbrand
has been President of
37
<PAGE>
Commodities Corporation LLC, of which Goldman Sachs is the parent company.
Over the course of his 19-year career at Commodities Corporation, Mr.
Hillenbrand has had extensive experience in dealing with internal and exter-
nal investment managers who have managed a range of futures and equities
strategies across multiple markets, using a variety of styles.
International Equity Portfolio Management Team
..Global portfolio teams based in London, Singapore, Tokyo and New York.
Local presence is a key to the Investment Adviser's fundamental research
capabilities
..Team manages over $33.2 billion in international equities for retail,
institutional and high net worth clients
..Focus on bottom-up stock selection as main driver of returns, though the
team leverages the asset allocation, currency and risk management capabili-
ties of GSAM
- --------------------------------------------------------------------------------
London-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
David Dick Senior Portfolio Manager-- Since Mr. Dick joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director senior portfolio manager
on the European Equity
team in 1998. From 1990
to 1998, he was with
Mercury Asset
Management, where he was
a portfolio manager for
European equity and was
head of Mercury's
European sector
strategy.
- ----------------------------------------------------------------------------------------------
Ivor H. Farman Senior Portfolio Manager-- Since Mr. Farman joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director International Equity Fund 1996 senior portfolio manager
in 1996. From 1995 to
1996, he was responsible
for originating and
marketing French equity
ideas at Exane in Paris.
Prior to 1995, he spent
five years engaged in
French equity research
and marketing at Banque
Nationale de Paris and
Schroders in London.
- ----------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
James P. Senior Portfolio Manager-- Since Mr. Hordern joined the
Hordern International Small Cap 1998 Investment Adviser as a
Executive Fund portfolio manager in
Director 1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
- ----------------------------------------------------------------------------------------------
Ralf Laier Portfolio Manager-- Since Mr. Laier joined the
Vice President Emerging Markets Equity 1998 Investment Adviser as a
Fund portfolio manager with a
focus on Central/Eastern
European (CEE) and the
Commonwealth of
Independent States (CIS)
in 1997. Prior to
joining the Investment
Adviser, from 1995 to
1997, he was Vice
President of Soros
Global Research, where
he analyzed investment
opportunities in
CEE/CIS. From 1994 to
1995, he achieved a
Ph.D. from the Academy
of Economics in Pozan,
Poland.
- ----------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the
Managing European Equity Fund 1998 Investment Adviser as a
Director International Equity Fund 1998 senior portfolio manager
and head of the European
Equity Team in October
1997. From 1986 to 1997,
she worked at Fleming
Investment Management in
London, where she most
recently was Portfolio
Management Director for
the European equity
investment strategy and
process.
- ----------------------------------------------------------------------------------------------
Andrew Orchard Senior Portfolio Manager-- Since Andrew joined the
Executive European Equity Fund 1999 Investment Adviser as a
Director International Equity Fund 1999 portfolio manager in
1999. From 1994 to 1999
he was a portfolio
manager at Morgan
Grenfell Asset
Management where he
managed global equity
portfolios and chaired
Morgan Grenfell's Global
Sector Committee.
- ----------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Andrew Portfolio Manager-- Since Mr. Shrimpton joined the
Shrimpton Emerging Markets Equity 1998 Investment Adviser as a
Vice President Fund portfolio manager with a
focus on Africa as well
as the financial
industry in the EMEA
region in 1996. Since
1985 he was a UK equity
analyst and portfolio
manager for CIN
Management, where he
initiated CIN
Management's first
investments in Latin
America.
- ----------------------------------------------------------------------------------------------
Robert Stewart Senior Portfolio Manager-- Since Robert joined the
Executive European Equity Fund 1999 Investment Adviser as a
Director International Equity Fund 1999 portfolio manager in
1996. He is a member of
the European Equity
Team. From 1996 to 1998
he was a portfolio
manager in Japan where
he managed Japanese
Equity Institutional
Portfolios. Prior to
that Robert was a
portfolio manager at
CINMan from 1989 to 1996
where he managed
international equities.
- ----------------------------------------------------------------------------------------------
Danny Truell Senior Portfolio Manager-- Since Mr. Truell joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director senior portfolio manager
and head of UK equities
in 1998. From 1992 to
1996, he was Investment
Banking Executive
Director for SBC Warburg
and Chief Asian Equity
Strategist.
- ----------------------------------------------------------------------------------------------
Gabriella Portfolio Manager-- Since Ms. Antici joined the
Antici Emerging Markets Equity 1998 Investment Adviser as a
Vice President Fund portfolio manager in
1997. From 1994 to 1997,
she was a Vice President
for HSBC Asset
Management, where she
was a portfolio manager
for emerging markets and
head of the Latin
American Department.
- ----------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
SERVICE PROVIDERS
New York-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Robert A. Senior Portfolio Manager-- Since Mr. Beckwitt joined the
Beckwitt Emerging Markets Equity 1997 Investment Adviser as a
Managing Fund portfolio manager in
Director 1996. From 1986 to 1996,
Head of he was Chief Investment
Emerging Strategist-Portfolio
Markets Equity Adviser to high net
worth investors at
Fidelity Investments.
- -----------------------------------------------------------------------------------------------
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE International Equity 1998 Investment Adviser as a
Fund portfolio manager in
1998. From 1984 to 1998,
she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- -----------------------------------------------------------------------------------------------
Mark M. Carhart Portfolio Manager-- Since Mr. Carhart joined the
Managing CORE International Equity 1998 Investment Adviser as a
Director Fund member of the
Quantitative Research
and Risk Management team
in 1997. From August
1995 to September 1997,
he was Assistant
Professor of Finance at
the Marshall School of
Business at USC and a
Senior Fellow of the
Wharton Financial
Institutions Center.
From 1993 to 1995, he
was a lecturer and
graduate student at the
University of Chicago
Graduate School of
Business.
- -----------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Managing CORE International Equity 1997 Investment Adviser as a
Director Fund portfolio manager in the
quantitative equity
management team in 1992.
- -----------------------------------------------------------------------------------------------
Raymond J. Portfolio Manager-- Since Mr. Iwanowski joined the
Iwanowski CORE International Equity 1998 Investment Adviser as an
Managing Fund associate and portfolio
Director manager in 1997. From
1993 to 1997, he was a
Vice President and head
of the Fixed Derivatives
Client Research group at
Salomon Brothers.
- -----------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing CORE International Equity 1997 Investment Adviser as a
Director Fund portfolio manager in
1989.
- -----------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Singapore-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth Fund 1994 Investment Adviser as a
Emerging Markets Equity 1999 portfolio manager in
Fund 1990.
International Equity Fund 1999
International Small Cap 1999
Fund
- -----------------------------------------------------------------------------------------------
Ravi Shanker Senior Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth Fund 1997 Investment Adviser as an
Emerging Markets Equity 1998 operations manager in
Fund 1997. From July 1996 to
International Equity Fund 1999 1997, he worked for
International Small Cap 1999 Goldman Sachs in
Fund Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
for Goldman Sachs as an
investment banker in the
Investment Banking
Division.
- -----------------------------------------------------------------------------------------------
Siew-Hua Thio Portfolio Manager-- Since Ms. Thio joined the
Vice President Asia Growth Fund 1998 Investment Adviser as a
Emerging Markets Equity 1998 portfolio manager in
Fund 1998. From 1997 to 1998,
International Equity Fund 1998 she was Head of Research
International Small Cap 1998 for Indosuez WI Carr in
Fund Singapore. From 1993 to
1997, she was a research
analyst at the same
firm.
- -----------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
SERVICE PROVIDERS
Tokyo-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- --------------------------------------------------------------------------------------
<C> <C> <C> <S>
Toshiyuki Ejima Portfolio Manager-- Since Toshiyuki joined the
Vice President Japanese Equity Fund 1999 Investment Adviser as a
portfolio manager in
April 1999. Prior to
that he was a portfolio
manager at Daiichi
Mutual Life from 1993 to
1999 where he managed
Japanese equities.
- --------------------------------------------------------------------------------------
Shigeka Kouda Portfolio Manager-- Since Mr. Kouda joined the
Vice President International Small 1998 Investment Adviser as a
Cap Fund portfolio manager in
1997. From 1992 to 1997,
he was at the Fixed
Income Division of
Goldman Sachs (Japan)
Limited, where he was
extensively involved in
emerging markets trading
as well as International
Fixed Income
institutional sales.
- --------------------------------------------------------------------------------------
Shogo Maeda Senior Portfolio Since Mr. Maeda joined the
Managing Manager-- 1994 Investment Adviser as a
Director Japanese Equity Fund 1994 portfolio manager in
International Equity 1998 1994. From 1987 to 1994,
Fund he worked at Nomura
International Small Investment Management
Cap Fund Incorporated as a Senior
Portfolio Manager.
- --------------------------------------------------------------------------------------
Miyako Portfolio Manager-- Since Ms. Shibamoto joined the
Shibamoto Japanese Equity Fund 1998 Investment Adviser as a
Vice President member of the Japanese
Equity team in March
1998. From 1993 to 1998,
she was a Vice President
at Scudder Stevens and
Clark (Japan).
- --------------------------------------------------------------------------------------
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity Fund 1998 Investment Adviser as a
portfolio manager in
1996. From 1990 to 1996,
he was a Japanese equity
portfolio manager at
Nomura Investment
Management where he
actively managed assets
for U.S. pension funds.
- --------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly
44
<PAGE>
SERVICE PROVIDERS
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to
January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Fund service providers do not adequately address this prob-
lem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group which analyzed
these issues and implemented system modifications to prepare for the Year
2000 Problem.
..The Investment Adviser has either tested with or received assurances from
the Fund's other service providers to confirm that they are taking reason-
able steps to avoid Year 2000 Problems, and the Investment Adviser contin-
ues to monitor the situation.
..The Investment Adviser has developed broad and comprehensive contingency
plans, as well as event management plans that will help manage the Funds
through the date change by allowing the Investment Adviser to closely moni-
tor and respond to Year 2000-related events as they unfold around the
world.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
45
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions
from net realized capital gains. You may choose to have dividends and dis-
tributions paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for certain ILA Portfolios. See the
Additional Statement.
You may indicate your election on your Account Application. Any changes may
be submitted in writing to Goldman Sachs at any time before the record date
for a particular dividend or distribution. If you do not indicate any
choice, your dividends and distributions will be reinvested automatically in
the applicable Fund.
The election to reinvest dividends and distributions in additional shares
will not affect the tax treatment of such dividends and distributions, which
will be treated as received by you and then used to purchase the shares.
The Funds' investments in foreign securities may be subject to foreign with-
holding taxes. Under certain circumstances, the Funds may elect to pass-
through these taxes to you. If this election is made, a proportionate amount
of such taxes will constitute a distribution to you, which would allow you
either (1) to credit such proportionate amount of foreign taxes against your
U.S. federal income tax liability or (2) to take such amount as an itemized
deduction.
Dividends from net investment income and distributions from net capital
gains are declared and paid annually.
From time to time a portion of a Fund's dividends may constitute a return
of capital.
At the time of an investor's purchase of shares of a Fund, a portion of the
NAV per share may be represented by undistributed income or undistributed
realized appreciation of the Fund's portfolio securities. Therefore, subse-
quent distributions on such shares from such income or realized appreciation
may be taxable to you even if the NAV of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions
(or portions thereof) represent a return of a portion of the purchase price.
46
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' shares.
HOW TO BUY SHARES
How Can I Purchase Class A, Class B And Class C Shares Of The Funds?
You may purchase shares of the Funds through:
.. Goldman Sachs;
.. Authorized Dealers; or
.. Directly from Goldman Sachs Trust (the "Trust").
In order to make an initial investment in a Fund, you must furnish to the
Fund, Goldman Sachs or your Authorized Dealer the information in the Account
Application attached to this Prospectus.
To Open an Account:
.. Complete the enclosed Account Application
.. Mail your payment and Account Application to:
Your Authorized Dealer
- Purchases by check or Federal Reserve draft should be made payable to
your Authorized Dealer
- Your Authorized Dealer is responsible for forwarding payment promptly
(within three business days) to the Fund
or
Goldman Sachs Funds c/o National Financial Data Services, Inc. ("NFDS"),
P.O. Box 219711, Kansas City, MO 64121-9711
- Purchases by check or Federal Reserve draft should be made payable to
Goldman Sachs Funds - (Name of Fund and Class of Shares)
- NFDS will not accept a check drawn on a foreign bank, a third-party
check, cash, money orders, travelers checques or credit card checks
- Federal funds wire, Automated Clearing House Network ("ACH") transfer or
bank wires should be sent to State Street Bank and Trust Company ("State
Street") (each Fund's custodian). Please call the Funds at 1-800-526-
7384 to get detailed instructions on how to wire your money.
47
<PAGE>
What Is My Minimum Investment In The Funds?
<TABLE>
<CAPTION>
Initial Additional
------------------------------------------------------------------------------
<S> <C> <C>
Regular Accounts $1,000 $50
------------------------------------------------------------------------------
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) $250 $50
------------------------------------------------------------------------------
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts $250 $50
------------------------------------------------------------------------------
403(b) Plan Accounts $200 $50
------------------------------------------------------------------------------
SIMPLE IRAs and Education IRAs $50 $50
------------------------------------------------------------------------------
Automatic Investment Plan Accounts $50 $50
------------------------------------------------------------------------------
</TABLE>
What Alternative Sales Arrangements Are Available?
The Funds offer three classes of shares through this Prospectus.
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------
Maximum Amount You Can Buy In The Class A No limit
Aggregate Across Funds
------------------------------------------------
Class B $250,000
------------------------------------------------
Class C $1,000,000
------------------------------------------------------------------------
Initial Sales Charge Class A Applies to purchases of less
than $1 million--varies by
size of investment with a
maximum of 5.5%
------------------------------------------------
Class B None
------------------------------------------------
Class C None
------------------------------------------------------------------------
CDSC Class A 1.00% on certain investments
of $1 million or more if you
sell within 18 months
------------------------------------------------
Class B 6 year declining CDSC with a
maximum of 5%
------------------------------------------------
Class C 1% if shares are redeemed
within 12 months of purchase
------------------------------------------------------------------------
Conversion Feature Class A None
------------------------------------------------
Class B Class B Shares convert to
Class A Shares after 8 years
------------------------------------------------
Class C None
------------------------------------------------------------------------
</TABLE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
.. Refuse to open an account if you fail to (i) provide a social security
number or other taxpayer identification number; or (ii) certify that such
number is correct (if required to do so under applicable law).
.. Reject or restrict any purchase or exchange order by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of
48
<PAGE>
SHAREHOLDER GUIDE
frequent purchases, sales or exchanges of shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of a Fund.
.. Modify or waive the minimum investment amounts.
.. Modify the manner in which shares are offered.
.. Modify the sales charge rates applicable to future purchases of shares.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange shares is deter-
mined by a Fund's NAV and share class. Each class calculates its NAV as fol-
lows:
(Value of Assets of the Class)
NAV = - (Liabilities of the Class)
-------------------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or if accurate
quotations are not readily available, the fair value of the Fund's invest-
ments may be determined in good faith under procedures established by the
Trustees.
.. NAV per share of each share class is calculated by the Fund's custodian on
each business day as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time). Fund shares will not be
priced on any day the New York Stock Exchange is closed.
.. When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form, plus any applicable sales charge.
.. When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form, less any applicable CDSC.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next
49
<PAGE>
determined NAV unless the Trust, in its discretion, makes an adjustment in
light of the nature and materiality of the event, its effect on Fund opera-
tions and other relevant factors.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
What Is The Offering Price Of Class A Shares?
The offering price of Class A Shares of each Fund is the next determined NAV
per share plus an initial sales charge paid to Goldman Sachs at the time of
purchase of shares. The sales charge varies depending upon the amount you
purchase. In some cases, described below, the initial sales charge may be
eliminated altogether, and the offering price will be the NAV per share. The
current sales charges and commissions paid to Authorized Dealers are as fol-
lows:
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 up to (but less than)
$100,000 4.75 4.99 4.00
$100,000 up to (but less than)
$250,000 3.75 3.90 3.00
$250,000 up to (but less than)
$500,000 2.75 2.83 2.25
$500,000 up to (but less than)
$1 million 2.00 2.04 1.75
$1 million or more 0.00** 0.00** ***
---------------------------------------------------------------------------------
</TABLE>
* Dealer's allowance may be changed periodically. During special promo-
tions, the entire sales charge may be allowed to Authorized Dealers.
Authorized Dealers to whom substantially the entire sales charge is
allowed may be deemed to be "underwriters" under the Securities Act of
1933.
** No sales charge is payable at the time of purchase of Class A Shares of
$1 million or more, but a CDSC of 1% may be imposed in the event of
certain redemptions within 18 months of purchase.
*** The Distributor pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of
shares of the Funds equal to 1.00% of the amount under $3 million,
0.50% of the next $2 million, and 0.25% thereafter. The Distributor may
also pay, with respect to all or a portion of the amount purchased, a
commission in accordance with the foregoing schedule to Authorized
Dealers who initiate or are responsible for purchases of $500,000 or
more by certain pension and profit sharing plans, pension funds and
other company-sponsored benefit plans investing in the Funds which sat-
isfy the criteria set forth below in "When Are Class A Shares Not Sub-
ject To A Sales Load?" or $1 million or more by certain "wrap"
accounts. Purchases by such plans will be made at NAV with no initial
sales charge, but if all of the shares held are redeemed within 18
months after the end of the calendar month in which such purchase was
made, a CDSC of 1% may be imposed upon the plan sponsor or the third
party administrator. In addition, Authorized Dealers will remit to the
Distributor such payments received in connection with "wrap" accounts
in the event that shares are redeemed within 18 months after the end of
the calendar month in which the purchase was made.
50
<PAGE>
SHAREHOLDER GUIDE
What Else Do I Need To Know About Class A Shares' CDSC?
Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge. However, if you redeem shares within 18 months
after the end of the calendar month in which the purchase was made, exclud-
ing any period of time in which the shares were exchanged into and remained
invested in an equivalent class of an ILA Portfolio, a CDSC of 1% may be
imposed. The CDSC may not be imposed if your Authorized Dealer enters into
an agreement with the Distributor to return all or an applicable prorated
portion of its commission to the Distributor. The CDSC is waived on redemp-
tions in certain circumstances. See "In What Situations May The CDSC On
Class A, B Or C Shares Be Waived Or Reduced?" below.
When Are Class A Shares Not Subject To A Sales Load?
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to the following individuals and entities:
.. Goldman Sachs, its affiliates or their respective officers, partners,
directors or employees (including retired employees and former partners),
any partnership of which Goldman Sachs is a general partner, any Trustee
or officer of the Trust and designated family members of any of these
individuals;
.. Qualified retirement plans of Goldman Sachs;
.. Trustees or directors of investment companies for which Goldman Sachs or
an affiliate acts as sponsor;
.. Any employee or registered representative of any Authorized Dealer or
their respective spouses, children and parents;
.. Banks, trust companies or other types of depository institutions investing
for their own account or investing for discretionary or non-discretionary
accounts;
.. Any state, county or city, or any instrumentality, department, authority
or agency thereof, which is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of a Fund;
.. Pension and profit sharing plans, pension funds and other company-spon-
sored benefit plans that:
. Buy shares of Goldman Sachs Funds worth $500,000 or more; or
. Have 100 or more eligible employees at the time of purchase; or
. Certify that they expect to have annual plan purchases of shares of
Goldman Sachs Funds of $200,000 or more; or
. Are provided administrative services by certain third-party administra-
tors that have entered into a special service arrangement with Goldman
Sachs relating to such plans; or
. Have at the time of purchase aggregate assets of at least $2,000,000;
51
<PAGE>
.. "Wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards;
.. Registered investment advisers investing for accounts for which they
receive asset-based fees;
.. Accounts over which GSAM or its advisory affiliates have investment dis-
cretion; or
.. Shareholders receiving distributions from a qualified retirement plan
invested in the Goldman Sachs Funds and reinvesting such proceeds in a
Goldman Sachs IRA.
You must certify eligibility for any of the above exemptions on your Account
Application and notify the Fund if you no longer are eligible for the exemp-
tion. The Fund will grant you an exemption subject to confirmation of your
entitlement. You may be charged a fee if you effect your transactions
through a broker or agent.
How Can The Sales Charge On Class A Shares Be Reduced?
.. Right of Accumulation: When buying Class A Shares in Goldman Sachs Funds,
your current aggregate investment determines the initial sales load you
pay. You may qualify for reduced sales charges when the current market
value of holdings (shares at current offering price), plus new purchases,
reaches $50,000 or more. Class A Shares of any of the Goldman Sachs Funds
may be combined under the Right of Accumulation. To qualify for a reduced
sales load, you or your Authorized Dealer must notify the Funds' Transfer
Agent at the time of investment that a quantity discount is applicable.
Use of this service is subject to a check of appropriate records. The
Additional Statement has more information about the Right of Accumulation.
.. Statement of Intention: You may obtain a reduced sales charge by means of
a written Statement of Intention which expresses your non-binding commit-
ment to invest in the aggregate $50,000 or more (not counting reinvest-
ments of dividends and distributions) within a period of 13 months in
Class A Shares of one or more Goldman Sachs Fund. Any investments you make
during the period will receive the discounted sales load based on the full
amount of your investment commitment. If the investment commitment of the
Statement of Intention is not met prior to the expiration of the 13-month
period, the entire amount will be subject to the higher applicable sales
charge. By signing the Statement of Intention, you authorize the Transfer
Agent to escrow and redeem Class A Shares in your account to pay this
additional charge. The Additional Statement has more information about the
Statement of Intention, which you should read carefully.
52
<PAGE>
SHAREHOLDER GUIDE
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
What Is The Offering Price Of Class B Shares?
You may purchase Class B Shares of the Funds at the next determined NAV
without an initial sales charge. However, Class B Shares redeemed within six
years of purchase will be subject to a CDSC at the rates shown in the table
below based on how long you held your shares.
The CDSC schedule is as follows:
<TABLE>
<CAPTION>
CDSC as a
Percentage of
Dollar Amount
Year Since Purchase Subject to CDSC
----------------------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter None
----------------------------------------
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B Shares, including the payment of compensation to Authorized Dealers.
A commission equal to 4% of the amount invested is paid to Authorized Deal-
ers.
What Should I Know About The Automatic Conversion Of Class B Shares?
Class B Shares of a Fund will automatically convert into Class A Shares of
the same Fund at the end of the calendar quarter that is eight years after
the purchase date.
If you acquire Class B Shares of a Fund by exchange from Class B Shares of
another Goldman Sachs Fund, your Class B Shares will convert into Class A
Shares of such Fund based on the date of the initial purchase and the CDSC
schedule of that purchase.
If you acquire Class B Shares through reinvestment of distributions, your
Class B Shares will convert into Class A Shares based on the date of the
initial purchase of the shares on which the distribution was paid.
The conversion of Class B Shares to Class A Shares will not occur at any
time the Funds are advised that such conversions may constitute taxable
events for federal tax purposes, which the Funds believe is unlikely. If
conversions do not occur as a
53
<PAGE>
result of possible taxability, Class B Shares would continue to be subject
to higher expenses than Class A Shares for an indeterminate period.
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
What Is The Offering Price Of Class C Shares?
You may purchase Class C Shares of the Funds at the next determined NAV
without paying an initial sales charge. However, if you redeem Class C
Shares within 12 months of purchase, a CDSC of 1% will normally be deducted
from the redemption proceeds; provided that in connection with purchases by
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans, where all of the Class C Shares are redeemed within 12 months
of purchase, a CDSC of 1% may be imposed upon the plan sponsor or third
party administrator.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers.
An amount equal to 1% of the amount invested is normally paid by the Dis-
tributor to Authorized Dealers.
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B
AND C SHARES
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
.. The CDSC is based on the lesser of the NAV of the shares at the time of
redemption or the original offering price (which is the original NAV).
. No CDSC is charged on shares acquired from reinvested dividends or capi-
tal gains distributions.
. No CDSC is charged on the per share appreciation of your account over
the initial purchase price.
. When counting the number of months since a purchase of Class B or Class
C Shares was made, all payments made during a month will be combined and
considered to have been made on the first day of that month.
.. To keep your CDSC as low as possible, each time you place a request to
sell shares, the Funds will first sell any shares in your account that do
not carry a CDSC and then the shares in your account that have been held
the longest.
54
<PAGE>
SHAREHOLDER GUIDE
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or
Reduced?
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to:
.. Retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-spon-
sored benefit plans (each a "Retirement Plan");
.. The death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a participant or benefi-
ciary in a Retirement Plan;
.. Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
.. Satisfying the minimum distribution requirements of the Code;
.. Establishing "substantially equal periodic payments" as described under
Section 72(t)(2) of the Code;
.. The separation from service by a participant or beneficiary in a Retire-
ment Plan;
.. The death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event;
.. Excess contributions distributed from a Retirement Plan;
.. Distributions from a qualified Retirement Plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; or
.. Redemption proceeds which are to be reinvested in accounts or non-regis-
tered products over which GSAM or its advisory affiliates have investment
discretion.
In addition, Class A, B and C Shares subject to a systematic withdrawal plan
may be redeemed without a CDSC. The Funds reserve the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B
and C Shares and 10% of the value of your Class A Shares.
How Do I Decide Whether To Buy Class A, B Or C Shares?
The decision as to which Class to purchase depends on the amount you invest,
the intended length of the investment and your personal situation.
.. Class A Shares. If you are making an investment of $50,000 or more that
qualifies for a reduced sales charge, you should consider purchasing Class
A Shares.
.. Class B Shares. If you plan to hold your investment for at least six years
and would prefer not to pay an initial sales charge, you might consider
purchasing Class B Shares. By not paying a front-end sales charge, your
entire investment in Class B Shares is available to work for you from the
time you make your initial investment. However, the distribution and serv-
ice fee paid by Class B
55
<PAGE>
Shares will cause your Class B Shares (until conversion to Class A Shares)
to have a higher expense ratio, and thus lower performance and lower divi-
dend payments (to the extent dividends are paid) than Class A Shares. A
maximum purchase limitation of $250,000 in the aggregate normally applies
to Class B Shares.
.. Class C Shares. If you are unsure of the length of your investment or plan
to hold your investment for less than six years and would prefer not to
pay an initial sales charge, you may prefer Class C Shares. By not paying
a front-end sales charge, your entire investment in Class C Shares is
available to work for you from the time you make your initial investment.
However, the distribution and service fee paid by Class C Shares will
cause your Class C Shares to have a higher expense ratio, and thus lower
performance and lower dividend payments (to the extent dividends are paid)
than Class A Shares (or Class B Shares after conversion to Class A
Shares).
Although Class C Shares are subject to a CDSC for only 12 months, Class C
Shares do not have the conversion feature applicable to Class B Shares and
your investment will therefore pay higher distribution fees indefinitely.
A maximum purchase limitation of $1,000,000 in the aggregate normally
applies to purchases of Class C Shares.
Note: Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C Shares.
In addition to Class A, Class B and Class C Shares, each Fund also offers
other classes of shares to investors. These other share classes are subject
to different fees and expenses (which affect performance), have different
minimum investment requirements and are entitled to different services.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
HOW TO SELL SHARES
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Each Fund will redeem its shares upon request on
any business day at the NAV next determined after receipt of such request in
proper form, subject to any applicable CDSC. You may request that redemption
proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
56
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Instructions For Redemptions:
--------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (see details below)
.Mail your request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
--------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege on your Account Application:
.1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time)
.You may redeem up to $50,000 of your shares
within any 7 calendar day period
.Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the
$50,000 limit
--------------------------------------------------------------------
</TABLE>
When Do I Need A Signature Guarantee To Redeem Shares?
A signature guarantee is required if:
.. You are requesting in writing to redeem shares in an amount over $50,000;
.. You would like the redemption proceeds sent to an address that is not your
address of record; or
.. You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
Additional documentation may be required for executors, trustees or corpora-
tions or when deemed appropriate by the Transfer Agent.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor, and the Transfer Agent will not be liable for
any loss you may incur in the event that the Trust accepts unauthorized tel-
ephone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person iden-
tifying himself
57
<PAGE>
or herself as the owner of an account or the owner's registered representa-
tive where the owner has not declined in writing to use this service. Thus,
you risk possible losses if a telephone redemption is not authorized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable proce-
dures specified by the Trust to confirm that such instructions are genuine.
If reasonable procedures are not employed, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
.. All telephone requests are recorded.
.. Proceeds of telephone redemption requests will be sent only to your
address of record or authorized bank account designated in the Account
Application (unless you provide written instructions and a signature guar-
antee, indicating another address or account) and exchanges of shares nor-
mally will be made only to an identically registered account.
.. Telephone redemptions will not be accepted during the 30-day period fol-
lowing any change in your address of record.
.. The telephone redemption option does not apply to shares held in a "street
name" account. "Street name" accounts are accounts maintained and serviced
by your Authorized Dealer. If your account is held in "street name," you
should contact your registered representative of record, who may make tel-
ephone redemptions on your behalf.
.. The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
.. Redemption proceeds will normally be wired on the next business day in
federal funds (for a total of one business day delay), but may be paid up
to three business days following receipt of a properly executed wire
transfer redemption request. If you are selling shares you recently paid
for by check, the Fund will pay you when your check has cleared, which may
take up to 15 days. If the Federal Reserve Bank is closed on the day that
the redemption proceeds would ordinarily be wired, wiring the redemption
proceeds may be delayed one additional business day.
.. A transaction fee of $7.50 may be charged for payments of redemption pro-
ceeds by wire. Your bank may also charge wiring fees. You should contact
your bank directly to learn whether it charges such fees.
58
<PAGE>
SHAREHOLDER GUIDE
.. To change the bank designated on your Account Application, you must send
written instructions (with your signature guaranteed) to the Transfer
Agent.
.. Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you
should deal directly with your bank or any such intermediaries.
By Check: You may elect to receive your redemption proceeds by check.
Redemption proceeds paid by check will normally be mailed to the address of
record within three business days of a properly executed redemption request.
If you are selling shares you recently paid for by check, the Fund will pay
you when your check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
.. Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
.. Redeem your shares if your account balance is less than $50 as a result of
a redemption. The Funds will not redeem your shares on this basis if the
value of your account falls below the minimum account balance solely as a
result of market conditions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
.. Redeem your shares in other circumstances determined by the Board of
Trustees to be in the best interests of the Trust.
.. Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs
Fund?
You may redeem shares of a Fund and reinvest a portion or all of the redemp-
tion proceeds (plus any additional amounts needed to round off purchases to
the nearest full share) at NAV. To be eligible for this privilege, you must
hold the shares you want to redeem for at least 30 days and you must rein-
vest the share proceeds within 90 days after you redeem. You may reinvest as
follows:
.. Class A or B Shares--Class A Shares of the same Fund or any other Goldman
Sachs Fund
.. Class C Shares--Class C Shares of the same Fund or any other Goldman Sachs
Fund
59
<PAGE>
.. You should obtain and read the applicable prospectuses before investing in
any other Funds.
.. If you pay a CDSC upon redemption of Class A or Class C Shares and then
reinvest in Class A or Class C Shares as described above, your account
will be credited with the amount of the CDSC you paid. The reinvested
shares will, however, continue to be subject to a CDSC. The holding period
of the shares acquired through reinvestment will include the holding
period of the redeemed shares for purposes of computing the CDSC payable
upon a subsequent redemption. For Class B Shares, you may reinvest the
redemption proceeds in Class A Shares at NAV but the amount of the CDSC
paid upon redemption of the Class B Shares will not be credited to your
account.
.. The reinvestment privilege may be exercised at any time in connection with
transactions in which the proceeds are reinvested at NAV in a tax-shel-
tered retirement plan. In other cases, the reinvestment privilege may be
exercised once per year upon receipt of a written request.
.. You may be subject to tax as a result of a redemption. You should consult
your tax adviser concerning the tax consequences of a redemption and rein-
vestment.
Can I Exchange My Investment From One Fund To Another?
You may exchange shares of a Fund at NAV without the imposition of an ini-
tial sales charge or CDSC at the time of exchange for shares of the same
class or an equivalent class of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days'
written notice to you.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names and Class of Shares
.The dollar amount you want to exchange
.Obtain a signature guarantee (see details above)
.Mail the request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
or for overnight delivery -
Goldman Sachs Funds
c/o NFDS
330 West 9th St.
Poindexter Bldg., 1st Floor
Kansas City, MO 64105
-------------------------------------------------------------------
By Telephone: If you have not declined the telephone exchange
privilege on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
-------------------------------------------------------------------
</TABLE>
60
<PAGE>
SHAREHOLDER GUIDE
You should keep in mind the following factors when making or considering an
exchange:
.. You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.. Six free exchanges are allowed in each 12 month period.
.. A $12.50 fee may be charged for each subsequent exchange.
.. There is no charge for exchanges made pursuant to the Automatic Exchange
Program.
.. The exchanged shares may later be exchanged for shares of the same class
(or an equivalent class) of the original Fund at the next determined NAV
without the imposition of an initial sales charge or CDSC if the amount in
the Fund resulting from such exchanges is less than the largest amount on
which you have previously paid the applicable sales charge.
.. When you exchange shares subject to a CDSC, no CDSC will be charged at
that time. The exchanged shares will be subject to the CDSC of the shares
originally held. For purposes of determining the amount of the applicable
CDSC, the length of time you have owned the shares will be measured from
the date you acquired the original shares subject to a CDSC and will not
be affected by a subsequent exchange.
.. Eligible investors may exchange certain classes of shares for another
class of shares of the same Fund. For further information, call Goldman
Sachs Funds at 1-800-526-7384.
.. All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund.
.. Exchanges are available only in states where exchanges may be legally
made.
.. It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
.. Goldman Sachs and NFDS may use reasonable procedures described under "What
Do I Need to Know About Telephone Redemption Requests?" in an effort to
prevent unauthorized or fraudulent telephone exchange requests.
.. Telephone exchanges normally will be made only to an identically regis-
tered account. Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification num-
bers only if the exchange instructions are in writing and accompanied by a
signature guarantee.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
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<PAGE>
SHAREHOLDER SERVICES
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
You may be able to make systematic cash investments through your bank via
ACH transfer or your checking account via bank draft each month. Forms for
this option are available from Goldman Sachs, your Authorized Dealer or you
may check the appropriate box on the Account Application.
Can My Dividends And Distributions From A Fund Be Invested In Other Funds?
You may elect to cross-reinvest dividends and capital gain distributions
paid by a Fund in shares of the same class or an equivalent class of any
other Goldman Sachs Fund.
.. Shares will be purchased at NAV.
.. No initial sales charge or CDSC will be imposed.
.. You may elect cross-reinvestment into an identically registered account or
an account registered in a different name or with a different address,
social security number or taxpayer identification number provided that the
account has been properly established, appropriate signature guarantees
obtained and the minimum initial investment has been satisfied.
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
You may elect to exchange automatically a specified dollar amount of shares
of a Fund for shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
.. Shares will be purchased at NAV.
.. No initial sales charge is imposed.
.. Shares subject to a CDSC acquired under this program may be subject to a
CDSC at the time of redemption from the Fund into which the exchange is
made depending upon the date and value of your original purchase.
.. Automatic exchanges are made monthly on the 15th day of each month or the
first business day thereafter.
.. Minimum dollar amount: $50 per month.
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
Cross-reinvestments and automatic exchanges are subject to the following
conditions:
.. You must hold $5,000 or more in the Fund which is paying the dividend or
from which the exchange is being made.
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<PAGE>
SHAREHOLDER GUIDE
.. You must invest an amount in the Fund into which cross-reinvestments or
automatic exchanges are being made that is equal to that Fund's minimum
initial investment or continue to cross-reinvest or to make automatic
exchanges until such minimum initial investment is met.
.. You should obtain and read the prospectus of the Fund into which dividends
are invested or automatic exchanges are made.
Can I Have Automatic Withdrawals Made On A Regular Basis?
You may draw on your account systematically via check or ACH transfer in any
amount of $50 or more.
.. It is normally undesirable to maintain a systematic withdrawal plan at the
same time that you are purchasing additional Class A, Class B or Class C
Shares because of the sales charge imposed on your purchases of Class A
Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares.
.. You must have a minimum balance of $5,000 in a Fund.
.. Checks are mailed on or about the 25th day of each month.
.. Each systematic withdrawal is a redemption and therefore a taxable trans-
action.
.. The CDSC applicable to Class A, Class B or Class C Shares redeemed under
the systematic withdrawal plan may be waived.
What Types of Reports Will I Be Sent Regarding My Investment?
You will be provided with a printed confirmation of each transaction in your
account and an individual quarterly account statement. A year-to-date state-
ment for your account will be provided upon request made to Goldman Sachs.
If your account is held in "street name" you may receive your statement and
confirmation on a different schedule.
You will also receive an annual shareholder report containing audited finan-
cial statements and a semi-annual shareholder report. If you have consented
to the delivery of a single copy of shareholder reports, prospectuses and
other information to all shareholders who share the same mailing address
with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds by phone at 1-800-526-7384 or by mail at Goldman Sachs
Funds, 4900 Sears Tower--60th Floor, Chicago, IL 60606-6372. The Funds will
begin sending individual copies to you within 30 days after receipt of your
revocation.
The Funds do not generally provide sub-accounting services.
What Should I Know When I Purchase Shares Through An Authorized Dealer?
Authorized Dealers and other financial intermediaries may provide varying
arrangements for their clients to purchase and redeem Fund shares. They may
charge additional fees not described in this Prospectus to their customers
for such services.
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<PAGE>
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distribu-
tions relating to your account will be performed by the Authorized Dealer,
and not by the Fund and its Transfer Agent. Since the Funds will have no
record of your transactions, you should contact the Authorized Dealer to
purchase, redeem or exchange shares, to make changes in or give instructions
concerning the account or to obtain information about your account. The
transfer of shares in a "street name" account to an account with another
dealer or to an account directly with the Fund involves special procedures
and will require you to obtain historical purchase information about the
shares in the account from the Authorized Dealer.
Authorized Dealers and other financial intermediaries may be authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust, to
designate other intermediaries to accept such orders. In these cases:
.. A Fund will be deemed to have received an order that is in proper form
when the order is accepted by an Authorized Dealer or intermediary on a
business day, and the order will be priced at the Fund's NAV per share
(adjusted for any applicable sales charge) next determined after such
acceptance.
.. Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Funds within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary to learn whether
it is authorized to accept orders for the Trust.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of
the amount invested.
DISTRIBUTION SERVICES AND FEES
What Are The Different Distribution And Service Fees Paid By Class A, B and
C Shares?
The Trust has adopted distribution and service plans (each a "Plan") under
which Class A, Class B and Class C Shares bear distribution and service fees
paid to Authorized Dealers and Goldman Sachs. If the fees received by
Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may
realize a profit from their arrangements. Goldman Sachs pays the distribu-
tion and service fees on a quarterly basis.
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<PAGE>
SHAREHOLDER GUIDE
Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund
for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributed to
Class A, Class B and Class C Shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types of
such charges.
The distribution fees are subject to the requirements of Rule 12b-1 under
the Act, and may be used (among other things) for:
.. Compensation paid to and expenses incurred by Authorized Dealers, Goldman
Sachs and their respective officers, employees and sales representatives;
.. Commissions paid to Authorized Dealers;
.. Allocable overhead;
.. Telephone and travel expenses;
.. Interest and other costs associated with the financing of such compensa-
tion and expenses;
.. Printing of prospectuses for prospective shareholders;
.. Preparation and distribution of sales literature or advertising of any
type; and
.. All other expenses incurred in connection with activities primarily
intended to result in the sale of Class A, Class B and Class C Shares.
In connection with the sale of Class C Shares, Goldman Sachs normally begins
paying the 0.75% distribution fee as an ongoing commission to Authorized
Dealers after the shares have been held for one year.
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
Under the Plans, Goldman Sachs is also entitled to receive a separate fee
equal on an annual basis to 0.25% of each Fund's average daily net assets
attributed to Class B or Class C Shares. This fee is for personal and
account maintenance services, and may be used to make payments to Goldman
Sachs, Authorized Dealers and their officers, sales representatives and
employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or simi-
lar services not otherwise provided on behalf of the Funds. If the fees
received by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman
Sachs may realize a profit from this arrangement.
In connection with the sale of Class C Shares, Goldman Sachs normally begins
paying the 0.25% ongoing service fee to Authorized Dealers after the shares
have been held for one year.
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<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Funds are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Funds' income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. A percentage
of the Funds' dividends paid to corporate shareholders may be eligible for
the corporate dividends-received deduction. The Funds will inform sharehold-
ers of the source and tax status of all distributions promptly after the
close of each calendar year.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds may
deduct these taxes in computing their taxable income.
If you buy shares of a Fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a portion
of your investment. This is known as "buying a dividend."
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<PAGE>
TAXATION
TAXES ON SALES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
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<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with equity securities.
"Equity securities" include common stocks, preferred stocks, interests in
real estate investment trusts, convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, warrants and stock pur-
chase rights. In general, stock values fluctuate in response to the activi-
ties of individual companies and in response to general market and economic
conditions. Accordingly, the value of the stocks that a Fund holds may
decline over short or extended periods. The stock markets tend to be cycli-
cal, with periods when stock prices generally rise and periods when prices
generally decline. The volatility of equity securities means that the value
of your investment in the Funds may increase or decrease. As of the date of
this Prospectus, certain stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue.
To the extent that a Fund invests in fixed-income securities, that Fund will
also be subject to the risks associated with its fixed-income securities.
These risks include interest rate risk, credit risk and call/extension risk.
In general, interest rate risk involves the risk that when interest rates
decline, the market value of fixed-income securities tends to increase (al-
though many mortgage related securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that an issuer
could default on its obligations, and a Fund will not recover its invest-
ment. Call risk and extension risk are normally present in mortgage-backed
securities and asset-backed securities. For example, homeowners have the
option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (exten-
sion risk). In general, if interest rates on new mortgage loans fall suffi-
ciently below the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease. In
either case, a change in the prepayment rate can result in losses to invest-
ors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turn-
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<PAGE>
APPENDIX A
over (100% or more) involves correspondingly greater expenses which must be
borne by a Fund and its shareholders. The portfolio turnover rate is calcu-
lated by dividing the lesser of the dollar amount of sales or purchases of
portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase
of one year or less. See "Financial Highlights" in Appendix B for a state-
ment of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of
your then current financial position and needs.
B. Other Portfolio Risks
Risks of Investing in Small Capitalization Companies and REITs. Each Fund
may invest in small capitalization companies and REITs. Investments in small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the rea-
sons for the greater price volatility of these investments are the less cer-
tain growth prospects of smaller firms and the lower degree of liquidity in
the markets for such securities. Small capitalization companies and REITs
may be thinly traded and may have to be sold at a discount from current mar-
ket prices or in small lots over an extended period of time. In addition,
these securities are subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities in these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic or market conditions, or adverse investor
perceptions whether or not accurate. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Small capitalization companies and REITs include "unseasoned" issuers
that do not have an established financial history; often have limited prod-
uct lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of
bankruptcy. Transaction costs for these investments are often higher than
those of larger capitalization companies. Investments
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<PAGE>
in small capitalization companies and REITs may be more difficult to price
precisely than other types of securities because of their characteristics
and lower trading volumes.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
assets held by the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may
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APPENDIX A
be less publicly available information about a foreign issuer than about a
U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and secu-
rities of many foreign issuers are less liquid and more volatile than secu-
rities of comparable domestic issuers. Efforts in foreign countries to reme-
diate potential Year 2000 problems are not as extensive as those in the
United States. As a result, the operations of foreign markets, foreign
issuers and foreign governments may be disrupted by the Year 2000 Problem,
and the investment portfolio of a Fund may be adversely affected. Further-
more, with respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of with-
holding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, and political or social instability or diplomatic developments which
could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts
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<PAGE>
evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not neces-
sarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
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APPENDIX A
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by the Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
A Fund's investments in emerging countries are subject to the risk that the
liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor per-
ceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Invest-
73
<PAGE>
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Derivative Investments. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and currency transactions involve additional risk of
loss. Loss can result from a lack of correlation between changes in the
value of derivative instruments and the portfolio assets (if any) being
hedged, the potential illiquidity of the markets for derivative instruments,
or the risks arising from margin requirements and related leverage factors
associated with such transactions. The use of these management techniques
also involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices, interest rates or currency
prices. Each Fund may also invest in derivative investments for non-hedging
purposes (that is, to seek to increase total return). Investing for non-
hedging purposes is considered a speculative practice and presents even
greater risk of loss.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
74
<PAGE>
APPENDIX A
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. government securities
..Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
..Certificates of deposit
..Bankers' acceptances
..Repurchase agreements
..Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
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<PAGE>
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
Convertible Securities. Each Fund may invest in convertible securities. Con-
vertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. A Fund may, to the extent consistent with its
investment policies, purchase or sell foreign currencies on a cash basis or
through forward contracts. A forward contract involves an obligation to pur-
chase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, certain Funds may also
enter into such transactions to seek to increase total return, which is con-
sidered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
76
<PAGE>
APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities. Each Fund may invest in structured securities. Struc-
tured securities are securities whose value is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative
change in two or more References. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities and may be more vol-
atile, less liquid and more difficult to price accurately than less complex
securities.
REITs. Each Fund may invest in REITS. REITS are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.
The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable income tax
treatment. REITs are also subject to risks generally associated with invest-
ments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other
77
<PAGE>
respects, these risks may be heightened. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which they may invest or on any securities index comprised of
securities in which they may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the-counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
government securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund
78
<PAGE>
APPENDIX A
invests in foreign securities, currency exchange rates, or to otherwise man-
age their term structures, sector selection and durations in accordance with
their investment objectives and policies. Each Fund may also enter into
closing purchase and sale transactions with respect to such contracts and
options. A Fund will engage in futures and related options transactions for
bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or to seek to increase total return to the extent
permitted by such regulations. A Fund may not purchase or sell futures con-
tracts or purchase or sell related options to seek to increase total return,
except for closing purchase or sale transactions, if immediately thereafter
the sum of the amount of initial margin deposits and premiums paid on the
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
Equity Swaps. Each Fund may invest in equity swaps. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other compo-
nents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are
79
<PAGE>
derivatives and their value can be very volatile. To the extent that the
Investment Adviser does not accurately analyze and predict the potential
relative fluctuation of the components swapped with another party, a Fund
may suffer a loss. The value of some components of an equity swap (such as
the dividends on a common stock) may also be sensitive to changes in inter-
est rates. Furthermore, a Fund may suffer a loss if the counterparty
defaults.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. When-issued
securities are securities that have been authorized, but not yet issued.
When-issued securities are purchased in order to secure what is considered
to be an advantageous price and yield to the Fund at the time of entering
into the transaction. A forward commitment involves the entering into a con-
tract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash
80
<PAGE>
APPENDIX A
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loan continuously with cash, cash equivalents, U.S.
government securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market deprecia-
tion or appreciation, and a Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund
(including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
Short Sales Against-the-Box. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Preferred Stock, Warrants and Rights. Each Fund may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Other Investment Companies. Each Fund may invest in securities of other
investment companies (including SPDRs and WEBs, as defined below) subject to
statutory limitations prescribed by the Act. These limitations include a
prohibition on
81
<PAGE>
any Fund acquiring more than 3% of the voting shares of any other investment
company, and a prohibition on investing more than 5% of a Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. A Fund will indi-
rectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Such other investment com-
panies will have investment objectives, policies and restrictions substan-
tially similar to those of the acquiring Fund and will be subject to sub-
stantially the same risks.
..Standard & Poor's Depository Receipts. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
..World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specified countries.
WEBS are listed on the AMEX and were initially offered to the public in
1996. The market prices of WEBS are expected to fluctuate in accordance
with both changes in the NAVs of their underlying indices and supply and
demand of WEBS on the AMEX. To date, WEBS have traded at relatively modest
discounts and premiums to their NAVs. However, WEBS have a limited operat-
ing history and information is lacking regarding the actual performance and
trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the
AMEX necessary to maintain the listing of WEBS will continue to be met or
will remain unchanged. In the event substantial market or other disruptions
affecting WEBS should occur in the future, the liquidity and value of a
Fund's shares could also be substantially and adversely affected. If such
disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
Unseasoned Companies. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments
in unseasoned compa -
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APPENDIX A
nies are more speculative and entail greater risk than do investments in
companies with an established operating record.
Corporate Debt Obligations. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of corporations to pay
interest and repay principal, and include securities issued by banks and
other financial institutions. Each Fund may invest in corporate debt obliga-
tions issued by U.S. and certain non-U.S. issuers which issue securities
denominated in the U.S. dollar (including Yankee and Euro obligations). In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions and suprana-
tional entities (i.e., the World Bank, the International Monetary Fund,
etc.).
Bank Obligations. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be gen-
eral obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulations. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. government securities and related custodial receipts. U.S.
government securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. government securities may be supported by (a) the
full faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association); (c) the discretionary authority of the U.S. government to pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")); or (d) only the credit of the issuer. U.S. government
securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. government securities, where the interest and principal compo-
nents of stripped U.S. government securities are traded independently.
Interests in U.S. government securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments
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<PAGE>
or both on certain notes or bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. For certain securities law purposes, custodial
receipts are not considered obligations of the U.S. government.
Mortgage-Backed Securities. Certain Funds may invest in mortgage-backed
securities. Mortgage-backed securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-backed securities can be backed by either
fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. Privately issued
mortgage-backed securities are normally structured with one or more types of
"credit enhancement." However, these mortgage-backed securities typically do
not have the same credit standing as U.S. government guaranteed mortgage-
backed securities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other mortgage-backed securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment and invests in cer-
tain mortgages principally secured by interests in real property and other
permitted investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other mortgage-backed securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Certain Funds may invest in asset-backed securi-
ties. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often sub-
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APPENDIX A
ject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the under-
lying loans. During periods of declining interest rates, prepayment of loans
underlying asset-backed securities can be expected to accelerate. According-
ly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Asset-backed securities present credit risks that are not presented by
mortgage-backed securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Borrowings. Each Fund can borrow money from banks and other financial insti-
tutions in amounts not exceeding one-third of its total assets for temporary
or emergency purposes. A Fund may not make additional investments if
borrowings exceed 5% of its total assets.
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Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized and
beginning income unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $ 9.98 $ 0.05 $ 0.84
1999 - Class B Shares 9.95 0.01 0.85
1999 - Class C Shares 9.96 0.01 0.85
1999 - Institutional Shares 10.06 0.09 0.85
1999 - Service Shares 10.02 0.01 0.90
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 9.22 (0.01) 0.79
1999 - Class B Shares 9.21 -- 0.74
1999 - Class C Shares 9.22 -- 0.74
1999 - Institutional Shares 9.24 0.05 0.80
1999 - Service Shares 9.23 -- 0.81
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced August
15, 1997) 10.00 -- (0.78)
1998 - Class B Shares (commenced August
15, 1997) 10.00 (0.02) (0.77)
1998 - Class C Shares (commenced August
15, 1997) 10.00 (0.02) (0.76)
1998 - Institutional Shares (commenced
August 15, 1997) 10.00 0.02 (0.76)
1998 - Service Shares (commenced August
15, 1997) 10.00 0.01 (0.78)
- ------------------------------------------------------------------------------
</TABLE>
See page 113 for all footnotes.
86
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
------------------------
Net
increase Net
(decrease) Net asset assets
From net From net in net value, at end
investment realized asset end of Total of period
income gains value period return/b/ (in 000s)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ 0.89 $10.87 8.92%d $114,502
-- -- 0.86 10.81 8.64d 9,171
-- -- 0.86 10.82 8.63d 4,913
-- -- 0.94 11.00 9.34d 271,212
-- -- 0.91 10.93 9.08d 8
- ---------------------------------------------------------------------------------
(0.02) -- 0.76 9.98 8.37 110,338
-- -- 0.74 9.95 8.03 7,401
-- -- 0.74 9.96 8.03 3,742
(0.03) -- 0.82 10.06 9.20 280,731
(0.02) -- 0.79 10.02 8.74 22
- ---------------------------------------------------------------------------------
-- -- (0.78) 9.22 (7.66)d 7,087
-- -- (0.79) 9.21 (7.90)d 2,721
-- -- (0.78) 9.22 (7.80)d 1,608
(0.02) -- (0.76) 9.24 (7.45)d 17,719
-- -- (0.77) 9.23 (7.70)d 1
- ---------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
CORE INTERNATIONAL EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of
net
Ratio of Ratio of net investment
net investment Ratio of income
expenses income (loss) expenses (loss) to Portfolio
to average to average to average average turnover
net assets net assets net assets net assets rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.66%c 0.78%c 1.76%c 0.68%c 64.97%d
1999 - Class B Shares 2.16c 0.26c 2.26c 0.16c 64.97d
1999 - Class C Shares 2.16c 0.23c 2.26c 0.13c 64.97d
1999 - Institutional
Shares 1.01c 1.43c 1.11c 1.33c 64.97d
1999 - Service Shares 1.51c 0.07c 1.61c (0.03)c 64.97d
- ----------------------------------------------------------------------------------
For the Year Ended
January 31,
1999 - Class A Shares 1.63 (0.11) 1.94 (0.42) 194.61
1999 - Class B Shares 2.08 (0.03) 2.39 (0.34) 194.61
1999 - Class C Shares 2.08 (0.04) 2.39 (0.35) 194.61
1999 - Institutional
Shares 1.01 0.84 1.32 0.53 194.61
1999 - Service Shares 1.50 0.02 1.81 (0.29) 194.61
- ----------------------------------------------------------------------------------
For the Period Ended
January 31,
1998 - Class A Shares
(commenced August 15,
1997) 1.50c (0.27)c 4.87c (3.90)c 25.16d
1998 - Class B Shares
(commenced August 15,
1997) 2.00c (0.72)c 5.12c (3.84)c 25.16d
1998 - Class C Shares
(commenced August 15,
1997) 2.00c (0.73)c 5.12c (3.85)c 25.16d
1998 - Institutional
Shares (commenced
August 15, 1997) 1.00c 0.59 c 4.12c (2.53)c 25.16d
1998 - Service Shares
(commenced August 15,
1997) 1.50c 0.26 c 4.62c (2.86)c 25.16d
- ----------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
[This page intentionally left blank]
89
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $21.92 $ 0.04 $ 1.16
1999 - Class B Shares 21.63 (0.02) 1.12
1999 - Class C Shares 21.45 (0.03) 1.12
1999 - Institutional Shares 22.20 0.12e 1.17e
1999 - Service Shares 21.93 0.06 1.15
- ------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 19.85 (0.06) 3.24
1999 - Class B Shares 19.70 (0.17) 3.21
1999 - Class C Shares 19.56 (0.15) 3.15
1999 - Institutional Shares 19.97 0.03 3.31
1999 - Service Shares 19.84 (0.04) 3.24
- ------------------------------------------------------------------------------
1998 - Class A Shares 19.32 0.03 2.04
1998 - Class B Shares 19.24 (0.08) 2.02
1998 - Class C Shares (commenced
August 15, 1997) 22.60 (0.04) (1.38)
1998 - Institutional Shares 19.40 0.10 2.11
1998 - Service Shares 19.34 0.02 2.06
- ------------------------------------------------------------------------------
1997 - Class A Shares 17.20 0.10 2.23
1997 - Class B Shares (commenced May 1,
1996) 18.91 (0.06) 0.60
1997 - Institutional Shares (commenced
February 7, 1996) 17.45 0.04 2.15
1997 - Service Shares (commenced March 6,
1996) 17.70 (0.02) 1.87
- ------------------------------------------------------------------------------
1996 - Class A Shares 14.52 0.13 4.00
- ------------------------------------------------------------------------------
</TABLE>
90
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gain value of period return/b/ (in 000s) net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1.20 $23.12 5.47%d $943,473 1.79%c
-- -- -- 1.10 22.73 5.09d 68,691 2.29c
-- -- -- 1.09 22.54 5.08d 11,241 2.29c
-- -- -- 1.29 23.49 5.81d 180,564 1.14c
-- -- -- 1.21 23.14 5.52d 3,852 1.64c
- ------------------------------------------------------------------------------------------------
-- -- (1.11) 2.07 21.92 16.39 947,973 1.73
-- -- (1.11) 1.93 21.63 15.80 69,231 2.24
-- -- (1.11) 1.89 21.45 15.70 11,619 2.24
-- -- (1.11) 2.23 22.20 17.09 111,315 1.13
-- -- (1.11) 2.09 21.93 16.49 3,568 1.63
- ------------------------------------------------------------------------------------------------
-- (0.30) (1.24) 0.53 19.85 11.12 697,590 1.67
-- (0.25) (1.23) 0.46 19.70 10.51 55,324 2.20
-- (0.38) (1.24) (3.04) 19.56 (5.92)d 3,369 2.27c
(0.07) (0.33) (1.24) 0.57 19.97 11.82 56,263 1.08
-- (0.35) (1.23) 0.50 19.84 11.25 3,035 1.55
- ------------------------------------------------------------------------------------------------
-- -- (0.21) 2.12 19.32 13.48 536,283 1.69
-- -- (0.21) 0.33 19.24 2.83d 19,198 2.23c
(0.03) -- (0.21) 1.95 19.40 12.53d 68,374 1.10c
-- -- (0.21) 1.64 19.34 10.42d 674 1.60c
- ------------------------------------------------------------------------------------------------
(0.58) -- (0.87) 2.68 17.20 28.68 330,860 1.52
- ------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE>
INTERNATIONAL EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary
expense limitations
--------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average to average net turnover
assets net assets assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 0.31%c 1.84%c 0.26%c 61.10%d
1999 - Class B Shares (0.19)c 2.34c (0.24)c 61.10d
1999 - Class C Shares (0.26)c 2.34c (0.31)c 61.10d
1999 - Institutional
Shares 0.89c 1.19c 0.84c 61.10d
1999 - Service Shares 0.47c 1.69c 0.42c 61.10d
- -------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.28) 1.82 (0.37) 113.79
1999 - Class B Shares (0.79) 2.32 (0.87) 113.79
1999 - Class C Shares (0.98) 2.32 (1.06) 113.79
1999 - Institutional
Shares 0.23 1.21 0.15 113.79
1999 - Service Shares (0.18) 1.71 (0.26) 113.79
- -------------------------------------------------------------------------------
1998 - Class A Shares (0.27) 1.80 (0.40) 40.82
1998 - Class B Shares (0.90) 2.30 (1.00) 40.82
1998 - Class C Shares
(commenced August 15,
1997) (1.43)c 2.37c (1.53)c 40.82
1998 - Institutional
Shares 0.30 1.18 0.20 40.82
1998 - Service Shares (0.36) 1.65 (0.46) 40.82
- -------------------------------------------------------------------------------
1997 - Class A Shares (0.07) 1.88 (0.26) 38.01
1997 - Class B Shares
(commenced May 1, 1996) (0.97)c 2.38c (1.12)c 38.01
1997 - Institutional
Shares (commenced
February 7, 1996) 0.43c 1.25c 0.28c 38.01
1997 - Service Shares
(commenced March 6,
1996) (0.40)c 1.75c (0.55)c 38.01
- -------------------------------------------------------------------------------
1996 - Class A Shares 0.26 1.77 0.01 68.48
- -------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
[This page intentionally left blank]
93
<PAGE>
EUROPEAN EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period loss gain (loss)
- -----------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $12.20 $0.05 $(0.50)
1999 - Class B Shares 12.19 0.03 (0.51)
1999 - Class C Shares 12.20 0.04 (0.52)
1999 - Institutional Shares 12.23 0.18 (0.59)
1999 - Service Shares 12.20 0.08 (0.52)
- -----------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced October
1, 1998) 10.00 (0.03) 2.23
1999 - Class B Shares (commenced October
1, 1998) 10.00 (0.02) 2.21
1999 - Class C Shares (commenced October
1, 1998) 10.00 (0.01) 2.21
1999 - Institutional Shares (commenced
October 1, 1998) 10.00 (0.01) 2.24
1999 - Service Shares (commenced October
1, 1998) 10.00 (0.03) 2.23
- -----------------------------------------------------------------------------
</TABLE>
94
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- ------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $(0.45) $11.75 (3.69)%d $74,862 1.79%c
-- -- -- (0.48) 11.71 (3.94)d 879 2.29c
-- -- -- (0.48) 11.72 (3.93)d 388 2.29c
-- -- -- (0.41) 11.82 (3.35)d 5,965 1.14c
-- -- -- (0.44) 11.76 (3.61)d 2 1.64c
- -----------------------------------------------------------------------------------------------
-- -- -- 2.20 12.20 22.00d 61,151 1.79c
-- -- -- 2.19 12.19 21.90d 432 2.29c
-- -- -- 2.20 12.20 22.00d 587 2.29c
-- -- -- 2.23 12.23 22.30d 12,740 1.14c
-- -- -- 2.20 12.20 22.00d 2 1.64c
- -----------------------------------------------------------------------------------------------
</TABLE>
95
<PAGE>
EUROPEAN EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- ------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares 0.80%c 2.29%c 0.30%c 54.98%d
1999 - Class B Shares 0.43c 2.79c (0.07)c 54.98d
1999 - Class C Shares 0.42c 2.79c (0.08)c 54.98d
1999 - Institutional
Shares 1.53c 1.64c 1.03c 54.98d
1999 - Service Shares 1.10c 2.14c 0.60c 54.98d
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares
(commenced October 1,
1998) (1.19)c 2.80c (2.20)c 70.77d
1999 - Class B Shares
(commenced October 1,
1998) (1.78)c 3.30c (2.79)c 70.77d
1999 - Class C Shares
(commenced October 1,
1998) (1.83)c 3.30c (2.84)c 70.77d
1999 - Institutional
Shares (commenced Octo-
ber 1, 1998) (0.33)c 2.15c (1.34)c 70.77d
1999 - Service Shares
(commenced October 1,
1998) (0.69)c 2.65c (1.70)c 70.77d
- ------------------------------------------------------------------------------
</TABLE>
96
<PAGE>
[This page intentionally left blank]
97
<PAGE>
JAPANESE EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period loss gains
- ----------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $11.06 $(0.06) $5.24
1999 - Class B Shares 11.03 (0.09) 5.20
1999 - Class C Shares 11.04 (0.08) 5.20
1999 - Institutional Shares 11.10 (0.03) 5.29
1999 - Service Shares 11.04 (0.06) 5.24
- ----------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced May 1,
1998) 10.00 (0.06) 1.12
1999 - Class B Shares (commenced May 1,
1998) 10.00 (0.08) 1.11
1999 - Class C Shares (commenced May 1,
1998) 10.00 (0.09) 1.13
1999 - Institutional Shares (commenced
May 1, 1998) 10.00 (0.02) 1.13
1999 - Service Shares (commenced May 1,
1998) 10.00 (0.05) 1.09
- ----------------------------------------------------------------------------
</TABLE>
98
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- -------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $5.18 $16.24 46.84%d $34,279 1.70%c
-- -- -- 5.11 16.14 46.33d 4,219 2.20c
-- -- -- 5.12 16.16 46.41d 3,584 2.20c
-- -- -- 5.26 16.36 47.40d 22,709 1.05c
-- -- -- 5.18 16.22 46.92d 3 1.55c
- ----------------------------------------------------------------------------------------------
-- -- -- 1.06 11.06 10.60d 8,391 1.64c
-- -- -- 1.03 11.03 10.30d 1,427 2.15c
-- -- -- 1.04 11.04 10.40d 284 2.15c
-- (0.01) -- 1.10 11.10 11.06d 11,418 1.03c
-- -- -- 1.04 11.04 10.43d 2 1.53c
- ----------------------------------------------------------------------------------------------
</TABLE>
99
<PAGE>
JAPANESE EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio of Ratio of
net investment Ratio of net investment
loss to expenses to loss to average Portfolio
average net average net turnover
assets net assets assets rate
- ---------------------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares (1.17)%c 2.62%c (2.09)%c 44.83%d
1999 - Class B Shares (1.57)c 3.12c (2.49)c 44.83d
1999 - Class C Shares (1.81)c 3.12c (2.73)c 44.83d
1999 - Institutional
Shares (0.37)c 1.97c (1.29)c 44.83d
1999 - Service Shares (0.74)c 2.47c (1.66)c 44.83d
- ---------------------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares
(commenced May 1, 1998) (1.20)c 4.18c (3.74)c 53.29d
1999 - Class B Shares
(commenced May 1, 1998) (1.76)c 4.69c (4.30)c 53.29d
1999 - Class C Shares
(commenced May 1, 1998) (1.69)c 4.69c (4.23)c 53.29d
1999 - Institutional
Shares (commenced May 1,
1998) (0.36)c 3.57c (2.90)c 53.29d
1999 - Service Shares
(commenced May 1, 1998) (0.68)c 4.07c (3.22)c 53.29d
- ---------------------------------------------------------------------------------------------
</TABLE>
100
<PAGE>
[This page intentionally left blank]
101
<PAGE>
INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period loss gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $10.62 $(0.03) $2.65
1999 - Class B Shares 10.61 (0.08)e 2.66e
1999 - Class C Shares 10.61 (0.08)e 2.66e
1999 - Institutional Shares 10.66 -- 2.69
1999 - Service Shares 10.61 (0.02) 2.65
- -------------------------------------------------------------------------------
For the Period Ended January 31,
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
1999 - Service Shares (commenced May 1,
1998) 10.00 (0.02) 0.63
- -------------------------------------------------------------------------------
</TABLE>
102
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
Ratio of
In excess Net assets net
From net of net Net increase Net asset at end of expenses
investment investment From net in net asset value, end Total period to average
income loss realized gains value of period return/b/ (in 000s) net assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $2.62 $13.24 24.67%d $69,458 2.05%c
-- -- -- 2.58 13.19 24.32d 303 2.55c
-- -- -- 2.58 13.19 24.32d 419 2.55c
-- -- -- 2.69 13.35 25.24d 65,772 1.40c
-- -- -- 2.63 13.24 24.79d 2 1.90c
- -----------------------------------------------------------------------------------------------
-- -- -- 0.62 10.62 6.20d 33,002 2.02c
-- -- -- 0.61 10.61 6.10d 213 2.51c
-- -- -- 0.61 10.61 6.10d 175 2.51c
-- (0.01) -- 0.66 10.66 6.67d 36,992 1.40c
-- -- -- 0.61 10.61 6.10d 2 1.90c
- -----------------------------------------------------------------------------------------------
</TABLE>
103
<PAGE>
INTERNATIONAL SMALL CAP FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
loss to expenses loss to Portfolio
average to average average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period Ended
August 31,
1999 - Class A Shares (0.68)%c 2.42%c (1.05)%c 58.81%d
1999 - Class B Shares (1.16)c 2.92c (1.53)c 58.81d
1999 - Class C Shares (1.21)c 2.92c (1.58)c 58.81d
1999 - Institutional Shares (0.05)c 1.77c (0.42)c 58.81d
1999 - Service Shares (0.35)c 2.27c (0.72)c 58.81d
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced
May 1, 1998) (1.03)c 3.60c (2.61)c 96.11d
1999 - Class B Shares (commenced
May 1, 1998) (1.30)c 4.09c (2.88)c 96.11d
1999 - Class C Shares (commenced
May 1, 1998) (1.45)c 4.09c (3.03)c 96.11d
1999 - Institutional Shares
(commenced May 1, 1998) (0.19)c 2.98c (1.77)c 96.11d
1999 - Service Shares (commenced
May 1, 1998) (0.26)c 3.48c (1.84)c 96.11d
- ------------------------------------------------------------------------------
</TABLE>
104
<PAGE>
[This page intentionally left blank]
105
<PAGE>
EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $ 7.04 $(0.01) $ 2.23
1999 - Class B Shares 7.03 (0.03) 2.21
1999 - Class C Shares 7.05 (0.03) 2.22
1999 - Institutional Shares 7.09 0.02 2.26
1999 - Service Shares 6.87 0.01 2.17
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 9.69 0.04 (2.40)
1999 - Class B Shares 9.69 0.03 (2.41)
1999 - Class C Shares 9.70 0.01 (2.39)
1999 - Institutional Shares 9.70 0.06 (2.36)
1999 - Service Shares 9.69 (0.13) (2.41)
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced December
15, 1997) 10.00 -- (0.31)
1998 - Class B Shares (commenced December
15, 1997) 10.00 -- (0.31)
1998 - Class C Shares (commenced December
15, 1997) 10.00 -- (0.30)
1998 - Institutional Shares (commenced
December 15, 1997) 10.00 0.01 (0.31)
1998 - Service Shares (commenced December
15, 1997) 10.00 -- (0.31)
- ------------------------------------------------------------------------------
</TABLE>
106
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 2.22 $9.26 31.53%d $ 65,698 2.04%c
-- -- -- 2.18 9.21 31.01d 972 2.54c
-- -- -- 2.19 9.24 31.06d 1,095 2.54c
-- -- -- 2.28 9.37 32.16d 108,574 1.39c
-- -- -- 2.18 9.05 31.73d 2 1.89c
- --------------------------------------------------------------------------------------------------
(0.07) (0.22) -- (2.65) 7.04 (24.32) 52,704 2.09
(0.07) (0.21) -- (2.66) 7.03 (24.51) 459 2.59
(0.07) (0.20) -- (2.65) 7.05 (24.43) 273 2.59
(0.08) (0.23) -- (2.61) 7.09 (23.66) 90,189 1.35
(0.07) (0.21) -- (2.82) 6.87 (26.17) 1 1.85
- --------------------------------------------------------------------------------------------------
-- -- -- (0.31) 9.69 (3.10)d 17,681 1.90c
-- -- -- (0.31) 9.69 (3.10)d 64 2.41c
-- -- -- (0.30) 9.70 (3.00)d 73 2.48c
-- -- -- (0.30) 9.70 (3.00)d 19,120 1.30c
-- -- -- (0.31) 9.69 (3.10)d 2 2.72c
- --------------------------------------------------------------------------------------------------
</TABLE>
107
<PAGE>
EMERGING MARKETS EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
------------------------------
Ratio
Ratio of net
of net investment
investment Ratio of income
income (loss) expenses to (loss) to Portfolio
to average average net average turnover
net assets assets net assets rate
- ------------------------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares (0.15)%c 2.41%c (0.52)%c 63.24%d
1999 - Class B Shares (0.71)c 2.91c (1.08)c 63.24d
1999 - Class C Shares (0.85)c 2.91c (1.22)c 63.24d
1999 - Institutional
Shares 0.50c 1.76c 0.13c 63.24d
1999 - Service Shares 0.12c 2.26c (0.25)c 63.24d
- ------------------------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 0.80 2.53 0.36 153.67
1999 - Class B Shares 0.19 3.03 (0.25) 153.67
1999 - Class C Shares 0.28 3.03 (0.16) 153.67
1999 - Institutional
Shares 1.59 1.79 1.15 153.67
1999 - Service Shares (1.84) 2.29 (2.28) 153.67
- ------------------------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares
(commenced December 15,
1997) 0.55c 5.88c (3.43)c 3.35d
1998 - Class B Shares
(commenced December 15,
1997) 0.05c 6.39c (3.93)c 3.35d
1998 - Class C Shares
(commenced December 15,
1997) (0.27)c 6.46c (4.25)c 3.35d
1998 - Institutional
Shares (commenced Decem-
ber 15, 1997) 0.80c 5.28c (3.18)c 3.35d
1998 - Service Shares
(commenced December 15,
1997) (0.05)c 6.70c (4.03)c 3.35d
- ------------------------------------------------------------------------------------------------
</TABLE>
108
<PAGE>
[This page intentionally left blank]
109
<PAGE>
ASIA GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $ 7.79 $(0.02) $3.30
1999 - Class B Shares 7.68 (0.04) 3.24
1999 - Class C Shares 7.68 (0.04) 3.21
1999 - Institutional Shares 7.91 0.01 3.36
- -----------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 8.38 0.07 (0.66)
1999 - Class B Shares 8.31 0.01 (0.64)
1999 - Class C Shares 8.29 -- (0.61)
1999 - Institutional Shares 8.44 0.03 (0.56)
- -----------------------------------------------------------------------------
1998 - Class A Shares 16.31 -- (7.90)
1998 - Class B Shares 16.24 0.01 (7.91)
1998 - Class C Shares (commenced August
15, 1997) 15.73 0.01 (7.42)
1998 - Institutional Shares 16.33 0.10 (7.96)
- -----------------------------------------------------------------------------
1997 - Class A Shares 16.49 0.06 (0.11)
1997 - Class B Shares (commenced May 1,
1996) 17.31 (0.05) (0.48)
1997 - Institutional Shares (commenced
February 2, 1996) 16.61 0.04 (0.11)
- -----------------------------------------------------------------------------
1996 - Class A Shares 13.31 0.17 3.44
- -----------------------------------------------------------------------------
For the Period Ended January 31,
1995 - Class A Shares (commenced July 8,
1994) 14.18 0.11 (0.89)
- -----------------------------------------------------------------------------
</TABLE>
110
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------
Net
In excess increase Net assets
From net of net From net (decrease) Net asset at end
investment investment realized in net value, end Total of period
income income gains asset value of period return/b/ (in 000s)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 3.28 $11.07 42.11%d $ 84,269
-- -- -- 3.20 10.88 41.67d 7,258
-- -- -- 3.17 10.85 41.28d 2,281
-- (0.04) -- 3.33 11.24 42.61d 12,363
- ------------------------------------------------------------------------------
-- -- -- (0.59) 7.79 (7.04) 59,940
-- -- -- (0.63) 7.68 (7.58) 4,190
-- -- -- (0.61) 7.68 (7.36) 999
-- -- -- (0.53) 7.91 (6.28) 4,200
- ------------------------------------------------------------------------------
-- (0.03) -- (7.93) 8.38 (48.49) 87,437
-- (0.03) -- (7.93) 8.31 (48.70) 3,359
-- (0.03) -- (7.44) 8.29 (47.17)d 436
(0.03) -- -- (7.89) 8.44 (48.19) 874
- ------------------------------------------------------------------------------
(0.12) -- (0.01) (0.18) 16.31 (1.01) 263,014
(0.51) (0.03) -- (1.07) 16.24 (6.02)d 3,354
(0.11) (0.06) (0.04) (0.28) 16.33 (1.09)d 13,322
- ------------------------------------------------------------------------------
(0.12) (0.14) (0.17) 3.18 16.49 26.49 205,539
- ------------------------------------------------------------------------------
0.01 -- (0.10) (0.87) 13.31 (5.46)d 124,298
- ------------------------------------------------------------------------------
</TABLE>
111
<PAGE>
ASIA GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of
net
Ratio of Ratio of net investment
net investment Ratio of income
expenses income (loss) expenses (loss) to Portfolio
to average to average to average average turnover
net assets net assets net assets net assets rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.85%c (0.38)%c 2.27%c (0.80)%c 96.58%d
1999 - Class B Shares 2.35c (0.90)c 2.77c (1.32)c 96.58d
1999 - Class C Shares 2.35c (0.89)c 2.77c (1.31)c 96.58d
1999 - Institutional
Shares 1.20c 0.14c 1.62c (0.28)c 96.58d
- -----------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares 1.93 0.63 2.48 0.08 106.00
1999 - Class B Shares 2.45 0.10 2.97 (0.42) 106.00
1999 - Class C Shares 2.45 0.10 2.97 (0.42) 106.00
1999 - Institutional
Shares 1.16 1.10 1.68 0.58 106.00
- -----------------------------------------------------------------------------------
1998 - Class A Shares 1.75 0.31 1.99 0.07 105.16
1998 - Class B Shares 2.30 (0.29) 2.50 (0.49) 105.16
1998 - Class C Shares
(commenced August 15,
1997) 2.35c (0.26)c 2.55c (0.46)c 105.16
1998 - Institutional
Shares 1.11 0.87 1.31 0.67 105.16
- -----------------------------------------------------------------------------------
1997 - Class A Shares 1.67 0.20 1.87 -- 48.40
1997 - Class B Shares
(commenced May 1, 1996) 2.21c (0.56)c 2.37c (0.72)c 48.40
1997 - Institutional
Shares (commenced
February 2, 1996) 1.10c 0.54c 1.26c 0.38c 48.40
- -----------------------------------------------------------------------------------
1996 - Class A Shares 1.77 1.05 2.02 0.80 88.80
- -----------------------------------------------------------------------------------
For the Period Ended
January 31,
1995 - Class A Shares
(commenced July 8,
1994) 1.90c 1.83c 2.38c 1.35c 36.08d
- -----------------------------------------------------------------------------------
</TABLE>
112
<PAGE>
APPENDIX B
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares methodology.
113
<PAGE>
Index
<TABLE>
<C> <S>
1 General Investment
Management Approach
3 Fund Investment Objectives
and Strategies
3 Goldman Sachs CORE
International Equity Fund
4 Goldman Sachs International
Equity Fund
5 Goldman Sachs European
Equity Fund
6 Goldman Sachs Japanese
Equity Fund
8 Goldman Sachs International
Small Cap Fund
9 Goldman Sachs Emerging
Markets Equity Fund
11 Goldman Sachs Asia Growth
Fund
14 Other Investment Practices
and Securities
18 Principal Risks of the
Funds
21 Fund Performance
26 Fund Fees and Expenses
36 Service Providers
46 Dividends
47 Shareholder Guide
47 How To Buy Shares
56 How To Sell Shares
66 Taxation
68 Appendix A
Additional Information
on Portfolio Risks,
Securities and
Techniques
86 Appendix B
Financial Highlights
</TABLE>
<PAGE>
International Equity Funds
Prospectus (Class A, B and C Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-526-7384.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-526-7384
By mail - Goldman Sachs Funds, 4900 Sears Tower-60th Floor, Chicago, IL
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
CORESM is a service mark of Goldman, Sachs & Co.
511045
EQINTLPROABC
<PAGE>
Prospectus
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
Institutional
Shares
November 30, 1999
..Goldman Sachs
CORE/SM/
International
Equity Fund
..Goldman Sachs
International
Equity Fund
..Goldman Sachs
European
Equity Fund
..Goldman Sachs
Japanese
Equity Fund
..Goldman Sachs
International
Small Cap Fund
..Goldman Sachs
Emerging
Markets Equity
Fund
..Goldman Sachs
Asia Growth
Fund
[LOGO OF GOLDMAN SACHS]
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the CORE International Equity Fund. Goldman Sachs Asset Management Interna-
tional serves as investment adviser to International Equity, European Equi-
ty, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International are each referred to in this Prospectus as the "In-
vestment Adviser."
ACTIVE INTERNATIONAL STYLE FUNDS
Goldman Sachs' Active International Investment Philosophy:
<TABLE>
<CAPTION>
How the Investment Adviser Acts on
Belief Belief
- ----------------------------------------------------------------------------
<S> <C>
.Equity markets are inefficient Seeks excess return through team
driven, research intensive and
bottom-up stock selection.
.Returns are variable Seeks to capitalize on variability
of market and regional returns
through asset allocation decisions.
.Corporate fundamentals ultimately Seeks to conduct rigorous, first-
drive share price hand research of business and
company management.
.A business' intrinsic value will be Seeks to realize value through a
achieved over time long-term investment horizon.
.Portfolio risk must be carefully Seeks to systematically monitor and
analyzed and monitored manage risk through diversification,
multifactor risk models and currency
management.
</TABLE>
The Investment Adviser attempts to manage risk in these Funds through disci-
plined portfolio construction and continual portfolio review and analysis.
As a result, bottom-up stock selection, driven by fundamental research,
should be a main driver of returns.
- --------------------------------------------------------------------------------
1
<PAGE>
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two build-
ing blocks of active management: stock selection and portfolio construction.
I. CORE STOCK SELECTION
The CORE Fund uses the Goldman Sachs proprietary multifactor model
("Multifactor Model"), a rigorous computerized rating system, to forecast
the returns of securities held in the Fund's portfolio. The Multifactor
Model incorporates common variables covering measures of:
..Value (price-to-book, price-to-earnings, cash flow to enterprise value)
..Momentum (earnings momentum, price momentum, sustainable growth)
..Risk (market risk, company-specific risk, earnings risk)
All of the above factors are carefully evaluated within the Multifactor
Model since each has demonstrated a significant impact on the performance of
the securities and markets they were designed to forecast.
II. CORE PORTFOLIO CONSTRUCTION
A proprietary computer optimizer calculates every security combination (at
every possible weighting) to construct the most efficient risk/return port-
folio given the CORE Fund benchmark. In this process, the Investment Adviser
manages risk by limiting deviations from the benchmark. In addition, the
CORE International Equity Fund utilizes proprietary quantitative models to
allocate assets across countries.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good founda-
tions on which to build a portfolio.
- --------------------------------------------------------------------------------
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs CORE International Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Long-term growth of capital
Objective:
MSCI Europe, Australasia, Far East ("EAFE") Index
Benchmarks: (unhedged)
Large-capitalization equity securities of companies that
Investment Focus: are organized outside the United States or whose securi-
ties are primarily traded outside the United States
Quantitative
Investment Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
companies that are organized outside the United States or whose securities
are principally traded outside the United States.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of companies that are organized
outside the United States or whose securities are principally traded outside
the United States.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are
invested in at least three foreign countries. The Fund may invest in the
securities of issuers in countries with emerging markets or economies
("emerging countries").
The Fund seeks broad representation of large-cap issuers across major coun-
tries and sectors of the international economy. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintain-
ing risk, style, capitalization and industry characteristics similar to the
EAFE Index. In addition, the Fund seeks a portfolio composed of companies
with attractive valuations and stronger momentum characteristics than the
EAFE Index.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered to be cash equivalents.
3
<PAGE>
Goldman Sachs International Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Long-term capital appreciation
Objective:
Benchmark: MSCI EAFE Index (unhedged)
Equity securities of companies organized outside the
Investment Focus: United States or whose securities are principally traded
outside the United States
Active International
Investment Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund intends to invest
in companies with public stock market capitalizations that are larger than
$1 billion at the time of investment.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries.
The Fund expects to invest a substantial portion of its assets in the secu-
rities of issuers located in the developed countries of Western Europe and
in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and in emerging countries. Cur-
rently, emerging countries include, among others, most Latin American, Afri-
can, Asian and Eastern European nations.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs European Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI Europe Index (unhedged)
Investment Focus: Equity securities of European companies
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
European companies. Because of its focus, the Fund will be more susceptible
to European economic, market, political and local risks than a fund that is
more geographically diversified.
A European issuer is a company that either:
..Has a class of its securities whose principal securities markets is in a
European country;
..Is organized under the laws of, or has a principal office in, a European
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more of the European countries; or
..Maintains 50% or more of its assets in one or more of the European coun-
tries.
The Fund may allocate its assets among different countries as determined by
the Investment Adviser from time to time, provided that the Fund's assets
are invested in at least three European countries. It is currently antici-
pated that a majority of the Fund's assets will be invested in the equity
securities of large cap companies located in the developed countries of
Western Europe. However, the Fund may also invest, without limit, in mid cap
companies and small cap companies, as well as companies located in emerging
countries. Currently, emerging countries include among others, most Latin
American, African, Asian, most Eastern European nations, including the
states that formerly comprised the Soviet Union and Yugoslavia.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-European countries and in fixed-income securities,
such as government, corporate and bank debt obligations.
5
<PAGE>
Goldman Sachs Japanese Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Long-term capital appreciation
Objective:
Tokyo Price Index ("TOPIX") (unhedged)
Benchmark:
Equity securities of Japanese companies
Investment Focus:
Active International
Investment Style:
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
Japanese companies. A Japanese issuer is a company that either:
..Has a class of its securities whose principal securities markets is in
Japan;
..Is organized under the laws of, or has a principal office in Japan;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in Japan; or
..Maintains 50% or more of its assets in Japan.
The Fund's concentration in Japanese companies will expose it to the risk of
adverse social, political and economic events which occur in Japan or affect
the Japanese markets.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Japan's economic growth in the 1990's has been
substantially below the level of earlier decades. Its economy has drifted
between modest growth and recession. In calendar year 1998, Japan's gross
national product contracted by 2.8% -- its worst performance in the post-war
period. In addition to this economic downturn, Japan is undergoing struc-
tural adjustments related to high wages and taxes, currency valuations and
structural rigidities. Japan has also been experiencing notable uncertainty
and loss of public confidence in connection
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
with the reform of its political process and the deregulation of its econo-
my. These conditions present risks to the Japanese Equity Fund and its abil-
ity to attain its investment objective.
Japan's economy is heavily dependent upon international trade, and is espe-
cially sensitive to trade barriers and disputes. In particular, Japan relies
on large imports of agricultural products, raw materials and fuels. A sub-
stantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. Japan's banking industry has recently suffered from non-perform-
ing loans, declining real estate values and lower valuations of securities
holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are also not always
equally enforced.
For most of this decade, Japanese securities markets have experienced sig-
nificant declines. Although the stock market exhibited some strength recent-
ly, it is not possible to determine whether this will continue.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the United States. In general, however, reported net income in
Japan is understated relative to U.S. accounting standards and this is one
reason price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the United States.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities,
such as government, corporate and bank debt obligations.
7
<PAGE>
Goldman Sachs International Small Cap Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI EAFE Small Cap Index (unhedged)
Investment Focus: Equity securities of foreign companies with public stock
market capitalizations of $1 billion or less at the time
of investment
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
companies:
..With public stock market capitalizations of $1 billion or less at the time
of investment; and
..That are organized outside the United States or whose securities are prin-
cipally traded outside the United States.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries. The Fund expects to invest a
substantial portion of its assets in small cap securities of companies in
the developed countries of Western Europe, Japan and Asia. However, the Fund
may also invest in the securities of issuers located in Australia, Canada,
New Zealand and in emerging countries. Currently, emerging countries
include, among others, most Latin American, African, Asian and Eastern Euro-
pean nations.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger-cap companies with public stock market capital-
izations of more than $1 billion at the time of investment and in fixed-
income securities, such as government, corporate and bank debt obligations.
If the market capitalization of a company held by the Fund increases above
$1 billion, the Fund may, consistent with its investment objective, continue
to hold the security.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Emerging Markets Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI Emerging Markets Free Index
Investment Focus: Equity securities of emerging country issuers
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
emerging country issuers. The Investment Adviser may consider classifica-
tions by the World Bank, the International Finance Corporation or the United
Nations and its agencies in determining whether a country is emerging or
developed. Currently, emerging countries include, among others, most Latin
American, African, Asian and Eastern European nations. The Investment
Adviser currently intends that the Fund's investment focus will be in the
following emerging countries as well as any other emerging country to the
extent that foreign investors are permitted by applicable law to make such
investments:
<TABLE>
<S> <C> <C> <C> <C>
.Argentina .Egypt .Jordan .Philippines .Sri Lanka
.Botswana .Greece .Kenya .Poland .Taiwan
.Brazil .Hong Kong .Malaysia .Portugal .Thailand
.Chile .Hungary .Mexico .Russia .Turkey
.China .India .Morocco .Singapore .Venezuela
.Colombia .Indonesia .Pakistan .South Africa .Zimbabwe
.Czech Republic .Israel .Peru .South Korea
</TABLE>
9
<PAGE>
Goldman Sachs Emerging Markets Equity Fund continued
An emerging country issuer is any company that either:
..Has a class of its securities whose principal securities market is in an
emerging country;
..Is organized under the laws of, or has a principal office in, an emerging
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more emerging countries; or
..Maintains 50% or more of its assets in one or more of the emerging coun-
tries.
Under normal circumstances, the Fund maintains investments in at least six
emerging countries, and will not invest more than 35% of its total assets in
securities of issuers in any one emerging country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the emerging
country markets and particular issuers. In addition, macro-economic factors
and the portfolio managers' and Goldman Sachs economists' views of the rela-
tive attractiveness of emerging countries and currencies are considered in
allocating the Fund's assets among emerging countries.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
(i) fixed-income securities of private and government emerging country
issuers; and (ii) equity and fixed-income securities, such as government,
corporate and bank debt obligations, of issuers in developed countries.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Asia Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI All County Asia Free ex-Japan Index (unhedged)
Investment Focus: Equity securities of companies in Asian countries
Investment Process: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
Asian issuers.
An Asian issuer is any company that either:
..Has a class of its securities whose principal securities markets is in one
or more Asian countries;
..Is organized under the laws of, or has a principal office in, an Asian
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more Asian countries; or
..Maintains 50% or more of its assets in one or more Asian countries.
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are:
..China .Malaysia .South Korea
..Hong Kong .Pakistan .Sri Lanka
..India .Philippines .Taiwan
..Indonesia .Singapore .Thailand
as well as any other country in Asia (other than Japan) to the extent that
foreign investors are permitted by applicable law to make such investments.
11
<PAGE>
Goldman Sachs Asia Growth Fund continued
Allocation of the Fund's investments will depend upon the Investment Advis-
er's views of the relative attractiveness of the Asian markets and particu-
lar issuers.
Concentration of the Fund's assets in one or a few of the Asian countries
and Asian currencies will subject the Fund to greater risks than if the
Fund's assets were not so concentrated. For example, on August 31, 1999 (the
end of the Fund's last fiscal year), more than 25% of the Fund's assets were
invested in securities that traded in Hong Kong.
Starting in mid-1997 some Pacific region countries began to experience cur-
rency devaluations that resulted in high interest rate levels and sharp
reductions in economic activity. This situation resulted in a significant
drop in the securities prices of companies located in the region. Some coun-
tries have experienced government intervention, have sought assistance from
the International Monetary Fund and have experienced substantial domestic
unrest. Although some countries are taking steps to restructure their finan-
cial sectors in a manner that may facilitate a return to long-term economic
growth, there can be no assurance that these efforts will be successful or
that their current problems will not persist. At the end of its last fiscal
year, a substantial portion of the Asia Growth Fund was invested in securi-
ties traded in the Hong Kong market. In 1997, the sovereignty of Hong Kong
reverted from the United Kingdom to China. Hong Kong's financial prospects
depend, in large part, on its ability to retain the legal, financial and
monetary systems that allow economic freedom and market expansion. Although
Hong Kong is, by law, to maintain a high degree of autonomy, there can also
be no assurance that the general economic position of Hong Kong will not be
adversely affected as a result of the exercise of Chinese sovereignty over
Hong Kong. In particular, business confidence in Hong Kong can be signifi-
cantly affected by political developments and statements by public figures
in China, which can in turn affect the performance of the securities mar-
kets. In addition, the reversion of Hong Kong to China has created uncer-
tainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of issuers in non-Asian countries and Japan, and in fixed-
income securities, such as government, corporate and bank debt obligations.
12
<PAGE>
[This page intentionally left blank]
13
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Fund's annual/semi-annual reports. For more information see Appendix
A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
- -- Not permitted
<TABLE>
<CAPTION>
CORE
International International European
Equity Equity Equity
Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3
Cross Hedging of Currencies . . .
Currency Swaps* 15 15 15
Custodial Receipts . . .
Equity Swaps* 15 15 15
Foreign Currency Transactions . . .
Futures Contracts and Options on Futures
Contracts . . .
Investment Company Securities (including
World Equity Benchmark Shares and
Standard & Poor's Depository Receipts) 10 10 10
Options on Foreign Currencies/1/ . . .
Options on Securities and Securities
Indices/2/ . . .
Unseasoned Companies . . .
Warrants and Stock Purchase Rights . . .
Repurchase Agreements . . .
Securities Lending 33 1/3 33 1/3 33 1/3
Short Sales Against the Box -- 25 25
When-Issued Securities and Forward
Commitments . . .
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 The Funds may purchase and sell call and put options.
2 The Funds may sell covered call and put options and purchase call and put
options.
14
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Japanese International Emerging Asia
Equity Small Cap Markets Growth
Fund Fund Equity Fund Fund
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
33 1/3 33 1/3 33 1/3 33 1/3
. . . .
15 15 15 15
. . . .
15 15 15 15
. . . .
. . . .
10 10 10 10
. . . .
. . . .
. . . .
. . . .
. . . .
33 1/3 33 1/3 33 1/3 33 1/3
25 25 25 25
. . . .
- ----------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
- -- Not permitted
<TABLE>
<CAPTION>
CORE
International International European
Equity Equity Equity
Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities
American, European and Global Depository
Receipts . . .
Asset-Backed and Mortgage-Backed
Securities/2/ -- . .
Bank Obligations/1/,/2/ . . .
Convertible Securities . . .
Corporate Debt Obligations/2/ ./4/ . .
Equity Securities 90+ 65+ 65+
Emerging Country Securities 25 . .
Fixed Income Securities/3/ 10/4/ 35 35/5/
Foreign Securities . . .
Foreign Government Securities/2/ . . .
Non-Investment Grade Fixed Income
Securities/2/ -- ./6/ ./6/
Real Estate Investment Trusts . . .
Structured Securities* . . .
Temporary Investments 35 100 100
U.S. Government Securities/2/ . . .
- ------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 Issued by U.S. or foreign banks.
2 Limited by the amount the Fund invests in fixed-income securities.
3 Except as noted under "Non-Investment Grade Fixed Income Securities,"
fixed-income securities are investment grade (e.g., BBB or higher by Stan-
dard & Poor's Rating Group ("Standard & Poor's") or Baa or higher by
Moody's Investor's Service, Inc. ("Moody's")).
4 Cash equivalents only.
5 The European Equity Fund may invest in the aggregate up to 35% of its total
assets in: (1) equity securities of non-European countries; and (2) fixed-
income securities.
6 May be BB or lower by Standard & Poor's or Ba or lower by Moody's.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Japanese International Emerging
Equity Small Cap Markets Asia Growth
Fund Fund Equity Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
. . . .
. . . .
. . . .
. . . .
65+ 65+ 65+ 65+
. . . .
35/7/ 35/8/ 35/9/ 35/10/
. . . .
. . . .
./6/ ./6/ ./6/ ./6/
. . . .
. . . .
100 100 35 100
. . . .
- --------------------------------------------------------------------------------
</TABLE>
7 The Japanese Equity Fund may invest in the aggregate up to 35% of its
total assets in: (1) fixed-income securities; and (2) equity securities of
non-Japanese companies.
8 The International Small Cap Fund may invest in the aggregate up to 35% of
its total assets in (1) fixed-income securities; and (2) equity securities
of larger cap companies with public stock market capitalizations of more
than $1 billion at the time of investment.
9 The Emerging Markets Equity Fund may invest in the aggregate up to 35% of
its total assets in: (1) fixed-income securities of private and government
emerging country issuers; and (2) equity and fixed-income securities of
issuers in developed countries.
10 The Asia Growth Fund may invest in the aggregate up to 35% of its total
assets in: (1) fixed-income securities; and (2) equity securities of
issuers in non-Asian countries and Japan.
17
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund will achieve its
investment objective.
<TABLE>
<CAPTION>
.. Applicable
- -- Not applicable
CORE International Emerging
International International European Japanese Small Cap Markets Asia
Equity Equity Equity Equity Equity Equity Growth
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Credit/Default . . . . . . .
Emerging Countries . . . . . . .
Interest Rate . . . . . . .
Small Cap -- -- . -- . -- --
Foreign . . . . . . .
Derivatives . . . . . . .
Management . . . . . . .
Market . . . . . . .
Liquidity . . . . . . .
Stock . . . . . . .
Geographic . . . . . . .
Other . . . . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
All Funds:
..Credit/Default Risk--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..Emerging Countries Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as extensive
and frequent accounting, financial and other reporting requirements as the
securities markets of more developed countries. Further, investment in equity
securities of issuers located in Russia and certain other emerging countries
involves risk of loss resulting from problems in share registration and cus-
tody and substantial economic and political disrup-
18
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
tions. These risks are not normally associated with investment in more devel-
oped countries.
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income secu-
rities will normally have more price volatility because of this risk than
short-term securities.
..Foreign Risks--The risk that when a Fund invests in foreign securities, it
will be subject to risk of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss may
also result from the imposition of exchange controls, confiscations and other
government restrictions. A Fund will also be subject to the risk of negative
foreign currency rate fluctuations. Foreign risks will normally be greatest
when a Fund invests in issuers located in emerging countries.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..Liquidity Risk--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual mar-
ket conditions, an unusually high volume of redemption requests, or other rea-
sons. Funds that invest in small capitalization stocks and emerging country
issuers will be especially subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities within these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse
investor perceptions whether or not accurate. The Goldman Sachs Asset Alloca-
tion Portfolios (the "Asset Allocation Portfolios") expect to invest a signif-
icant percentage of their assets in the Funds and other funds for which
Goldman Sachs now or in the future acts as investment adviser or underwriter.
Redemptions by an Asset Allocation Portfolio of its position in a Fund may
further increase liquidity risk and may impact a Fund's net asset value
("NAV").
..Stock Risk--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.
19
<PAGE>
..Geographic Risk--The European Equity Fund invests primarily in equity securi-
ties of European companies. The Japanese Equity Fund invests primarily in
equity securities of Japanese equity companies. The Asia Growth Fund invests
primarily in equity securities of Asian issuers. Concentration of the invest-
ments of these or other Funds in issuers located in a particular country or
region will subject the Fund, to a greater extent than if investments were
less concentrated, to the risks of adverse securities markets, exchange rates
and social, political, regulatory or economic events which may occur in that
country or region.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..Small Cap Stock Risk--The securities of small capitalization stocks involve
greater risks than those associated with larger, more established companies
and may be subject to more abrupt or erratic price movements. Securities of
such issuers may lack sufficient market liquidity to enable a Fund to effect
sales at an advantageous time or without a substantial drop in price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
20
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Insti-
tutional Shares from year to year; and (b) how the average annual returns of
a Fund's Institutional Shares compare to those of broad-based securities
market indices. The bar chart and table assume reinvestment of dividends and
distributions. A Fund's past performance is not necessarily an indication of
how the Fund will perform in the future. Performance reflects expense limi-
tations in effect. If expense limitations were not in place, a Fund's per-
formance would have been reduced. The European Equity, Japanese Equity and
International Small Cap Funds did not commence operations until October 1,
1998, May 1, 1998 and May 1, 1998. Since these Funds have less than one cal-
endar year's performance, no performance information is provided in this
section.
21
<PAGE>
CORE International Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the [BAR CHART]
9-month period
ended September
30, 1999 was
9.77%. 1998
------
Best Quarter 14.57%
Q4 '98 +19.05%
Worst Quarter
Q3 '98 -15.84%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
----------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) 14.57% 0.55%
Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East (EAFE) Index* 20.33% 8.44%
----------------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI EAFE Index is a market capitalization-weighted composite
of securities in 20 developed markets. The Index figures do not reflect any
fees or expenses.
22
<PAGE>
FUND PERFORMANCE
International Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September [BAR CHART]
30, 1999 was
8.11%. 1997 1998
---- -----
Best Quarter 5.10% 18.72%
Q1 '98 +17.10%
Worst Quarter
Q3 '98 -14.25%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 2/7/96) 18.72% 13.62%
MSCI EAFE (unhedged)* 20.33% 9.23%
FT/S&P Actuaries Europe & Pacific Index (unhedged)** 19.31% 7.85%
-----------------------------------------------------------------------------
</TABLE>
* The MSCI EAFE Index, an unmanaged index of common stock prices, is replac-
ing the FT/S&P Actuaries Europe & Pacific Index ("EuroPac") as the Interna-
tional Equity Fund's performance benchmark. The MSCI EAFE Index is widely
used throughout the investment management industry to represent the invest-
ment opportunities available to a large cap, developed country interna-
tional equity strategy and, in the Investment Adviser's opinion, is a more
appropriate benchmark against which to measure the performance of the
International Equity Fund. The Index figures do not reflect any fees or
expenses.
** The unmanaged EuroPac Index is a market capitalization-weighted composite
of approximately 1,500 stocks from 20 countries in Europe and the Asia-
Pacific region. The Index figures do not reflect any fees or expenses.
23
<PAGE>
Emerging Markets Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September [BAR CHART]
30, 1999 was
25.76%.
1998
Best Quarter -------
Q4 '98 +14.08% -26.29%
Worst Quarter
Q3 '98 -22.78%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
--------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 12/15/97) (26.29)% (23.64)%
MSCI Emerging Markets Free (EMF) Index* (25.33)% (19.87)%
--------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI EMF Index is a market capitalization-weighted composite
of securities in over 30 emerging market countries. "Free" indicates an
index that excludes shares in otherwise free markets that are not purchas-
able by foreigners. The Index figures do not reflect any fees or expenses.
24
<PAGE>
FUND PERFORMANCE
Asia Growth Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Institutional
Shares for the
9-month period
ended September [BAR CHART]
30, 1999 was
28.80%. 1997 1998
------ ------
Best Quarter -40.64% -14.73%
Q4 '98 +21.60%
Worst Quarter
Q4 '97 -27.19%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
---------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 2/2/96) (14.73)% (21.21)%
MSCI All Country Asia Free ex-Japan Index* (10.27)% (19.82)%
---------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI All Country Asia Free ex-Japan Index is a market capi-
talization-weighted composite of securities in ten Asian countries. "Free"
indicates an index that excludes shares in otherwise free markets that are
not purchasable by foreigners. The Index figures do not reflect any fees or
expenses.
25
<PAGE>
Fund Fees and Expenses (Institutional Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Institutional Shares of a Fund.
<TABLE>
<CAPTION>
CORE
International International European
Equity Fund Equity Fund Equity Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.85% 1.00% 1.00%
Distribution and Service Fees None None None
Other Expenses/2/ 0.26% 0.19% 0.64%
- ----------------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.11% 1.19% 1.64%
- ----------------------------------------------------------------------------------------
</TABLE>
See page 28 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the
Funds which are actually incurred are as set forth
below. The expense limitations may be terminated at
any time at the option of the Investment Adviser. If
this occurs, "Other Expenses" and "Total Fund Operat-
ing Expenses" may increase without shareholder approv-
al.
<TABLE>
<CAPTION>
CORE
International International European
Equity Fund Equity Fund Equity Fund
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from
Fund assets):/1/
Management Fees 0.85% 1.00% 1.00%
Distribution and Service Fees None None None
Other Expenses/2/ 0.16% 0.14% 0.14%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current expense limitations) 1.01% 1.14% 1.14%
------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Emerging Asia
Japanese International Markets Growth
Equity Fund Small Cap Fund Equity Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
None None None None
None None None None
None None None None
None None None None
1.00% 1.20% 1.20% 1.00%
None None None None
0.97% 0.57% 0.56% 0.62%
- ----------------------------------------------------------------------------------------------
1.97% 1.77% 1.76% 1.62%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Asia
Japanese International Markets Growth
Equity Fund Small Cap Fund Equity Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.00% 1.20% 1.20% 1.00%
None None None None
0.05% 0.20% 0.19% 0.20%
- ----------------------------------------------------------------------------------------------
1.05% 1.40% 1.39% 1.20%
- ----------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Fund Fees and Expenses continued
/1/The Funds' operating expenses for the current fiscal year have been
annualized for the seven-month period (February 1, 1999 through August 31,
1999).
/2/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Institutional Shares plus all other ordinary
expenses of the Funds not detailed above. The Investment Adviser has voluntar-
ily agreed to reduce or limit "Other Expenses" (excluding management fees,
transfer agency fees, taxes, interest and brokerage fees and litigation, indem-
nification and other extraordinary expenses) to the following percentages of
each Fund's average daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
- --------------------------
<S> <C>
CORE
International
Equity 0.12%
International
Equity 0.10%
European Equity 0.10%
Japanese Equity 0.01%
International
Small Cap 0.16%
Emerging Markets
Equity 0.15%
Asia Growth 0.16%
</TABLE>
28
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Institutional
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
CORE International Equity $113 $353 $ 612 $1,352
- ----------------------------------------------------------
International Equity $121 $378 $ 654 $1,443
- ----------------------------------------------------------
European Equity $167 $517 $ 892 $1,944
- ----------------------------------------------------------
Japanese Equity $200 $618 $1,062 $2,296
- ----------------------------------------------------------
International Small Cap $180 $557 $ 959 $2,084
- ----------------------------------------------------------
Emerging Markets Equity $179 $554 $ 954 $2,073
- ----------------------------------------------------------
Asia Growth $165 $511 $ 881 $1,922
- ----------------------------------------------------------
</TABLE>
Institutions that invest in Institutional Shares on behalf of their customers
may charge other fees directly to their customer accounts in connection with
their investments. You should contact your institution for information regard-
ing such charges. Such fees, if any, may affect the return customers realize
with respect to their investments.
Certain institutions that invest in Institutional Shares may receive other com-
pensation in connection with the sale and distribution of Institutional Shares
or for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Shareholder Guide" in the Pro-
spectus and "Other Information" in the Statement of Additional Information
("Additional Statement").
29
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") CORE International Equity
32 Old Slip
New York, New York 10005
------------------------------------------------------------------------
Goldman Sachs Asset Management International
("GSAMI") International Equity
133 Peterborough Court European Equity
London, England EC4A 2BB Japanese Equity
International Small Cap
Emerging Markets Equity
Asia Growth
------------------------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSAMI. Goldman Sachs registered as an investment
adviser in 1981. GSAMI, a member of the Investment Management Regulatory
Organization Limited since 1990 and a registered investment adviser since
1991, is an affiliate of Goldman Sachs. The Goldman Sachs Group, L.P., which
controlled the Investment Advisers, merged into the Goldman Sachs Group,
Inc. as a result of an initial public offering. As of September 30, 1999,
GSAM and GSAMI, along with other units of IMD, had assets under management
of $203 billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and cler-
ical services to the Funds
30
<PAGE>
SERVICE PROVIDERS
..Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information and other
reports filed with the Securities and Exchange Commission (the "SEC") and
other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates (as a percentage of each respective
portfolio's average daily net assets) listed below:
<TABLE>
<CAPTION>
Actual Rate
For the Fiscal
Year Ended
Contractual Rate August 31, 1999
------------------------------------------------------------
<S> <C> <C>
GSAM:
------------------------------------------------------------
CORE International Equity 0.85% 0.85%
------------------------------------------------------------
GSAMI:
------------------------------------------------------------
International Equity 1.00% 1.00%
------------------------------------------------------------
European Equity 1.00% 1.00%
------------------------------------------------------------
Japanese Equity 1.00% 1.00%
------------------------------------------------------------
International Small Cap 1.20% 1.20%
------------------------------------------------------------
Emerging Markets Equity 1.20% 1.20%
------------------------------------------------------------
Asia Growth 1.00% 1.00%
------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
FUND MANAGERS
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981 Mr. Hillenbrand
has been President of
31
<PAGE>
Commodities Corporation LLC, of which Goldman Sachs is the parent company.
Over the course of his 19-year career at Commodities Corporation, Mr.
Hillenbrand has had extensive experience in dealing with internal and exter-
nal investment managers who have managed a range of futures and equities
strategies across multiple markets, using a variety of styles.
International Equity Portfolio Management Team
..Global portfolio teams based in London, Singapore, Tokyo and New York.
Local presence is a key to the Investment Adviser's fundamental research
capabilities
..Team manages over $33.2 billion in international equities for retail,
institutional and high net worth clients
..Focus on bottom-up stock selection as main driver of returns, though the
team leverages the asset allocation, currency and risk management capabili-
ties of GSAM
- --------------------------------------------------------------------------------
London-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
David Dick Senior Portfolio Manager-- Since Mr. Dick joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director senior portfolio manager
on the European Equity
team in 1998. From 1990
to 1998, he was with
Mercury Asset
Management, where he was
a portfolio manager for
European equity and was
head of Mercury's
European sector
strategy.
- ----------------------------------------------------------------------------------------------
Ivor H. Farman Senior Portfolio Manager-- Since Mr. Farman joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director International Equity Fund 1996 senior portfolio manager
in 1996. From 1995 to
1996, he was responsible
for originating and
marketing French equity
ideas at Exane in Paris.
Prior to 1995, he spent
five years engaged in
French equity research
and marketing at Banque
Nationale de Paris and
Schroders in London.
- ----------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
James P. Senior Portfolio Manager-- Since Mr. Hordern joined the
Hordern International Small Cap 1998 Investment Adviser as a
Executive Fund portfolio manager in
Director 1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
- ----------------------------------------------------------------------------------------------
Ralf Laier Portfolio Manager-- Since Mr. Laier joined the
Vice President Emerging Markets Equity 1998 Investment Adviser as a
Fund portfolio manager with a
focus on Central/Eastern
European (CEE) and the
Commonwealth of
Independent States (CIS)
in 1997. Prior to
joining the Investment
Adviser, from 1995 to
1997, he was Vice
President of Soros
Global Research, where
he analyzed investment
opportunities in
CEE/CIS. From 1994 to
1995, he achieved a
Ph.D. from the Academy
of Economics in Pozan,
Poland.
- ----------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the
Managing European Equity Fund 1998 Investment Adviser as a
Director International Equity Fund 1998 senior portfolio manager
and head of the European
Equity Team in October
1997. From 1986 to 1997,
she worked at Fleming
Investment Management in
London, where she most
recently was Portfolio
Management Director for
the European equity
investment strategy and
process.
- ----------------------------------------------------------------------------------------------
Andrew Orchard Senior Portfolio Manager-- Since Andrew joined the
Executive European Equity Fund 1999 Investment Adviser as a
Director International Equity Fund 1999 portfolio manager in
1999. From 1994 to 1999
he was a portfolio
manager at Morgan
Grenfell Asset
Management where he
managed global equity
portfolios and chaired
Morgan Grenfell's Global
Sector Committee.
- ----------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Andrew Portfolio Manager-- Since Mr. Shrimpton joined the
Shrimpton Emerging Markets Equity 1998 Investment Adviser as a
Vice President Fund portfolio manager with a
focus on Africa as well
as the financial
industry in the EMEA
region in 1996. Since
1985 he was a UK equity
analyst and portfolio
manager for CIN
Management, where he
initiated CIN
Management's first
investments in Latin
America.
- ----------------------------------------------------------------------------------------------
Robert Stewart Senior Portfolio Manager-- Since Robert joined the
Executive European Equity Fund 1999 Investment Adviser as a
Director International Equity Fund 1999 portfolio manager in
1996. He is a member of
the European Equity
Team. From 1996 to 1998
he was a portfolio
manager in Japan where
he managed Japanese
Equity Institutional
Portfolios. Prior to
that Robert was a
portfolio manager at
CINMan from 1989 to 1996
where he managed
international equities.
- ----------------------------------------------------------------------------------------------
Danny Truell Senior Portfolio Manager-- Since Mr. Truell joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director senior portfolio manager
and head of UK equities
in 1998. From 1992 to
1996, he was Investment
Banking Executive
Director for SBC Warburg
and Chief Asian Equity
Strategist.
- ----------------------------------------------------------------------------------------------
Gabriella Portfolio Manager-- Since Ms. Antici joined the
Antici Emerging Markets Equity 1998 Investment Adviser as a
Vice President Fund portfolio manager in
1997. From 1994 to 1997,
she was a Vice President
for HSBC Asset
Management, where she
was a portfolio manager
for emerging markets and
head of the Latin
American Department.
- ----------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
SERVICE PROVIDERS
New York-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Robert A. Senior Portfolio Manager-- Since Mr. Beckwitt joined the
Beckwitt Emerging Markets Equity 1997 Investment Adviser as a
Managing Fund portfolio manager in
Director 1996. From 1986 to 1996,
Head of he was Chief Investment
Emerging Strategist-Portfolio
Markets Equity Adviser to high net
worth investors at
Fidelity Investments.
- -----------------------------------------------------------------------------------------------
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE International Equity 1998 Investment Adviser as a
Fund portfolio manager in
1998. From 1984 to 1998,
she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- -----------------------------------------------------------------------------------------------
Mark M. Carhart Portfolio Manager-- Since Mr. Carhart joined the
Managing CORE International Equity 1998 Investment Adviser as a
Director Fund member of the
Quantitative Research
and Risk Management team
in 1997. From August
1995 to September 1997,
he was Assistant
Professor of Finance at
the Marshall School of
Business at USC and a
Senior Fellow of the
Wharton Financial
Institutions Center.
From 1993 to 1995, he
was a lecturer and
graduate student at the
University of Chicago
Graduate School of
Business.
- -----------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Managing CORE International Equity 1997 Investment Adviser as a
Director Fund portfolio manager in the
quantitative equity
management team in 1992.
- -----------------------------------------------------------------------------------------------
Raymond J. Portfolio Manager-- Since Mr. Iwanowski joined the
Iwanowski CORE International Equity 1998 Investment Adviser as an
Managing Fund associate and portfolio
Director manager in 1997. From
1993 to 1997, he was a
Vice President and head
of the Fixed Derivatives
Client Research group at
Salomon Brothers.
- -----------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing CORE International Equity 1997 Investment Adviser as a
Director Fund portfolio manager in
1989.
- -----------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Singapore-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth Fund 1994 Investment Adviser as a
Emerging Markets Equity 1999 portfolio manager in
Fund 1990.
International Equity Fund 1999
International Small Cap 1999
Fund
- -----------------------------------------------------------------------------------------------
Ravi Shanker Senior Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth Fund 1997 Investment Adviser as an
Emerging Markets Equity 1998 operations manager in
Fund 1997. From July 1996 to
International Equity Fund 1999 1997, he worked for
International Small Cap 1999 Goldman Sachs in
Fund Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
for Goldman Sachs as an
investment banker in the
Investment Banking
Division.
- -----------------------------------------------------------------------------------------------
Siew-Hua Thio Portfolio Manager-- Since Ms. Thio joined the
Vice President Asia Growth Fund 1998 Investment Adviser as a
Emerging Markets Equity 1998 portfolio manager in
Fund 1998. From 1997 to 1998,
International Equity Fund 1998 she was Head of Research
International Small Cap 1998 for Indosuez WI Carr in
Fund Singapore. From 1993 to
1997, she was a research
analyst at the same
firm.
- -----------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
SERVICE PROVIDERS
Tokyo-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- --------------------------------------------------------------------------------------
<C> <C> <C> <S>
Toshiyuki Ejima Portfolio Manager-- Since Toshiyuki joined the
Vice President Japanese Equity Fund 1999 Investment Adviser as a
portfolio manager in
April 1999. Prior to
that he was a portfolio
manager at Daiichi
Mutual Life from 1993 to
1999 where he managed
Japanese equities.
- --------------------------------------------------------------------------------------
Shigeka Kouda Portfolio Manager-- Since Mr. Kouda joined the
Vice President International Small 1998 Investment Adviser as a
Cap Fund portfolio manager in
1997. From 1992 to 1997,
he was at the Fixed
Income Division of
Goldman Sachs (Japan)
Limited, where he was
extensively involved in
emerging markets trading
as well as International
Fixed Income
institutional sales.
- --------------------------------------------------------------------------------------
Shogo Maeda Senior Portfolio Since Mr. Maeda joined the
Managing Manager-- 1994 Investment Adviser as a
Director Japanese Equity Fund 1994 portfolio manager in
International Equity 1998 1994. From 1987 to 1994,
Fund he worked at Nomura
International Small Investment Management
Cap Fund Incorporated as a Senior
Portfolio Manager.
- --------------------------------------------------------------------------------------
Miyako Portfolio Manager-- Since Ms. Shibamoto joined the
Shibamoto Japanese Equity Fund 1998 Investment Adviser as a
Vice President member of the Japanese
Equity team in March
1998. From 1993 to 1998,
she was a Vice President
at Scudder Stevens and
Clark (Japan).
- --------------------------------------------------------------------------------------
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity Fund 1998 Investment Adviser as a
portfolio manager in
1996. From 1990 to 1996,
he was a Japanese equity
portfolio manager at
Nomura Investment
Management where he
actively managed assets
for U.S. pension funds.
- --------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly
38
<PAGE>
SERVICE PROVIDERS
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to
January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Fund service providers do not adequately address this prob-
lem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group which analyzed
these issues and implemented system modifications to prepare for the Year
2000 Problem.
..The Investment Adviser has either tested with or received assurances from
the Fund's other service providers to confirm that they are taking reason-
able steps to avoid Year 2000 Problems, and the Investment Adviser contin-
ues to monitor the situation.
..The Investment Adviser has developed broad and comprehensive contingency
plans, as well as event management plans that will help manage the Funds
through the date change by allowing the Investment Adviser to closely moni-
tor and respond to Year 2000-related events as they unfold around the
world.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
39
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions
from net realized capital gains. You may choose to have dividends and dis-
tributions paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for certain ILA Portfolios. See the
Additional Statement.
You may indicate your election on your Account Application. Any changes may
be submitted in writing to Goldman Sachs at any time before the record date
for a particular dividend or distribution. If you do not indicate any
choice, your dividends and distributions will be reinvested automatically in
the applicable Fund.
The election to reinvest dividends and distributions in additional shares
will not affect the tax treatment of such dividends and distributions, which
will be treated as received by you and then used to purchase the shares.
The Funds' investments in foreign securities may be subject to foreign with-
holding taxes. Under certain circumstances, the Funds may elect to pass-
through these taxes to you. If this election is made, a proportionate amount
of such taxes will constitute a distribution to you, which would allow you
either (1) to credit such proportionate amount of foreign taxes against your
U.S. federal income tax liability or (2) to take such amount as an itemized
deduction.
Dividends from net investment income and distributions from net capital
gains are declared and paid annually.
From time to time a portion of a Fund's dividends may constitute a return
of capital.
At the time of an investor's purchase of shares of a Fund, a portion of the
NAV per share may be represented by undistributed income or undistributed
realized appreciation of the Fund's portfolio securities. Therefore, subse-
quent distributions on such shares from such income or realized appreciation
may be taxable to you even if the NAV of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions
(or portions thereof) represent a return of a portion of the purchase price.
40
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Institutional
Shares.
HOW TO BUY SHARES
How Can I Purchase Institutional Shares Of The Funds?
You may purchase Institutional Shares on any business day at their NAV next
determined after receipt of an order. No sales load is charged. You should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
Purchases of Institutional Shares must be settled within three business days
of receipt of a complete purchase order.
How Do I Purchase Shares Through A Financial Institution?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of Goldman Sachs
Trust (the "Trust"), purchase, redemption and exchange orders placed by or
on behalf of their customers, and may designate other intermediaries to
accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
41
<PAGE>
..Authorized institutions and intermediaries will be responsible for trans-
mitting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your institution or intermediary to learn whether it is
authorized to accept orders for the Trust.
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Funds' Institutional
Shares. These payments may be in addition to other payments borne by the
Funds.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to certain institutions and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs Funds. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the
amount invested.
In addition to Institutional Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Institutional
Shares. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
back cover of this Prospectus.
42
<PAGE>
SHAREHOLDER GUIDE
What is My Minimum Investment in the Funds?
<TABLE>
<CAPTION>
Type of Investor Minimum Investment
-------------------------------------------------------------------------------
<S> <C>
.Banks, trust companies or $1,000,000 in Institutional Shares of a Fund
other depository alone or in combination with other assets
institutions investing for under the management of GSAM and its affiliates
their own account or on
behalf of clients
.Pension and profit sharing
plans, pension funds and
other company-sponsored
benefit plans
.State, county, city or any
instrumentality, department,
authority or agency thereof
.Corporations with at least
$100 million in assets or in
outstanding publicly traded
securities
."Wrap" account sponsors
(provided they have an
agreement covering the
arrangement with GSAM)
.Registered investment
advisers investing for
accounts for which they
receive asset-based fees
-------------------------------------------------------------------------------
.Individual investors $10,000,000
.Qualified non-profit
organizations, charitable
trusts, foundations and
endowments
.Accounts over which GSAM or
its advisory affiliates have
investment discretion
-------------------------------------------------------------------------------
</TABLE>
The minimum investment requirement may be waived for current and former
officers, partners, directors or employees of Goldman Sachs or any of its
affiliates or for other investors at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment amounts.
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Institutional Shares
of a Fund is evident, or if purchases, sales or exchanges are, or a subse-
quent abrupt redemption might be, of a size that would disrupt the manage-
ment of a Fund.
43
<PAGE>
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Institutional
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _________________________________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or, if accurate
quotations are not readily available, the fair value of the Fund's invest-
ments may be determined in good faith under procedures established by the
Trustees.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). Fund shares will not be priced on any day
the New York Stock Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of the nature and materiality of the
event, its effect on Fund operations and other relevant factors.
44
<PAGE>
SHAREHOLDER GUIDE
HOW TO SELL SHARES
How Can I Sell Institutional Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its Institu-
tional Shares upon request on any business day at their NAV next determined
after receipt of such request in proper form. You may request that redemp-
tion proceeds be sent to you by check or by wire (if the wire instructions
are on record). Redemptions may be requested in writing or by telephone.
<TABLE>
<CAPTION>
Instructions For Redemptions:
-----------------------------------------------------------------------
<S> <C> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Mail your request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have elected the telephone
redemption privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-----------------------------------------------------------------------
</TABLE>
Certain institutions and intermediaries are authorized to accept redemption
requests on behalf of the Funds as described under "How Do I Purchase Shares
Through A Financial Institution?"
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The
45
<PAGE>
written request may be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If you are selling shares you recently paid for by
check, the Fund will pay you when your check has cleared, which may take up
to 15 days. If the Federal Reserve Bank is closed on the day that the
redemption proceeds would ordinarily be wired, wiring the redemption pro-
ceeds may be delayed one additional business day.
..To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
account application to the Transfer Agent.
..Neither the Trust, Goldman Sachs nor any other institution assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
By Check: You may elect in writing to receive your redemption proceeds by
check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of a properly executed redemp-
tion request. If you are selling shares you recently paid for by check, the
Fund will pay you when your check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests
by their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions may set times by
which they must receive
46
<PAGE>
SHAREHOLDER GUIDE
redemption requests. These institutions may also require additional docu-
mentation from you.
The Trust reserves the right to:
..Redeem your shares if your account balance falls below $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Fund will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
You may exchange Institutional Shares of a Fund at NAV for Institutional
Shares of any other Goldman Sachs Fund. The exchange privilege may be mate-
rially modified or withdrawn at any time upon 60 days' written notice to
you.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-------------------------------------------------------------------
<S> <C> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-------------------------------------------------------------------
By Telephone: If you have elected the telephone exchange
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
47
<PAGE>
..Telephone exchanges normally will be made only to an identically registered
account.
..Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will I Be Sent Regarding Investments In Institutional
Shares?
You will receive an annual report containing audited financial statements
and a semi-annual report. To eliminate unnecessary duplication, only one
copy of such reports will be sent to shareholders with the same mailing
address. If you would like a duplicate copy to be mailed to you, please con-
tact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly
account statement. The Funds do not generally provide sub-accounting servic-
es.
48
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Funds are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Funds' income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. A percentage
of the Funds' dividends paid to corporate shareholders may be eligible for
the corporate dividends-received deduction. The Funds will inform sharehold-
ers of the source and tax status of all distributions promptly after the
close of each calendar year.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds may
deduct these taxes in computing their taxable income.
If you buy shares of a Fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a portion
of your investment. This is known as "buying a dividend."
49
<PAGE>
TAXES ON SALES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund most
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
50
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with equity securities.
"Equity securities" include common stocks, preferred stocks, interests in
real estate investment trusts, convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, warrants and stock pur-
chase rights. In general, stock values fluctuate in response to the activi-
ties of individual companies and in response to general market and economic
conditions. Accordingly, the value of the stocks that a Fund holds may
decline over short or extended periods. The stock markets tend to be cycli-
cal, with periods when stock prices generally rise and periods when prices
generally decline. The volatility of equity securities means that the value
of your investment in the Funds may increase or decrease. As of the date of
this Prospectus, certain stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue.
To the extent that a Fund invests in fixed-income securities, that Fund will
also be subject to the risks associated with its fixed-income securities.
These risks include interest rate risk, credit risk and call/extension risk.
In general, interest rate risk involves the risk that when interest rates
decline, the market value of fixed-income securities tends to increase (al-
though many mortgage related securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that an issuer
could default on its obligations, and a Fund will not recover its invest-
ment. Call risk and extension risk are normally present in mortgage-backed
securities and asset-backed securities. For example, homeowners have the
option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (exten-
sion risk). In general, if interest rates on new mortgage loans fall suffi-
ciently below the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease. In
either case, a change in the prepayment rate can result in losses to invest-
ors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turn-
51
<PAGE>
over (100% or more) involves correspondingly greater expenses which must be
borne by a Fund and its shareholders. The portfolio turnover rate is calcu-
lated by dividing the lesser of the dollar amount of sales or purchases of
portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase
of one year or less. See "Financial Highlights" in Appendix B for a state-
ment of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of
your then current financial position and needs.
B. Other Portfolio Risks
Risks of Investing in Small Capitalization Companies and REITs. Each Fund
may invest in small capitalization companies and REITs. Investments in small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the rea-
sons for the greater price volatility of these investments are the less cer-
tain growth prospects of smaller firms and the lower degree of liquidity in
the markets for such securities. Small capitalization companies and REITs
may be thinly traded and may have to be sold at a discount from current mar-
ket prices or in small lots over an extended period of time. In addition,
these securities are subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities in these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic or market conditions, or adverse investor
perceptions whether or not accurate. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Small capitalization companies and REITs include "unseasoned" issuers
that do not have an established financial history; often have limited prod-
uct lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of
bankruptcy. Transaction costs for these investments are often higher than
those of larger capitalization companies. Investments
52
<PAGE>
APPENDIX A
in small capitalization companies and REITs may be more difficult to price
precisely than other types of securities because of their characteristics
and lower trading volumes.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
assets held by the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may
53
<PAGE>
be less publicly available information about a foreign issuer than about a
U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and secu-
rities of many foreign issuers are less liquid and more volatile than secu-
rities of comparable domestic issuers. Efforts in foreign countries to reme-
diate potential Year 2000 problems are not as extensive as those in the
United States. As a result, the operations of foreign markets, foreign
issuers and foreign governments may be disrupted by the Year 2000 Problem,
and the investment portfolio of a Fund may be adversely affected. Further-
more, with respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of with-
holding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, and political or social instability or diplomatic developments which
could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts
54
<PAGE>
APPENDIX A
evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not neces-
sarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
55
<PAGE>
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by the Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
A Fund's investments in emerging countries are subject to the risk that the
liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor per-
ceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Invest-
56
<PAGE>
APPENDIX A
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Derivative Investments. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and currency transactions involve additional risk of
loss. Loss can result from a lack of correlation between changes in the
value of derivative instruments and the portfolio assets (if any) being
hedged, the potential illiquidity of the markets for derivative instruments,
or the risks arising from margin requirements and related leverage factors
associated with such transactions. The use of these management techniques
also involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices, interest rates or currency
prices. Each Fund may also invest in derivative investments for non-hedging
purposes (that is, to seek to increase total return). Investing for non-
hedging purposes is considered a speculative practice and presents even
greater risk of loss.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
57
<PAGE>
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. government securities
..Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
..Certificates of deposit
..Bankers' acceptances
..Repurchase agreements
..Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
58
<PAGE>
APPENDIX A
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
Convertible Securities. Each Fund may invest in convertible securities. Con-
vertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. A Fund may, to the extent consistent with its
investment policies, purchase or sell foreign currencies on a cash basis or
through forward contracts. A forward contract involves an obligation to pur-
chase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, certain Funds may also
enter into such transactions to seek to increase total return, which is con-
sidered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
59
<PAGE>
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities. Each Fund may invest in structured securities. Struc-
tured securities are securities whose value is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative
change in two or more References. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities and may be more vol-
atile, less liquid and more difficult to price accurately than less complex
securities.
REITs. Each Fund may invest in REITS. REITS are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.
The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable income tax
treatment. REITs are also subject to risks generally associated with invest-
ments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other
60
<PAGE>
APPENDIX A
respects, these risks may be heightened. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which they may invest or on any securities index comprised of
securities in which they may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the-counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
government securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund
61
<PAGE>
invests in foreign securities, currency exchange rates, or to otherwise man-
age their term structures, sector selection and durations in accordance with
their investment objectives and policies. Each Fund may also enter into
closing purchase and sale transactions with respect to such contracts and
options. A Fund will engage in futures and related options transactions for
bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or to seek to increase total return to the extent
permitted by such regulations. A Fund may not purchase or sell futures con-
tracts or purchase or sell related options to seek to increase total return,
except for closing purchase or sale transactions, if immediately thereafter
the sum of the amount of initial margin deposits and premiums paid on the
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
Equity Swaps. Each Fund may invest in equity swaps. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other compo-
nents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are
62
<PAGE>
APPENDIX A
derivatives and their value can be very volatile. To the extent that the
Investment Adviser does not accurately analyze and predict the potential
relative fluctuation of the components swapped with another party, a Fund
may suffer a loss. The value of some components of an equity swap (such as
the dividends on a common stock) may also be sensitive to changes in inter-
est rates. Furthermore, a Fund may suffer a loss if the counterparty
defaults.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. When-issued
securities are securities that have been authorized, but not yet issued.
When-issued securities are purchased in order to secure what is considered
to be an advantageous price and yield to the Fund at the time of entering
into the transaction. A forward commitment involves the entering into a con-
tract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash
63
<PAGE>
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loan continuously with cash, cash equivalents, U.S.
government securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market deprecia-
tion or appreciation, and a Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund
(including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
Short Sales Against-the-Box. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Preferred Stock, Warrants and Rights. Each Fund may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Other Investment Companies. Each Fund may invest in securities of other
investment companies (including SPDRs and WEBs, as defined below) subject to
statutory limitations prescribed by the Act. These limitations include a
prohibition on
64
<PAGE>
APPENDIX A
any Fund acquiring more than 3% of the voting shares of any other investment
company, and a prohibition on investing more than 5% of a Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. A Fund will indi-
rectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Such other investment com-
panies will have investment objectives, policies and restrictions substan-
tially similar to those of the acquiring Fund and will be subject to sub-
stantially the same risks.
..Standard & Poor's Depository Receipts. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
..World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specified countries.
WEBS are listed on the AMEX and were initially offered to the public in
1996. The market prices of WEBS are expected to fluctuate in accordance
with both changes in the NAVs of their underlying indices and supply and
demand of WEBS on the AMEX. To date, WEBS have traded at relatively modest
discounts and premiums to their NAVs. However, WEBS have a limited operat-
ing history and information is lacking regarding the actual performance and
trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the
AMEX necessary to maintain the listing of WEBS will continue to be met or
will remain unchanged. In the event substantial market or other disruptions
affecting WEBS should occur in the future, the liquidity and value of a
Fund's shares could also be substantially and adversely affected. If such
disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
Unseasoned Companies. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments
in unseasoned compa -
65
<PAGE>
nies are more speculative and entail greater risk than do investments in
companies with an established operating record.
Corporate Debt Obligations. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of corporations to pay
interest and repay principal, and include securities issued by banks and
other financial institutions. Each Fund may invest in corporate debt obliga-
tions issued by U.S. and certain non-U.S. issuers which issue securities
denominated in the U.S. dollar (including Yankee and Euro obligations). In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions and suprana-
tional entities (i.e., the World Bank, the International Monetary Fund,
etc.).
Bank Obligations. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be gen-
eral obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulations. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. government securities and related custodial receipts. U.S.
government securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. government securities may be supported by (a) the
full faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association); (c) the discretionary authority of the U.S. government to pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")); or (d) only the credit of the issuer. U.S. government
securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. government securities, where the interest and principal compo-
nents of stripped U.S. government securities are traded independently.
Interests in U.S. government securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments
66
<PAGE>
APPENDIX A
or both on certain notes or bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. For certain securities law purposes, custodial
receipts are not considered obligations of the U.S. government.
Mortgage-Backed Securities. Certain Funds may invest in mortgage-backed
securities. Mortgage-backed securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-backed securities can be backed by either
fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. Privately issued
mortgage-backed securities are normally structured with one or more types of
"credit enhancement." However, these mortgage-backed securities typically do
not have the same credit standing as U.S. government guaranteed mortgage-
backed securities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other mortgage-backed securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment and invests in cer-
tain mortgages principally secured by interests in real property and other
permitted investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other mortgage-backed securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Certain Funds may invest in asset-backed securi-
ties. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often sub-
67
<PAGE>
ject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the under-
lying loans. During periods of declining interest rates, prepayment of loans
underlying asset-backed securities can be expected to accelerate. According-
ly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Asset-backed securities present credit risks that are not presented by
mortgage-backed securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Borrowings. Each Fund can borrow money from banks and other financial insti-
tutions in amounts not exceeding one-third of its total assets for temporary
or emergency purposes. A Fund may not make additional investments if
borrowings exceed 5% of its total assets.
68
<PAGE>
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69
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized and
beginning income unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $ 9.98 $ 0.05 $ 0.84
1999 - Class B Shares 9.95 0.01 0.85
1999 - Class C Shares 9.96 0.01 0.85
1999 - Institutional Shares 10.06 0.09 0.85
1999 - Service Shares 10.02 0.01 0.90
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 9.22 (0.01) 0.79
1999 - Class B Shares 9.21 -- 0.74
1999 - Class C Shares 9.22 -- 0.74
1999 - Institutional Shares 9.24 0.05 0.80
1999 - Service Shares 9.23 -- 0.81
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced August
15, 1997) 10.00 -- (0.78)
1998 - Class B Shares (commenced August
15, 1997) 10.00 (0.02) (0.77)
1998 - Class C Shares (commenced August
15, 1997) 10.00 (0.02) (0.76)
1998 - Institutional Shares (commenced
August 15, 1997) 10.00 0.02 (0.76)
1998 - Service Shares (commenced August
15, 1997) 10.00 0.01 (0.78)
- ------------------------------------------------------------------------------
</TABLE>
See page 97 for all footnotes.
70
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
------------------------
Net
increase Net
(decrease) Net asset assets
From net From net in net value, at end
investment realized asset end of Total of period
income gains value period return/b/ (in 000s)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ 0.89 $10.87 8.92%d $114,502
-- -- 0.86 10.81 8.64d 9,171
-- -- 0.86 10.82 8.63d 4,913
-- -- 0.94 11.00 9.34d 271,212
-- -- 0.91 10.93 9.08d 8
- ---------------------------------------------------------------------------------
(0.02) -- 0.76 9.98 8.37 110,338
-- -- 0.74 9.95 8.03 7,401
-- -- 0.74 9.96 8.03 3,742
(0.03) -- 0.82 10.06 9.20 280,731
(0.02) -- 0.79 10.02 8.74 22
- ---------------------------------------------------------------------------------
-- -- (0.78) 9.22 (7.66)d 7,087
-- -- (0.79) 9.21 (7.90)d 2,721
-- -- (0.78) 9.22 (7.80)d 1,608
(0.02) -- (0.76) 9.24 (7.45)d 17,719
-- -- (0.77) 9.23 (7.70)d 1
- ---------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
CORE INTERNATIONAL EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of
net
Ratio of Ratio of net investment
net investment Ratio of income
expenses income (loss) expenses (loss) to Portfolio
to average to average to average average turnover
net assets net assets net assets net assets rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.66%c 0.78%c 1.76%c 0.68%c 64.97%d
1999 - Class B Shares 2.16c 0.26c 2.26c 0.16c 64.97d
1999 - Class C Shares 2.16c 0.23c 2.26c 0.13c 64.97d
1999 - Institutional
Shares 1.01c 1.43c 1.11c 1.33c 64.97d
1999 - Service Shares 1.51c 0.07c 1.61c (0.03)c 64.97d
- ----------------------------------------------------------------------------------
For the Year Ended
January 31,
1999 - Class A Shares 1.63 (0.11) 1.94 (0.42) 194.61
1999 - Class B Shares 2.08 (0.03) 2.39 (0.34) 194.61
1999 - Class C Shares 2.08 (0.04) 2.39 (0.35) 194.61
1999 - Institutional
Shares 1.01 0.84 1.32 0.53 194.61
1999 - Service Shares 1.50 0.02 1.81 (0.29) 194.61
- ----------------------------------------------------------------------------------
For the Period Ended
January 31,
1998 - Class A Shares
(commenced August 15,
1997) 1.50c (0.27)c 4.87c (3.90)c 25.16d
1998 - Class B Shares
(commenced August 15,
1997) 2.00c (0.72)c 5.12c (3.84)c 25.16d
1998 - Class C Shares
(commenced August 15,
1997) 2.00c (0.73)c 5.12c (3.85)c 25.16d
1998 - Institutional
Shares (commenced
August 15, 1997) 1.00c 0.59 c 4.12c (2.53)c 25.16d
1998 - Service Shares
(commenced August 15,
1997) 1.50c 0.26 c 4.62c (2.86)c 25.16d
- ----------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
[This page intentionally left blank]
73
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $21.92 $ 0.04 $ 1.16
1999 - Class B Shares 21.63 (0.02) 1.12
1999 - Class C Shares 21.45 (0.03) 1.12
1999 - Institutional Shares 22.20 0.12e 1.17e
1999 - Service Shares 21.93 0.06 1.15
- ------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 19.85 (0.06) 3.24
1999 - Class B Shares 19.70 (0.17) 3.21
1999 - Class C Shares 19.56 (0.15) 3.15
1999 - Institutional Shares 19.97 0.03 3.31
1999 - Service Shares 19.84 (0.04) 3.24
- ------------------------------------------------------------------------------
1998 - Class A Shares 19.32 0.03 2.04
1998 - Class B Shares 19.24 (0.08) 2.02
1998 - Class C Shares (commenced
August 15, 1997) 22.60 (0.04) (1.38)
1998 - Institutional Shares 19.40 0.10 2.11
1998 - Service Shares 19.34 0.02 2.06
- ------------------------------------------------------------------------------
1997 - Class A Shares 17.20 0.10 2.23
1997 - Class B Shares (commenced May 1,
1996) 18.91 (0.06) 0.60
1997 - Institutional Shares (commenced
February 7, 1996) 17.45 0.04 2.15
1997 - Service Shares (commenced March 6,
1996) 17.70 (0.02) 1.87
- ------------------------------------------------------------------------------
1996 - Class A Shares 14.52 0.13 4.00
- ------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gain value of period return/b/ (in 000s) net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1.20 $23.12 5.47%d $943,473 1.79%c
-- -- -- 1.10 22.73 5.09d 68,691 2.29c
-- -- -- 1.09 22.54 5.08d 11,241 2.29c
-- -- -- 1.29 23.49 5.81d 180,564 1.14c
-- -- -- 1.21 23.14 5.52d 3,852 1.64c
- ------------------------------------------------------------------------------------------------
-- -- (1.11) 2.07 21.92 16.39 947,973 1.73
-- -- (1.11) 1.93 21.63 15.80 69,231 2.24
-- -- (1.11) 1.89 21.45 15.70 11,619 2.24
-- -- (1.11) 2.23 22.20 17.09 111,315 1.13
-- -- (1.11) 2.09 21.93 16.49 3,568 1.63
- ------------------------------------------------------------------------------------------------
-- (0.30) (1.24) 0.53 19.85 11.12 697,590 1.67
-- (0.25) (1.23) 0.46 19.70 10.51 55,324 2.20
-- (0.38) (1.24) (3.04) 19.56 (5.92)d 3,369 2.27c
(0.07) (0.33) (1.24) 0.57 19.97 11.82 56,263 1.08
-- (0.35) (1.23) 0.50 19.84 11.25 3,035 1.55
- ------------------------------------------------------------------------------------------------
-- -- (0.21) 2.12 19.32 13.48 536,283 1.69
-- -- (0.21) 0.33 19.24 2.83d 19,198 2.23c
(0.03) -- (0.21) 1.95 19.40 12.53d 68,374 1.10c
-- -- (0.21) 1.64 19.34 10.42d 674 1.60c
- ------------------------------------------------------------------------------------------------
(0.58) -- (0.87) 2.68 17.20 28.68 330,860 1.52
- ------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
INTERNATIONAL EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary
expense limitations
--------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average to average net turnover
assets net assets assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 0.31%c 1.84%c 0.26%c 61.10%d
1999 - Class B Shares (0.19)c 2.34c (0.24)c 61.10d
1999 - Class C Shares (0.26)c 2.34c (0.31)c 61.10d
1999 - Institutional
Shares 0.89c 1.19c 0.84c 61.10d
1999 - Service Shares 0.47c 1.69c 0.42c 61.10d
- -------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.28) 1.82 (0.37) 113.79
1999 - Class B Shares (0.79) 2.32 (0.87) 113.79
1999 - Class C Shares (0.98) 2.32 (1.06) 113.79
1999 - Institutional
Shares 0.23 1.21 0.15 113.79
1999 - Service Shares (0.18) 1.71 (0.26) 113.79
- -------------------------------------------------------------------------------
1998 - Class A Shares (0.27) 1.80 (0.40) 40.82
1998 - Class B Shares (0.90) 2.30 (1.00) 40.82
1998 - Class C Shares
(commenced August 15,
1997) (1.43)c 2.37c (1.53)c 40.82
1998 - Institutional
Shares 0.30 1.18 0.20 40.82
1998 - Service Shares (0.36) 1.65 (0.46) 40.82
- -------------------------------------------------------------------------------
1997 - Class A Shares (0.07) 1.88 (0.26) 38.01
1997 - Class B Shares
(commenced May 1, 1996) (0.97)c 2.38c (1.12)c 38.01
1997 - Institutional
Shares (commenced
February 7, 1996) 0.43c 1.25c 0.28c 38.01
1997 - Service Shares
(commenced March 6,
1996) (0.40)c 1.75c (0.55)c 38.01
- -------------------------------------------------------------------------------
1996 - Class A Shares 0.26 1.77 0.01 68.48
- -------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
[This page intentionally left blank]
77
<PAGE>
EUROPEAN EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period loss gain (loss)
- -----------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $12.20 $0.05 $(0.50)
1999 - Class B Shares 12.19 0.03 (0.51)
1999 - Class C Shares 12.20 0.04 (0.52)
1999 - Institutional Shares 12.23 0.18 (0.59)
1999 - Service Shares 12.20 0.08 (0.52)
- -----------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced October
1, 1998) 10.00 (0.03) 2.23
1999 - Class B Shares (commenced October
1, 1998) 10.00 (0.02) 2.21
1999 - Class C Shares (commenced October
1, 1998) 10.00 (0.01) 2.21
1999 - Institutional Shares (commenced
October 1, 1998) 10.00 (0.01) 2.24
1999 - Service Shares (commenced October
1, 1998) 10.00 (0.03) 2.23
- -----------------------------------------------------------------------------
</TABLE>
78
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- ------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $(0.45) $11.75 (3.69)%d $74,862 1.79%c
-- -- -- (0.48) 11.71 (3.94)d 879 2.29c
-- -- -- (0.48) 11.72 (3.93)d 388 2.29c
-- -- -- (0.41) 11.82 (3.35)d 5,965 1.14c
-- -- -- (0.44) 11.76 (3.61)d 2 1.64c
- -----------------------------------------------------------------------------------------------
-- -- -- 2.20 12.20 22.00d 61,151 1.79c
-- -- -- 2.19 12.19 21.90d 432 2.29c
-- -- -- 2.20 12.20 22.00d 587 2.29c
-- -- -- 2.23 12.23 22.30d 12,740 1.14c
-- -- -- 2.20 12.20 22.00d 2 1.64c
- -----------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
EUROPEAN EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- ------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares 0.80%c 2.29%c 0.30%c 54.98%d
1999 - Class B Shares 0.43c 2.79c (0.07)c 54.98d
1999 - Class C Shares 0.42c 2.79c (0.08)c 54.98d
1999 - Institutional
Shares 1.53c 1.64c 1.03c 54.98d
1999 - Service Shares 1.10c 2.14c 0.60c 54.98d
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares
(commenced October 1,
1998) (1.19)c 2.80c (2.20)c 70.77d
1999 - Class B Shares
(commenced October 1,
1998) (1.78)c 3.30c (2.79)c 70.77d
1999 - Class C Shares
(commenced October 1,
1998) (1.83)c 3.30c (2.84)c 70.77d
1999 - Institutional
Shares (commenced Octo-
ber 1, 1998) (0.33)c 2.15c (1.34)c 70.77d
1999 - Service Shares
(commenced October 1,
1998) (0.69)c 2.65c (1.70)c 70.77d
- ------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
[This page intentionally left blank]
81
<PAGE>
JAPANESE EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period loss gains
- ----------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $11.06 $(0.06) $5.24
1999 - Class B Shares 11.03 (0.09) 5.20
1999 - Class C Shares 11.04 (0.08) 5.20
1999 - Institutional Shares 11.10 (0.03) 5.29
1999 - Service Shares 11.04 (0.06) 5.24
- ----------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced May 1,
1998) 10.00 (0.06) 1.12
1999 - Class B Shares (commenced May 1,
1998) 10.00 (0.08) 1.11
1999 - Class C Shares (commenced May 1,
1998) 10.00 (0.09) 1.13
1999 - Institutional Shares (commenced
May 1, 1998) 10.00 (0.02) 1.13
1999 - Service Shares (commenced May 1,
1998) 10.00 (0.05) 1.09
- ----------------------------------------------------------------------------
</TABLE>
82
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- -------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $5.18 $16.24 46.84%d $34,279 1.70%c
-- -- -- 5.11 16.14 46.33d 4,219 2.20c
-- -- -- 5.12 16.16 46.41d 3,584 2.20c
-- -- -- 5.26 16.36 47.40d 22,709 1.05c
-- -- -- 5.18 16.22 46.92d 3 1.55c
- ----------------------------------------------------------------------------------------------
-- -- -- 1.06 11.06 10.60d 8,391 1.64c
-- -- -- 1.03 11.03 10.30d 1,427 2.15c
-- -- -- 1.04 11.04 10.40d 284 2.15c
-- (0.01) -- 1.10 11.10 11.06d 11,418 1.03c
-- -- -- 1.04 11.04 10.43d 2 1.53c
- ----------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE>
JAPANESE EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio of Ratio of
net investment Ratio of net investment
loss to expenses to loss to average Portfolio
average net average net turnover
assets net assets assets rate
- ---------------------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares (1.17)%c 2.62%c (2.09)%c 44.83%d
1999 - Class B Shares (1.57)c 3.12c (2.49)c 44.83d
1999 - Class C Shares (1.81)c 3.12c (2.73)c 44.83d
1999 - Institutional
Shares (0.37)c 1.97c (1.29)c 44.83d
1999 - Service Shares (0.74)c 2.47c (1.66)c 44.83d
- ---------------------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares
(commenced May 1, 1998) (1.20)c 4.18c (3.74)c 53.29d
1999 - Class B Shares
(commenced May 1, 1998) (1.76)c 4.69c (4.30)c 53.29d
1999 - Class C Shares
(commenced May 1, 1998) (1.69)c 4.69c (4.23)c 53.29d
1999 - Institutional
Shares (commenced May 1,
1998) (0.36)c 3.57c (2.90)c 53.29d
1999 - Service Shares
(commenced May 1, 1998) (0.68)c 4.07c (3.22)c 53.29d
- ---------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
[This page intentionally left blank]
85
<PAGE>
INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period loss gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $10.62 $(0.03) $2.65
1999 - Class B Shares 10.61 (0.08)e 2.66e
1999 - Class C Shares 10.61 (0.08)e 2.66e
1999 - Institutional Shares 10.66 -- 2.69
1999 - Service Shares 10.61 (0.02) 2.65
- -------------------------------------------------------------------------------
For the Period Ended January 31,
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
1999 - Service Shares (commenced May 1,
1998) 10.00 (0.02) 0.63
- -------------------------------------------------------------------------------
</TABLE>
86
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
Ratio of
In excess Net assets net
From net of net Net increase Net asset at end of expenses
investment investment From net in net asset value, end Total period to average
income loss realized gains value of period return/b/(in 000s) net assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $2.62 $13.24 24.67%d $69,458 2.05%c
-- -- -- 2.58 13.19 24.32d 303 2.55c
-- -- -- 2.58 13.19 24.32d 419 2.55c
-- -- -- 2.69 13.35 25.24d 65,772 1.40c
-- -- -- 2.63 13.24 24.79d 2 1.90c
- -----------------------------------------------------------------------------------------------
-- -- -- 0.62 10.62 6.20d 33,002 2.02c
-- -- -- 0.61 10.61 6.10d 213 2.51c
-- -- -- 0.61 10.61 6.10d 175 2.51c
-- (0.01) -- 0.66 10.66 6.67d 36,992 1.40c
-- -- -- 0.61 10.61 6.10d 2 1.90c
- -----------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
INTERNATIONAL SMALL CAP FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
loss to expenses loss to Portfolio
average to average average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period Ended
August 31,
1999 - Class A Shares (0.68)%c 2.42%c (1.05)%c 58.81%d
1999 - Class B Shares (1.16)c 2.92c (1.53)c 58.81d
1999 - Class C Shares (1.21)c 2.92c (1.58)c 58.81d
1999 - Institutional Shares (0.05)c 1.77c (0.42)c 58.81d
1999 - Service Shares (0.35)c 2.27c (0.72)c 58.81d
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced
May 1, 1998) (1.03)c 3.60c (2.61)c 96.11d
1999 - Class B Shares (commenced
May 1, 1998) (1.30)c 4.09c (2.88)c 96.11d
1999 - Class C Shares (commenced
May 1, 1998) (1.45)c 4.09c (3.03)c 96.11d
1999 - Institutional Shares
(commenced May 1, 1998) (0.19)c 2.98c (1.77)c 96.11d
1999 - Service Shares (commenced
May 1, 1998) (0.26)c 3.48c (1.84)c 96.11d
- ------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
[This page intentionally left blank]
89
<PAGE>
EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $ 7.04 $(0.01) $ 2.23
1999 - Class B Shares 7.03 (0.03) 2.21
1999 - Class C Shares 7.05 (0.03) 2.22
1999 - Institutional Shares 7.09 0.02 2.26
1999 - Service Shares 6.87 0.01 2.17
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 9.69 0.04 (2.40)
1999 - Class B Shares 9.69 0.03 (2.41)
1999 - Class C Shares 9.70 0.01 (2.39)
1999 - Institutional Shares 9.70 0.06 (2.36)
1999 - Service Shares 9.69 (0.13) (2.41)
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced December
15, 1997) 10.00 -- (0.31)
1998 - Class B Shares (commenced December
15, 1997) 10.00 -- (0.31)
1998 - Class C Shares (commenced December
15, 1997) 10.00 -- (0.30)
1998 - Institutional Shares (commenced
December 15, 1997) 10.00 0.01 (0.31)
1998 - Service Shares (commenced December
15, 1997) 10.00 -- (0.31)
- ------------------------------------------------------------------------------
</TABLE>
90
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 2.22 $9.26 31.53%d $ 65,698 2.04%c
-- -- -- 2.18 9.21 31.01d 972 2.54c
-- -- -- 2.19 9.24 31.06d 1,095 2.54c
-- -- -- 2.28 9.37 32.16d 108,574 1.39c
-- -- -- 2.18 9.05 31.73d 2 1.89c
- --------------------------------------------------------------------------------------------------
(0.07) (0.22) -- (2.65) 7.04 (24.32) 52,704 2.09
(0.07) (0.21) -- (2.66) 7.03 (24.51) 459 2.59
(0.07) (0.20) -- (2.65) 7.05 (24.43) 273 2.59
(0.08) (0.23) -- (2.61) 7.09 (23.66) 90,189 1.35
(0.07) (0.21) -- (2.82) 6.87 (26.17) 1 1.85
- --------------------------------------------------------------------------------------------------
-- -- -- (0.31) 9.69 (3.10)d 17,681 1.90c
-- -- -- (0.31) 9.69 (3.10)d 64 2.41c
-- -- -- (0.30) 9.70 (3.00)d 73 2.48c
-- -- -- (0.30) 9.70 (3.00)d 19,120 1.30c
-- -- -- (0.31) 9.69 (3.10)d 2 2.72c
- --------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE>
EMERGING MARKETS EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio
Ratio of net
of net investment
investment Ratio of income
income (loss) expenses to (loss) to Portfolio
to average average net average turnover
net assets assets net assets rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period
Ended August 31,
1999 - Class A Shares (0.15)%c 2.41%c (0.52)%c 63.24%d
1999 - Class B Shares (0.71)c 2.91c (1.08)c 63.24d
1999 - Class C Shares (0.85)c 2.91c (1.22)c 63.24d
1999 - Institutional
Shares 0.50c 1.76c 0.13c 63.24d
1999 - Service Shares 0.12c 2.26c (0.25)c 63.24d
- --------------------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 0.80 2.53 0.36 153.67
1999 - Class B Shares 0.19 3.03 (0.25) 153.67
1999 - Class C Shares 0.28 3.03 (0.16) 153.67
1999 - Institutional
Shares 1.59 1.79 1.15 153.67
1999 - Service Shares (1.84) 2.29 (2.28) 153.67
- --------------------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares
(commenced December 15,
1997) 0.55c 5.88c (3.43)c 3.35d
1998 - Class B Shares
(commenced December 15,
1997) 0.05c 6.39c (3.93)c 3.35d
1998 - Class C Shares
(commenced December 15,
1997) (0.27)c 6.46c (4.25)c 3.35d
1998 - Institutional
Shares (commenced Decem-
ber 15, 1997) 0.80c 5.28c (3.18)c 3.35d
1998 - Service Shares
(commenced December 15,
1997) (0.05)c 6.70c (4.03)c 3.35d
- --------------------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
[This page intentionally left blank]
93
<PAGE>
ASIA GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $ 7.79 $(0.02) $3.30
1999 - Class B Shares 7.68 (0.04) 3.24
1999 - Class C Shares 7.68 (0.04) 3.21
1999 - Institutional Shares 7.91 0.01 3.36
- -----------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 8.38 0.07 (0.66)
1999 - Class B Shares 8.31 0.01 (0.64)
1999 - Class C Shares 8.29 -- (0.61)
1999 - Institutional Shares 8.44 0.03 (0.56)
- -----------------------------------------------------------------------------
1998 - Class A Shares 16.31 -- (7.90)
1998 - Class B Shares 16.24 0.01 (7.91)
1998 - Class C Shares (commenced August
15, 1997) 15.73 0.01 (7.42)
1998 - Institutional Shares 16.33 0.10 (7.96)
- -----------------------------------------------------------------------------
1997 - Class A Shares 16.49 0.06 (0.11)
1997 - Class B Shares (commenced May 1,
1996) 17.31 (0.05) (0.48)
1997 - Institutional Shares (commenced
February 2, 1996) 16.61 0.04 (0.11)
- -----------------------------------------------------------------------------
1996 - Class A Shares 13.31 0.17 3.44
- -----------------------------------------------------------------------------
For the Period Ended January 31,
1995 - Class A Shares (commenced July 8,
1994) 14.18 0.11 (0.89)
- -----------------------------------------------------------------------------
</TABLE>
94
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------
Net
In excess increase Net assets
From net of net From net (decrease) Net asset at end
investment investment realized in net value, end Total of period
income income gains asset value of period return/b/ (in 000s)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 3.28 $11.07 42.11%d $ 84,269
-- -- -- 3.20 10.88 41.67d 7,258
-- -- -- 3.17 10.85 41.28d 2,281
-- (0.04) -- 3.33 11.24 42.61d 12,363
- ------------------------------------------------------------------------------
-- -- -- (0.59) 7.79 (7.04) 59,940
-- -- -- (0.63) 7.68 (7.58) 4,190
-- -- -- (0.61) 7.68 (7.36) 999
-- -- -- (0.53) 7.91 (6.28) 4,200
- ------------------------------------------------------------------------------
-- (0.03) -- (7.93) 8.38 (48.49) 87,437
-- (0.03) -- (7.93) 8.31 (48.70) 3,359
-- (0.03) -- (7.44) 8.29 (47.17)d 436
(0.03) -- -- (7.89) 8.44 (48.19) 874
- ------------------------------------------------------------------------------
(0.12) -- (0.01) (0.18) 16.31 (1.01) 263,014
(0.51) (0.03) -- (1.07) 16.24 (6.02)d 3,354
(0.11) (0.06) (0.04) (0.28) 16.33 (1.09)d 13,322
- ------------------------------------------------------------------------------
(0.12) (0.14) (0.17) 3.18 16.49 26.49 205,539
- ------------------------------------------------------------------------------
0.01 -- (0.10) (0.87) 13.31 (5.46)d 124,298
- ------------------------------------------------------------------------------
</TABLE>
95
<PAGE>
ASIA GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of
net
Ratio of Ratio of net investment
net investment Ratio of income
expenses income (loss) expenses (loss) to Portfolio
to average to average to average average turnover
net assets net assets net assets net assets rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.85%c (0.38)%c 2.27%c (0.80)%c 96.58%d
1999 - Class B Shares 2.35c (0.90)c 2.77c (1.32)c 96.58d
1999 - Class C Shares 2.35c (0.89)c 2.77c (1.31)c 96.58d
1999 - Institutional
Shares 1.20c 0.14c 1.62c (0.28)c 96.58d
- -----------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares 1.93 0.63 2.48 0.08 106.00
1999 - Class B Shares 2.45 0.10 2.97 (0.42) 106.00
1999 - Class C Shares 2.45 0.10 2.97 (0.42) 106.00
1999 - Institutional
Shares 1.16 1.10 1.68 0.58 106.00
- -----------------------------------------------------------------------------------
1998 - Class A Shares 1.75 0.31 1.99 0.07 105.16
1998 - Class B Shares 2.30 (0.29) 2.50 (0.49) 105.16
1998 - Class C Shares
(commenced August 15,
1997) 2.35c (0.26)c 2.55c (0.46)c 105.16
1998 - Institutional
Shares 1.11 0.87 1.31 0.67 105.16
- -----------------------------------------------------------------------------------
1997 - Class A Shares 1.67 0.20 1.87 -- 48.40
1997 - Class B Shares
(commenced May 1, 1996) 2.21c (0.56)c 2.37c (0.72)c 48.40
1997 - Institutional
Shares (commenced
February 2, 1996) 1.10c 0.54c 1.26c 0.38c 48.40
- -----------------------------------------------------------------------------------
1996 - Class A Shares 1.77 1.05 2.02 0.80 88.80
- -----------------------------------------------------------------------------------
For the Period Ended
January 31,
1995 - Class A Shares
(commenced July 8,
1994) 1.90c 1.83c 2.38c 1.35c 36.08d
- -----------------------------------------------------------------------------------
</TABLE>
96
<PAGE>
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares methodology.
97
<PAGE>
Index
<TABLE>
<C> <S>
1 General Investment Management Approach
3 Fund Investment Objectives and Strategies
3 Goldman Sachs CORE International Equity Fund
4 Goldman Sachs International Equity Fund
5 Goldman Sachs European Equity Fund
6 Goldman Sachs Japanese Equity Fund
8 Goldman Sachs International Small Cap Fund
9 Goldman Sachs Emerging Markets Equity Fund
11 Goldman Sachs Asia Growth Fund
14 Other Investment Practices and Securities
18 Principal Risks of the Funds
21 Fund Performance
26 Fund Fees and Expenses
30 Service Providers
40 Dividends
41 Shareholder Guide
41 How To Buy Shares
45 How To Sell Shares
49 Taxation
51 Appendix A
Additional Information on
Portfolio Risks,
Securities and Techniques
70 Appendix B
Financial Highlights
</TABLE>
<PAGE>
International Equity Funds
Prospectus (Institutional Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman Sachs Funds, 4900 Sears Tower-60th Floor, Chicago, IL
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
CORESM is a service mark of Goldman, Sachs & Co.
EQINTLPROINS
<PAGE>
Prospectus
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
Service Shares
November 30, 1999
..Goldman Sachs
CORE/SM/
International
Equity Fund
..Goldman Sachs
International
Equity Fund
..Goldman Sachs
European
Equity Fund
..Goldman Sachs
Japanese
Equity Fund
..Goldman Sachs
International
Small Cap Fund
..Goldman Sachs
Emerging
Markets Equity
Fund
..Goldman Sachs
Asia Growth
Fund
[LOGO OF GOLDMAN SACH]
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the CORE International Equity Fund. Goldman Sachs Asset Management Interna-
tional serves as investment adviser to International Equity, European Equi-
ty, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International are each referred to in this Prospectus as the "In-
vestment Adviser."
ACTIVE INTERNATIONAL STYLE FUNDS
Goldman Sachs' Active International Investment Philosophy:
<TABLE>
<CAPTION>
How the Investment Adviser Acts on
Belief Belief
- ----------------------------------------------------------------------------
<S> <C>
.Equity markets are inefficient Seeks excess return through team
driven, research intensive and
bottom-up stock selection.
.Returns are variable Seeks to capitalize on variability
of market and regional returns
through asset allocation decisions.
.Corporate fundamentals ultimately Seeks to conduct rigorous, first-
drive share price hand research of business and
company management.
.A business' intrinsic value will be Seeks to realize value through a
achieved over time long-term investment horizon.
.Portfolio risk must be carefully Seeks to systematically monitor and
analyzed and monitored manage risk through diversification,
multifactor risk models and currency
management.
</TABLE>
The Investment Adviser attempts to manage risk in these Funds through disci-
plined portfolio construction and continual portfolio review and analysis.
As a result, bottom-up stock selection, driven by fundamental research,
should be a main driver of returns.
- --------------------------------------------------------------------------------
1
<PAGE>
QUANTITATIVE ("CORE") STYLE FUNDS
Goldman Sachs' CORE Investment Philosophy:
Goldman Sachs' quantitative style of funds--CORE--emphasizes the two build-
ing blocks of active management: stock selection and portfolio construction.
I. CORE STOCK SELECTION
The CORE Fund uses the Goldman Sachs proprietary multifactor model
("Multifactor Model"), a rigorous computerized rating system, to forecast
the returns of securities held in the Fund's portfolio. The Multifactor
Model incorporates common variables covering measures of:
..Value (price-to-book, price-to-earnings, cash flow to enterprise value)
..Momentum (earnings momentum, price momentum, sustainable growth)
..Risk (market risk, company-specific risk, earnings risk)
All of the above factors are carefully evaluated within the Multifactor
Model since each has demonstrated a significant impact on the performance of
the securities and markets they were designed to forecast.
II. CORE PORTFOLIO CONSTRUCTION
A proprietary computer optimizer calculates every security combination (at
every possible weighting) to construct the most efficient risk/return port-
folio given the CORE Fund benchmark. In this process, the Investment Adviser
manages risk by limiting deviations from the benchmark. In addition, the
CORE International Equity Fund utilizes proprietary quantitative models to
allocate assets across countries.
Goldman Sachs CORE Funds are fully invested, broadly diversified and offer
consistent overall portfolio characteristics. They may serve as good founda-
tions on which to build a portfolio.
- --------------------------------------------------------------------------------
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs CORE International Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term growth of capital
Benchmarks: MSCI Europe, Australasia, Far East ("EAFE") Index
(unhedged)
Investment Focus: Large-capitalization equity securities of companies that
are organized outside the United States or whose securi-
ties are primarily traded outside the United States
Investment Style: Quantitative
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital. The Fund seeks this objective
through a broadly diversified portfolio of equity securities of large-cap
companies that are organized outside the United States or whose securities
are principally traded outside the United States.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, at least
90% of its total assets in equity securities of companies that are organized
outside the United States or whose securities are principally traded outside
the United States.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are
invested in at least three foreign countries. The Fund may invest in the
securities of issuers in countries with emerging markets or economies
("emerging countries").
The Fund seeks broad representation of large-cap issuers across major coun-
tries and sectors of the international economy. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintain-
ing risk, style, capitalization and industry characteristics similar to the
EAFE Index. In addition, the Fund seeks a portfolio composed of companies
with attractive valuations and stronger momentum characteristics than the
EAFE Index.
Other. The Fund's investments in fixed-income securities are limited to
securities that are considered to be cash equivalents.
3
<PAGE>
Goldman Sachs International Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI EAFE Index (unhedged)
Investment Focus: Equity securities of companies organized outside the
United States or whose securities are principally traded
outside the United States
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund intends to invest
in companies with public stock market capitalizations that are larger than
$1 billion at the time of investment.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries.
The Fund expects to invest a substantial portion of its assets in the secu-
rities of issuers located in the developed countries of Western Europe and
in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and in emerging countries. Cur-
rently, emerging countries include, among others, most Latin American, Afri-
can, Asian and Eastern European nations.
Other. The Fund may also invest up to 35% of its total assets in fixed-
income securities, such as government, corporate and bank debt obligations.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs European Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI Europe Index (unhedged)
Investment Focus: Equity securities of European companies
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
European companies. Because of its focus, the Fund will be more susceptible
to European economic, market, political and local risks than a fund that is
more geographically diversified.
A European issuer is a company that either:
..Has a class of its securities whose principal securities markets is in a
European country;
..Is organized under the laws of, or has a principal office in, a European
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more of the European countries; or
..Maintains 50% or more of its assets in one or more of the European coun-
tries.
The Fund may allocate its assets among different countries as determined by
the Investment Adviser from time to time, provided that the Fund's assets
are invested in at least three European countries. It is currently antici-
pated that a majority of the Fund's assets will be invested in the equity
securities of large cap companies located in the developed countries of
Western Europe. However, the Fund may also invest, without limit, in mid cap
companies and small cap companies, as well as companies located in emerging
countries. Currently, emerging countries include among others, most Latin
American, African, Asian, most Eastern European nations, including the
states that formerly comprised the Soviet Union and Yugoslavia.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-European countries and in fixed-income securities,
such as government, corporate and bank debt obligations.
5
<PAGE>
Goldman Sachs Japanese Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: Tokyo Price Index ("TOPIX") (unhedged)
Investment Focus: Equity securities of Japanese companies
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
Japanese companies. A Japanese issuer is a company that either:
..Has a class of its securities whose principal securities markets is in
Japan;
..Is organized under the laws of, or has a principal office in Japan;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in Japan; or
..Maintains 50% or more of its assets in Japan.
The Fund's concentration in Japanese companies will expose it to the risk of
adverse social, political and economic events which occur in Japan or affect
the Japanese markets.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Japan's economic growth in the 1990's has been
substantially below the level of earlier decades. Its economy has drifted
between modest growth and recession. In calendar year 1998, Japan's gross
national product contracted by 2.8% -- its worst performance in the post-war
period. In addition to this economic downturn, Japan is undergoing struc-
tural adjustments related to high wages and taxes, currency valuations and
structural rigidities. Japan has also been experiencing notable uncertainty
and loss of public confidence in connection
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
with the reform of its political process and the deregulation of its econo-
my. These conditions present risks to the Japanese Equity Fund and its abil-
ity to attain its investment objective.
Japan's economy is heavily dependent upon international trade, and is espe-
cially sensitive to trade barriers and disputes. In particular, Japan relies
on large imports of agricultural products, raw materials and fuels. A sub-
stantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. Japan's banking industry has recently suffered from non-perform-
ing loans, declining real estate values and lower valuations of securities
holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are also not always
equally enforced.
For most of this decade, Japanese securities markets have experienced sig-
nificant declines. Although the stock market exhibited some strength recent-
ly, it is not possible to determine whether this will continue.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the United States. In general, however, reported net income in
Japan is understated relative to U.S. accounting standards and this is one
reason price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the United States.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities,
such as government, corporate and bank debt obligations.
7
<PAGE>
Goldman Sachs International Small Cap Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI EAFE Small Cap Index (unhedged)
Investment Focus: Equity securities of foreign companies with public stock
market capitalizations of $1 billion or less at the time
of investment
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
companies:
..With public stock market capitalizations of $1 billion or less at the time
of investment; and
..That are organized outside the United States or whose securities are prin-
cipally traded outside the United States.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time provided that the Fund's assets are
invested in at least three foreign countries. The Fund expects to invest a
substantial portion of its assets in small cap securities of companies in
the developed countries of Western Europe, Japan and Asia. However, the Fund
may also invest in the securities of issuers located in Australia, Canada,
New Zealand and in emerging countries. Currently, emerging countries
include, among others, most Latin American, African, Asian and Eastern Euro-
pean nations.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger-cap companies with public stock market capital-
izations of more than $1 billion at the time of investment and in fixed-
income securities, such as government, corporate and bank debt obligations.
If the market capitalization of a company held by the Fund increases above
$1 billion, the Fund may, consistent with its investment objective, continue
to hold the security.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Emerging Markets Equity Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI Emerging Markets Free Index
Investment Focus: Equity securities of emerging country issuers
Investment Style: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
emerging country issuers. The Investment Adviser may consider classifica-
tions by the World Bank, the International Finance Corporation or the United
Nations and its agencies in determining whether a country is emerging or
developed. Currently, emerging countries include, among others, most Latin
American, African, Asian and Eastern European nations. The Investment
Adviser currently intends that the Fund's investment focus will be in the
following emerging countries as well as any other emerging country to the
extent that foreign investors are permitted by applicable law to make such
investments:
<TABLE>
<S> <C> <C> <C> <C>
.Argentina .Egypt .Jordan .Philippines .Sri Lanka
.Botswana .Greece .Kenya .Poland .Taiwan
.Brazil .Hong Kong .Malaysia .Portugal .Thailand
.Chile .Hungary .Mexico .Russia .Turkey
.China .India .Morocco .Singapore .Venezuela
.Colombia .Indonesia .Pakistan .South Africa .Zimbabwe
.Czech Republic .Israel .Peru .South Korea
</TABLE>
9
<PAGE>
Goldman Sachs Emerging Markets Equity Fund continued
An emerging country issuer is any company that either:
..Has a class of its securities whose principal securities market is in an
emerging country;
..Is organized under the laws of, or has a principal office in, an emerging
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more emerging countries; or
..Maintains 50% or more of its assets in one or more of the emerging coun-
tries.
Under normal circumstances, the Fund maintains investments in at least six
emerging countries, and will not invest more than 35% of its total assets in
securities of issuers in any one emerging country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the emerging
country markets and particular issuers. In addition, macro-economic factors
and the portfolio managers' and Goldman Sachs economists' views of the rela-
tive attractiveness of emerging countries and currencies are considered in
allocating the Fund's assets among emerging countries.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
(i) fixed-income securities of private and government emerging country
issuers; and (ii) equity and fixed-income securities, such as government,
corporate and bank debt obligations, of issuers in developed countries.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Asia Growth Fund
FUND FACTS
- --------------------------------------------------------------------------------
Objective: Long-term capital appreciation
Benchmark: MSCI All County Asia Free ex-Japan Index (unhedged)
Investment Focus: Equity securities of companies in Asian countries
Investment Process: Active International
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. The Fund invests, under normal circumstances, substan-
tially all, and at least 65% of its total assets in equity securities of
Asian issuers.
An Asian issuer is any company that either:
..Has a class of its securities whose principal securities markets is in one
or more Asian countries;
..Is organized under the laws of, or has a principal office in, an Asian
country;
..Derives 50% or more of its total revenue from goods produced, sales made or
services performed in one or more Asian countries; or
..Maintains 50% or more of its assets in one or more Asian countries.
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are:
..China .Malaysia .South Korea
..Hong Kong .Pakistan .Sri Lanka
..India .Philippines .Taiwan
..Indonesia .Singapore .Thailand
as well as any other country in Asia (other than Japan) to the extent that
foreign investors are permitted by applicable law to make such investments.
11
<PAGE>
Goldman Sachs Asia Growth Fund continued
Allocation of the Fund's investments will depend upon the Investment Advis-
er's views of the relative attractiveness of the Asian markets and particu-
lar issuers.
Concentration of the Fund's assets in one or a few of the Asian countries
and Asian currencies will subject the Fund to greater risks than if the
Fund's assets were not so concentrated. For example, on August 31, 1999 (the
end of the Fund's last fiscal year), more than 25% of the Fund's assets were
invested in securities that traded in Hong Kong.
Starting in mid-1997 some Pacific region countries began to experience cur-
rency devaluations that resulted in high interest rate levels and sharp
reductions in economic activity. This situation resulted in a significant
drop in the securities prices of companies located in the region. Some coun-
tries have experienced government intervention, have sought assistance from
the International Monetary Fund and have experienced substantial domestic
unrest. Although some countries are taking steps to restructure their finan-
cial sectors in a manner that may facilitate a return to long-term economic
growth, there can be no assurance that these efforts will be successful or
that their current problems will not persist. At the end of its last fiscal
year, a substantial portion of the Asia Growth Fund was invested in securi-
ties traded in the Hong Kong market. In 1997, the sovereignty of Hong Kong
reverted from the United Kingdom to China. Hong Kong's financial prospects
depend, in large part, on its ability to retain the legal, financial and
monetary systems that allow economic freedom and market expansion. Although
Hong Kong is, by law, to maintain a high degree of autonomy, there can also
be no assurance that the general economic position of Hong Kong will not be
adversely affected as a result of the exercise of Chinese sovereignty over
Hong Kong. In particular, business confidence in Hong Kong can be signifi-
cantly affected by political developments and statements by public figures
in China, which can in turn affect the performance of the securities mar-
kets. In addition, the reversion of Hong Kong to China has created uncer-
tainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of issuers in non-Asian countries and Japan, and in fixed-
income securities, such as government, corporate and bank debt obligations.
12
<PAGE>
[This page intentionally left blank]
13
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Fund's annual/semi-annual reports. For more information see Appendix
A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
<TABLE>
<CAPTION>
CORE
International International European
Equity Equity Equity
Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3
Cross Hedging of Currencies . . .
Currency Swaps* 15 15 15
Custodial Receipts . . .
Equity Swaps* 15 15 15
Foreign Currency Transactions . . .
Futures Contracts and Options on Futures
Contracts . . .
Investment Company Securities (including
World Equity Benchmark Shares and
Standard & Poor's Depository Receipts) 10 10 10
Options on Foreign Currencies/1/ . . .
Options on Securities and Securities
Indices/2/ . . .
Unseasoned Companies . . .
Warrants and Stock Purchase Rights . . .
Repurchase Agreements . . .
Securities Lending 33 1/3 33 1/3 33 1/3
Short Sales Against the Box -- 25 25
When-Issued Securities and Forward
Commitments . . .
- ------------------------------------------------------------------------------
</TABLE>
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 The Funds may purchase and sell call and put options.
2 The Funds may sell covered call and put options and purchase call and put
options.
14
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Japanese International Emerging Asia
Equity Small Cap Markets Growth
Fund Fund Equity Fund Fund
- ------------------------------------------------------------
<S> <C> <C> <C>
33 1/3 33 1/3 33 1/3 33 1/3
. . . .
15 15 15 15
. . . .
15 15 15 15
. . . .
. . . .
10 10 10 10
. . . .
. . . .
. . . .
. . . .
. . . .
33 1/3 33 1/3 33 1/3 33 1/3
25 25 25 25
. . . .
- ------------------------------------------------------------
</TABLE>
15
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
<TABLE>
<CAPTION>
CORE
International International European
Equity Equity Equity
Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities
American, European and Global Depository
Receipts . . .
Asset-Backed and Mortgage-Backed
Securities/2/ -- . .
Bank Obligations/1/,/2/ . . .
Convertible Securities . . .
Corporate Debt Obligations/2/ ./4/ . .
Equity Securities 90+ 65+ 65+
Emerging Country Securities 25 . .
Fixed Income Securities/3/ 10/4/ 35 35/5/
Foreign Securities . . .
Foreign Government Securities/2/ . . .
Non-Investment Grade Fixed Income
Securities/2/ -- ./6/ ./6/
Real Estate Investment Trusts . . .
Structured Securities* . . .
Temporary Investments 35 100 100
U.S. Government Securities/2/ . . .
- ------------------------------------------------------------------------------
</TABLE>
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 Issued by U.S. or foreign banks.
2 Limited by the amount the Fund invests in fixed-income securities.
3 Except as noted under "Non-Investment Grade Fixed Income Securities,"
fixed-income securities are investment grade (e.g., BBB or higher by Stan-
dard & Poor's Rating Group ("Standard & Poor's") or Baa or higher by
Moody's Investor's Service, Inc. ("Moody's")).
4 Cash equivalents only.
5 The European Equity Fund may invest in the aggregate up to 35% of its total
assets in: (1) equity securities of non-European countries; and (2) fixed-
income securities.
6 May be BB or lower by Standard & Poor's or Ba or lower by Moody's.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Japanese International Emerging
Equity Small Cap Markets Asia Growth
Fund Fund Equity Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
. . . .
. . . .
. . . .
. . . .
65+ 65+ 65+ 65+
. . . .
35/7/ 35/8/ 35/9/ 35/10/
. . . .
. . . .
./6/ ./6/ ./6/ ./6/
. . . .
. . . .
100 100 35 100
. . . .
- -----------------------------------------------------------------------------
</TABLE>
7 The Japanese Equity Fund may invest in the aggregate up to 35% of its total
assets in: (1) fixed-income securities; and (2) equity securities of non-
Japanese companies.
8 The International Small Cap Fund may invest in the aggregate up to 35% of
its total assets in (1) fixed-income securities; and (2) equity securities
of larger cap companies with public stock market capitalizations of more
than $1 billion at the time of investment.
9 The Emerging Markets Equity Fund may invest in the aggregate up to 35% of
its total assets in: (1) fixed-income securities of private and government
emerging country issuers; and (2) equity and fixed-income securities of
issuers in developed countries.
10 The Asia Growth Fund may invest in the aggregate up to 35% of its total
assets in: (1) fixed-income securities; and (2) equity securities of
issuers in non-Asian countries and Japan.
17
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund will achieve its
investment objective.
<TABLE>
<CAPTION>
..Applicable
- --Not applicable
CORE International Emerging
International International European Japanese Small Cap Markets Asia
Equity Equity Equity Equity Equity Equity Growth
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Credit/Default . . . . . . .
Emerging Countries . . . . . . .
Interest Rate . . . . . . .
Small Cap -- -- . -- . -- --
Foreign . . . . . . .
Derivatives . . . . . . .
Management . . . . . . .
Market . . . . . . .
Liquidity . . . . . . .
Stock . . . . . . .
Geographic . . . . . . .
Other . . . . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
All Funds:
..Credit/Default Risk--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..Emerging Countries Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capital-
izations, have less government regulation and are not subject to as extensive
and frequent accounting, financial and other reporting requirements as the
securities markets of more developed countries. Further, investment in equity
securities of issuers located in Russia and certain other emerging countries
involves risk of loss resulting from problems in share registration and cus-
tody and substantial economic and political disrup-
18
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
tions. These risks are not normally associated with investment in more devel-
oped countries.
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income secu-
rities will normally have more price volatility because of this risk than
short-term securities.
..Foreign Risks--The risk that when a Fund invests in foreign securities, it
will be subject to risk of loss not typically associated with domestic
issuers. Loss may result because of less foreign government regulation, less
public information and less economic, political and social stability. Loss may
also result from the imposition of exchange controls, confiscations and other
government restrictions. A Fund will also be subject to the risk of negative
foreign currency rate fluctuations. Foreign risks will normally be greatest
when a Fund invests in issuers located in emerging countries.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instru-
ments. These instruments may be leveraged so that small changes may produce
disproportionate losses to a Fund.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..Liquidity Risk--The risk that a Fund will not be able to pay redemption pro-
ceeds within the time period stated in this Prospectus because of unusual mar-
ket conditions, an unusually high volume of redemption requests, or other rea-
sons. Funds that invest in small capitalization stocks and emerging country
issuers will be especially subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities within these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse
investor perceptions whether or not accurate. The Goldman Sachs Asset Alloca-
tion Portfolios (the "Asset Allocation Portfolios") expect to invest a signif-
icant percentage of their assets in the Funds and other funds for which
Goldman Sachs now or in the future acts as investment adviser or underwriter.
Redemptions by an Asset Allocation Portfolio of its position in a Fund may
further increase liquidity risk and may impact a Fund's net asset value
("NAV").
..Stock Risk--The risk that stock prices have historically risen and fallen in
periodic cycles. As of the date of this Prospectus, U.S. stock markets and
certain foreign stock markets were trading at or close to record high levels.
There is no guarantee that such levels will continue.
19
<PAGE>
..Geographic Risk--The European Equity Fund invests primarily in equity securi-
ties of European companies. The Japanese Equity Fund invests primarily in
equity securities of Japanese equity companies. The Asia Growth Fund invests
primarily in equity securities of Asian issuers. Concentration of the invest-
ments of these or other Funds in issuers located in a particular country or
region will subject the Fund, to a greater extent than if investments were
less concentrated, to the risks of adverse securities markets, exchange rates
and social, political, regulatory or economic events which may occur in that
country or region.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..Small Cap Stock Risk--The securities of small capitalization stocks involve
greater risks than those associated with larger, more established companies
and may be subject to more abrupt or erratic price movements. Securities of
such issuers may lack sufficient market liquidity to enable a Fund to effect
sales at an advantageous time or without a substantial drop in price.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
20
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Service
Shares from year to year; and (b) how the average annual returns of a Fund's
Service Shares compare to those of broad-based securities market indices.
The bar chart and table assume reinvestment of dividends and distributions.
A Fund's past performance is not necessarily an indication of how the Fund
will perform in the future. Performance reflects expense limitations in
effect. If expense limitations were not in place, a Fund's performance would
have been reduced. The European Equity, Japanese Equity and International
Small Cap Funds did not commence operations until October 1, 1998, May 1,
1998 and May 1, 1998. Since these Funds have less than one calendar year's
performance, no performance information is provided in this section. As of
the date of this Prospectus, Service Shares of the Asia Growth Fund had not
commenced operations. Performance of the Asia Growth Fund is represented by
the Fund's Class A Shares. Class A Shares are not offered in this Prospectus
but have substantially similar annual returns because the shares are
invested in the same investment portfolio of securities. Annual returns dif-
fer only to the extent that Class A Shares have a 0.50% distribution and
service fee and a 0.19% transfer agency fee while Service Shares have a
0.50% service fee and a 0.04% transfer agency fee. In addition, Class A
Shares, unlike Service Shares, are subject to a maximum sales charge of
5.5%.
21
<PAGE>
CORE International Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month [BAR CHART]
period ended
September 30, 1998
1999 was 9.40%. 14.09%
Best Quarter
Q4 '98 +18.97%
Worst Quarter
Q3 '98 -15.97%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 8/15/97) 14.09% 0.12%
Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East (EAFE) Index* 20.33% 8.44%
-----------------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI EAFE Index is a market capitalization-weighted composite
of securities in 20 developed markets. The Index figures do not reflect any
fees or expenses.
22
<PAGE>
FUND PERFORMANCE
International Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended
September 30, [BAR CHART]
1999 was 7.70%.
Best Quarter
Q1 '98 +16.94% 1997 1998
4.59% 18.09%
Worst Quarter
Q3 '98 -14.37%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 3/6/96) 18.09% 12.87%
MSCI EAFE (unhedged)* 20.33% 9.57%
FT/S&P Actuaries Europe & Pacific Index (unhedged)** 19.31% 8.21%
------------------------------------------------------------------------------
</TABLE>
* The MSCI EAFE Index, an unmanaged index of common stock prices, is replac-
ing the FT/S&P Actuaries Europe & Pacific Index ("EuroPac") as the Interna-
tional Equity Fund's performance benchmark. The MSCI EAFE Index is widely
used throughout the investment management industry to represent the invest-
ment opportunities available to a large-cap, developed country interna-
tional equity strategy and, in the Investment Adviser's opinion, is a more
appropriate benchmark against which to measure the performance of the
International Equity Fund. The Index figures do not reflect any fees or
expenses.
** The unmanaged EuroPac Index is a market capitalization-weighted composite
of approximately 1,500 stocks from 20 countries in Europe and the Asia-
Pacific region. The Index figures do not reflect any fees or expenses.
23
<PAGE>
Emerging Markets Equity Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
The total
return for
Service Shares
for the 9-month
period ended [BAR CHART]
September 30,
1999 was
25.29%.
1998
Best Quarter -28.81%
Q4 '98 +14.08%
Worst Quarter
Q3 '98 -23.84%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 12/15/97) (28.81)% (26.07)%
MSCI Emerging Markets Free (EMF) Index* (25.33)% (19.87)%
------------------------------------------------------------------
</TABLE>
* The unmanaged MSCI EMF Index is a market capitalization-weighted composite
of securities in over 30 emerging market countries. "Free" indicates an
index that excludes shares in otherwise free markets that are not purchas-
able by foreigners. The Index figures do not reflect any fees or expenses.
24
<PAGE>
FUND PERFORMANCE
Asia Growth Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
The total
return for
Class A Shares [BAR CHART]
for the 9-month
period ended
September 30,
1999 was 1995 1996 1997 1998
27.99%. 6.55% 7.95% -41.07% -15.26%
Best Quarter
Q4 '98 +21.59%
Worst Quarter
Q4 "97 -27.33%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year Since Inception
---------------------------------------------------------------
<S> <C> <C>
Class A (Inception 7/8/94)
Including 5.5% Sales Charge (19.94)% (12.21)%
MSCI All Country Asia Free ex-Japan* (10.27)% (11.22)%
---------------------------------------------------------------
</TABLE>
* The unmanaged MSCI All Country Asia Free ex-Japan Index is a market capi-
talization-weighted composite of securities in ten Asian countries. "Free"
indicates an index that excludes shares in otherwise free markets that are
not purchasable by foreigners. The Index figures do not reflect any fees or
expenses.
25
<PAGE>
Fund Fees and Expenses (Service Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Service Shares of a Fund.
<TABLE>
<CAPTION>
CORE International European
International Equity Equity
Equity Fund Fund Fund
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):2
Management Fees 0.85% 1.00% 1.00%
Service Fees3 0.50% 0.50% 0.50%
Other Expenses4 0.26% 0.19% 0.64%
- -------------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.61% 1.69% 2.14%
- -------------------------------------------------------------------------------------
</TABLE>
See page 28 for all other footnotes.
* As a result of the current expense limitations,
"Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set
forth below. The expense limitations may be termi-
nated at any time at the option of the Investment
Adviser. If this occurs, "Other Expenses" and "Total
Fund Operating Expenses" may increase without share-
holder approval.
<TABLE>
<CAPTION>
CORE International European
International Equity Equity
Equity Fund Fund Fund
----------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):2
Management Fees 0.85% 1.00% 1.00%
Service Fees3 0.50% 0.50% 0.50%
Other Expenses4 0.16% 0.14% 0.14%
----------------------------------------------------------------------------
Total Fund Operating Expenses (after
current expense limitations) 1.51% 1.64% 1.64%
----------------------------------------------------------------------------
</TABLE>
26
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Japanese Emerging Asia
Equity International Small Markets Growth
Fund Cap Fund Equity Fund Fund/1/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
None None None None
None None None None
None None None None
None None None None
1.00% 1.20% 1.20% 1.00%
0.50% 0.50% 0.50% 0.50%
0.97% 0.57% 0.56% 0.62%
- ---------------------------------------------------------------------------------------------
2.47% 2.27% 2.26% 2.12%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Japanese Emerging Asia
Equity International Small Markets Growth
Fund Cap Fund Equity Fund Fund/1/
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.00% 1.20% 1.20% 1.00%
0.50% 0.50% 0.50% 0.50%
0.05% 0.20% 0.19% 0.20%
--------------------------------------------------------------------------------------------
1.55% 1.90% 1.89% 1.70%
--------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Fund Fees and Expenses continued
/1/Service Shares had not commenced operations as of the date of this
Prospectus.
/2/The Funds' operating expenses for the current fiscal year have been
annualized for the seven-month period (February 1, 1999 through August 31,
1999).
/3/Service Organizations may charge other fees to their customers who are bene-
ficial owners of Service Shares in connection with their customers' accounts.
Such fees may affect the return customers realize with respect to their invest-
ments.
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Service Shares, plus all other ordinary
expenses not detailed above. The Investment Adviser has voluntarily agreed to
reduce or limit "Other Expenses" (excluding management fees, transfer agency
fees, service fees, taxes, interest and brokerage fees and litigation, indemni-
fication and other extraordinary expenses) to the following percentages of each
Fund's average daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
- --------------------------
<S> <C>
CORE
International
Equity 0.12%
International
Equity 0.10%
European Equity 0.10%
Japanese Equity 0.01%
International
Small Cap 0.16%
Emerging Markets
Equity 0.15%
Asia Growth 0.16%
</TABLE>
28
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Service Shares of
a Fund for the time periods indicated and then redeem all of your Service
Shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
CORE International Equity $164 $508 $ 876 $1,911
- ----------------------------------------------------------
International Equity $172 $533 $ 918 $1,998
- ----------------------------------------------------------
European Equity $217 $670 $1,149 $2,472
- ----------------------------------------------------------
Japanese Equity $250 $770 $1,316 $2,806
- ----------------------------------------------------------
International Small Cap $230 $709 $1,215 $2,605
- ----------------------------------------------------------
Emerging Markets Equity $229 $706 $1,210 $2,595
- ----------------------------------------------------------
Asia Growth $215 $664 $1,139 $2,452
- ----------------------------------------------------------
</TABLE>
Service Organizations that invest in Service Shares on behalf of their custom-
ers may charge other fees directly to their customer accounts in connection
with their investments. You should contact your Service Organization for infor-
mation regarding such charges. Such fees, if any, may affect the return such
customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other
compensation in connection with the sale and distribution of Service Shares or
for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Shareholder Guide" in the Pro-
spectus and "Other Information" in the Statement of Additional Information
("Additional Statement").
29
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") CORE International Equity
32 Old Slip
New York, New York 10005
------------------------------------------------------------------------
Goldman Sachs Asset Management International
("GSAMI") International Equity
133 Peterborough Court European Equity
London, England EC4A 2BB Japanese Equity
International Small Cap
Emerging Markets Equity
Asia Growth
------------------------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM and GSAMI. Goldman Sachs registered as an investment
adviser in 1981. GSAMI, a member of the Investment Management Regulatory
Organization Limited since 1990 and a registered investment adviser since
1991, is an affiliate of Goldman Sachs. The Goldman Sachs Group, L.P., which
controlled the Investment Advisers, merged into the Goldman Sachs Group,
Inc. as a result of an initial public offering. As of September 30, 1999,
GSAM and GSAMI, along with other units of IMD, had assets under management
of $203 billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and cler-
ical services to the Funds
30
<PAGE>
SERVICE PROVIDERS
..Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information and other
reports filed with the Securities and Exchange Commission (the "SEC") and
other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates (as a percentage of each respective
portfolio's average daily net assets) listed below:
<TABLE>
<CAPTION>
Actual Rate
For the Fiscal
Year Ended
Contractual Rate August 31, 1999
------------------------------------------------------------
<S> <C> <C>
GSAM:
------------------------------------------------------------
CORE International Equity 0.85% 0.85%
------------------------------------------------------------
GSAMI:
------------------------------------------------------------
International Equity 1.00% 1.00%
------------------------------------------------------------
European Equity 1.00% 1.00%
------------------------------------------------------------
Japanese Equity 1.00% 1.00%
------------------------------------------------------------
International Small Cap 1.20% 1.20%
------------------------------------------------------------
Emerging Markets Equity 1.20% 1.20%
------------------------------------------------------------
Asia Growth 1.00% 1.00%
------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
FUND MANAGERS
M. Roch Hillenbrand, a Managing Director of Goldman Sachs since 1997, is the
Head of Global Equities for GSAM, overseeing the United States, Europe,
Japan, and non-Japan Asia. In this capacity, he is responsible for managing
the group as it defines and implements global portfolio management processes
that are consistent, reliable and predictable. Since 1981 Mr. Hillenbrand
has been President of
31
<PAGE>
Commodities Corporation LLC, of which Goldman Sachs is the parent company.
Over the course of his 19-year career at Commodities Corporation, Mr.
Hillenbrand has had extensive experience in dealing with internal and exter-
nal investment managers who have managed a range of futures and equities
strategies across multiple markets, using a variety of styles.
International Equity Portfolio Management Team
..Global portfolio teams based in London, Singapore, Tokyo and New York.
Local presence is a key to the Investment Adviser's fundamental research
capabilities
..Team manages over $33.2 billion in international equities for retail,
institutional and high net worth clients
..Focus on bottom-up stock selection as main driver of returns, though the
team leverages the asset allocation, currency and risk management capabili-
ties of GSAM
- --------------------------------------------------------------------------------
London-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
David Dick Senior Portfolio Manager-- Since Mr. Dick joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director senior portfolio manager
on the European Equity
team in 1998. From 1990
to 1998, he was with
Mercury Asset
Management, where he was
a portfolio manager for
European equity and was
head of Mercury's
European sector
strategy.
- ----------------------------------------------------------------------------------------------
Ivor H. Farman Senior Portfolio Manager-- Since Mr. Farman joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director International Equity Fund 1996 senior portfolio manager
in 1996. From 1995 to
1996, he was responsible
for originating and
marketing French equity
ideas at Exane in Paris.
Prior to 1995, he spent
five years engaged in
French equity research
and marketing at Banque
Nationale de Paris and
Schroders in London.
- ----------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
James P. Senior Portfolio Manager-- Since Mr. Hordern joined the
Hordern International Small Cap 1998 Investment Adviser as a
Executive Fund portfolio manager in
Director 1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
- ----------------------------------------------------------------------------------------------
Ralf Laier Portfolio Manager-- Since Mr. Laier joined the
Vice President Emerging Markets Equity 1998 Investment Adviser as a
Fund portfolio manager with a
focus on Central/Eastern
European (CEE) and the
Commonwealth of
Independent States (CIS)
in 1997. Prior to
joining the Investment
Adviser, from 1995 to
1997, he was Vice
President of Soros
Global Research, where
he analyzed investment
opportunities in
CEE/CIS. From 1994 to
1995, he achieved a
Ph.D. from the Academy
of Economics in Pozan,
Poland.
- ----------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the
Managing European Equity Fund 1998 Investment Adviser as a
Director International Equity Fund 1998 senior portfolio manager
and head of the European
Equity Team in October
1997. From 1986 to 1997,
she worked at Fleming
Investment Management in
London, where she most
recently was Portfolio
Management Director for
the European equity
investment strategy and
process.
- ----------------------------------------------------------------------------------------------
Andrew Orchard Senior Portfolio Manager-- Since Andrew joined the
Executive European Equity Fund 1999 Investment Adviser as a
Director International Equity Fund 1999 portfolio manager in
1999. From 1994 to 1999
he was a portfolio
manager at Morgan
Grenfell Asset
Management where he
managed global equity
portfolios and chaired
Morgan Grenfell's Global
Sector Committee.
- ----------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Andrew Portfolio Manager-- Since Mr. Shrimpton joined the
Shrimpton Emerging Markets Equity 1998 Investment Adviser as a
Vice President Fund portfolio manager with a
focus on Africa as well
as the financial
industry in the EMEA
region in 1996. Since
1985 he was a UK equity
analyst and portfolio
manager for CIN
Management, where he
initiated CIN
Management's first
investments in Latin
America.
- ----------------------------------------------------------------------------------------------
Robert Stewart Senior Portfolio Manager-- Since Robert joined the
Executive European Equity Fund 1999 Investment Adviser as a
Director International Equity Fund 1999 portfolio manager in
1996. He is a member of
the European Equity
Team. From 1996 to 1998
he was a portfolio
manager in Japan where
he managed Japanese
Equity Institutional
Portfolios. Prior to
that Robert was a
portfolio manager at
CINMan from 1989 to 1996
where he managed
international equities.
- ----------------------------------------------------------------------------------------------
Danny Truell Senior Portfolio Manager-- Since Mr. Truell joined the
Executive European Equity Fund 1998 Investment Adviser as a
Director senior portfolio manager
and head of UK equities
in 1998. From 1992 to
1996, he was Investment
Banking Executive
Director for SBC Warburg
and Chief Asian Equity
Strategist.
- ----------------------------------------------------------------------------------------------
Gabriella Portfolio Manager-- Since Ms. Antici joined the
Antici Emerging Markets Equity 1998 Investment Adviser as a
Vice President Fund portfolio manager in
1997. From 1994 to 1997,
she was a Vice President
for HSBC Asset
Management, where she
was a portfolio manager
for emerging markets and
head of the Latin
American Department.
- ----------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
SERVICE PROVIDERS
New York-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Robert A. Senior Portfolio Manager-- Since Mr. Beckwitt joined the
Beckwitt Emerging Markets Equity 1997 Investment Adviser as a
Managing Fund portfolio manager in
Director 1996. From 1986 to 1996,
Head of he was Chief Investment
Emerging Strategist-Portfolio
Markets Equity Adviser to high net
worth investors at
Fidelity Investments.
- -----------------------------------------------------------------------------------------------
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE International Equity 1998 Investment Adviser as a
Fund portfolio manager in
1998. From 1984 to 1998,
she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- -----------------------------------------------------------------------------------------------
Mark M. Carhart Portfolio Manager-- Since Mr. Carhart joined the
Managing CORE International Equity 1998 Investment Adviser as a
Director Fund member of the
Quantitative Research
and Risk Management team
in 1997. From August
1995 to September 1997,
he was Assistant
Professor of Finance at
the Marshall School of
Business at USC and a
Senior Fellow of the
Wharton Financial
Institutions Center.
From 1993 to 1995, he
was a lecturer and
graduate student at the
University of Chicago
Graduate School of
Business.
- -----------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Managing CORE International Equity 1997 Investment Adviser as a
Director Fund portfolio manager in the
quantitative equity
management team in 1992.
- -----------------------------------------------------------------------------------------------
Raymond J. Portfolio Manager-- Since Mr. Iwanowski joined the
Iwanowski CORE International Equity 1998 Investment Adviser as an
Managing Fund associate and portfolio
Director manager in 1997. From
1993 to 1997, he was a
Vice President and head
of the Fixed Derivatives
Client Research group at
Salomon Brothers.
- -----------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing CORE International Equity 1997 Investment Adviser as a
Director Fund portfolio manager in
1989.
- -----------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Singapore-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth Fund 1994 Investment Adviser as a
Emerging Markets Equity 1999 portfolio manager in
Fund 1990.
International Equity Fund 1999
International Small Cap 1999
Fund
- -----------------------------------------------------------------------------------------------
Ravi Shanker Senior Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth Fund 1997 Investment Adviser as an
Emerging Markets Equity 1998 operations manager in
Fund 1997. From July 1996 to
International Equity Fund 1999 1997, he worked for
International Small Cap 1999 Goldman Sachs in
Fund Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
for Goldman Sachs as an
investment banker in the
Investment Banking
Division.
- -----------------------------------------------------------------------------------------------
Siew-Hua Thio Portfolio Manager-- Since Ms. Thio joined the
Vice President Asia Growth Fund 1998 Investment Adviser as a
Emerging Markets Equity 1998 portfolio manager in
Fund 1998. From 1997 to 1998,
International Equity Fund 1998 she was Head of Research
International Small Cap 1998 for Indosuez WI Carr in
Fund Singapore. From 1993 to
1997, she was a research
analyst at the same
firm.
- -----------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
SERVICE PROVIDERS
Tokyo-Based Portfolio Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- --------------------------------------------------------------------------------------
<C> <C> <C> <S>
Toshiyuki Ejima Portfolio Manager-- Since Toshiyuki joined the
Vice President Japanese Equity Fund 1999 Investment Adviser as a
portfolio manager in
April 1999. Prior to
that he was a portfolio
manager at Daiichi
Mutual Life from 1993 to
1999 where he managed
Japanese equities.
- --------------------------------------------------------------------------------------
Shigeka Kouda Portfolio Manager-- Since Mr. Kouda joined the
Vice President International Small 1998 Investment Adviser as a
Cap Fund portfolio manager in
1997. From 1992 to 1997,
he was at the Fixed
Income Division of
Goldman Sachs (Japan)
Limited, where he was
extensively involved in
emerging markets trading
as well as International
Fixed Income
institutional sales.
- --------------------------------------------------------------------------------------
Shogo Maeda Senior Portfolio Since Mr. Maeda joined the
Managing Manager-- 1994 Investment Adviser as a
Director Japanese Equity Fund 1994 portfolio manager in
International Equity 1998 1994. From 1987 to 1994,
Fund he worked at Nomura
International Small Investment Management
Cap Fund Incorporated as a Senior
Portfolio Manager.
- --------------------------------------------------------------------------------------
Miyako Portfolio Manager-- Since Ms. Shibamoto joined the
Shibamoto Japanese Equity Fund 1998 Investment Adviser as a
Vice President member of the Japanese
Equity team in March
1998. From 1993 to 1998,
she was a Vice President
at Scudder Stevens and
Clark (Japan).
- --------------------------------------------------------------------------------------
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity Fund 1998 Investment Adviser as a
portfolio manager in
1996. From 1990 to 1996,
he was a Japanese equity
portfolio manager at
Nomura Investment
Management where he
actively managed assets
for U.S. pension funds.
- --------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly
38
<PAGE>
SERVICE PROVIDERS
known as the "Year 2000 Problem"). To the extent these systems conduct
forward-looking calculations, these computer problems may occur prior to
January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Fund service providers do not adequately address this prob-
lem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group which analyzed
these issues and implemented system modifications to prepare for the Year
2000 Problem.
..The Investment Adviser has either tested with or received assurances from
the Fund's other service providers to confirm that they are taking reason-
able steps to avoid Year 2000 Problems, and the Investment Adviser contin-
ues to monitor the situation.
..The Investment Adviser has developed broad and comprehensive contingency
plans, as well as event management plans that will help manage the Funds
through the date change by allowing the Investment Adviser to closely moni-
tor and respond to Year 2000-related events as they unfold around the
world.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
39
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions
from net realized capital gains. You may choose to have dividends and dis-
tributions paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for certain ILA Portfolios. See the
Additional Statement.
You may indicate your election on your Account Application. Any changes may
be submitted in writing to Goldman Sachs at any time before the record date
for a particular dividend or distribution. If you do not indicate any
choice, your dividends and distributions will be reinvested automatically in
the applicable Fund.
The election to reinvest dividends and distributions in additional shares
will not affect the tax treatment of such dividends and distributions, which
will be treated as received by you and then used to purchase the shares.
The Funds' investments in foreign securities may be subject to foreign with-
holding taxes. Under certain circumstances, the Funds may elect to pass-
through these taxes to you. If this election is made, a proportionate amount
of such taxes will constitute a distribution to you, which would allow you
either (1) to credit such proportionate amount of foreign taxes against your
U.S. federal income tax liability or (2) to take such amount as an itemized
deduction.
Dividends from net investment income and distributions from net capital
gains are declared and paid annually.
From time to time a portion of a Fund's dividends may constitute a return
of capital.
At the time of an investor's purchase of shares of a Fund, a portion of the
NAV per share may be represented by undistributed income or undistributed
realized appreciation of the Fund's portfolio securities. Therefore, subse-
quent distributions on such shares from such income or realized appreciation
may be taxable to you even if the NAV of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions
(or portions thereof) represent a return of a portion of the purchase price.
40
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their NAV next determined after receipt of an order by
Goldman Sachs from a Service Organization. No sales load is charged. Pur-
chases of Service Shares must be settled within three business days of
receipt of a complete purchase order.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
41
<PAGE>
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of Goldman Sachs Trust (the "Trust"), purchase, redemption
and exchange orders placed by or on behalf of their customers, and may des-
ignate other intermediaries to accept such orders, if approved by the Trust.
In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payment for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, which are attributable to or held
in the name of the Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of
the amount invested.
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and
are entitled to different services than Service Shares. Information regard-
ing these other share classes may be obtained from your sales representative
or from Goldman Sachs by calling the number on the back cover of this Pro-
spectus.
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
mini-
42
<PAGE>
SHAREHOLDER GUIDE
mum amount for initial and subsequent investments in Service Shares, and may
establish other requirements such as a minimum account balance. A Service
Organization may redeem Service Shares held by non-complying accounts, and
may impose a charge for any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Service Shares of a
Fund is evident, or if purchases, sales or exchanges are, or a subsequent
abrupt redemption might be, of a size that would disrupt the management of
a Fund.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
NAV = - (Liabilities of the Class)
-------------------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or, if accurate
quotations are not readily available, the fair value of the Fund's invest-
ments may be determined in good faith under procedures established by the
Trustees.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). Fund shares will not be priced on any day
the New York Stock Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
43
<PAGE>
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of the nature and materiality of the
event, its effect on Fund operations and other relevant factors.
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem its Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
Redemption proceeds may be sent to recordholders by check or by wire (if the
wire instructions are on record).
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account
Application.
<TABLE>
------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York
time)
------------------------------------------------
</TABLE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
44
<PAGE>
SHAREHOLDER GUIDE
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request may be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: The Funds will arrange for redemption proceeds to be wired as fed-
eral funds to the bank account designated in the recordholder's Account
Application. The following general policies govern wiring redemption pro-
ceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If the shares to be sold were recently paid for by
check, the Fund will pay the redemption proceeds when the check has
cleared, which may take up to 15 days. If the Federal Reserve Bank is
closed on the day that the redemption proceeds would ordinarily be wired,
wiring the redemption proceeds may be delayed one additional business day.
..To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
Account Application to the Service Organization.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organization.
By Check: A recordholder may elect in writing to receive redemption proceeds
by check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of receipt of a properly exe-
cuted redemption request. If the shares to be sold were recently paid for by
check, the Fund will pay the redemption proceeds when the check has cleared,
which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
.. Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
45
<PAGE>
.. Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate the timely transmittal of redemption requests, Service Organi-
zations may set times by which they must receive redemption requests.
Service Organizations may also require additional documentation from you.
The Trust reserves the right to:
.. Redeem the Service Shares of any Service Organization whose account bal-
ance falls below $50 as a result of a redemption. The Funds will not
redeem Service Shares on this basis if the value of the account falls
below the minimum account balance solely as a result of market conditions.
The Fund will give 60 days' prior written notice to allow a Service Organ-
ization to purchase sufficient additional shares of the Fund in order to
avoid such redemption.
.. Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
.. Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
Service Shares of any other Goldman Sachs Fund. The exchange privilege may
be materially modified or withdrawn at any time upon 60 days' written
notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
---------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
---------------------------------------------------------------
By Telephone: If you have elected the telephone exchange
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
---------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
46
<PAGE>
SHAREHOLDER GUIDE
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirement of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account.
..Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will Be Sent Regarding Investments In Service Shares?
Service Organizations will receive from the Funds annual reports containing
audited financial statements and semi-annual reports. Service Organizations
will also be provided with a printed confirmation for each transaction in
their account and a monthly account statement. Service Organizations are
responsible for providing these or other reports to their customers who are
the beneficial owners of Service Shares in accordance with the rules that
apply to their accounts with the Service Organizations.
47
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Funds are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Funds' income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. A percentage
of the Funds' dividends paid to corporate shareholders may be eligible for
the corporate dividends-received deduction. The Funds will inform sharehold-
ers of the source and tax status of all distributions promptly after the
close of each calendar year.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds may
deduct these taxes in computing their taxable income.
If you buy shares of a Fund before it makes a distribution, the distribution
will be taxable to you even though it may actually be a return of a portion
of your investment. This is known as "buying a dividend."
48
<PAGE>
TAXATION
TAXES ON SALES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
49
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with equity securities.
"Equity securities" include common stocks, preferred stocks, interests in
real estate investment trusts, convertible debt obligations, convertible
preferred stocks, equity interests in trusts, partnerships, joint ventures,
limited liability companies and similar enterprises, warrants and stock pur-
chase rights. In general, stock values fluctuate in response to the activi-
ties of individual companies and in response to general market and economic
conditions. Accordingly, the value of the stocks that a Fund holds may
decline over short or extended periods. The stock markets tend to be cycli-
cal, with periods when stock prices generally rise and periods when prices
generally decline. The volatility of equity securities means that the value
of your investment in the Funds may increase or decrease. As of the date of
this Prospectus, certain stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue.
To the extent that a Fund invests in fixed-income securities, that Fund will
also be subject to the risks associated with its fixed-income securities.
These risks include interest rate risk, credit risk and call/extension risk.
In general, interest rate risk involves the risk that when interest rates
decline, the market value of fixed-income securities tends to increase (al-
though many mortgage related securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that an issuer
could default on its obligations, and a Fund will not recover its invest-
ment. Call risk and extension risk are normally present in mortgage-backed
securities and asset-backed securities. For example, homeowners have the
option to prepay their mortgages. Therefore, the duration of a security
backed by home mortgages can either shorten (call risk) or lengthen (exten-
sion risk). In general, if interest rates on new mortgage loans fall suffi-
ciently below the interest rates on existing outstanding mortgage loans, the
rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease. In
either case, a change in the prepayment rate can result in losses to invest-
ors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turn-
50
<PAGE>
APPENDIX A
over (100% or more) involves correspondingly greater expenses which must be
borne by a Fund and its shareholders. The portfolio turnover rate is calcu-
lated by dividing the lesser of the dollar amount of sales or purchases of
portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase
of one year or less. See "Financial Highlights" in Appendix B for a state-
ment of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objective, you should
consider whether that Fund remains an appropriate investment in light of
your then current financial position and needs.
B. Other Portfolio Risks
Risks of Investing in Small Capitalization Companies and REITs. Each Fund
may invest in small capitalization companies and REITs. Investments in small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the rea-
sons for the greater price volatility of these investments are the less cer-
tain growth prospects of smaller firms and the lower degree of liquidity in
the markets for such securities. Small capitalization companies and REITs
may be thinly traded and may have to be sold at a discount from current mar-
ket prices or in small lots over an extended period of time. In addition,
these securities are subject to the risk that during certain periods the
liquidity of particular issuers or industries, or all securities in these
investment categories, will shrink or disappear suddenly and without warning
as a result of adverse economic or market conditions, or adverse investor
perceptions whether or not accurate. Because of the lack of sufficient mar-
ket liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Small capitalization companies and REITs include "unseasoned" issuers
that do not have an established financial history; often have limited prod-
uct lines, markets or financial resources; may depend on or use a few key
personnel for management; and may be susceptible to losses and risks of
bankruptcy. Transaction costs for these investments are often higher than
those of larger capitalization companies. Investments
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in small capitalization companies and REITs may be more difficult to price
precisely than other types of securities because of their characteristics
and lower trading volumes.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
that now are or may in the future become members of the European Union
("EU"), may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions, and could
adversely affect the value of securities held by the Funds. Because of the
number of countries using this single currency, a significant portion of the
assets held by the Funds may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may
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APPENDIX A
be less publicly available information about a foreign issuer than about a
U.S. issuer. In addition, there is generally less government regulation of
foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and secu-
rities of many foreign issuers are less liquid and more volatile than secu-
rities of comparable domestic issuers. Efforts in foreign countries to reme-
diate potential Year 2000 problems are not as extensive as those in the
United States. As a result, the operations of foreign markets, foreign
issuers and foreign governments may be disrupted by the Year 2000 Problem,
and the investment portfolio of a Fund may be adversely affected. Further-
more, with respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of with-
holding or other taxes on dividend or interest payments (or, in some cases,
capital gains), limitations on the removal of funds or other assets of the
Funds, and political or social instability or diplomatic developments which
could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Funds may also invest in European Depository
Receipts ("EDRs") or other similar instruments representing securities of
foreign issuers. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. Prices of ADRs
are quoted in U.S. dollars, and ADRs are traded in the United States. EDRs
and GDRs are receipts
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evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not neces-
sarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
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APPENDIX A
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by the Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
A Fund's investments in emerging countries are subject to the risk that the
liquidity of a particular investment, or investments generally, in such
countries will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political conditions or adverse investor per-
ceptions, whether or not accurate. Because of the lack of sufficient market
liquidity, a Fund may incur losses because it will be required to effect
sales at a disadvantageous time and only then at a substantial drop in
price. Invest-
55
<PAGE>
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Derivative Investments. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and currency transactions involve additional risk of
loss. Loss can result from a lack of correlation between changes in the
value of derivative instruments and the portfolio assets (if any) being
hedged, the potential illiquidity of the markets for derivative instruments,
or the risks arising from margin requirements and related leverage factors
associated with such transactions. The use of these management techniques
also involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices, interest rates or currency
prices. Each Fund may also invest in derivative investments for non-hedging
purposes (that is, to seek to increase total return). Investing for non-
hedging purposes is considered a speculative practice and presents even
greater risk of loss.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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APPENDIX A
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Further informa-
tion is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. government securities
..Commercial paper rated at least A-2 by Standard & Poor's or P-2 by Moody's
..Certificates of deposit
..Bankers' acceptances
..Repurchase agreements
..Non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
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C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
Convertible Securities. Each Fund may invest in convertible securities. Con-
vertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. A Fund may, to the extent consistent with its
investment policies, purchase or sell foreign currencies on a cash basis or
through forward contracts. A forward contract involves an obligation to pur-
chase or sell a specific currency at a future date at a price set at the
time of the contract. A Fund may engage in foreign currency transactions for
hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, certain Funds may also
enter into such transactions to seek to increase total return, which is con-
sidered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
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APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities. Each Fund may invest in structured securities. Struc-
tured securities are securities whose value is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative
change in two or more References. The interest rate or the principal amount
payable upon maturity or redemption may be increased or decreased depending
upon changes in the applicable Reference. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities and may be more vol-
atile, less liquid and more difficult to price accurately than less complex
securities.
REITs. Each Fund may invest in REITS. REITS are pooled investment vehicles
that invest primarily in either real estate or real estate related loans.
The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable income tax
treatment. REITs are also subject to risks generally associated with invest-
ments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other
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respects, these risks may be heightened. A Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a
REIT in which it invests.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which they may invest or on any securities index comprised of
securities in which they may invest. A Fund may also, to the extent that it
invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the-counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
government securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund
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APPENDIX A
invests in foreign securities, currency exchange rates, or to otherwise man-
age their term structures, sector selection and durations in accordance with
their investment objectives and policies. Each Fund may also enter into
closing purchase and sale transactions with respect to such contracts and
options. A Fund will engage in futures and related options transactions for
bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or to seek to increase total return to the extent
permitted by such regulations. A Fund may not purchase or sell futures con-
tracts or purchase or sell related options to seek to increase total return,
except for closing purchase or sale transactions, if immediately thereafter
the sum of the amount of initial margin deposits and premiums paid on the
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
Equity Swaps. Each Fund may invest in equity swaps. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other compo-
nents of return on an equity investment (for example, a group of equity
securities or an index) for a component of return on another non-equity or
equity investment.
An equity swap may be used by a Fund to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment may be restricted for legal reasons or is otherwise impractical.
Equity swaps are
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derivatives and their value can be very volatile. To the extent that the
Investment Adviser does not accurately analyze and predict the potential
relative fluctuation of the components swapped with another party, a Fund
may suffer a loss. The value of some components of an equity swap (such as
the dividends on a common stock) may also be sensitive to changes in inter-
est rates. Furthermore, a Fund may suffer a loss if the counterparty
defaults.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. When-issued
securities are securities that have been authorized, but not yet issued.
When-issued securities are purchased in order to secure what is considered
to be an advantageous price and yield to the Fund at the time of entering
into the transaction. A forward commitment involves the entering into a con-
tract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. government securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash
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APPENDIX A
balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loan continuously with cash, cash equivalents, U.S.
government securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. To the extent that cash collateral is invested in other
investment securities, such collateral will be subject to market deprecia-
tion or appreciation, and a Fund will be responsible for any loss that might
result from its investment of the borrowers' collateral. If the Investment
Adviser determines to make securities loans, the value of the securities
loaned may not exceed 33 1/3% of the value of the total assets of a Fund
(including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
Short Sales Against-the-Box. Certain Funds may make short sales against-the-
box. A short sale against-the-box means that at all times when a short posi-
tion is open the Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without payment of any fur-
ther consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Preferred Stock, Warrants and Rights. Each Fund may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Other Investment Companies. Each Fund may invest in securities of other
investment companies (including SPDRs and WEBs, as defined below) subject to
statutory limitations prescribed by the Act. These limitations include a
prohibition on
63
<PAGE>
any Fund acquiring more than 3% of the voting shares of any other investment
company, and a prohibition on investing more than 5% of a Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. A Fund will indi-
rectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Such other investment com-
panies will have investment objectives, policies and restrictions substan-
tially similar to those of the acquiring Fund and will be subject to sub-
stantially the same risks.
..Standard & Poor's Depository Receipts. The Funds may, consistent with their
investment policies, purchase Standard & Poor's Depository Receipts
("SPDRs"). SPDRs are securities traded on the American Stock Exchange
("AMEX") that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading, or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
..World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specified countries.
WEBS are listed on the AMEX and were initially offered to the public in
1996. The market prices of WEBS are expected to fluctuate in accordance
with both changes in the NAVs of their underlying indices and supply and
demand of WEBS on the AMEX. To date, WEBS have traded at relatively modest
discounts and premiums to their NAVs. However, WEBS have a limited operat-
ing history and information is lacking regarding the actual performance and
trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the
AMEX necessary to maintain the listing of WEBS will continue to be met or
will remain unchanged. In the event substantial market or other disruptions
affecting WEBS should occur in the future, the liquidity and value of a
Fund's shares could also be substantially and adversely affected. If such
disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
Unseasoned Companies. Each Fund may invest in companies (including predeces-
sors) which have operated less than three years. The securities of such com-
panies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments
in unseasoned compa -
64
<PAGE>
APPENDIX A
nies are more speculative and entail greater risk than do investments in
companies with an established operating record.
Corporate Debt Obligations. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of corporations to pay
interest and repay principal, and include securities issued by banks and
other financial institutions. Each Fund may invest in corporate debt obliga-
tions issued by U.S. and certain non-U.S. issuers which issue securities
denominated in the U.S. dollar (including Yankee and Euro obligations). In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions and suprana-
tional entities (i.e., the World Bank, the International Monetary Fund,
etc.).
Bank Obligations. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be gen-
eral obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulations. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. government securities and related custodial receipts. U.S.
government securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. government securities may be supported by (a) the
full faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association); (c) the discretionary authority of the U.S. government to pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")); or (d) only the credit of the issuer. U.S. government
securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. government securities, where the interest and principal compo-
nents of stripped U.S. government securities are traded independently.
Interests in U.S. government securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments
65
<PAGE>
or both on certain notes or bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. For certain securities law purposes, custodial
receipts are not considered obligations of the U.S. government.
Mortgage-Backed Securities. Certain Funds may invest in mortgage-backed
securities. Mortgage-backed securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-backed securities can be backed by either
fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. Privately issued
mortgage-backed securities are normally structured with one or more types of
"credit enhancement." However, these mortgage-backed securities typically do
not have the same credit standing as U.S. government guaranteed mortgage-
backed securities.
Mortgage-backed securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other mortgage-backed securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment and invests in cer-
tain mortgages principally secured by interests in real property and other
permitted investments.
Mortgaged-backed securities also include stripped mortgage-backed securities
("SMBS"), which are derivative multiple class mortgage-backed securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other mortgage-backed securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Certain Funds may invest in asset-backed securi-
ties. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often sub-
66
<PAGE>
APPENDIX A
ject to more rapid repayment than their stated maturity date would indicate
as a result of the pass-through of prepayments of principal on the under-
lying loans. During periods of declining interest rates, prepayment of loans
underlying asset-backed securities can be expected to accelerate. According-
ly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time. Asset-backed securities present credit risks that are not presented by
mortgage-backed securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Borrowings. Each Fund can borrow money from banks and other financial insti-
tutions in amounts not exceeding one-third of its total assets for temporary
or emergency purposes. A Fund may not make additional investments if
borrowings exceed 5% of its total assets.
67
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
---------------------------
Net asset Net
value, investment Net realized and
beginning income unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $ 9.98 $ 0.05 $ 0.84
1999 - Class B Shares 9.95 0.01 0.85
1999 - Class C Shares 9.96 0.01 0.85
1999 - Institutional Shares 10.06 0.09 0.85
1999 - Service Shares 10.02 0.01 0.90
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 9.22 (0.01) 0.79
1999 - Class B Shares 9.21 -- 0.74
1999 - Class C Shares 9.22 -- 0.74
1999 - Institutional Shares 9.24 0.05 0.80
1999 - Service Shares 9.23 -- 0.81
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced August
15, 1997) 10.00 -- (0.78)
1998 - Class B Shares (commenced August
15, 1997) 10.00 (0.02) (0.77)
1998 - Class C Shares (commenced August
15, 1997) 10.00 (0.02) (0.76)
1998 - Institutional Shares (commenced
August 15, 1997) 10.00 0.02 (0.76)
1998 - Service Shares (commenced August
15, 1997) 10.00 0.01 (0.78)
- ------------------------------------------------------------------------------
</TABLE>
See page 95 for all footnotes.
68
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
------------------------
Net
increase Net
(decrease) Net asset assets
From net From net in net value, at end
investment realized asset end of Total of period
income gains value period return/b/ (in 000s)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ 0.89 $10.87 8.92%d $114,502
-- -- 0.86 10.81 8.64d 9,171
-- -- 0.86 10.82 8.63d 4,913
-- -- 0.94 11.00 9.34d 271,212
-- -- 0.91 10.93 9.08d 8
- ---------------------------------------------------------------------------------
(0.02) -- 0.76 9.98 8.37 110,338
-- -- 0.74 9.95 8.03 7,401
-- -- 0.74 9.96 8.03 3,742
(0.03) -- 0.82 10.06 9.20 280,731
(0.02) -- 0.79 10.02 8.74 22
- ---------------------------------------------------------------------------------
-- -- (0.78) 9.22 (7.66)d 7,087
-- -- (0.79) 9.21 (7.90)d 2,721
-- -- (0.78) 9.22 (7.80)d 1,608
(0.02) -- (0.76) 9.24 (7.45)d 17,719
-- -- (0.77) 9.23 (7.70)d 1
- ---------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
CORE INTERNATIONAL EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of
net
Ratio of Ratio of net investment
net investment Ratio of income
expenses income (loss) expenses (loss) to Portfolio
to average to average to average average turnover
net assets net assets net assets net assets rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.66%c 0.78%c 1.76%c 0.68%c 64.97%d
1999 - Class B Shares 2.16c 0.26c 2.26c 0.16c 64.97d
1999 - Class C Shares 2.16c 0.23c 2.26c 0.13c 64.97d
1999 - Institutional
Shares 1.01c 1.43c 1.11c 1.33c 64.97d
1999 - Service Shares 1.51c 0.07c 1.61c (0.03)c 64.97d
- ----------------------------------------------------------------------------------
For the Year Ended
January 31,
1999 - Class A Shares 1.63 (0.11) 1.94 (0.42) 194.61
1999 - Class B Shares 2.08 (0.03) 2.39 (0.34) 194.61
1999 - Class C Shares 2.08 (0.04) 2.39 (0.35) 194.61
1999 - Institutional
Shares 1.01 0.84 1.32 0.53 194.61
1999 - Service Shares 1.50 0.02 1.81 (0.29) 194.61
- ----------------------------------------------------------------------------------
For the Period Ended
January 31,
1998 - Class A Shares
(commenced August 15,
1997) 1.50c (0.27)c 4.87c (3.90)c 25.16d
1998 - Class B Shares
(commenced August 15,
1997) 2.00c (0.72)c 5.12c (3.84)c 25.16d
1998 - Class C Shares
(commenced August 15,
1997) 2.00c (0.73)c 5.12c (3.85)c 25.16d
1998 - Institutional
Shares (commenced
August 15, 1997) 1.00c 0.59 c 4.12c (2.53)c 25.16d
1998 - Service Shares
(commenced August 15,
1997) 1.50c 0.26 c 4.62c (2.86)c 25.16d
- ----------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
[This page intentionally left blank]
71
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $21.92 $ 0.04 $ 1.16
1999 - Class B Shares 21.63 (0.02) 1.12
1999 - Class C Shares 21.45 (0.03) 1.12
1999 - Institutional Shares 22.20 0.12e 1.17e
1999 - Service Shares 21.93 0.06 1.15
- ------------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 19.85 (0.06) 3.24
1999 - Class B Shares 19.70 (0.17) 3.21
1999 - Class C Shares 19.56 (0.15) 3.15
1999 - Institutional Shares 19.97 0.03 3.31
1999 - Service Shares 19.84 (0.04) 3.24
- ------------------------------------------------------------------------------
1998 - Class A Shares 19.32 0.03 2.04
1998 - Class B Shares 19.24 (0.08) 2.02
1998 - Class C Shares (commenced
August 15, 1997) 22.60 (0.04) (1.38)
1998 - Institutional Shares 19.40 0.10 2.11
1998 - Service Shares 19.34 0.02 2.06
- ------------------------------------------------------------------------------
1997 - Class A Shares 17.20 0.10 2.23
1997 - Class B Shares (commenced May 1,
1996) 18.91 (0.06) 0.60
1997 - Institutional Shares (commenced
February 7, 1996) 17.45 0.04 2.15
1997 - Service Shares (commenced March 6,
1996) 17.70 (0.02) 1.87
- ------------------------------------------------------------------------------
1996 - Class A Shares 14.52 0.13 4.00
- ------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gain value of period return/b/ (in 000s) net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1.20 $23.12 5.47%d $943,473 1.79%c
-- -- -- 1.10 22.73 5.09d 68,691 2.29c
-- -- -- 1.09 22.54 5.08d 11,241 2.29c
-- -- -- 1.29 23.49 5.81d 180,564 1.14c
-- -- -- 1.21 23.14 5.52d 3,852 1.64c
- ------------------------------------------------------------------------------------------------
-- -- (1.11) 2.07 21.92 16.39 947,973 1.73
-- -- (1.11) 1.93 21.63 15.80 69,231 2.24
-- -- (1.11) 1.89 21.45 15.70 11,619 2.24
-- -- (1.11) 2.23 22.20 17.09 111,315 1.13
-- -- (1.11) 2.09 21.93 16.49 3,568 1.63
- ------------------------------------------------------------------------------------------------
-- (0.30) (1.24) 0.53 19.85 11.12 697,590 1.67
-- (0.25) (1.23) 0.46 19.70 10.51 55,324 2.20
-- (0.38) (1.24) (3.04) 19.56 (5.92)d 3,369 2.27c
(0.07) (0.33) (1.24) 0.57 19.97 11.82 56,263 1.08
-- (0.35) (1.23) 0.50 19.84 11.25 3,035 1.55
- ------------------------------------------------------------------------------------------------
-- -- (0.21) 2.12 19.32 13.48 536,283 1.69
-- -- (0.21) 0.33 19.24 2.83d 19,198 2.23c
(0.03) -- (0.21) 1.95 19.40 12.53d 68,374 1.10c
-- -- (0.21) 1.64 19.34 10.42d 674 1.60c
- ------------------------------------------------------------------------------------------------
(0.58) -- (0.87) 2.68 17.20 28.68 330,860 1.52
- ------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
INTERNATIONAL EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary
expense limitations
--------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average to average net turnover
assets net assets assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 0.31%c 1.84%c 0.26%c 61.10%d
1999 - Class B Shares (0.19)c 2.34c (0.24)c 61.10d
1999 - Class C Shares (0.26)c 2.34c (0.31)c 61.10d
1999 - Institutional
Shares 0.89c 1.19c 0.84c 61.10d
1999 - Service Shares 0.47c 1.69c 0.42c 61.10d
- -------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares (0.28) 1.82 (0.37) 113.79
1999 - Class B Shares (0.79) 2.32 (0.87) 113.79
1999 - Class C Shares (0.98) 2.32 (1.06) 113.79
1999 - Institutional
Shares 0.23 1.21 0.15 113.79
1999 - Service Shares (0.18) 1.71 (0.26) 113.79
- -------------------------------------------------------------------------------
1998 - Class A Shares (0.27) 1.80 (0.40) 40.82
1998 - Class B Shares (0.90) 2.30 (1.00) 40.82
1998 - Class C Shares
(commenced August 15,
1997) (1.43)c 2.37c (1.53)c 40.82
1998 - Institutional
Shares 0.30 1.18 0.20 40.82
1998 - Service Shares (0.36) 1.65 (0.46) 40.82
- -------------------------------------------------------------------------------
1997 - Class A Shares (0.07) 1.88 (0.26) 38.01
1997 - Class B Shares
(commenced May 1, 1996) (0.97)c 2.38c (1.12)c 38.01
1997 - Institutional
Shares (commenced
February 7, 1996) 0.43c 1.25c 0.28c 38.01
1997 - Service Shares
(commenced March 6,
1996) (0.40)c 1.75c (0.55)c 38.01
- -------------------------------------------------------------------------------
1996 - Class A Shares 0.26 1.77 0.01 68.48
- -------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
[This page intentionally left blank]
75
<PAGE>
EUROPEAN EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period loss gain (loss)
- -----------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $12.20 $0.05 $(0.50)
1999 - Class B Shares 12.19 0.03 (0.51)
1999 - Class C Shares 12.20 0.04 (0.52)
1999 - Institutional Shares 12.23 0.18 (0.59)
1999 - Service Shares 12.20 0.08 (0.52)
- -----------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced October
1, 1998) 10.00 (0.03) 2.23
1999 - Class B Shares (commenced October
1, 1998) 10.00 (0.02) 2.21
1999 - Class C Shares (commenced October
1, 1998) 10.00 (0.01) 2.21
1999 - Institutional Shares (commenced
October 1, 1998) 10.00 (0.01) 2.24
1999 - Service Shares (commenced October
1, 1998) 10.00 (0.03) 2.23
- -----------------------------------------------------------------------------
</TABLE>
76
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- ------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $(0.45) $11.75 (3.69)%d $74,862 1.79%c
-- -- -- (0.48) 11.71 (3.94)d 879 2.29c
-- -- -- (0.48) 11.72 (3.93)d 388 2.29c
-- -- -- (0.41) 11.82 (3.35)d 5,965 1.14c
-- -- -- (0.44) 11.76 (3.61)d 2 1.64c
- -----------------------------------------------------------------------------------------------
-- -- -- 2.20 12.20 22.00d 61,151 1.79c
-- -- -- 2.19 12.19 21.90d 432 2.29c
-- -- -- 2.20 12.20 22.00d 587 2.29c
-- -- -- 2.23 12.23 22.30d 12,740 1.14c
-- -- -- 2.20 12.20 22.00d 2 1.64c
- -----------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
EUROPEAN EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------
Ratio of Ratio of
net investment Ratio of net investment
income (loss) to expenses to income (loss) Portfolio
average net average net to average net turnover
assets assets assets rate
- ------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares 0.80%c 2.29%c 0.30%c 54.98%d
1999 - Class B Shares 0.43c 2.79c (0.07)c 54.98d
1999 - Class C Shares 0.42c 2.79c (0.08)c 54.98d
1999 - Institutional
Shares 1.53c 1.64c 1.03c 54.98d
1999 - Service Shares 1.10c 2.14c 0.60c 54.98d
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares
(commenced October 1,
1998) (1.19)c 2.80c (2.20)c 70.77d
1999 - Class B Shares
(commenced October 1,
1998) (1.78)c 3.30c (2.79)c 70.77d
1999 - Class C Shares
(commenced October 1,
1998) (1.83)c 3.30c (2.84)c 70.77d
1999 - Institutional
Shares (commenced Octo-
ber 1, 1998) (0.33)c 2.15c (1.34)c 70.77d
1999 - Service Shares
(commenced October 1,
1998) (0.69)c 2.65c (1.70)c 70.77d
- ------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
[This page intentionally left blank]
79
<PAGE>
JAPANESE EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period loss gains
- ----------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $11.06 $(0.06) $5.24
1999 - Class B Shares 11.03 (0.09) 5.20
1999 - Class C Shares 11.04 (0.08) 5.20
1999 - Institutional Shares 11.10 (0.03) 5.29
1999 - Service Shares 11.04 (0.06) 5.24
- ----------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced May 1,
1998) 10.00 (0.06) 1.12
1999 - Class B Shares (commenced May 1,
1998) 10.00 (0.08) 1.11
1999 - Class C Shares (commenced May 1,
1998) 10.00 (0.09) 1.13
1999 - Institutional Shares (commenced
May 1, 1998) 10.00 (0.02) 1.13
1999 - Service Shares (commenced May 1,
1998) 10.00 (0.05) 1.09
- ----------------------------------------------------------------------------
</TABLE>
80
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- -------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/(in 000s) net assets
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $5.18 $16.24 46.84%d $34,279 1.70%c
-- -- -- 5.11 16.14 46.33d 4,219 2.20c
-- -- -- 5.12 16.16 46.41d 3,584 2.20c
-- -- -- 5.26 16.36 47.40d 22,709 1.05c
-- -- -- 5.18 16.22 46.92d 3 1.55c
- ----------------------------------------------------------------------------------------------
-- -- -- 1.06 11.06 10.60d 8,391 1.64c
-- -- -- 1.03 11.03 10.30d 1,427 2.15c
-- -- -- 1.04 11.04 10.40d 284 2.15c
-- (0.01) -- 1.10 11.10 11.06d 11,418 1.03c
-- -- -- 1.04 11.04 10.43d 2 1.53c
- ----------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE>
JAPANESE EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio of Ratio of
net investment Ratio of net investment
loss to expenses to loss to average Portfolio
average net average net turnover
assets net assets assets rate
- ---------------------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares (1.17)%c 2.62%c (2.09)%c 44.83%d
1999 - Class B Shares (1.57)c 3.12c (2.49)c 44.83d
1999 - Class C Shares (1.81)c 3.12c (2.73)c 44.83d
1999 - Institutional
Shares (0.37)c 1.97c (1.29)c 44.83d
1999 - Service Shares (0.74)c 2.47c (1.66)c 44.83d
- ---------------------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares
(commenced May 1, 1998) (1.20)c 4.18c (3.74)c 53.29d
1999 - Class B Shares
(commenced May 1, 1998) (1.76)c 4.69c (4.30)c 53.29d
1999 - Class C Shares
(commenced May 1, 1998) (1.69)c 4.69c (4.23)c 53.29d
1999 - Institutional
Shares (commenced May 1,
1998) (0.36)c 3.57c (2.90)c 53.29d
1999 - Service Shares
(commenced May 1, 1998) (0.68)c 4.07c (3.22)c 53.29d
- ---------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE>
[This page intentionally left blank]
83
<PAGE>
INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period loss gain
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $10.62 $(0.03) $2.65
1999 - Class B Shares 10.61 (0.08)e 2.66e
1999 - Class C Shares 10.61 (0.08)e 2.66e
1999 - Institutional Shares 10.66 -- 2.69
1999 - Service Shares 10.61 (0.02) 2.65
- -------------------------------------------------------------------------------
For the Period Ended January 31,
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
1999 - Service Shares (commenced May 1,
1998) 10.00 (0.02) 0.63
- -------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
Ratio of
In excess Net assets net
From net of net Net increase Net asset at end of expenses
investment investment From net in net asset value, end Total period to average
income loss realized gains value of period return/b/ (in 000s) net assets
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $2.62 $13.24 24.67%d $69,458 2.05%c
-- -- -- 2.58 13.19 24.32d 303 2.55c
-- -- -- 2.58 13.19 24.32d 419 2.55c
-- -- -- 2.69 13.35 25.24d 65,772 1.40c
-- -- -- 2.63 13.24 24.79d 2 1.90c
- -----------------------------------------------------------------------------------------------
-- -- -- 0.62 10.62 6.20d 33,002 2.02c
-- -- -- 0.61 10.61 6.10d 213 2.51c
-- -- -- 0.61 10.61 6.10d 175 2.51c
-- (0.01) -- 0.66 10.66 6.67d 36,992 1.40c
-- -- -- 0.61 10.61 6.10d 2 1.90c
- -----------------------------------------------------------------------------------------------
</TABLE>
85
<PAGE>
INTERNATIONAL SMALL CAP FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
loss to expenses loss to Portfolio
average to average average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Seven-Month Period Ended
August 31,
1999 - Class A Shares (0.68)%c 2.42%c (1.05)%c 58.81%d
1999 - Class B Shares (1.16)c 2.92c (1.53)c 58.81d
1999 - Class C Shares (1.21)c 2.92c (1.58)c 58.81d
1999 - Institutional Shares (0.05)c 1.77c (0.42)c 58.81d
1999 - Service Shares (0.35)c 2.27c (0.72)c 58.81d
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1999 - Class A Shares (commenced
May 1, 1998) (1.03)c 3.60c (2.61)c 96.11d
1999 - Class B Shares (commenced
May 1, 1998) (1.30)c 4.09c (2.88)c 96.11d
1999 - Class C Shares (commenced
May 1, 1998) (1.45)c 4.09c (3.03)c 96.11d
1999 - Institutional Shares
(commenced May 1, 1998) (0.19)c 2.98c (1.77)c 96.11d
1999 - Service Shares (commenced
May 1, 1998) (0.26)c 3.48c (1.84)c 96.11d
- ------------------------------------------------------------------------------
</TABLE>
86
<PAGE>
[This page intentionally left blank]
87
<PAGE>
EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- ------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C>
1999 - Class A Shares $ 7.04 $(0.01) $ 2.23
1999 - Class B Shares 7.03 (0.03) 2.21
1999 - Class C Shares 7.05 (0.03) 2.22
1999 - Institutional Shares 7.09 0.02 2.26
1999 - Service Shares 6.87 0.01 2.17
- ------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 9.69 0.04 (2.40)
1999 - Class B Shares 9.69 0.03 (2.41)
1999 - Class C Shares 9.70 0.01 (2.39)
1999 - Institutional Shares 9.70 0.06 (2.36)
1999 - Service Shares 9.69 (0.13) (2.41)
- ------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares (commenced December
15, 1997) 10.00 -- (0.31)
1998 - Class B Shares (commenced December
15, 1997) 10.00 -- (0.31)
1998 - Class C Shares (commenced December
15, 1997) 10.00 -- (0.30)
1998 - Institutional Shares (commenced
December 15, 1997) 10.00 0.01 (0.31)
1998 - Service Shares (commenced December
15, 1997) 10.00 -- (0.31)
- ------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
In excess Net increase Net assets Ratio of
From net of net (decrease) Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gains value of period return/b/ (in 000s) net assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 2.22 $9.26 31.53%d $ 65,698 2.04%c
-- -- -- 2.18 9.21 31.01d 972 2.54c
-- -- -- 2.19 9.24 31.06d 1,095 2.54c
-- -- -- 2.28 9.37 32.16d 108,574 1.39c
-- -- -- 2.18 9.05 31.73d 2 1.89c
- --------------------------------------------------------------------------------------------------
(0.07) (0.22) -- (2.65) 7.04 (24.32) 52,704 2.09
(0.07) (0.21) -- (2.66) 7.03 (24.51) 459 2.59
(0.07) (0.20) -- (2.65) 7.05 (24.43) 273 2.59
(0.08) (0.23) -- (2.61) 7.09 (23.66) 90,189 1.35
(0.07) (0.21) -- (2.82) 6.87 (26.17) 1 1.85
- --------------------------------------------------------------------------------------------------
-- -- -- (0.31) 9.69 (3.10)d 17,681 1.90c
-- -- -- (0.31) 9.69 (3.10)d 64 2.41c
-- -- -- (0.30) 9.70 (3.00)d 73 2.48c
-- -- -- (0.30) 9.70 (3.00)d 19,120 1.30c
-- -- -- (0.31) 9.69 (3.10)d 2 2.72c
- --------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE>
EMERGING MARKETS EQUITY FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or
expense limitations
----------------------------
Ratio
Ratio of net
of net investment
investment Ratio of income
income (loss) expenses to (loss) to Portfolio
to average average net average turnover
net assets assets net assets rate
- ------------------------------------------------------------------------------------------
For the Seven-Month Period Ended August 31,
<S> <C> <C> <C> <C>
1999 - Class A Shares (0.15)%c 2.41%c (0.52)%c 63.24%d
1999 - Class B Shares (0.71)c 2.91c (1.08)c 63.24d
1999 - Class C Shares (0.85)c 2.91c (1.22)c 63.24d
1999 - Institutional
Shares 0.50c 1.76c 0.13c 63.24d
1999 - Service Shares 0.12c 2.26c (0.25)c 63.24d
- ------------------------------------------------------------------------------------------
For the Year Ended January 31,
1999 - Class A Shares 0.80 2.53 0.36 153.67
1999 - Class B Shares 0.19 3.03 (0.25) 153.67
1999 - Class C Shares 0.28 3.03 (0.16) 153.67
1999 - Institutional
Shares 1.59 1.79 1.15 153.67
1999 - Service Shares (1.84) 2.29 (2.28) 153.67
- ------------------------------------------------------------------------------------------
For the Period Ended January 31,
1998 - Class A Shares
(commenced December 15,
1997) 0.55c 5.88c (3.43)c 3.35d
1998 - Class B Shares
(commenced December 15,
1997) 0.05c 6.39c (3.93)c 3.35d
1998 - Class C Shares
(commenced December 15,
1997) (0.27)c 6.46c (4.25)c 3.35d
1998 - Institutional
Shares (commenced Decem-
ber 15, 1997) 0.80c 5.28c (3.18)c 3.35d
1998 - Service Shares
(commenced December 15,
1997) (0.05)c 6.70c (4.03)c 3.35d
- ------------------------------------------------------------------------------------------
</TABLE>
90
<PAGE>
[This page intentionally left blank]
91
<PAGE>
ASIA GROWTH FUND
<TABLE>
<CAPTION>
Income from
investment operations/a/
-------------------------
Net asset Net
value, investment Net realized
beginning income and unrealized
of period (loss) gain (loss)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Seven-Month Period Ended August
31,
1999 - Class A Shares $ 7.79 $(0.02) $3.30
1999 - Class B Shares 7.68 (0.04) 3.24
1999 - Class C Shares 7.68 (0.04) 3.21
1999 - Institutional Shares 7.91 0.01 3.36
- -----------------------------------------------------------------------------
For the Years Ended January 31,
1999 - Class A Shares 8.38 0.07 (0.66)
1999 - Class B Shares 8.31 0.01 (0.64)
1999 - Class C Shares 8.29 -- (0.61)
1999 - Institutional Shares 8.44 0.03 (0.56)
- -----------------------------------------------------------------------------
1998 - Class A Shares 16.31 -- (7.90)
1998 - Class B Shares 16.24 0.01 (7.91)
1998 - Class C Shares (commenced August
15, 1997) 15.73 0.01 (7.42)
1998 - Institutional Shares 16.33 0.10 (7.96)
- -----------------------------------------------------------------------------
1997 - Class A Shares 16.49 0.06 (0.11)
1997 - Class B Shares (commenced May 1,
1996) 17.31 (0.05) (0.48)
1997 - Institutional Shares (commenced
February 2, 1996) 16.61 0.04 (0.11)
- -----------------------------------------------------------------------------
1996 - Class A Shares 13.31 0.17 3.44
- -----------------------------------------------------------------------------
For the Period Ended January 31,
1995 - Class A Shares (commenced July 8,
1994) 14.18 0.11 (0.89)
- -----------------------------------------------------------------------------
</TABLE>
92
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------
Net
In excess increase Net assets
From net of net From net (decrease) Net asset at end
investment investment realized in net value, end Total of period
income income gains asset value of period return/b/ (in 000s)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 3.28 $11.07 42.11%d $ 84,269
-- -- -- 3.20 10.88 41.67d 7,258
-- -- -- 3.17 10.85 41.28d 2,281
-- (0.04) -- 3.33 11.24 42.61d 12,363
- ------------------------------------------------------------------------------
-- -- -- (0.59) 7.79 (7.04) 59,940
-- -- -- (0.63) 7.68 (7.58) 4,190
-- -- -- (0.61) 7.68 (7.36) 999
-- -- -- (0.53) 7.91 (6.28) 4,200
- ------------------------------------------------------------------------------
-- (0.03) -- (7.93) 8.38 (48.49) 87,437
-- (0.03) -- (7.93) 8.31 (48.70) 3,359
-- (0.03) -- (7.44) 8.29 (47.17)d 436
(0.03) -- -- (7.89) 8.44 (48.19) 874
- ------------------------------------------------------------------------------
(0.12) -- (0.01) (0.18) 16.31 (1.01) 263,014
(0.51) (0.03) -- (1.07) 16.24 (6.02)d 3,354
(0.11) (0.06) (0.04) (0.28) 16.33 (1.09)d 13,322
- ------------------------------------------------------------------------------
(0.12) (0.14) (0.17) 3.18 16.49 26.49 205,539
- ------------------------------------------------------------------------------
0.01 -- (0.10) (0.87) 13.31 (5.46)d 124,298
- ------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
ASIA GROWTH FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of
net
Ratio of Ratio of net investment
net investment Ratio of income
expenses income (loss) expenses (loss) to Portfolio
to average to average to average average turnover
net assets net assets net assets net assets rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Seven-Month
Period Ended August 31,
1999 - Class A Shares 1.85%c (0.38)%c 2.27%c (0.80)%c 96.58%d
1999 - Class B Shares 2.35c (0.90)c 2.77c (1.32)c 96.58d
1999 - Class C Shares 2.35c (0.89)c 2.77c (1.31)c 96.58d
1999 - Institutional
Shares 1.20c 0.14c 1.62c (0.28)c 96.58d
- -----------------------------------------------------------------------------------
For the Years Ended
January 31,
1999 - Class A Shares 1.93 0.63 2.48 0.08 106.00
1999 - Class B Shares 2.45 0.10 2.97 (0.42) 106.00
1999 - Class C Shares 2.45 0.10 2.97 (0.42) 106.00
1999 - Institutional
Shares 1.16 1.10 1.68 0.58 106.00
- -----------------------------------------------------------------------------------
1998 - Class A Shares 1.75 0.31 1.99 0.07 105.16
1998 - Class B Shares 2.30 (0.29) 2.50 (0.49) 105.16
1998 - Class C Shares
(commenced August 15,
1997) 2.35c (0.26)c 2.55c (0.46)c 105.16
1998 - Institutional
Shares 1.11 0.87 1.31 0.67 105.16
- -----------------------------------------------------------------------------------
1997 - Class A Shares 1.67 0.20 1.87 -- 48.40
1997 - Class B Shares
(commenced May 1, 1996) 2.21c (0.56)c 2.37c (0.72)c 48.40
1997 - Institutional
Shares (commenced
February 2, 1996) 1.10c 0.54c 1.26c 0.38c 48.40
- -----------------------------------------------------------------------------------
1996 - Class A Shares 1.77 1.05 2.02 0.80 88.80
- -----------------------------------------------------------------------------------
For the Period Ended
January 31,
1995 - Class A Shares
(commenced July 8,
1994) 1.90c 1.83c 2.38c 1.35c 36.08d
- -----------------------------------------------------------------------------------
</TABLE>
94
<PAGE>
APPENDIX B
a Includes the balancing effect of calculating per share amounts.
b 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.
c Annualized.
d Not annualized.
e Calculated based on the average shares methodology.
95
<PAGE>
Index
<TABLE>
<C> <C> <S>
1 General Investment Management Approach
3 Fund Investment Objectives and Strategies
3 Goldman Sachs CORE International Equity Fund
4 Goldman Sachs International Equity Fund
5 Goldman Sachs European Equity Fund
6 Goldman Sachs Japanese Equity Fund
8 Goldman Sachs International Small Cap Fund
9 Goldman Sachs Emerging Markets Equity Fund
11 Goldman Sachs Asia Growth Fund
14 Other Investment Practices and Securities
</TABLE>
<TABLE>
<C> <C> <S>
18 Principal Risks of the
Funds
21 Fund Performance
26 Fund Fees and Expenses
30 Service Providers
40 Dividends
41 Shareholder Guide
41 How To Buy Shares
44 How to Sell Shares
48 Taxation
50 Appendix A
Additional Information on
Portfolio Risks,
Securities and Techniques
68 Appendix B
Financial Highlights
</TABLE>
<PAGE>
International Equity Funds
Prospectus (Service Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman Sachs Funds, 4900 Sears Tower-60th Floor, Chicago, IL
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
CORE SM is a service mark of Goldman, Sachs & Co.
EQINTLPROSVC
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
SERVICE SHARES
INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORESM LARGE CAP VALUE FUND
GOLDMAN SACHS CORESM U.S. EQUITY FUND
GOLDMAN SACHS CORESM LARGE CAP GROWTH FUND
GOLDMAN SACHS CORESM SMALL CAP EQUITY FUND
GOLDMAN SACHS CORESM INTERNATIONAL EQUITY FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS STRATEGIC GROWTH FUND
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
GOLDMAN SACHS MID CAP VALUE FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS LARGE CAP VALUE FUND
GOLDMAN SACHS EUROPEAN EQUITY FUND
GOLDMAN SACHS JAPANESE EQUITY FUND
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
(Equity Portfolios of Goldman Sachs Trust)
4900 Sears Tower
Chicago, Illinois 60606-6303
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectuses for the Class A Shares, Class B Shares, Class C Shares, Service
Shares and Institutional Shares of: Goldman Sachs Balanced Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs Capital Growth Fund, Goldman Sachs Strategic Growth Fund, Goldman
Sachs Growth Opportunities Fund, Goldman Sachs Mid Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
Large Cap Value Fund, Goldman Sachs European Equity Fund, Goldman Sachs Japanese
Equity Fund, Goldman Sachs International Small Cap Fund, Goldman Sachs Emerging
Markets Equity Fund, and Goldman Sachs Asia Growth Fund dated November 30, 1999
(the "Prospectuses"), which may
<PAGE>
be obtained without charge from Goldman, Sachs & Co. by calling the telephone
number, or writing to one of the addresses, listed below.
The audited financial statements and related report of Arthur Andersen LLP,
independent public accountants, for each Fund contained in each Fund's 1999
annual report is incorporated herein by reference in the section "Financial
Statements." No other portions of the Fund's Annual Report are incorporated by
reference.
CORE(SM) is a service mark of Goldman, Sachs & Co.
B-2
<PAGE>
TABLE OF CONTENTS Page
-----
INTRODUCTION........................................................... B-5
INVESTMENT POLICIES.................................................... B-7
INVESTMENT RESTRICTIONS................................................ B-47
MANAGEMENT............................................................. B-50
PORTFOLIO TRANSACTIONS AND BROKERAGE................................... B-74
NET ASSET VALUE........................................................ B-82
PERFORMANCE INFORMATION................................................ B-84
SHARES OF THE TRUST.................................................... B-95
TAXATION............................................................... B-102
FINANCIAL STATEMENTS................................................... B-110
OTHER INFORMATION...................................................... B-110
DISTRIBUTION AND SERVICE PLANS......................................... B-111
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE,
PURCHASES, REDEMPTIONS, EXCHANGES AND DIVIDENDS................... B-122
SERVICE PLAN........................................................... B-126
Appendix A (Description of Securities Ratings)......................... 1-A
Appendix B (Business Principles of Goldman, Sachs & Co.)............... 1-B
Appendix C (Statement of Intention and Escrow Agreement)............... 1-C
The date of this Additional Statement is November 30, 1999.
B-3
<PAGE>
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
Investment Adviser to:
Goldman Sachs CORE U.S. Equity Fund
Goldman Sachs Capital Growth Fund
32 Old Slip
New York, New York 10005
GOLDMAN SACHS ASSET MANAGEMENT
Investment Adviser to:
Goldman Sachs Balanced Fund
Goldman Sachs Growth and Income Fund
Goldman Sachs CORE Large Cap Value Fund
Goldman Sachs CORE Large Cap Growth Fund
Goldman Sachs CORE Small Cap Equity Fund
Goldman Sachs Strategic Growth Fund
Goldman Sachs Growth Opportunities Fund
Goldman Sachs CORE International Equity Fund
Goldman Sachs Mid Cap Value Fund
Goldman Sachs Small Cap Value Fund
Goldman Sachs Large Cap Value Fund
32 Old Slip
New York, New York 10005
GOLDMAN, SACHS & CO.
Distributor
85 Broad Street
New York, New York 10004
GOLDMAN, SACHS & CO.
Transfer Agent 4900
Sears Tower Chicago,
Illinois 60606
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Investment Adviser to:
Goldman Sachs International Equity Fund
Goldman Sachs European Equity Fund
Goldman Sachs Japanese Equity Fund
Goldman Sachs International Small Cap Fund
Goldman Sachs Emerging Markets Equity Fund
Goldman Sachs Asia Growth Fund 133
Peterborough Court
London, England EC4A 2BB
Toll free (in U.S.) . . . 800-621-2550
B-4
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The Trust is organized as a Delaware business trust, and is a successor
to a Massachusetts business trust that was combined with the Trust on April 30,
1997. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs CORE Large Cap Value
Fund ("CORE Large Cap Value Fund"), Goldman Sachs CORE U.S. Equity Fund ("CORE
U.S. Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"),
Goldman Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman
Sachs CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs
CORE International Equity Fund ("CORE International Equity Fund"), Goldman Sachs
Capital Growth Fund ("Capital Growth Fund"), Goldman Sachs Strategic Growth Fund
("Strategic Growth Fund"), Goldman Sachs Growth Opportunities Fund ("Growth
Opportunities Fund"), Goldman Sachs Mid Cap Value Fund ("Mid Cap Value Fund")
(formerly known as "Mid Cap Equity Fund"), Goldman Sachs International Equity
Fund ("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small
Cap Value Fund"), Goldman Sachs Large Cap Value Fund ("Large Cap Value Fund"),
Goldman Sachs European Equity Fund ("European Equity Fund"), Goldman Sachs
Japanese Equity Fund ("Japanese Equity Fund"), Goldman Sachs International Small
Cap Fund ("International Small Cap Fund"), Goldman Sachs Emerging Markets Equity
Fund ("Emerging Markets Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia
Growth Fund") (collectively referred to herein as the "Funds").
The Funds, except the European Equity, Japanese Equity, International Small
Cap, CORE Large Cap Value, CORE Large Cap Growth, CORE International Equity,
Strategic Growth Fund, Growth Opportunities, CORE Small Cap Equity and Large Cap
Value Funds were initially organized as a series of a corporation formed under
the laws of the State of Maryland on September 27, 1989 and were reorganized as
a Delaware business trust as of April 30, 1997. The Trustees have authority
under the Trust's charter to create and classify shares into separate series and
to classify and reclassify any series or portfolio of shares into one or more
classes without further action by shareholders. Pursuant thereto, the Trustees
have created the Funds and other series. Additional series may be added in the
future from time to time. Each Fund currently offers five classes of shares:
Class A Shares, Class B Shares, Class C Shares, Institutional Shares and Service
Shares. See "Shares of the Trust."
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Value, CORE Large Cap Growth, CORE
Small Cap Equity, Strategic Growth, Growth Opportunities, CORE International
Equity, Mid Cap Value, Small Cap Value and Large Cap Value Funds. Goldman Sachs
Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as the
Investment Adviser to the CORE U.S. Equity and Capital Growth Funds. Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs,
serves as the Investment Adviser to the International Equity, European Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds. GSAM, GSFM and GSAMI are sometimes referred to collectively herein
as the "Investment Advisers." In
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addition, Goldman Sachs serves as each Fund's distributor and transfer agent.
Each Fund's custodian is State Street Bank and Trust Company ("State Street").
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectuses. See the
Prospectuses for a more complete description of the Funds' investment objectives
and policies. There is no assurance that a Fund will achieve its objective.
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INVESTMENT POLICIES
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. Each Fund is a diversified
open-end management company as defined in the Investment Company Act of 1940, as
amended (the "Act").
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
General Information Regarding All Funds.
- ---------------------------------------
The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess operations
and to meet decision-makers. The Investment Adviser may also use macro analysis
of numerous economic and valuation variables to anticipate changes in company
earnings and the overall investment climate. The Investment Adviser is able to
draw on the research and market expertise of the Goldman Sachs Global Investment
Research Department and other affiliates of the Investment Adviser, as well as
information provided by other securities dealers. Equity securities in a Fund's
portfolio will generally be sold when the Investment Adviser believes that the
market price fully reflects or exceeds the securities' fundamental valuation or
when other more attractive investments are identified.
Value Style Funds. The Growth and Income Fund, Mid Cap Value Fund, Small
Cap Value Fund, Large Cap Value Fund and a portion of the equity portion of
Balanced Fund are managed using a value oriented approach. (The equity portion
of the Balanced Fund utilizes a blend of value and growth investment styles. See
"Growth Style Funds" below). The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in its
view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying ability.
Consideration will be given to the business quality of the issuer. Factors
positively affecting the Investment Adviser's view of that quality include the
competitiveness and degree of regulation in the markets in which the company
operates, the existence of a management team with a record of success, the
position of the company in the markets in which it operates, the level of the
company's financial leverage and the sustainable return on capital invested in
the business. The Funds may also purchase securities of companies that have
experienced difficulties and that, in the opinion of the Investment Adviser, are
available at attractive prices.
Growth Style Funds. The Capital Growth, Strategic Growth and Growth
Opportunities Funds and a portion of the equity portion of the Balanced Fund are
managed using a growth equity oriented approach. Equity securities for these
Funds are selected based on their prospects for above average growth. The
Investment Adviser will select securities of growth companies trading, in the
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<PAGE>
Investment Adviser's opinion, at a reasonable price relative to other
industries, competitors and historical price/earnings multiples. The Funds will
generally invest in companies whose earnings are believed to be in a relatively
strong growth trend, or, to a lesser extent, in companies in which significant
further growth is not anticipated but whose market value per share is thought to
be undervalued. In order to determine whether a security has favorable growth
prospects, the Investment Adviser ordinarily looks for one or more of the
following characteristics in relation to the security's prevailing price:
prospects for above average sales and earnings growth per share; high return on
invested capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics that
will enable the company to compete successfully in its marketplace.
Quantitative Style Funds. CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity and CORE International Equity Funds (the
"CORE Equity Funds") are managed using both quantitative and fundamental
techniques. CORE is an acronym for "Computer-Optimized, Research-Enhanced,"
which reflects the CORE Funds' investment process. This investment process and
the proprietary multifactor model used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for CORE U.S. Equity, CORE Large Cap Growth, CORE Large
Cap Value and CORE Small Cap Equity Funds (the "CORE U.S. Equity Funds"), and a
broad universe of foreign equity securities for CORE International Equity Fund.
As described more fully below, the Investment Adviser uses a proprietary
multifactor model (the "Multifactor Model") to forecast the returns of different
markets, currencies and individual securities. In the case of an equity security
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a rating is assigned based upon the Research
Department's evaluation. In the discretion of the Investment Adviser, ratings
may also be assigned to equity securities based on research ratings obtained
from other industry sources.
In building a diversified portfolio for each CORE Equity Fund, the
Investment Adviser utilizes optimization techniques to seek to maximize the
Fund's expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily composed of securities rated highest by
the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies and
individual equity securities according to fundamental investment
characteristics. The CORE U.S. Equity Funds use one Multifactor Model to
forecast the returns of securities held in each Fund's portfolio. The CORE
International Equity Fund uses multiple Multifactor Models to forecast returns.
Currently, the CORE International Equity Fund uses one model to forecast equity
market returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price
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ratio, price momentum, price volatility, consensus growth forecasts, earnings
estimate revisions, earnings stability, and, in the case of models for CORE
International Equity Fund, currency momentum and country political risk
ratings). All of the factors used in the Multifactor Models have been shown to
significantly impact the performance of the securities, currencies and markets
they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Equity Funds are derived using a statistical formulation that
considers each factor's historical performance in different market environments.
As such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the Investment
Adviser believes that all the Multifactor Models are broader in scope and
provide a more thorough evaluation than most conventional quantitative models.
Securities and markets ranked highest by the relevant Multifactor Model do not
have one dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics. By using a variety of relevant
factors to select securities, currencies or markets, the Investment Adviser
believes that the Fund will be better balanced and have more consistent
performance than an investment portfolio that uses only one or two factors to
select such investments.
The Investment Adviser will monitor, and may occasionally suggest and make
changes to, the method by which securities, currencies or markets are selected
for or weighted in a Fund. Such changes (which may be the result of changes in
the Multifactor Models or the method of applying the Multifactor Models) may
include: (i) evolutionary changes to the structure of the Multifactor Models
(e.g., the addition of new factors or a new means of weighting the factors);
(ii) changes in trading procedures (e.g., trading frequency or the manner in
which a Fund uses futures); or (iii) changes in the method by which securities,
currencies or markets are weighted in a Fund. Any such changes will preserve a
Fund's basic investment philosophy of combining qualitative and quantitative
methods of selecting securities using a disciplined investment process.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from "recommended
for purchase" to "likely to under perform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each CORE
Equity Fund seeks to capitalize on the strengths of each discipline.
Other Information. Since normal settlement for equity securities is three
trading days (for certain international markets settlement may be longer), the
Funds will need to hold cash balances to satisfy shareholder redemption
requests. Such cash balances will normally range from 2% to 5% of a Fund's net
assets. CORE U.S. Equity Fund may enter into futures transactions only with
respect to the S&P 500 Index and the CORE Large Cap Growth, CORE Large Cap Value
and CORE Small Cap Equity Funds may enter into futures transactions only with
respect to a representative index in order to keep a Fund's effective equity
exposure close to
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<PAGE>
100%. CORE Small Cap Equity and CORE International Equity Funds may purchase
other types of futures contracts. For example, if cash balances are equal to 5%
of the net assets, the Fund may enter into long futures contracts covering an
amount equal to 5% of the Fund's net assets. As cash balances fluctuate based on
new contributions or withdrawals, a Fund may enter into additional contracts or
close out existing positions.
Actively Managed International Funds. The International Equity, Japanese
Equity, European Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds are managed using an active international approach, which
utilizes a consistent process of stock selection undertaken by portfolio
management teams located within each of the major investment regions, including
Europe, Japan, Asia and the United States. In selecting securities, the
Investment Adviser uses a long-term, bottom-up strategy based on first-hand
fundamental research that is designed to give broad exposure to the available
opportunities while seeking to add return primarily through stock selection.
Equity securities for these Funds are evaluated based on three key factors--the
business, the management and the valuation. The Investment Adviser ordinarily
seeks securities that have, in the Investment Adviser's opinion, superior
earnings growth potential, sustainable franchise value with management attuned
to creating shareholder value and relatively discounted valuations. In addition,
the Investment Adviser uses a multi-factor risk model which seeks to assure that
deviations from the benchmark are justifiable.
Additional Information About the Balanced Fund
- ----------------------------------------------
The investment objective of the Balanced Fund is to provide long-term
growth of capital and current income. The Fund seeks growth of capital primarily
through investments in equity securities (stocks). The Fund seeks to provide
current income through investment in fixed-income securities.
The Balanced Fund is intended to provide a foundation on which an investor
can build an investment portfolio or to serve as the core of an investment
program, depending on the investor's goals. The Balanced Fund is designed for
relatively conservative investors who seek a combination of long-term capital
growth and current income in a single investment. The Balanced Fund offers a
portfolio of equity and fixed-income securities intended to provide less
volatility than a portfolio completely invested in equity securities and greater
diversification than a portfolio invested in only one asset class. Balanced Fund
may be appropriate for people who seek capital appreciation but are concerned
about the volatility typically associated with a fund that invests solely in
stocks and other equity securities.
Fixed-Income Strategies Designed to Maximize Return and Manage Risk. GSAM's
approach to managing the fixed-income portion of the Balanced Fund's portfolio
seeks to provide high returns relative to a market benchmark, the Lehman
Brothers Aggregate Bond Index (the "Index"), while also seeking to provide high
current income. This approach emphasizes (1) sector allocation strategies which
enable GSAM to tactically overweight or underweight one sector of the
fixed-income market (i.e., mortgages, corporate bonds, U.S. Treasuries,
non-dollar bonds, emerging market debt) versus another; (2) individual security
selection based on identifying relative value (fixed-income securities
inexpensive relative to other in their sector); and or (3) to a lesser extent,
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<PAGE>
strategies based on GSAM's expectation of the direction of interest rates or the
spread between short-term and long-term interest rates such as yield curve
strategy.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed income securities rated at least
BBB or Baa by a nationally recognized statistical ratings organization
("NRSRO"). The securities currently included in the Index have at least one
year remaining to maturity; have an outstanding principal amount of at least
$100 million; and are issued by the following types of issuers, with each
category receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of mortgage-
backed securities; utilities; industrial issuers; financial institutions;
foreign issuers; and issuers of asset-backed securities. The Index is a
trademark of Lehman Brothers. Inclusion of a security in the Index does not
imply an opinion by Lehman Brothers as to its attractiveness or appropriateness
for investment. Although Lehman Brothers obtains factual information used in
connection with the Index from sources which it considers reliable, Lehman
Brothers claims no responsibility for the accuracy, completeness or timeliness
or such information and has no liability to any person for any loss arising from
results obtained from the use of the Index data.
GSAM seeks to manage fixed-income portfolio risk in a number of ways.
These include diversifying the fixed-income portion of the Balanced Fund's
portfolio among various types of fixed-income securities and utilizing
sophisticated quantitative models to understand how the fixed-income portion of
the portfolio will perform under a variety of market and economic scenarios. In
addition, GSAM uses extensive credit analysis to select and to monitor any
investment-grade or non-investment grade bonds that may be included in the
Balanced Fund's portfolio. In employing this and other investment strategies,
the GSAM team has access to extensive fundamental research and analysis
available through Goldman Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed-income
securities for the Fund's portfolio. GSAM's fixed-income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Investment Adviser de-emphasizes interest rate anticipation by monitoring the
duration of the portfolio within a narrow range of the Investment Adviser's
target duration, and instead focuses on seeking to add value through sector
selection, security selection and yield curve strategies.
Market Sector Selection. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.
Issuer Selection. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by the Balanced Fund's minimum credit quality
requirements). This strategy focuses on four types of investment-grade
corporate issuers. Selection of securities from the first type of issuers -
those with low but stable credit - is intended to enhance total returns by
providing incremental yield. Selecting
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securities from the second type of issuers - those with low and intermediate but
improving credit quality - is intended to enhance total returns in two stages.
Initially, these securities are expected to provide incremental yield.
Eventually, price appreciation should occur relative to alternative securities
as credit quality improves, the NRSROs upgrade credit ratings, and credit
spreads narrow. Securities from the third type of issuers - issuers with
deteriorating credit quality - will be avoided, since total returns are
typically enhanced by avoiding the widening of credit spreads and the consequent
relative price depreciation. Finally, total returns can be enhanced by focusing
on securities that are rated differently by different rating organizations. If
the securities are trading in line with the higher published quality rating
while GSAM concurs with the lower published quality rating, the securities would
generally be sold and any potential price deterioration avoided. On the other
hand, if the securities are trading in line with the lower published quality
rating while the higher published quality rating is considered more realistic,
the securities may be purchased in anticipation of the expected market
reevaluation and relative price appreciation.
Yield Curve Strategy. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
Additional Information About the International Equity Fund
- ----------------------------------------------------------
The International Equity Fund will seek to achieve its investment objective
by investing primarily in equity securities of companies that are organized
outside the United States or whose securities are principally traded outside the
United States. Because research coverage outside the United States is
fragmented and relatively unsophisticated, many foreign companies that are well-
positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for the International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia and Eastern Europe."
A Rigorous Process of Stock Selection. Using fundamental industry and
company research, GSAMI's equity team in London, Singapore and Tokyo seeks to
identify companies that may achieve superior long-term returns. Stocks are
carefully selected for the International Equity Fund's portfolio through a
three-stage investment process. Because the International Equity Fund is a
long-term holder of stocks, the portfolio managers adjust the Fund's portfolio
only when expected returns fall below acceptable levels or when the portfolio
managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the Investment Adviser
seeks to identify attractive industries around the world. Such industries are
expected to have favorable underlying economics and allow
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companies to generate sustainable and predictable high returns. As a rule, they
are less economically sensitive, relatively free of regulation and favor strong
franchises.
Within these industries the Investment Adviser seeks to identify well-run
companies that enjoy a stable competitive advantage and are able to benefit from
the favorable dynamics of the industry. This stage includes analyzing the
current and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAMI's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
Corporate Debt Obligations
- --------------------------
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE Large Cap Value, CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap
Equity and CORE International Equity Funds may only invest in debt securities
that are cash equivalents. Corporate debt obligations are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Strategic Growth, Growth
Opportunities, Mid Cap Value, Small Cap Value, Large Cap Value, International
Equity, European Equity, Japanese Equity, International Small Cap, Emerging
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Markets Equity and Asia Growth Funds to dispose of a particular security when
necessary to meet their redemption requests or other liquidity needs. Under
adverse market or economic conditions, the secondary market for junk bonds could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the Investment Advisers could find it
difficult to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under such circumstances,
may be less than the prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Strategic Growth, Growth Opportunities, Mid Cap
Value, Small Cap Value, Large Cap Value, International Equity, European Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may invest, the yields and prices of such securities may tend to
fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Investment Adviser will
attempt to reduce these risks through portfolio diversification and by analysis
of each issuer and its ability to make timely payments of income and principal,
as well as broad economic trends and corporate developments.
The Investment Adviser employs its own credit research and analysis, which
includes a study of existing debt, capital structure, ability to service debt
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. The Investment Adviser
continually monitors the investments in a Fund's portfolio and evaluates whether
to dispose of or to retain non-investment grade and comparable unrated
securities whose credit ratings or credit quality may have changed.
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U.S. Government Securities
- --------------------------
Each Fund may invest in U.S. Government securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. Government agencies, instrumentalities or sponsored
enterprises. U.S. Government securities also include Treasury receipts and other
stripped U.S. Government securities, where the interest and principal components
of stripped U.S. Government securities are traded independently. A Fund may
also invest in zero coupon U.S. Treasury securities and in zero coupon
securities issued by financial institutions, which represent a proportionate
interest in underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and its value consists of the difference
between its face value at maturity and its cost. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically.
Bank Obligations
- ----------------
Each Fund may invest in obligations issued or guaranteed by U.S. or foreign
banks. Bank obligations, including without limitation, time deposits, bankers'
acceptances and certificates of deposit, may be general obligations of the
parent bank or may be limited to the issuing branch by the terms of the specific
obligations or by government regulation. Banks are subject to extensive but
different governmental regulations which may limit both the amount and types of
loans which may be made and interest rates which may be charged. In addition,
the profitability of the banking industry is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. General economic conditions as well as
exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operation of this industry.
Zero Coupon Bonds
- -----------------
A Fund's investments in fixed-income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the period until maturity. Zero
coupon bonds do not require the periodic payment of interest. Such investments
benefit the issuer by mitigating its need for cash to meet debt service but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which provide for regular payments of
interest. In addition, if an issuer of zero coupon bonds held by a Fund
defaults, the Fund may obtain no return at all on its investment. Each Fund
will accrue income on such investments for each taxable year which (net of
deductible expenses, if any) is distributable to shareholders and which, because
no cash is generally received at the time of accrual, may require the
liquidation of other portfolio securities to obtain sufficient cash to satisfy
the Fund's distribution obligations.
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Variable and Floating Rate Securities
- -------------------------------------
The interest rates payable on certain fixed-income securities in which a
Fund may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
Custodial Receipts
- ------------------
Each Fund may invest in custodial receipts in respect of securities issued
or guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities, political subdivisions or authorities. Such custodial
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued or guaranteed as to principal and interest
by the U.S. Government, its agencies, instrumentalities, political subdivisions
or authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
Municipal Securities
- --------------------
The Balanced Fund may invest in municipal securities. Municipal securities
consist of bonds, notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies or instrumentalities, the
interest on which is exempt from regular federal income tax. Municipal
securities are often issued to obtain funds for various public purposes.
Municipal securities also include "private activity bonds" or industrial
development bonds, which are issued by or on behalf of public authorities to
obtain funds for privately operated facilities, such as airports and waste
disposal facilities, and, in some cases, commercial and industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed-income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities. The credit rating assigned to municipal securities may reflect the
existence of guarantees, letters of credit or other credit enhancement features
available to the issuers or holders of such municipal securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations.
B-16
<PAGE>
Revenue bonds, including private activity bonds, are backed only by specific
assets or revenue sources and not by the full faith and credit of the
governmental issuer.
Mortgage-Backed Securities
- --------------------------
General Characteristics. Each Fund (other than the CORE Large Cap Value,
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds) may invest in mortgage-backed securities. Each
mortgage pool underlying mortgage-backed securities consists of mortgage loans
evidenced by promissory notes secured by first mortgages or first deeds of trust
or other similar security instruments creating a first lien on owner occupied
and non-owner occupied one-unit to four-unit residential properties, multifamily
(i.e., five or more) properties, agriculture properties, commercial properties
and mixed use properties (the "Mortgaged Properties"). The Mortgaged Properties
may consist of detached individual dwelling units, multifamily dwelling units,
individual condominiums, townhouses, duplexes, triplexes, fourplexes, row
houses, individual units in planned unit developments and other attached
dwelling units. The Mortgaged Properties may also include residential
investment properties and second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed-income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed-
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce yield to maturity and market
values. To the extent that a Fund invests in mortgage-backed securities, its
Investment Adviser may seek to manage these potential risks by investing in a
variety of mortgage-backed securities and by using certain hedging techniques.
Government Guaranteed Mortgage-Backed Securities. There are several types
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
B-17
<PAGE>
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
Fannie Mae Certificates. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
Freddie Mac Certificates. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset or
deduction, but does not, generally, guarantee the timely payment of scheduled
principal. The obligations of Freddie Mac under its guaranty of Freddie Mac
Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-
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<PAGE>
family residential properties or multifamily projects. Each mortgage loan must
meet the applicable standards set forth in the law creating Freddie Mac or
Fannie Mae. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and participations comprising another Freddie Mac Certificate group.
Mortgage Pass-Through Securities. Each Fund (other than the CORE Large Cap
Value, CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds) may invest in both government guaranteed and
privately issued mortgage pass-through securities ("Mortgage Pass-Throughs");
that is, fixed or adjustable rate mortgage-backed securities which provide for
monthly payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
Description of Certificates. Mortgage Pass-Throughs may be issued in one
or more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--------
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
--------
such mortgage loan when paid by the mortgagor in subsequent monthly payments or
at maturity.
Ratings. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related
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<PAGE>
certificate-holders under the agreements pursuant to which such certificates are
issued. A rating organization's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make payments
required by such certificates. A rating organization's ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans. In addition, the rating assigned by a
rating organization to a certificate does not address the remote possibility
that, in the event of the insolvency of the issuer of certificates where a
subordinated interest was retained, the issuance and sale of the senior
certificates may be recharacterized as a financing and, as a result of such
recharacterization, payments on such certificates may be affected.
Credit Enhancement. Credit support falls generally into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by, among other things,
payment guarantees, letters of credit, pool insurance, subordination, or any
combination thereof.
Subordination; Shifting of Interest; Reserve Fund. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which generally declines over time) of all principal payments
received during the preceding prepayment period ("shifting interest credit
enhancement"). This will have the effect of accelerating the amortization of
the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
B-20
<PAGE>
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due them and will
protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event the Reserve Fund is depleted before the
subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
--------
all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.
Alternative Credit Enhancement. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
Voluntary Advances. Generally, in the event of delinquencies in payments
on the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees
to make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
Optional Termination. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time if the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
Multiple Class Mortgage-Backed Securities and Collateralized Mortgage
Obligations. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
B-21
<PAGE>
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets").
The obligations of Fannie Mae or Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
B-22
<PAGE>
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the PAC Certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created that absorb
most of the volatility in the underlying mortgage assets. These tranches tend
to have market prices and yields that are much more volatile than other PAC
classes.
Stripped Mortgage-Backed Securities. The Balanced Fund may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. Although the market for such securities is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of the Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.
Inverse Floating Rate Securities
- --------------------------------
The Balanced Fund may invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, the duration of an inverse
floater may exceed its stated final maturity. Certain inverse floaters may be
deemed to be illiquid securities for purposes of each Fund's 15% limitation on
investments in such securities.
Asset-Backed Securities
- -----------------------
Each Fund (except the CORE Large Cap Value, CORE U.S. Equity, CORE Large
Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in asset-backed securities. Asset-backed securities represent
participation in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property, receivables from revolving credit (credit card)
agreements and other categories of receivables. Such assets are securitized
through the use of trusts and special
B-23
<PAGE>
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
A Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Loan Participations
- -------------------
The Balanced Fund may invest in loan participations. Such loans must be to
issuers in whose obligations Balanced Fund may invest. A loan participation is
an interest in a loan to a U.S. or foreign company or other borrower which is
administered and sold by a financial intermediary. In a typical corporate loan
syndication, a number of lenders, usually banks (co-lenders), lend a corporate
borrower a specified sum pursuant to the terms and conditions of a loan
agreement. One of the co-lenders usually agrees to act as the agent bank with
respect to the loan.
Participation interests acquired by the Balanced Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the Balanced Fund acts as
co-lender in connection with a participation interest or when the Balanced Fund
acquires certain participation interests, the Balanced Fund will have direct
recourse against the borrower if the borrower fails to pay scheduled principal
and interest. In cases where the Balanced Fund lacks direct recourse, it will
look to the agent bank to enforce appropriate credit remedies
B-24
<PAGE>
against the borrower. In these cases, the Balanced Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower. For example, in the event of the bankruptcy or
insolvency of the corporate borrower, a loan participation may be subject to
certain defenses by the borrower as a result of improper conduct by the agent
bank. Moreover, under the terms of the loan participation, the Balanced Fund may
be regarded as a creditor of the agent bank (rather than of the underlying
corporate borrower), so that the Balanced Fund may also be subject to the risk
that the agent bank may become insolvent. The secondary market, if any, for
these loan participations is limited and any loan participations purchased by
the Balanced Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to
diversification of the Balanced Fund's portfolio investments, the issuer of a
loan participation will be the underlying borrower. However, in cases where the
Balanced Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the Balanced Fund
and the borrower will be deemed issuers of a loan participation.
Futures Contracts and Options on Futures Contracts
- --------------------------------------------------
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. The CORE Large Cap Value, CORE Large Cap
Growth and CORE Small Cap Equity Funds may only enter into such transactions
with respect to a representative index. The CORE U.S. Equity Fund may enter
into futures transactions only with respect to the S&P 500 Index. The other
Funds may purchase and sell futures contracts based on various securities (such
as U.S. Government securities), securities indices, foreign currencies and other
financial instruments and indices. Each Fund will engage in futures and related
options transactions only for bona fide hedging purposes as defined below or for
purposes of seeking to increase total return to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). Futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges. Neither
the CFTC, National Futures Association nor any domestic exchange regulates
activities of any foreign exchange or boards of trade, including the execution,
delivery and clearing of transactions, or has the power to compel enforcement of
the rules of a foreign exchange or board of trade or any applicable foreign law.
This is true even if the exchange is formally linked to a domestic market so
that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, persons who trade foreign futures or foreign options
contracts may not be afforded certain of the protective measures provided by the
Commodity Exchange Act, the CFTC's regulations and the rules of the National
Futures Association and any domestic exchange, including the right to use
reparations proceedings before the CFTC and arbitration proceedings provided by
the National Futures Association or any domestic futures exchange. In
particular, a Fund's investments in foreign futures or foreign options
transactions may not be provided the same protections in respect of transactions
on United States futures exchanges.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a
B-25
<PAGE>
designated month (or to deliver the final cash settlement price, in the case of
a contract relating to an index or otherwise not calling for physical delivery
at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising, a
Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than the CORE Large Cap
Value, CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds)
can purchase and sell futures contracts on a specified currency in order to seek
to increase total return or to hedge against changes in currency exchange rates.
Each Fund (other than the CORE Large Cap Value, CORE U.S. Equity, CORE Large Cap
Growth and CORE Small Cap Equity Funds) can purchase futures contracts on
foreign currency to establish the price in U.S. dollars of a security quoted or
denominated in such currency that such Fund has acquired or expects to acquire.
The Balanced Fund may also use futures contracts to manage the term structure
and duration of its fixed-income securities holdings in accordance with that
Fund's investment objectives and policies.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price, rate of return or currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. A Fund may, for example,
take a "short" position in the futures market by selling futures contracts to
seek to hedge against an anticipated rise in interest rates or a decline in
market prices or (other than the CORE Large Cap Value, CORE U.S. Equity, the
CORE Large Cap Growth and CORE Small Cap Equity Funds) foreign currency rates
that would adversely affect the dollar value of such Fund's portfolio
securities. Similarly, each Fund (other than the CORE Large Cap Value, CORE
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may sell
futures contracts on a currency in which its portfolio securities are quoted or
denominated or in one currency to seek to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If,
in the opinion of the applicable Investment Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Investment Advisers will attempt to estimate the extent of this
volatility difference based on historical patterns and compensate for any such
differential by having a Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting a Fund's securities portfolio. When hedging of this character is
successful, any depreciation in the value of portfolio
B-26
<PAGE>
securities will be substantially offset by appreciation in the value of the
futures position. On the other hand, any unanticipated appreciation in the value
of a Fund's portfolio securities would be substantially offset by a decline in
the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This may be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract if the option is exercised, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, a Fund
becomes obligated to purchase a futures contract if the option is exercised,
which may have a value lower than the exercise price. Thus, the loss incurred
by a Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
Other Considerations. Each Fund will engage in futures transactions and
will engage in related options transactions only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations.
In addition to bona fide hedging, a CFTC regulation permits a Fund to
engage in other future transactions if the aggregate initial margin and premiums
required to establish such positions in futures contracts and options on futures
do not exceed 5% of the net asset value of such Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. A
Fund will engage in transactions in futures contracts and related options
transactions only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986 as ammended (the "Code") for
maintaining its qualification as a regulated investment company for federal
income tax purposes.
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<PAGE>
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in certain cases, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
In addition, it is not possible for a Fund to hedge fully or perfectly against
currency fluctuations affecting the value of securities quoted or denominated in
foreign currencies because the value of such securities is likely to fluctuate
as a result of independent factors not related to currency fluctuations. The
profitability of a Fund's trading in futures depends upon the ability of the
Investment Adviser to analyze correctly the futures markets.
Options on Securities and Securities Indices
- --------------------------------------------
Writing Covered Options. Each Fund may write (sell) covered call and put
options on any securities in which it may invest. A call option written by a
Fund obligates such Fund to sell specified securities to the holder of the
option at a specified price if the option is exercised at any time before the
expiration date. All call options written by a Fund are covered, which means
that such Fund will own the securities subject to the option as long as the
option is outstanding or such Fund will use the other methods described below.
A Fund's purpose in writing covered call options is to realize greater income
than would be realized on portfolio securities transactions alone. However, a
Fund may forego the opportunity to profit from an increase in the market price
of the underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund will segregate cash or
liquid assets with a value at least equal to the exercise price of the put
option or will use the other methods described below. The purpose of writing
such options is to generate additional income for the Fund. However, in return
for the option premium, each Fund accepts the risk that it may be required to
purchase the underlying securities at a price in excess of the securities'
market value at the time of purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund or by an offsetting forward contract which, by virtue of its exercise price
or otherwise, reduces a Fund's net exposure on its written option position.
B-28
<PAGE>
A Fund may also write (sell) covered call and put options on any securities
index consisting of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration which has
been segregated by the Fund) upon conversion or exchange of other securities in
its portfolio. A Fund may cover call and put options on a securities index by
segregating cash or liquid assets with a value equal to the exercise price.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. Each Fund may purchase put and call options on any
securities in which it may invest or options on any securities index composed of
securities in which it may invest. A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
A Fund may purchase call options in anticipation of an increase in the
market value of securities of the type in which it may invest. The purchase of
a call option would entitle a Fund, in return for the premium paid, to purchase
specified securities at a specified price during the option period. A Fund
would ordinarily realize a gain if, during the option period, the value of such
securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund may purchase put options in anticipation of a decline in the market
value of securities in its portfolio ("protective puts") or in securities in
which it may invest. The purchase of a put option would entitle a Fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a Fund's securities. Put
options may also be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise such a Fund would
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.
B-29
<PAGE>
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
Yield Curve Options. The Balanced Fund may enter into options on the yield
"spread" or differential between two securities. Such transactions are referred
to as "yield curve" options. In contrast to other types of options, a yield
curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.
The Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, the Fund may purchase a
call option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield spread between the two securities. The
Balanced Fund may also purchase or write yield curve options in an effort to
increase current income if, in the judgment of the Investment Adviser, the Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Fund holds another call (or put) option on the
spread between the same two securities and segregates cash or liquid assets
sufficient to cover the Fund's net liability under the two options. Therefore,
the Fund's liability for such a covered option is generally limited to the
difference between the amount of such Fund's liability under the option written
by the Fund less the value of the option held by the Fund. Yield curve options
may also be covered in such other manner as may be in accordance with the
requirements of the counterparty with which the option is traded and applicable
laws and regulations. Yield curve options are traded over-the-counter, and
because they have been only recently introduced, established trading markets for
these options have not yet developed.
Risks Associated with Options Transactions. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of
segregated assets until the options expire or are exercised. Similarly, if a
Fund is unable to effect a closing sale transaction with respect to options it
has purchased, it will have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of underlying
securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by
B-30
<PAGE>
an exchange on opening or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter options
is more limited than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Investment Advisers. An exchange, board of trade or
other trading facility may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of the Investment Adviser to manage future price fluctuations and
the degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
Real Estate Investment Trusts
- -----------------------------
Each Fund may invest in shares of REITs. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interest. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling
B-31
<PAGE>
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Like regulated investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
certain requirements under the Code. A Fund will indirectly bear its
proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Act. REITs (especially mortgage REITs) are also subject to
interest rate risks.
Warrants and Stock Purchase Rights
- ----------------------------------
Each Fund may invest in warrants or rights (in addition to those acquired
in units or attached to other securities) which entitle the holder to buy equity
securities at a specific price for a specific period of time. A Fund will invest
in warrants and rights only if such equity securities are deemed appropriate by
the Investment Adviser for investment by the Fund. The CORE Large Cap Value,
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds have no present intention of acquiring warrants or
rights. Warrants and rights have no voting rights, receive no dividends and have
no rights with respect to the assets of the issuer.
Foreign Securities
- ------------------
Each Fund may invest in securities of foreign issuers. The Balanced, Growth
and Income, Capital Growth, Strategic Growth, Growth Opportunities, Mid Cap
Value, Small Cap Value and Large Cap Value Funds may invest in the aggregate up
to 10%, 25%, 10%, 10%, 10%, 25%, 25% and 25%, respectively, of their total
assets in foreign securities. The CORE International Equity, International
Equity, European Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Fund will invest primarily in foreign securities
under normal circumstances. With respect to the CORE U.S. Equity, CORE Large Cap
Growth, CORE Large Cap Value and CORE Small Cap Equity Funds, equity securities
of foreign issuers must be traded in the United States.
Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of the applicable
Investment Adviser, to offer the potential for long-term growth of capital and
income, the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States and the opportunity to
reduce fluctuations in portfolio value by taking
B-32
<PAGE>
advantage of foreign stock markets that do not necessarily move in a manner
parallel to U.S. markets.
Investing in foreign securities involves certain special risks, including
those set forth below, which are not typically associated with investing in U.S.
dollar-denominated or quoted securities of U.S. issuers. Investments in foreign
securities usually involve currencies of foreign countries. Accordingly, any
Fund that invests in foreign securities may be affected favorably or unfavorably
by changes in currency rates and in exchange control regulations and may incur
costs in connection with conversions between various currencies. The Balanced,
Growth and Income, CORE International Equity, Capital Growth, Strategic Growth,
Growth Opportunities, Mid Cap Value, International Equity, Small Cap Value,
Large Cap Value, European Equity, Japanese Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may be subject to currency
exposure independent of their securities positions. To the extent that a Fund is
fully invested in foreign securities while also maintaining currency positions,
it may be exposed to greater combined risk.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks or the failure to intervene or by currency controls or political
developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments
B-33
<PAGE>
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for the CORE Large Cap Value, CORE U.S. Equity,
CORE Large Cap Growth and CORE Small Cap Equity Funds) may also invest in
European Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited
in a domestic bank or a correspondent bank. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments. Investment in Depository Receipts does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository receipts and the underlying securities are quoted.
However, by investing in Depository Receipts, such as ADRs, that are quoted in
U.S. dollars, a Fund may avoid currency risks during the settlement period for
purchases and sales.
As described more fully below, each Fund (except the CORE Large Cap Value,
CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may
invest in countries with emerging economies or securities markets. Political and
economic structures in many of such countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Certain of such countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks described above, including the risks
of nationalization or expropriation of assets, may be heightened. See "Investing
in Emerging Markets, including Asia and Eastern Europe," below.
Investing in Emerging Countries, including Asia and Eastern Europe. CORE
International Equity, International Equity, European Equity, Japanese Equity,
International Small Cap, Asia Growth and Emerging Markets Equity Funds are
intended for long-term investors who can accept the risks associated with
investing primarily in equity and equity-related securities of foreign issuers,
including emerging country issuers, as well as the risks associated with
investments
B-34
<PAGE>
quoted or denominated in foreign currencies. The Balanced, Growth and Income,
Capital Growth, Strategic Growth, Growth Opportunities, Mid Cap Value and Small
Cap Value Funds may invest, to a lesser extent, in equity and equity-related
securities of foreign issuers, including emerging country issuers.
Each of the securities markets of the emerging countries is less liquid and
subject to greater price volatility and has a smaller market capitalization than
the U.S. securities markets. Issuers and securities markets in such countries
are not subject to as extensive and frequent accounting, financial and other
reporting requirements or as comprehensive government regulations as are issuers
and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of emerging country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about emerging country issuers than is available about
issuers in the United States.
Emerging country securities markets are typically marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain emerging countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in emerging countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. The limited size of many of these securities markets can
cause prices to be erratic for reasons apart from factors that affect the
soundness and competitiveness of the securities issuers. For example, prices may
be unduly influenced by traders who control large positions in these markets.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The limited liquidity of emerging country
markets may also affect a Fund's ability to accurately value its portfolio
securities or to acquire or dispose of securities at the price and time it
wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
emerging countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in emerging countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees. These restrictions may limit a
Fund's investment in certain emerging countries and may increase the expenses of
the Fund. Certain emerging countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a specific class
of securities which may have less advantageous terms (including price) than
securities of the company available for purchase by nationals. In addition, the
repatriation of both investment income and capital from several of the emerging
countries is subject to restrictions which require governmental
B-35
<PAGE>
consents or prohibit repatriation entirely for a period of time. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of a Fund. A Fund may
be required to establish special custodial or other arrangements before
investing in certain emerging countries.
Each of the emerging countries may be subject to a substantially greater
degree of economic, political and social instability and disruption than is the
case in the United States, Japan and most Western European countries. This
instability may result from, among other things, the following: (i)
authoritarian governments or military involvement in political and economic
decision making, including changes or attempted changes in governments through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic or social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; (v) ethnic, religious and
racial disaffection or conflict; and (vi) the absence of developed legal
structures governing foreign private investments and private property. Such
economic, political and social instability could disrupt the principal financial
markets in which the Funds may invest and adversely affect the value of the
Funds' assets. A Fund's investments could in the future be adversely affected by
any increase in taxes or by political, economic or diplomatic developments.
Certain Funds may seek investment opportunities within former "east bloc"
countries in Eastern Europe. See "Fund Investment Objectives and Strategies" in
the prospectus. All or a substantial portion of such investments may be
considered "not readily marketable" for purposes of the limitation set forth
below. For example, most Eastern European countries have had a centrally
planned, socialist economy since shortly after World War II. The governments of
a number of Eastern European countries currently are implementing reforms
directed at political and economic liberalization, including efforts to
decentralize the economic decision-making process and move towards a market
economy. However, business entities in many Eastern European countries do not
have any recent history of operating in a market-oriented economy, and the
ultimate impact of Eastern European countries' attempts to move toward more
market-oriented economies is currently unclear. In addition, any change in the
leadership or policies of Eastern European countries may halt the expansion of
or reverse the liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.
The economies of emerging countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
emerging countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times accelerated
rapidly to hyperinflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding financial assets in
those countries. The economies of many emerging countries are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners. In addition, the
economies of some emerging countries are vulnerable to weakness in world prices
for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
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<PAGE>
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund remain uninvested and no return
is earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
Investing in Japan. The Japanese Equity Fund invests in the equity
securities of Japanese companies. Japan's economy, the second-largest in the
world, has grown substantially over the last three decades. The boom in Japan's
equity and property markets during the expansion of the late 1980's supported
high rates of investment and consumer spending on durable goods, but both of
these components of demand have since retreated sharply following the decline in
asset prices. Japan's economic growth in the 1990's has been substantially below
the levels of earlier decades. Its economy has drifted between modest growth and
recession. Profits have fallen sharply, unemployment has reached a historical
high and consumer confidence is low. The banking sector continues to suffer from
non-performing loans and this economy is subject to deflationary pressures.
Numerous discount-rate cuts since its peak in 1991, a succession of fiscal
stimulus packages, support plans for the debt-burdened financial system and
spending for reconstruction following the Kobe earthquake may help to contain
the recessionary forces, but substantial uncertainties remain. In calendar year
1998, Japan's gross national product contracted by 2.8%, its worse performance
in the post-war period.
In addition to the cyclical downturn, Japan is suffering through structural
adjustments. Like the Europeans, the Japanese have seen a deterioration of their
competitiveness due to high wages, a strong currency and structural rigidities.
Finally, Japan is reforming its political process and deregulating its economy.
This has brought about turmoil, uncertainty and a crisis of confidence.
While the Japanese governmental system itself seems stable, the dynamics of
the country's politics have been unpredictable in recent years. The economic
crisis of 1990-92 brought the downfall of the conservative Liberal Democratic
Party, which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. With the pending formation of a three-
party coalition government, the political environment appears to be in the
process of stabilizing. However, should the political instability continue,
efforts to establish effective economic and fiscal policies may be hampered.
Future political developments may lead to changes in policy that might adversely
affect the Funds' investments.
Japan's heavy dependence on international trade has been adversely affected
by trade tariffs and other protectionist measures as well as the economic
condition of its trading partners. While Japan subsidizes its agricultural
industry, only 19% of its land is suitable for cultivation and it is only 50%
self-sufficient in food production. Accordingly, it is highly dependent on large
imports of wheat, sorghum and soybeans. In addition,the manufacturing industry,
its most important economic sector, depends on imported raw materials and fuels,
including iron ore, copper, oil and
B-37
<PAGE>
many forest products. Japan's high volume of exports, such as automobiles,
machine tools and semiconductors, has caused trade tensions, particularly with
the United States. Some trade agreements, however, have been implemented to
reduce these tensions. The relaxing of official and de facto barriers to
imports, or hardships created by any pressures brought by trading partners,
could adversely affect Japan's economy. A substantial rise in world oil or
commodity prices could also have a negative affect. The Japanese Yen has
fluctuated widely over the last year. As of September 1999, the Yen had
restrengthened. The strength of the yen itself may prove an impediment to strong
continued exports and economic recovery, because it makes Japanese goods sold in
other countries more expensive and reduces the value of foreign earnings
repatriated to Japan. Because the Japanese economy is so dependent on exports,
any fall-off in exports may be seen as a sign of economic weakness, which may
adversely affect the market.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's economy.
Forward Foreign Currency Exchange Contracts. The Growth and Income, CORE
Large Cap Value, CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity,
Capital Growth, Strategic Growth, Growth Opportunities, Mid Cap Value, Small Cap
Value and Large Cap Value Funds may enter into forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. The Balanced, CORE
International Equity, International Equity, European Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may enter
into forward foreign currency exchange contracts for hedging purposes and to
seek to increase total return. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are generally charged at any stage for
trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are often, but
not always, effected with the currency trader who is a party to the original
forward contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an adverse change in the relationship
B-38
<PAGE>
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Investment Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of some or all
of such Fund's portfolio securities quoted or denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange, which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
The Balanced, CORE International Equity, International Equity, European
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities quoted or
denominated in a different currency if GSAM or GSAMI determines that there is a
pattern of correlation between the two currencies.
The Balanced, CORE International Equity, International Equity, European
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may also enter into forward contracts to seek to increase
total return. Unless otherwise covered in accordance with applicable
regulations, cash or liquid assets of a Fund will be segregated in an amount
equal to the value of the Fund's total assets committed to the consummation of
forward foreign currency exchange contracts. The segregated assets will be
marked-to-market on a daily basis. If the value of the segregated assets
declines, additional cash or liquid assets will be segregated on a daily basis
so that the value of the assets will equal the amount of a Fund's commitments
with respect to such contracts. Although the contracts are not presently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
these contracts. If this happens, a Fund's ability to utilize forward foreign
currency exchange contracts may be restricted.
While a Fund may enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
B-39
<PAGE>
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Forward contracts are subject to the risk that the
counterparty to such contract will default on its obligations. Since a forward
foreign currency exchange contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a Fund of unrealized
profits, transaction costs or the benefits of a currency hedge or force the Fund
to cover its purchase or sale commitments, if any, at the current market price.
A Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser. To
the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated or quoted in the currencies of foreign countries, the Fund will be
more susceptible to the risk of adverse economic and political developments
within those countries.
Writing and Purchasing Currency Call and Put Options. Each Fund may, to the
extent that it invests in foreign securities, write and purchase put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign portfolio securities and against increases in
the U.S. dollar cost of foreign securities to be acquired. As with other kinds
of option transactions, however, the writing of an option on foreign currency
will constitute only a partial hedge, up to the amount of the premium received.
If and when a Fund seeks to close out an option, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by a Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
Options on currency may be used for either hedging or cross-hedging
purposes, which involves writing or purchasing options on one currency to hedge
against changes in exchange rates for a different currency with a pattern of
correlation, or to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not included in the Fund's portfolio.
A call option written by a Fund obligates a Fund to sell a specified
currency to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. A put option written by a Fund
would obligate a Fund to purchase a specified currency from the option holder at
a specified price if the option is exercised at any time before the expiration
date. The writing of currency options involves a risk that a Fund will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
For a description of how to cover written put and call options, see "Writing
Covered Options" above.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions."
B-40
<PAGE>
A Fund may enter into closing sale transactions in order to realize gains or
minimize losses on options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the U.S. dollar value of currency in which securities in its portfolio are
quoted or denominated ("protective puts"). The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell specified currency at
a specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.
In addition to using options for the hedging purposes described above, the
Funds may use options on currency to seek to increase total return. The Funds
may write (sell) covered put and call options on any currency in order to
realize greater income than would be realized on portfolio securities
transactions alone. However, in writing covered call options for additional
income, the Funds may forego the opportunity to profit from an increase in the
market value of the underlying currency. Also, when writing put options, the
Funds accept, in return for the option premium, the risk that they may be
required to purchase the underlying currency at a price in excess of the
currency's market value at the time of purchase.
Special Risks Associated With Options on Currency. An exchange-traded
options position may be closed out only on an options exchange, which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
B-41
<PAGE>
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums, which a Fund may pay or receive, may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
Currency Swaps, Mortgage Swaps, Credit Swaps, Index Swaps and Interest Rate
- ---------------------------------------------------------------------------
Swaps, Caps, Floors and Collars
- -------------------------------
The Balanced, CORE International Equity, International Equity, European
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may enter into currency swaps for both hedging purposes and to
seek to increase total return. In addition, the Balanced Fund may enter into
mortgage, credit, index and interest rate swaps and other interest rate swap
arrangements such as rate caps, floors and collars, for hedging purposes or to
seek to increase total return. Currency swaps involve the exchange by a Fund
with another party of their respective rights to make or receive payments in
specified currencies. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed rate payments for floating rate payments. Mortgage
swaps are similar to interest rate swaps in that they represent commitments to
pay and receive interest. The notional principal amount, however, is tied to a
reference pool or pools of mortgages. Index swaps involve the exchange by a
Fund with another party of the respective amounts payable with respect to a
notional principal amount at interest rates equal to two specified indices.
Credit swaps involve the receipt of floating or fixed rate payments in exchange
for assuming potential credit losses of an underlying security. Credit swaps
give one party to a transaction the right to dispose of or acquire an asset (or
group of assets), or the right to receive or make a payment for the other party,
upon the occurrence of specified credit events. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payment of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling the interest rate floor.
An interest rate collar is the combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a
net basis, which means that the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest
B-42
<PAGE>
payments that the Fund is contractually obligated to make. If the other party to
an interest rate, index or mortgage swap defaults, the Fund's risk of loss
consists of the net amount of interest payments that the Fund is contractually
entitled to receive. In contrast, currency swaps usually involve the delivery of
a gross payment stream in one designated currency in exchange for the gross
payment stream in another designated currency. Therefore, the entire payment
stream under a currency swap is subject to the risk that the other party to the
swap will default on its contractual delivery obligations. To the extent that
the Fund's potential exposure in a transaction involving a swap or an interest
rate floor, cap or collar is covered by the segregation of cash or liquid assets
or otherwise, the Funds and the Investment Advisers believe that swaps do not
constitute senior securities under the Act and, accordingly, will not treat them
as being subject to a Fund's borrowing restrictions.
A Fund will not enter into transactions involving swaps, caps, floors or
collars unless the unsecured commercial paper, senior debt or claims paying
ability of the other party thereto is considered to be investment grade by the
Investment Adviser.
The use of interest rate, mortgage, index, credit and currency swaps, as
well as interest rate caps, floors and collars, is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If an Investment Adviser is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of a Fund would be less favorable
than it would have been if this investment technique were not used. The
Investment Advisers, under the supervision of the Board of Trustees, are
responsible for determining and monitoring the liquidity of the Funds'
transactions in swaps, caps, floors and collars.
Convertible Securities
- ----------------------
Each Fund may invest in convertible securities. Convertible securities
include corporate notes or preferred stock but are ordinarily long-term debt
obligation of the issuer convertible at a stated exchange rate into common stock
of the issuer. As with all debt securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. Convertible securities generally offer
lower interest or dividend yields than non-convertible securities of similar
quality. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the convertible
security tends to reflect the value of the underlying common stock. As the
market price of the underlying common stock declines, the convertible security
tends to trade increasingly on a yield basis, and thus may not depreciate to the
same extent as the underlying common stock. Convertible securities rank senior
to common stocks in an issuer's capital structure and consequently entail less
risk than the issuer's common stock. In evaluating a convertible security, the
Investment Adviser will give primary emphasis to the attractiveness of the
underlying common stock. Convertible debt securities are equity investments for
purposes of each Fund's investment policies.
Preferred Securities
- --------------------
Each Fund may invest in preferred securities. Unlike debt securities, the
obligations of an issuer of preferred stock, including dividend and other
payment obligations, may not typically be
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<PAGE>
accelerated by the holders of preferred stock on the occurrence of an event of
default (such as a covenant default or filing of a bankruptcy petition) or other
non-compliance by the issuer with the terms of the preferred stock. Often,
however, on the occurrence of any such event of default or non-compliance by the
issuer, preferred stockholders will be entitled to gain representation on the
issuer's board of directors or increase their existing board representation. In
addition, preferred stockholders may be granted voting rights with respect to
certain issues on the occurrence of any event of default.
Equity Swaps
- ------------
Each Fund may enter into equity swap contracts to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment is restricted for legal reasons or is otherwise
impracticable. Equity swaps may also be used for hedging purposes or to seek to
increase total return. The counterparty to an equity swap contract will
typically be a bank, investment banking firm or broker/dealer. Equity swap
contracts may be structured in different ways. For example, a counterparty may
agree to pay the Fund the amount, if any, by which the notional amount of the
equity swap contract would have increased in value had it been invested in the
particular stocks (or an index of stocks), plus the dividends that would have
been received on those stocks. In these cases, the Fund may agree to pay to the
counterparty a floating rate of interest on the notional amount of the equity
swap contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return
to the Fund on the equity swap contract should be the gain or loss on the
notional amount plus dividends on the stocks less the interest paid by the Fund
on the notional amount. In other cases, the counterparty and the Fund may each
agree to pay the other the difference between the relative investment
performances that would have been achieved if the notional amount of the equity
swap contract had been invested in different stocks (or indices of stocks).
A Fund will enter into equity swaps only on a net basis, which means that
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Payments may be made
at the conclusion of an equity swap contract or periodically during its term.
Equity swaps do not involve the delivery of securities or other underlying
assets. Accordingly, the risk of loss with respect to equity swaps is limited
to the net amount of payments that a Fund is contractually obligated to make.
If the other party to an equity swap defaults, a Fund's risk of loss consists of
the net amount of payments that such Fund is contractually entitled to receive,
if any. Inasmuch as these transactions are entered into for hedging purposes or
are offset by segregated cash or liquid assets to cover the Funds' potential
exposure, the Funds and their Investment Advisers believe that transactions do
not constitute senior securities under the Act and, accordingly, will not treat
them as being subject to a Fund's borrowing restrictions.
A Fund will not enter into swap transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party
thereto is considered to be investment grade by the Investment Adviser.
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<PAGE>
Lending of Portfolio Securities
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions, such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents, letters of credit or U.S. Government securities maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. A Fund would be required to have the right to call a loan and obtain
the securities loaned at any time on five days' notice. For the duration of a
loan, a Fund would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive
compensation from investment of the collateral. A Fund would not have the right
to vote any securities having voting rights during the existence of the loan,
but a Fund would call the loan in anticipation of an important vote to be taken
among holders of the securities or the giving or withholding of their consent on
a material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Investment Advisers to be of
good standing, and when, in the judgment of the Investment Advisers, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Investment Advisers determine to make
securities loans, it is intended that the value of the securities loaned would
not exceed one-third of the value of the total assets of a Fund (including the
loan collateral).
Cash received as collateral for securities lending transactions may be invested
in other investment eligible securities. Investing the collateral subjects it
to market depreciation or appreciation, and the Fund is responsible for any loss
that may result from its investment of the borrowed collateral.
When-Issued Securities and Forward Commitments
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will generally
purchase securities on a when-issued basis or purchase or sell securities on a
forward commitment basis only with the intention of completing the transaction
and actually purchasing or selling the securities. If deemed advisable as a
matter of investment strategy, however, a Fund may dispose of or negotiate a
commitment after entering into it. A Fund may realize a capital gain or loss in
connection with these transactions. For purposes of determining a Fund's
duration, the maturity of when-issued or forward commitment securities will be
calculated from the commitment date. A Fund is generally required to segregate
until three days prior to the settlement date, cash and liquid assets in an
amount sufficient to meet the purchase price unless the Fund's obligations are
otherwise covered. Securities purchased or sold on a when-issued or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date or if the value of the security
to be sold increases prior to the settlement date.
B-45
<PAGE>
Investment in Unseasoned Companies
- ----------------------------------
Each Fund may invest in companies (including predecessors) which have
operated less than three years. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
Other Investment Companies
- --------------------------
A Fund reserves the right to invest up to 10% of its total assets in the
securities of all investment companies (including SPDRs and Webs) but may not
acquire more than 3% of the voting securities of any other investment company.
Pursuant to an exemptive order obtained from the SEC, the Funds may invest in
money market funds for which an Investment Adviser or any of its affiliates
serves as investment adviser. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by investment companies in
which it invests in addition to the advisory and administration fees (and other
expenses) paid by the Fund. However, to the extent that the Fund invests in a
money market fund for which an Investment Adviser or any of its affiliates acts
as Investment Adviser, the advisory and administration fees payable by the Fund
to an Investment Adviser will be reduced by an amount equal to the Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the Investment Adviser.
SPDRs are interests in a unit investment trust ("UIT") that may be obtained
from the UIT or purchased in the secondary market (SPDRs are listed on the
American Stock Exchange). There is a 5% limit based on total assets on
investments by any one Fund in SPDRs. The UIT will issue SPDRs in aggregations
known as "Creation Units" in exchange for a "Portfolio Deposit" consisting of
(a) a portfolio of securities substantially similar to the component securities
("Index Securities") of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P Index"), (b) a cash payment equal to a pro rata portion of the
dividends accrued on the UIT's portfolio securities since the last dividend
payment by the UIT, net of expenses and liabilities, and (c) a cash payment or
credit ("Balancing Amount") designed to equalize the net asset value of the S&P
Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs.
B-46
<PAGE>
Each Fund (other than the CORE Large Cap Value, CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) may also purchase shares of
investment companies investing primarily in foreign securities, including
"country funds." Country funds have portfolios consisting primarily of
securities of issuers located in one foreign country or region. Each Fund may,
subject to the limitations stated above, invest in World Equity Benchmark Shares
("WEBS") and similar securities that invest in securities included in foreign
securities indices.
Repurchase Agreements
- ---------------------
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. CORE International Equity, International Equity,
Japanese Equity, European Equity, International Small Cap, Emerging Markets
Equity, Asia Growth and Balanced Funds may also enter into repurchase agreements
involving certain foreign government securities. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities is maintained by a Fund's custodian (or subcustodian).
The repurchase price may be higher than the purchase price, the difference being
income to a Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to a Fund together with the repurchase price on
repurchase. In either case, the income to a Fund is unrelated to the interest
rate on the security subject to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not always clear whether a court would consider the
security purchased by a Fund subject to a repurchase agreement as being owned by
a Fund or as being collateral for a loan by a Fund to the seller. In the event
of commencement of bankruptcy or insolvency proceedings with respect to the
seller of the security before repurchase of the security under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Such a delay may involve loss of interest or a decline in price
of the security. If the court characterizes the transaction as a loan and a
Fund has not perfected a security interest in the security, a Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
risk of losing some or all of the principal and interest involved in the
transaction.
The Investment Advisers seek to minimize the risk of loss from repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the security. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the security subject to the
repurchase agreement becomes less than the repurchase price (including accrued
interest), a Fund will direct the seller of the security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price. Certain repurchase agreements
which provide for settlement in more than seven days can be liquidated before
the nominal fixed term on seven days or less notice. Such repurchase agreements
will be regarded as liquid instruments.
B-47
<PAGE>
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Investment Advisers or their affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
Reverse Repurchase Agreements
- -----------------------------
A Fund may borrow money by entering into transactions called reverse
repurchase agreements. Under these arrangements, the Fund will sell portfolio
securities to dealers in U.S. Government Securities or members of the Federal
Reserve System, with an agreement to repurchase the security on an agreed date,
price and interest payment. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities the Fund relinquishes may decline
below the price the Fund must pay when the transaction closes. Borrowings may
magnify the potential for gain or loss on amounts invested resulting in an
increase in the speculative character of the Fund's outstanding shares.
When a Fund enters into a reverse repurchase agreement, it places in a
separate custodial account either liquid assets or other high grade debt
securities that have a value equal to or greater than the repurchase price. The
account is then continuously monitored to make sure that an appropriate value is
maintained. Reverse repurchase agreements are considered to be borrowings under
the Act.
Mortgage Dollar Rolls
- ---------------------
When the Balanced Fund enters into a mortgage dollar roll, it will
segregate cash or liquid assets in an amount equal to the forward purchase price
until the settlement date.
Portfolio Turnover
- ------------------
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for equity
securities, or for other reasons. It is anticipated that the portfolio turnover
rate of each Fund will vary from year to year.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectuses. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused
B-48
<PAGE>
by, an acquisition or encumbrance of securities or assets of, or borrowings by,
a Fund. With respect to the Funds' fundamental investment restriction no. 3,
asset coverage of at least 300% (as defined in the Act), inclusive of any
amounts borrowed, must be maintained at all times.
A Fund may not:
(1) Make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act of
1940, as amended (the "Act"). This restriction does not, however,
apply to any Fund classified as a non-diversified company under
the Act.
(2) Invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (excluding the U.S. Government or any of its
agencies or instrumentalities).
(3) Borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage in transactions in mortgage dollar
rolls which are accounted for as financings.
(4) Make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) Underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) Purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
(7) Invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
B-49
<PAGE>
(8) Issue senior securities to the extent such issuance would violate
applicable law.
Each Fund may, notwithstanding any other fundamental investment
restriction or policy, invest some or all of its assets in a single open-end
investment company or series thereof with substantially the same investment
objective, restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees
have adopted the following non-fundamental policies which can be changed or
amended by action of the Trustees without approval of shareholders.
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements with a notice or demand period of more
than seven days, securities which are not readily marketable and
restricted securities not eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 (the "1933 Act")
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-50
<PAGE>
MANAGEMENT
The Trustees are responsible for deciding matters of general policy
and reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations.
Information pertaining to the Trustees and officers of the Trust is
set forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Ashok N. Bakhru, 57 Chairman Chairman of the Board and Trustee -
P.O. Box 143 & Trustee Goldman Sachs Variable Insurance Trust
Lima, PA 19037 (registered investment company) (since
October 1997); President, ABN Associates
(July 1994-March 1996 and November 1998
to present); Executive Vice President -
Finance and Administration and Chief
Financial Officer, Coty Inc.
(manufacturer of fragrances and
cosmetics) (April 1996-November 1998);
Senior Vice President of Scott Paper
Company (until June 1994); Director of
Arkwright Mutual Insurance Company
(1994-Present); Trustee of International
House of Philadelphia (1989-Present);
Member of Cornell University Council
(1992-Present); Trustee of the Walnut
Street Theater (1992-Present); Director,
Private Equity Investors-III (since
November 1998); Trustee, Citizens
Scholarship Foundation of America (since
1998).
</TABLE>
B-51
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*David B. Ford, 53 Trustee Trustee- Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since October 1997); Director,
Commodities Corp. LLC (futures and
commodities traders) (since April 1997);
Managing Director, J. Aron & Company
(commodity dealer and risk management
adviser) (since November 1996); Managing
Director, Goldman Sachs & Co. Investment
Banking Division (since November 1996);
Chief Executive Officer and Director,
CIN Management (investment adviser)
(since August 1996); Chief Executive
Officer & Managing Director and
Director, Goldman Sachs Asset Management
International (since November 1995 and
December 1994, respectively); Co-Head,
Goldman Sachs Asset Management Division
(since November 1995); Co-Head and
Director, Goldman Sachs Funds Management
Inc. (since November 1995 and December
1994, respectively); Chairman and
Director, Goldman Sachs Asset Management
Japan Limited (since November 1994).
*Douglas C. Grip, 37 Trustee Trustee and President - Goldman Sachs
One New York Plaza & President Variable Insurance Trust (registered
New York, NY 10004 investment company) (since October
1997); Managing Director, Goldman Sachs
Asset Management Division (since
November 1997); President, Goldman Sachs
Fund Group (since April 1996);
President, MFS Retirement Services Inc.,
of Massachusetts Financial Services
(prior thereto).
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*John P. McNulty, 47 Trustee Trustee - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since October 1997); Managing
Director, Goldman Sachs (since November
1996); General Partner, J. Aron &
Company (since November 1995); Director
and Co-Head, Goldman Sachs Funds
Management Inc. (since November 1995);
Director, Goldman Sachs Asset Management
International (since January 1996);
Co-Head, GSAM (November 1995 to
present); Director, Global Capital
Reinsurance (insurance) (since 1989);
Director, Commodities Corp. LLC (since
April 1997); Limited Partner of Goldman
Sachs (1994 - November 1995) and
Trustee, Trust for Credit Unions
(registered investment company) (since
January 1996).
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Mary P. McPherson, 64 Trustee Trustee - Goldman Sachs Variable
The Andrew W. Mellon Foundation Insurance Trust (registered investment
140 East 62nd Street company) (since October 1997); Vice
New York, NY 10021 President and Senior Program Officer,
The Andrew W. Mellon Foundation
(provider of grants for conservation,
environmental and educational purposes)
(since October 1997); President of Bryn
Mawr College (1978-1997); Director,
Smith College (since 1998); Director,
Josiah Macy, Jr. Foundation (health
education programs) (since 1977);
Director of the Philadelphia
Contributionship (insurance) (since
1985); Director, Amherst College
(1986-1998); Director, Dayton Hudson
Corporation (general retailing
merchandising) (1988-1997); Director,
The Spenser Foundation (educational
research) (since 1993); and member of
PNC Advisory Board (banking) (since
1993).
*Alan A. Shuch, 50 Trustee Trustee - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since October 1997); Limited
Partner, Goldman Sachs (since December
1994); Consultant to GSAM (since
December 1994); Director, Chief
Operating Officer and Vice President of
Goldman Sachs Funds Management Inc.
(from November 1993 - November 1994);
Chairman and Director, Goldman Sachs
Asset Management - Japan Limited
(November 1993 - November 1994);
Director, Goldman Sachs Asset Management
International (November 1993 - November
1994); General Partner, Goldman Sachs &
Co. Investment Banking Division
(December 1986 - November 1994).
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Jackson W. Smart, Jr., 69 Trustee Trustee - Goldman Sachs Variable
One Northfield Plaza, Suite 218 Insurance Trust (registered investment
Northfield, IL 60093 company) (since October 1997); Chairman,
Executive Committee and Director, First
Commonwealth, Inc. (a managed dental
care company) (since January 1996);
Chairman and Chief Executive Officer,
MSP Communications Inc. (a company
engaged in radio broadcasting) (October
1988 - December 1997); Director, Federal
Express Corporation (NYSE) (since 1976);
Director, Evanston Hospital Corporation
(since 1980).
William H. Springer, 70 Trustee Trustee - Goldman Sachs Variable
701 Morningside Drive Insurance Trust (registered investment
Lake Forest, IL 60045 company) (since October 1997); Director,
The Walgreen Co. (a retail drug store
business) (since April 1988); Director
of Baker, Fentress & Co. (a closed-end,
non-diversified management investment
company) (April 1992 - present);
Chairman and Trustee, Northern
Institutional Funds (since April 1984).
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Richard P. Strubel, 60 Trustee Trustee - Goldman Sachs Variable
737 N. Michigan Ave., Suite 1405 Insurance Trust (registered investment
Chicago, IL 60611 company) (since October 1997); Director,
Gildan Activewear Inc. (since February
1999); Director of Kaynar Technologies
Inc. (since March 1997); Managing
Director, Tandem Partners, Inc. (since
1990); President and Chief Executive
Officer, Microdot, Inc. (a diversified
manufacturer of fastening systems and
connectors) (January 1984 - October
1994); Trustee, Northern Institutional
Funds (since December 1982).
*Nancy L. Mucker, 50 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President,
Goldman Sachs (since April 1985);
Co-Manager of Shareholder Servicing of
Goldman Sachs Asset Management (since
November 1989).
*John M. Perlowski, 35 Treasurer Treasurer - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Vice President,
Goldman Sachs (since July 1995); Banking
Director, Investors Bank and Trust
(November 1993 - July 1995).
*James A. Fitzpatrick, 39 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since October 1997); Vice
President, Goldman Sachs (sine 1998);
Vice President of GSAM (since April
1997); Vice President and General
Manager, First Data Corporation -
Investor Services Group (1994 to 1997).
</TABLE>
B-56
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Jesse Cole, 36 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1998); Vice President,
GSAM (June 1998 to Present); Vice
President, AIM Management Group, Inc.
(investment advisor) (April 1996-June
1998); Assistant Vice President, The
Northern Trust Company (June 1987-April
1996).
*Philip V. Giuca , Jr., 37 Assistant Treasurer Assistant Treasurer - Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Vice
President, Goldman Sachs (May
1992-Present).
*Adrien Deberghes, 31 Assistant Treasurer Assistant Treasurer - Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1999); Vice
President, Mutual Fund Administration,
GSAM (since 1998); Senior Associate,
GSAM (1997-1998).
*Michael J. Richman, 39 Secretary Secretary - Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); General Counsel
of the Funds Group of GSAM (since
December 1997); Associate General
Counsel of GSAM (February 1994 -
December 1997); Counsel to the Funds
Group, GSAM (June 1992 to December
1997); Associate General Counsel,
Goldman Sachs (since December 1998);
Vice President of Goldman Sachs (since
June 1992); and Assistant General
Counsel of Goldman Sachs (June 1992 to
December 1998).
</TABLE>
B-57
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Howard B. Surloff, 34 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, GSAM and
Associate General Counsel to the Funds
Group (since December 1997); Assistant
General Counsel and Vice President,
Goldman Sachs (since November 1993 and
May 1994, respectively); Counsel to the
Funds Group, GSAM (November 1993 -
December 1997); Associate of Shereff,
Friedman, Hoffman & Goodman (October
1990 to November 1993).
*Valerie A. Zondorak, 34 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, GSAM and
Assistant General Counsel to the Funds
Group (since December 1997); Vice
President and Counsel, Goldman Sachs
(since March 1997); Counsel to the Funds
Group, GSAM (March 1997 - December
1997); Associate of Shereff, Friedman,
Hoffman & Goodman (September 1990 to
February 1997).
*Deborah A. Farrell, 29 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Legal
Products Analyst, Goldman Sachs (since
December 1998); Legal Assistant, Goldman
Sachs (January 1996-December 1998);
Assistant Secretary to the Funds Group
(1996 to present); Executive Secretary,
Goldman Sachs (January 1994 - January
1996); Legal Secretary, Cleary,
Gottlieb, Steen and Hamilton (September
1990 to January 1994).
</TABLE>
B-58
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Kaysie P. Uniacke, 38 Assistant Secretary Assistant Secretary - Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Managing Director, GSAM (since 1997);
Vice President and Senior Portfolio
Manager, GSAM (1988 to 1997).
*Elizabeth D. Anderson, 30 Assistant Secretary Assistant Secretary - Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Portfolio Manager, GSAM (since April
1996); Junior Portfolio Manager, GSAM
(1995 - April 1996); Funds Trading
Assistant, GSAM (1993 - 1995);
Compliance Analyst, Prudential Insurance
(1991 - 1993).
*Amy E. Belanger, 30 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1999);
Counsel, Goldman Sachs (since 1998);
Associate, Dechert Price & Rhoads
(September 1996-1998).
</TABLE>
Each interested Trustee and officer holds comparable positions with certain
other companies of which Goldman Sachs, GSAM or an affiliate thereof is the
investment adviser, administrator and/or distributor. As of October 31, 1999,
the Trustees and officers of the Trust as a group owned less than 1% of the
outstanding shares of beneficial interest of each Fund.
The Trust pays each Trustee, other than those who are "interested persons"
of Goldman Sachs, a fee for each Trustee meeting attended and an annual fee.
Such Trustees are also reimbursed for travel expenses incurred in connection
with attending such meetings.
B-59
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the period from February 1, 1999
to August 31, 1999:
<TABLE>
<CAPTION>
Aggregate Total Compensation from Goldman
Compensation Pension or Retirement Benefits Sachs Trust and the Goldman Sachs
Name of Trustee from the Funds/2/ Accrued as Part of Funds' Expenses fund complex (including the Funds)/3/
- ------------------------- --------------- ---------------------------------- -----------------------------------
<S> <C> <C> <C>
Ashok N. Bakhru/1/ $21,434 $ - $71,000
David B. Ford 0 - 0
Douglas C. Grip 0 - 0
John P. McNulty 0 - 0
Mary P. McPherson 16,151 - 53,500
Alan A. Shuch 0 - 0
Jackson W. Smart 16,151 - 53,500
William H. Springer 16,151 - 53,500
Richard P. Strubel 16,151 - 53,500
</TABLE>
/1/ Includes compensation as Chairman of the Board of Trustees.
/2/ Reflects amount paid by the Funds during the period from February 1, 1999 to
August 31, 1999.
/3/ The Goldman Sachs Fund complex consists of the Goldman Sachs Trust and
Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consists of 45
mutual funds, including 17 equity funds, on August 31, 1999. Goldman Sachs
Variable Insurance Trust consisted of 8 mutual funds as of August 31, 1999.
B-60
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the fiscal year ended January 31,
1999:
<TABLE>
<CAPTION>
Aggregate Total Compensation from Goldman
Compensation Pension or Retirement Benefits Sachs Trust and the Goldman Sachs
Name of Trustee from the Funds/2/ Accrued as Part of Funds' Expenses fund complex (including the Funds)/3/
- --------------- ---------------- ---------------------------------- -------------------------------------
<S> <C> <C> <C>
Ashok N. Bakhru/1/ $28,888 $0 $112,566
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPherson 21,848 0 86,375
Alan A. Shuch 0 0 0
Jackson W. Smart 20,201 0 86,375
William H. Springer 20,201 0 86,375
Richard P. Strubel 20,201 0 86,375
</TABLE>
- ------------------------
/1/ Includes compensation as Chairman of the Board of Trustees.
/2/ Reflects amount paid by the Funds during the fiscal year ended January 31,
1999.
/3/ The Goldman Sachs Fund complex consists of the Goldman Sachs Trust and
Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consists of 45
mutual funds, including 17 equity funds, on January 31, 1999. Goldman Sachs
Variable Insurance Trust consisted of 8 mutual funds of January 31, 1999.
B-61
<PAGE>
Class A Shares of the Fund may be sold at net asset value without payment of any
sales charge to Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including rehired employees and former
partners), any partnership of which Goldman Sachs is a general partner, any
trustee or officer of the Trust and designated family members of any of the
above individuals. The sales load waivers are due to the nature of the
investors and the reduced sales effort that is needed to obtain such
investments.
Management Services
===================
As stated in the Funds' Prospectus, GSFM, 32 Old Slip, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as Investment Adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as Investment Adviser to Balanced,
Growth and Income, CORE Large Cap Value, CORE Large Cap Growth, CORE Small Cap
Equity, Strategic Growth, Growth Opportunities, CORE International Equity, Mid
Cap Value, Small Cap Value and Large Cap Value Funds. GSAMI, 133 Petersborough
Court, London, England EC4A 2BB serves as Investment Adviser to the
International Equity, European Equity, Japanese Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds. GSAMI is also an affiliate of
Goldman Sachs. See "Service Providers" in the Funds' Prospectus for a
description of the applicable Investment Adviser's duties to the Funds.
The Goldman Sachs Group, L.P. which controls the Funds' Investment Advisers
merged into the Goldman Sachs Group, Inc. as a result of an initial public
offering.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the United States and in
Beijing, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan,
Montreal, Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei,
Tokyo, Toronto, Vancouver and Zurich. It has trading professionals throughout
the United States, as well as in London, Tokyo, Hong Kong and Singapore. The
active participation of Goldman Sachs in the world's financial markets enhances
its ability to identify attractive investments. Goldman Sachs has agreed to
permit the Funds to use the name "Goldman Sachs" or a derivative thereof as part
of each Fund's name for as long as a Fund's Management Agreement is in effect.
The Investment Advisers are able to draw on the substantial research and
market expertise of Goldman Sachs, whose investment research effort is one of
the largest in the industry. The Goldman Sachs Global Investment Research
Department covers approximately
B-62
<PAGE>
2,200 companies, including approximately 1,000 U.S. corporations in 60
industries. The in-depth information and analyses generated by Goldman Sachs'
research analysts are available to the Investment Advisers.
For more than a decade, Goldman Sachs has been among the top-ranked firms
in Institutional Investor's annual "All-America Research Team" survey. In
addition, many of Goldman Sachs' economists, securities analysts, portfolio
strategists and credit analysts have consistently been highly ranked in
respected industry surveys conducted in the U.S. and abroad. Goldman Sachs is
also among the leading investment firms using quantitative analytics (now used
by a growing number of investors) to structure and evaluate portfolios.
In managing the Funds, the Investment Advisers have access to Goldman
Sachs' economics research. The Economics Research Department, based in London,
conducts economic, financial and currency markets research which analyzes
economic trends and interest and exchange rate movement worldwide. The Economics
Research Department tracks factors such as inflation and money supply figures,
balance of trade figures, economic growth, commodity prices, monetary and fiscal
policies, and political events that can influence interest rates and currency
trends. The success of Goldman Sachs' international research team has brought
wide recognition to its members. The team has earned top rankings in various
external surveys such as Extel, Institutional Investor and Reuters. These
rankings acknowledge the achievements of the firm's economists, strategists and
equity analysts.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, International Small Cap, Emerging Markets Equity
and Asia Growth Funds), the Investment Advisers will have access to the Global
Asset Allocation Model. The model is based on the observation that the prices of
all financial assets, including foreign currencies, will adjust until investors
globally are comfortable holding the pool of outstanding assets. Using the
model, the Investment Advisers will estimate the total returns from each
currency sector which are consistent with the average investor holding a
portfolio equal to the market capitalization of the financial assets among those
currency sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
The Management Agreements provide that GSAM, GSFM and GSAMI, in their
capacity as Investment Advisers, may render similar services to others as long
as the services under the management agreements are not impaired thereby. The
Large Cap Value, Strategic Growth, Growth Opportunities, CORE Large Cap Value,
European Equity, Japanese Equity and International Small Cap Funds' Management
agreements were initially approved by the Trustees, including a majority of the
non-interested Trustees (as defined below) who are not parties to the management
Agreement on October 26, 1999, April 28, 1999, April 28, 1999, November 3, 1998,
July 22, 1998, April 23, 1998 and April 23, 1998, respectively. The CORE Small
Cap Equity and CORE International Equity Funds' management agreements were
initially approved by the
B-63
<PAGE>
Trustees, including a majority of the non-interested Trustees (as defined below)
who are not parties to the Management Agreements, on July 22, 1997. The CORE
Large Cap Growth and Emerging Markets Equity Funds' Management Agreements were
initially approved by the Trustees, including a majority of the non-interested
Trustees (as defined below) who are not parties to the Management Agreements, on
April 23, 1997 and January 28, 1997, respectively. The Funds' management
Agreements were most recently approved by the Trustees, including a majority of
the Trustees who are not parties to the Management Agreements or "interested
persons" (as such term is defined in the Act) of any party thereto (the "non-
interested Trustees"), on April 27, 1999. These arrangements were most recently
approved by the shareholders of each Fund (other than Strategic Growth, Growth
Opportunities, CORE Large Cap Value, CORE Large Cap Growth, CORE Small Cap
Equity, Large Cap Value, CORE International Equity, Emerging Markets Equity,
Japanese Equity, International Small Cap and European Equity Funds) on April 21,
1997. The sole shareholder of the Large Cap Value, Strategic Growth, Growth
Opportunities, CORE Large Cap Value, CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity, Emerging Markets Equity, Japanese Equity,
International Small Cap and European Equity Funds approved these arrangements on
October 26, 1999, April 28, 1999, April 28, 1999, November 3, 1998, April 30,
1997, July 21, 1997, July 21, 1997, January 28, 1997, April 23, 1998, April 23,
1998 and July 22, 1998, respectively. Each Management Agreement will remain in
effect until June 30, 2000 and will continue in effect with respect to the
applicable Fund from year to year thereafter provided such continuance is
specifically approved at least annually by (a) the vote of a majority of the
outstanding voting securities of such Fund or a majority of the Trustees of the
Trust, and (b) the vote of a majority of the non-interested Trustees of the
Trust, cast in person at a meeting called for the purpose of voting on such
approval.
Each Management Agreement will terminate automatically if assigned (as
defined in the Act). Each Management Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
applicable Investment Adviser and by the Investment Adviser on 60 days' written
notice to the Trust.
B-64
<PAGE>
Pursuant to the Management Agreements the Investment Advisers are entitled
to receive the fees set forth below, payable monthly based on such Fund's
average daily net assets. In addition, as of the date of this Additional
Statement the Investment Advisers were voluntarily limiting their management
fees for certain funds to the annual rates also listed below:
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ------------------------------------------- ------------ ------------
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Value Fund 0.60% 0.60%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.85% 0.85%
Strategic Growth Fund 1.00% 1.00%
Growth Opportunities Fund 1.00% 1.00%
CORE International Equity Fund 0.85% 0.85%
Mid Cap Value Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Large Cap Value Fund 0.75% 0.75%
GSFM
CORE U.S. Equity Fund 0.70% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 1.00% 1.00%
European Equity 1.00% 1.00%
Japanese Equity Fund 1.00% 1.00%
International Small Cap Fund 1.20% 1.20%
Emerging Markets Equity Fund 1.20% 1.20%
Asia Growth Fund 1.00% 1.00%
B-65
<PAGE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion.
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
B-66
<PAGE>
For the fiscal period ended August 31, 1999 and the fiscal years ended
January 31, 1999, January 31, 1998 and January 31, 1997 the amounts of the
combined investment advisory (and subadvisory, in the case of the International
Equity Fund) and administration fees incurred by each Fund then in existence
were as follows (with and without the fee limitations that were then in effect):
<TABLE>
<CAPTION>
Fiscal period ended Fiscal year ended
=================== =================
Augst 31, January 31,
========== ============
1999 1999
============================= ===============================
With Fee Without Fee With Fee Without Fee
Limitations Limitations Limitations Limitations
============= ============== --------------- -------------
<S> <C> <C> <C> <C>
Balanced Fund 928,470 928,470 $ 1,609,311 $ 1,609,311
Growth and Income Fund 5,645,766 5,645,766 13,527,887 13,527,887
CORE Large Cap Value Fund/1/ 869,263 869,263 12,245 12,245
CORE U.S. Equity Fund 4,865,259 5,212,778 5,691,415 6,647,941
CORE Large Cap Growth Fund/1/ 2,640,795 3,300,994 1,658,095 2,072,619
CORE Small Cap Equity Fund/1/ 689,175 689,175 730,302 769,013
CORE International Equity Fund/1/ 1,938,801 1,938,801 1,810,772 1,890,475
Capital Growth Fund 15,000,472 15,000,472 17,460,353 17,460,353
Strategic Growth Fund/1/, /2/ 29,606 29,606 N/A N/A
Growth Opportunities Fund/1/, /2/ 23,911 23,911 N/A N/A
Mid Cap Value Fund 1,332,432 1,332,432 2,953,154 2,953,154
International Equity Fund 6,475,659 6,475,659 9,243,090 9,814,989
Small Cap Value Fund 1,733,424 1,733,424 4,417,249 4,417,249
Large Cap Value/1/, /3/ NA NA N/A N/A
European Equity Fund/1/ 451,498 451,498 171,505 171,505
Japanese Equity Fund/1/ 226,009 226,009 118,094 122,901
International Small Cap Fund/1/ 598,694 598,694 280,977 287,765
Emerging Market Equity Fund/1/ 1,148,664 1,148,664 1,454,673 1,519,721
Asia Growth Fund 501,770 501,770 736,821 808,815
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
================ =================
January 31, January 31,
=========== ===========
1998 1997
========================= ========================
With Fee Without Fee With Fee Without Fee
Limitations Limitations Limitations Limitations
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balanced Fund $ 870,444 $ 870,844 $ 402,183 $ 402,183
Growth and Income Fund 7,740,380 7,740,380 3,541,318 3,541,318
CORE Large Cap Value Fund/1/ N/A N/A N/A N/A
CORE U.S. Equity Fund 3,087,383 3,924,639 1,667,381 2,119,552
CORE Large Cap Growth Fund/1/ 182,628 228,283 N/A N/A
CORE Small Cap Equity Fund/1/ 65,418 74,140 N/A N/A
CORE International Equity Fund/1/ 51,031 57,835 N/A N/A
Capital Growth Fund 10,913,224 10,913,224 8,697,265 8,697,265
Strategic Growth Fund/1/, /2/ N/A N/A N/A N/A
Growth Opportunities Fund/1/, /2/ N/A N/A N/A N/A
Mid Cap Value Fund 1,653,946 1,653,946 964,945 964,945
International Equity Fund 6,772,826 7,525,362 4,124,076 4,638,203
Small Cap Value Fund 3,206,411 3,206,411 2,130,703 2,130,703
Large Cap Value/1/, /3/ N/A N/A N/A N/A
European Equity Fund/1/ N/A N/A N/A N/A
Japanese Equity Fund/1/ N/A N/A N/A N/A
International Small Cap Fund/1/ N/A N/A N/A N/A
Emerging Market Equity Fund/1/ 31,937 34,840 N/A N/A
Asia Growth Fund 1,874,193 2,179,299 2,221,857 2,583,555
</TABLE>
/1/ The CORE Large Cap Value, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Strategic Growth, Growth Opportunity, Large Cap Value,
European Equity, Japanese Equity, International Small Cap and Emerging Markets
Equity Funds commenced operations on December 31, 1998, May 1, 1997, August 15,
1997, August 15, 1997, May 24, 1999, May 24, 1999, November 30, 1999, October 1,
1998, May 1, 1998, May 1, 1998 and December 15, 1997, respectively.
/2/ During the fiscal years ended January 31, 1999, 1998 and 1997, no Shares of
the Strategic Growth, Growth Opportunities and Large Cap Value Funds had been
offered.
/3/ During the fiscal years ended August 31, 1999, no Shares of the Large Cap
Value Funds had been offered.
B-67
<PAGE>
Under the Management Agreement, each Investment Adviser also: (i)
supervises all non-advisory operations of each Fund that it advises; (ii)
provides personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective administration of each
Fund; (iii) arranges for at each Fund's expense: (a) the preparation of all
required tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
by Goldman Sachs. The involvement of the Investment Advisers and Goldman Sachs
and their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Advisers and their advisory affiliates, have proprietary interests
in, and may manage or advise with respect to, accounts or funds (including
separate accounts and other funds and collective investment vehicles) which have
investment objectives similar to those of the Funds and/or which engage in
transactions in the same types of securities, currencies and instruments as the
Funds. Goldman Sachs and its affiliates are major participants in the global
currency, equities, swap and fixed-income markets, in each case both on a
proprietary basis and for the accounts of customers. As such, Goldman Sachs and
its affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Investment
Advisers' and their advisory affiliates' asset management activities, will be
executed independently of the Funds' transactions and thus at prices or rates
that may be more or less favorable. When the Investment Advisers and their
advisory affiliates seek to purchase or sell the same assets for their managed
accounts, including the Funds, the assets actually purchased or sold may be
allocated among the accounts on a basis determined in its good faith discretion
to be equitable. In some cases, this system may adversely affect the size or the
price of the assets purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Investment Advisers and/or their
affiliates will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Investment Advisers
and/or their affiliates are performing services or when position limits have
been reached.
In connection with their management of the Funds, the Investment Advisers
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman
B-68
<PAGE>
Sachs and other affiliates. The Investment Advisers will not be under any
obligation, however, to effect transactions on behalf of the Funds in accordance
with such analysis and models. In addition, neither Goldman Sachs nor any of its
affiliates will have any obligation to make available any information regarding
their proprietary activities or strategies, or the activities or strategies used
for other accounts managed by them, for the benefit of the management of the
Funds and it is not anticipated that the Investment Advisers will have access to
such information for the purpose of managing the Funds. The proprietary
activities or portfolio strategies of Goldman Sachs and its affiliates or the
activities or strategies used for accounts managed by them or other customer
accounts could conflict with the transactions and strategies employed by the
Investment Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Investment Advisers and their affiliates for
their proprietary accounts or accounts (including investment companies or
collective investment vehicles) managed or advised by them. It is possible that
Goldman Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by a Fund. Moreover, it is possible that a Fund will sustain losses during
periods in which Goldman Sachs and its affiliates achieve significant profits on
their trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any such
member of an investment policy committee will have direct or indirect interests
in the activities of Goldman Sachs and its affiliates in securities and
investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Investment Advisers are also principals or employees of Goldman Sachs or their
affiliated entities. As a result, the performance by these principals and
employees of their obligations to such other entities may be a consideration of
which investors in the Funds should be aware.
Each Investment Adviser may enter into transactions and invest in
currencies or instruments on behalf of a Fund in which customers of Goldman
Sachs serve as the counterparty, principal or issuer. In such cases, such
party's interests in the transaction will be adverse to the interests of a Fund,
and such party may have no incentive to assure that the Funds obtain the best
possible prices or terms in connection with the transactions. Goldman Sachs and
its affiliates may also create, write or issue derivative instruments for
customers of Goldman Sachs or its affiliates, the
B-69
<PAGE>
underlying securities or instruments of which may be those in which a Fund
invests or which may be based on the performance of a Fund. The Funds may,
subject to applicable law, purchase investments which are the subject of an
underwriting or other distribution by Goldman Sachs or its affiliates and may
also enter into transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to time,
Goldman Sachs' activities may limit the Funds' flexibility in purchases and
sales of securities. When Goldman Sachs is engaged in an underwriting or other
distribution of securities of an entity, the Investment Advisers may be
prohibited from purchasing or recommending the purchase of certain securities of
that entity for the Funds.
Distributor and Transfer Agent
==============================
Goldman Sachs, 85 Broad Street, New York, New York 10004 serves as the
exclusive distributor of shares of the Funds pursuant to a "best efforts"
arrangement as provided by a distribution agreement with the Trust on behalf of
each Fund. Shares of the Funds are offered and sold on a continuous basis by
Goldman Sachs, acting as agent. Pursuant to the distribution agreement, after
the Prospectus and periodic reports have been prepared, set in type and mailed
to shareholders, Goldman Sachs will pay for the printing and distribution of
copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for shares of the Funds. Goldman Sachs receives a
portion of the
B-70
<PAGE>
sales charge imposed on the sale, in the case of Class A Shares,
or redemption in the case of Class B and Class C Shares (and in certain cases,
Class A Shares), of such Fund shares.
Goldman Sachs retained approximately the following combined commissions on
sales of Class A, Class B and Class C Shares during the following periods:
<TABLE>
<CAPTION>
Fiscal period ended Fiscal year ended Fiscal year ended Fiscal year ended
===================== =================== =================== ===================
August 31, January 31, January 31, January 31,
========== =========== =========== ===========
1999 1999 1998 1997
==== ==== ==== ====
<S> <C> <C> <C> <C>
Balanced Fund/1/ 45,772 $ 328,147 $ 387,000 $ 94,000
Growth and Income Fund/1/ 161,907 1,625,895 2,405,000 555,000
CORE Large Cap Value Fund/2/ 47,033 1,035 N/A N/A
CORE U.S. Equity Fund/1/ 247,772 516,723 566,000 380,000
CORE Large Cap Growth Fund/3/ 209,999 360,931 129,000 N/A
CORE Small Cap Equity Fund/4/ 25,650 120,911 49,000 N/A
CORE International Equity Fund/4/ 20,943 93,771 24,000 N/A
Capital Growth Fund/1/ 964,994 1,625,245 743,000 323,000
Strategic Growth Fund/5/ 67,647 N/A N/A N/A
Growth Opportunities Fund/5/ 88,874 N/A N/A N/A
Mid Cap Value Fund/4/ 24,203 403,632 704,000 N/A
International Equity Fund/1/ 818,240 1,226,623 1,091,000 1,563,000
Small Cap Value Fund/1/ 58,547 595,864 662,000 219,000
Large Cap Value Fund/6/ NA N/A N/A N/A
European Equity Fund/7/ 217,889 433,970 N/A N/A
Japanese Equity Fund/7/ 13,174 5,020 N/A N/A
International Small Cap Fund/7/ 507,718 267,136 N/A N/A
Emerging Market Equity Fund/8/ 67,356 495,353 107,000 N/A
Asia Growth Fund/1/ 106,223 133,988 414,000 1,397,000
</TABLE>
- --------------------------------------------------------------------------------
/1/ Prior to August 15, 1997, The Balanced, Growth and Income, CORE U.S. Equity,
Capital Growth, International Equity, Small Cap Value and Asia Growth Funds had
not sold Class C Shares.
/2/ The CORE Large Cap Value Fund commenced operations on December 31, 1998.
/3/ Prior to May 1, 1997 and August 15, 1997, the CORE Large Cap Growth Fund had
not sold Class B and Class C Shares, respectively.
/4/ Prior to August 15, 1997, the CORE Small Cap Equity, CORE International
Equity and Mid Cap Value Funds had not sold Class A, Class B or Class C Shares.
/5/ The Strategic Growth and Growth Opportunities Fund commenced operations on
May 24, 1999.
/6/ During the fiscal period ended August 31, 1999 and the fiscal years ended
January 31, 1999, January 31, 1998 and January 31, 1997, no shares of the Large
Cap Value Fund were offered.
/7/ Prior to October 1, 1998, May 1, 1998 and May 1, 1998, the European Equity,
Japanese Equity and International Small Cap Funds had not sold Class A, Class B
or Class C Shares.
/8/ Prior to December 15, 1997, the Emerging Markets Equity Fund had not sold
Class A, Class B or Class C Shares.
B-71
<PAGE>
Goldman Sachs, 4900 Sears Tower, Chicago, IL 60606 serves as the Trust's
transfer agent. Under its transfer agency agreement with the Trust, Goldman
Sachs has undertaken with the Trust to (i) record the issuance, transfer and
redemption of shares, (ii) provide confirmations of purchases and redemptions,
and quarterly statements, as well as certain other statements, (iii) provide
certain information to the Trust's custodian and the relevant sub-custodian in
connection with redemptions, (iv) provide dividend crediting and certain
disbursing agent services, (v) maintain shareholder accounts, (vi) provide
certain state Blue Sky and other information, (vii) provide shareholders and
certain regulatory authorities with tax related information, (viii) respond to
shareholder inquiries, and (ix) render certain other miscellaneous services. For
its transfer agency services, Goldman Sachs is entitled to receive a transfer
agency fee equal, on an ongoing basis, to 0.04% of average daily net assets with
respect to each Fund's Institutional and Service Shares and 0.19% of average
daily net assets with respect to each Fund's Class A, Class B and Class C
Shares.
As compensation for the services rendered to the Trust by Goldman Sachs
as transfer agent and the assumption by Goldman Sachs of the expenses related
thereto, Goldman Sachs received fees for the fiscal period ended August 31, 1999
and the fiscal years ended January 31, 1999, January 31, 1998 and January 31,
1997 from each Fund then in existence as follows under the fee schedules then in
effect:
<TABLE>
<CAPTION>
Class A, B and C Class A, B and C Class A and B
================ ================ =============
fiscal period ended Fiscal year ended Fiscal year ended
=================== ================= =================
August 31, January 31, January 31,
========== =========== ===========
1999 1999 1998 1997
==== ==== ==== ====
<S> <C> <C> <C> <C>
Balanced Fund/1/ 265,040 $ 415,314 $ 240,869 $148,576
Growth and Income Fund/1/ 1,472,797 2,847,724 1,545,495 870,527
CORE Large Cap Value Fund/2/ 79,434 478 N/A N/A
CORE U.S. Equity Fund/1/ 937,880 1,026,711 483,534 319,246
CORE Large Cap Growth Fund/3/ 507,346 297,884 107,944 N/A
CORE Small Cap Equity Fund/4/ 85,644 169,333 62,625 N/A
CORE International Equity Fund/4/ 135,685 107,285 36,474 N/A
Capital Growth Fund/1/ 2,686,092 2,429,326 992,678 908,310
Strategic Growth Fund/5/ 2,713 N/A N/A N/A
Growth Opportunities Fund/5/ 1,832 N/A N/A N/A
MidCap Value Fund/4/ 120,585 227,387 142,558 N/A
International Equity Fund/1/ 1,081,759 1,276,567 860,719 586,243
Small Cap Value Fund/1/ 308,496 686,997 595,479 511,883
Large Cap Value Fund/6/ NA N/A N/A N/A
European Equity/7/ 74,588 25,506 N/A N/A
Japanese Equity Fund/7/ 25,658 23,737 N/A N/A
International Small Cap Fund/7/ 44,408 39,575 N/A N/A
Emerging Markets Equity Fund 68,673 131,048 1,907 N/A
Asia Growth Fund/8/ 87,224 260,032 370,233 385,114
</TABLE>
- -------------------------------------------------
/1/ Prior to May 1, 1996 and August 15, 1997, the Balanced, Growth and Income,
CORE U.S. Equity, Capital Growth, International Equity, Small Cap Value, and
Asia Growth Funds had not sold Class B and Class C Shares, respectively.
/2/ The CORE Large Cap Value Fund commenced operations on December 31, 1998.
B-72
<PAGE>
/3/ Prior to May 1, 1997and August 15, 1997, the CORE Large Cap Growth Fund had
not sold Class B, Class C, respectively.
/4/ Prior to August 15, 1997, the CORE Small Cap Equity, CORE International
Equity and Mid Cap Value Funds had not sold Class A, Class B, Class C Shares.
/5/ The Strategic Growth and Growth Opportunities Funds commenced operations on
May 24, 1999.
/6/ The Large Cap Value Fund commenced operation on November 30, 1999.
/7/ Prior to October 1, 1998, May 1, 1998 and May 1, 1998 the European Equity,
Japanese Equity and International, Small Cap Funds had not sold Class A, Class
B, or Class C shares.
/8/ Prior to December 15, 1997, Emerging Markets Equity Fund had not sold Class
A, Class B, Class C Institutional or Service Shares.
B-73
<PAGE>
<TABLE>
<CAPTION>
Institutional Shares
=====================================
Fiscal period Fiscal year Fiscal year Fiscal year
============= =========== =========== ===========
ended ended ended ended
============= =========== =========== ===========
August 31, January 31, January 31, January 31,
============= =========== =========== ===========
1999 1999 1998 1997
============= =========== =========== ===========
<S> <C> <C> <C> <C>
Balanced Fund/1/ 1303 $ 10,146 $ N/A $ N/A
Growth and Income Fund 9957 65,822 2,593 15
CORE Large Cap Value Fund/2/ 41227 716 N/A N/A
CORE U.S. Equity Fund/1/ 77800 47,585 0 N/A
CORE Large Cap Growth Fund/3/ 68733 95,848 49 N/A
CORE Small Cap Equity Fund/4/ 14387 99,495 0 N/A
CORE International Equity Fund/4/ 62671 181,201 0 N/A
Capital Growth Fund/1/ 33191 7,002 683 N/A
Strategic Growth Fund/5/ 613 N/A N/A N/A
Growth Opportunities Fund/5/ 571 N/A N/A N/A
Mid Cap Value Fund/4/ 45624 189,538 74,315 51,464
International Equity Fund/1/ 30437 15,221 0 N/A
Small Cap Value Fund/1/ 4353 6,745 2,674 N/A
Large Cap Value Fund/6/ NA N/A N/A N/A
European Equity 2357 1,490 N/A N/A
Japanese Equity Fund 3738 33,786 N/A N/A
International Small Cap Fund 10,606 40,115 N/A N/A
Emerging Markets Equity Fund/7/ 23830 32,313 617 N/A
Asia Growth Fund/1/ 1708 406 0 N/A
</TABLE>
<TABLE>
<CAPTION>
Service Shares
====================================================
Fiscal period Fiscal year Fiscal year Fiscal year
============= =========== =========== ===========
Ended ended ended ended
============= =========== =========== ===========
August 31, January 31, January 31, January 31,
============= =========== =========== ===========
1999 1999 1998 1997
============= =========== =========== ===========
<S> <C> <C> <C> <C>
Balanced Fund/1/ 36 $ 246 $ N/A $ N/A
Growth and Income Fund 2595 4,575 5,033 488
CORE Large Cap Value Fund/2/ 1 0 N/A N/A
CORE U.S. Equity Fund/1/ 2767 1,735 0 N/A
CORE Large Cap Growth Fund/3/ 511 490 21 N/A
CORE Small Cap Equity Fund/4/ 4 31 0 N/A
CORE International Equity
Fund/4/ 2 8 0 N/A
Capital Growth Fund/1/ 1335 612 0 N/A
Strategic Growth Fund/5/ 0 N/A N/A N/A
Growth Opportunities Fund/5/ 0 N/A N/A N/A
Mid Cap Value Fund/4/ 53 60 1 N/A
International Equity Fund/1/ 851 596 0 N/A
Small Cap Value Fund/1/ 38 47 0 N/A
Large Cap Value Fund NA N/A N/A N/A
European Equity/6/ 0 0 N/A N/A
Japanese Equity Fund/6/ 0 5 N/A N/A
International Small Cap Fund/6/ 1 4 N/A N/A
Emerging Markets Equity Fund/7/ 1 44 0 N/A
Asia Growth Fund/1/ 0 N/A 0 N/A
</TABLE>
___________________________
/1/ Prior to August 15, 1997, the Balanced Fund had not sold Institutional
Shares or Service Shares; prior to June 3, 1996 and March 6, 1996, Growth and
Income Fund had not sold Institutional and Service Shares, respectively; prior
to June 7, 1996 CORE U.S. Equity Fund had not sold Service Shares; prior to
August 15, 1997 neither Capital Growth Fund nor Small Cap Value Fund had sold
Institutional or Service Shares; prior to February 7, 1996 and March 6, 1996,
International Equity Fund and had not sold Institutional or Service Shares prior
to February 2, 1996 Asia Growth Fund had not sold Institutional Shares; Asia
Growth Fund had not sold Service Shares as of November 30, 1999.
/2/ The CORE Large Cap Value Fund commenced operations on December 31, 1998.
/3/ Prior to May 1, 1997 and May 1, 1997 CORE Large Cap Growth Fund had not
sold Class A, Class B, Class C, Institutional or Service Shares, respectively.
/4/ Prior to August 15, 1997,the CORE Small Cap Equity and the CORE
International Equity Funds had not sold Class A, Class B, Class C, Institutional
or Service Shares. Mid Cap Value Fund had not sold Service Shares prior to July
18, 1997.
B-74
<PAGE>
/5/ The Strategic Growth and Growth Opportunities Funds commenced operations on
May 24, 1999.
/6/ The Large Cap Value Fund commenced operations on November 30, 1999.
/7/ Prior to December 15, 1997, the Emerging Markets Equity Fund had not sold
Institutional or Service Shares.
B-75
<PAGE>
The Trust's distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
Expenses
========
The Trust, on behalf of each Fund, is responsible for the payment of each
Fund's respective expenses. The expenses include, without limitation, the fees
payable to the Investment Advisers, service fees paid to Service Organizations,
the fees and expenses of the Trust's custodian and subcustodians, transfer agent
fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Trust's shares under federal or state securities laws,
expenses of the organization of the Trust, fees and expenses incurred by the
Trust in connection with membership in investment company organizations, taxes,
interest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Trust for violation of any law, legal and
auditing fees and expenses (including the cost of legal and certain accounting
services rendered by employees of GSAM, GSAMI and Goldman Sachs with respect to
the Trust), expenses of preparing and setting in type prospectuses, statements
of additional information, proxy material, reports and notices and the printing
and distributing of the same to the Trust's shareholders and regulatory
authorities, any expenses assumed by a Fund pursuant to its distribution and
service plans, compensation and expenses of its "non-interested" Trustees and
extraordinary expenses, if any, incurred by the Trust. Except for fees under any
distribution and service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The imposition of the Investment Adviser's fee, as well as other operating
expenses, will have the effect of reducing the total return to investors. From
time to time, the Investment Adviser may waive receipt of it fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering that Fund's overall expense ratio and increasing total return to
investors at the time such amounts are waived or assumed, as the case may be.
B-76
<PAGE>
The Investment Advisers voluntarily have agreed to reduce or limit certain
"Other Expenses" (excluding management, distribution and service fees, transfer
agency fees, service share fees, taxes, interest, brokerage, and litigation,
indemnification and other extraordinary expenses) for the following Funds to the
extent such expenses exceed the following percentage of average daily net
assets:
Other
Expenses
---------
Balanced Fund 0.01%
Growth and Income Fund 0.05%
CORE Large Cap Value Fund 0.00%
CORE U.S. Equity Fund 0.00%
CORE Large Cap Growth Fund 0.00%
CORE Small Cap Equity Fund 0.04%
CORE International Equity Fund 0.12%
Capital Growth Fund 0.00%
Strategic Growth Fund 0.00%
Growth Opportunities Fund 0.00%
Mid Cap Value Fund 0.10%
Small Cap Value Fund 0.06%
Large Cap Value Fund 0.00%
International Equity Fund 0.10%
European Equity Fund 0.10%
Japanese Equity Fund 0.01%
International Small Cap Fund 0.16%
Emerging Markets Equity Fund 0.15%
Asia Growth Fund 0.16%
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Investment Adviser
in its discretion at any time.
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Investment Adviser's costs
of performing certain accounting services not being provided by a Fund's
Custodian.
B-77
<PAGE>
REINBURSEMENT
For the fiscal period ended August 31, 1999 and the fiscal years ended
January 31, 1999, January 31, 1998 and January 31, 1997, the amounts of certain
"Other Expenses" of each Fund then in existence that were reduced or otherwise
limited were as follows under the expense limitations that were then in effect:
<TABLE>
<CAPTION>
Fiscal period ended Fiscal year ended Fiscal year ended Fiscal year ended
=================== ================= ================= =================
August 31, January 31, January 31, January 31,
========== =========== =========== ===========
1999 1999 1998 1997
==== ==== ==== ====
<S> <C> <C> <C> <C>
Balanced Fund/1/ 307,789 $ 481,945 $420,659 $319,552
Growth and Income Fund/1/ 599,598 1,033,046 0 0
CORE Large Cap Value Fund/2/ 239,291 137,173 N/A N/A
CORE U.S. Equity Fund 340,568 534,447 63,253 104,833
CORE Large Cap Growth Fund/3/ 323,807 483,322 332,713 N/A
CORE Small Cap Equity Fund/4/ 275,311 415,298 202,498 N/A
CORE International Equity Fund/4/ 223,253 806,303 206,055 N/A
Capital Growth Fund/1/ 457,262 933,189 0 N/A
Strategic Growth Fund/5/ 303,839 N/A N/A N/A
Growth Opportunities Fund/5/ 303,862 N/A N/A N/A
Mid Cap Value Fund/4/ 134,639 459,373 264,378 72,441
International Equity Fund 311,046 1,803,009 0 144,265
Small Cap Value Fund/1/ 191,783 556,422 0 N/A
Large Cap Value Fund/6/ NA N/A N/A N/A
European Equity Fund/7/ 227,469 190,277 N/A N/A
Japanese Equity Fund/7/ 208,419 263,545 N/A N/A
International Small Cap Fund/7/ 183,234 361,922 N/A N/A
Emerging Markets Equity Fund/8/ 355,841 696,214 112,725 N/A
Asia Growth Fund/1/ 211,592 519,489 125,828 50,407
</TABLE>
________________________________
/1/ Prior to May 1, 1996 and August 15, 1997, Balanced, Growth and Income, CORE
U.S. Equity, Capital Growth, Small Cap Value, International Equity and Asia
Growth Funds had not sold Class B and Class C Shares respectively. Prior to
August 15, 1997, Balanced Fund had not sold Institutional Shares or Service
Shares; prior to June 3, 1996 and March 6, 1996, Growth and Income Fund had not
sold Institutional and Service Shares, respectively; prior to June 7, 1996 CORE
U.S. Equity Fund had not sold Service Shares; prior to August 15, 1997 neither
Capital Growth Fund nor Small Cap Value Fund had sold Institutional or Service
Shares; prior to February 7, 1996 and March 6, 1996, International Equity Fund
had and sold Institutional Shares and prior to February 2, 1996, Asia Growth
Fund had not sold Institutional Shares and Service Shares, respectively. As of
November 30, 1999 Asia Growth Fund had not sold Service Shares.
/2/ CORE Large Cap Value Fund commenced operations on December 31, 1998.
/3/ Prior to May 1, 1997 and August 15, 1997, the CORE Large Cap Growth Fund had
not sold Class B, Class C or Service Shares, respectively.
/4/ Prior to August 15, 1997,the CORE Small Cap Equity and CORE International
Equity Funds had not sold Class A, Class B, Class C, Institutional or Service
Shares. The Mid Cap Value Fund had not sold Class A, Class B or Class C Shares
prior to August 5, 1997 or Service Shares prior to July 18, 1997.
/5/ The Strategic Growth and Growth Opportunities Funds commenced operations on
May 24, 1999.
/6/ The Large Cap Value Fund commenced operations on November 30, 1999.
B-78
<PAGE>
/7/ Prior to October 1, 1998, May 1, 1998 and May 1, 1998, the European Equity,
Japanese Equity and International Small Cap Funds had not sold Class A, Class B
or Class C, Institutional or Service Shares
/8/ Prior to December 15, 1997, the Emerging Markets Equity Fund had not sold
Class A, Class B, Class C, Institutional or Service Shares.
Custodian and Sub-Custodians
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint domestic and foreign sub-
custodians from time to time to hold certain securities purchased by the Trust
and to hold cash for the Trust.
Independent Public Accountants
==============================
Pricewaterhouse Coopers, independent public accountants, 160 Federal
Street, Boston, MA 02110, have been selected as auditors of the Funds of the
Trust. In addition to audit services, Pricewaterhouse Coopers prepares the
Funds' federal and state tax returns, and provides consultation and assistance
on accounting, internal control and related matters.
B-79
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Advisers are responsible for decisions to buy and sell
securities for the Funds, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a commission for their services. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Investment
Advisers are generally required to give primary consideration to obtaining the
most favorable execution and net price available. This means that an Investment
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination that such
commission is reasonable in light of the services provided and to such policies
as the Trustees may adopt from time to time. While the Investment Advisers
generally seek reasonably competitive spreads or commissions, a Fund will not
necessarily be paying the lowest spread or commission available. Within the
framework of this policy, the Investment Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Investment Advisers and their affiliates,
or their other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
research reports on particular industries and companies, economic surveys and
analyses, recommendations as to specific securities and other products or
services (e.g., quotation equipment and computer related costs and expenses),
advice concerning the value of securities, the advisability of investing in,
purchasing or selling securities, the availability of securities or the
purchasers or sellers of securities, furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts, effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement) and providing
lawful and appropriate assistance to the Investment Advisers in the performance
of their decision-making responsibilities. Such services are used by the
Investment Advisers in connection with all of their investment activities, and
some of such services obtained in connection with the execution of transactions
for a Fund may be used in managing other investment accounts. Conversely,
brokers furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far
B-80
<PAGE>
larger than those of a Fund, and the services furnished by such brokers may be
used by the Investment Advisers in providing management services for the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Investment Advisers. This policy does not imply a
commitment to execute all portfolio transactions through all broker-dealers that
sell shares of the Fund.
On occasions when an Investment Adviser deems the purchase or sale of a
security to be in the best interest of a Fund as well as its other customers
(including any other fund or other investment company or advisory account for
which such Investment Adviser acts as investment adviser or sub-investment
adviser), the Investment Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased for the Fund
with those to be sold or purchased for such other customers in order to obtain
the best net price and most favorable execution under the circumstances. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the applicable Investment
Adviser in the manner it considers to be equitable and consistent with its
fiduciary obligations to such Fund and such other customers. In some instances,
this procedure may adversely affect the price and size of the position
obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Investment Advisers may use
Goldman Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for each Fund, the commissions, fees or other
remuneration received by Goldman Sachs must be reasonable and fair compared to
the commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. This standard
would allow Goldman Sachs to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate arm's-
length transaction. Furthermore, the Trustees, including a majority of the
Trustees who are not "interested" Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Goldman Sachs are consistent with the foregoing standard. Brokerage
transactions with Goldman Sachs are also subject to such fiduciary standards as
may be imposed upon Goldman Sachs by applicable law.
B-81
<PAGE>
For the fiscal period ended August 31, 1999 and the fiscal years ended January
31, 1999, January 31, 1998 and January 31, 1997, each Fund in existence paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
<S> <C> <C> <C> <C>
Fiscal Year Period August 31, 1999:
Balanced Fund $ 199,123 $ 18,798 (9%) $ 137,175,861 (4) N/A
Growth and Income Fund 2,361,135 139,095 (6) 1,954,788,960 (4) 85,582,371
CORE Large Cap Value Fund 240,567 1,839 (0) 332,291,465 (0) N/A
CORE U.S. Equity Fund 481,746 5,296 (1) 731,549,511 (0) N/A
CORE Large Cap Growth Fund 225,700 4,909 (2) 400,102,053 (8) N/A
CORE Small Cap Equity Fund 83,581 693 (1) 60,482,834 (3) N/A
CORE International Equity Fund 601,449 - (0) 974,940,454 (0) N/A
Capital Growth Fund 1,000,740 31,968 (3) 1,076,147,992 (5) 51,571,233
Strategic Growth Fund/3/ 23,988 - (0) 21,715,180 (0) N/A
Growth Opportunity Fund/3/ 26,193 - (0) 18,065,858 (0) N/A
Mid Cap Value Fund 691,991 34,185 (5) 408,033,649 (3) 12,802,584
International Equity Fund 1,415,066 - (0) 1,466,285,559 (0) N/A
European Equity Fund 157,143 - (0) 386,316,045 (0) N/A
Small Cap Value Fund 626,104 33,536 (5) 311,817,920 (3) 8,675,529
Large Cap Value Fund/3/ - - (N/A) - N/A
Japanese Equity Fund 83,541 3,043 (4) 193,418,571 (5) N/A
International Small Cap Fund 184,208 - (0) 156,758,635 (0) N/A
Emerging Markets Equity Fund 537,548 29,251 (5) 208,383,598 (4) N/A
Asia Growth Fund 489,354 35,497 (7) 184,149,170 (6) N/A
</TABLE>
- ----------------------------
/1/ Percentage of total commissions paid.
/2/ Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
/3/ Not operational.
B-82
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
Fiscal Year Ended January 31, 1999:
<S> <C> <C> <C> <C>
Balanced Fund $ 278,343 $ 24,859(9%)/1/ $ 699,638,329(3%)/2/ N/A
Growth and Income Fund 3,210,832 315,934(10%)/1/ 4,646,698,452(7%)/2/ N/A
CORE Large Cap Value Fund 25,776 130(1%)/1/ 60,101,321(0%)/2/ N/A
CORE U.S. Equity Fund 339,110 250,313(74%)/1/ 1,258,046,574(0%)/2/ N/A
CORE Large Cap Growth Fund 230,692 50,914(22%)/1/ 698,188,311(10%)/2/ N/A
CORE Small Cap Equity Fund 167,436 34,173(20%)/1/ 211,969,412(27%)/2/ N/A
CORE International Equity Fund 583,909 0(0%)/1/ 908,196,568(0%)/2/ N/A
Capital Growth Fund 1,022,092 0(0%)/1/ 1,454,154,897(0%)/2/ N/A
Strategic Growth Fund/3/ N/A N/A N/A N/A
Growth Opportunities Fund/3/ N/A N/A N/A N/A
Mid Cap Value Fund 577,025 49,450(9%)/1/ 649,019,064(7%)/2/ N/A
International Equity Fund 1,148,992 0(0%)/1/ 1,608,739,812(0%)/2/ N/A
Small Cap Value Fund 759,195 14,218(2%)/1/ 716,225,444(2%)/2/ N/A
Large Cap Value Fund/3/ N/A N/A N/A N/A
European Equity Fund 139,120 0(0%)/1/ 72,621,844(0%)/2/ N/A
Japanese Equity Fund 33,379 437(1%)/1/ 34,360,336(6%)/2/ N/A
International Small Cap Fund 89,276 0(0%)/1/ 86,891,167(0%)/2/ N/A
Emerging Markets Equity Fund 590,262 51,073(9%)/1/ 472,328,927(3%)/2/ N/A
Asia Growth Fund 320,855 19,653(6%)/1/ 148,887,187(6%)/2/ N/A
</TABLE>
- ----------------------------
/1/ Percentage of total commissions paid.
/2/ Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
/3/ Not operational.
B-83
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
Fiscal Year Ended January 31, 1998:
<S> <C> <C> <C> <C>
Balanced Fund $ 111,054 $ 13,185(12%)/1/ $2,731,475,157(1%)/2/ N/A
Growth and Income Fund 1,550,312 190,001(12%)/1/ 9,046,102,538(3%)/2/ N/A
CORE Large Cap Value Fund/3/ N/A N/A N/A N/A
CORE U.S. Equity Fund 944,895 0 (0%)/1/ 1,996,000,522(0%)/2/ N/A
CORE Large Cap Growth Fund 54,360 288 (1%)/1/ 200,813,608(0%)/2/ N/A
CORE Small Cap Equity Fund 59,517 0 (0%)/1/ 159,674,227(0%)/2/ N/A
CORE International Equity Fund 43,120 0 (0%)/1/ 142,395,942(0%)/2/ N/A
Capital Growth Fund 514,890 37,947 (7%)/1/ 2,748,868,081(5%)/2/ N/A
Strategic Growth Fund/3/ N/A N/A N/A N/A
Growth Opportunities Fund/3/ N/A N/A N/A N/A
Mid Cap Value Fund 480,808 76,398(15%)/1/ 2,584,258,044(2%)/2/ N/A
International Equity Fund 506,607 0 (0%)/1/ 3,898,716,988(0%)/2/ N/A
Small Cap Value Fund 646,533 82,143(13%)/1/ 5,686,763,232(1%)/2/ N/A
Large Cap Value Fund/3/ N/A N/A N/A N/A
European Equity Fund N/A N/A N/A N/A
Japanese Equity Fund/3/ N/A N/A N/A N/A
International Small Cap Fund/3/ N/A N/A N/A N/A
Emerging Markets Equity Fund 59,999 6,230(10%)/1/ 236,915,108(1%)/2/ N/A
Asia Growth Fund 814,656 2,885 (0%)/1/ 2,160,632,195(1%)/2/ N/A
</TABLE>
- ----------------------------
/1/ Percentage of total commissions paid.
/2/ Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
/3/ Not operational.
B-84
<PAGE>
For the fiscal period ended August 31, 1999 and the fiscal years ended January
31, 1999, January 31, 1998 and January 31, 1997, each Fund in existence paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
Fiscal Year Ended January 31, 1997:
<S> <C> <C> <C> <C>
Balanced Fund $ 62,072 $ 5,112 (8%)/1/$ 1,057,742(15%)/2/ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208 (9%)/2/ 0
CORE Large Cap Value Fund N/A N/A N/A N/A
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824 (0%)/2/ 0
CORE Large Cap Growth Fund N/A N/A N/A N/A
CORE Small Cap Equity Fund N/A N/A N/A N/A
CORE International Equity Fund N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578 (1%)/2/ 42,039
Strategic Growth Fund/3/ N/A N/A N/A N/A
Growth Opportunity Fund/3/ N/A N/A N/A N/A
Mid Cap Value Fund 364,294 22,134 (6%)/1/ 6,655,100 (7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958 (0%)/2/ 0
European Equity Fund N/A N/A N/A N/A
Small Cap Value Fund 758,205 36,087 (5%)/1/ 16,439,842 (1%)/2/ 0
Large Cap Value Fund/3/ N/A N/A N/A N/A
Japanese Equity Fund N/A N/A N/A N/A
International Small Cap Fund N/A N/A N/A N/A
Emerging Markets Equity Fund N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624 (3%)/1/ 102,609,295 (4%)/2/ 0
</TABLE>
__________________
/1/ Percentage of total commissions paid.
/2/ Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
/3/ Not operational.
B-85
<PAGE>
During the fiscal year ended January 31, 1999, the Funds acquired and sold
securities of their regular broker-dealers. As of August 31, 1999, the Funds
held the following amounts of securities of their regular broker-dealers, as
defined in Rule 10b-1 under the Act, or their parents ($ in thousands):
Fund Broker/Dealer Amount
- ---- ------------- ------
Balanced Fund Citigroup $ 2,337
State Street $ 969
Morgan Stanley $ 318
Merrill Lynch $ 1,930
Bear Stearns Companies, Inc. $ 1,786
Deutsch Bank $ 5,595
Lehman Brothers $ 1,786
Growth and Income Deutsch Bank $27,416
Fund Bear Stearns 8,169
Lehman Brothers 8,169
Citigroup 5,446
CORE Large Cap Value Citigroup $ 6,310
Fund Lehman Brothers 77
Deutsch Bank 259
Morgan Stanley Dean Witter 1,639
CORE U.S. Equity Morgan Stanley Dean Witter $6,959
Fund Citigroup 1,757
CORE Large Cap Lehman Brothers $ 1,312
Growth Fund Deutsch Bank 4,407
Citigroup 875
Bear Stearns Companies, Inc. 1,312
CORE Small Cap Citigroup 71
Equity Fund Bear Stearns Companies, Inc. 106
Deutsch Bank 356
Lehman Brothers 106
CORE International N/A N/A
Equity Fund
Capital Growth Fund Citigroup $37,001
Bear Stearns Companies, Inc. 7,223
State Street 39,416
Deutsch Bank 24,240
Lehman Brothers 7,223
Strategic Growth Bear Stearns 174
Fund Deutsch Bank 583
Citigroup 216
State Street 353
Lehman Brothers 174
Growth Opportunities Citigroup $ 39
Fund State Street 78
Bear Stearns 58
Deutsch Bank 194
Mid Cap Value Fund Deutsch Bank $ 4,310
Bear Stearns Companies, Inc. 1,284
Lehman Brothers 1,284
Citigroup 856
International State Street $45,418
Equity Fund
Small Cap Value Salomon Brothers $451
Fund Bear Stearns Companies, Inc. 676
Deutsch Bank 2,268
Lehman Brothers 676
Large Cap Value N/A N/A
Fund
European Equity State Street Bank $5,034
Fund
Japanese Equity State Street Bank $ 2,785
Fund
International Small State Street Bank $17,603
Cap Fund
Emerging Markets State Street Bank $9,664
Equity Fund
Asia Growth Fund State Street Bank $2,595
B-86
<PAGE>
As of January 31, 1999, the Funds held the following amounts of securities of
their regular broker/dealers, as defined in Rule 10b-1 under the Act, or their
parents ($ in thousands):
Fund Broker/Dealer Amount
- ---- ------------- ------
Balanced Fund Chase Manhattan Corp. $3,487
Merrill Lynch 2,060
Morgan Stanley 418
ABN-AMRO 4,993,000
Bear Stearns Companies, Inc. 1,427,000
Growth and Income Chase Manhattan Corp. $15,734
Fund ABN-AMRO 8,017
Bear Stearns 2,291
CS First Boston 3,330
CORE Large Cap Value Chase Manhattan Corp. $1,769
Fund Bear Stearns Companies, Inc. 123
Lehman Brothers 170
Merrill Lynch 198
Morgan Stanley Dean Witter 564
CORE U.S. Equity Chase Manhattan Corp. $4,762
Fund Merrill Lynch 14,372
Morgan Stanley Dean Witter 13,586
ABN-AMRO 10,302
Bear Stearns Companies, Inc. 13,120
CS First Boston 4,280
Donaldson, Lufkin & Jenrette $6,776
CORE Large Cap Lehman Brothers $4,736
Fund Growth Merrill Lynch 2,402
Morgan Stanley Dean Witter 5,686
ABN-AMRO 7,419
Bear Stearns Companies, Inc. 5,849
CS First Boston 3,082
Donaldson, Lufkin & Jenrette 1,646
CORE Small Cap ABN-AMRO $1,231
Equity Fund Bear Stearns Companies, Inc. 352
CS First Boston 511
CORE International N/A N/A
Equity Fund
Capital Growth Fund ABN-AMRO $15,155
Bear Stearns Companies, Inc. 4,330
CS First Boston 6,296
Strategic Growth N/A N/A
Fund
Growth Opportunities N/A N/A
Fund
Mid Cap Value Fund ABN-AMRO $10,478
Bear Stearns Companies, Inc. 2,994
CS First Boston 4,353
International N/A N/A
Equity Fund
Small Cap Value ABN-AMRO $6,927
Fund Bear Stearns Companies, Inc. 1,979
CS First Boston 2,878
European Equity N/A N/A
Fund
Japanese Equity N/A N/A
International Small N/A N/A
Cap Fund
Emerging Markets Merrill Lynch $7,547
Equity Fund
Asia Growth Fund N/A N/A
B-87
<PAGE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good
faith the fair value of securities of each Fund. In accordance with procedures
adopted by the Trustees, the net value per share of each class of each Fund is
calculated by determining the value of the net assets attributed to each class
of that Fund and dividing by the number of outstanding shares of that class.
All securities are valued as of the close of regular trading on the New York
Stock Exchange (normally, but not always, 4:00 p.m. New York time) on each
Business Day. The term "Business Day" means any day the New York Stock Exchange
is open for trading, which is Monday through Friday except for holidays. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
In the event that the New York Stock Exchange or the national
securities exchange on which stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Trustees will reconsider the
time at which net asset value is computed. In addition, each Fund may compute
its net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
B-88
<PAGE>
Portfolio securities of the Fund for which accurate market quotations
are available are valued as follows: (a) securities listed on any U.S. or
foreign stock exchange or on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") will be valued at the last sale price on
the exchange or system in which they are principally traded on the valuation
date. If there is no sale on the valuation day, securities traded will be
valued at the closing bid price, or if a closing bid price is not available, at
either the exchange or system-defined close price on the exchange or system in
which such securities are principally traded. If the relevant exchange or
system has not closed by the above-mentioned time for determining the Funds net
asset value, the securities will be valued at the last sale price, or if not
available at the bid price at the time the net asset value is determined; (b)
over-the-counter securities not quoted on NASDAQ will be valued at the last sale
price on the valuation day or, if no sale occurs, at the last bid price at the
time net asset value is determined; (c) equity securities for which no prices
are obtained under section (a) or (b) including those for which a pricing
service supplies no exchange quotation or a quotation that is believed by the
portfolio manager/trader to be inaccurate, will be valued at their fair value in
accordance with procedures approved by the Board of Trustees; (d) fixed-income
securities with a remaining maturity of 60 days or more for which accurate
market quotations are readily available will normally be valued according to
dealer-supplied bid quotations or bid quotations from a recognized pricing
service (e.g., Merrill Lynch, J.J. Kenny, Muller Data Corp., Bloomberg, EJV,
Reuters or Standard & Poor's); (e) fixed-income securities for which accurate
market quotations are not readily available are valued by the Investment
Advisers based on valuation models that take into account spread and daily yield
changes on government securities in the appropriate market (i.e., matrix
pricing); (f) debt securities with a remaining maturity of 60 days or less are
valued by the Investment Adviser at amortized cost, which the Trustees have
determined to approximate fair value; and (g) all other instruments, including
those for which a pricing service supplies no exchange quotation or a quotation
that is believed by the portfolio manager/trader to be inaccurate, will be
valued at fair value in accordance with the valuation procedures approved by the
Board of Trustees.
The value of all assets and liabilities expressed in foreign
currencies will be converted into U.S. dollar values at current exchange rates
of such currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Trustees.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. The impact of events that occur after the publication of
market quotations used by a Fund to price its securities but before the close of
regular trading on the
B-89
<PAGE>
New York Stock Exchange will normally not be reflected in a Fund's next
determined NAV unless the Trust, in its discretion, makes an adjustment in light
of the nature and materiality of the event, its effect on Fund operations and
other relevant factors.
The proceeds received by each Fund and each other series of the Trust
from the issue or sale of its shares, and all net investment income, realized
and unrealized gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Fund and constitute the
underlying assets of that Fund or series. The underlying assets of each Fund
will be segregated on the books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general liabilities
of the Trust. Expenses of the Trust with respect to the Funds and the other
series of the Trust are generally allocated in proportion to the net asset
values of the respective Funds or series except where allocations of direct
expenses can otherwise be fairly made.
PERFORMANCE INFORMATION
Each Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Average annual total return and yield are computed pursuant to formulas
specified by the SEC.
Thirty-day yield is derived by dividing net investment income per
share earned during the period by the maximum public offering price per share on
the last day of such period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. Net investment income per share is
equal to the dividends and interest earned during the period, reduced by accrued
expenses for the period. The calculation of net investment income for these
purposes may differ from the net investment income determined for accounting
purposes.
Distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The table set forth
below indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
B-90
<PAGE>
Total return calculations for Class A Shares reflect the effect of paying
the maximum initial sales charge. Investment at a lower sales charge would
result in higher performance figures. Total return calculations for Class B and
Class C Shares reflect deduction of the applicable CDSC imposed upon redemption
of Class B and Class C Shares held for the applicable period. Each Fund may also
from time to time advertise total return on a cumulative, average, year-by-year
or other basis for various specified periods by means of quotations, charts
graphs or schedules. In addition, each Fund may furnish total return
calculations based on investments at various sales charge levels or at NAV. Any
performance information which is based on a Fund's NAV per Share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative to
certain averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance information is available. The Funds' performance quotations do not
reflect any fees charged by an Authorized Dealer, Service Organization or other
financial intermediary to its customer accounts in connection with investments
in the Funds.
Occasionally, statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a Fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Trust may from time to time advertise a
Fund's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed-Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the
B-91
<PAGE>
Lehman Brothers Aggregate Bond Index or its component indices; (g) the
Standard & Poor's Bond Indices (which measure yield and price of corporate,
municipal and U.S. Government bonds); (h) the J.P. Morgan Global Government Bond
Index; (i) other taxable investments including certificates of deposit (CDs),
money market deposit accounts (MMDAs), checking accounts, savings accounts,
money market mutual funds and repurchase agreements; (j) Donoghues' Money Fund
Report (which provides industry averages for 7-day annualized and compounded
yields of taxable, tax-free and U.S. Government money funds); (k) the Hambrecht
& Quist Growth Stock Index; (l) the NASDAQ OTC Composite Prime Return; (m) the
Russell Midcap Index; (n) the Russell 2000 Index- Total Return; (o) the Russell
1000 Value Index; (p) the Russell 1000 Growth Index-Total Return; (q) the Value-
Line Composite-Price Return; (r) the Wilshire 4500 Index; (s) the FT-Actuaries
Europe and Pacific Index; (t) historical investment data supplied by the
research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley (including the EAFE Indices, the Morgan Stanley
Capital International Combined Asia ex Japan Free Index and the Morgan Stanley
Capital International Emerging Markets Free Index), Salomon Brothers, Merrill
Lynch, Donaldson Lufkin and Jenrette or other providers of such data; (u)
CDA/Wiesenberger Investment Companies Services or Wiesenberger Investment
Companies Service; (v) The Goldman Sachs Commodities Index; (w) information
produced by Micropal, Inc.; and (x) The Toykyo Price Index. The composition of
the investments in such indices and the characteristics of such benchmark
investments are not identical to, and in some cases are very different from,
those of a Fund's portfolio. These indices and averages are generally unmanaged
and the items included in the calculations of such indices and averages may not
be identical to the formulas used by a Fund to calculate its performance
figures.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets);
. asset allocation strategies and the benefits of diversifying among
asset classes;
B-92
<PAGE>
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta
and standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices
(i.e., Morgan Stanley Capital International EAFE Index, FT-Actuaries
Europe & Pacific Index and the Standard & Poor's Index of 500 Common
Stocks) over varying periods of time;
. total stock market capitalizations of specific countries and regions
on a global basis;
. performance of securities markets of specific countries and regions;
and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund commenced operations on May 1, 1997. The
performance information shown below for periods before that date is for a
predecessor separate account managed by the Investment Adviser which converted
into Class A Shares as of the commencement date. The performance record of the
separate account quoted by the Fund have been adjusted downward based on the
expenses applicable to Class A Shares (the class into which the separate account
transferred) to reflect the expenses expected to be incurred by the Fund during
B-93
<PAGE>
its initial year of operation. These expenses include any sales charges and
asset-based charges (i.e., fees under Distribution and Service Plans) imposed
and other operating expenses. Total return quotations are calculated pursuant to
the methodology prescribed by the SEC for standardized performance calculations.
Prior to May 1, 1997, the separate account was a separate investment advisory
account under discretionary management by the Investment Adviser and had
substantially similar investment objectives, policies and strategies as the
Fund. Unlike the Fund, the separate account was not registered as an investment
company under the Act and therefore was not subject to certain investment
restrictions and operational requirements that are imposed on investment
companies by the Act. If the separate account had been registered as an
investment company under the Act, the separate account's performance may have
been adversely affected by such restrictions and requirements. On May 1, 1997,
the separate account transferred a portion of its assets to the Fund in exchange
for Fund shares. The performance record of each other class has been linked to
the performance of the separate account (based on Class A expenses) and the
Class A performance for any periods prior to commencement of operations of a
class of shares.
The Service Shares of the Balanced, Capital Growth, Small Cap Value, Growth
and Income, CORE U.S. Equity, CORE Large Cap Growth and International Equity
Funds commenced operations on August 15, 1997, August 15, 1997, August 15, 1997,
March 6, 1996, June 7, 1996, May 1, 1997 and March 6, 1996, respectively. The
Service Shares of these Funds had no operating or performance history prior
thereto. However, in accordance with interpretive positions expressed by the
staff of the SEC, each of these Funds has adopted the performance records of its
respective Class A Shares from that class's inception date (October 12, 1994,
April 20, 1990, October 22, 1992, February 5, 1993, May 24, 1991, May 1, 1997
and December 1, 1992 respectively) to the inception dates of Service Shares
stated above. Quotations of performance data of these Funds relating to this
period include the performance record of the applicable Class A Shares
(excluding the impact of any applicable front-end sales charge). The performance
records of the applicable Class A Shares reflect the expenses incurred by the
Funds. These expenses include asset-based charges (i.e., fees under Distribution
and Service Plans) and other operating expenses. Total return quotations are
calculated pursuant to SEC-approved methodology.
B-94
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
-----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
- ---- ----- ----------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund A 10/12/94-8/31/99 - Since inception 24.28% 13.84% 24.05% 12.70%
Balanced Fund A 9/1/98-8/31/99 - One year 39.54% 13.08% 39.41% 12.78%
Balanced Fund B 5/1/96-8/31/99 - Since inception 9.79% 10.65% 9.55% 10.41%
Balanced Fund B 9/1/98-8/31/99 - One year 7.16% 12.26% 6.94% 12.04%
Balanced Fund C 8/15/97-8/31/99 - Since inception 2.84% 2.84% 2.59% 2.59%
Balanced Fund C 9/1/98-8/31/99 - One year 11.22% 12.24% 11.00% 12.02%
Balanced Fund Institutional 8/15/97-8/31/99 - Since inception N/A 3.94% N/A 3.64%
Balanced Fund Institutional 9/1/98-8/31/99 - One year N/A 13.55% N/A 13.29%
Balanced Fund Service 10/12/94-8/31/99 - Since inception N/A 13.72% N/A 12.64%
Balanced Fund Service 9/1/98-8/31/99 - One Year N/A 12.80% N/A 12.55%
Growth and Income A 2/5/93-8/31/99 - Since inception 13.20% 14.18% 12.70% 13.67%
Growth and Income A 9/1/94-8/31/99 - Five years 13.02% 14.30% 12.85% 14.13%
Growth and Income A 9/1/98-8/31/99 - One year 7.96% 14.23% 7.91% 14.19%
Growth and Income B 5/1/96-8/31/99 - Since inception 10.53% 11.39% 10.53% 11.39%
Growth and Income B 9/1/98-8/31/99 - One year 8.29% 13.31% 8.31% 13.33%
Growth and Income C 8/15/97-8/31/99 - Since inception (2.05)% (2.05)% (2.05)% (2.06)%
Growth and Income C 9/1/98-8/31/99 - One year 12.36% 13.36% 12.39% 13.39%
Growth and Income Institutional 6/3/96-8/31/99 - Since inception N/A 12.33% N/A 12.31%
Growth and Income Institutional 9/1/98-8/31/99 - One year N/A 14.73% N/A 14.73%
Growth and Income Service 2/5/93-8/31/99 - Since inception N/A 14.14 N/A 13.71%
Growth and Income Service 9/1/94-8/31/99 - Five years N/A 14.25% N/A 14.18%
Growth and Income Service 9/1/98-8/31/99 - One year N/A 14.15% N/A 14.14%
CORE Large Cap Value A 12/31/98-8/31/99 - Since inception* 0.07% 5.87% (0.63)% 5.13%
CORE Large Cap Value B 12/31/98-8/31/99 - Since inception* 0.22% 5.23% (0.51)% 4.50%
CORE Large Cap Value C 12/31/98-8/31/99 - Since inception* 4.28% 5.29% 3.54% 4.55%
CORE Large Cap Value Institutional 12/31/98-8/31/99 - Since inception* N/A 6.02% N/A 5.28%
CORE Large Cap Value Service 12/31/98-8/31/99 - Since inception* N/A 5.78% N/A 5.04%
CORE U.S. Equity A 5/24/91-8/31/99 - Since inception 15.89% 16.68% 15.66% 16.45%
CORE U.S. Equity A 9/1/94-8/31/99 - Five years 21.07% 22.45% 20.86% 22.23%
CORE U.S. Equity A 9/1/98-8/31/99 - One year 31.28% 38.94% 31.12% 38.77%
</TABLE>
B-95
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
- ---- ------------- ----------- -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
CORE U.S. Equity B 5/1/96-8/31/99 - Since inception 20.93% 21.60% 20.85% 21.52%
CORE U.S. Equity B 9/1/98-8/31/99 - One year 32.79% 37.90% 32.70% 37.81%
CORE U.S. Equity C 8/15/97-8/31/99 - Since inception 16.48% 16.48% 16.31% 16.31%
CORE U.S. Equity C 9/1/98-8/31/99 - One year 36.87% 37.89% 36.76% 37.78%
CORE U.S. Equity Institutional 6/15/95-8/31/99 - Since inception N/A 24.28% N/A 24.05%
CORE U.S. Equity Institutional 9/1/98-8/31/99 - One year N/A 39.54% N/A 39.41%
CORE U.S. Equity Service 5/24/91-8/31/99 - Since inception N/A 16.72% N/A 16.44%
CORE U.S. Equity Service 9/1/94-8/31/99 - Five years N/A 22.50% N/A 22.22%
CORE U.S. Equity Service 9/1/98-8/31/99 - One year N/A 38.81% N/A 38.58%
CORE Large Cap Growth A 11/11/91-8/31/99 - Since inception 20.84% 21.75% 20.58% 21.48%
CORE Large Cap Growth A 9/1/94-8/31/99 - Five years 25.87% 27.37% 25.44% 26.93%
CORE Large Cap Growth A 9/1/98-8/31/99 - One year 39.75% 47.88% 39.34% 47.66%
CORE Large Cap Growth B 5/1/97-8/31/99 - Since inception 25.53% 26.50% 24.76% 25.73%
CORE Large Cap Growth B 9/1/98-8/31/99 - One year 41.69% 46.69% 41.32% 46.32%
CORE Large Cap Growth C 8/15/97-8/31/99- Since inception 20.64% 20.64% 20.22% 20.22%
CORE Large Cap Growth C 9/1/98-8/31/99 - One year 45.81% 46.81% 46.00% 47.00%
CORE Large Cap Growth Institutional 11/11/91-8/31/99 - Since inception N/A 21.84% N/A 21.52%
CORE Large Cap Growth Institutional 9/1/98-8/31/99 - Five years N/A 27.52% N/A 26.99%
CORE Large Cap Growth Institutional 9/1/98-8/31/99 - One year N/A 48.43% N/A 47.05%
CORE Large Cap Growth Service 11/11/91-8/31/99 - Since inception N/A 21.68% N/A 21.51%
CORE Large Cap Growth Service 9/1/98-8/31/99 - Five years N/A 27.26% N/A 26.98%
CORE Large Cap Growth Service 9/1/98-8/31/99 - One year N/A 47.82% N/A 47.84%
CORE Small Cap Equity A 8/15/97-8/31/99 - Since inception (4.37)% 1.38% (2.41)% 0.32%
CORE Small Cap Equity A 9/1/98-8/31/99 - One year 14.02% 20.60% 13.49% 20.05%
CORE Small Cap Equity B 8/15/97-8/31/99 - Since inception (0.82)% 0.66% (1.77)% (0.29)%
CORE Small Cap Equity B 9/1/98-8/31/99 - One year 14.69% 19.69% 14.20% 19.20%
CORE Small Cap Equity C 8/15/97-8/31/99 - Since inception 0.70% 0.70% (0.25)% (0.25)%
CORE Small Cap Equity C 9/1/98-8/31/99 - One year 18.67% 19.67% 18.17% 19.17%
CORE Small Cap Equity Institutional 8/15/97-8/31/99 - Since inception N/A 1.79% N/A 0.83%
CORE Small Cap Equity Institutional 9/1/98-8/31/99 - One Year N/A 21.18% N/A 20.64%
CORE Small Cap Equity Service 8/15/97-8/31/99 - Since inception N/A 1.33% N/A 0.33%
</TABLE>
B-96
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
- ---- ----- ----------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
CORE Small Cap Equity Institutional 9/1/98-8/31/99 - One year N/A 21.18% N/A 20.64%
CORE Small Cap Equity Service 8/15/97-8/31/99 - Since inception N/A 1.33% N/A 0.33%
CORE Small Cap Equity Service 9/1/98-8/31/99 - One year N/A 20.48% N/A 19.94%
CORE International Equity A 8/15/97-8/31/99 - Since inception 1.47% 4.30% 0.47% 3.28%
CORE International Equity A 9/1/98-8/31/99 - One year 19.07% 25.96% 18.87% 25.74%
CORE International Equity B 8/15/97-8/31/99 - Since inception 2.46% 3.88% 1.52% 2.94%
CORE International Equity B 9/1/98-8/31/99 - One year 20.41% 25.41% 20.22% 25.22%
CORE International Equity C 8/15/97-8/31/99 - Since inception 3.93% 3.93% 2.99% 2.99%
CORE International Equity C 9/1/98-8/31/99 - One year 24.52% 25.52% 24.34% 25.34%
CORE International Equity Institutional 8/15/97-8/31/99 - Since inception N/A 5.00% N/A 4.06%
CORE International Equity Institutional 9/1/98-8/31/99 - One year N/A 26.96% N/A 26.73%
CORE International Equity Service 8/15/97-8/31/99 - Since inception N/A 4.53% N/A 3.54%
CORE International Equity Service 9/1/98-8/31/99 - One year N/A 26.28% N/A 26.05%
Capital Growth A 4/20/90-8/31/99 - Since inception 18.34% 19.06% 18.06% 18.78%
Capital Growth A 9/1/94-8/31/99 - Five years 21.16% 22.54% 20.96% 22.34%
Capital Growth A 9/1/98-8/31/99 - One year 33.02% 40.78% 32.94% 40.69%
Capital Growth B 5/1/96-8/31/99 - Since inception 24.58% 25.31% 24.68% 25.41%
Capital Growth B 9/1/98-8/31/99 - One year 34.49% 39.67% 34.47% 39.65%
Capital Growth C 8/15/97-8/31/99 - Since inception 22.05% 22.05% 22.01% 22.01%
Capital Growth C 9/1/98-8/31/99 - One year 38.72% 39.76% 38.70% 39.74%
Capital Growth Institutional 8/15/97-8/31/99 - Since inception N/A 23.36% N/A 23.33%
Capital Growth Institutional 9/1/98-8/31/99 - One year N/A 41.34% N/A 41.29%
Capital Growth Service 4/20/90-8/31/99 - Since inception N/A 19.03% N/A 18.77%
Capital Growth Service 9/1/94-8/31/99 - Five years N/A 22.49% N/A 22.33%
Capital Growth Service 9/1/98-8/31/99 - One year N/A 40.65% N/A 40.60%
Strategic Growth A 5/24/99-8/31/99 - Since Inception* (4.91)% 0.60% (7.57)% (2.19)%
Strategic Growth B 5/24/99-8/31/99 - Since Inception* (4.60)% 0.40% (7.39)% (2.39)%
Strategic Growth C 5/24/99-8/31/99 - Since Inception* (0.50)% 0.50% (3.29)% (2.29)%
Strategic Growth Institutional 5/24/99-8/31/99 - Since Inception* N/A 0.70% N/A (2.10)%
Strategic Growth Service 5/24/99-8/31/99 - Since Inception* N/A 0.60% N/A (2.19)%
</TABLE>
B-97
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
- ---- ----- ----------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Growth Opportunities A 5/24/99-8/31/99 - Since Inception* (4.25)% 1.30% (7.55)% (2.18)%
Growth Opportunities B 5/24/99-8/31/99 - Since Inception* (3.20)% 1.80% (6.68)% (1.68)%
Growth Opportunities C 5/24/99-8/31/99 - Since Inception* 0.00% 1.00% (3.47)% (2.47)%
Growth Opportunities Institutional 5/24/99-8/31/99 - Since Inception* N/A 1.30% N/A (2.18)%
Growth Opportunities Service 5/24/99-8/31/99 - Since Inception* N/A 1.20% N/A (2.27)%
Mid Cap Value A 8/15/97-8/31/99 - Since inception (2.28)% 0.46% (2.37)% 0.37%
Mid Cap Value A 9/1/98-8/31/99 - One year 14.52% 21.16% 14.41% 21.05%
Mid Cap Value B 8/15/97-8/31/99 - Since inception (1.68)% (0.21)% (1.76)% (0.29)%
Mid Cap Value B 9/1/98-8/31/99 - One year 14.42% 20.13% 14.39% 20.10%
Mid Cap Value C 8/15/97-8/31/99 - Since inception (0.14)% (0.14)% (0.22)% (0.22)%
Mid Cap Value C 9/1/98-8/31/99 - One year 19.00% 20.15% 18.96% 20.11%
Mid Cap Value Institutional 8/1/95-8/31/99 - Since inception N/A 14.31% N/A 14.21%
Mid Cap Value Institutional 9/1/98-8/31/99 - One year N/A 21.56% N/A 21.48%
Mid Cap Value Service 7/18/97-8/31/99 - Since inception N/A 1.72% N/A 1.63%
Mid Cap Value Service 9/1/98-8/31/99 - One year N/A 21.00% N/A 20.92%
International Equity A 12/1/92-8/31/99 - Since inception 10.84% 11.77% 10.68% 11.61%
International Equity A 9/1/94-8/31/99 - Five years 10.99% 12.25% 10.91% 12.17%
International Equity A 9/1/98-8/31/99 - One year 12.81% 19.39% 12.77% 19.34%
International Equity B 5/1/96-8/31/99 - Since inception 9.37% 10.20% 9.39% 10.22%
International Equity B 9/1/98-8/31/99 - One year 13.40% 18.68% 13.35% 18.63%
International Equity C 8/15/97-8/31/99 - Since inception 6.79% 6.79% 6.70% 6.70%
International Equity C 9/1/98-8/31/99 - One year 17.56% 18.61% 17.51% 18.56%
International Equity Institutional 2/7/96-8/31/99 - Since inception N/A 13.26% N/A 13.17%
International Equity Institutional 9/1/98-8/31/99 - One year N/A 20.05% N/A 19.99%
International Equity Service 12/1/92-8/31/99 - Since inception N/A 11.83% N/A 11.68%
International Equity Service 9/1/94-8/31/99 - Five years N/A 12.33% N/A 12.26%
International Equity Service 9/1/98-8/31/99 - One year N/A 19.43% N/A 19.36%
Small Cap Value A 10/22/92-8/31/99 - Since inception 9.12% 10.02% 8.87% 9.77%
Small Cap Value A 9/1/94-8/31/99 - Five years 4.26% 5.44% 4.08% 5.27%
Small Cap Value A 9/1/98-8/31/99 - One year 8.51% 14.84% 8.33% 14.65%
</TABLE>
B-98
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
- ---- ----- ----------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Small Cap Value B 5/1/96-8/31/99 - Since inception 3.40% 4.35% 3.38% 4.33%
Small Cap Value B 9/1/98-8/31/99 - One year 8.52% 13.89% 8.43% 13.80%
Small Cap Value C 8/15/97-8/31/99 - Since inception (3.29)% (3.89)% (3.94)% (3.94)%
Small Cap Value C 9/1/98-8/31/99 - One year 12.88% 13.95% 12.79% 13.86%
Small Cap Value Institutional 8/15/97-8/31/99 - Since inception N/A (2.83)% N/A (2.88)%
Small Cap Value Institutional 9/1/98-8/31/99 - One year N/A (15.18)% N/A (15.08)%
Small Cap Value Service 10/22/92-8/31/99 - Since inception N/A 9.99% N/A 9.80%
Small Cap Value Service 9/1/94-8/31/99 - Five years N/A 5.40% N/A 5.31%
Small Cap Value Service 9/1/98-8/31/99 - One year N/A 14.61% N/A 14.52%
European Equity A 10/1/98-8/31/99 - Since inception* 11.06% 17.50% 10.38% 16.78%
European Equity B 10/1/98-8/31/99 - Since inception* 12.10% 17.10% 11.38% 16.38%
European Equity C 10/1/98-8/31/99 - Since inception* 16.20% 17.20% 15.48% 16.48%
European Equity Institutional 10/1/98-8/31/99 - Since inception* N/A 18.20% N/A 17.47%
European Equity Service 10/1/98-8/31/99 - Since inception* N/A 17.60% N/A 16.78%
Japanese Equity Fund A 5/1/98-8/31/99 - Since inception 37.79% 43.72% 35.29% 41.14%
Japanese Equity Fund A 9/1/98-8/31/99 - One year 63.06% 72.59% 60.06% 70.00%
Japanese Equity Fund B 5/1/98-8/31/99 - Since inception 40.39% 43.05% 37.81% 40.47%
Japanese Equity Fund B 9/1/98-8/31/99 - One year 66.70% 71.70% 64.12% 69.12%
Japanese Equity Fund C 5/1/98-8/31/99 - Since inception 43.21% 43.21% 40.63% 40.63%
Japanese Equity Fund C 9/1/98-8/31/99 - One year 70.95% 71.95% 68.37% 69.37%
Japanese Equity Fund Institutional 5/1/98-8/31/99 - Since inception N/A 44.58% N/A 42.00%
Japanese Equity Fund Institutional 9/1/98-8/31/99 - One year N/A 73.79 N/A 71.15%
Japanese Equity Fund Service 5/1/98-8/31/99 - Since inception N/A 43.61% N/A 41.01%
Japanese Equity Fund Service 9/1/98-8/31/99 - One year N/A 72.41% N/A 69.79%
International Small Cap Fund A 5/1/98-8/31/99 - Since inception 18.26% 23.36% 17.01% 22.05%
International Small Cap Fund A 9/1/98-8/31/99 - One Year 34.77% 41.30% 32.34% 40.12%
International Small Cap Fund B 5/1/98-8/31/99 - Since inception 20.21% 23.01% 18.90% 21.70%
International Small Cap Fund B 9/1/98-8/31/99 - One Year 35.77% 40.77% 34.59% 39.59%
</TABLE>
B-99
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
-----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
- ---- ----- ----------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
International Small Cap Fund C 5/1/98-8/31/99 - Since inception 23.01% 23.01% 21.71% 21.71%
International Small Cap Fund C 9/1/98-8/31/99 - One Year 39.77 40.77% 38.60 39.60%
International Small Cap Fund Institutional 5/1/98-8/31/99 - Since inception N/A 24.19% N/A 22.90%
International Small Cap Fund Institutional 9/1/98-8/31/99 - One Year N/A 42.12% N/A 40.92%
International Small Cap Fund Service 5/1/98-8/31/99 - Since inception N/A 23.36% N/A 22.06%
International Small Cap Fund Service 9/1/98-8/31/99 - One Year N/A 41.30% N/A 40.10%
Emerging Markets Equity A 12/15/97-8/31/99 - Since inception (5.25)% (2.08)% (5.92)% (2.76)%
Emerging Markets Equity A 9/1/98-8/31/99 - One Year 46.60% 55.08% 45.99% 54.44%
Emerging Markets Equity B 12/15/97-8/31/99 - Since inception (4.75)% (2.45)% (5.43)% (3.13)%
Emerging Markets Equity B 9/1/98-8/31/99 - One Year 48.88% 54.08% 48.24% 53.44%
Emerging Markets Equity C 12/15/97-8/31/99 - Since inception (2.31)% (2.31)% (2.99)% (2.99)%
Emerging Markets Equity C 9/1/98-8/31/99 - One Year 53.18% 54.22% 52.55% 53.59%
Emerging Markets Equity Institutional 12/15/97-8/31/99 - Since inception N/A (1.25)% N/A (1.94)%
Emerging Markets Equity Institutional 9/1/98-8/31/99 - One Year N/A 56.08% N/A 57.51%
Emerging Markets Equity Service 12/15/97-8/31/99 - Since inception N/A (3.40)% N/A (3.68)%
Emerging Markets Equity Service 9/1/98-8/31/99 - One Year N/A (55.27)% N/A (54.69)%
Asia Growth A 7/8/94-8/31/99 - Since inception (5.16)% (4.12)% (5.44)% (4.40)%
Asia Growth A 9/1/94-8/31/99 - Five Years (7.23)% (6.18)% (7.50)% (6.95)%
Asia Growth A 9/1/98-8/31/99 - One year 73.24% 83.28% 72.38% 82.37%
Asia Growth B 5/1/96-8/31/99 - Since inception (13.67)% (12.88)% (13.83)% (13.04)%
Asia Growth B 9/1/98-8/31/99 - One year (77.25)% (82.24)% (76.36)% 81.35%
Asia Growth C 8/15/97-8/31/99 - Since inception (16.50)% (16.50)% (16.84)% (16.84)%
Asia Growth C 9/1/98-8/31/99 - One Year 81.35% 82.35% 80.46% 81.46%
Asia Growth Institutional 2/2/96-8/31/99 - Since inception N/A (10.03)% N/A (10.29)%
Asia Growth Institutional 9/1/98-8/31/99 - One year N/A 84.62% N/A 83.85%
</TABLE>
B-100
<PAGE>
___________________________
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
** Total return reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed deferred sales charge for Class B Shares (5% maximum
declining to 0% after six years) and the assumed deferred sales charge for Class
C Shares (1% if redeemed within 12 months of purchase).
Effective for fiscal year 1999, the fiscal year-end of the Funds changed from
January 31 to August 31. Accordingly, the performance information presented
above relates to periods ended August 31, 1999.
As of August 31, 1999, the Large Cap Value Fund had not commenced investment
operations and, accordingly, no performance information is presented.
B-101
<PAGE>
From time to time, advertisements or information may include a discussion
of certain attributes or benefits to be derived by an investment in the Fund.
Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
in the communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Investment
Adviser's views as to markets, the rationale for a Fund's investments and
discussions of a Fund's current asset allocation.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
A Fund's performance data will be based on historical results and will not
be intended to indicate future performance. A Fund's total return and yield
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an
investor's shares may be worth more or less than their original cost upon
redemption. The Trust may also, at its discretion, from time to time make a
list of a Fund's holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares is subject to different expenses, total
return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds, except the CORE International Equity, CORE Small Cap Equity,
CORE Large Cap Value, CORE Large Cap Growth, Strategic Growth, Growth
Opportunities, Large Cap Value, European Equity, Japanese Equity, International
Small Cap and Emerging Markets Equity Funds, were reorganized on April 30, 1997
from series of a Maryland corporation to part of Goldman Sachs Trust, a Delaware
business trust, established by a Declaration of Trust dated January 28, 1997.
The Trustees have authority under the Trust's Declaration of Trust to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. The Trustees also have authority to classify
and reclassify any series of shares into one or more classes of shares. As of
the date of this Additional Statement, the Trustees have classified the shares
of each of the Funds into five classes: Institutional Shares, Service Shares,
Class A Shares, Class B Shares and Class C Shares.
B-102
<PAGE>
Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Service
Plans are borne exclusively by Class A, Class B or Class C Shares and transfer
agency fees are borne at different rates by different share classes. The
Trustees may determine in the future that it is appropriate to allocate other
expenses differently between classes of shares and may do so to the extent
consistent with the rules of the SEC and positions of the Internal Revenue
Service. Each class of shares may have different minimum investment
requirements and be entitled to different shareholder services. With limited
exceptions, shares of a class may only be exchanged for shares of the same or an
equivalent class of another fund. See "Shareholder Guide" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund under a Plan for services provided to the institution's
customers.
Service Shares may be purchased at net asset value without a sales charge
for accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration fees at the annual rate of up to 0.50% of the average
daily net assets of the Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution and service fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares (0.50% with respect to the CORE
International Equity, International Equity, European Equity, Japanese Equity,
International Small Cap, Emerging Markets and Asia Growth Funds). With respect
to Class A Shares, the Distributor at its discretion may use compensation for
distribution services paid under the Distribution and Services Plan for personal
and account maintenance services and expenses so long as such total compensation
under the Plan does not exceed the maximum cap on "service fees" imposed by the
NASD.
Class B Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 5.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class B Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class B Shares. Class B Shares
also bear the cost of service fees at an annual rate of up to 0.25% of the
average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 1.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class C
B-103
<PAGE>
Shares bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of
up to 0.75% of the average daily net assets attributable to Class C Shares.
Class C Shares also bear the cost of service fees at an annual rate of up to
0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. Dividends paid by
each Fund, if any, with respect to each class of shares will be calculated in
the same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares are freely transferable and have no preemptive,
subscription or conversion rights.
As of October 31, 1999 the following entity owned of record or beneficially
more than 5% of the outstanding shares of the Balanced Fund - Edward Jones & Co.
Attention: Mutual Fund Shareholder, 201 Progress Pkwy, Maryland Heights, MD
63043-3009 (55%).
As of October 31, 1999 the following entity owned of record or beneficially
more than 5% of the outstanding shares of the Growth and Income Fund - Edward
Jones & Co., Attention: Mutual Fund Shareholder, 201 Progress Pkwy, Maryland
Heights, MD 63043-3009 (42%).
As of October 31, 1999 the following entity owned of record or beneficially
more than 5% of the outstanding shares of the CORE Large Cap Value Fund - State
Street Bank and Trust Company - FBO Goldman Sachs Growth and Income Strategy,
P.O. Box 1713, Boston, MA 02105-1713 (20%); State Street Bank and Trust Company
- - Goldman Sachs Growth Strategy, P.O. Box 1713, Boston, MA 02105-1713 (20%);
State Street Bank & Trust Co - Goldman Sachs Aggressive Growth Omnibus a/c Core
Large Cap Value, P.O. Box 1713, Boston, MA 02105-1713 (10%); and Resources Trust
Company - FBO Various Customers, 8051 E. Maplewood Ave, Englewood, CO 80111-4757
(14%).
As of October 31, 1999 the following entity owned of record or beneficially
more than 5% of the outstanding shares of the CORE U.S. Equity Fund - Edward
Jones & Co., Attention: Mutual Fund Shareholder, 201 Progress Pkwy, Maryland
Heights, MD 63043-3009 (54%); and State Street Bank and Trust Company - GS
Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box 1992, Boston,
MA 02105-1992 (31%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the CORE Large Cap Growth
Fund - Edward Jones & Co., Attention:
B-104
<PAGE>
Mutual Fund Shareholder, 201 Progress Pkwy, Maryland Heights, MD 63043-3009
(8%); State Street Bank and Trust Company - Goldman Sachs Growth and Income
Strategy, P.O. Box 1713, Boston, MA 02105-1713 (7%); State Street Bank and Trust
Company - FBO Goldman Sachs Growth Strategy, P.O. Box 1713, Boston, MA 02105-
1713 (6%); and Alfa Mutual Insurance Co. - Saving and PS Plan, Invesco Trust
Co., P.O. Box 77405, Atlanta, GA 30357-1405 (5%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the CORE Small Cap Equity
Fund - State Street Bank and Trust Company - FBO Goldman Sachs Growth and Income
Strategy, P.O. Box 1713, Boston, MA 02105-1713 (11%); State Street Bank and
Trust Company - Goldman Sachs Growth Strategy, P.O. Box 1713, Boston, MA 02105-
1713 (10%); Resources Trust Company - FBO Various Customers, 8051 E. Maplewood
Ave, Englewood, CO 80111-4757 (7%); State Street Bank and Trust Company -
Goldman Sachs Aggressive Growth Strategy, P.O. Box 1713, Boston, MA 02105-1713
(5%); Goldman Sachs & Co, FBO Acct # 021017538, c/o Mutual Fund Ops, 85 Broad
St., New York, NY 1004-2456 (5%); and Huntington Hospital Pension Fund,
Attention: J Ronald Gaudreault, 270 Park Avenue, Huntington, NY 11743-2799 (5%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the CORE International
Equity Fund - State Street Bank and Trust Company - FBO Goldman Sachs Growth and
Income Strategy, P.O. Box 1713, Boston, MA 02105-1713 (24%); State Street Bank
and Trust Company - Goldman Sachs Growth Strategy Omnibus A/C, P.O. Box 1713,
Boston, MA 02105-1713 (21%); Resources Trust Company - FBO Various Customers,
8051 E. Maplewood Ave, Englewood, CO 80111-4757 (14%); State Street Bank and
Trust Company - Goldman Sachs Aggressive Growth Strategy Omnibus A/C, P.O. Box
1713, Boston, MA 02105-1713 (10%); and State Street Bank and Trust Company - FBO
Goldman Sachs Balanced Strategy, P.O. Box 1713, Boston, MA 02105-1713 (6%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Capital Growth Fund -
Edward Jones & Co., Attention: Mutual Fund Shareholder, 201 Progress Pkwy,
Maryland Heights, MD 63043-3009 (16%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Mid Cap Value Fund -
State Street Bank and Trust Company - GS Profit Sharing Master Trust, Attention:
Louis Pereira, P.O. Box 1992, Boston, MA 02105-1992 (64%); and Edward Jones &
Co., Attention: Mutual Fund Shareholder, 201 Progress Pkwy, Maryland Heights,
MD 63043-3009 (7%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the International Equity
Fund - Edward Jones & Co., Attention: Mutual Fund Shareholder, 201 Progress
Pkwy, Maryland Heights, MD 63043-3009 (19%); and Merrill Lynch Pierce Fenner &
Smith - For the Sole Benefit of It's Customers, Attention: Service Team SEQ
#97PSO, 4800 Deer Lake Drive East 3rd Floor, Jackson, FL 32246-6484 (11%).
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As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Small Cap Value Fund
- - Edward Jones & Co., Attention: Mutual Fund Shareholder, 201 Progress Pkwy,
Maryland Heights, MD 63043-3009 (30%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the European Equity Fund
- - Goldman Sachs & Co. - FBO Acct #010100683, C/O Mutual Fund Ops, 85 Broad
Street, New York, NY 10004-2434 (6%); and Goldman Sachs & Co. FBO Account
#010241388, 85 Broad Street, New York, NY 10004 (6%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Japanese Equity Fund
- - The Goldman Sachs Seed Account, Attention: Darin Pritchett, 4900 Sears Tower,
Chicago, Il 60606 (25%); and c/o Mutual Funds Ops, Goldman Sachs & Co., FBO Acct
#038125605, 85 Broad Street, New York, NY 10004.
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the International Small
Cap Fund - State Street Bank and Trust Company - FBO Goldman Sachs Growth &
Income, P.O. Box 1713, Boston, MA 02105-1713 (6%); and Goldman Sachs & Co. - FBO
Account #029049525, C/O Mutual Funds Ops, 85 Broad Street, New York, NY 10004-
2456 (6%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Emerging Markets
Equity Fund - University of Texas Board of Regents, Attention: Security
Operations, P.O. Box 2033, Austin, TX 78768-2033 (13%); Pennsylvania Public
School - Employees Retirement System, Attention: Brian Carl, P.O. Box 125,
Harrisburg, PA 17108-0125 (15%); State Street Bank and Trust Company - FBO
Goldman Sachs Growth and Income Strategy, P.O. Box 1713, Boston, MA 02105-1713
(10%); State Street Bank and Trust Company - FBO Goldman Sachs Growth Strategy,
P.O. Box 1713, Boston, MA 02105 (9%); and Resources Trust Company - FBO Various
Customers, 8051 E. Maplewood Avenue, Englewood, CO 80111-4757 (6%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Asia Growth Fund -
Edward Jones & Co., Attention: Mutual Fund Shareholder, 201 Progress Pkwy,
Maryland Heights, MD 63043-3009 (18%); and State Street Bank and Trust Company -
FBO Goldman Sachs Employee Pension Plan, Attention: Jennifer Consigli, 200
Newport Avenue, North Quincy, MA 02170-1742 (7%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Growth Opportunities
Fund - c/o Mutual Fund Ops, Goldman Sachs & Co. - FBO Acct #010059178, 85 Broad
Street, New York, NY 10004 (9%); and Goldman Sachs Seed Account, Attn: Darin
Pritchett, 4900 Sears Tower, Chicago, IL 60606 (31%).
As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Strategic Growth Fund
- - Edward Jones, 201 Progress Pkwy, Maryland Heights, MD 63043-3009 (6%); and
Goldman Sachs Seed Account, Attn: Darin Pritchett, 4900 Sears Tower, Chicago,
IL 60606 (14%).
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As of October 31, 1999 the following entity owned of record or
beneficially more than 5% of the outstanding shares of the Global Income Fund -
State Street Bank & Trust - FBO Goldman Sachs Growth & Income, P.O. Box 1713,
Boston, MA 02105-1713 (16%); State Street Bank & Trust - FBO Goldman Sachs
Growth Strategy, P.O. Box 1713, Boston, MA 02105-1713 (6%); and State Street
Bank & Trust, Goldman Sachs Profit Sharing Master Trust, P.O. Box 1992, Boston
MA 02105 (10%).
The Act requires that where more than one class or series of shares exists,
each class or series must be preferred over all other classes or series in
respect of assets specifically allocated to such class or series. In addition,
Rule 18f-2 under the Act provides that any matter required to be submitted by
the provisions of the Act or applicable state law, or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Trust
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, Rule 18f-2 exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of trustees from the separate voting requirements of Rule
18f-2.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees,
either to one vote for each share or to one vote for each dollar of net asset
value represented by such shares on all matters presented to shareholders
including the elections of Trustees (this method of voting being referred to as
"dollar based voting"). However, to the extent required by the Act or otherwise
determined by the Trustees, series and classes of the Trust will vote separately
from each other. Shareholders of the Trust do not have cumulative voting rights
in the election of Trustees. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, certain officers or upon
the written request of holders of 10% or more of the shares entitled to vote at
such meetings. The Trustees will call a special meeting of shareholders for the
purpose of electing Trustees, if, at any time, less than a majority of Trustees
holding office at the time were elected by shareholders. The shareholders of
the Trust will have voting rights only with respect to the limited number of
matters specified in the Declaration of Trust and such other matters as the
Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees,
officers, employees and agents of the Trust unless the recipient is adjudicated
(i) to be liable by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such person's
office or (ii) not to have acted in good faith in the reasonable belief that
such person's actions were in the best interest of the Trust. The Declaration of
Trust provides that, if any shareholder or former shareholder of any series is
held personally liable solely by reason of being or having been a shareholder
and not because of the shareholder's acts or omissions or for some other reason,
the shareholder or former shareholder (or heirs, executors, administrators,
legal representatives or general successors) shall be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
acting on behalf of any affected series, must, upon request by such shareholder,
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assume the defense of any claim made against such shareholder for any act or
obligation of the series and satisfy any judgment thereon from the assets of the
series.
The Declaration of Trust permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust, series or its respective
shareholders. The factors and events that the Trustees may take into account in
making such determination include (i) the inability of the Trust or any
successor series or class to maintain its assets at an appropriate size; (ii)
changes in laws or regulations governing the Trust, series or class or affecting
assets of the type in which it invests; or (iii) economic developments or trends
having a significant adverse impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or their organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration of
Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would adversely affect the voting rights
of shareholder; (ii) that is required by law to be approved by shareholders;
(iii) that would amend the provisions of the Declaration of Trust regarding
amendments and supplements thereto; or (iv) that the Trustees determine to
submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Declaration of Trust with respect to any other series or class.
Shareholder and Trustee Liability
- ---------------------------------
Under Delaware Law, the shareholders of the Funds are not generally subject
to liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by a series or the
Trustees. The Declaration of Trust provides for indemnification by the relevant
Fund for all loss suffered by a
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shareholder as a result of an obligation of the series. The Declaration of Trust
also provides that a series shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the series and satisfy
any judgment thereon. In view of the above, the risk of personal liability of
shareholders of a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of
Trust provides that shareholders of a series may bring a derivative action on
behalf of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of and to employ other advisers in considering the merits
of the request and shall require an undertaking by the shareholders making such
request to reimburse the series for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
The Declaration of Trust further provides that the Trustees will not be
liable for error of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Trust. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
General
=======
Each Fund is a separate taxable entity. The Large Cap Value Fund each
intends to elect and each other Fund has elected to be treated and intends to
qualify for each taxable year as a regulated investment company under Subchapter
M of the Code.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation in its efforts to adhere to these requirements, the Funds
may have to limit their investment activities in some types of instruments.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) a Fund derive at least 90% of its gross income for its
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversify its
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holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of such Fund's total (gross) assets is comprised of
cash, cash items, U.S. Government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the value of such Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total (gross) assets is
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies) or two or
more issuers controlled by the Fund and engaged in the same, similar or related
trades or businesses. For purposes of the 90% gross income test, income that a
Fund earns from equity interests in certain entities that are not treated as
corporations (e.g., partnerships or trusts) for U.S. tax purposes will generally
have the same character for such Fund as in the hands of such an entity;
consequently, a Fund may be required to limit its equity investments in such
entities that earn fee income, rental income, or other nonqualifying income. In
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, European Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity or Asia Growth Funds and may therefore make it more difficult for
such a
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Fund to satisfy the distribution requirements described above, as well as the
excise tax distribution requirements described below. However, each Fund
generally expects to be able to obtain sufficient cash to satisfy such
requirements from new investors, the sale of securities or other sources. If for
any taxable year a Fund does not qualify as a regulated investment company, it
will be taxed on all of its investment company taxable income and net capital
gain at corporate rates, and its distributions to shareholders will be taxable
as ordinary dividends to the extent of its current and accumulated earnings and
profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. At August 31, 1999 the following Funds had capital loss carry forwards
approximating the amount indicated for federal tax purposes, expiring in the
year indicated: CORE Small Cap Equity Fund, $6,229,000 (expires 2006);
Strategic Growth Fund, $69,000 (expires 2007); Mid Cap Value Fund, $4,250,000
(expires 2006); Small Cap Value Fund, $43,533,000 (expires 2007); Emerging
Markets Equity Fund, $27,002,000 (expires 2006); and Asia Growth Fund,
$95,393,000 (expiring 2002 through 2007). These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these
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tax rules to certain investment practices, such as dollar rolls, or certain
derivatives such as interest rate swaps, floors, caps and collars and currency,
mortgage or index swaps may be unclear in some respects, and a Fund may
therefore be required to limit its participation in such transactions. Certain
tax elections may be available to a Fund to mitigate some of the unfavorable
consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign currency-
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment. If a net foreign exchange loss treated as ordinary loss
under Section 988 of the Code were to exceed a Fund's investment company taxable
income (computed without regard to such loss) for a taxable year, the resulting
loss would not be deductible by the Fund or its shareholders in future years.
Net loss, if any, from certain foregoing currency transactions or instruments
could exceed net investment income otherwise calculated for accounting purposes
with the result being either no dividends being paid or a portion of a Fund's
dividends being treated as a return of capital for tax purposes, nontaxable to
the extent of a shareholder's tax basis in his shares and, once such basis is
exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark to market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Fund (other than the CORE Large Cap Value, CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) anticipates that it will be
subject to foreign taxes on its income (possibly including, in some cases,
capital gains) from foreign securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes in some cases. If, as
may occur for CORE International Equity, International Equity, European Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds, more than 50% of a Fund's total assets at the close of any taxable
year consists of stock or securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service pursuant to which shareholders of
the Fund would be required to (i) include in ordinary gross income (in addition
to taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
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If the CORE International Equity, International Equity, European Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds make this election, its respective shareholders may then deduct
such pro rata portions of qualified foreign taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by a Fund,
although such shareholders will be required to include their shares of such
taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by the CORE International
Equity, International Equity, European Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity or Asia Growth Funds, the amount of the
credit that may be claimed in any year may not exceed the same proportion of the
U.S. tax against which such credit is taken which the shareholder's taxable
income from foreign sources (but not in excess of the shareholder's entire
taxable income) bears to his entire taxable income. For this purpose,
distributions from long-term and short-term capital gains or foreign currency
gains by a Fund will generally not be treated as income from foreign sources.
This foreign tax credit limitation may also be applied separately to certain
specific categories of foreign-source income and the related foreign taxes. As
a result of these rules, which have different effects depending upon each
shareholder's particular tax situation, certain shareholders of the CORE
International Equity, International Equity, European Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may not
be able to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by such Fund even if the election is made by such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that the CORE International Equity, International Equity, European
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity or
Asia Growth Fund files the election described above, its shareholders will be
notified of the amount of (i) each shareholder's pro rata share of qualified
foreign taxes paid by a Fund and (ii) the portion of Fund dividends which
represents income from each foreign country. The other Funds will not be
entitled to elect to pass foreign taxes and associated credits or deductions
through to their shareholders because they will not satisfy the 50% requirement
described above. If a Fund cannot or does not make this election, it may deduct
such taxes in computing the amount it is required to distribute.
If a Fund acquires stock (including, under proposed regulations, an option
to acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. In some cases, elections may be
available that would ameliorate these adverse tax
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consequences, but such elections would require the Fund to include each year
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. Each Fund may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
Taxable U.S. Shareholders - Distributions
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income unless a shareholder's investment is in an IRA or
other tax advantage account. Distributions designated as derived from a Fund's
dividend income, if any, that would be eligible for the dividends- received
deduction if such Fund were not a regulated investment company may be eligible,
for the dividends received deduction for corporate shareholders. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by the CORE
International Equity, International Equity, European Equity, Japanese Equity,
International Small Cap, Asia Growth and Emerging Markets Equity Funds will
qualify for the dividends-received deduction. The entire dividend, including the
deducted amount, is considered in determining the excess, if any, of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its liability for the federal alternative minimum
tax, and the dividend may, if it is treated as an "extraordinary dividend" under
the Code, reduce such shareholder's tax basis in its shares of a Fund. Capital
gain dividends (i.e., dividends from net capital gain) if designated as such in
a written notice to shareholders mailed not later than 60 days after a Fund's
taxable year closes, will be taxed to shareholders as long-term capital gain
regardless of how long shares have been held by shareholders, but are not
eligible for the dividends-received deduction for corporations. Such long-term
capital gain will be taxed at a maximum rate of 20%. Distributions, if any, that
are in excess of a Fund's current and accumulated earnings and profits will
first reduce a
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shareholder's tax basis in his shares and, after such basis is reduced to zero,
will generally constitute capital gains to a shareholder who holds his shares as
capital assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Taxable U.S. Shareholders - Sale of Shares
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed of in
a transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received to aid in computing your tax basis, a
shareholder should generally retain its account statements for the period that
it hold shares. If the shareholder holds the shares as a capital asset at the
time of sale, the character of the gain or loss should be capital, and treated
as long-term if the shareholder's holding period is more than one year, and
short-term otherwise. In general, the maximum long-term capital gain rate will
be 20% for capital gains on assets held more than one year. Shareholders should
consult their own tax advisers with reference to their particular circumstances
to determine whether a redemption (including an exchange) or other disposition
of Fund shares is properly treated as a sale for tax purposes, as is assumed in
this discussion. If a shareholder receives a capital gain dividend with respect
to shares and such shares have a tax holding period of six months or less at the
time of a sale or redemption of such shares, then any loss the shareholder
realizes on the sale or redemption will be treated as a long-term capital loss
to the extent of such capital gain dividend. All or a portion of any sales load
paid upon the purchase of shares of a Fund will not be taken into account in
determining gain or loss on the redemption or exchange of such shares within 90
days after their purchase to the extent the redemption proceeds are reinvested,
or the exchange is effected, without payment of an additional sales load
pursuant to the reinvestment or exchange privilege. The load not taken into
account will be added to the tax basis of the newly-acquired shares.
Additionally, any loss realized on a sale or redemption of shares of a Fund may
be disallowed under "wash sale" rules to the extent the shares disposed of are
replaced with other shares of the same Fund within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of, such as
pursuant to a dividend reinvestment in shares of such Fund. If disallowed, the
loss will be reflected in an adjustment to the basis of the shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from dividends (including capital gain dividends)
and share redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If
B-115
<PAGE>
the backup withholding provisions are applicable, any such dividends and
proceeds, whether paid in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. If a
shareholder does not have a TIN, it should apply for one immediately by
contacting the local office of the Social Security Administration or the
Internal Revenue Service (IRS). Backup withholding could apply to payments
relating to a shareholder's account while it is waiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfer to Minors Act, the TIN of the
minor should be furnished.
Non-U.S. Shareholders
=====================
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
a Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met. Non-U.S. shareholders may also be subject to U.S. federal withholding tax
on deemed income resulting from any election by CORE International Equity,
International Equity, European Equity, Japanese Equity, International Small Cap,
Emerging Markets Equity or Asia Growth Funds to treat qualified foreign taxes it
pays as passed through to shareholders (as described above), but they may not be
able to claim a U.S. tax credit or deduction with respect to such taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
B-116
<PAGE>
State and Local
===============
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related reports of Arthur Andersen
LLP, independent public accountants, contained in each Fund's 1999 Annual Report
are hereby incorporated by reference. A copy of the annual reports may be
obtained without charge by writing Goldman, Sachs & Co., 4900 Sears Tower,
Chicago, Illinois 60606 or by calling Goldman, Sachs & Co., at the telephone
number on the back cover of each Fund's prospectus. No other part of the Annual
Reports are incorporated herein by reference.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. Certain Service Organizations or institutions may enter into
sub-transfer agency agreements with the Trust or Goldman Sachs with respect to
their services.
B-117
<PAGE>
The Investment Adviser, Distributor and/or their affiliates may pay, out of
their own assets, compensation to Authorized Dealers, Service Organization and
other financial intermediaries ("Intermediaries") for the sale and distribution
of Shares of the Funds and/or for the servicing of those shares. These payments
("Additional Payments") would be in addition to the payments by the Funds
described in the Funds' Prospectus and this Additional Statement for
distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to Intermediaries as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Intermediary's examination of the Funds and payments for
providing extra employee training and information relating to the Funds;
"listing" fees for the placement of the Funds on an Intermediary's list of
mutual funds available for purchase by its customers; "finders" or "referral"
fees for directing investors to the Funds; "marketing support" fees for
providing assistance in promoting the sale of the Funds' shares; and payments
for the sale of shares and/or the maintenance of share balances. In addition,
the Investment Adviser, Distributor and/or their affiliates may make Additional
Payments for subaccounting, administrative and/or shareholder processing
services that are in addition to the shareholder servicing and processing fees
paid by the Funds. The Additional Payments made by the Investment Adviser,
Distributor and their affiliates may be a fixed dollar amount, may be based on
the number of customer accounts maintained by an Intermediary, or may be based
on a percentage of the value of shares sold to, or held by, customers of the
Intermediary involved, and may be different for different Intermediaries.
Furthermore, the Investment Adviser, Distributor and/or their affiliates may, to
the extent permitted by applicable regulations, contribute to various non-cash
and cash incentive arrangements to promote the sale of shares, as well as
sponsor various educational programs, sales contests and/or promotions. The
Investment Adviser, Distributor and their affiliates may also pay for the travel
expenses, meals, lodging and entertainment of Intermediaries and their
salespersons and guests in connection with educational, sales and promotional
programs subject to applicable NASD regulations.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
The Prospectuses and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
and this Additional Statement pursuant to the rules and regulations of the SEC.
The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement
B-118
<PAGE>
of which the Prospectuses and this Additional Statement form a part, each such
statement being qualified in all respects by such reference.
DISTRIBUTION AND SERVICE PLANS
(Class A Shares, Class B Shares and Class C Shares Only)
Distribution and Service Plans. As described in the Prospectus, the Trust
has adopted, on behalf of Class A, Class B and Class C Shares of each Fund,
distribution and service plans (each a "Plan") pursuant to Rule 12b-1 under the
Act. See "Shareholder Services" in the Prospectus.
The Plans for each Fund were most recently approved on April 27, 1999 by a
majority vote of the Trustees of the Trust, including a majority of the non-
interested Trustees of the Trust who have no direct or indirect financial
interest in the Plans, cast in person at a meeting called for the purpose of
approving the Plans.
The compensation for distribution services payable under a Plan may not
exceed 0.25%, 0.75% and 0.75%, per annum of a Fund's average daily net assets
attributable to Class A, Class B and Class C Shares respectively, of such Fund.
Under the Plans for Class A (CORE International Equity, International Equity,
European Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity, Asia Growth and Real Estate Securities Funds only), Class B and Class C
Shares, Goldman Sachs is also entitled to received a separate fee for personal
and account maintenance services equal to an annual basis of 0.25% of each
Fund's average daily net assets attributable to Class A, Class B or Class C
Shares. With respect to Class A Shares, the Distributor at its discretion may
use compensation for distribution services paid under the Plan for personal and
account maintenance services and expenses so long as such total compensation
under the Plan does not exceed the maximum cap on "service fees" imposed by the
NASD.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and contingent deferred sales charge on Class A, Class B and Class C
Shares may be sold by Goldman Sachs as distributor to entities which provide
financing for payments to Authorized Dealers in respect of sales of Class A,
Class B and Class C Shares. To the extent such fees are not paid to such
dealers, Goldman Sachs may retain such fee as compensation for its services and
expenses of distributing the Funds' Class A, Class B and Class C Shares.
Under each Plan, Goldman Sachs, as distributor of each Fund's Class A,
Class B and Class C Shares, will provide to the Trustees of the Trust for their
review, and the Trustees of the Trust will review at least quarterly, a written
report of the services provided and amounts expended by Goldman Sachs under the
Plans and the purposes for which such services were performed and expenditures
were made.
The Plans will remain in effect until May 1, 2000 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a
B-119
<PAGE>
majority of the non-interested Trustees of the Trust who have no direct or
indirect financial interest in the Plans. The Plans may not be amended to
increase materially the amount of distribution compensation without approval of
a majority of the outstanding Class A, Class B or Class C Shares of the affected
Fund and share class. All material amendments of a Plan must also be approved by
the Trustees of the Trust in the manner described above. A Plan may be
terminated at any time as to any Fund without payment of any penalty by a vote
of a majority of the non-interested Trustees of the Trust or by vote of a
majority of the Class A, Class B or Class C Shares, respectively, of the
applicable Fund and share class. If a Plan was terminated by the Trustees of the
Trust and no successor plan was adopted, the Fund would cease to make payments
to Goldman Sachs under the Plan and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed expenditures. So long as a Plan is in effect,
the selection and nomination of non-interested Trustees of the Trust will be
committed to the discretion of the non-interested Trustees of the Trust. The
Trustees of the Trust have determined that in their judgment there is a
reasonable likelihood that the Plans will benefit the Funds and their Class A,
Class B and Class C Shareholders.
B-120
<PAGE>
The following chart shows the: 1) distribution and service fees paid
to Goldman Sachs for the fiscal period ended August 31, 1999 and the fiscal year
ended January 31, 1999, and 2) distribution fees paid to Goldman Sachs for the
fiscal years ended January 31, 1998 and January 31, 1997 by each applicable Fund
then in existence pursuant to the Class A Plan:
<TABLE>
<CAPTION>
Fiscal period Fiscal year Fiscal year Fiscal year
ended ended ended ended
August 31, January 31, January 31, January 31,
1999 1999 1998 1997
================ ================= ================= ===============
<S> <C> <C> <C> <C>
Balanced Fund 268,705 $ 466,990 $ 0 $ 0
Growth and Income Fund 1,432,452 4,004,764 723,634 139,025
CORE Large Cap Value Fund/1/ 88,576 579 N/A N/A
CORE U.S. Equity Fund 901,485 1,963,368 720,025 363,264
CORE Large Cap Growth Fund/1/ 366,944 270,829 0 N/A
CORE Small Cap Equity Fund/1/ 84,036 81,416 1,380 N/A
CORE International Equity Fund/1/ 321,043 208,905 2,751 N/A
Capital Growth Fund 2,987,610 3,953,381 0 0
Strategic Growth Fund/1/ 2,430 N/A N/A N/A
Growth Opportunities Fund/1/ 2,204 N/A N/A N/A
Mid Cap Value Fund/1/ 93,442 449,380 67,478 N/A
International Equity Fund 2,622,519 4,032,788 1,416,253 900,274
Small Cap Value Fund 339,961 872,585 0 0
Large Cap Value Fund/2/ NA N/A N/A N/A
European Equity Fund/1/ 192,446 66,759 N/A N/A
Japanese Equity Fund/1/ 55,407 19,466 N/A N/A
International Small Cap Fund/1/ 115,648 62,146 N/A N/A
Emerging Markets Equity Fund/1/ 176,746 226,631 3,381 N/A
Asia Growth Fund 208,976 349,621 431,390 526,448
</TABLE>
________________________________
/1/ The Class A Share class of the CORE Large Cap Value, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Strategic Growth, Growth
Opportunities, Mid Cap Value, European Equity, Japanese Equity,
International Small Cap and Emerging Markets Equity Funds commenced
operations on December 31, 1998, May 1, 1997, August 15, 1997, August 15,
1997, May 24, 1999, May 24, 1999, August 15, 1997, October 1, 1998, May 1,
1998, May 1, 1998 and December 15, 1997, respectively.
/2/ During the periods shown, no shares of The Large Cap Value Fund were
offered.
B-121
<PAGE>
The following chart shows the: 1) distribution and service fees that
would have been paid to Goldman Sachs for the fiscal period ended August 31,
1999 and the fiscal year ended January 31, 1999, and 2) distribution fees that
would have been paid to Goldman Sachs for the fiscal years ended January 31,
1998 and January 31, 1997 by each applicable Fund then in existence pursuant to
the Class A Plan, without the voluntary limitations then in effect:
<TABLE>
<CAPTION>
Fiscal period Fiscal year Fiscal year Fiscal year
ended ended ended ended
August 31, January 31, January 31, January 31,
1999 1999 1998 1997
==== ==== ==== ====
<S> <C> <C> <C> <C>
Balanced Fund 268,705 $ 823,738 $ 301,397 $ 153,392
Growth and Income Fund 1,432,452 5,307,490 2,324,970 1,252,257
CORE Large Cap Value Fund/1/ 88,576 579 N/A N/A
CORE U.S. Equity Fund 901,485 1,963,368 771,451 432,457
CORE Large Cap Growth Fund/1/ 366,944 405,481 61,924 N/A
CORE Small Cap Equity Fund/1/ 84,036 102,281 6,898 N/A
CORE International Equity Fund/1/ 321,043 208,905 2,751 N/A
Capital Growth Fund 2,987,610 6,150,756 2,678,370 2,171,462
Strategic Growth Fund/1/ 2,430 N/A N/A N/A
Growth Opportunities Fund/1/ 2,204 N/A N/A N/A
Mid Cap Value Fund/1/ 93,442 449,380 67,478 N/A
International Equity Fund 2,622,519 4,090,492 1,632,745 1,071,755
Small Cap Value Fund 339,961 1,655,658 727,298 529,684
Large Cap Value Fund/2/ NA N/A N/A N/A
European Equity Fund/1/ 192,446 66,759 N/A N/A
Japanese Equity Fund/1/ 55,407 19,466 N/A N/A
International Small Cap Fund/1/ 115,648 62,146 N/A N/A
Emerging Markets Equity Fund/1/ 176,746 226,631 3,381 N/A
Asia Growth Fund 208,976 368,632 513,560 626,724
</TABLE>
________________________________
1. The Class A Share class of the CORE Large Cap Value, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Strategic Growth, Growth
Opportunities, Mid Cap Value, European Equity, Japanese Equity, International
Small Cap and Emerging Markets Equity Funds commenced operations on December 31,
1998, May 1, 1997, August 15, 1997, August 15, 1997, May 24, 1999, May 24, 1999,
August 15, 1997, October 1, 1998, May 1, 1998, May 1, 1998 and December 15,
1997, respectively.
2. During the periods shown, no shares of The Large Cap Value Fund were offered.
B-122
<PAGE>
The following chart shows the: 1) distribution and service fees paid
to Goldman Sachs for the fiscal period ended August 31, 1999 and the fiscal year
ended January 31, 1999, and 2) distribution fees paid to Goldman Sachs for the
fiscal years ended January 31, 1998 and January 31, 1997 by each applicable Fund
then in existence pursuant to the Class B Plan:
<TABLE>
<CAPTION>
Fiscal period Fiscal year Fiscal year Fiscal year
ended ended ended ended
August 31, January 31, January 31, January 31,
1999 1999 1998 1997
==== ==== ==== ====
<S> <C> <C> <C> <C>
Balanced Fund 247,828 $ 372,044 $ 74,569 $ 3,861
Growth and Income Fund 1,796,760 3,924,188 1,117,813 28,075
CORE Large Cap Value Fund/1/ 40,251 122 N/A N/A
CORE U.S. Equity Fund 1,115,835 995,389 265,025 36,508
CORE Large Cap Growth Fund/1/ 858,809 449,058 34,332 N/A
CORE Small Cap Equity Fund/1/ 80,244 140,016 20,064 N/A
CORE International Equity Fund/1/ 47,034 54,688 5,700 N/A
Capital Growth Fund 1,739,629 1,193,755 127,395 7,632
Strategic Growth Fund/1/ 2,398 N/A N/A N/A
Growth Opportunities Fund/1/ 598 N/A N/A N/A
Mid Cap Value Fund/1/ 200,960 417,334 47,585 N/A
International Equity Fund 388,156 653,844 314,578 44,148
Small Cap Value Fund 220,759 494,223 160,608 8,973
Large Cap Value Fund/2/ NA N/A N/A N/A
European Equity Fund/1/ 4,365 387 N/A N/A
Japanese Equity Fund/1/ 15,230 5,736 N/A N/A
International Small Cap Fund/1/ 1,354 1,566 N/A N/A
Emerging Markets Equity Fund/1/ 4,255 3,075 38 N/A
Asia Growth Fund 32,196 43,192 28,550 10,229
</TABLE>
_______________________________
1. The Class B Share class of the CORE Large Cap Value, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Strategic Growth, Growth
Opportunities, Mid Cap Value, European Equity, Japanese Equity, International
Small Cap and Emerging Markets Equity Funds commenced operations on December 31,
1998, May 1, 1997, August 15, 1997, August 15, 1997, May 24, 1999, May 24, 1999,
August 15, 1997, October 1, 1998, May 1, 1998, May 1, 1998 and December 15,
1997, respectively.
2. During the periods shown, no shares of the Large Cap Value Fund were offered.
B-123
<PAGE>
The following chart shows the: 1) distribution and service fees paid
to Goldman Sachs for the fiscal period ended August 31, 1999 and the fiscal year
ended January 31, 1999, and 2) distribution fees paid to Goldman Sachs for the
fiscal year ended January 31, 1998 by each applicable Fund then in existence
pursuant to the Class C Plan:
<TABLE>
<CAPTION>
Fiscal period Fiscal year Fiscal year
ended ended ended
August 31, January 31, January 31,
1999 1999 1998
==== ==== ====
<S> <C> <C> <C>
Balanced 72,293 $142,821 $13,290
Growth and Income 225,003 553,531 57,542
CORE Large Cap Value Fund/1/ 23,517 82 N/A
CORE U.S. Equity Fund 214,434 152,737 14,614
CORE Large Cap Growth Fund/1/ 343,654 156,368 6,880
CORE Small Cap Equity Fund/1/ 34,375 44,551 4,038
CORE International Equity Fund/1/ 25,018 27,157 3,118
Capital Growth Fund 447,252 262,717 9,607
Strategic Growth Fund/1/ 2,161 N/A N/A
Growth Opportunities Fund/1/ 224 N/A N/A
Mid Cap Value Fund/1/ 59,930 113,272 10,495
International Equity Fund 60,274 74,197 7,485
Small Cap Value Fund 43,062 8,298 12,158
Large Cap Value Fund/2/ NA N/A N/A
European Equity Fund/1/ 3,312 337 N/A
Japanese Equity Fund/1/ 9,001 1,390 N/A
International Small Cap Fund/1/ 1,082 725 N/A
Emerging Markets Fund/1/ 3,702 2,250 28
Asia Growth Fund 8,922 9,090 2,854
</TABLE>
___________________________
/1/ The Class C Share class of the CORE Large Cap Value, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Strategic Growth, Growth
Opportunities, Mid Cap Value, European Equity, Japanese Equity,
International Small Cap and Emerging Markets Equity Funds commenced
operations on December 31, 1998, August 15, 1997, August 15, 1997, August
15, 1997, May 24, 1999, May 24, 1999, August 15, 1997, October 1, 1998, May
1, 1998, May 1, 1998 and December 15, 1997, respectively.
/2/ During the periods shown, no shares of the Large Cap Value Fund were
offered.
No distribution fees were paid to Goldman Sachs under the Class C Plans during
the fiscal year ended January 31, 1997.
B-124
<PAGE>
During the fiscal year ended January 31, 1999, Goldman Sachs incurred
the following expenses in connection with distribution under the Class A Plan of
each applicable Fund with Class A Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers/1/ Personnel Expenses Shareholders Advertising
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended January 31, 1999:
Balanced Fund $ 529,148 $ 360,366 $ 382,623 $ 30,628 $107,723
Growth and Income Fund 3,455,990 1,371,522 1,254,000 100,381 353,049
CORE Large Cap Value Fund 209 6,092 6,779 543 1,909
CORE U.S. Equity Fund 1,075,702 827,205 740,356 59,264 208,439
CORE Large Cap Growth Fund 329,211 412,689 456,309 36,527 128,469
CORE Small Cap Equity Fund 95,707 256,871 279,715 22,391 78,751
CORE International Equity Fund 139,410 472,886 565,684 45,282 159,262
Capital Growth Fund 2,922,885 2,726,172 1,895,753 151,752 533,727
Strategic Growth Fund/2/ ---- ---- ---- ---- ----
Growth Opportunities Fund/2/ ---- ---- ---- ---- ----
Mid Cap Value 688,906 421,030 344,128 27,547 96,885
International Equity Fund 2,101,670 2,661,147 2,133,158 170,756 600,566
Small Cap Value Fund 1,105,321 798,257 618,983 49,549 174,268
Large Cap Value Fund/2/
European Equity Fund 77,916 172,015 170,084 13,615 47,885
Japanese Equity Fund 36,322 149,025 170,376 13,638 47,967
International Small Cap 105,008 261,347 281,137 22,505 79,151
Emerging Market Equity Fund 513,317 413,276 387,371 31,008 109,060
Asia Growth Fund 344,149 413,621 396,790 31,762 111,712
</TABLE>
___________________________
/1/ Advance commissions paid to dealers of 1% on Class A Shares are considered
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
/2/ During the period shown, no shares of the Strategic Growth, Growth
Opportunities, or Large Cap Value Funds were offered.
B-125
<PAGE>
During the fiscal period ended August 31, 1999, Goldman Sachs incurred
the following expenses in connection with distribution under the Class A Plan of
each applicable Fund with Class A Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers1 Personnel Expenses Shareholders Advertising
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Period Ended August 31, 1999:
Balanced Fund $ 284,131 $ 98,160 $ 114,599 $ 6,695 $ 31,216
Growth and Income Fund 1,422,613 283,015 253,604 14,816 69,080
CORE Large Cap Value Fund 88,377 156,716 224,556 13,119 61,167
CORE U.S. Equity Fund 767,056 453,822 472,623 27,611 128,739
CORE Large Cap Growth Fund 372,962 293,544 383,525 22,406 104,469
CORE Small Cap Equity Fund 104,448 126,273 132,745 7,755 36,159
CORE International Equity Fund 167,638 149,640 207,739 12,136 56,586
Capital Growth Fund 2,390,976 1,571,258 1,104,408 64,521 300,832
Strategic Growth Fund 2,726 38,163 55,709 3,255 15,175
Growth Opportunities Fund 746 27,886 40,707 2,378 11,088
Mid Cap Value 147,306 103,157 110,167 6,436 30,009
International Equity Fund 1,338,095 1,381,648 1,244,776 72,721 339,067
Small Cap Value Fund 371,033 247,168 218,804 12,783 59,601
Large Cap Value/2/ - - - - -
European Equity Fund 266,561 242,715 222,276 12,986 60,546
Japanese Equity Fund 41,568 125,074 158,986 9,288 43,307
International Small Cap 163,959 161,681 175,260 10,239 47,739
Emerging Market Equity Fund 186,200 171,602 164,463 9,608 44,798
Asia Growth Fund 99,181 206,937 238,244 13,919 64,896
</TABLE>
- ---------------------------
/1/ Advance commissions paid to dealers of 1% on Class A Shares are considered
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
/2/ During the period shown, no shares of the Large Cap Value Fund were offered.
B-126
<PAGE>
During the fiscal year ended January 31, 1999, Goldman Sachs incurred the
following expenses in connection with distribution under the Class B Plan of
each applicable Fund with Class B Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers1 Personnel Expenses Shareholders Advertising
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended Jauary 31, 1999:
Balanced Fund $ 337,025 $ 58,444 $ 71,112 $ 5,692 $20,021
Growth and Income Fund 3,724,345 279,663 339,383 27,167 95,549
CORE Large Cap Value Fund 35 5,474 6,660 533 1,875
CORE U.S. Equity Fund 824,545 107,505 130,598 10,454 36,768
CORE Large Cap Growth Fund 354,359 142,953 173,917 13,922 48,964
CORE Small Cap Equity Fund 109,290 119,334 145,193 11,622 40,877
CORE International Equity Fund 47,527 92,413 112,445 9,001 31,657
Capital Growth Fund 910,940 95,082 115,153 9,218 32,420
Strategic Growth Fund/2/ ---- ---- ---- ---- ----
Growth Opportunities Fund/2/ ---- ---- ---- ---- ----
Mid Cap Value Fund 407,838 91,292 110,596 8,853 31,137
International Equity Fund 605,118 121,626 147,961 11,844 41,657
Small Cap Value Fund 481,953 56,634 68,841 5,511 19,381
Large Cap Value Fund/2/
European Equity Fund 222 154 187 15 53
Japanese Equity Fund 4,540 47,432 57,713 4,620 16,248
International Small Cap 1,352 4,574 5,566 446 1,567
Emerging Market Equity Fund 2,843 1,873 2,279 182 642
Asia Growth Fund 69,014 17,962 21,483 1,720 6,048
- ---------------------------
</TABLE>
/1/ Advance commissions paid to dealers of 4% on Class B shares are considered
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
/2/ During the periods shown, no shares of the Strategic Growth, Growth
Opportunities or Large Cap Value Funds were offered.
B-127
<PAGE>
During the fiscal period ended August 31, 1999, Goldman Sachs incurred
the following expenses in connection with distribution under the Class B Plan of
------------
each applicable Fund with Class B Shares then in existence:
-------
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers1 Personnel Expenses Shareholders Advertising
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Period Ended August 31, 1999:
Balanced Fund $ 251,348 $ 17,182 $ 25,082 $ 1,465 $ 6,832
Growth and Income Fund 2,321,874 48,513 70,668 4,129 19,249
CORE Large Cap Value Fund 20,782 15,292 22,323 1,304 6,081
CORE U.S. Equity Fund 809,304 91,629 133,562 7,803 36,381
CORE Large Cap Growth Fund 570,671 150,530 219,689 12,835 59,841
CORE Small Cap Equity Fund 79,535 20,029 29,237 1,708 7,964
CORE International Equity Fund 44,321 10,199 14,888 870 4,055
Capital Growth Fund 1,180,236 87,668 127,236 7,433 34,658
Strategic Growth Fund 730 6,753 9,858 576 2,685
Growth Opportunities Fund 312 3,392 4,952 289 1,349
Mid Cap Value 269,285 37,309 54,110 3,161 14,739
International Equity Fund 386,822 56,612 82,641 4,828 22,511
Small Cap Value Fund 303,668 21,377 31,162 1,821 8,488
Large Cap Value/2/ - - - - -
European Equity Fund 3,355 1,551 2,264 132 617
Japanese Equity Fund 11,125 16,139 23,559 1,376 6,417
International Small Cap 1,342 683 997 58 272
Emerging Market Equity Fund 3,625 1,187 1,733 101 472
Asia Growth Fund 47,560 11,933 17,140 1,001 4,669
- ---------------------------
</TABLE>
/1/ Advance commissions paid to dealers of 4% on Class B Shares are considered
----- -------
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
/2/ During the period shown, no shares of the Large Cap Value Fund were offered.
B-128
<PAGE>
During the fiscal year ended January 31, 1999, Goldman Sachs incurred the
following expenses in connection with distribution under the Class C Plan of
each applicable Fund with Class C Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers1 Personnel Expenses Shareholders Advertising
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended January 31, 1999:
Balanced Fund $155,489 $22,725 $27,651 2,213 $ 7,785
Growth and Income Fund 642,535 38,821 47,236 3,781 13,299
CORE Large Cap Value Fund ---- 5,474 6,660 533 1,875
CORE U.S. Equity Fund 153,636 16,039 19,516 1,562 5,495
CORE Large Cap Growth Fund 133,109 48,875 59,469 4,760 16,743
CORE Small Cap Equity Fund 47,805 36,337 44,213 3,539 12,448
CORE International Equity Fund 28,306 45,144 54,929 4,397 15,465
Capital Growth Fund 223,924 20,452 24,886 1,992 7,006
Strategic Growth Fund/2/ ---- ---- ---- ---- ----
Growth Opportunities Fund/2/ ---- ---- ---- ---- ----
Mid Cap Value 124,212 24,313 29,583 2,368 8,329
International Equity Fund 74,109 14,632 17,798 1,425 5,011
Small Cap Value Fund 96,526 9,640 11,723 938 3,300
Large Cap Value Fund/2/ ---- ---- ---- ---- ----
European Equity Fund 178 84 103 8 29
Japanese Equity Fund 2,314 4,777 5,813 465 1,637
International Small Cap 651 1,554 1,891 151 532
Emerging Market Equity Fund 2,859 1,468 1,787 143 503
Asia Growth Fund 13,673 3,594 4,373 350 1,231
- ---------------------------
</TABLE>
/1/ Advance commissions paid to dealers of 1% on Class C shares are considered
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
/2/ During the periods shown, no shares of the Strategic Growth, Growth
Opportunities or Large Cap Value Funds were offered.
B-129
<PAGE>
During the fiscal period ended August 31, 1999, Goldman Sachs incurred
the following expenses in connection with distribution under the Class C Plan of
------------
each applicable Fund with Class C Shares then in existence:
-------
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers/1/ Personnel/l/ Expenses Shareholders Advertising
------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Period Ended August 31, 1999:
Balanced Fund $ 62,953 $ 5,054 $ 7,378 $ 431 $ 2,010
Growth and Income Fund 268,022 6,134 8,954 523 2,439
CORE Large Cap Value Fund 11,957 9,206 13,439 785 3,661
CORE U.S. Equity Fund 170,360 17,503 25,551 1,493 6,960
CORE Large Cap Growth Fund 281,528 59,434 86,760 5,069 23,633
CORE Small Cap Equity Fund 36,485 8,498 12,405 725 3,379
CORE International Equity Fund 23,309 5,420 7,911 462 2,155
Capital Growth Fund 354,037 22,281 32,525 1,900 8,860
Strategic Growth Fund 834 8,205 11,978 700 3,263
Growth Opportunities Fund 4 999 1,459 85 397
Mid Cap Value 65,136 10,973 16,018 936 4,363
International Equity Fund 54,406 8,553 12,485 729 3,401
Small Cap Value Fund 27,521 11,249 16,421 959 4,473
Large Cap Value2 - - - - -
European Equity Fund 4,355 1,264 1,845 108 503
Japanese Equity Fund 5,823 6,984 10,194 596 2,777
International Small Cap 952 491 717 42 195
Emerging Market Equity Fund 4,489 959 1,400 82 381
Asia Growth Fund 12,834 3,308 4,829 282 1,315
</TABLE>
___________________________
/1/ Advance commissions paid to dealers of 1% on Class C Shares are considered
--------------
deferred assets which are amortized over a period of 1 year; amounts
presented above reflect amortization expense recorded during the period
presented.
/2/ During the period shown, no shares of the Large Cap Value Fund were offered.
B-5
<PAGE>
The foregoing tables and the information contained in the preceeding
paragraph reflect amounts expended by Goldman Sachs, which amounts are in excess
of the compensation received by Goldman Sachs under the Plans. The payments
under the plans were used by Goldman Sachs to compensate it for the expenses
shown above on a pro-rata basis.
For the fiscal years and periods indicated below, Goldman Sachs
received service fees from the Funds pursuant to the Plans then in existence at
the rate of 0.25% of each Fund's average daily net assets attributable to Class
A, Class B, or Class C Shares, which totaled:
<TABLE>
<CAPTION>
Class A Class B Class C
----------------------- -------------------- ---------
1998 1997 1998 1997/1/ 1998
========== ========== ======== ========= ==========
<S> <C> <C> <C> <C> <C>
Balanced Fund/2/ $ 268,705 $ 153,392 $ 61,957 $ 1,294 $ 18,073
Growth and Income Fund/2/ 1,432,452 1,252,257 449,190 9,358 56,251
CORE Large Cap Value Fund/3/ 88,576 N/A 10,063 N/A 5,879
CORE U.S. Equity Fund/2/ 901,485 432,457 278,959 12,169 53,608
CORE Large Cap Growth Fund/4/ 366,944 N/A 214,702 N/A 85,913
CORE Small Cap Equity Fund/5/ 84,036 N/A 20,061 N/A 8,594
CORE International Equity Fund/5/ 160522 N/A 11,759 N/A 6,254
Capital Growth Fund/2/ 2,987,610 2,171,462 434,907 2,854 111,813
Strategic Growth Fund/6/ 2,430 N/A 599 N/A 540
Growth Opportunities Fund/6/ 2,204 N/A 148 N/A 56
Mid Cap Value Fund/5/ 93,442 N/A 50,240 N/A 14,982
International Equity Fund/2/ 1,311,260 1,071,755 97,039 14,733 15,069
Small Cap Value Fund/2/ 339,961 569,684 55,190 2,992 10,766
Large Cap Value Fund/6/ N/A N/A N/A N/A N/A
European Equity Fund/7/ 96,223 N/A 1,091 N/A 828
Japanese Equity Fund/7/ 27,703 N/A 3,808 N/A 2,250
International Small Cap Fund/7/ 57,824 N/A 338 N/A 273
Emerging Market Equity Fund/8/ 88,373 N/A 1,064 N/A 926
Asia Growth Fund/2/ 104,488 626,724 8,049 3,410 2,230
</TABLE>
- --------------------------------------------------------------------------------
/1/ For the period commencing May 1, 1996.
/2/ Prior to May 1, 1996 and August 15, 1997, the Balanced, Growth and Income,
CORE U.S. Equity, Capital Growth, International Equity, Small Cap Value, and
Asia Growth Funds had not sold Class B and Class C Shares, respectively.
/3/ The CORE Large Cap Value Fund commenced operations on December 31, 1998.
/4/ Prior to May 1, 1997 and August 15, 1997, the CORE Large Cap Growth Fund had
not sold Class B and Class C Shares, respectively.
/5/ Prior to August 15, 1997, the CORE Small Cap Equity, CORE International
Equity and Mid Cap Value Funds had not sold Class A, Class B or Class C Shares.
/6/ During the periods shown, no shares of the Strategic Growth, Growth
Opportunities or Large Cap Value Funds were offered.
/7/ Prior to October 1, 1998, May 1, 1998 and May 1, 1998, European Equity,
Japanese Equity and International Small Cap Funds had not sold Class A, Class B
or Class C Shares.
/8/ Prior to December 15, 1997, the Emerging Markets Equity Fund had not sold
Class A, Class B or Class C Shares.
B-131
<PAGE>
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS
(Class A Shares, Class B Shares and Class C Shares Only)
Maximum Sales Charges
- ---------------------
Class A Shares of each Fund are sold at a maximum sales charge of
5.5%. Using the initial offering price per share as of August 31, 1999 and
assuming a $10.00 initial offering price per share of the Large Cap Value Fund,
the maximum offering price of each Fund's Class A shares would be as follows:
<TABLE>
<CAPTION>
Maximum Offering
Net Asset Sales Price to
Value Charge Public
----------- ------- --------
<S> <C> <C> <C>
Balanced Fund $20.38 5.5% $21.57
Growth and Income Fund 24.68 5.5% 26.13
CORE U.S. Equity Fund 34.21 5.5% 36.20
CORE Large Cap Value Fund 10.55 5.5% 11.16
CORE Large Cap Growth Fund 17.02 5.5% 18.01
CORE Small Cap Equity Fund 10.23 5.5% 10.83
CORE International Equity Fund 10.87 5.5% 11.50
Capital Growth Fund 24.96 5.5% 26.41
Strategic Growth Fund 10.06 5.5% 10.65
Growth Opportunities Fund 10.13 5.5% 10.72
Mid Cap Value Fund 18.42 5.5% 19.49
International Equity Fund 23.12 5.5% 24.47
Small Cap Value Fund 19.80 5.5% 20.95
Large Cap Value Fund N/A N/A N/A
European Equity Fund 11.75 5.5% 12.43
Japanese Equity Fund 16.24 5.5% 17.19
International Small Cap Fund 13.24 5.5% 14.01
Emerging Market Equity Fund 9.26 5.5% 9.80
Asia Growth Fund 11.07 5.5% 11.71
</TABLE>
The following information supplements the information in the
Prospectus under the captions "Shareholder Guide" and "Dividends". Please see
the Prospectus for more complete information.
B-132
<PAGE>
Other Purchase Information
- --------------------------
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distributions
relating to the beneficial owner's account will be performed by the Authorized
Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have
no record of the beneficial owner's transactions, a beneficial owner should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain information
about the account. The transfer of shares in a "street name" account to an
account with another dealer or to an account directly with the Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Dealer.
Right of Accumulation (Class A)
- -------------------------------
A Class A shareholder qualifies for cumulative quantity discounts if the current
purchase price of the new investment plus the shareholder's current holdings of
existing Class A Shares (acquired by purchase or exchange) of the Funds and
Class A Shares of any other Goldman Sachs Fund (as defined in the Prospectus)
total the requisite amount for receiving a discount. For example, if a
shareholder owns shares with a current market value of $35,000 and purchases
additional Class A Shares of any Fund with a purchase price of $25,000, the
sales charge for the $25,000 purchase would be 4.75% (the rate applicable to a
single purchase of more than $50,000). Class A Shares purchased without the
imposition of a sales charge may not be aggregated with Class A Shares purchased
subject to a sales charge. Class A Shares of the Funds and any other Goldman
Sachs Fund purchased (i) by an individual, his spouse and his children, and (ii)
by a trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for such right of accumulation and, if qualifying, the
applicable sales charge level. For purposes of applying the right of
accumulation, shares of the Funds and any other Goldman Sachs Fund purchased by
an existing client of the Private Client Services Division of Goldman Sachs will
be combined with Class A Shares held by any other Private Client Services
account. In addition, Class A Shares of the Funds and Class A Shares of any
other Goldman Sachs Fund purchased by partners, directors, officers or employees
of the same business organization, groups of individuals represented by and
investing on the recommendation of the same accounting firm, certain affinity
groups or other similar organizations (collectively, "eligible persons") may be
combined for the purpose of determining whether a purchase will qualify for the
right of accumulation and, if qualifying, the applicable sales charge level.
This right of accumulation is subject to the following conditions: (i) the
business organization's, group's or firm's agreement to cooperate in the
offering of the Funds' shares to eligible persons; and (ii) notification to the
Funds at the time of purchase that the investor is eligible for this right of
accumulation. In addition, in connection with SIMPLE IRA accounts, cumulative
quantity discounts are available on a per plan basis if (1) your employee has
been assigned a cumulative discount number by Goldman Sachs, and (2) your
account, alone or in combination with the accounts of other plan participants
also invested in Class A Shares of the Goldman Sachs Funds, totals the requisite
aggregate amount as described in the Prospectus.
B-133
<PAGE>
Statement of Intention (Class A)
- --------------------------------
If a shareholder anticipates purchasing at least $50,000 of Class A Shares of a
Fund alone or in combination with Class A Shares of any other Goldman Sachs Fund
within a 13-month period, the shareholder may purchase shares of the Fund at a
reduced sales charge by submitting a Statement of Intention (the "Statement").
Shares purchased pursuant to a Statement will be eligible for the same sales
charge discount that would have been available if all of the purchases had been
made at the same time. The shareholder or his Authorized Dealer must inform
Goldman Sachs that the Statement is in effect each time shares are purchased.
There is no obligation to purchase the full amount of shares indicated in the
Statement. A shareholder may include the value of all Class A Shares on which a
sales charge has previously been paid as an "accumulation credit" toward the
completion of the Statement, but a price readjustment will be made only on Class
A Shares purchased within ninety (90) days before submitting the Statement. The
Statement authorizes the Transfer Agent to hold in escrow a sufficient number of
shares which can be redeemed to make up any difference in the sales charge on
the amount actually invested. For purposes of satisfying the amount specified
on the Statement, the gross amount of each investment, exclusive of any
appreciation on shares previously purchased, will be taken into account.
The provisions applicable to the Statement, and the terms of the related escrow
agreement, are set forth in Appendix C to this Additional Statement.
Cross-Reinvestment of Dividends and Distributions
- -------------------------------------------------
Shareholders may receive dividends and distributions in additional Shares of the
same class of the Fund in which they have invested or they may elect to receive
them in cash or Shares of the same class of other mutual funds sponsored by
Goldman Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime
Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if they hold
Class A Shares of a Fund, or ILA, Class B or Class C Units of the Prime
Obligations Portfolio, if they hold Class B or Class C Shares of a Fund (the
"ILA Portfolios").
A Fund shareholder should obtain and read the prospectus relating to any other
Fund, Goldman Sachs Fund or ILA Portfolio and its shares or units and consider
its investment objective, policies and applicable fees before electing cross-
reinvestment into that Fund or Portfolio. The election to cross-reinvest
dividends and capital gain distributions will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase shares of the acquired fund. Such
reinvestment of dividends and distributions in shares of other Goldman Sachs
Funds or in units of ILA Portfolios is available only in states where such
reinvestment may legally be made.
Automatic Exchange Program
- --------------------------
A Fund shareholder may elect to exchange automatically a specified dollar amount
of shares of a Fund into an identical account of another Fund or an account
registered in a different name or with a different address, social security or
other taxpayer identification number, provided that the account in the acquired
fund has been established, appropriate signatures have been obtained and the
minimum initial investment requirement has been satisfied. A Fund shareholder
should obtain and read the prospectus relating to any other Goldman Sachs
B-134
<PAGE>
Fund and its shares and consider its investment objective, policies and
applicable fees and expenses before electing an automatic exchange into that
Goldman Sachs Fund.
Systematic Withdrawal Plan
- --------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is available to
shareholders of a Fund whose shares are worth at least $5,000. The Systematic
Withdrawal Plan provides for monthly payments to the participating shareholder
of any amount not less than $50.
Dividends and capital gain distributions on shares held under the Systematic
Withdrawal Plan are reinvested in additional full and fractional shares of the
applicable Fund at net asset value. The Transfer Agent acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Systematic Withdrawal Plan may
be terminated at any time. Goldman Sachs reserves the right to initiate a fee
of up to $5 per withdrawal, upon thirty (30) days written notice to the
shareholder. Withdrawal payments should not be considered to be dividends,
yield or income. If periodic withdrawals continuously exceed new purchases and
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. The
maintenance of a withdrawal plan concurrently with purchases of additional Class
A, Class B or Class C Shares would be disadvantageous because of the sales
charge imposed on purchases of Class A Shares or the imposition of a CDSC on
redemptions of Class A, Class B or Class C Shares. The CDSC applicable to Class
A, Class B or Class C Shares redeemed under a systematic withdrawal plan may be
waived. See "Shareholder Guide" in the Prospectus. In addition, each
withdrawal constitutes a redemption of shares, and any gain or loss realized
must be reported for federal and state income tax purposes. A shareholder
should consult his or her own tax adviser with regard to the tax consequences of
participating in the Systematic Withdrawal Plan. For further information or to
request a Systematic Withdrawal Plan, please write or call the Transfer Agent.
B-135
<PAGE>
SERVICE PLAN
(Service Shares Only)
The Funds have adopted a service plan (the "Plan") with respect to its Service
Shares which authorizes it to compensate Service Organizations for providing
certain administration services and personal and account maintenance services to
their customers who are or may become beneficial owners of such Shares.
Pursuant to the Plan, each Fund enters into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund, (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from the Fund, working with the Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, each Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization.
The amount of the service fees paid by each Fund then in existence to Service
Organizations pursuant to the Plan was as follows for the fiscal period ended
August 31, 1999 and the fiscal years ended January 31, 1999, January 31, 1998
and January 31, 1997 indicated:
<TABLE>
<CAPTION>
Fiscal period Fiscal year Fiscal year Fiscal year
Ended ended ended ended
August 31, January 31, January 31, January 31,
1999 1999 1998 1997
============= =========== =========== ===========
<S> <C> <C> <C> <C>
Balanced Fund 445 $ 1,402 $ 31 N/A
Growth and Income Fund 32,442 57,187 32,418 6,126
CORE Large Cap Value Fund 13 1 N/A N/A
CORE U.S. Equity Fund 34,586 49,461 27,222 4,581
CORE Large Cap Growth Fund 6,385 2,992 257 N/A
CORE Small Cap Equity Fund 176 74 4 N/A
CORE International Equity Fund 20 53 3 N/A
Capital Growth Fund 16,691 7,655 4 N/A
Strategic Growth Fund 2 N/A N/A N/A
Growth Opportunities Fund 2 N/A N/A N/A
Mid Cap Value Fund 656 685 12 N/A
International Equity Fund 10,635 17,786 9,236 1,032
</TABLE>
B-136
<PAGE>
<TABLE>
<CAPTION>
Fiscal period Fiscal year Fiscal year Fiscal year
Ended ended ended ended
August 31, January 31, January 31, January 31,
1999 1999 1998 1997
============= =========== =========== ===========
<S> <C> <C> <C> <C>
Small Cap Value Fund 471 588 4 N/A
Large Cap Value Fund NA N/A N/A N/A
European Equity Fund 6 3 N/A N/A
Japanese Equity Fund 6 6 N/A N/A
International Small Cap Fund 5 6 N/A N/A
Emerging Markets Equity Fund 4 7 1 N/A
</TABLE>
The Funds have adopted the Plan pursuant to Rule 12b-1 under the Act in order to
avoid any possibility that payments to the Service Organizations pursuant to the
Service Agreements might violate the Act. Rule 12b-1, which was adopted by the
SEC under the Act, regulates the circumstances under which an investment company
or series thereof may bear expenses associated with the distribution of its
shares. In particular, such an investment company or series thereof cannot
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of shares issued by the company unless it has
adopted a plan pursuant to, and complies with the other requirements of, such
Rule. The Trust believes that fees paid for the services provided in the Plan
and described above are not expenses incurred primarily for effecting the
distribution of Service Shares. However, should such payments be deemed by a
court or the SEC to be distribution expenses, such payments would be duly
authorized by the Plan.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of a Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult their legal advisers before
investing fiduciary assets in Service Shares of a Fund. In addition, under some
state securities laws, banks and other financial institutions purchasing Service
Shares on behalf of their customers may be required to register as dealers.
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or the related Service Agreements, most recently voted
to approve the Plan and related Service Agreements at a meeting called for the
purpose of voting on such Plan and Service Agreements on April 27, 1999. The
Plan and related Service Agreements will remain in effect until May 1, 2000 and
will continue in effect thereafter only if such continuance is specifically
approved annually by a vote of the Trustees in the manner described above. The
Plan may not be amended to increase materially the amount to be spent for the
services described therein without approval of the Service Shareholders of the
affected Fund and all material amendments of the Plan must also be approved by
the Trustees in the manner described above. The Plan may be terminated at any
time by a majority of the Trustees as described above or by a vote of a majority
of the outstanding Service Shares of the affected Fund. The Service Agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Trustees as described above or by a vote of a majority of the
outstanding Service Shares of the affected Fund on not more than sixty (60)
days' written notice to any other party to the Service Agreements. The
B-137
<PAGE>
Service Agreements will terminate automatically if assigned. So long as the Plan
is in effect, the selection and nomination of those Trustees who are not
interested persons will be committed to the discretion of the non-interested
Trustees. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Funds and the holders of
Service Shares of the Funds.
B-138
<PAGE>
Appendix A
Commercial Paper Ratings
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current opinion of
the credit worthiness of an obligor with respect to financial obligations having
an original maturity of no more than 365 days. The following summarizes the
rating categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
rating categories used by Moody's for commercial paper:
1-A
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating categories.
The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps employs
three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
2-A
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the best capacity for timely payment of financial commitments and may
have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation indicates
that the capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates that
default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
3-A
<PAGE>
"TBW-1" - This designation represents Thomson Financial BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
4-A
<PAGE>
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
5-A
<PAGE>
"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
6-A
<PAGE>
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
"BBB" - Debt possesses below-average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings
is considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of
7-A
<PAGE>
financial commitments. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher
ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations in
this category are based on their prospects for achieving partial of full
recovery in a reorganization of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following
serve as general guidelines. "DDD" obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and accrued interest. "DD"
indicates potential recovering in the range of 50%-90%, and the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
8-A
<PAGE>
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson Financial BankWatch for long-
term debt ratings:
"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade category
and indicates an acceptable capacity to repay principal and interest. Issues
rated "BBB" are more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
Financial BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
Municipal Note Ratings
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
9-A
<PAGE>
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to
pay principal and interest. Those issues determined to possess a very strong
capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments in
this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
10-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
Our client's interests always come first. Our experience shows that if we
serve our clients well, our own success will follow.
Our assets are our people, capital and reputation. If any of these is ever
diminished, the last is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
We take great pride in the professional quality of our work. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
We stress creativity and imagination in everything we do. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
We make an unusual effort to identify and recruit the very best person for
every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.
We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find limits to the responsibility
that our best people are able to assume. Advancement depends solely on ability,
performance and contribution to the Firm's success, without regard to race,
color, religion, sex, age, national origin, disability, sexual orientation, or
any other impermissible criterion or circumstance.
We stress teamwork in everything we do. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of the
interests of the Firm and its clients.
The dedication of our people to the Firm and the intense effort they give
their jobs are greater than one finds in most other organizations. We think that
this is an important part of our success.
1-B
<PAGE>
Our profits are a key to our success. They replenish our capital and
attract and keep our best people. It is our practice to share our profits
generously with all who help create them. Profitability is crucial to our
future.
We consider our size an asset that we try hard to preserve. We want to be
big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and that contribute greatly to our success.
We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to extinction.
We regularly receive confidential information as part of our normal client
relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.
Our business is highly competitive, and we aggressively seek to expand our
client relationships. However, we must always be fair competitors and must never
denigrate other firms.
Integrity and honesty are the heart of our business. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman Sachs is a leading financial services firm traditionally known on
Wall Street and around the world for its institutional and private client
service.
With thirty-seven offices around the world Goldman Sachs employs over
11,000 professionals focused on opportunities in major markets.
The number one underwriter of all international equity issues from 1989-
1997.
The number one lead manager of U.S. common stock offerings for the past
nine years (1989-1997).*
The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1997).
- ---------------
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
====================================
Investment Trusts and Rights.
3-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman, Sachs & Co. joins New York Stock Exchange
1906 Goldman, Sachs & Co. takes Sears Roebuck & Co. public (at 93 years, the
firm's longest-standing client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman, Sachs & Co. finances Warner Brothers, producer of the first
talking film
1956 Goldman, Sachs & Co. co-manages Ford's public offering, the largest to
date
1970 Goldman, Sachs & Co. opens London office
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman, Sachs & Co. takes Microsoft public
1988 Goldman Sachs Asset Management is formally established
1991 Goldman, Sachs & Co. provides advisory services for the largest
privatization in the region of the sale of Telefonos de Mexico
1995 Goldman Sachs Asset Management introduces Global Tactical Asset
Allocation Program
Dow Jones Industrial Average breaks 5000
1996 Goldman, Sachs & Co. takes Deutsche Telekom public
Dow Jones Industrial Average breaks 6000
1997 Goldman Sachs Asset Management increases assets under management by 100%
over 1996
Dow Jones Industrial Average breaks 7000
4-B
<PAGE>
1998 Goldman Sachs Asset Management reaches $195.5 billion in assets under
management
Dow Jones Industrial Average breaks 9000
1999 Goldman Sachs becomes a public company
5-B
<PAGE>
APPENDIX C
Statement of Intention
(applicable only to Class A shares)
If a shareholder anticipates purchasing $50,000 or more of Class A
Shares of a Fund alone or in combination with Class A Shares of another Goldman
Sachs Fund within a 13-month period, the shareholder may obtain shares of the
Fund at the same reduced sales charge as though the total quantity were invested
in one lump sum by checking and filing the Statement of Intention in the Account
Application. Income dividends and capital gain distributions taken in additional
shares will not apply toward the completion of the Statement of Intention.
To ensure that the reduced price will be received on future purchases,
the investor must inform Goldman Sachs that the Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5%
of the dollar amount specified on the Account Application will be held in escrow
by the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will be
paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be
asked to remit to Goldman Sachs any difference between the sales charge on the
amount specified and on the amount actually attained. If the investor does not
within 20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem, pursuant to the authority given by
the investor in the Account Application, an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Transfer Agent.
1-C
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 55.1%
<C> <S> <C>
Banks - 3.4%
28,700 Bank of America Corp. $ 1,736,350
27,000 Bank One Corp. 1,083,375
18,500 Citigroup, Inc. 822,094
29,900 First Union Corp. 1,240,850
13,100 KeyCorp 379,900
21,600 National City Corp. 596,700
16,200 State Street Corp. 969,975
20,400 Wells Fargo & Co. 812,175
------------
7,641,419
--------------------------------------------------------------
Chemical - 0.6%
9,777 Du Pont (E.I.) de Nemours & Co. 619,617
8,600 Minnesota Mining and Manufacturing Co. 812,700
------------
1,432,317
--------------------------------------------------------------
Clothing - 0.3%
24,100 The TJX Companies, Inc. 695,888
--------------------------------------------------------------
Computer Hardware - 3.5%
21,500 Cisco Systems, Inc.* 1,457,969
24,900 Compaq Computer Corp. 577,369
10,400 EMC Corp.* 624,000
9,600 Hewlett-Packard Co. 1,011,600
18,100 International Business Machines, Inc. 2,254,581
4,100 NCR Corp.* 179,375
13,400 Sun Microsystems, Inc.* 1,065,300
12,900 Xerox Corp. 615,975
------------
7,786,169
--------------------------------------------------------------
Computer Software - 2.1%
6,600 CheckFree Holdings Corp.* 193,050
10,800 Computer Associates International, Inc. 610,200
40,600 Microsoft Corp.* 3,758,037
5,400 Oracle Corp.* 197,100
------------
4,758,387
--------------------------------------------------------------
Consumer Services - 0.9%
15,700 Cendant Corp.* 281,619
42,100 Service Corp. International 581,506
26,050 Valassis Communications, Inc.* 1,139,688
------------
2,002,813
--------------------------------------------------------------
Defense/Aerospace - 0.5%
9,600 Northrop Grumman Corp. 696,000
6,400 Raytheon Co. 429,600
------------
1,125,600
--------------------------------------------------------------
Department Store - 0.7%
27,000 Federated Department Stores, Inc.* 1,242,000
8,400 The May Department Stores Co. 328,125
------------
1,570,125
--------------------------------------------------------------
Drugs - 4.3%
37,600 American Home Products Corp. 1,560,400
22,400 Bristol-Myers Squibb Co. 1,576,400
9,200 Eli Lilly & Co. 686,550
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Drugs - (continued)
25,900 Merck & Co. $ 1,740,156
38,200 Pfizer, Inc. 1,442,050
17,900 Pharmacia & Upjohn, Inc. 935,275
11,600 Schering-Plough Corp. 609,725
14,700 Warner-Lambert Co. 973,875
------------
9,524,431
------------------------------------------------------------
Electronics Equipment - 1.3%
4,900 General Instrument Corp.* 241,019
1,500 General Motors Corp. (Hughes)* 77,250
9,400 Lucent Technologies, Inc. 602,188
3,400 Motorola, Inc. 313,650
8,300 QUALCOMM, Inc.* 1,595,156
------------
2,829,263
------------------------------------------------------------
Electrical Utilities - 2.3%
29,400 AES Corp.* 1,784,212
35,900 Entergy Corp. 1,070,269
14,000 FPL Group, Inc. 756,000
3,400 Pacificorp 69,488
14,000 PG&E Corp. 424,375
25,100 Unicom Corp. 969,487
------------
5,073,831
------------------------------------------------------------
Energy Resources - 2.3%
5,600 Atlantic Richfield Co. 492,450
10,687 Conoco, Inc. Class B 287,213
18,000 Exxon Corp. 1,419,750
3,500 Mobil Corp. 358,313
27,200 Occidental Petroleum Corp. 589,900
27,600 Royal Dutch Petroleum Co. ADR 1,707,750
6,100 Tosco Corp.[_] 155,550
3,600 Unocal Corp. 150,750
------------
5,161,676
------------------------------------------------------------
Environmental Services - 0.5%
54,500 Waste Management, Inc. 1,188,781
------------------------------------------------------------
Financial Services - 2.0%
8,400 Countrywide Credit Industries, Inc. 269,850
35,000 Federal Home Loan Mortgage Corp. 1,802,500
25,800 Federal National Mortgage Association 1,602,825
33,900 MBNA Corp. 836,906
------------
4,512,081
------------------------------------------------------------
Food & Beverage - 3.0%
2,600 Anheuser-Busch Companies, Inc. 200,200
66,360 Archer Daniels Midland Co. 862,680
18,800 Coca-Cola Co. 1,124,475
38,100 ConAgra, Inc. 933,450
5,000 H.J. Heinz Co. 233,438
60,400 Nabisco Group Holdings Corp. 1,072,100
19,600 Pepsico, Inc. 668,850
53,000 Sara Lee Corp. 1,175,937
5,400 William Wrigley Jr. Co. 422,887
------------
6,694,017
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Forest - 0.2%
10,600 International Paper Co. $ 498,863
------------------------------------------------------------------------
Heavy Electrical - 1.4%
5,100 Emerson Electric Co. 319,388
25,400 General Electric Co. 2,852,737
------------
3,172,125
------------------------------------------------------------------------
Home Products - 2.1%
18,700 Avon Products, Inc. 820,463
7,600 Clorox Co. 343,900
23,400 Colgate Palmolive Co. 1,251,900
8,500 Ecolab, Inc. 319,281
11,900 Procter & Gamble Co. 1,181,075
25,600 Ralston-Ralston Purina Group 704,000
------------
4,620,619
------------------------------------------------------------------------
Hotel - 0.6%
14,300 Marriott International, Inc. 489,775
34,400 Starwood Hotels & Resorts Worldwide, Inc. Class B 819,150
------------
1,308,925
------------------------------------------------------------------------
Industrial Parts - 0.2%
3,200 Ingersoll-Rand Co. 203,600
1,900 Textron, Inc. 153,425
------------
357,025
------------------------------------------------------------------------
Information Services - 1.0%
8,682 At Home Corp. Series A* 348,365
7,500 Automatic Data Processing, Inc. 294,844
21,200 First Data Corp. 932,800
8,600 Galileo International, Inc. 417,100
2,440 VeriSign, Inc.* 264,283
------------
2,257,392
------------------------------------------------------------------------
Leisure - 0.2%
3,000 Eastman Kodak Co. 220,312
8,600 Hasbro, Inc. 210,163
------------
430,475
------------------------------------------------------------------------
Life Insurance - 1.3%
11,800 Aetna, Inc. 917,450
10,100 Cigna Corp. 907,106
4,900 Hartford Life, Inc. 212,844
6,600 Nationwide Financial Services, Inc. 240,900
18,060 UNUMProvident Corp. 651,289
------------
2,929,589
------------------------------------------------------------------------
Media - 4.9%
26,400 AH Belo Corp. Series A 499,950
12,100 AMFM, Inc.* 595,925
57,480 AT&T Corp.-Liberty Media Group* 1,839,360
8,900 Cablevision Systems Corp.* 623,000
35,900 CBS, Inc.* 1,687,300
------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Media - (continued)
6,864 Clear Channel Communications, Inc.* $ 480,909
16,000 Comcast Corp. 522,000
4,300 EchoStar Communications Corp.* 359,588
24,600 Infinity Broadcasting Corp.* 665,737
26,490 MediaOne Group, Inc.* 1,741,717
19,300 The Walt Disney Co. 535,575
22,700 Time Warner, Inc. 1,346,394
------------
10,897,455
--------------------------------------------------------------
Medical Products - 1.0%
12,700 Baxter International, Inc. 851,694
11,700 Becton, Dickinson & Co. 329,062
11,100 Johnson & Johnson 1,134,975
------------
2,315,731
--------------------------------------------------------------
Medical Providers - 0.6%
23,500 Columbia/HCA Healthcare Corp. 578,687
67,000 Healthsouth Corp.* 548,563
5,500 Tenet Healthcare Corp.* 95,906
------------
1,223,156
--------------------------------------------------------------
Motor Vehicle - 1.7%
41,546 Delphi Automative Systems Corp. 778,988
11,000 Federal-Mogul Corp. 501,875
6,600 Ford Motor Co. 344,025
23,300 General Motors Corp. 1,540,712
12,500 TRW, Inc. 681,250
------------
3,846,850
--------------------------------------------------------------
Oil Refining - 0.5%
11,700 Texaco, Inc. 742,950
13,000 USX-Marathon Group, Inc. 404,625
------------
1,147,575
--------------------------------------------------------------
Oil Services - 0.5%
16,100 Schlumberger Ltd. 1,074,675
--------------------------------------------------------------
Property Insurance - 1.6%
30,700 Allstate Corp. 1,007,344
4,500 AMBAC Financial Group, Inc. 237,656
8,365 American International Group, Inc. 775,331
14,500 Hartford Financial Services Group, Inc. 658,844
5,400 Loews Corp. 423,900
10,100 XL Capital Ltd. 508,156
------------
3,611,231
--------------------------------------------------------------
Publishing - 1.3%
11,500 Central Newspapers, Inc. 486,594
6,900 Gannett Co. 468,769
25,100 New York Times Co. 980,468
13,900 R.R. Donnelley & Sons Co. 436,112
2,800 Tribune Co. 261,275
18,900 Ziff-Davis, Inc.* 291,769
------------
2,924,987
--------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Railroads - 0.3%
21,500 Burlington Northern Santa Fe Corp. $ 623,500
---------------------------------------------------------
Restaurants - 0.4%
7,600 McDonald's Corp. 314,450
13,000 Tricon Global Restaurants, Inc.* 528,125
------------
842,575
---------------------------------------------------------
Security/Asset Management - 0.1%
3,700 Morgan Stanley Dean Witter & Co. 317,506
---------------------------------------------------------
Semiconductors - 1.3%
35,500 Intel Corp. 2,917,656
---------------------------------------------------------
Specialty Retail - 1.7%
5,900 CVS Corp. 245,956
8,200 Home Depot, Inc. 501,225
16,400 Tandy Corp. 774,900
43,600 Toys "R' Us, Inc.* 602,225
26,700 Wal-Mart Stores, Inc. 1,183,144
25,600 Walgreen Co. 593,600
------------
3,901,050
---------------------------------------------------------
Telephone - 3.5%
13,600 Ameritech Corp. 858,500
29,749 AT&T Corp. 1,338,705
13,200 Bell Atlantic Corp. 808,500
8,100 BellSouth Corp. 366,525
13,500 GTE Corp. 926,437
22,700 MCI Worldcom, Inc.* 1,719,525
19,900 SBC Communications, Inc. 955,200
5,900 Sprint Corp. 261,813
10,200 U.S. West, Inc. 532,950
------------
7,768,155
---------------------------------------------------------
Tobacco - 0.7%
44,100 Philip Morris Companies, Inc. 1,650,994
---------------------------------------------------------
Wireless - 0.3%
20,200 Crown Castle International Corp.* 305,525
5,300 Sprint Corp. (PCS Group) Series 1* 316,675
------------
622,200
---------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $112,392,806) $123,257,107
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Asset-Backed Securities - 4.9%
<S> <C> <C> <C>
Americredit Automobile Receivables Trust Series 1997-D, Class A3
$1,725,000 5.88% 12/05/2003 $ 1,701,012
Americredit Automobile Receivables Trust Series 1998-A, Class A3
1,100,000 6.24 09/05/2003 1,094,490
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
9,326 5.80 06/15/2002 9,317
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Asset-Backed Securities - (continued)
<S> <C> <C> <C>
Contimortgage Home Equity Loan Series 1998-1, Class A5
$3,000,000 6.43% 04/15/2016 $ 2,949,540
Fasco Auto Trust Series 1996-1, Class A
54,602 6.65 11/15/2001 54,709
Fingerhut Master Trust Series 1996-1, Class A
40,000 6.45 02/20/2002 40,012
First Sierra Equipment Contract Trust Series 1998-1, Class A4
1,350,000 5.63 08/12/2004 1,317,938
Green Tree Financial Corp. Series 1998-6, Class M1
2,000,000 6.63 06/01/2030 1,808,120
IMC Home Equity Loan Series 1996 3A 7
1,000,000 8.05 08/01/2026 1,049,063
Mid State Trust Series 4, Class A
635,240 8.33 04/01/2030 649,647
Standard Credit Card Master Trust I Series 1995-9, Class A
360,000 6.55 10/07/2007 356,285
----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $11,373,274) $11,030,133
----------------------------------------------------------------------------------------------
Corporate Bonds - 15.0%
Finance Bonds - 5.1%
BankAmerica Corp.
$1,000,000 7.75% 07/15/2002 $ 1,022,880
Beneficial Corp.
1,350,000 6.43 04/10/2002 1,340,023
Capital One Bank
500,000 6.39 03/05/2001 497,920
150,000 6.15 06/01/2001 147,879
300,000 6.76 07/23/2002 297,465
590,000 7.15 09/15/2006 590,195
Chelsea GCA Realty
656,000 7.75 01/26/2001 653,658
Citigroup, Inc.
315,000 8.00 02/01/2003 324,226
Comdisco, Inc.
965,000 6.13 01/15/2003 923,206
700,000 6.29 06/30/2003 673,253
Conseco, Inc.
320,000 7.60 06/21/2001 318,051
Continental Bank
100,000 12.50 04/01/2001 108,387
Countrywide Capital Corp.
330,000 8.05 06/15/2027 319,767
Countrywide Home Loans, Inc.
850,000 6.45 02/27/2003 833,255
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/2000 250,302
Ford Motor Credit Co.
170,000 6.13 04/28/2003 164,920
Golden West Financial Corp.
200,000 10.25 12/01/2000 208,402
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Corporate Bonds - (continued)
<S> <C> <C> <C>
Finance Bonds - (continued)
Liberty Property LP
$ 205,000 7.10% 08/15/2004 $ 195,182
Long Island Savings Bank
620,000 6.20 04/02/2001 608,642
Meditrust, Inc.
270,000 7.82 09/10/2026 240,932
Providian National Bank
250,000 6.65 02/01/2004 237,315
PXRE Capital Trust I
65,000 8.85 02/01/2027 51,691
Riggs National Corp.
280,000 9.65 06/15/2009 294,675
Simon Debartolo Group LP
675,000 6.63 06/15/2003 649,615
Wells Fargo & Co.
485,000 6.63 07/15/2004 478,123
----------------------------------------------------------------------------------------------
TOTAL FINANCE BONDS
(Cost $11,834,601) $11,429,964
----------------------------------------------------------------------------------------------
Industrial Bonds - 9.6%
360 Communications Co.
$ 575,000 7.13% 03/01/2003 $ 576,472
Adelphia Communications
125,000 7.88 05/01/2009 112,344
Adelphia Communications Series B
120,000 10.25 07/15/2000 120,300
Alaska Communications+
125,000 9.38 05/15/2009 117,813
Allied Waste North America, Inc.
250,000 7.63 01/01/2006 230,000
AMFM, Inc.
250,000 10.75 05/15/2006 268,750
British Sky Broadcasting+
240,000 8.20% 07/15/2009 237,791
CBS Corp.
205,000 8.88 06/01/2001 210,812
Chancellor Media Corp.
250,000 8.00 11/01/2008 237,500
Charter Commerce Holdings+~
125,000 0.00/9.92 04/01/2011 75,000
Charter Communications Holdings LLC+
250,000 8.25 04/01/2007 234,375
CMS Energy Corp. Series B
150,000 7.38 11/15/2000 149,517
Continental Airlines, Inc.
339,546 6.54 09/15/2009 325,805
Crown Castle International Corp.+~
250,000 0.00/10.375 05/15/2011 138,750
Daimler Chrysler AG
30,000 7.45 03/01/2027 29,386
60,000 7.45 02/01/2097 56,318
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Corporate Bonds - (continued)
<S> <C> <C> <C>
Industrial Bonds - (continued)
Federal-Mogul Corp.+
$ 250,000 7.50% 01/15/2009 $ 228,255
Ford Motor Co.
300,000 6.63 10/01/2028 265,662
Gulf Canada Resources Ltd.
90,000 9.25 01/15/2004 90,199
Hayes Lemmerz International, Inc. Series B
250,000 8.25 12/15/2008 231,250
Hertz Corp.
1,055,000 6.00 01/15/2003 1,017,991
Intermedia Communications, Inc.
250,000 8.60 06/01/2008 221,250
International Home Foods, Inc.
250,000 10.38 11/01/2006 255,000
ITT Corp.
50,000 6.25 11/15/2000 48,627
Joseph E Seagram & Sons, Inc.
275,000 6.25 12/15/2001 270,102
K Mart Corp.
200,000 8.00 12/13/2001 198,502
Lenfest Communications, Inc.
300,000 8.38 11/01/2005 309,606
Lyondell Chemical Co. Series B
250,000 9.88 05/01/2007 253,750
MCI Worldcom, Inc.
275,000 6.40 08/15/2005 265,185
Metronet Communications
345,000 0/9.95 06/15/2008 261,337
News America Holdings, Inc.
345,000 8.50 02/15/2005 356,088
135,000 8.00 10/17/2016 131,516
300,000 7.25 05/18/2018 279,804
Northwest Airlines Corp. Class C
208,432 8.97 01/02/2015 212,100
NWA Trust Class A
57,900 8.26 03/10/2006 58,233
Occidental Petroleum Corp.
90,000 6.50 04/01/2005 85,784
235,000 7.65 02/15/2006 234,902
Orange PLC
500,000 8.00 08/01/2008 475,000
Oryx Energy Co.
135,000 9.50 11/01/1999 135,626
Owens Corning
720,000 7.50 05/01/2005 692,374
Packaging Corp. of America+
125,000 9.63 04/01/2009 126,250
Panamsat Corp.
1,080,000 6.13 01/15/2005 984,377
Paramount Communications
200,000 5.88 07/15/2000 198,924
--------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Corporate Bonds - (continued)
<S> <C> <C> <C>
Industrial Bonds - (continued)
Pep Boys-Manny, Moe & Jack
$ 200,000 6.52% 07/16/2007 $ 190,467
Philip Morris Companies, Inc.
400,000 9.00 01/01/2001 411,400
150,000 7.00 07/15/2005 146,910
195,000 6.95 06/01/2006 195,412
Raytheon Co.
605,000 6.45 08/15/2002 596,113
RJR Nabisco, Inc.+
355,000 7.38 05/15/2003 348,617
Rogers Cablesystems Ltd.
115,000 9.63 08/01/2002 117,875
Safety-Kleen Corp.+
250,000 9.25 05/15/2009 246,875
Safeway, Inc.
265,000 6.05 11/15/2003 254,215
Sprint Capital Corp.
100,000 5.70 11/15/2003 94,838
465,000 5.88 05/01/2004 441,476
Starwood Hotels & Resorts Worldwide, Inc.
465,000 6.75 11/15/2003 436,960
Tele-Communications, Inc.
125,000 9.65 10/01/2003 131,760
Telewest Communications PLC+
125,000 0.00/11.00 10/01/2007 110,781
250,000 0.00/9.25 04/15/2009 152,500
Tenet Healthcare Corp.
175,000 8.63 12/01/2003 173,250
Time Warner, Inc.
445,000 9.63 05/01/2002 471,268
250,000 7.98 08/15/2004 259,217
565,000 7.75 06/15/2005 572,916
TRW, Inc.+
460,000 6.63 06/01/2004 447,726
Tyco International Group
875,000 5.88 11/01/2004 822,544
U.S. Home Corp.
130,000 7.95 03/01/2001 130,650
United Rentals, Inc.*
500,000 8.80 08/15/2008 475,000
US Air, Inc.
312,531 8.93 04/15/2008 342,687
US West Capital Funding, Inc.+
500,000 6.88 08/15/2001 499,370
USI American Holdings, Inc.
60,000 7.25 12/01/2006 57,047
Viacom, Inc.
900,000 6.75 01/15/2003 885,330
Williams Communications Solutions, Inc.
1,125,000 6.13 02/15/2002 1,104,997
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Corporate Bonds - (continued)
<S> <C> <C> <C>
Industrial Bonds - (continued)
WMX Technologies, Inc.
$ 320,000 6.38% 12/01/2003 $ 292,819
----------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS
(Cost $22,228,646) $21,419,647
----------------------------------------------------------------------------------------------
Utility Bonds - 0.3%
CE Electric UK Funding Co.+
$ 200,000 6.85% 12/30/2004 $ 193,529
Edison Mission Energy Funding Corp. Series A+
70,863 6.77 09/15/2003 70,004
Niagara Mohawk Power Corp.
450,000 6.88 04/01/2003 451,921
----------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS
(Cost $732,394) $ 715,454
----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $34,795,641) $33,565,065
----------------------------------------------------------------------------------------------
Emerging Market Debt - 1.7%
Financiera Energy Nacional
$ 120,000 9.38% 06/15/2006 $ 87,372
MRS Logistica SA
100,000 10.63 08/15/2005 65,000
National Power Corp.
240,000 7.63 11/15/2000 240,000
National Republic of Bulgaria#
370,000 5.88 07/28/2011 253,912
Petroleos Mexicanos+#
350,000 9.37 07/15/2005 325,937
Poland Communications, Inc.
200,000 9.88 11/01/2003 199,000
Province of Tucuman
165,000 9.45 08/01/2004 127,463
Republic of Brazil }
370,537 8.00 04/15/2014 221,396
Republic of Colombia
120,000 8.63 04/01/2008 90,600
Republic of Malaysia
530,000 8.75 06/15/2009 524,896
Republic of Panama
10,000 9.38 04/01/2029 9,375
Republic of Panama#
618,480 6.08 05/10/2002 594,514
330,000 4.25 07/17/2014 234,504
Republic of Philippines
350,000 8.88 04/15/2008 335,125
Republic of Poland#
70,000 4.00 10/27/2024 44,100
United Mexican States
250,000 6.25 12/31/2019 178,750
380,000 6.25 12/31/2019 271,700
----------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(Cost $3,957,400) $ 3,803,644
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - 18.2%
Asset Securitization Corp. Series 1997-D4, Class A 1D
$ 450,000 7.49% 04/14/2029 $ 453,830
Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2
2,200,000 6.60 11/19/2007 2,103,508
Collateralized Mortgage Obligation Trust Series 64, Class Z
367,301 9.00 11/20/2020 378,335
Commercial Mortgage Asset Trust Series 1999-C1, Class A3
200,000 6.64 09/17/2010 188,097
CS First Boston Mortgage Securities Corp. Series 1997-C2, Class A2
700,000 6.52 07/17/2007 668,598
Federal Home Loan Mortgage Corp. (FHLMC)
8,600,000 7.50 10/01/2001 8,548,916
794,784 6.00 12/01/2013 757,032
1,000,000 6.35 03/25/2018 993,430
1,018,642 7.00 06/01/2028 989,987
502,559 7.00 08/01/2028 488,422
908,294 7.00 09/01/2028 882,743
1,204,928 7.00 12/01/2028 1,171,033
Federal National Mortgage Association (FNMA)
211,665 6.50 09/01/2025 201,742
216,816 6.50 10/01/2025 206,451
285,819 6.50 11/01/2025 272,957
395,288 6.50 09/01/2027 374,536
344,804 6.50 11/01/2027 326,377
361,905 6.50 03/01/2028 342,565
539,113 6.50 04/01/2028 510,303
849,127 6.50 06/01/2028 803,750
165,461 6.50 08/01/2028 156,618
754,087 6.50 09/01/2028 713,788
4,000,000 6.50 TBA-30 yr/\ 3,786,250
Federal National Mortgage Association Principal-Only Stripped Security@*
4,030,000 6.86 10/09/2019 1,009,394
Federal National Mortgage Association Series 1993-31, Class PJ
1,000,000 6.55 10/25/2020 987,210
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-C1,
Class A2
300,000 7.30 12/18/2006 298,875
Government National Mortgage Association (GNMA)
220,160 7.00 02/15/2023 214,861
252,688 7.00 04/15/2023 245,739
142,848 7.00 05/15/2023 139,410
1,275,395 7.00 07/15/2023 1,242,762
580,828 7.00 08/15/2023 566,848
527,078 7.00 09/15/2023 514,391
115,233 7.00 10/15/2023 112,064
158,224 7.00 11/15/2023 154,071
398,744 7.00 12/15/2023 387,778
5,000,498 6.50 11/15/2028 4,731,972
1,987,512 6.50 01/15/2029 1,874,462
993,517 6.50 04/15/2029 937,006
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A2
$2,000,000 6.39% 02/15/2030 $ 1,929,700
----------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $41,861,166) $40,665,811
----------------------------------------------------------------------------------------------
Sovereign Credit - 2.0%
Commonwealth of Australia
$1,800,000 8.75% 08/15/2008 $ 1,335,978
Federal Republic of Germany
2,050,000 7.38 01/03/2005 2,456,466
Province of Quebec
200,000 13.25 09/15/2014 209,582
445,000 7.50 07/15/2023 443,958
105,000 5.74 03/02/2026 104,072
----------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(Cost $4,637,925) $ 4,550,056
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
U.S. Treasury Obligations - 0.9%
U.S. Treasury Principal-Only Stripped Securities0*
$ 500,000 6.13% 08/15/2005 $ 346,470
1,450,000 6.50 05/15/2017 460,897
4,900,000 6.75 08/15/2026[_] 912,282
U.S. Treasury Bills0
100,000 4.39 10/12/1999 98,659
100,000 4.56 12/09/1999[_] 98,658
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,006,631) $ 1,916,966
----------------------------------------------------------------------------------------------
Repurchase Agreement - 8.3%
Joint Repurchase Agreement
$18,500,000 5.52% 09/01/1999 $ 18,500,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $18,500,000) $ 18,500,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $229,524,843) $237,288,782
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
.. Represents security with notional or nominal principal amounts. The actual
effective yield of this security is different than the stated coupon due to
amortization of related premiums.
@ This security is issued with a zero-coupon. The interest rate disclosed for
this security represents effective yield to maturity.
+ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified institu-
tional buyers in transactions exempt from registration. Total market-value
of Rule 144A securities amounted to $3,553,573 at August 31, 1999.
# Variable rate security. Coupon rate disclosed is that which is in effect at
August 31, 1999.
[_]Portions of these securities are being segregated as collateral for futures
contracts, TBA securities, mortgage dollar rules and forward settlement
sales.
~ These securities are issued with a zero coupon which increases to the
stated rate at a set date in the future.
/\TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally (+/-) 2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be deter-
mined upon settlement when the specific mortgage pools are assigned.
} Coupon consists of 5% cash payment and 3% paid-in-kind securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$229,524,843) $237,288,782
Cash 191,272
Receivables:
Investment securities sold 9,177,898
Dividends and interest, at value 1,227,661
Fund shares sold 131,478
Forward foreign currency exchange contracts 47,302
Reimbursement from investment adviser 85,343
Deferred organization expenses, net 1,507
Other assets 10,458
------------------------------------------------------------------------------
Total assets 248,161,701
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 23,720,847
Fund shares repurchased 373,326
Amounts owed to affiliates 243,370
Forward foreign currency exchange contracts 89,169
Variation margin 32,560
Options written, at value (premium received $35,020) 23,350
Accrued expenses and other liabilities 109,560
------------------------------------------------------------------------------
Total liabilities 24,592,182
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 207,837,283
Accumulated undistributed net investment income 1,302,040
Accumulated net realized gain from investment, futures, options
and foreign currency related transactions 6,981,891
Net unrealized gain on investments, futures and translation of
assets and liabilities denominated in foreign currency 7,448,305
------------------------------------------------------------------------------
NET ASSETS $223,569,519
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $20.38
Class B $20.26
Class C $20.23
Institutional $20.39
Service $20.37
------------------------------------------------------------------------------
Shares outstanding:
Class A 8,311,526
Class B 1,999,723
Class C 557,767
Institutional 115,786
Service 727
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 10,985,529
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $21.57. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $1,270,413
Interest(b) 3,994,189
------------------------------------------------------------------------------
Total income 5,264,602
------------------------------------------------------------------------------
Expenses:
Management fees 928,470
Distribution and service fees(c) 588,826
Transfer agent fees(d) 266,379
Custodian fees 90,212
Registration fees 74,020
Professional fees 44,381
Amortization of deferred organization expenses 7,802
Trustee fees 6,426
Service share fees 445
Other 104,945
------------------------------------------------------------------------------
Total expenses 2,111,906
------------------------------------------------------------------------------
Less -- expenses reimbursed (307,789)
------------------------------------------------------------------------------
Net expenses 1,804,117
------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,460,485
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures, op-
tions and foreign currency related transactions:
Net realized gain (loss) from:
Investment transactions 7,020,961
Futures transactions (1,033,898)
Options written 36,437
Foreign currency related transactions (10,658)
Net change in unrealized gain (loss) on:
Investments (6,943,236)
Futures (515,372)
Options written 11,670
Translation of assets and liabilities denominated in foreign
currencies (69,369)
------------------------------------------------------------------------------
Net realized and unrealized loss on investment, futures, options
and foreign currency related transactions (1,503,465)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,957,020
------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $11,258.
(b) Taxes withheld on interest were $175.
(c) The distribution and service fees for Class A, Class B and Class C were
$268,705, $247,828, and $72,293, respectively.
(d) The transfer agent fees for Class A, Class B, Class C, Institutional
Class and Service Class were $204,217, $47,087, $13,736, $1,303 and $36,
respectively.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month For the
Period Ended Year Ended
August 31, 1999 January 31, 1999
<S> <C> <C>
From operations:
Net investment income $ 3,460,485 $ 6,835,375
Net realized gain (loss) from investment,
futures, options and foreign currency
related transactions 6,012,842 (3,394,596)
Net change in unrealized (loss) gain on
investments, futures, options and
translation of assets and liabilities
denominated in foreign currencies (7,516,307) 4,114,362
------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 1,957,020 7,555,141
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (2,035,907) (5,454,393)
Class B shares (312,410) (858,147)
Class C shares (88,561) (325,754)
Institutional shares (66,533) (294,710)
Service shares (2,011) (7,267)
------------------------------------------------------------------------------
Total distributions to shareholders (2,505,422) (6,940,271)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 22,988,417 116,979,156
Reinvestment of dividends and
distributions 2,398,095 6,132,572
Cost of shares repurchased (60,433,602) (69,069,832)
------------------------------------------------------------------------------
Net (decrease) increase in net assets
resulting from share transactions (35,047,090) 54,041,896
------------------------------------------------------------------------------
TOTAL (DECREASE) INCREASE (35,595,492) 54,656,766
------------------------------------------------------------------------------
Net assets:
Beginning of period 259,165,011 204,508,245
------------------------------------------------------------------------------
End of period $223,569,519 $259,165,011
------------------------------------------------------------------------------
Accumulated undistributed net investment
income $ 1,302,040 $ 375,856
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements
August 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 Balanced Fund
(the "Fund"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year-end of the Funds
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Trusts's Board of Trust-
ees.
Investing in emerging markets may involve special risks and considerations
not typically associated with investing in the United States. These risks in-
clude revaluation of currencies, high rates of inflation, repatriation re-
strictions on income and capital, and adverse political and economic
developments. Moreover, securities issued in these markets may be less liq-
uid, subject to government ownership controls, delayed settlements, and their
prices more volatile than those of comparable securities in the United
States.
B. 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. Howev-
er, the Fund does not amortize premiums on U.S. Government and corporate
bonds.
C. Mortgage Dollar Rolls -- The Fund may enter into mortgage "dollar rolls"
in which the Fund sells securities in the current month for delivery and si-
multaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. For financial reporting and tax reporting purposes, the Fund treats
mortgage dollar rolls as two separate transactions; one involving the pur-
chase of a security and a separate transaction involving a sale.
D. Foreign Currency Translations -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, foreign currency and other assets and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) currency gains and losses between trade date
and settlement
16
<PAGE>
GOLDMAN SACHS BALANCED FUND
date on investment securities transactions and forward exchange contracts;
and (iii) gains and losses from the difference between amounts of dividends
and interest recorded and the amounts actually received.
E. 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 forward contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable trans-
lation rates. The Fund realizes gains or losses at the time a forward con-
tract is offset by entry into a closing transaction or extinguished by
delivery of the currency. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
F. Short Securities Positions -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked-
to-market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and the sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
G. Option Accounting Principles -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
H. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into these transactions, the Fund is
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
I. Forward Sales Contracts -- The Fund may enter into forward security sales
of mortgage backed securities in which the Fund sells securities in the cur-
rent month for delivery of securities defined by pool stipulated characteris-
tics on a specified future date. The value of the contract is recorded as a
liability on the Fund's records with the difference between its market value
and cash proceeds received being recorded as an unrealized gain or loss.
Gains or losses are realized upon delivery of the security.
17
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
August 31, 1999
J. 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $230,983,624. Accordingly, the gross unrealized gain
on investments was $17,288,053 and the gross unrealized loss on investments
was $10,982,895 resulting in a net unrealized gain of $6,305,158.
K. Deferred Organization Expenses -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
L. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of shares of the Fund separately bears its respective
class-specific transfer agency fees.
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management, ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to the Fund.
Under the Agreement, the adviser, subject to the general supervision of the
Trust's Board of Trustees, manages the Fund's portfolio. As compensation for
the services rendered pursuant to the Agreement, the assumption of the ex-
penses related thereto and administering the Fund's business affairs, includ-
ing providing facilities, the adviser is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to .65% of the average daily net
assets of the Fund.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, transfer
agent fees, taxes, interest, brokerage, litigation, Service share fees, in-
demnification costs and other extraordinary expenses), to the extent that
such expenses exceed, on an annual basis, .01% of the average daily net as-
sets of the Fund. For the period ended August 31, 1999, Goldman Sachs has
agreed to reimburse approximately $308,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 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 $46,000 during the period
ended August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C Shares and .04% of the average daily
net assets for Institutional and Service Shares.
18
<PAGE>
GOLDMAN SACHS BALANCED FUND
The Trust, on behalf of the Fund, has adopted a Service Plan. This plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
..50% (on a annualized basis), of the average daily net asset value of the
Service shares.
As of August 31, 1999, the amounts owed to affiliates were approximately
$126,000, $81,000 and $36,000 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, futures and options) for the period ended August 31, 1999,
were $212,138,434 and $245,629,642, respectively. Included in these amounts
are purchases and proceeds of sales or maturities of governmental securities
in the amounts of $110,169,982 and $114,104,720, respectively.
For the period ended August 31, 1999, Goldman Sachs earned approximately
$19,000 of brokerage commissions from portfolio transactions.
The Fund had the following outstanding forward foreign currency exchange
contracts:
<TABLE>
<CAPTION>
Open Forward Foreign Value on Current Unrealized Unrealized
Currency Sale Contracts Settlement Date Value Gain Loss
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar expiring 9/13/99 $1,388,771 $1,341,469 $47,302 $ --
Euro currency expiring 9/14/99 2,489,205 2,578,374 -- 89,169
------------------------------------------------------------------------------------
Total forward open
foreign currency sale contracts $3,877,976 $3,919,843 $47,302 $89,169
------------------------------------------------------------------------------------
</TABLE>
The contractual amounts of the forward foreign currency exchange contracts
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risk associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At August 31,
1999, the Fund had sufficient cash and securities to cover any commitments
under these contracts. The Fund has recorded a "Receivable for forward for-
eign currency exchange contracts" and a "Payable for forward foreign currency
exchange contracts" of $47,302 and $89,169, respectively, relating to open
forward foreign currency exchange contracts in the accompanying Statement of
Assets and Liabilities.
For the period ended August 31, 1999, written call option transactions in
the Fund were as follows:
<TABLE>
<CAPTION>
Written Options Number of Contracts Premium Received
------------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding, beginning of period -- $ --
Options written 329 71,457
Options expired (157) (36,437)
------------------------------------------------------------------------------
Balance outstanding, end of period 172 $ 35,020
------------------------------------------------------------------------------
</TABLE>
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("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 risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with
19
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
August 31, 1999
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. At August 31, 1999 open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of Contracts Settlement Market Unrealized
Type Long/(Short) Month Value Gain (Loss)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Dollars 25 March 2000 $ 5,875,938 $ (42,659)
2 Year U.S. Trea-
sury Note 10 December 1999 2,070,000 (2,405)
5 Year U.S. Trea-
sury Note (63) December 1999 (6,800,063) 226
10 Year U.S.
Treasury Note (7) September 1999 (770,000) 8,378
10 Year U.S.
Treasury Note (16) December 1999 (1,749,750) 6,449
20 Year U.S.
Treasury Bond 124 September 1999 14,178,625 (258,709)
S&P 500 Index 5 December 1999 1,668,750 (178)
------------------------------------------------------------------------------
$14,473,500 $(288,898)
------------------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $18,500,000 in principal
amount. At August 31, 1999, the following repurchase agreements held in this
joint account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreement Amount Rate Date Cost
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
--------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
--------------------------------------------------------------------------------------
Deutsche Bank Securities, Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
--------------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
--------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
--------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
--------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GOLDMAN SACHS BALANCED FUND
8 CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$10,788 from paid-in capital and $28,879 from accumulated undistributed net
investment income to accumulated net realized gain from investment, options,
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.
9. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month Period For the Year Ended
Ended August 31, 1999 January 31, 1999
---------------------------- ------------------------
Shares Dollars Shares Dollars
-----------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 690,947 $ 14,334,527 3,748,039 $ 76,506,479
Reinvestments of divi-
dends and distributions 96,208 1,976,640 241,188 4,838,697
Shares repurchased (1,873,693) (38,906,818) (2,655,783) (53,412,703)
-----------------------------------------------------
(1,086,538) (22,595,651) 1,333,444 27,932,473
--------------------------------------------------------------------------------
Class B Shares
Shares sold 222,544 4,589,209 1,305,421 26,769,887
Reinvestments of divi-
dends and distributions 13,623 279,018 37,761 751,177
Shares repurchased (392,771) (8,099,668) (357,101) (7,118,524)
-----------------------------------------------------
(156,604) (3,231,441) 986,081 20,402,540
--------------------------------------------------------------------------------
Class C Shares
Shares sold 109,915 2,268,065 532,005 10,982,657
Reinvestments of divi-
dends and distributions 3,746 76,630 13,484 268,120
Shares repurchased (258,346) (5,306,034) (281,904) (5,604,206)
-----------------------------------------------------
(144,685) (2,961,339) 263,585 5,646,571
--------------------------------------------------------------------------------
Institutional Shares
Shares sold 86,577 1,782,979 108,930 2,247,577
Reinvestments of divi-
dends and distributions 3,129 63,796 13,275 267,312
Shares repurchased (365,015) (7,628,710) (143,532) (2,931,934)
-----------------------------------------------------
(275,309) (5,781,935) (21,327) (417,045)
--------------------------------------------------------------------------------
Service Shares
Shares sold 682 13,637 22,926 472,556
Reinvestments of divi-
dends and distributions 99 2,011 375 7,266
Shares Repurchased (24,012) (492,372) (123) (2,465)
-----------------------------------------------------
(23,231) (476,724) 23,178 477,357
--------------------------------------------------------------------------------
NET (DECREASE) INCREASE (1,686,367) $ (35,047,090) 2,584,961 $ 54,041,896
--------------------------------------------------------------------------------
</TABLE>
Goldman Sachs Balanced Fund -- Tax Information (unaudited)
During the tax year ended August 31, 1999, 17.18% of the ordi-
nary income dividends paid from net investment income by the Fund
qualify for the dividends received deduction available to corpora-
tions.
21
<PAGE>
GOLDMAN SACHS BALANCED FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset In excess Net increase
value, Net Net realized From net of net (decrease)
beginning investment and unrealized investment investment From net in net asset
of period income gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $20.48 $0.32 $(0.19) $(0.23) $ -- $ -- $(0.10)
1999 - Class B Shares 20.37 0.22 (0.18) (0.15) -- -- (0.11)
1999 - Class C Shares 20.34 0.23 (0.19) (0.15) -- -- (0.11)
1999 - Institutional
Shares 20.48 0.53 (0.35) (0.27) -- -- (0.09)
1999 - Service Shares 20.47 1.22 (1.14) (0.18) -- -- (0.10)
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 20.29 0.58 0.20 (0.59) -- -- 0.19
1999 - Class B Shares 20.20 0.41 0.21 (0.45) -- -- 0.17
1999 - Class C Shares 20.17 0.41 0.21 (0.45) -- -- 0.17
1999 - Institutional
Shares 20.29 0.64 0.20 (0.65) -- -- 0.19
1999 - Service Shares 20.28 0.53 0.21 (0.55) -- -- 0.19
----------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 18.78 0.57 2.66 (0.56) -- (1.16) 1.51
1998 - Class B Shares 18.73 0.50 2.57 (0.42) (0.02) (1.16) 1.47
1998 - Class C Shares
(commenced August 15,
1997) 21.10 0.25 0.24 (0.22) (0.04) (1.16) (0.93)
1998 - Institutional
Shares (commenced August
15, 1997) 21.18 0.26 0.32 (0.23) (0.08) (1.16) (0.89)
1998 - Service Shares
(commenced August 15,
1997) 21.18 0.22 0.32 (0.22) (0.06) (1.16) (0.90)
----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 17.31 0.66 2.47 (0.66) -- (1.00) 1.47
1997 - Class B Shares
(commenced May 1, 1996) 17.46 0.42 2.34 (0.42) (0.07) (1.00) 1.27
----------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 14.22 0.51 3.43 (0.50) -- (0.35) 3.09
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income to expenses to income to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate(e)
<S> <C> <C> <C> <C> <C> <C> <C>
$20.38 0.62%(d) $169,395 1.10%(c) 2.58%(c) 1.32%(c) 2.36%(c) 90.41%(d)
20.26 0.20(d) 40,515 1.85(c) 1.83(c) 2.07(c) 1.61(c) 90.41(d)
20.23 0.18(d) 11,284 1.85(c) 1.84(c) 2.07(c) 1.62(c) 90.41(d)
20.39 0.86(d) 2,361 0.70(c) 2.96(c) 0.92(c) 2.74(c) 90.41(d)
20.37 0.39(d) 15 1.20(c) 2.46(c) 1.42(c) 2.24(c) 90.41(d)
20.48 3.94 192,453 1.04 2.90 1.45 2.49 175.06
20.37 3.15 43,926 1.80 2.16 2.02 1.94 175.06
20.34 3.14 14,286 1.80 2.17 2.02 1.95 175.06
20.48 4.25 8,010 0.73 3.22 0.95 3.00 175.06
20.47 3.80 490 1.23 2.77 1.45 2.55 175.06
- ---------------------------------------------------------------------------------------------------------------------------------
20.29 17.54 163,636 1.00 2.94 1.57 2.37 190.43
20.20 16.71 23,639 1.76 2.14 2.07 1.83 190.43
20.17 2.49(d) 8,850 1.77(c) 2.13(c) 2.08(c) 1.82(c) 190.43
20.29 2.93(d) 8,367 0.76(c) 3.13(c) 1.07(c) 2.82(c) 190.43
20.28 2.66(d) 16 1.26(c) 2.58(c) 1.57(c) 2.27(c) 190.43
- ---------------------------------------------------------------------------------------------------------------------------------
18.78 18.59 81,410 1.00 3.76 1.77 2.99 208.11
18.73 16.22(d) 2,110 1.75(c) 2.59(c) 2.27(c) 2.07(c) 208.11
- ---------------------------------------------------------------------------------------------------------------------------------
17.31 28.10 50,928 1.00 3.65 1.90 2.75 197.10
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS BALANCED FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
Goldman Sachs Trust -- Balanced Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Balanced Fund, one of the portfolios constituting Goldman Sachs
Trust -- Equity Funds (a Delaware Business Trust), including the statement of
investments, as of August 31, 1999, and the related statement of operations,
the statements of changes in net assets and the financial highlights for the
periods presented. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to ex-
press 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 August 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 Balanced Fund as of August 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
October 8, 1999
24
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 89.8%
<C> <S> <C>
Banks - 3.8%
8,950 Citigroup, Inc. $ 397,716
5,900 State Street Corp. 353,262
2,500 Wells Fargo & Co. 99,531
-----------
850,509
-----------------------------------------------------------
Chemical - 0.4%
1,492 Du Pont (E.I.) de Nemours & Co. 94,556
-----------------------------------------------------------
Computer Hardware - 5.6%
6,500 Cisco Systems, Inc.* 440,781
3,500 EMC Corp.* 210,000
2,600 International Business Machines, Inc. 323,863
3,400 Sun Microsystems, Inc.* 270,300
-----------
1,244,944
-----------------------------------------------------------
Computer Software - 4.3%
2,500 CheckFree Holdings Corp.* 73,125
9,500 Microsoft Corp. * 879,344
-----------
952,469
-----------------------------------------------------------
Consumer Services - 2.1%
15,000 Service Corp. International 207,188
5,900 Valassis Communications, Inc.* 258,125
-----------
465,313
-----------------------------------------------------------
Drugs - 10.6%
6,800 American Home Products Corp. 282,200
7,700 Bristol-Myers Squibb Co. 541,887
1,800 Eli Lilly & Co. 134,325
1,400 Merck & Co. 94,063
12,500 Pfizer, Inc. 471,875
7,700 Schering-Plough Corp. 404,731
6,300 Warner-Lambert Co. 417,375
-----------
2,346,456
-----------------------------------------------------------
Electronics Equipment - 2.4%
2,700 QUALCOMM, Inc.* 518,906
-----------------------------------------------------------
Electrical Utilities - 3.0%
11,000 AES Corp.* 667,562
-----------------------------------------------------------
Energy Resources - 0.3%
2,088 Conoco, Inc. Class B 56,115
-----------------------------------------------------------
Environmental Services - 0.2%
2,100 Waste Management, Inc. 45,806
-----------------------------------------------------------
Financial Services - 5.6%
9,000 Federal Home Loan Mortgage Corp. 463,500
7,700 Federal National Mortgage Association 478,362
12,200 MBNA Corp. 301,188
-----------
1,243,050
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Food & Beverage - 4.4%
6,100 Coca-Cola Co. $ 364,856
8,000 Nabisco Group Holdings Corp. 142,000
5,200 Pepsico, Inc. 177,450
3,800 William Wrigley Jr. Co. 297,588
-----------
981,894
-----------------------------------------------------------------------
Heavy Electrical - 1.9%
3,800 General Electric Co. 426,788
-----------------------------------------------------------------------
Home Products - 6.5%
7,700 Avon Products, Inc. 337,837
8,700 Colgate Palmolive Co. 465,450
4,600 Procter & Gamble Co. 456,550
6,800 Ralston-Ralston Purina Group 187,000
-----------
1,446,837
-----------------------------------------------------------------------
Hotel - 1.6%
8,300 Marriott International, Inc. 284,275
2,700 Starwood Hotels & Resorts Worldwide, Inc. Class B 64,294
-----------
348,569
-----------------------------------------------------------------------
Information Services - 3.3%
2,708 At Home Corp. Series A* 108,658
9,700 First Data Corp. 426,800
3,500 Outdoor Systems Co.* 113,094
700 VeriSign, Inc.* 75,819
-----------
724,371
-----------------------------------------------------------------------
Leisure - 0.2%
1,900 Hasbro, Inc. 46,431
-----------------------------------------------------------------------
Media - 13.2%
7,100 AH Belo Corp. 134,456
22,600 AT&T Corp.-Liberty Media Group* 723,200
9,800 CBS, Inc.* 460,600
2,700 Comcast Corp. 88,088
1,200 EchoStar Communications Corp.* 100,350
4,100 Infinity Broadcasting Corp.* 110,956
8,300 MediaOne Group, Inc. * 545,725
3,500 The Walt Disney Co. 97,125
11,000 Time Warner, Inc. 652,437
-----------
2,912,937
-----------------------------------------------------------------------
Medical Products - 1.3%
2,700 Johnson & Johnson 276,075
-----------------------------------------------------------------------
Oil Services - 1.4%
4,500 Schlumberger Ltd. 300,375
-----------------------------------------------------------------------
Property Insurance - 2.8%
6,300 AMBAC Financial Group, Inc. 332,719
3,200 American International Group, Inc. 296,600
-----------
629,319
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Publishing - 2.9%
4,500 Gannett Co. $ 305,719
5,200 New York Times Co. 203,125
1,400 Tribune Co. 130,637
-----------
639,481
--------------------------------------------------------
Semiconductors - 2.4%
6,500 Intel Corp. 534,219
--------------------------------------------------------
Specialty Retail - 6.7%
6,300 CVS Corp. 262,631
4,800 Home Depot, Inc. 293,400
4,500 Tandy Corp. 212,625
8,600 Wal-Mart Stores, Inc. 381,088
14,000 Walgreen Co. 324,625
-----------
1,474,369
--------------------------------------------------------
Telephone - 2.1%
6,100 MCI Worldcom, Inc.* 462,075
--------------------------------------------------------
Wireless - 0.8%
1,800 Sprint Corp. (PCS Group) Series 1* 107,550
1,000 Telephone & Data Systems, Inc. 69,625
-----------
177,175
--------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $20,170,418) $19,866,601
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 8.1%
<S> <C> <C> <C>
Joint Repurchase Agreement
$1,800,000 5.52% 09/01/1999 $ 1,800,000
------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,800,000) $ 1,800,000
------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $21,970,418) $21,666,601
------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$21,970,418) $21,666,601
Cash 213,713
Receivables:
Investment securities sold 47,623
Dividends and interest 9,440
Fund shares sold 1,574,010
Reimbursement from investment adviser 188,359
-----------------------------------------------------------------------------
Total assets 23,699,746
-----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 1,328,739
Amounts owed to affiliates 22,776
Accrued expenses and other liabilities 213,411
-----------------------------------------------------------------------------
Total liabilities 1,564,926
-----------------------------------------------------------------------------
Net Assets:
Paid-in capital 22,510,097
Accumulated undistributed net investment income 2,182
Accumulated net realized loss from investment transactions (73,642)
Net unrealized loss on investments (303,817)
-----------------------------------------------------------------------------
NET ASSETS $22,134,820
-----------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $ 10.06
Class B $ 10.04
Class C $ 10.05
Institutional $ 10.07
Service $ 10.06
-----------------------------------------------------------------------------
Shares outstanding:
Class A 1,031,250
Class B 338,028
Class C 237,714
Institutional 594,127
Service 150
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 2,201,269
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $10.65. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Statement of Operations
For the Period Ended August 31, 1999(a)
<TABLE>
<S> <C>
Investment income:
Dividends $ 18,353
Interest 19,206
------------------------------------------------------------------------
Total income 37,559
------------------------------------------------------------------------
Expenses:
Registration fees 136,700
Custodian fees 69,516
Professional fees 34,741
Management fees 29,606
Printing fees 28,000
Distribution and service fees(b) 6,989
Transfer agent fees(c) 3,326
Service share fees 2
Other 34,999
------------------------------------------------------------------------
Total expenses 343,879
------------------------------------------------------------------------
Less -- expenses reimbursed (303,839)
------------------------------------------------------------------------
Net expenses 40,040
------------------------------------------------------------------------
NET INVESTMENT LOSS (2,481)
------------------------------------------------------------------------
Realized and unrealized loss on investment transactions:
Net realized loss from:
Investment transactions (73,642)
Net change in unrealized loss on:
Investments (303,817)
------------------------------------------------------------------------
Net realized and unrealized loss on investment transactions (377,459)
------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(379,940)
------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 24, 1999 for all share classes.
(b) Class A, Class B and Class C had distribution and service fees of $2,430,
$2,398 and $2,161, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $1,845, $456, $411, $613 and $1, respectively.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Statement of Changes in Net Assets
For the Period Ended August 31, 1999(a)
<TABLE>
<S> <C>
From operations:
Net investment loss $ (2,481)
Net realized loss from investment transactions (73,642)
Net change in unrealized loss on investments (303,817)
---------------------------------------------------------------------------
Net decrease in net assets resulting from operations (379,940)
---------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 22,791,503
Reinvestment of dividends and distributions --
Cost of shares repurchased (276,743)
---------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 22,514,760
---------------------------------------------------------------------------
TOTAL INCREASE 22,134,820
---------------------------------------------------------------------------
Net assets:
Beginning of period --
---------------------------------------------------------------------------
End of period $22,134,820
---------------------------------------------------------------------------
Accumulated undistributed net investment income $ 2,182
---------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 24, 1999 for all share classes.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Notes to Financial Statements
August 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 Strategic
Growth Fund (the "Fund"). The Fund is a diversified portfolio offering five
classes of shares -- Class A, Class B, Class C, Institutional and Service.
The Fund commenced operations on May 24, 1999.
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. Actual
results could differ from those estimates.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Trust's Board of Trustees.
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
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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 and interest recorded and the amounts actually received.
D. 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
E. 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
10
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
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 in-
creased by the premium originally paid.
F. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
G. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial 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.
The Fund had approximately $69,000 at August 31, 1999 (the Fund's tax year-
end) of capital loss carry forward expiring in 2007 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $21,975,389. Accordingly, the gross unrealized gain on
investments was $733,265 and the gross unrealized loss on investments was
$1,042,053 resulting in a net unrealized loss of $308,788.
H. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of shares of the Fund separately bears its respective
class-specific transfer agency fees.
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to the Fund.
Under the Agreement, the adviser, subject to the general supervision of the
Trust's Board of Trustees, manages the Fund's portfolio. As compensation for
the services rendered pursuant to the Agreement, the assumption of the ex-
penses related thereto and administering the Fund's business affairs, includ-
ing providing facilities, the adviser 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, transfer
agent fees, taxes, interest, brokerage, litigation, Service share fees, in-
demnification costs and other extraordinary expenses) to the extent such ex-
penses exceed, on an annual basis, 0.00% of the average daily net assets of
the Fund. For the period ended August 31, 1999, Goldman Sachs reimbursed ap-
proximately $304,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 serves as the distributor of shares of the Fund pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $68,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$16,000, $5,000 and $2,000 for management, distribution and service and
transfer agent fees, respectively.
11
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments) for the period ended August 31, 1999, were $21,010,239 and
$766,179, respectively.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Fund daily, depending on the
daily fluctuations in the value of the contracts, and are recorded for finan-
cial reporting purposes as unrealized gains or losses. When contracts are
closed, the Fund realizes a gain or loss which is reported in the Statement
of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, there were no open futures
contracts.
5. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted and a $250,000,000 com-
mitted, unsecured revolving line of credit facility. Under the most restric-
tive arrangement, the Fund must own securities having a market value in
excess of 400% of the total bank borrowings. These facilities are to be used
solely for temporary or emergency purposes. The interest rate on borrowings
is based on the Federal Funds rate. The committed facility also requires a
fee to be paid to the Fund based on the amount of the commitment which has
not been utilized. During the period ended August 31, 1999, the Fund did not
have any borrowings under these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $1,800,000 in principal amount.
At August 31, 1999, the following repurchase agreements held in this joint
account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America
Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
-----------------------------------------------------------------------------------
Bear Stearns & Co.,
Inc. 300,000,000 5.51 09/01/1999 300,000,000
-----------------------------------------------------------------------------------
Deutsche Bank
Securities, Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
-----------------------------------------------------------------------------------
Lehman Brothers,
Inc. 300,000,000 5.65 09/01/1999 300,000,000
-----------------------------------------------------------------------------------
Salomon Smith
Barney Holdings,
Inc. 200,000,000 5.50 09/01/1999 200,000,000
-----------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
-----------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
8. CERTAIN RECLASSIFICATIONS AND OTHER MATTERS
In accordance with Statement of Position 93-2, the Fund has reclassified
$4,663 from paid-in capital to accumulated undistributed net investment in-
come. This reclassification has no impact on the net asset value of the Fund
and is designed to present the Fund's capital accounts on a tax basis.
As of August 31, 1999, the Goldman Sachs Group was the beneficial owner of
approximately 23% of the outstanding share of the Fund.
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended August 31, 1999 is as follows (a):
<TABLE>
<CAPTION>
Shares Dollars
------------------------
<S> <C> <C>
Class A Shares
Shares sold $1,045,628 $10,768,656
Reinvestments of dividends and distributions -- --
Shares repurchased (14,378) (145,441)
------------------------
1,031,250 10,623,215
----------------------------------------------------------------------
Class B Shares
Shares sold 351,153 3,596,720
Reinvestments of dividends and distributions -- --
Shares repurchased (13,125) (131,280)
------------------------
338,028 3,465,440
----------------------------------------------------------------------
Class C Shares
Shares sold 237,714 2,435,567
Reinvestments of dividends and distributions -- --
Shares repurchased -- (2)
------------------------
237,714 2,435,565
----------------------------------------------------------------------
Institutional Shares
Shares sold 594,129 5,989,060
Reinvestments of dividends and distributions -- --
Shares repurchased (2) (20)
------------------------
594,127 5,989,040
----------------------------------------------------------------------
Service Shares
Shares sold 150 1,500
Reinvestments of dividends and distributions -- --
Shares repurchased -- --
------------------------
150 1,500
----------------------------------------------------------------------
NET INCREASE 2,201,269 $22,514,760
----------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 24, 1999 for all share classes.
13
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
----------------------------- ------------------------------------
Net asset Net In excess
value, investment From net of net Net increase
beginning income Net realized and investment investment From net in net asset
of period (loss) unrealized gain income income realized gains value
FOR THE PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares
(commenced May 24) $10.00 $ -- $0.06 $-- $-- $-- $0.06
1999 - Class B Shares
(commenced May 24) 10.00 (0.03)(e) 0.07(e) -- -- -- 0.04
1999 - Class C Shares
(commenced May 24) 10.00 (0.03)(e) 0.08(e) -- -- -- 0.05
1999 - Institutional
Shares (commenced May
24) 10.00 0.01 0.06 -- -- -- 0.07
1999 - Service Shares
(commenced May 24) 10.00 (0.01) 0.07 -- -- -- 0.06
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver of
fees or expense limitations
-----------------------------------------
Net assets Ratio of
Net asset at end of Ratio of net investment Ratio of Ratio of Portfolio
value, end Total period net expenses to income (loss) to expenses to net investment loss to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$10.06 0.60%(d) $10,371 1.44%(c) (0.17)%(c) 11.70%(c) (10.43)%(c) 6.98%(d)
10.04 0.40(d) 3,393 2.19(c) (0.97)(c) 12.45(c) (11.23)(c) 6.98(d)
10.05 0.50(d) 2,388 2.19(c) (0.99)(c) 12.45(c) (11.25)(c) 6.98(d)
10.07 0.70(d) 5,981 1.04(c) 0.24(c) 11.30(c) (10.02)(c) 6.98(d)
10.06 0.60(d) 2 1.54(c) (0.24)(c) 11.80(c) (10.50)(c) 6.98(d)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Goldman Sachs Strategic Growth Fund -- Tax Information (unaudited)
During the tax year ended August 31, 1999, 100% of the ordinary income div-
idends paid from net investment income by the Fund qualify for the dividends
received deduction available to corporations.
15
<PAGE>
GOLDMAN SACHS STRATEGIC GROWTH FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust -- Strategic
Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Strategic Growth Fund, one of the portfolios constituting
Goldman Sachs Trust -- Equity Funds (a Delaware Business Trust), including
the statement of investments, as of August 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 August 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 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 Strategic Growth Fund as of August 31, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the period presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 8, 1999
16
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 96.5%
<C> <S> <C>
Apparel - 2.6%
425,200 Fruit of the Loom, Inc.* $ 2,976,400
356,300 Reebok International Ltd.* 4,208,794
------------
7,185,194
--------------------------------------------------------------
Banks - 5.0%
388,500 Pacific Century Financial Corp. 7,211,531
98,900 Republic of New York Corp. 6,861,188
------------
14,072,719
--------------------------------------------------------------
Business Services - 0.6%
114,000 Modis Professional Services, Inc.* 1,802,625
--------------------------------------------------------------
Chemical - 1.9%
202,900 IMC Global, Inc. 3,233,719
93,300 Millennium Chemicals, Inc. 2,145,900
------------
5,379,619
--------------------------------------------------------------
Clothing - 0.5%
32,100 Ross Stores, Inc. 1,336,163
--------------------------------------------------------------
Computer Hardware - 2.1%
352,000 Inacom Corp.* 3,432,000
15,400 NCR Corp.* 673,750
67,200 Quantum Corp. - DLT & Storage Systems* 1,230,600
73,100 Quantum Corp. - Hard Disk Drive* 520,837
------------
5,857,187
--------------------------------------------------------------
Computer Software - 0.7%
234,400 Mentor Graphics Corp.* 2,102,275
--------------------------------------------------------------
Consumer Durables - 1.6%
193,600 Miller Herman, Inc. 4,561,700
--------------------------------------------------------------
Defense/Aerospace - 2.3%
89,200 Northrop Grumman Corp. 6,467,000
--------------------------------------------------------------
Department Store - 3.1%
155,700 Dillard's, Inc. 3,658,950
114,400 Federated Department Stores, Inc.* 5,262,400
------------
8,921,350
--------------------------------------------------------------
Drugs - 2.6%
318,600 Bergen Brunswig Corp. 4,918,388
298,700 Perrigo Co.* 2,370,931
------------
7,289,319
--------------------------------------------------------------
Electrical Utilities - 4.0%
312,600 CMP Group, Inc. 8,303,437
166,300 Northeast Utilities* 2,920,644
------------
11,224,081
--------------------------------------------------------------
Energy Resources - 2.1%
143,000 Occidental Petroleum Corp. 3,101,312
114,800 Tosco Corp. 2,927,400
------------
6,028,712
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Environmental Services - 2.1%
214,500 Allied Waste Industries, Inc.* $ 2,734,875
291,200 Republic Services, Inc.* 3,166,800
------------
5,901,675
-------------------------------------------------------------------------
Financial Services - 3.4%
319,700 Sovereign Bancorp, Inc. 3,206,991
283,275 Waddell & Reed Financial, Inc. Class B 6,462,211
------------
9,669,202
-------------------------------------------------------------------------
Food & Beverage - 4.2%
276,570 Archer Daniels Midland Co. 3,595,410
432,400 Fleming Companies, Inc. 5,215,825
163,800 Nabisco Group Holdings Corp. 2,907,450
------------
11,718,685
-------------------------------------------------------------------------
Forest Product - 0.8%
97,600 Georgia-Pacific Corp. (Timber Group) 2,348,500
-------------------------------------------------------------------------
Heavy Electrical - 3.1%
2,100 Cooper Industries, Inc. 108,938
348,100 UCAR International, Inc.* 8,484,937
------------
8,593,875
-------------------------------------------------------------------------
Heavy Machinery - 1.3%
361,400 Agco Corp. 3,726,938
-------------------------------------------------------------------------
Hotel - 1.9%
51,300 Promus Hotel Corp.* 1,490,906
159,900 Starwood Hotels & Resorts Worldwide, Inc. Class B 3,807,619
------------
5,298,525
-------------------------------------------------------------------------
Industrial Parts - 1.9%
59,200 Stanley Works 1,561,400
244,900 Unova, Inc.* 3,688,806
------------
5,250,206
-------------------------------------------------------------------------
Information Services - 0.7%
74,700 Dun & Bradstreet Corp. 1,956,206
-------------------------------------------------------------------------
Insurance - 1.3%
77,100 Radian Group 3,570,694
-------------------------------------------------------------------------
Life Insurance - 2.2%
56,400 Aetna, Inc. 4,385,100
30,200 Reliastar Financial Corp. 1,360,887
13,700 Torchmark Corp. 390,450
------------
6,136,437
-------------------------------------------------------------------------
Media - 2.5%
177,700 AH Belo Corp. Series A 3,365,194
72,900 Media General, Inc. 3,572,100
------------
6,937,294
-------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Medical Providers - 8.6%
143,000 HCR Manor Care, Inc.* $ 2,797,437
675,800 Health Management Association, Inc.* 5,406,400
418,400 Healthsouth Corp.* 3,425,650
163,300 Quest Diagnostics, Inc.* 4,317,244
304,800 Tenet Healthcare Corp.* 5,314,950
358,700 Total Renal Care Holdings* 2,892,019
------------
24,153,700
------------------------------------------------------------
Motor Vehicle - 5.0%
17,000 Dana Corp. 740,563
142,900 Federal-Mogul Corp. 6,519,812
105,800 Lear Corp.* 4,251,837
46,500 TRW, Inc. 2,534,250
------------
14,046,462
------------------------------------------------------------
Oil Refining - 1.1%
49,400 USX-Marathon Group, Inc. 1,537,575
69,600 Valero Energy Corp. 1,479,000
------------
3,016,575
------------------------------------------------------------
Property Insurance - 8.6%
78,800 CNA Financial Corp.* 2,866,350
154,400 Everest Reinsurance Holdings, Inc. 4,284,600
98,400 Loews Corp. 7,724,400
104,800 Mercury General Corp. 3,170,200
198,500 Old Republic International Corp. 3,076,750
61,800 XL Capital Ltd. 3,109,312
------------
24,231,612
------------------------------------------------------------
Publishing - 1.6%
72,100 R.R. Donnelley & Sons Co. 2,262,137
39,900 Times Mirror Co. Series A 2,304,225
------------
4,566,362
------------------------------------------------------------
Railroads - 1.3%
157,000 Canadian Pacific Ltd. 3,679,688
------------------------------------------------------------
Restaurants - 0.7%
156,500 CBRL Group, Inc. 2,054,063
------------------------------------------------------------
Semiconductors - 4.5%
179,900 Avnet, Inc. 7,960,575
223,237 Vishay Intertechnology, Inc.* 4,785,643
------------
12,746,218
------------------------------------------------------------
Specialty Retail - 2.5%
124,300 Autozone, Inc.* 2,959,894
299,100 Toys "R' Us, Inc.* 4,131,318
------------
7,091,212
------------------------------------------------------------
Steel - 1.0%
281,500 Ispat International NV 2,920,563
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Shipping/Logistics - 1.9%
65,300 CNF Transportation, Inc. $ 2,542,619
127,700 Ryder Systems, Inc. 2,817,381
------------
5,360,000
-------------------------------------------------------------
Tobacco - 4.1%
165,867 R.J. Reynolds Tobacco Holdings, Inc.* 4,550,976
219,300 UST, Inc. 6,949,069
------------
11,500,045
-------------------------------------------------------------
Unit Trust - 1.1%
40,711 Mid Cap Spdr Trust Unit Series 1 3,012,614
-------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $286,027,328) $271,715,295
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 4.7%
<S> <C> <C> <C>
Joint Repurchase Agreement
$13,300,000 5.52% 09/01/1999 $ 13,300,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $13,300,000) $ 13,300,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $299,327,328) $285,015,295
------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$299,327,328) $285,015,295
Cash 160,027
Receivables:
Investment securities sold 982,971
Dividends and interest 289,456
Fund shares sold 527,178
Reimbursement from investment adviser 38,901
Deferred organization expenses, net 15,801
Other assets 13,092
------------------------------------------------------------------------------
Total assets 287,042,721
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 4,865,367
Fund shares repurchased 391,827
Amounts owed to affiliates 256,492
Accrued expenses and other liabilities 78,345
------------------------------------------------------------------------------
Total liabilities 5,592,031
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 299,344,740
Accumulated undistributed net investment income 1,394,240
Accumulated net realized loss from investment, options and
foreign currency related transactions (4,976,257)
Net unrealized loss on investments (14,312,033)
------------------------------------------------------------------------------
NET ASSETS $281,450,690
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $18.42
Class B $18.23
Class C $18.24
Institutional $18.45
Service $18.31
------------------------------------------------------------------------------
Shares outstanding:
Class A 2,665,019
Class B 1,745,500
Class C 537,622
Institutional 10,326,474
Service 10,364
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 15,284,979
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $19.49. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 2,410,349
Interest 608,359
------------------------------------------------------------------------------
Total income 3,018,708
------------------------------------------------------------------------------
Expenses:
Management fees 1,332,432
Distribution and service fees(b) 354,332
Transfer agent fees(c) 166,262
Registration fees 99,373
Custodian fees 63,310
Professional fees 40,309
Amortization of deferred organization expenses 9,970
Trustee fees 6,426
Service share fees 656
Other 100,013
------------------------------------------------------------------------------
Total expenses 2,173,083
------------------------------------------------------------------------------
Less -- expenses reimbursed (134,639)
------------------------------------------------------------------------------
Net expenses 2,038,444
------------------------------------------------------------------------------
NET INVESTMENT INCOME 980,264
------------------------------------------------------------------------------
Realized and unrealized gain on investment and options transac-
tions:
Net realized gain from:
Investment transactions 13,492,070
Options written 203,797
Net change in unrealized loss on:
Investments 11,157,599
------------------------------------------------------------------------------
Net realized and unrealized gain on investment and options
transactions 24,853,466
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $25,833,730
------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $16,497.
(b) Class A, Class B and Class C had distribution and service fees of
$93,442, $200,960, and $59,930, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $71,015, $38,183, $11,387, $45,624 and $53,
respectively.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month For the
Period Ended Year Ended
August 31, 1999 January 31, 1999
<S> <C> <C>
From operations:
Net investment income $ 980,264 $ 2,221,134
Net realized gain from investment,
options and foreign currency related
transactions 13,695,867 6,435,290
Net change in unrealized gain (loss) on
investments and translation of assets and
liabilities denominated in foreign
currencies 11,157,599 (58,648,058)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 25,833,730 (49,991,634)
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares -- (280,574)
Class B shares -- (3,078)
Class C shares -- (9,612)
Institutional shares -- (2,055,325)
Service shares -- (2,638)
In excess of net investment income --
Class A shares -- (6,261)
Class B shares -- (69)
Class C shares -- (214)
Institutional shares -- (45,868)
Service shares -- (59)
From net realized gain on investment and
options transactions
Class A shares (4,331,730) (3,498,210)
Class B shares (2,778,438) (1,854,834)
Class C shares (868,578) (536,322)
Institutional shares (16,406,543) (9,058,413)
Service shares (16,471) (14,028)
------------------------------------------------------------------------------
Total distributions to shareholders (24,401,760) (17,365,505)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 40,482,737 203,854,529
Reinvestment of dividends and
distributions 23,418,266 16,585,994
Cost of shares repurchased (99,881,814) (199,307,468)
------------------------------------------------------------------------------
Net (decrease) increase in net assets
resulting from share transactions (35,980,811) 21,133,055
------------------------------------------------------------------------------
TOTAL DECREASE (34,548,841) (46,224,084)
------------------------------------------------------------------------------
Net assets:
Beginning of period 315,999,531 362,223,615
------------------------------------------------------------------------------
End of period $281,450,690 $ 315,999,531
------------------------------------------------------------------------------
Accumulated undistributed (distributions
in excess of) net investment income $ 1,394,240 $ (31,716)
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Notes to Financial Statements
August 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 Mid Cap Value
Fund (formerly Mid Cap Equity) (the "Fund"). Effective May 1, 1999, the name
of Goldman Sachs Mid Cap Equity Fund was changed to Goldman Sachs Mid Cap
Value Fund. The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year-end of the Funds
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
A. Investment Valuation -- Investments in securities traded on a U.S. or
foreign 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 last bid price. Debt
securities are valued at prices supplied by independent pricing services,
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
last bid price. Short-term debt obligations maturing in sixty days or less
are valued at amortized cost. Securities for which quotations are not readily
available are valued at fair value using methods approved by the Trust's
Board of Trustees.
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 on the identified-cost basis. Dividend income
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 income in
an amount equal to the cash dividend. Interest income is recorded on the ba-
sis 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
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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 and interest recorded and the amounts actually received.
D. 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
11
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Notes to Financial Statements (continued)
August 31, 1999
E. 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 options 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.
F. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
G. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial 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.
The Fund had approximately $4,250,000 at August 31, 1999 (the Fund's tax
year-end) of capital loss carryforward expiring in 2006 for federal tax pur-
poses. This amount is available to be carried forward to offset future capi-
tal gains to the extent permitted by applicable laws or regulations.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $300,053,164. Accordingly, the gross unrealized gain
on investments was $21,113,780 and the gross unrealized loss on investments
was $36,151,649 resulting in a net unrealized loss of $15,037,869.
H. Deferred Organization Expenses -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
I. Expenses -- Expenses incurred by the Trust that do not specifically relate
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 shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of shares of the Fund separately bears its respective
class-specific transfer agency fees.
12
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to the Fund.
Under the Agreement, the adviser, subject to the general supervision of the
Trust's Board of Trustees, manages the Fund's portfolio. As compensation for
the services rendered pursuant to the Agreement, the assumption of the ex-
penses related thereto and administering the Fund's business affairs, includ-
ing providing facilities, the adviser is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to .75% of the average daily net
assets of the Fund.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, transfer
agent fees, taxes, interest, brokerage, litigation, Service share fees, in-
demnification costs and other extraordinary expenses) to the extent such ex-
penses exceed, on an annual basis, .10% of the average daily net assets of
the Fund. For the period ended August 31, 1999, Goldman Sachs has agreed to
reimburse approximately $135,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 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 $25,000 during the period
ended August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the 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 compensation to the service organizations in an amount up to
..50% (on a annualized basis), of the average daily net asset value of the
Service shares.
As of August 31, 1999, the amounts owed to affiliates were approximately
$186,000, $48,000 and $22,000 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) for the period ended August 31, 1999, were $193,764,546 and
$220,633,785, respectively.
For the period ended August 31, 1999, Goldman Sachs earned approximately
$34,000 of brokerage commissions from portfolio transactions.
For the period ended August 31, 1999, written call option transactions in
the Fund were as follows:
<TABLE>
<CAPTION>
Written Options Number of Contracts Premium Received
-----------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding, beginning of pe-
riod -- $ --
Options written 1,339 399,012
Options assigned (242) (130,304)
Options terminated in closing purchase
transactions (660) (128,591)
Options expired (437) (140,117)
-----------------------------------------------------------------------------
BALANCE OUTSTANDING, END OF PERIOD -- $ --
-----------------------------------------------------------------------------
</TABLE>
13
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Notes to Financial Statements (continued)
August 31, 1999
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices or to seek to increase total return. Upon
entering into a futures contract, the Fund is required to deposit with a bro-
ker or the Fund's custodian bank an amount of cash or securities equal to the
minimum "initial margin" requirement of the associated futures exchange. Sub-
sequent payments for futures contracts ("variation margin") are paid or re-
ceived by the Fund daily, depending on the daily fluctuations in the value of
the contracts, and are recorded for financial reporting purposes as
unrealized gains or losses. When contracts are closed, the Fund realizes a
gain or loss which is reported in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, there were no open futures
contracts.
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
14
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $13,300,000 in principal
amount. At August 31, 1999, the following repurchase agreements held in this
joint account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securi-
ties LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
------------------------------------------------------------------------------
Deutsche Bank Securities,
Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
------------------------------------------------------------------------------
Salomon Smith Barney
Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
------------------------------------------------------------------------------
</TABLE>
8. OTHER MATTERS AND CERTAIN RECLASSIFICATIONS
As of August 31, 1999, Goldman, Sachs & Co. Employees Profit Sharing Master
Trust was the beneficial owner of approximately 65% of the outstanding shares
of the Fund.
In accordance with Statement of Position 93-2, the Fund has reclassified
$13,374 from paid-in capital and $432,318 from accumulated net realized loss
from investment, options and foreign currency related transactions to accumu-
lated undistributed net investment income. These reclassifications have no
impact on the net asset value of the Fund and are designed to present the
Fund's capital accounts on a tax basis.
15
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Notes to Financial Statements (continued)
August 31, 1999
9. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month
Period Ended For the Year Ended
August 31, 1999 January 31, 1999
------------------------ -------------------------
Shares Dollars Shares Dollars
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 1,367,506 $ 26,553,720 6,897,312 $ 143,833,096
Reinvestments of divi-
dends and distributions 214,436 4,213,683 198,815 3,620,601
Shares repurchased (2,756,189) (54,358,686) (7,448,798) (147,546,061)
-----------------------------------------------
(1,174,247) (23,591,283) (352,671) (92,364)
-----------------------------------------------------------------------------
Class B Shares
Shares sold 232,886 4,652,883 1,238,560 27,854,158
Reinvestments of divi-
dends and distributions 121,303 2,361,741 82,866 1,503,199
Shares repurchased (675,993) (12,921,155) (586,417) (11,387,076)
-----------------------------------------------
(321,804) (5,906,531) 735,009 17,970,281
-----------------------------------------------------------------------------
Class C Shares
Shares sold 98,072 2,005,005 499,586 10,988,153
Reinvestments of divi-
dends and distributions 33,722 656,882 22,110 401,070
Shares repurchased (184,318) (3,524,952) (230,071) (4,500,505)
-----------------------------------------------
(52,524) (863,065) 291,625 6,888,718
-----------------------------------------------------------------------------
Institutional Shares
Shares sold 348,804 7,246,129 967,052 20,867,072
Reinvestments of divi-
dends and distributions 821,203 16,169,493 607,168 11,044,402
Shares repurchased (1,537,957) (28,938,741) (1,801,025) (35,855,143)
-----------------------------------------------
(367,950) (5,523,119) (226,805) (3,943,669)
-----------------------------------------------------------------------------
Service Shares
Shares sold 1,188 25,000 15,505 312,050
Reinvestments of divi-
dends and distributions 843 16,467 923 16,722
Shares repurchased (7,477) (138,280) (978) (18,683)
-----------------------------------------------
(5,446) (96,813) 15,450 310,089
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) (1,921,971) $(35,980,811) 462,608 $ 21,133,055
-----------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Goldman Sachs Mid Cap Value Fund -- Tax Information (unaudited)
During the tax year ended August 31, 1999, 29.85% of the ordi-
nary income dividends paid by the Fund qualify for the dividend
received deduction available for corporations.
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designates $26,791,369 as capital gain dividends paid during its
period ended August 31, 1999.
17
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset Net In excess Net increase
value, investment Net realized From net of net (decrease)
beginning income and unrealized investment investment From net in net asset
of period (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $18.38 $0.06 $1.71 $ -- $ -- $(1.73) $ 0.04
1999 - Class B Shares 18.29 (0.04) 1.71 -- -- (1.73) (0.06)
1999 - Class C Shares 18.30 (0.04) 1.71 -- -- (1.73) (0.06)
1999 - Institutional
Shares 18.37 0.09 1.72 -- -- (1.73) 0.08
1999 - Service Shares 18.29 0.05 1.70 -- -- (1.73) 0.02
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 21.61 0.10 (2.38) (0.07) -- (0.88) (3.23)
1999 - Class B Shares 21.57 (0.05) (2.35) -- -- (0.88) (3.28)
1999 - Class C Shares 21.59 (0.05) (2.34) (0.02) -- (0.88) (3.29)
1999 - Institutional
Shares 21.65 0.19 (2.38) (0.21) -- (0.88) (3.28)
1999 - Service Shares 21.62 0.03 (2.31) (0.17) -- (0.88) (3.33)
----------------------------------------------------------------------------------------------------------------
1998 - Class A Shares
(commenced August 15,
1997) 23.63 0.09 0.76 (0.06) (0.04) (2.77) (2.02)
1998 - Class B Shares
(commenced August 15,
1997) 23.63 0.06 0.74 (0.09) -- (2.77) (2.06)
1998 - Class C Shares
(commenced August 15,
1997) 23.63 0.06 0.76 (0.09) -- (2.77) (2.04)
1998 - Institutional
Shares 18.73 0.16 5.66 (0.13) -- (2.77) 2.92
1998 - Service Shares
(commenced July 18,
1997) 23.01 0.09 1.40 (0.11) -- (2.77) (1.39)
----------------------------------------------------------------------------------------------------------------
1997 - Institutional
Shares 15.91 0.24 3.77 (0.24) (0.93) (0.02) 2.82
FOR THE PERIOD ENDED JANUARY 31,
1996 - Institutional
Shares (commenced August
1, 1995) 15.00 0.13 0.90 (0.12) -- -- 0.91
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
<TABLE>
<CAPTION>
Ratios assuming no
expense limitations
-------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to income (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$18.42 9.04%(d) $49,081 1.29%(c) 0.43%(c) 1.37%(c) 0.35%(c) 68.84%(d)
18.23 8.53(d) 31,824 2.04(c) (0.33)(c) 2.12(c) (0.41)(c) 68.84(d)
18.24 8.52(d) 9,807 2.04(c) (0.34)(c) 2.12(c) (0.42)(c) 68.84(d)
18.45 9.26(d) 190,549 0.89(c) 0.79(c) 0.97(c) 0.71(c) 68.84(d)
18.31 8.97(d) 190 1.39(c) 0.38(c) 1.47(c) 0.30(c) 68.84(d)
18.38 (10.48) 70,578 1.33 0.38 1.41 0.30 92.18
18.29 (11.07) 37,821 1.93 (0.22) 2.01 (0.30) 92.18
18.30 (11.03) 10,800 1.93 (0.22) 2.01 (0.30) 92.18
18.37 (10.07) 196,512 0.87 0.83 0.95 0.75 92.18
18.29 (10.48) 289 1.37 0.32 1.45 0.24 92.18
- -------------------------------------------------------------------------------------------------------------------------------
21.61 3.42(d) 90,588 1.35(c) 0.33(c) 1.47(c) 0.21(c) 62.60
21.57 3.17(d) 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c) 62.60
21.59 3.27(d) 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c) 62.60
21.65 30.86 236,440 0.85 0.78 0.97 0.66 62.60
21.62 6.30(d) 8 1.35(c) 0.63(c) 1.43(c) 0.51(c) 62.60
- -------------------------------------------------------------------------------------------------------------------------------
18.73 25.63 145,253 0.85 1.35 0.91 1.29 74.03
15.91 6.89(d) 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c) 58.77(d)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS MID CAP VALUE FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust--Mid Cap
Value Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Mid Cap Value Fund, one of the portfolios constituting Goldman
Sachs Trust--Equity Funds (a Delaware Business Trust), including the state-
ment of investments, as of August 31, 1999, and the related statement of op-
erations, 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 August 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 Mid Cap Value Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 97.3%
<C> <S> <C>
Banks - 4.2%
401,149 Bank of America Corp. $ 24,269,514
746,800 Citigroup, Inc. 33,185,925
653,800 State Street Corp. 39,146,275
343,400 Wells Fargo & Co. 13,671,613
--------------
110,273,327
------------------------------------------------------------------
Chemical - 1.0%
199,329 Du Pont (E.I.) de Nemours & Co. 12,632,475
145,500 Minnesota Mining and Manufacturing Co. 13,749,750
--------------
26,382,225
------------------------------------------------------------------
Computer Hardware - 6.9%
872,050 Cisco Systems, Inc.* 59,135,891
424,300 EMC Corp.* 25,458,000
444,900 International Business Machines, Inc. 55,417,856
540,600 Sun Microsystems, Inc.* 42,977,700
--------------
182,989,447
------------------------------------------------------------------
Computer Software - 4.7%
262,800 CheckFree Holdings Corp.* 7,686,900
1,261,400 Microsoft Corp.* 116,758,337
--------------
124,445,237
------------------------------------------------------------------
Consumer Services - 3.1%
641,200 Cendant Corp.* 11,501,525
1,699,680 Service Corp. International 23,476,830
1,055,670 Valassis Communications, Inc.* 46,185,563
--------------
81,163,918
------------------------------------------------------------------
Drugs - 10.0%
780,300 American Home Products Corp. 32,382,450
906,800 Bristol-Myers Squibb Co. 63,816,050
268,200 Eli Lilly & Co. 20,014,425
401,100 Merck & Co. 26,948,906
1,545,460 Pfizer, Inc. 58,341,115
467,400 Schering-Plough Corp. 24,567,713
595,800 Warner-Lambert Co. 39,471,750
--------------
265,542,409
------------------------------------------------------------------
Electronics Equipment - 3.8%
192,920 General Instrument Corp.* 9,489,253
381,840 Lucent Technologies, Inc. 24,461,625
343,400 QUALCOMM, Inc.* 65,997,187
--------------
99,948,065
------------------------------------------------------------------
Electrical Utilities - 2.7%
1,190,500 AES Corp.* 72,248,469
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Energy Resources - 2.7%
70,800 Atlantic Richfield Co. $ 6,225,975
419,544 Conoco, Inc. Class B 11,275,233
269,500 Exxon Corp. 21,256,812
143,000 Mobil Corp. 14,639,625
181,800 Royal Dutch Petroleum Co. ADR 11,248,875
143,800 Unocal Corp. 6,021,625
--------------
70,668,145
-----------------------------------------------------------------------------
Environmental Services - 0.6%
767,600 Waste Management, Inc. 16,743,275
-----------------------------------------------------------------------------
Financial Services - 4.3%
799,500 Federal Home Loan Mortgage Corp. 41,174,250
634,700 Federal National Mortgage Association 39,430,737
1,368,480 MBNA Corp. 33,784,350
--------------
114,389,337
-----------------------------------------------------------------------------
Food & Beverage - 4.1%
775,800 Coca-Cola Co. 46,402,537
994,560 Nabisco Group Holdings Corp. 17,653,440
793,000 Pepsico, Inc. 27,061,125
217,880 William Wrigley Jr. Co. 17,062,728
--------------
108,179,830
-----------------------------------------------------------------------------
Heavy Electrical - 3.4%
795,300 General Electric Co. 89,322,131
-----------------------------------------------------------------------------
Home Products - 6.6%
752,900 Avon Products, Inc. 33,033,487
311,200 Clorox Co. 14,081,800
944,400 Colgate Palmolive Co. 50,525,400
455,000 Ecolab, Inc. 17,090,938
318,680 Procter & Gamble Co. 31,628,990
1,037,300 Ralston-Ralston Purina Group 28,525,750
--------------
174,886,365
-----------------------------------------------------------------------------
Hotel - 1.1%
574,740 Marriott International, Inc. 19,684,845
373,180 Starwood Hotels & Resorts Worldwide, Inc. Class B 8,886,349
--------------
28,571,194
-----------------------------------------------------------------------------
Information Services - 3.5%
353,026 At Home Corp. Series A* 14,165,168
304,800 Automatic Data Processing, Inc. 11,982,450
872,160 First Data Corp. 38,375,040
351,900 Galileo International, Inc. 17,067,150
106,400 VeriSign, Inc.* 11,524,450
--------------
93,114,258
-----------------------------------------------------------------------------
Leisure - 0.3%
350,690 Hasbro, Inc. 8,569,987
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Life Insurance - 0.7%
199,300 Hartford Life, Inc. $ 8,657,094
269,800 Nationwide Financial Services, Inc. 9,847,700
--------------
18,504,794
---------------------------------------------------------------
Media - 14.3%
1,068,400 AH Belo Corp. Series A 20,232,825
494,400 AMFM, Inc.* 24,349,200
2,319,900 AT&T Corp.-Liberty Media Group* 74,236,800
364,700 Cablevision Systems Corp.* 25,529,000
959,100 CBS, Inc.* 45,077,700
278,912 Clear Channel Communications, Inc.* 19,541,272
648,600 Comcast Corp. 21,160,575
172,740 EchoStar Communications Corp.* 14,445,383
998,400 Infinity Broadcasting Corp.* 27,019,200
659,200 MediaOne Group, Inc.* 43,342,400
340,800 The Walt Disney Co. 9,457,200
913,620 Time Warner, Inc. 54,189,086
--------------
378,580,641
---------------------------------------------------------------
Medical Products - 1.1%
295,700 Johnson & Johnson 30,235,325
---------------------------------------------------------------
Oil Refining - 0.9%
353,300 Texaco, Inc. 22,434,550
---------------------------------------------------------------
Oil Services - 1.6%
652,900 Schlumberger Ltd. 43,581,075
---------------------------------------------------------------
Property Insurance - 1.5%
170,400 AMBAC Financial Group, Inc. 8,999,250
341,721 American International Group, Inc. 31,673,265
--------------
40,672,515
---------------------------------------------------------------
Publishing - 3.0%
470,200 Central Newspapers, Inc. 19,895,338
276,500 Gannett Co. 18,784,719
444,100 New York Times Co. 17,347,656
113,300 Tribune Co. 10,572,306
771,970 Ziff-Davis, Inc.* 11,917,287
--------------
78,517,306
---------------------------------------------------------------
Restaurants - 0.5%
309,000 McDonald's Corp. 12,784,875
---------------------------------------------------------------
Semiconductors - 2.5%
813,600 Intel Corp. 66,867,750
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Specialty Retail - 5.0%
229,600 CVS Corp. $ 9,571,450
331,700 Home Depot, Inc. 20,275,162
666,800 Tandy Corp. 31,506,300
1,076,800 Wal-Mart Stores, Inc. 47,715,700
1,027,120 Walgreen Co. 23,816,345
--------------
132,884,957
--------------------------------------------------------------
Telephone - 1.7%
598,200 MCI Worldcom, Inc.* 45,313,650
--------------------------------------------------------------
Tobacco - 0.5%
372,100 Philip Morris Companies, Inc. 13,930,494
--------------------------------------------------------------
Wireless - 1.0%
823,420 Crown Castle International Corp.* 12,454,228
219,400 Sprint Corp. (PCS Group) Series 1* 13,109,150
--------------
25,563,378
--------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,840,883,671) $2,577,308,929
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 2.8%
<S> <C> <C> <C>
Joint Repurchase Agreement
$74,800,000 5.52% 09/01/1999 $ 74,800,000
------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $74,800,000) $ 74,800,000
------------------------------------------------
TOTAL INVESTMENTS
(Cost $1,915,683,671) $2,652,108,929
------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$1,915,683,671) $2,652,108,929
Cash 185,639
Receivables:
Investment securities sold 6,436,588
Dividends and interest 2,006,467
Fund shares sold 5,485,954
Reimbursement from investment adviser 138,511
Other assets 66,534
-----------------------------------------------------------------------------
Total assets 2,666,428,622
-----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 10,286,307
Fund shares repurchased 2,554,553
Amounts owed to affiliates 3,417,903
Accrued expenses and other liabilities 242,887
-----------------------------------------------------------------------------
Total liabilities 16,501,650
-----------------------------------------------------------------------------
Net Assets:
Paid-in capital 1,738,017,305
Accumulated net realized gain from investment transactions 175,484,409
Net unrealized gain on investments 736,425,258
-----------------------------------------------------------------------------
NET ASSETS $2,649,926,972
-----------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $24.96
Class B $24.37
Class C $24.33
Institutional $25.06
Service $24.88
-----------------------------------------------------------------------------
Shares outstanding:
Class A 78,962,794
Class B 13,533,620
Class C 3,586,830
Institutional 10,182,508
Service 259,935
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number
of shares authorized) 106,525,687
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $26.41. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
Investment income:
Dividends(a) $ 12,584,079
Interest 1,074,501
-----------------------------------------------------------------------------
Total income 13,658,580
-----------------------------------------------------------------------------
Expenses:
Management fees 15,000,472
Distribution and service fees(b) 5,174,492
Transfer agent fees(c) 2,720,617
Registration fees 167,581
Custodian fees 139,396
Professional fees 34,846
Service share fees 16,691
Trustee fees 6,426
Other 169,017
-----------------------------------------------------------------------------
Total expenses 23,429,538
-----------------------------------------------------------------------------
Less--expenses reimbursed (457,262)
-----------------------------------------------------------------------------
Net expenses 22,972,276
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (9,313,696)
-----------------------------------------------------------------------------
Realized and unrealized gain (loss)
on investment transactions:
Net realized gain from:
Investment transactions 120,162,134
Net change in unrealized gain on:
Investments (19,552,612)
-----------------------------------------------------------------------------
Net realized and unrealized gain on
investment transactions 100,609,522
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 91,295,826
-----------------------------------------------------------------------------
(a) Taxes withheld on dividends were $43,301.
(b) Class A, Class B and Class C had distribution and service fees of
$2,987,611, $1,739,629 and $447,252, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $2,270,583, $330,530, $84,978, $33,191 and $1,335,
respectively.
The accompanying notes are an integral part of these financial statements. 9
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month
Period Ended For the
August 31, Year Ended
1999 January 31, 1999
<S> <C> <C>
From operations:
Net investment loss $ (9,313,696) $ (4,273,950)
Net realized gain from investment
transactions 120,162,134 133,916,314
Net change in unrealized gain on
investments (19,552,612) 392,953,579
-----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 91,295,826 522,595,943
-----------------------------------------------------------------------------
Distributions to shareholders:
From net realized gain on investment
transactions
Class A shares -- (59,433,653)
Class B shares -- (6,254,745)
Class C shares -- (1,535,180)
Institutional shares -- (949,782)
Service shares -- (97,173)
-----------------------------------------------------------------------------
Total distributions to shareholders -- (68,270,533)
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 705,992,404 958,527,625
Reinvestment of dividends and
distributions -- 63,389,050
Cost of shares repurchased (481,582,281) (452,101,755)
-----------------------------------------------------------------------------
Net increase in net assets resulting from
share transactions 224,410,123 569,814,920
-----------------------------------------------------------------------------
TOTAL INCREASE 315,705,949 1,024,140,330
-----------------------------------------------------------------------------
Net assets:
Beginning of period 2,334,221,023 1,310,080,693
-----------------------------------------------------------------------------
End of period $2,649,926,972 $2,334,221,023
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements
August 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 Capital Growth
Fund (the "Fund"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year-end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Trust's Board of Trustees.
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
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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 and interest recorded and the amounts actually received.
D. 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
11
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
E. 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.
F. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
G. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial 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.
At August 31, 1999, the aggregate cost of portfolio securities for federal
income tax purposes is $1,915,867,079. Accordingly, the gross unrealized gain
on investments was $836,210,220 and the gross unrealized loss on investments
was $99,968,370 resulting in a net unrealized gain of $736,241,850.
H. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of shares of the Fund separately bears its respective
class-specific transfer agency fees.
12
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co.
("Goldman Sachs"), serves as the investment adviser to the Fund. Under the
Agreement, the adviser, subject to the general supervision of the Trust's
Board of Trustees, manages the Fund's portfolio. As compensation for the
services rendered pursuant to the Agreement, the assumption of the expenses
related thereto and administering the Fund's business affairs, including pro-
viding facilities, the adviser is entitled to a fee, computed daily and pay-
able monthly, at an annual rate equal to 1.00% of the average daily net
assets of the Fund.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, transfer
agent fees, taxes, interest, brokerage, litigation, Service share fees, in-
demnification costs and other extraordinary expenses) to the extent such ex-
penses exceed, on an annual basis, 0.00% of the average daily net assets of
the Fund. For the period ended August 31, 1999, Goldman Sachs has agreed to
reimburse approximately $457,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 serves as the distributor of shares of the Fund pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $966,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$2,255,000, $769,000, and $394,000 for management, distribution and service
and transfer agent fees, respectively.
13
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments) for the period ended August 31, 1999, were $652,019,035 and
$458,198,147, respectively.
For the period ended August 31, 1999 Goldman Sachs earned approximately
$32,000 of brokerage commissions from portfolio transactions.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Fund daily, depending on the
daily fluctuations in the value of the contracts, and are recorded for finan-
cial reporting purposes as unrealized gains or losses. When contracts are
closed, the Fund realizes a gain or loss which is reported in the Statement
of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, there were no open futures
contracts.
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement,the Fund must
own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
14
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSFM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $74,800,000 in principal
amount. At August 31, 1999, the following repurchase agreements held in this
joint account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
------------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
------------------------------------------------------------------------------------------
Deutsche Bank Securities, Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
------------------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
------------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
------------------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$4,273,950 and $9,313,696 from accumulated net realized gain from investment
transactions to paid-in capital and accumulated net investment income, re-
spectively. 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 ba-
sis.
15
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
9. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month
Period Ended August 31, For the Year Ended
1999 January 31, 1999
--------------------------- ------------------------
Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 12,642,498 $ 314,261,490 32,045,496 $ 679,898,165
Reinvestments of divi-
dends and distributions -- -- 2,523,862 55,320,129
Shares repurchased (16,595,373) (416,956,361) (19,634,822) (411,065,361)
-------------------------------------------------------
(3,952,875) (102,694,871) 14,934,536 324,152,933
------------------------------------------------------------------------------
Class B Shares
Shares sold 4,426,589 107,188,155 8,217,516 174,195,041
Reinvestments of divi-
dends and distributions -- -- 269,890 5,814,080
Shares repurchased (922,539) (22,536,793) (692,115) (14,198,964)
-------------------------------------------------------
3,504,050 84,651,362 7,795,291 165,810,157
------------------------------------------------------------------------------
Class C Shares
Shares sold 1,430,606 34,761,116 2,456,617 52,140,496
Reinvestments of divi-
dends and distributions -- -- 62,802 1,350,138
Shares repurchased (404,991) (9,881,726) (254,033) (5,309,819)
-------------------------------------------------------
1,025,615 24,879,390 2,265,386 48,180,815
------------------------------------------------------------------------------
Institutional Shares
Shares sold 9,692,869 245,837,614 2,253,646 49,347,338
Reinvestments of divi-
dends and distributions -- -- 36,717 807,532
Shares repurchased (1,248,315) (31,382,873) (946,047) (21,160,240)
-------------------------------------------------------
8,444,554 214,454,741 1,344,316 28,994,630
------------------------------------------------------------------------------
Service Shares
Shares sold 164,617 3,944,029 140,100 2,946,585
Reinvestments of divi-
dends and distributions -- -- 4,439 97,171
Shares repurchased (33,428) (824,528) (15,887) (367,371)
-------------------------------------------------------
131,189 3,119,501 128,652 2,676,385
------------------------------------------------------------------------------
NET INCREASE 9,152,533 $ 224,410,123 26,468,181 $ 569,814,920
------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Goldman Sachs Capital Growth Fund -- Tax Information (unaudited)
During the tax year ended August 31, 1999, 85.86% of the ordi-
nary income dividends paid from net investment income by the Fund
qualify for the dividends received deduction available to corpora-
tions.
17
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from investment
operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset Net In excess Net increase
value, investment Net realized From net of net (decrease)
beginning income and unrealized investment investment From net in net asset
of period (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $24.03 $(0.08) $1.01 $ -- $ -- $ -- $0.93
1999 - Class B Shares 23.57 (0.17) 0.97 -- -- -- 0.80
1999 - Class C Shares 23.52 (0.16) 0.97 -- -- -- 0.81
1999 - Institutional
Shares 24.07 (0.02) 1.01 -- -- -- 0.99
1999 - Service Shares 23.96 (0.08) 1.00 -- -- -- 0.92
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 18.48 (0.03) 6.35 -- -- (0.77) 5.55
1999 - Class B Shares 18.27 (0.12) 6.19 -- -- (0.77) 5.30
1999 - Class C Shares 18.24 (0.10) 6.15 -- -- (0.77) 5.28
1999 - Institutional
Shares 18.45 0.01 6.38 -- -- (0.77) 5.62
1999 - Service Shares 18.46 (0.04) 6.31 -- -- (0.77) 5.50
-------------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 16.73 0.02 4.78 (0.01) (0.01) (3.03) 1.75
1998 - Class B Shares 16.67 0.02 4.61 -- -- (3.03) 1.60
1998 - Class C Shares
(commenced August 15,
1997) 19.73 (0.02) 1.60 -- (0.04) (3.03) (1.49)
1998 - Institutional
Shares (commenced August
15, 1997) 19.88 0.02 1.66 (0.01) (0.07) (3.03) (1.43)
1998 - Service Shares
(commenced August 15, 1997) 19.88 (0.01) 1.66 -- (0.04) (3.03) (1.42)
-------------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 14.91 0.10 3.56 (0.10) (0.02) (1.72) 1.82
1997 - Class B Shares
(commenced May 1, 1996) 15.67 0.01 2.81 (0.01) (0.09) (1.72) 1.00
-------------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 13.67 0.12 3.93 (0.12) -- (2.69) 1.24
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to income (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$24.96 3.87%(d) $1,971,097 1.44%(c) (0.53)%(c) 1.47%(c) (0.56)%(c) 18.16%(d)
24.37 3.39(d) 329,870 2.19(c) (1.29)(c) 2.22(c) (1.32)(c) 18.16(d)
24.33 3.44(d) 87,284 2.19(c) (1.29)(c) 2.22(c) (1.32)(c) 18.16(d)
25.06 4.11(d) 255,210 1.04(c) (0.20)(c) 1.07(c) (0.23)(c) 18.16(d)
24.88 3.84(d) 6,466 1.54(c) (0.65)(c) 1.57(c) (0.68)(c) 18.16(d)
24.03 34.58 1,992,716 1.42 (0.18) 1.58 (0.34) 30.17
23.57 33.60 236,369 2.19 (0.98) 2.21 (1.00) 30.17
23.52 33.55 60,234 2.19 (1.00) 2.21 (1.02) 30.17
24.07 35.02 41,817 1.07 0.11 1.09 0.09 30.17
23.96 34.34 3,085 1.57 (0.37) 1.59 (0.39) 30.17
----------------------------------------------------------------------------------------------------------------------------
18.48 29.71 1,256,595 1.40 0.08 1.65 (0.17) 61.50
18.27 28.73 40,827 2.18 (0.77) 2.18 (0.77) 61.50
18.24 8.83(d) 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c) 61.50
18.45 9.31(d) 7,262 1.16(c) 0.18(c) 1.16(c) 0.18(c) 61.50
18.46 9.18(d) 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c) 61.50
----------------------------------------------------------------------------------------------------------------------------
16.73 25.97 920,646 1.40 0.62 1.65 0.37 52.92
16.67 19.39(d) 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c) 52.92
----------------------------------------------------------------------------------------------------------------------------
14.91 30.45 881,056 1.36 0.65 1.61 0.40 63.90
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust -- Capital
Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Capital Growth Fund, one of the portfolios constituting Goldman
Sachs Trust -- Equity Funds (a Delaware Business Trust), including the state-
ment of investments, as of August 31, 1999, and the related statement of op-
erations, 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 August 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 Capital Growth Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 92.4%
<C> <S> <C>
Apparel - 1.5%
16,200 Unifi, Inc.* $ 218,700
------------------------------------------------------
Banks - 3.5%
8,300 Charter One Financial, Inc. 194,272
2,100 Marshall & Ilsley Corp. 122,981
4,600 National Commerce Bancorp 97,462
1,300 State Street Corp. 77,838
-----------
492,553
------------------------------------------------------
Chemical - 0.5%
3,600 Solutia, Inc. 72,000
------------------------------------------------------
Clothing - 4.6%
12,600 Limited, Inc. 477,225
2,800 Payless ShoeSource, Inc.* 139,650
1,800 Too, Inc.* 31,612
-----------
648,487
------------------------------------------------------
Computer Hardware - 2.1%
8,500 Symbol Technologies, Inc. 295,906
------------------------------------------------------
Computer Software - 2.1%
2,200 CheckFree Holdings Corp.* 64,350
7,700 Policy Management* 235,331
-----------
299,681
------------------------------------------------------
Construction - 1.3%
4,100 Martin Marietta Materials 187,063
------------------------------------------------------
Consumer Durables - 4.5%
11,900 Ethan Allen Interiors, Inc. 347,331
7,000 Masco Corp. 198,188
5,000 Shaw Industries, Inc. 100,000
-----------
645,519
------------------------------------------------------
Consumer Services - 5.4%
9,400 Cendant Corp.* 168,612
2,500 Cintas Corp. 128,438
10,300 Kroll O Gara Co.* 197,631
5,200 Pittston Brinks Group 123,825
2,200 Robert Half International, Inc.* 57,750
6,600 Service Corp. International 91,163
-----------
767,419
------------------------------------------------------
Drugs - 1.5%
1,000 Biogen, Inc.* 76,750
6,800 Mylan Labs, Inc. 134,725
-----------
211,475
------------------------------------------------------
Electrical Equipment - 1.5%
2,800 Sanmina Corp.* 210,000
------------------------------------------------------
Electrical Utilities - 1.3%
3,100 AES Corp.* 188,131
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Energy Resources - 2.9%
3,600 Kerr McGee Corp. $ 201,600
9,600 Louis Dreyfus Natural Gas Corp.* 210,000
-----------
411,600
--------------------------------------------------------
Environmental Services - 1.0%
11,100 Allied Waste Industries, Inc.* 141,525
--------------------------------------------------------
Financial Services - 2.9%
9,400 Allied Capital Corp. 212,381
2,100 Arthur J. Gallagher & Co. 114,713
8,300 Sovereign Bancorp, Inc. 83,259
-----------
410,353
--------------------------------------------------------
Food & Beverage - 2.4%
7,000 Keebler Foods Co.* 208,687
7,600 Nabisco Group Holdings Corp. 134,900
-----------
343,587
--------------------------------------------------------
Forest - 0.9%
6,700 Louisiana Pacific Corp. 123,950
--------------------------------------------------------
Hotel - 1.7%
5,046 MGM Grand, Inc.* 247,885
--------------------------------------------------------
Industrial Equipment - 1.2%
10,400 Innotrac Corp.* 167,700
--------------------------------------------------------
Industrial Parts - 2.3%
8,100 American Standard Companies, Inc.* 332,100
--------------------------------------------------------
Industrial Services - 1.4%
4,600 Grainger W.W., Inc. 200,388
--------------------------------------------------------
Information Services - 5.4%
2,500 Ceridian Corp.* 70,000
10,200 Comdisco, Inc. 214,838
3,400 Equifax, Inc. 103,700
9,300 Fiserv, Inc.* 286,556
900 VeriSign, Inc.* 97,481
-----------
772,575
--------------------------------------------------------
Insurance - 2.1%
6,300 Radian Group 291,769
--------------------------------------------------------
Leisure - 0.8%
4,000 Sun International Hotels, Ltd.* 116,500
--------------------------------------------------------
Media - 11.4%
1,100 AH Belo Corp. Series A 20,831
5,000 AMFM, Inc.* 246,250
5,000 Cablevision Systems Corp.* 350,000
10,900 Insight Communications, Inc.* 297,025
14,900 Sinclair Broadcast Group, Inc.* 242,125
6,200 Westwood One, Inc.* 237,925
5,400 Wink Communications, Inc.* 221,400
-----------
1,615,556
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Medical Products - 5.2%
12,700 Acuson Corp.* $ 200,025
8,300 Datascope Corp.* 259,375
7,800 St. Jude Medical, Inc.* 282,750
-----------
742,150
-----------------------------------------------------------
Medical Providers - 3.1%
28,700 Health Management Association, Inc.* 229,600
9,300 Hooper Holmes, Inc. 213,900
-----------
443,500
-----------------------------------------------------------
Mining - 1.1%
6,800 Stillwater Mining Co.* 150,025
-----------------------------------------------------------
Motor Vehicle - 1.0%
3,100 Dana Corp. 135,044
-----------------------------------------------------------
Oil Refining - 1.0%
4,600 USX-Marathon Group, Inc. 143,175
-----------------------------------------------------------
Property Insurance - 2.3%
2,100 AMBAC Financial Group, Inc. 110,906
1,800 MBIA, Inc. 93,375
3,000 PMI Group, Inc. 127,500
-----------
331,781
-----------------------------------------------------------
Post-Secondary Education - 2.5%
22,400 ITT Educational Services, Inc.* 350,000
-----------------------------------------------------------
Security/Asset Management - 1.2%
4,400 Legg Mason, Inc. 168,025
-----------------------------------------------------------
Semiconductors - 1.2%
2,100 Altera Corp.* 88,463
1,100 Xilinx, Inc.* 76,931
-----------
165,394
-----------------------------------------------------------
Specialty Retail - 1.0%
13,800 Office Depot, Inc.* 144,038
-----------------------------------------------------------
Telephone - 1.8%
2,600 NTL, Inc.* 255,287
-----------------------------------------------------------
Tobacco - 1.7%
1,366 R.J. Reynolds Tobacco Holdings, Inc.* 37,480
6,600 UST, Inc. 209,137
-----------
246,617
-----------------------------------------------------------
Wireless - 3.1%
8,500 Clearnet Communications, Inc.* 134,937
2,900 Nextel Communications, Inc.* 167,656
1,900 Telephone & Data Systems, Inc. 132,288
-----------
434,881
-----------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $13,899,033) $13,122,339
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 4.2%
<S> <C> <C> <C>
Joint Repurchase Agreement
$600,000 5.52% 09/01/1999 $ 600,000
------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $600,000) $ 600,000
------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $14,499,033) $13,722,339
------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$14,499,033) $13,722,339
Cash 126,393
Receivables:
Investment securities sold 306,181
Dividends and interest 5,612
Fund shares sold 167,397
Reimbursement from investment adviser 188,380
-----------------------------------------------------------------------------
Total assets 14,516,302
-----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 58,658
Fund shares repurchased 19,229
Amounts owed to affiliates 15,746
Accrued expenses and other liabilities 218,094
-----------------------------------------------------------------------------
Total liabilities 311,727
-----------------------------------------------------------------------------
Net Assets:
Paid-in capital 14,554,471
Accumulated undistributed net investment income 4,476
Accumulated net realized gain from investment transactions 422,322
Net unrealized loss on investments (776,694)
-----------------------------------------------------------------------------
NET ASSETS $14,204,575
-----------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $10.13
Class B $10.18
Class C $10.10
Institutional $10.13
Service $10.12
-----------------------------------------------------------------------------
Shares outstanding:
Class A 809,880
Class B 51,071
Class C 25,390
Institutional 515,356
Service 150
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 1,401,847
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $10.72. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Statement of Operations
For the Period Ended August 31, 1999(a)
<TABLE>
<S> <C>
Investment income:
Dividends $ 12,811
Interest 18,930
----------------------------------------------------------------------------
Total income 31,741
----------------------------------------------------------------------------
Expenses:
Registration fees 136,700
Custodian fees 69,516
Professional fees 34,741
Printing fees 28,000
Management fees 23,911
Distribution and service fees(b) 3,026
Transfer agent fees(c) 2,402
Service share fees 2
Other 35,000
----------------------------------------------------------------------------
Total expenses 333,298
----------------------------------------------------------------------------
Less -- expenses reimbursed (303,861)
----------------------------------------------------------------------------
Net expenses 29,437
----------------------------------------------------------------------------
NET INVESTMENT INCOME 2,304
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions:
Net realized gain from:
Investment transactions 422,322
Net change in unrealized loss on:
Investments (776,694)
----------------------------------------------------------------------------
Net realized and unrealized loss on investment transactions (354,372)
----------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(352,068)
----------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 24, 1999 for all classes.
(b) Class A, Class B and Class C had distribution and service fees of $2,204,
$598 and $224, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $1,673, $114, $43, $571 and $1, respectively.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Statement of Changes in Net Assets
For the Period Ended August 31, 1999(a)
<TABLE>
<S> <C>
From operations:
Net investment income $ 2,304
Net realized gain from investment transactions 422,322
Net change in unrealized loss on investments (776,694)
---------------------------------------------------------------------------
Net decrease in net assets resulting from operations (352,068)
---------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 14,846,644
Reinvestment of dividends and distributions --
Cost of shares repurchased (290,001)
---------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 14,556,643
---------------------------------------------------------------------------
TOTAL INCREASE 14,204,575
---------------------------------------------------------------------------
Net assets:
Beginning of period --
---------------------------------------------------------------------------
End of period $14,204,575
---------------------------------------------------------------------------
Accumulated undistributed net investment income $ 4,476
---------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 24, 1999 for all share classes.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Notes to Financial Statements
August 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 Growth
Opportunities Fund (the "Fund"). The Fund is a diversified portfolio offering
five classes of shares -- Class A, Class B, Class C, Institutional and Serv-
ice. The Fund commenced operations on May 24, 1999.
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. Actual
results could differ from those estimates.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Trust's Board of Trustees.
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
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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 and interest recorded and the amounts actually received.
D. 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
E. 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
10
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
the closing sale transaction are greater or less than the cost of the option.
If the Fund exercises a purchased 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.
F. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
G. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $14,549,349. Accordingly, the gross unrealized gain on
investments was $470,603 and the gross unrealized loss on investments was
$1,297,613 resulting in a net unrealized loss of $827,010.
H. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of shares of the Fund separately bears its respective
class-specific transfer agency fees.
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management ("GSAM"), an affiliate of Goldman, Sachs & Co.
("Goldman Sachs"), serves as the investment adviser to the Fund. Under the
Agreement, the adviser, subject to the general supervision of the Trust's
Board of Trustees, manages the Fund's portfolio. As compensation for the
services rendered pursuant to the Agreement, the assumption of the expenses
related thereto and administering the Fund's business affairs, including pro-
viding facilities, the adviser is entitled to a fee, computed daily and pay-
able monthly, at an annual rate equal to 1.00% of the average daily net
assets of the Fund.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, transfer
agent fees, taxes, interest, brokerage, litigation, Service share fees, in-
demnification costs and other extraordinary expenses) to the extent such ex-
penses exceed, on an annual basis, 0.00% of the average daily net assets of
the Fund. For the period ended August 31, 1999, Goldman Sachs has agreed to
reimburse approximately $304,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 serves as the distributor of shares of the Fund pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $89,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$12,000, $2,000, and $2,000 for management, distribution and service and
transfer agent fees, respectively.
11
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Notes to Financial Statements (continued)
August 31, 1999
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments) for the period ended August 31, 1999, were $15,814,609 and
$2,337,898, respectively.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Fund daily, depending on the
daily fluctuations in the value of the contracts, and are recorded for finan-
cial reporting purposes as unrealized gains or losses. When contracts are
closed, the Fund realizes a gain or loss which is reported in the Statement
of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, there were no open futures
contracts.
5. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted and a $250,000,000 com-
mitted, unsecured revolving line of credit facility. Under the most restric-
tive arrangement, the fund must own securities having a market value in
excess of 400% of the total bank borrowings. These facilities are to be used
solely for temporary or emergency purposes. The interest rate on borrowings
is based on the Federal Funds rate. The committed facility also requires a
fee to be paid by the Fund based on the amount of the commitment which has
not been utilized. During the period ended August 31, 1999, the Fund did not
have any borrowings under these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $600,000 in principal amount.
At August 31, 1999, the following repurchase agreements held in this joint
account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
----------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
----------------------------------------------------------------------------------------
Deutsche Bank Securities, Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
----------------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
----------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
----------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
----------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
8. CERTAIN RECLASSIFICATIONS AND OTHER MATTERS
In accordance with Statement of Position 93-2, the Fund has reclassified
$2,172 from paid-in capital to accumulated undistributed net investment in-
come. This reclassification has no impact on the net asset value of the Fund
and is designed to present the Fund's capital accounts on a tax basis.
As of August 31, 1999, the Goldman Sachs Group was the beneficial owner of
approximately 36% of the outstanding shares of the Fund.
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended August 31, 1999 is as follows:(a)
<TABLE>
<CAPTION>
Shares Dollars
---------------
<S> <C> <C>
Class A Shares
Shares sold 837,654 $ 8,891,707
Reinvestments of dividends and distributions -- --
Shares repurchased (27,774) (289,978)
---------------
809,880 8,601,729
---------------------------------------------------------------------
Class B Shares
Shares sold 51,071 529,423
Reinvestments of dividends and distributions -- --
Shares repurchased -- (2)
---------------
51,071 529,421
---------------------------------------------------------------------
Class C Shares
Shares sold 25,390 263,994
Reinvestments of dividends and distributions -- --
Shares repurchased -- (1)
---------------
25,390 263,993
---------------------------------------------------------------------
Institutional Shares
Shares sold 515,358 5,160,020
Reinvestments of dividends and distributions -- --
Shares repurchased (2) (20)
---------------
515,356 5,160,000
---------------------------------------------------------------------
Service Shares
Shares sold 150 1,500
Reinvestments of dividends and distributions -- --
Shares repurchased -- --
---------------
150 1,500
---------------------------------------------------------------------
NET INCREASE 1,401,847 $14,556,643
---------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 24, 1999 for all share classes.
13
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
--------------------------- ------------------------------------
Net asset Net In excess
value, investment Net realized From net of net Net increase
beginning income and unrealized investment investment From net in net asset
of period (loss) gain income income realized gains value
FOR THE PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares
(commenced May 24) $10.00 $(0.01)(e) $0.14(e) $ -- $ -- $ -- $0.13
1999 - Class B Shares
(commenced May 24) 10.00 (0.03)(e) 0.21(e) -- -- -- 0.18
1999 - Class C Shares
(commenced May 24) 10.00 (0.03)(e) 0.13(e) -- -- -- 0.10
1999 - Institutional
Shares (commenced May
24) 10.00 0.01 0.12 -- -- -- 0.13
1999 - Service Shares
(commenced May 24) 10.00 -- 0.12 -- -- -- 0.12
---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or expense limitations
-------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to loss to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$10.13 1.30%(d) $8,204 1.44%(c) (0.27)%(c) 14.15%(c) (12.98)%(c) 26.53%(d)
10.18 1.80(d) 520 2.19(c) (1.04)(c) 14.90(c) (13.75)(c) 26.53(d)
10.10 1.00(d) 256 2.19(c) (1.12)(c) 14.90(c) (13.83)(c) 26.53(d)
10.13 1.30(d) 5,223 1.04(c) 0.39(c) 13.75(c) (12.32)(c) 26.53(d)
10.12 1.20(d) 2 1.54(c) 0.03(c) 14.25(c) (12.68)(c) 26.53(d)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS GROWTH OPPORTUNITIES FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust -- Growth Op-
portunities Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Growth Opportunities Fund, one of the portfolios constituting
Goldman Sachs Trust -- Equity Funds (a Delaware Business Trust), including
the statement of investments, as of August 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 August 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 a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Growth Opportunities Fund as of August 31, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the period presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 8, 1999
16
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 98.4%
Apparel - 4.3%
1,000,500 Burlington Industries, Inc.* $ 5,690,344
538,500 Reebok International Ltd.* 6,361,031
------------
12,051,375
------------------------------------------------------------
Banks - 2.8%
429,000 Pacific Century Financial Corp. 7,963,312
------------------------------------------------------------
Business Services - 1.6%
446,500 Healthplan Services Corp. 2,790,625
114,600 Modis Professional Services, Inc.* 1,812,113
------------
4,602,738
------------------------------------------------------------
Chemical - 2.2%
1,400,900 Methanex Corp.* 4,202,700
93,800 Millennium Chemicals, Inc. 2,157,400
------------
6,360,100
------------------------------------------------------------
Clothing - 1.8%
296,300 J. Baker, Inc. 2,222,250
348,300 Syms Corp.* 2,829,937
------------
5,052,187
------------------------------------------------------------
Computer Hardware - 2.3%
675,552 Inacom Corp.* 6,586,632
4,000 Quantum Corp.-Hard Disk Drive* 28,500
------------
6,615,132
------------------------------------------------------------
Computer Software - 1.6%
491,300 Mentor Graphics Corp.* 4,406,347
------------------------------------------------------------
Construction - 1.7%
186,500 Stone & Webster, Inc. 4,790,719
------------------------------------------------------------
Drugs - 0.8%
271,300 Perrigo Co.* 2,153,444
------------------------------------------------------------
Electrical Equipment - 2.4%
424,100 Varian, Inc.* 6,732,587
------------------------------------------------------------
Electrical Utilities - 0.8%
88,900 CMP Group, Inc. 2,361,406
------------------------------------------------------------
Energy Resources - 1.0%
232,900 Swift Energy Co.* 2,940,363
------------------------------------------------------------
Financial Services - 2.2%
308,133 Insignia Financial Group, Inc.* 3,062,072
323,300 Sovereign Bancorp, Inc. 3,243,103
------------
6,305,175
------------------------------------------------------------
Food & Beverage - 2.1%
322,600 Fleming Companies, Inc. 3,891,362
277,900 Vlasic Foods International, Inc.* 2,049,513
------------
5,940,875
------------------------------------------------------------
Forest - 1.4%
353,600 Lydall, Inc.* 3,823,300
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Heavy Electrical - 4.1%
118,400 Belden, Inc. $ 2,775,000
113,900 Carbide/Graphite Group, Inc.* 1,509,175
296,100 UCAR International, Inc.* 7,217,437
------------
11,501,612
------------------------------------------------------------
Heavy Machinery - 3.2%
471,900 Agco Corp. 4,866,469
367,700 Titan International, Inc. 4,090,662
------------
8,957,131
------------------------------------------------------------
Industrial Parts - 8.9%
148,200 AVTeam, Inc.* 1,157,813
468,200 Denison International PLC ADR* 5,852,500
292,200 Milacron, Inc. 5,259,600
628,300 Tristar Aerospace Co.* 4,515,906
374,000 Unova, Inc.* 5,633,375
174,300 Wolverine Tube, Inc.* 2,679,862
------------
25,099,056
------------------------------------------------------------
Information Services - 3.1%
235,000 Advo, Inc.* 4,611,875
102,600 GTECH Holdings Corp.* 2,590,650
288,900 Opinion Research Corp.* 1,444,500
------------
8,647,025
------------------------------------------------------------
Insurance - 5.6%
198,500 Frontier Insurance Group, Inc. 2,406,813
187,900 Penn Treaty American Corp.* 4,439,137
55,565 Radian Group 2,573,354
100,400 SCPIE Holdings, Inc. 3,043,375
161,900 Zenith National Insurance Corp. 3,490,969
------------
15,953,648
------------------------------------------------------------
Manufacturing - 1.1%
186,200 American National Can Group, Inc.* 3,049,025
------------------------------------------------------------
Media - 1.3%
73,500 Media General, Inc. 3,601,500
------------------------------------------------------------
Medical Products - 3.2%
174,400 Haemonetics Corp.* 3,411,700
261,400 Varian Medical Systems 5,652,775
------------
9,064,475
------------------------------------------------------------
Medical Providers - 6.9%
596,600 American Physician Partners, Inc.* 4,623,650
1,225,600 Beverly Enterprises, Inc.* 6,128,000
197,300 Foundation Health Systems, Inc.* 2,515,575
315,000 Matria Healthcare, Inc.* 1,870,312
164,100 Quest Diagnostics, Inc.* 4,338,394
------------
19,475,931
------------------------------------------------------------
Oil Refining - 1.5%
198,800 Valero Energy Corp. 4,224,500
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Post-Secondary Education - 2.2%
201,900 Career Education Corp.* $ 5,249,400
66,000 ITT Educational Services, Inc.* 1,031,250
------------
6,280,650
--------------------------------------------------------
Publishing - 1.4%
138,200 Lee Enterprises, Inc. 3,964,613
--------------------------------------------------------
Real Estate - 3.2%
97,800 Prentiss Properties Trust 2,218,838
443,000 Prime Hospitality Corp.* 4,125,437
242,800 RFS Hotel Investors, Inc. 2,777,025
------------
9,121,300
--------------------------------------------------------
Reinsurance - 4.9%
545,800 ESG Re Ltd. 7,368,300
388,800 PXRE Corp. 6,585,300
------------
13,953,600
--------------------------------------------------------
Restaurants - 2.1%
40,600 Avado Brands, Inc. 279,125
291,300 Morton's Restaurant Group, Inc.* 5,534,700
------------
5,813,825
--------------------------------------------------------
Semiconductors - 8.4%
740,000 General Semiconductor, Inc* 7,261,250
241,700 Hutchinson Technology, Inc.* 6,525,900
64,900 Kemet Corp.* 1,675,231
87,000 MEMC Electronic Materials, Inc.* 1,729,125
103,800 Varian Semiconductor Equipment,
Inc.* 2,361,450
203,377 Vishay Intertechnology, Inc.* 4,359,895
------------
23,912,851
--------------------------------------------------------
Specialty Retail - 4.1%
169,200 Brookstone, Inc.* 2,834,100
729,500 Friedmans, Inc. 6,360,328
95,412 Movado Group, Inc. 2,540,345
------------
11,734,773
--------------------------------------------------------
Steel - 1.0%
286,400 Ispat International NV 2,971,400
--------------------------------------------------------
Shipping/Logistics - 3.2%
121,500 Hub Group, Inc.* 2,809,687
82,900 Landstar Systems, Inc.* 3,067,300
185,600 Teekay Shipping Corp. 3,166,800
------------
9,043,787
--------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $296,462,179) $278,469,762
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - 0.1%
J. Baker, Inc.
$ 500,000 7.00% 06/01/2002 $ 417,500
--------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $499,168) $ 417,500
--------------------------------------------------------------------------------------------
Repurchase Agreement - 2.5%
Joint Repurchase Agreement
$7,000,000 5.52% 09/01/1999 $ 7,000,000
--------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $7,000,000) $ 7,000,000
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $303,961,347) $285,887,262
--------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$303,961,347) $285,887,262
Cash 112,992
Receivables:
Investment securities sold 492,476
Dividends and interest 238,362
Fund shares sold 433,443
Reimbursement from investment adviser 43,503
Other assets 1,762
------------------------------------------------------------------------------
Total assets 287,209,800
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 2,596,563
Fund shares repurchased 1,111,921
Amounts owed to affiliates 379,732
Accrued expenses and other liabilities 76,539
------------------------------------------------------------------------------
Total liabilities 4,164,755
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 346,859,967
Accumulated net realized loss from investment and options
transactions (45,740,837)
Net unrealized loss on investments (18,074,085)
------------------------------------------------------------------------------
NET ASSETS $283,045,045
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $19.80
Class B $19.27
Class C $19.28
Institutional $19.95
Service $19.76
------------------------------------------------------------------------------
Shares outstanding:
Class A 10,633,953
Class B 1,940,288
Class C 418,946
Institutional 1,354,278
Service 2,893
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 14,350,358
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $20.95. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 1,676,385
Interest 320,731
-----------------------------------------------------------------------------
Total income 1,997,116
-----------------------------------------------------------------------------
Expenses:
Management fees 1,733,424
Distribution and service fees(b) 603,782
Transfer agent fees(c) 312,887
Custodian fees 80,734
Registration fees 66,779
Professional fees 36,826
Trustee fees 6,426
Service share fees 471
Other 111,959
-----------------------------------------------------------------------------
Total expenses 2,953,288
-----------------------------------------------------------------------------
Less -- expenses reimbursed (191,783)
-----------------------------------------------------------------------------
Net expenses 2,761,505
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (764,389)
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and options
transactions:
Net realized gain (loss) from:
Investment transactions (24,683,341)
Options written 86,283
Net change in unrealized loss on:
Investments 42,816,511
-----------------------------------------------------------------------------
Net realized and unrealized gain on investment and options
transactions 18,219,453
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,455,064
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $10,072.
(b) Class A, Class B and Class C had distribution and service fees of
$339,961, $220,759 and $43,062, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $258,370, $41,944, $8,182, $4,353 and $38, respec-
tively.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Changes in Net Assets
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<CAPTION>
<S> <C>
From operations:
Net investment loss $ (764,389)
Net realized loss on investment and options transactions (24,597,058)
Net change in unrealized loss on investments 42,816,511
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations 17,455,064
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 96,142,667
Reinvestment of dividends and distributions --
Cost of shares repurchased (158,916,521)
-----------------------------------------------------------------------------
Net decrease in net assets resulting from share transactions (62,773,854)
-----------------------------------------------------------------------------
TOTAL DECREASE (45,318,790)
-----------------------------------------------------------------------------
Net assets:
Beginning of period 328,363,835
-----------------------------------------------------------------------------
End of period $ 283,045,045
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Statement of Changes in Net Assets
For the Year Ended January 31, 1999
<TABLE>
<S> <C>
From operations:
Net investment loss $ (1,430,151)
Net realized loss on investment transactions (21,053,205)
Net change in unrealized gain (loss) on investments (75,425,946)
-----------------------------------------------------------------------------
Net decrease in net assets resulting from operations (97,909,302)
-----------------------------------------------------------------------------
Distributions to shareholders:
From net realized gain on investment transactions
Class A shares (20,135,069)
Class B shares (2,897,126)
Class C shares (512,006)
Institutional shares (946,473)
Service shares (16,422)
-----------------------------------------------------------------------------
Total distributions to shareholders (24,507,096)
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 285,768,961
Reinvestment of dividends and distributions 22,881,335
Cost of shares repurchased (291,025,366)
-----------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 17,624,930
-----------------------------------------------------------------------------
TOTAL DECREASE (104,791,468)
-----------------------------------------------------------------------------
Net assets:
Beginning of year 433,155,303
-----------------------------------------------------------------------------
End of year $ 328,363,835
-----------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Notes to Financial Statements
August 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 Small Cap Value
Fund (the "Fund"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year-end of the Funds
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Trust's Board of Trustees.
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
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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 and interest recorded and the amounts actually received.
D. 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
12
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
E. 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.
F. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
G. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial 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.
The Fund had approximately $43,533,000 at August 31, 1999 (the Fund's tax
year-end) of capital loss carryforward expiring in 2007 for federal tax pur-
poses. This amount is available to be carried forward to offset future capi-
tal gains to the extent permitted by applicable laws or regulations.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $306,268,832. Accordingly, the gross unrealized gain
on investments was $29,911,891 and the gross unrealized loss on investments
was $50,293,461 resulting in a net unrealized loss of $20,381,570.
H. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of Shares of the Fund separately bears its respective
class-specific transfer agency fees.
13
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Notes to Financial Statements (continued)
August 31, 1999
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to the Fund.
Under the Agreement, the adviser, subject to the general supervision of the
Trust's Board of Trustees, manages the Fund's portfolio. As compensation for
the services rendered pursuant to the Agreement, the assumption of the
expenses related thereto and administering the Fund's business affairs,
including providing facilities, the adviser 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (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 exceed, on an annual basis, .06% of the average daily net assets of
the Fund. For the period ended August 31, 1999, Goldman Sachs has agreed to
reimburse approximately $192,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 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 $59,000 during the period
ended August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and
payable monthly at an annual rate as follows: .19% of the average daily net
assets for Class A, Class B and Class C shares and .04% of the 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$250,000, $86,000, and $44,000 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 options transactions) for the period ended August 31,
1999 were $135,517,459 and $186,615,192 respectively.
For the period ended August 31, 1999, Goldman Sachs earned approximately
$34,000 of brokerage commissions from portfolio transactions.
For the period ended August 31, 1999, written put option transactions in
the Fund were as follows:
<TABLE>
<CAPTION>
Written Options Number of Contracts Premium Received
----------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding, beginning of pe-
riod -- $ --
Options written 438 86,283
Options expired (438) (86,283)
----------------------------------------------------------------------------
BALANCE OUTSTANDING, END OF PERIOD -- $ --
----------------------------------------------------------------------------
</TABLE>
14
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000, com-
mitted unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all
repurchase agreements are held in safekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having
management agreements with GSAM or its affiliates, transfers uninvested cash
into joint accounts, the daily aggregate balance of which is invested in one
or more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $7,000,000 in principal amount.
At August 31, 1999, the following repurchase agreements held in this joint
account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
------------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
------------------------------------------------------------------------------------------
Deutsche Bank Securities, Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
------------------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
------------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT $3,106,800,000
------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Notes to Financial Statements (continued)
August 31, 1999
8. TRANSACTIONS WITH AFFILIATED COMPANIES
A Fund is considered to be invested in an affiliated company if that Fund
owns greater than five percent of the outstanding voting securities of such
company. During the period ended August 31, 1999, transactions with affili-
ates of the Fund were as follows:
<TABLE>
<CAPTION>
Market
Purchases Sales Realized Dividend Value
Affiliate Name at Cost Proceeds Gain/(Loss) Income 8/31/99
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allied Holdings, Inc. $ -- $ 4,604,081 $(4,006,005) $ -- $ N/A
----------------------------------------------------------------------------------------------
AVTeam, Inc. -- 3,611,400 (880,000) -- 1,157,813
----------------------------------------------------------------------------------------------
Friedmans, Inc. 529,507 2,269,737 (1,142,031) 18,948 6,360,328
----------------------------------------------------------------------------------------------
Healthplan Services Corp. -- 4,063,406 (5,701,461) 179,616 2,790,625
----------------------------------------------------------------------------------------------
J. Baker, Inc. -- -- -- 19,697 2,222,250
----------------------------------------------------------------------------------------------
Matria Healthcare, Inc. -- 10,650,853 2,018,441 -- 1,870,313
----------------------------------------------------------------------------------------------
MDC Corp. -- 6,577,699 1,106,348 -- N/A
----------------------------------------------------------------------------------------------
Mortons Restaurant Group, Inc. -- 2,178,372 149,723 -- 5,534,700
----------------------------------------------------------------------------------------------
Opinion Research Corp. -- 972,630 (667,520) -- 1,444,500
----------------------------------------------------------------------------------------------
Swift Energy Co. -- 5,231,295 (149,690) -- 2,940,363
----------------------------------------------------------------------------------------------
</TABLE>
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$764,389 from paid-in capital to accumulated net investment loss. This re-
classification has no impact on the net asset value of the Fund and is de-
signed to present the Fund's capital accounts on a tax basis.
16
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
10. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month
Period For the Year Ended
Ended August 31, 1999 January 31, 1999
---------------------------- --------------------------
Shares Dollars Shares Dollars
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 3,974,603 $ 75,211,330 11,250,168 $ 248,147,068
Reinvestments of divi-
dends and distributions -- -- 1,120,125 18,887,752
Shares repurchased (7,479,721) (141,251,011) (13,625,605) (275,189,998)
----------------------------------------------------
(3,505,118) (66,039,681) (1,255,312) (8,155,178)
-------------------------------------------------------------------------------
Class B Shares
Shares sold 223,866 4,216,615 1,020,790 24,298,444
Reinvestments of divi-
dends and distributions -- -- 159,248 2,632,705
Shares repurchased (652,859) (11,537,114) (609,437) (12,177,880)
----------------------------------------------------
(428,993) (7,320,499) 570,601 14,753,269
-------------------------------------------------------------------------------
Class C Shares
Shares sold 121,721 2,343,776 348,913 8,014,845
Reinvestments of divi-
dends and distributions -- -- 24,492 404,852
Shares repurchased (156,184) (2,743,702) (156,144) (3,072,836)
----------------------------------------------------
(34,463) (399,926) 217,261 5,346,861
-------------------------------------------------------------------------------
Institutional Shares
Shares sold 693,113 14,235,041 191,950 5,013,154
Reinvestments of divi-
dends and distributions -- -- 55,467 939,606
Shares repurchased (163,344) (3,050,873) (30,030) (583,311)
----------------------------------------------------
529,769 11,184,168 217,387 5,369,449
-------------------------------------------------------------------------------
Service Shares
Shares sold 7,750 135,905 13,163 295,450
Reinvestments of divi-
dends and distributions -- -- 974 16,420
Shares repurchased (18,993) (333,821) (71) (1,341)
----------------------------------------------------
(11,243) (197,916) 14,066 310,529
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) (3,450,048) $ (62,773,854) (235,997) $ 17,624,930
-------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(a) shareholders
------------------------------ -------------------------
Net asset In excess Net increase
value, Net Net realized and of net (decrease)
beginning investment unrealized investment From net in net asset
of period income (loss) gain (loss) income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $18.51 $(0.05) $1.34 $ -- $ -- $ 1.29
1999 - Class B Shares 18.10 (0.12) 1.29 -- -- 1.17
1999 - Class C Shares 18.12 (0.11) 1.27 -- -- 1.16
1999 - Institutional
Shares 18.62 -- 1.33 -- -- 1.33
1999 - Service Shares 18.50 (0.13) 1.39 -- -- 1.26
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 24.05 (0.06) (4.48) -- (1.00) (5.54)
1999 - Class B Shares 23.73 (0.21) (4.42) -- (1.00) (5.63)
1999 - Class C Shares 23.73 (0.18) (4.43) -- (1.00) (5.61)
1999 - Institutional
Shares 24.09 0.03 (4.50) -- (1.00) (5.47)
1999 - Service Shares 24.05 (0.04) (4.51) -- (1.00) (5.55)
----------------------------------------------------------------------------------------------------------
1998 - Class A Shares 20.91 0.14 5.33 -- (2.33) 3.14
1998 - Class B Shares 20.80 (0.01) 5.27 -- (2.33) 2.93
1998 - Class C Shares
(commenced August
15, 1997) 24.69 (0.06) 1.43 (0.34) (1.99) (0.96)
1998 - Institutional
Shares (commenced August
15, 1997) 24.91 0.03 1.48 (0.28) (2.05) (0.82)
1998 - Service Shares
(commenced August 15,
1997) 24.91 (0.01) 1.48 (0.31) (2.02) (0.86)
----------------------------------------------------------------------------------------------------------
1997 - Class A Shares 17.29 (0.21) 4.92 -- (1.09) 3.62
1997 - Class B Shares
(commenced May 1, 1996) 20.79 (0.11) 1.21 -- (1.09) 0.01
----------------------------------------------------------------------------------------------------------
1996 - Class A Shares 16.14 (0.23) 1.39 -- (0.01) 1.15
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary
waiver of fees or expense limitations
-------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to income (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$19.80 6.97%(d) $210,500 1.50%(c) (0.35)%(c) 1.61%(c) (0.46)%(c) 46.95%(d)
19.27 6.46(d) 37,386 2.25(c) (1.10)(c) 2.36(c) (1.21)(c) 46.95(d)
19.28 6.40(d) 8,079 2.25(c) (1.10)(c) 2.36(c) (1.21)(c) 46.95(d)
19.95 7.14(d) 27,023 1.10(c) 0.05(c) 1.21(c) (0.06)(c) 46.95(d)
19.76 6.81(d) 57 1.60(c) (0.41)(c) 1.71(c) (0.52)(c) 46.95(d)
18.51 (17.37) 261,661 1.50 (0.24) 1.74 (0.48) 98.46
18.10 (18.00) 42,879 2.25 (0.99) 2.29 (1.03) 98.46
18.12 (17.91) 8,212 2.25 (0.99) 2.29 (1.03) 98.46
18.62 (17.04) 15,351 1.13 0.13 1.17 0.09 98.46
18.50 (17.41) 261 1.62 (0.47) 1.66 (0.51) 98.46
- -------------------------------------------------------------------------------------------------------------------------------
24.05 26.17 370,246 1.54 (0.28) 1.76 (0.50) 84.81
23.73 25.29 42,677 2.29 (0.92) 2.29 (0.92) 84.81
23.73 5.51(d) 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c) 84.81
24.09 6.08(d) 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c) 84.81
24.05 5.91(d) 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c) 84.81
- -------------------------------------------------------------------------------------------------------------------------------
20.91 27.28 212,061 1.60 (0.72) 1.85 (0.97) 99.46
20.80 5.39(d) 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c) 99.46
- -------------------------------------------------------------------------------------------------------------------------------
17.29 7.20 204,994 1.41 (0.59) 1.66 (0.84) 57.58
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS SMALL CAP VALUE FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust -- Small Cap
Value Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Small Cap Value Fund, one of the portfolios constituting
Goldman Sachs Trust -- Equity Funds (a Delaware Business Trust), including
the statement of investments, as of August 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 August 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 Small Cap Value Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 93.2%
Banks - 8.2%
364,300 Bank of America Corp. $ 22,040,150
545,300 Bank One Corp. 21,880,162
592,000 First Union Corp. 24,568,000
230,400 KeyCorp 6,681,600
417,800 National City Corp. 11,541,725
293,600 Wells Fargo & Co. 11,688,950
--------------
98,400,587
-----------------------------------------------------------------
Chemical - 1.4%
93,100 Du Pont (E.I.) de Nemours & Co. 5,900,213
110,800 Minnesota Mining and Manufacturing Co. 10,470,600
--------------
16,370,813
-----------------------------------------------------------------
Clothing - 1.1%
458,300 The TJX Companies, Inc. 13,233,413
-----------------------------------------------------------------
Computer Hardware - 5.0%
382,300 Compaq Computer Corp. 8,864,581
184,200 Hewlett-Packard Co. 19,410,075
136,400 International Business Machines, Inc. 16,990,325
75,800 NCR Corp.* 3,316,250
254,000 Xerox Corp. 12,128,500
--------------
60,709,731
-----------------------------------------------------------------
Computer Software - 2.8%
212,200 Computer Associates International, Inc. 11,989,300
189,000 Microsoft Corp.* 17,494,312
103,700 Oracle Corp.* 3,785,050
--------------
33,268,662
-----------------------------------------------------------------
Defense/Aerospace - 1.8%
184,300 Northrop Grumman Corp. 13,361,750
121,300 Raytheon Co. 8,142,262
--------------
21,504,012
-----------------------------------------------------------------
Department Store - 2.8%
519,100 Federated Department Stores, Inc.* 23,878,600
96,600 Sears Roebuck & Co. 3,622,500
162,000 The May Department Stores Co. 6,328,125
--------------
33,829,225
-----------------------------------------------------------------
Drugs - 5.0%
362,200 American Home Products Corp. 15,031,300
48,400 Eli Lilly & Co. 3,611,850
316,800 Merck & Co. 21,285,000
383,600 Pharmacia & Upjohn, Inc. 20,043,100
--------------
59,971,250
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Electronics Equipment - 0.6%
27,400 General Motors Corp. (Hughes)* $ 1,411,100
67,100 Motorola, Inc. 6,189,975
--------------
7,601,075
-----------------------------------------------------------------------------
Electrical Utilities - 5.6%
641,800 Entergy Corp. 19,133,663
240,800 FPL Group, Inc. 13,003,200
153,000 Pacificorp 3,126,938
334,100 PG&E Corp. 10,127,406
560,100 Unicom Corp. 21,633,862
--------------
67,025,069
-----------------------------------------------------------------------------
Energy Resources - 5.6%
79,200 Atlantic Richfield Co. 6,964,650
217,100 Exxon Corp. 17,123,762
499,000 Occidental Petroleum Corp. 10,822,063
465,100 Royal Dutch Petroleum Co. ADR 28,778,062
120,000 Tosco Corp. 3,060,000
--------------
66,748,537
-----------------------------------------------------------------------------
Environmental Services - 1.3%
692,000 Waste Management, Inc. 15,094,250
-----------------------------------------------------------------------------
Financial Services - 2.3%
297,500 Federal Home Loan Mortgage Corp. 15,321,250
194,900 Federal National Mortgage Association 12,108,162
--------------
27,429,412
-----------------------------------------------------------------------------
Food & Beverage - 6.3%
50,800 Anheuser-Busch Companies, Inc. 3,911,600
1,282,575 Archer Daniels Midland Co. 16,673,475
748,000 ConAgra, Inc. 18,326,000
88,300 H.J. Heinz Co. 4,122,506
690,600 Nabisco Group Holdings Corp. 12,258,150
906,700 Sara Lee Corp. 20,117,406
--------------
75,409,137
-----------------------------------------------------------------------------
Forest - 0.7%
179,300 International Paper Co. 8,438,306
-----------------------------------------------------------------------------
Heavy Electrical - 1.6%
100,000 Emerson Electric Co. 6,262,500
118,000 General Electric Co. 13,252,875
--------------
19,515,375
-----------------------------------------------------------------------------
Home Products - 0.6%
74,700 Procter & Gamble Co. 7,413,975
-----------------------------------------------------------------------------
Hotel - 1.0%
484,200 Starwood Hotels & Resorts Worldwide, Inc. Class B 11,530,013
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Industrial Parts - 0.6%
62,200 Ingersoll-Rand Co. $ 3,957,475
37,500 Textron, Inc. 3,028,125
--------------
6,985,600
---------------------------------------------------------
Leisure - 0.3%
57,000 Eastman Kodak Co. 4,185,938
---------------------------------------------------------
Life Insurance - 3.9%
234,100 Aetna, Inc. 18,201,275
177,900 Cigna Corp. 15,977,644
354,894 UNUMProvident Corp. 12,798,365
--------------
46,977,284
---------------------------------------------------------
Media - 3.3%
230,600 CBS, Inc.* 10,838,200
346,700 MediaOne Group, Inc.* 22,795,525
214,700 The Walt Disney Co. 5,957,925
--------------
39,591,650
---------------------------------------------------------
Medical Products - 2.5%
246,700 Baxter International, Inc. 16,544,319
231,400 Becton, Dickinson & Co. 6,508,125
70,600 Johnson & Johnson 7,218,850
--------------
30,271,294
---------------------------------------------------------
Medical Providers - 0.8%
411,600 Columbia/HCA Healthcare Corp. 10,135,650
---------------------------------------------------------
Motor Vehicle - 6.3%
764,034 Delphi Automative Systems Corp. 14,325,637
277,300 Federal-Mogul Corp. 12,651,813
126,700 Ford Motor Co. 6,604,238
449,500 General Motors Corp. 29,723,187
224,700 TRW, Inc. 12,246,150
--------------
75,551,025
---------------------------------------------------------
Oil Refining - 0.9%
53,500 Texaco, Inc. 3,397,250
226,100 USX-Marathon Group, Inc. 7,037,363
--------------
10,434,613
---------------------------------------------------------
Property Insurance - 3.3%
556,200 Allstate Corp. 18,250,312
247,700 Hartford Financial Services
Group, Inc. 11,254,869
192,800 XL Capital Ltd. 9,700,250
--------------
39,205,431
---------------------------------------------------------
Publishing - 1.4%
266,500 New York Times Co. 10,410,156
213,400 R.R. Donnelley & Sons Co. 6,695,425
--------------
17,105,581
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Railroads - 1.0%
423,700 Burlington Northern Santa Fe Corp. $ 12,287,300
----------------------------------------------------------------
Restaurants - 0.9%
253,500 Tricon Global Restaurants, Inc.* 10,298,438
----------------------------------------------------------------
Security/Asset Management - 0.5%
71,200 Morgan Stanley Dean Witter & Co. 6,109,850
----------------------------------------------------------------
Semiconductors - 2.0%
289,500 Intel Corp. 23,793,281
----------------------------------------------------------------
Telephone - 9.7%
262,800 Ameritech Corp. 16,589,250
298,766 AT&T Corp. 13,444,470
254,000 Bell Atlantic Corp. 15,557,500
144,100 BellSouth Corp. 6,520,525
259,100 GTE Corp. 17,780,737
155,600 MCI Worldcom, Inc.* 11,786,700
382,700 SBC Communications, Inc. 18,369,600
114,700 Sprint Corp. 5,089,813
228,900 U.S. West, Inc. 11,960,025
--------------
117,098,620
----------------------------------------------------------------
Tobacco - 2.1%
688,900 Philip Morris Companies, Inc. 25,790,694
----------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,118,372,821) $1,119,315,091
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
U.S. Treasury Obligations - 0.3%
<S> <C> <C> <C>
U.S. Treasury Bills^
$ 3,200,000 4.79% 12/09/1999# $ 3,157,056
100,000 4.70 12/09/1999# 98,658
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,256,600) $ 3,255,714
----------------------------------------------------------------------------------------------
Repurchase Agreement - 7.0%
Joint Repurchase Agreement
$84,600,000 5.52% 09/01/1999 $ 84,600,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $84,600,000) $ 84,600,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $1,206,229,421) $1,207,170,805
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
# Portions of these securities are being segregated as collateral relating to
initial margin requirement on futures transactions.
^The interest rate disclosed for this security represents effective yield to
maturity.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$1,206,229,421) $ 1,207,170,805
Cash(a) 1,354,765
Receivables:
Investment securities sold 49,167,385
Dividends and interest 2,773,856
Fund shares sold 726,273
Other assets 831
------------------------------------------------------------------------------
Total assets 1,261,193,915
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 55,766,058
Fund shares repurchased 2,781,215
Amounts owed to affiliates 1,426,008
Variation margin 24,477
Options written, at value (premium received $572,270) 369,538
Accrued expenses and other liabilities 223,888
------------------------------------------------------------------------------
Total liabilities 60,591,184
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 1,143,836,521
Accumulated undistributed net investment income 634,990
Accumulated net realized gain from investment, futures and
options transactions 54,988,533
Net unrealized gain on investments, futures and options 1,142,687
------------------------------------------------------------------------------
NET ASSETS $1,200,602,731
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(b)
Class A $24.68
Class B $24.46
Class C $24.41
Institutional $24.72
Service $24.68
------------------------------------------------------------------------------
Shares outstanding:
Class A 34,653,264
Class B 11,116,028
Class C 1,283,375
Institutional 1,301,982
Service 405,587
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number
of shares authorized) 48,760,236
------------------------------------------------------------------------------
</TABLE>
(a) Includes restricted cash of $1,250,000 relating to initial margin
requirements on futures transactions.
(b) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $26.12. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 17,276,963
Interest 2,524,369
------------------------------------------------------------------------------
Total income 19,801,332
------------------------------------------------------------------------------
Expenses:
Management fees 5,645,766
Distribution and service fees(b) 3,454,215
Transfer agent fees(c) 1,485,349
Custodian fees 145,205
Registration fees 101,361
Professional fees 44,561
Service share fees 32,442
Trustee fees 6,426
Other 197,576
------------------------------------------------------------------------------
Total expenses 11,112,901
------------------------------------------------------------------------------
Less -- expenses reimbursed (59,598)
------------------------------------------------------------------------------
Net expenses 11,053,303
------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,748,029
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
options transactions:
Net realized gain from:
Investment transactions 70,787,088
Futures transactions 3,040,117
Options written 581,821
Net change in unrealized gain (loss) on:
Investments (52,796,298)
Futures (1,429)
Options written 202,732
------------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures and
options transactions 21,814,031
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 30,562,060
------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $240,256.
(b) Class A, Class B and Class C had distribution and service fees of
$1,432,452, $1,796,760 and $225,003, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $1,088,663, $341,384, $42,750, $9,957 and $2,595,
respectively.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Seven-Month Year Ended
Period Ended January 31,
August 31, 1999 1999
<S> <C> <C>
From operations:
Net investment income $ 8,748,029 $ 12,713,525
Net realized gain (loss) from investment,
futures and options transactions 74,409,026 (79,720,615)
Net change in unrealized gain on
investment, futures and options
transactions (52,594,995) (91,067,228)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 30,562,060 (158,074,318)
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (5,816,651) (9,893,876)
Class B shares (690,509) (555,085)
Class C shares (77,463) (98,749)
Institutional shares (244,239) (2,084,974)
Service shares (63,039) (80,841)
In excess of net investment income
Class A shares -- (473,558)
Class B shares -- (26,568)
Class C shares -- (4,727)
Institutional shares -- (99,795)
Service shares -- (3,869)
------------------------------------------------------------------------------
Total distributions to shareholders (6,891,901) (13,322,042)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 114,124,273 1,026,751,116
Reinvestment of dividends and distributions 6,538,450 10,754,319
Cost of shares repurchased (649,333,927) (761,706,430)
------------------------------------------------------------------------------
Net (decrease) increase in net assets
resulting from share transactions (528,671,204) 275,799,005
------------------------------------------------------------------------------
TOTAL (DECREASE) INCREASE (505,001,045) 104,402,645
------------------------------------------------------------------------------
Net assets:
Beginning of period 1,705,603,776 1,601,201,131
------------------------------------------------------------------------------
End of period $1,200,602,731 $1,705,603,776
------------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income $ 634,990 $ (1,221,249)
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements
August 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 Growth and
Income Fund (the "Fund"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year-end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Trust's Board of Trustees.
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
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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 and interest recorded and the amounts actually received.
D. 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
11
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements (continued)
August 31, 1999
E. 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.
F. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transacations, the Fund is required to segregate liq-
uid assets on the accounting records equal to or greater than the market
value of the corresponding transactions.
G. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $1,207,969,447. Accordingly, the gross unrealized gain
on investments was $80,796,302 and the gross unrealized loss on investments
was $81,594,944 resulting in a net unrealized loss of $798,642.
H. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions for their services with respect to such shares. Each class of shares of
the Fund separately bears its respective class-specific transfer agency fees.
12
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to the Fund.
Under the Agreement, the adviser, subject to the general supervision of the
Trust's Board of Trustees, manages the Fund's portfolio. As compensation for
the services rendered pursuant to the Agreement, the assumption of the ex-
penses related thereto and administering the Fund's business affairs, includ-
ing providing facilities, the adviser is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to .70% of the average daily net
assets of the Fund.
The adviser has voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, transfer
agent fees, taxes, interest, brokerage commissions, litigation, Service share
fees, indemnification costs and other extraordinary expenses) to the extent
such expenses exceed, on an annual basis, .05% of the average daily net as-
sets of the Fund. For the period ended August 31, 1999, Goldman Sachs has
agreed to reimburse approximately $60,000.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
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 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 $161,000 during the period
ended August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the 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 compensation to the service organizations in an amount up to
..50% (on a annualized basis), of the average daily net asset value of the
Service shares.
As of August 31, 1999, the amounts owed to affiliates were approximately
$774,000, $457,000 and $195,000 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, futures and options transactions) for the period ended Au-
gust 31, 1999, were $718,587,974 and $1,233,658,940, respectively.
For the period ended August 31, 1999, Goldman Sachs earned approximately
$139,000 of brokerage commissions from portfolio transactions.
13
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements (continued)
August 31, 1999
For the period ended August 31, 1999, written call option transactions in
the Fund were as follows:
<TABLE>
<CAPTION>
Written Options Number of Contracts Premium Received
-------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding, beginning of
period -- $ --
Options written 5,317 1,154,091
Options expired (2,522) (581,821)
-------------------------------------------------------------------------
BALANCE OUTSTANDING, END OF PERIOD 2,795 $ 572,270
-------------------------------------------------------------------------
</TABLE>
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Fund daily, depending on the
daily fluctuations in the value of the contracts, and are recorded for finan-
cial reporting purposes as unrealized gains or losses. When contracts are
closed, the Fund realizes a gain or loss which is reported in the Statement
of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, open futures contracts were
as follows:
<TABLE>
<CAPTION>
Number of Settlement Market Unrealized
Type Contracts Long Month Value Loss
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 40 December 1999 $13,350,000 $1,429
-------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed unsecured revolving
line of credit facility. Under the most restrictive arrangement the Fund must
own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
14
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At August 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $84,600,000 in principal
amount. At August 31, 1999, the following repurchase agreements held in this
joint account were fully collateralized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
----------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
----------------------------------------------------------------------------------------
Deutsche Bank Securities, Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
----------------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
----------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
----------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
----------------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified $111
from accumulated net realized gain from investment, futures and options
transactions to accumulated undistributed net investment income. This reclas-
sification has no impact on the net asset value of the Fund and is designed
to present the Fund's capital accounts on a tax basis.
15
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Notes to Financial Statements (continued)
August 31, 1999
9. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month Period Ended
August 31, 1999 For the Year Ended January 31, 1999
---------------------------------- ------------------------------------
Shares Dollars Shares Dollars
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 2,693,500 $ 68,994,627 19,137,910 $ 508,921,386
Reinvestments of divi-
dends and distributions 222,190 5,612,552 390,593 9,715,068
Shares repurchased (14,386,320) (361,520,290) (20,323,258) (510,471,024)
----------------------------------------------------------------------
(11,470,630) (286,913,111) (794,755) 8,165,430
--------------------------------------------------------------------------------------------------
Class B Shares
Shares sold 532,909 13,448,149 7,059,564 191,017,805
Reinvestments of divi-
dends and distributions 23,841 604,660 21,979 509,810
Shares repurchased (3,930,139) (97,151,929) (4,555,733) (111,930,613)
----------------------------------------------------------------------
(3,373,389) (83,099,120) 2,525,810 79,597,002
--------------------------------------------------------------------------------------------------
Class C Shares
Shares sold 104,662 2,636,497 1,937,045 52,029,313
Reinvestments of divi-
dends and distributions 2,859 72,208 4,364 105,648
Shares repurchased (823,868) (20,529,279) (1,174,701) (28,489,276)
----------------------------------------------------------------------
(716,347) (17,820,574) 766,708 23,645,685
--------------------------------------------------------------------------------------------------
Institutional Shares
Shares sold 1,012,105 26,839,595 10,119,858 268,940,951
Reinvestments of divi-
dends and distributions 7,373 189,388 14,004 346,705
Shares repurchased (6,850,928) (165,722,925) (4,396,583) (108,988,620)
----------------------------------------------------------------------
(5,831,450) (138,693,942) 5,737,279 160,299,036
--------------------------------------------------------------------------------------------------
Service Shares
Shares sold 85,566 2,205,405 218,320 5,841,661
Reinvestments of divi-
dends and distributions 2,354 59,642 3,132 77,088
Shares repurchased (173,088) (4,409,504) (73,792) (1,826,897)
----------------------------------------------------------------------
(85,168) (2,144,457) 147,660 4,091,852
--------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) (21,476,984) $ (528,671,204) 8,382,702 $ 275,799,005
--------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Goldman Sachs Growth and Income Fund -- Tax Information (unaudited)
During the tax year ended August 31, 1999, 43.50% of the ordinary income
dividends paid from net investment income by the Fund qualify for the divi-
dends received deduction available to corporations.
17
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
---------------------------- ------------------------------------
Net asset In excess Net increase
value, Net Net realized From net of net (decrease)
beginning investment and unrealized investment investment From net in net asset
of period income (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $24.33 $ 0.19 $0.31 $(0.15) $ -- $ -- $ 0.35
1999 - Class B Shares 24.13 0.08 0.31 (0.06) -- -- 0.33
1999 - Class C Shares 24.08 0.08 0.30 (0.05) -- -- 0.33
1999 - Institutional
Shares 24.35 0.34 0.23 (0.20) -- -- 0.37
1999 - Service Shares 24.33 0.17 0.32 (0.14) -- -- 0.35
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 25.93 0.20 (1.60) (0.19) (0.01) -- (1.60)
1999 - Class B Shares 25.73 0.02 (1.58) (0.04) -- -- (1.60)
1999 - Class C Shares 25.70 0.02 (1.59) (0.05) -- -- (1.62)
1999 - Institutional
Shares 25.95 0.29 (1.58) (0.30) (0.01) -- (1.60)
1999 - Service Shares 25.92 0.17 (1.58) (0.17) (0.01) -- (1.59)
------------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 23.18 0.11 5.27 (0.11) -- (2.52) 2.75
1998 - Class B Shares 23.10 0.04 5.14 -- (0.03) (2.52) 2.63
1998 - Class C Shares
(commenced August 15,
1997) 28.20 (0.01) 0.06 -- (0.03) (2.52) (2.50)
1998 - Institutional
Shares 23.19 0.27 5.23 (0.22) -- (2.52) 2.76
1998 - Service Shares 23.17 0.14 5.23 (0.06) (0.04) (2.52) 2.75
------------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 19.98 0.35 5.18 (0.35) (0.01) (1.97) 3.20
1997 - Class B Shares
(commenced May 1, 1996) 20.82 0.17 4.31 (0.17) (0.06) (1.97) 2.28
1997 - Institutional
Shares (commenced June
3, 1996) 21.25 0.29 3.96 (0.30) (0.04) (1.97) 1.94
1997 - Service Shares
(commenced March 6,
1996) 20.71 0.28 4.50 (0.28) (0.07) (1.97) 2.46
------------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 15.80 0.33 4.75 (0.30) -- (0.60) 4.18
------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to income (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$24.68 2.05%(d) $ 855,174 1.19%(c) 1.26%(c) 1.20%(c) 1.25%(c) 55.43%(d)
24.46 1.60(d) 271,912 1.94(c) 0.51(c) 1.95(c) 0.50(c) 55.43(d)
24.41 1.58(d) 31,328 1.94(c) 0.51(c) 1.95(c) 0.50(c) 55.43(d)
24.72 2.32(d) 32,181 0.79(c) 1.72(c) 0.80(c) 1.71(c) 55.43(d)
24.68 2.01(d) 10,008 1.29(c) 1.16(c) 1.30(c) 1.15(c) 55.43(d)
24.33 (5.40) 1,122,157 1.22 0.78 1.32 0.68 125.79
24.13 (6.07) 349,662 1.92 0.09 1.92 0.09 125.79
24.08 (6.12) 48,146 1.92 0.10 1.92 0.10 125.79
24.35 (5.00) 173,696 0.80 1.25 0.80 1.25 125.79
24.33 (5.44) 11,943 1.30 0.72 1.30 0.72 125.79
- --------------------------------------------------------------------------------------------------------------------------------
25.93 23.71 1,216,582 1.25 0.43 1.42 0.26 61.95
25.73 22.87 307,815 1.94 (0.35) 1.94 (0.35) 61.95
25.70 0.51(d) 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c) 61.95
25.95 24.24 36,225 0.83 0.76 0.83 0.76 61.95
25.92 23.63 8,893 1.32 0.32 1.32 0.32 61.95
- --------------------------------------------------------------------------------------------------------------------------------
23.18 28.42 615,103 1.22 1.60 1.43 1.39 53.03
23.10 22.23(d) 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c) 53.03
23.19 20.77(d) 193 0.82(c) 1.36(c) 0.82(c) 1.36(c) 53.03
23.17 23.87(d) 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c) 53.03
- --------------------------------------------------------------------------------------------------------------------------------
19.98 32.45 436,757 1.20 1.67 1.45 1.42 57.93
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust--Growth and
Income Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Growth and Income Fund, one of the portfolios constituting
Goldman Sachs Trust--Equity Funds (a Delaware Business Trust), including the
statement of investments, as of August 31, 1999, and the related statement of
operations, the statements of changes in net assets and the financial high-
lights for the periods presented. These financial statements and the finan-
cial highlights are the responsibility of the Fund's management. Our
responsibility 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 August 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 Growth and Income Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 99.6%
Airlines - 0.3%
33,100 AMR Corp.* $ 1,940,488
36,400 Delta Air Lines, Inc. 1,849,575
--------------
3,790,063
---------------------------------------------------------------
Alcohol - 0.4%
91,700 The Seagram Company Ltd. 4,865,831
---------------------------------------------------------------
Apparel - 0.1%
23,700 Nike, Inc. Class B 1,096,125
---------------------------------------------------------------
Banks - 6.0%
167,762 BankAmerica Corp. 10,149,601
61,900 Chase Manhattan Corp. 5,180,256
395,450 Citigroup, Inc. 17,572,809
22,400 Comerica, Inc. 1,166,200
19,800 Fifth Third Bancorp 1,311,750
173,100 Firstar Corp. 4,641,244
248,600 Fleet Financial Group, Inc. 9,897,387
169,800 Mellon Bank Corp. 5,667,075
91,600 PNC Bank Corp. 4,791,825
73,700 Suntrust Banks, Inc. 4,739,831
82,900 U.S. Bancorp 2,559,538
126,600 Wells Fargo & Co. 5,040,263
--------------
72,717,779
---------------------------------------------------------------
Chemical - 1.6%
43,700 Aptargroup, Inc. 1,125,275
122,000 Dow Chemicals Co. 13,862,250
52,400 PPG Industries, Inc. 3,147,275
58,500 Solutia, Inc. 1,170,000
--------------
19,304,800
---------------------------------------------------------------
Clothing - 0.1%
44,700 Intimate Brands, Inc. 1,723,744
---------------------------------------------------------------
Computer Hardware - 9.5%
92,800 Apple Computer, Inc.* 6,055,200
313,300 Cisco Systems, Inc.* 21,245,656
27,400 Dell Computer Corp.* 1,337,462
101,800 EMC Corp.* 6,108,000
107,000 Hewlett-Packard Co. 11,275,125
300,300 International Business Machines, Inc. 37,406,119
177,100 Lexmark International Group, Inc.* 13,946,625
68,800 Sun Microsystems, Inc.* 5,469,600
30,800 Tech Data Corp.* 1,141,525
240,800 Xerox Corp. 11,498,200
--------------
115,483,512
---------------------------------------------------------------
Computer Software - 6.0%
700,400 Microsoft Corp.* 64,830,775
209,400 Novell, Inc.* 4,960,163
33,300 Oracle Corp.* 1,215,450
43,300 Rational Software Corp.* 1,171,806
29,300 Unisys Corp.* 1,259,900
--------------
73,438,094
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Consumer Durables - 0.2%
31,700 Whirlpool Corp. $ 2,240,794
-------------------------------------------------------------
Defense/Aerospace - 1.9%
234,800 Allied Signal, Inc. 14,381,500
145,200 General Dynamics Corp. 9,147,600
--------------
23,529,100
-------------------------------------------------------------
Department Store - 2.1%
184,300 Dayton Hudson Corp. 10,689,400
43,600 Federated Department Stores, Inc.* 2,005,600
31,000 The May Department Stores Co. 1,210,938
272,600 Wal-Mart Stores, Inc. 12,079,587
--------------
25,985,525
-------------------------------------------------------------
Drugs - 7.2%
75,100 Allergan, Inc. 7,500,612
207,100 Amgen, Inc.* 17,228,131
103,500 Biogen, Inc.* 7,943,625
307,600 Bristol-Myers Squibb Co. 21,647,350
149,300 Merck & Co. 10,031,094
346,500 Pfizer, Inc. 13,080,375
70,800 Pharmacia & Upjohn, Inc. 3,699,300
123,200 Schering-Plough Corp. 6,475,700
--------------
87,606,187
-------------------------------------------------------------
Electrical Equipment - 3.6%
27,700 Danaher Corp. 1,627,375
35,300 Eaton Corp. 3,459,400
33,200 Johnson Controls, Inc. 2,270,050
148,900 Lucent Technologies, Inc. 9,538,906
21,400 PE Corp.--PE Biosystems Group 1,472,587
85,100 QUALCOMM, Inc.* 16,355,156
217,300 Qwest Communications International,
Inc.* 6,247,375
18,000 Solectron Corp.* 1,408,500
61,800 Vishay Intertechnology, Inc.* 1,324,838
--------------
43,704,187
-------------------------------------------------------------
Electrical Utilities - 2.5%
33,300 Ameren Corp. 1,334,081
29,200 Consolidated Edison, Inc. 1,284,800
29,400 Dominion Resources, Inc. 1,359,750
59,700 Duke Energy Co. 3,432,750
146,300 Edison International, Inc. 3,712,362
81,500 FPL Group, Inc. 4,401,000
32,700 GPU, Inc. 1,115,888
53,400 PECO Energy Co. 2,169,375
123,100 Public Service Enterprise 5,047,100
98,300 Texas Utilities Co. 3,975,006
60,300 Unicom Corp. 2,329,088
--------------
30,161,200
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Energy Resources - 6.4%
423,400 Exxon Corp. $ 33,395,675
175,100 Mobil Corp. 17,925,863
433,300 Royal Dutch Petroleum Co. ADR 26,810,437
--------------
78,131,975
---------------------------------------------------------------
Entertainment - 1.0%
130,400 Carnival Cruise Lines Corp. 5,827,250
31,700 Royal Caribbean Cruise Lines 1,483,956
113,400 Viacom, Inc. Class B* 4,769,888
--------------
12,081,094
---------------------------------------------------------------
Financial Services - 2.1%
157,770 Associates First Capital Corp. 5,413,483
44,700 Federal Home Loan Mortgage Corp. 2,302,050
19,400 Federal National Mortgage Association 1,205,225
21,500 H&R Block, Inc. 1,195,938
51,400 Marsh & McLennan Co. 3,742,562
145,600 Providian Financial Corp. 11,302,200
--------------
25,161,458
---------------------------------------------------------------
Food & Beverage - 4.8%
235,725 Archer Daniels Midland Co. 3,064,425
63,700 Coca-Cola Co. 3,810,056
103,700 ConAgra, Inc. 2,540,650
46,800 General Mills, Inc. 3,919,500
714,300 Nabisco Group Holdings Corp. 12,678,825
214,500 Nabisco Holdings Corp. 8,432,531
403,900 Pepsico, Inc. 13,783,087
69,700 Supervalu, Inc. 1,568,250
122,492 Unilever NV 8,436,637
--------------
58,233,961
---------------------------------------------------------------
Forest - 0.7%
87,000 Georgia-Pacific Corp. 3,599,625
35,800 International Paper Co. 1,684,838
58,300 Weyerhaeuser Co. 3,279,375
--------------
8,563,838
---------------------------------------------------------------
Gas Utilities - 0.1%
45,000 Keyspan Corp. 1,327,500
---------------------------------------------------------------
Gold - 0.4%
247,400 Barrick Gold Corp. 4,793,375
---------------------------------------------------------------
Grocery - 0.8%
104,600 Food Lion, Inc. 826,994
278,800 Kroger Co.* 6,447,250
42,934 Safeway, Inc.* 1,999,114
--------------
9,273,358
---------------------------------------------------------------
Heavy Electrical - 3.5%
39,900 Emerson Electric Co. 2,498,738
357,300 General Electric Co. 40,129,256
--------------
42,627,994
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Home Products - 1.6%
97,200 Fortune Brands, Inc. $ 3,645,000
160,800 Procter & Gamble Co. 15,959,400
--------------
19,604,400
---------------------------------------------------------
Hotel - 0.3%
106,500 Marriott International, Inc. 3,647,625
---------------------------------------------------------
Industrial Parts - 1.2%
110,000 Caterpillar, Inc. 6,228,750
59,100 Ingersoll-Rand Co. 3,760,238
69,800 United Technologies Corp. 4,615,525
--------------
14,604,513
---------------------------------------------------------
Industrial Services - 0.5%
139,100 Hertz Corp. 5,607,469
---------------------------------------------------------
Information Services - 1.1%
108,200 America Online, Inc.* 9,880,013
84,900 First Data Corp. 3,735,600
--------------
13,615,613
---------------------------------------------------------
Leisure - 1.4%
203,500 Eastman Kodak Co. 14,944,531
77,400 Hasbro, Inc. 1,891,463
--------------
16,835,994
---------------------------------------------------------
Life Insurance - 1.5%
44,500 Aetna, Inc. 3,459,875
32,900 AFLAC, Inc. 1,478,444
16,900 American General Corp. 1,199,900
122,500 Cigna Corp. 11,002,031
25,200 Hartford Life, Inc. 1,094,625
--------------
18,234,875
---------------------------------------------------------
Media - 1.9%
33,900 Cox Communications, Inc.* 1,260,656
95,300 Fox Entertainment Group, Inc.* 2,197,856
219,900 General Motors Corp. Class H* 11,324,850
118,400 Infinity Broadcasting Corp.* 3,204,200
21,400 Time Warner, Inc. 1,269,288
58,400 Univision Communications, Inc.* 4,307,000
--------------
23,563,850
---------------------------------------------------------
Medical Products - 4.0%
130,600 Abbott Laboratories 5,664,775
40,700 Bausch & Lomb, Inc. 2,688,744
29,300 Boston Scientific Corp.* 994,369
179,900 Johnson & Johnson 18,394,775
213,893 Tyco International Ltd. 21,670,034
--------------
49,412,697
---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Medical Providers - 1.1%
200,600 Beverly Enterprises, Inc.* $ 1,003,000
120,100 Columbia/HCA Healthcare Corp. 2,957,463
1 Lifepoint Hospitals, Inc.* 7
79,300 Tenet Healthcare Corp.* 1,382,794
1 Triad Hospitals, Inc.* 11
82,100 United Healthcare Corp. 4,992,706
42,900 Wellpoint Health Networks, Inc. 3,126,337
--------------
13,462,318
-----------------------------------------------------------------
Mining - 0.4%
39,800 Alcoa, Inc. 2,569,588
150,000 Bethlehem Steel Corp.* 1,153,125
56,700 Inco Ltd. 1,162,350
--------------
4,885,063
-----------------------------------------------------------------
Motor Vehicle - 1.4%
246,900 Ford Motor Co. 12,869,662
76,800 Navistar International Corp.* 3,734,400
--------------
16,604,062
-----------------------------------------------------------------
Oil Services - 0.6%
108,100 Schlumberger Ltd. 7,215,675
-----------------------------------------------------------------
Property Insurance - 4.1%
212,612 Allstate Corp. 6,976,331
302,293 American International Group, Inc. 28,018,783
59,100 Hartford Financial Services Group, Inc. 2,685,356
18,800 Jefferson-Pilot Corp. 1,254,900
26,800 Loews Corp. 2,103,800
244,700 Travelers Property & Casualty Corp. 8,686,850
--------------
49,726,020
-----------------------------------------------------------------
Publishing - 0.2%
22,000 Gannett Co. 1,494,625
23,600 Knight Ridder, Inc. 1,272,925
--------------
2,767,550
-----------------------------------------------------------------
Railroads - 0.4%
177,000 Burlington Northern Santa Fe Corp. 5,133,000
-----------------------------------------------------------------
Restaurants - 0.2%
59,410 Tricon Global Restaurants, Inc.* 2,413,531
-----------------------------------------------------------------
Security/Asset Management - 1.5%
122,200 Charles Schwab Corp. 4,826,900
105,900 Equitable Companies, Inc. 6,539,325
81,100 Morgan Stanley Dean Witter & Co. 6,959,394
--------------
18,325,619
-----------------------------------------------------------------
Semiconductors - 2.9%
341,400 Intel Corp. 28,058,812
51,400 Texas Instruments, Inc. 4,218,013
38,300 Xilinx, Inc.* 2,678,606
--------------
34,955,431
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Specialty Retail - 3.4%
164,800 Best Buy Co., Inc.* $ 11,577,200
169,400 Circuit City Stores, Inc. 7,284,200
111,900 Lowes Co., Inc. 5,063,475
112,400 Tandy Corp. 5,310,900
208,500 The Home Depot, Inc. 12,744,562
--------------
41,980,337
-------------------------------------------------------
Telephone - 6.5%
283,300 Ameritech Corp. 17,883,312
591,675 AT&T Corp. 26,625,375
96,800 BellSouth Corp. 4,380,200
32,500 Centurytel, Inc. 1,277,656
170,500 MCI Worldcom, Inc.* 12,915,375
78,000 SBC Communications, Inc. 3,744,000
284,700 Sprint Corp. 12,633,563
--------------
79,459,481
-------------------------------------------------------
Thrifts - 0.1%
12,800 Golden West Financial Corp. 1,162,400
-------------------------------------------------------
Tobacco - 0.8%
228,300 Philip Morris Companies, Inc. 8,546,981
43,300 Universal Corp. 1,228,638
--------------
9,775,619
-------------------------------------------------------
Wireless - 1.2%
190,400 Alltel Corp. 12,875,800
34,500 United States Cellular Corp.* 1,942,781
--------------
14,818,581
-------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $954,461,619) $1,213,653,217
-------------------------------------------------------
TOTAL INVESTMENTS
(Cost $954,461,619) $1,213,653,217
-------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 98.1%
<C> <S> <C>
Airlines - 0.0%
24,400 Southwest Airlines Co. $ 407,175
-------------------------------------------------------------
Alcohol - 0.7%
29,500 Anheuser-Busch Companies, Inc. 2,271,500
67,500 The Seagram Company Ltd. 3,581,719
------------
5,853,219
-------------------------------------------------------------
Apparel - 0.6%
115,000 Nike, Inc. Class B 5,318,750
-------------------------------------------------------------
Banks - 0.1%
37,500 Firstar Corp. 1,005,469
-------------------------------------------------------------
Chemical - 1.0%
9,600 Avery Dennison Corp. 526,800
70,500 Dow Chemicals Co. 8,010,563
------------
8,537,363
-------------------------------------------------------------
Clothing - 0.3%
53,800 Ann Taylor Stores Corp.* 1,782,125
21,000 Footstar, Inc.* 682,500
------------
2,464,625
-------------------------------------------------------------
Computer Hardware - 13.6%
69,900 Apple Computer, Inc.* 4,560,975
600,800 Cisco Systems, Inc.* 40,741,750
7,100 Electronics for Imaging, Inc.* 416,237
142,800 EMC Corp.* 8,568,000
188,400 Hewlett-Packard Co. 19,852,650
118,000 International Business Machines, Inc. 14,698,375
156,400 Lexmark International Group, Inc.* 12,316,500
127,000 Sun Microsystems, Inc.* 10,096,500
105,500 Tech Data Corp.* 3,910,094
67,300 Xerox Corp. 3,213,575
------------
118,374,656
-------------------------------------------------------------
Computer Software - 9.9%
63,700 Adobe Systems, Inc. 6,346,112
625,700 Microsoft Corp.* 57,916,356
181,700 Novell, Inc.* 4,304,019
365,000 Oracle Corp.* 13,322,500
55,100 Sabre Group Holdings, Inc.* 3,085,600
22,700 Unisys Corp.* 976,100
------------
85,950,687
-------------------------------------------------------------
Department Store - 1.9%
94,300 Dayton Hudson Corp. 5,469,400
244,200 Wal-Mart Stores, Inc. 10,821,113
------------
16,290,513
-------------------------------------------------------------
Drugs - 11.4%
49,200 Allergan, Inc. 4,913,850
400,000 Amgen, Inc.* 33,275,000
2,500 Andrx Corp.* 179,688
39,100 Biogen, Inc.* 3,000,925
279,400 Bristol-Myers Squibb Co. 19,662,775
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Drugs - (continued)
17,700 Genzyme Corp.* $ 998,944
20,000 Immunex Corp.* 1,346,250
158,200 Merck & Co. 10,629,062
496,800 Pfizer, Inc. 18,754,200
122,100 Schering-Plough Corp. 6,417,881
------------
99,178,575
-----------------------------------------------------------------
Electrical Equipment - 7.2%
7,000 Danaher Corp. 411,250
218,000 General Instrument Corp.* 10,722,875
10,900 Johnson Controls, Inc. 745,288
272,900 Lucent Technologies, Inc. 17,482,656
43,800 PE Corp.--PE Biosystems Group 3,013,987
124,800 QUALCOMM, Inc.* 23,985,000
186,500 Qwest Communications International, Inc.* 5,361,875
12,400 Solectron Corp.* 970,300
3,300 Teradyne, Inc.* 224,606
------------
62,917,837
-----------------------------------------------------------------
Electrical Utilities - 0.3%
30,500 Calpine Corp.* 2,764,063
-----------------------------------------------------------------
Energy Resources - 0.3%
30,600 Exxon Corp. 2,413,575
-----------------------------------------------------------------
Entertainment - 0.5%
109,800 Viacom, Inc. Class B* 4,618,463
-----------------------------------------------------------------
Environmental Services - 0.2%
20,300 Allied Waste Industries, Inc.* 258,825
117,800 Republic Services, Inc.* 1,281,075
------------
1,539,900
-----------------------------------------------------------------
Financial Services - 1.0%
10,400 Marsh & McLennan Co. 757,250
97,450 Providian Financial Corp. 7,564,556
------------
8,321,806
-----------------------------------------------------------------
Food & Beverage - 4.9%
228,900 Coca-Cola Co. 13,691,081
17,500 Coca-Cola Enterprises, Inc. 497,656
59,600 ConAgra, Inc. 1,460,200
19,400 General Mills, Inc. 1,624,750
34,800 H.J. Heinz Co. 1,624,725
25,700 Hormel Foods Corp. 1,034,425
275,600 IBP, Inc. 6,321,575
13,400 Keebler Foods Co.* 399,488
310,700 Nabisco Group Holdings Corp. 5,514,925
64,300 Nabisco Holdings Corp. 2,527,794
83,100 Pepsico, Inc. 2,835,787
9,300 Quaker Oats Co. 621,356
60,803 Unilever NV 4,187,807
------------
42,341,569
-----------------------------------------------------------------
Gold - 0.2%
91,600 Barrick Gold Corp. 1,774,750
-----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Grocery - 1.2%
201,200 Kroger Co.* $ 4,652,750
116,900 Safeway, Inc.* 5,443,156
------------
10,095,906
------------------------------------------------------------
Heavy Electrical - 5.3%
12,500 Emerson Electric Co. 782,813
406,500 General Electric Co. 45,655,031
------------
46,437,844
------------------------------------------------------------
Home Products - 2.8%
86,800 Clorox Co. 3,927,700
11,200 Fortune Brands, Inc. 420,000
199,700 Procter & Gamble Co. 19,820,225
------------
24,167,925
------------------------------------------------------------
Hotel - 0.3%
78,900 Marriott International, Inc. 2,702,325
4,530 MGM Grand, Inc.* 222,536
------------
2,924,861
------------------------------------------------------------
Industrial Parts - 0.3%
23,200 Caterpillar, Inc. 1,313,700
25,800 United Technologies Corp. 1,706,025
------------
3,019,725
------------------------------------------------------------
Industrial Services - 0.9%
11,300 Cintas Corp. 580,537
179,500 Hertz Corp. 7,236,094
------------
7,816,631
------------------------------------------------------------
Information Services - 4.0%
66,400 America Online, Inc.* 6,063,150
43,000 Automatic Data Processing, Inc. 1,690,437
44,800 Computer Sciences Corp. 3,099,600
25,300 Electronic Data Systems 1,419,963
148,200 Exodus Communications, Inc.* 11,911,575
133,900 First Data Corp. 5,891,600
26,500 Interpublic Group of Companies, Inc. 1,050,063
33,100 Omnicom Group, Inc. 2,494,912
6,000 Sotheby's Holdings, Inc. 174,750
5,600 VeriSign, Inc.* 606,550
------------
34,402,600
------------------------------------------------------------
Leisure - 2.6%
313,200 Eastman Kodak Co. 23,000,625
------------------------------------------------------------
Media - 0.8%
31,800 Fox Entertainment Group, Inc.* 733,388
110,200 General Motors Corp. Class H* 5,675,300
5,400 Univision Communications, Inc.* 398,250
------------
6,806,938
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Medical Products - 5.0%
146,500 Abbott Laboratories $ 6,354,437
28,200 Bausch & Lomb, Inc. 1,862,963
220,200 Johnson & Johnson 22,515,450
45,200 Medtronic, Inc. 3,536,900
90,200 Tyco International Ltd. 9,138,387
------------
43,408,137
-----------------------------------------------------------
Medical Providers - 2.3%
88,500 Columbia/HCA Healthcare Corp. 2,179,312
33,100 Healthsouth Corp.* 271,006
26,700 Lincare Holdings, Inc.* 704,213
28,700 Pacificare Health Systems* 1,722,000
59,000 Tenet Healthcare Corp.* 1,028,812
31,900 Trigon Healthcare, Inc.* 1,158,369
177,000 Wellpoint Health Networks, Inc.* 12,898,875
------------
19,962,587
-----------------------------------------------------------
Motor Vehicle - 1.4%
11,900 Delphi Automative Systems Corp. 223,125
246,400 Navistar International Corp.* 11,981,200
------------
12,204,325
-----------------------------------------------------------
Oil Refining - 0.1%
17,800 Dynegy, Inc. 418,300
9,800 The Coastal Corp. 424,463
------------
842,763
-----------------------------------------------------------
Oil Services - 0.3%
45,100 Schlumberger Ltd. 3,010,425
-----------------------------------------------------------
Property Insurance - 1.6%
136,500 American International Group, Inc. 12,651,844
36,500 Travelers Property & Casualty Corp. 1,295,750
------------
13,947,594
-----------------------------------------------------------
Restaurants - 0.6%
11,400 McDonald's Corp. 471,675
121,200 Tricon Global Restaurants, Inc.* 4,923,750
------------
5,395,425
-----------------------------------------------------------
Security/Asset Management - 2.0%
451,500 Charles Schwab Corp. 17,834,250
-----------------------------------------------------------
Semiconductors - 4.0%
413,600 Intel Corp. 33,992,750
8,000 Texas Instruments, Inc. 656,500
------------
34,649,250
-----------------------------------------------------------
Specialty Retail - 4.1%
112,300 Best Buy Co., Inc.* 7,889,075
119,300 Circuit City Stores, Inc. 5,129,900
131,000 CVS Corp. 5,461,063
10,800 Lowes Co., Inc. 488,700
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Specialty Retail - (continued)
239,500 The Home Depot, Inc. $ 14,639,437
40,200 Tiffany & Co. 2,125,575
------------
35,733,750
------------------------------------------------------
Telephone - 3.0%
7,700 Ameritech Corp. 486,062
162,900 AT&T Corp. 7,330,500
33,700 BCE, Inc. 1,575,475
161,900 MCI Worldcom, Inc.* 12,263,925
66,100 SBC Communications, Inc. 3,172,800
28,000 Sprint Corp. 1,242,500
------------
26,071,262
------------------------------------------------------
Tobacco - 1.1%
256,400 Philip Morris Companies, Inc. 9,598,975
------------------------------------------------------
Truck Freight - 0.1%
28,500 FDX Corp.* 1,209,469
------------------------------------------------------
Wireless - 0.2%
11,000 Alltel Corp. 743,875
5,300 Telephone & Data Systems, Inc. 369,013
13,400 United States Cellular Corp.* 754,587
------------
1,867,475
------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $725,725,430) $854,481,737
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<C> <S> <C> <C>
Repurchase Agreement - 1.6%
Joint Repurchase Agreement
$13,600,000 5.52% 09/01/1999 $ 13,600,000
-----------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $13,600,000) $ 13,600,000
-----------------------------------------------
TOTAL INVESTMENTS
(Cost $739,325,430) $868,081,737
-----------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 99.4%
<C> <S> <C>
Airlines - 1.6%
22,700 Alaska Air Group, Inc.* $ 981,775
18,000 America West Holdings Corp. Class B* 351,000
51,700 Frontier Airlines, Inc.* 649,481
5,600 Midwest Express Holdings, Inc.* 151,200
------------
2,133,456
-----------------------------------------------------------
Apparel - 3.0%
34,200 Brown Group, Inc. 594,225
28,000 K-Swiss, Inc. 878,500
7,000 Kellwood Co. 167,125
5,200 Kenneth Cole Productions, Inc.* 177,775
11,600 Oxford Industries, Inc. 250,850
16,300 Phillips-Van Heusen Corp. 138,550
12,450 Quiksilver, Inc.* 214,763
9,800 Russell Corp. 164,150
18,100 Springs Industries, Inc. 679,881
44,800 Wellman, Inc. 753,200
------------
4,019,019
-----------------------------------------------------------
Banks - 4.5%
19,000 Bancwest Corp. 794,437
24,300 Brookline Bancorp, Inc. 264,263
5,800 Commerce Bancorp, Inc. 249,400
5,900 First Charter Corp. 128,325
17,600 First Commonwealth Financial Corp. 423,500
14,000 Hudson United Bancorp 445,375
12,492 Imperial Bancorp* 212,364
30,600 Independence Community Bank Corp. 378,675
9,100 Independent Bank Corp. 122,850
8,000 Net.B@nk, Inc.* 186,000
14,200 One Valley Bancorp, Inc. 543,150
20,400 Southwest Bancorp of Texas, Inc.* 351,900
12,650 Trustco Bank Corp. 376,338
11,700 United Bankshares, Inc. 300,544
13,500 UST Corp. 410,062
21,300 Western Bancorp 846,675
------------
6,033,858
-----------------------------------------------------------
Chemical - 2.4%
10,700 Aptargroup, Inc. 275,525
5,200 Brady Corp. 156,000
18,100 Dexter Corp. 659,519
12,100 Gencorp, Inc. 260,150
17,100 Geon Co. 510,862
4,700 H.B. Fuller Co. 283,175
24,700 Octel Corp.* 280,963
27,800 Spartech Corp. 773,187
------------
3,199,381
-----------------------------------------------------------
Clothing - 1.2%
31,700 Ann Taylor Stores Corp.* 1,050,062
4,600 Talbots, Inc. 142,313
9,900 The Buckle, Inc.* 167,063
21,500 The Cato Corp. 288,906
------------
1,648,344
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Computer Hardware - 3.1%
10,600 Advanced Digital Information Corp.* $ 341,850
13,700 Gerber Scientific, Inc. 279,994
18,800 Imation Corp.* 529,925
20,200 Inacom Corp.* 196,950
4,700 Jack Henry & Associates, Inc. 152,750
37,800 MTI Technology Corp.* 843,412
5,800 Proxim, Inc.* 282,750
18,000 Sandisk Corp.* 1,518,750
------------
4,146,381
------------------------------------------------------------
Computer Software - 7.2%
13,700 Advantage Learning Systems, Inc.* 307,394
11,400 Advent Software, Inc.* 560,025
8,400 AVT Corp.* 237,300
9,100 Broadvision, Inc.* 906,019
19,900 CACI International, Inc.* 447,750
6,900 Clarify, Inc.* 303,600
7,300 Concord Communications, Inc.* 269,416
9,400 Dendrite International, Inc.* 391,275
16,000 Genesys Telecommunication* 468,000
19,600 IMR Global Corp.* 334,425
26,000 Informix Corp.* 189,312
25,500 Mentor Graphics Corp.* 228,703
7,600 Mercury Interactive Corp.* 362,900
21,700 National Computer Systems, Inc. 846,300
23,600 Peregrine Systems, Inc.* 778,800
6,900 Pervasive Software, Inc.* 146,625
30,600 Progress Software Corp.* 937,125
7,400 Project Software & Development, Inc.* 325,137
12,600 Remedy Corp.* 308,700
68,100 Sybase, Inc.* 851,250
8,300 Transaction Systems Architects, Inc.* 244,331
8,100 TSI International Software Ltd.* 153,900
5,200 Visual Networks, Inc.* 215,800
------------
9,814,087
------------------------------------------------------------
Construction - 2.9%
13,400 Comfort Systems USA, Inc.* 189,275
6,450 Elcor Corp. 124,163
10,500 Florida Rock Industrial, Inc. 419,344
10,900 Granite Construction, Inc. 272,500
13,200 Group Maintenance America Corp.* 162,525
16,000 Insituform Technologies, Inc.* 332,000
8,800 Jacobs Engineering Group, Inc.* 290,400
16,300 Kaufman & Broad Home Co. 333,131
9,100 M.D.C. Holdings, Inc. 171,194
18,800 Morrison Knudsen Corp.* 202,100
7,200 NCI Building Systems, Inc.* 131,850
14,400 Pulte Corp. 333,000
16,600 Ryland Group, Inc. 399,437
12,800 TJ International, Inc. 372,800
4,300 U.S. Home Corp.* 129,000
------------
3,862,719
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Consumer Durables - 0.6%
11,400 Applied Power, Inc. $ 349,125
15,100 La- Z-Boy, Inc. 331,256
5,600 Salton, Inc.* 156,100
------------
836,481
----------------------------------------------------------
Defense/Aerospace - 0.4%
12,700 AAR Corp. 271,463
3,700 Precision Castparts Corp. 131,350
8,500 Triumph Group, Inc.* 210,375
------------
613,188
----------------------------------------------------------
Department Store - 0.6%
27,000 Shopko Stores, Inc.* 772,875
----------------------------------------------------------
Drugs - 6.1%
33,300 Alpharma, Inc. 1,128,037
17,400 Amerisource Health Corp.* 449,138
49,810 Bindley Western Industries, Inc. 834,317
17,500 Cambrex Corp. 470,313
18,800 Chirex, Inc.* 568,700
14,600 Covance, Inc.* 234,513
7,000 Gilead Sciences, Inc.* 545,562
28,000 Herbalife International, Inc. 336,000
9,150 Jones Pharmaceutical, Inc. 247,622
30,100 Millennium Pharmaceutical* 1,774,019
31,284 Priority Healthcare Corp. Class B* 879,862
21,200 Roberts Pharmaceutical Co.* 568,425
4,800 Syncor International Corp.* 172,800
------------
8,209,308
----------------------------------------------------------
Electrical Equipment - 5.9%
12,000 Aavid Thermal Technologies, Inc.* 273,000
15,600 Aeroflex, Inc.* 255,450
12,800 Artesyn Technologies, Inc.* 280,800
12,600 C-Cube Microsystems, Inc.* 350,437
16,200 DII Group, Inc.* 574,087
16,000 Esterline Technologies Corp.* 262,000
63,700 Federal Signal Corp. 1,333,719
8,000 Kemet Corp.* 206,500
13,800 Kimball International, Inc. Class B 266,513
24,800 Methode Electronics, Inc. 446,400
6,900 Oak Industries, Inc.* 216,488
19,300 Park Electrochemical Corp. 560,906
23,800 Pioneer Standard Electronics, Inc. 336,175
6,800 Polycom, Inc.* 248,625
44,000 Sawtek, Inc.* 1,454,750
21,900 Sensormatic Electronics Corp.* 255,956
7,800 Technitrol, Inc. 273,000
8,600 Xircom, Inc.* 342,388
------------
7,937,194
----------------------------------------------------------
Electrical Utilities - 2.1%
19,000 Avista Corp. 327,750
23,700 CMP Group, Inc. 629,531
4,800 Eastern Utilities Assoc. 143,700
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Electrical Utilities - (continued)
13,400 Empire District Electric Co. $ 341,700
16,900 Hawaiian Electric Industries, Inc. 601,006
15,700 Public Service Company of New Mexico 295,356
1,458 Sierra Pacific Resources 35,539
13,100 TNP Enterprises, Inc. 489,613
------------
2,864,195
---------------------------------------------------------------
Energy Resources - 1.1%
13,600 Barrett Resources Corp.* 490,450
17,800 Cabot Oil & Gas Corp. 339,312
12,300 Cross Timbers Oil Co. 152,213
8,400 Houston Exploration Co.* 178,500
25,200 Southwestern Energy Co. 225,225
5,200 St. Mary Land & Exploration Co. 137,800
------------
1,523,500
---------------------------------------------------------------
Entertainment - 0.7%
76,700 Handleman Co.* 1,016,275
---------------------------------------------------------------
Financial Services - 3.8%
51,200 Advanta Corp. 1,008,000
41,800 Arcadia Financial Ltd.* 237,737
14,400 Arthur J. Gallagher & Co. 786,600
26,800 Credit Acceptance Corp.* 157,450
7,000 E.W. Blanch Holdings, Inc. 463,750
11,400 Financial Federal Corp.* 214,463
35,500 Long Beach Financial Corp.* 534,719
12,600 Metris Companies, Inc. 347,287
5,700 NCO Group, Inc.* 259,350
63,325 Resource Bancshares Mortgage Group, Inc. 379,950
57,500 Security Capital Group, Inc. Class B* 808,594
------------
5,197,900
---------------------------------------------------------------
Food & Beverage - 2.3%
16,000 Agribrands International, Inc.* 778,000
5,000 American Italian Pasta Co.* 140,000
4,700 Corn Products International 153,044
29,200 Fleming Companies, Inc. 352,225
14,700 International Multifoods Corp. 333,506
8,800 Michael Foods, Inc. 243,650
19,300 Pilgrim's Pride Corp. Class B 205,063
9,650 Pilgrim's Pride Corp.* 78,406
22,000 Smithfield Foods, Inc.* 646,250
11,600 Universal Foods Corp. 245,050
------------
3,175,194
---------------------------------------------------------------
Forest - 1.0%
21,300 ACX Technologies, Inc.* 263,588
9,300 Glatfelter (P.H.) Co. 122,644
19,500 Potlatch Corp. 753,187
10,800 United Stationers, Inc.* 244,350
------------
1,383,769
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Gas Utilities - 2.3%
27,000 Aquarion Co. $ 972,000
14,300 California Water Services Group 427,212
11,100 Equitable Resources, Inc. 407,925
17,100 Oneok, Inc. 531,169
11,700 SEMCO Energy, Inc. 169,650
25,200 UGI Corp. 578,025
------------
3,085,981
------------------------------------------------------
Heavy Electrical - 1.4%
14,050 A.O. Smith Corp. 381,106
9,900 Anixter International, Inc.* 208,519
14,500 Baldor Electric Co. 257,375
16,000 C&D Technologies, Inc. 504,000
22,900 Foster Wheeler Corp. 296,269
9,400 Regal Beloit Corp. 209,737
------------
1,857,006
------------------------------------------------------
Heavy Machinery - 0.6%
5,400 Astec Industries, Inc.* 182,925
12,700 Columbus McKinnon Corp. 222,250
5,800 Nacco Industries, Inc. 451,675
------------
856,850
------------------------------------------------------
Home Products - 0.7%
45,400 Playtex Products, Inc.* 661,138
10,100 WD-40 Co. 247,450
------------
908,588
------------------------------------------------------
Hotel - 0.4%
41,400 Aztar Corp.* 380,362
21,700 Boyd Gaming Corp.* 116,638
------------
497,000
------------------------------------------------------
Industrial Parts - 3.9%
18,200 Clarcor, Inc. 326,463
11,100 Commercial Intertech Corp. 138,750
12,900 Flowserve Corp. 203,981
20,600 Helix Technology Corp. 581,950
14,200 Kaman Corp. 185,488
13,500 Kennametal, Inc. 357,750
21,700 Mark IV Industries, Inc. 429,931
17,100 Thomas Industries, Inc. 332,381
44,100 Timken Co. 774,506
30,400 Toro Co. 1,117,200
30,600 Watsco, Inc. 428,400
17,600 Watts Industries, Inc. 387,200
------------
5,264,000
------------------------------------------------------
Industrial Services - 3.9%
20,800 Aaron Rents, Inc. Class B 393,900
10,200 ABM Industries, Inc. 234,600
31,700 Avis Rent A Car, Inc.* 697,400
16,400 Chemed Corp. 498,150
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Industrial Services - (continued)
5,700 Cort Business Services Corp.* $ 142,856
57,700 Dollar Thrifty Automotive Group, Inc.* 1,085,481
13,500 Interim Services, Inc.* 248,906
7,800 Metamor Worldwide, Inc.* 125,044
14,600 Personnel Group of America, Inc.* 122,275
14,600 Rent-A-Center, Inc. * 323,938
26,250 Rollins Truck Leasing Corp. 272,344
12,100 Rollins, Inc. 189,819
20,200 Wackenhut Corp. 488,587
11,600 Xtra Corp.* 525,625
------------
5,348,925
-----------------------------------------------------------------
Information Services - 2.6%
9,000 American Management Systems, Inc.* 257,625
13,700 Bell & Howell Co.* 458,950
28,600 Concentric Network Corp.* 627,412
8,200 F.Y.I., Inc.* 268,038
9,000 Fair Isaac & Co., Inc. 254,250
17,000 infoUSA, Inc. Class B* 86,063
4,600 Maximus, Inc.* 159,275
6,500 Medquist, Inc.* 226,281
6,150 Profit Recovery Group International, Inc.* 234,084
38,000 URS Corp.* 940,500
------------
3,512,478
-----------------------------------------------------------------
Leisure - 1.8%
18,800 Action Performance Co., Inc.* 464,125
26,800 Callaway Golf Co. 266,325
18,900 Hollywood Park, Inc.* 320,118
6,400 JAKKS Pacific, Inc.* 193,600
11,700 Russ Berrie and Company, Inc. 274,219
5,800 SCP Pool Corp.* 133,400
41,700 Station Casinos, Inc.* 844,425
------------
2,496,212
-----------------------------------------------------------------
Life Insurance - 1.5%
46,979 Delphi Financial Group, Inc.* 1,667,754
17,200 FBL Financial Group, Inc. 340,775
------------
2,008,529
-----------------------------------------------------------------
Media - 0.5%
25,700 Ascent Entertainment Group, Inc.* 350,163
11,900 Gaylord Entertainment Co. 362,950
------------
713,113
-----------------------------------------------------------------
Medical Products - 1.3%
2,000 IDEC Pharmaceuticals Corp.* 254,125
13,000 OEC Medical Systems, Inc.* 448,500
16,600 ResMed, Inc.* 460,650
27,100 Sola International, Inc.* 430,213
20,300 Sunrise Medical, Inc.* 142,100
------------
1,735,588
-----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Medical Providers - 1.1%
49,900 Ameripath, Inc.* $ 467,813
13,200 Hooper Holmes, Inc. 303,600
26,000 Quest Diagnostics, Inc.* 687,375
------------
1,458,788
--------------------------------------------------------------
Mining - 3.0%
39,200 Armco, Inc.* 269,500
49,500 Asarco, Inc. 1,033,312
31,300 Bethlehem Steel Corp.* 240,619
11,600 Commercial Metals Co. 355,250
30,100 Cyprus Amax Minerals Co. 509,819
63,900 National Steel Corp. Class B 519,187
16,100 Oregon Steel Mills, Inc. 176,094
23,200 Quanex Corp. 603,200
11,000 Reliance Steel & Aluminum Corp. 364,375
------------
4,071,356
--------------------------------------------------------------
Motor Vehicle - 1.8%
10,700 Arvin Industries, Inc. 382,525
6,770 Dura Automotive Systems, Inc.* 175,174
8,700 Modine Manufacturing Co. 258,825
5,400 Monaco Coach Corp.* 156,600
17,400 Simpson Industries, Inc. 217,500
25,200 Standard Products Co. 872,550
5,600 Superior Industries International, Inc. 156,800
11,100 Tower Automotive, Inc.* 222,000
------------
2,441,974
--------------------------------------------------------------
Oil Refining - 0.4%
22,400 Northwestern Corp. 554,400
--------------------------------------------------------------
Oil Services - 1.9%
11,000 Helmerich & Payne, Inc. 303,188
11,600 Marine Drilling Co., Inc.* 184,150
21,400 National Oilwell, Inc.* 363,800
21,800 Oceaneering International, Inc.* 437,362
72,300 Parker Drilling Co.* 361,500
24,500 Pool Energy Services Co.* 646,187
29,800 Seitel, Inc.* 290,550
------------
2,586,737
--------------------------------------------------------------
Property Insurance - 2.2%
7,100 Argonaut Group, Inc. 179,275
39,500 Capital Re Corp. 478,937
6,200 Commerce Group, Inc. 137,950
9,091 Fidelity National Financial, Inc. 139,774
28,600 First American Financial Corp. 425,425
10,909 Medical Assurance, Inc.* 274,089
6,900 PMA Capital Corp. 136,706
6,700 Radian Group 310,294
6,300 SCPIE Holdings, Inc. 190,969
16,800 Selective Insurance Group 299,250
14,400 Stewart Information Services Corp. 299,700
7,200 Trenwick Group, Inc. 157,950
------------
3,030,319
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Publishing - 1.5%
13,000 Big Flower Press Holdings, Inc.* $ 375,375
11,800 Jostens, Inc. 237,475
8,200 Pulitzer, Inc. 359,262
50,400 Wallace Computer Services, Inc. 1,077,300
------------
2,049,412
--------------------------------------------------------------
Restaurants - 1.5%
11,700 Buffets, Inc.* 130,894
25,600 Luby's Cafeterias, Inc. 342,400
36,300 Rare Hospitality International, Inc.* 714,656
20,500 Ruby Tuesday, Inc. 371,563
14,500 Sonic Corp.* 444,062
------------
2,003,575
--------------------------------------------------------------
Security/Asset Management - 2.0%
12,900 Advest Group, Inc. 246,713
21,400 Jeffries Group, Inc. 529,650
9,000 John Nuveen Co. 351,562
6,400 National Discount Brokers Group, Inc.* 195,600
40,280 Southwest Securities Group, Inc. 1,359,450
------------
2,682,975
--------------------------------------------------------------
Semiconductors - 3.5%
54,600 3dfx Interactive, Inc.* 607,425
13,400 Actel Corp.* 210,213
30,600 CTS Corp. 1,457,325
21,200 Cypress Semiconductor Corp.* 490,250
43,000 Kent Electronics Corp.* 728,313
13,800 Lam Research Corp.* 778,837
9,100 Transwitch Corp.* 452,156
------------
4,724,519
--------------------------------------------------------------
Specialty Retail - 3.6%
13,500 Bandag, Inc. 448,875
11,600 Genesco, Inc.* 137,750
33,000 Haverty Furniture Cos., Inc. 534,187
20,400 Heilig Meyers Co. 108,375
151,800 Hollywood Entertainment Co.* 2,058,787
27,300 HomeBase, Inc.* 119,438
11,900 Michaels Stores, Inc.* 365,181
8,500 Micro Warehouse, Inc.* 104,125
16,000 Musicland Stores Corp.* 136,000
14,600 Pep Boys-Manny, Moe & Jack 212,613
27,600 PETsMART, Inc.* 132,825
15,400 School Specialty, Inc.* 190,575
32,500 Spiegel, Inc.* 290,469
------------
4,839,200
--------------------------------------------------------------
Telephone - 0.8%
22,300 Dycom Industries, Inc.* 688,513
11,900 US LEC Corp.* 386,750
------------
1,075,263
--------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Thrifts - 2.4%
12,000 Carolina First Corp. $ 262,500
5,400 First Republic Bank San Francisco California* 138,712
30,800 FirstFed Financial Corp.* 469,700
15,200 Reliance Bancorp, Inc. 525,350
73,747 Republic Security Financial 705,206
37,300 Richmond County Financial 739,006
19,600 Staten Island Bancorp, Inc. 351,575
------------
3,192,049
--------------------------------------------------------------------
Tobacco - 0.6%
24,500 Dimon, Inc. 105,656
24,300 Universal Corp. 689,513
------------
795,169
--------------------------------------------------------------------
Truck Freight - 1.1%
10,000 Alexander & Baldwin, Inc. 241,875
17,400 Arnold Industries, Inc. 247,950
14,000 Consolidated Freightways Corp.* 151,375
10,700 Overseas Shipholding Group 149,131
8,000 Seacor Smit, Inc.* 415,500
18,200 Yellow Corp. * 288,925
------------
1,494,756
--------------------------------------------------------------------
Wireless - 0.6%
39,375 Price Communications Corp.* 809,648
</TABLE>
<TABLE>
-----------------------------
<S> <C> <C>
TOTAL COMMON
STOCKS
(Cost
$127,072,813) $134,481,534
-----------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 0.8%
Joint Repurchase Agreement
$1,100,000 5.52% 09/01/1999 $ 1,100,000
---------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,100,000) $ 1,100,000
---------------------------------------------
TOTAL INVESTMENTS
(Cost $128,172,813) $135,581,534
---------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
GOLDMAN SACHS CORE LARGE CAP VALUE FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 99.0%
Airlines - 0.5%
19,400 Delta Air Lines, Inc. $ 985,762
10,300 UAL Corp.* 667,569
------------
1,653,331
-------------------------------------------------------------
Apparel - 0.4%
23,200 Nike, Inc. Class B 1,073,000
-------------------------------------------------------------
Banks - 14.9%
17,500 Bank of New York Co., Inc. 625,625
105,000 Bank One Corp. 4,213,125
112,400 BankAmerica Corp. 6,800,200
15,100 BB&T Corp. 505,850
78,200 Chase Manhattan Corp. 6,544,362
140,850 Citigroup, Inc. 6,259,022
34,300 Comerica, Inc. 1,785,744
5,700 Fifth Third Bancorp 377,625
117,100 Firstar Corp. 3,139,744
11,300 FirstMerit Corp. 296,978
103,200 Fleet Financial Group, Inc. 4,108,650
32,800 Mellon Bank Corp. 1,094,700
9,200 Mercantile Bancorp., Inc. 507,725
24,400 National City Corp. 674,050
16,900 PNC Bank Corp. 884,081
19,300 Regions Financial Corp 681,531
16,600 SouthTrust Corp. 586,188
38,100 Suntrust Banks, Inc. 2,450,306
45,700 UnionBanCal Corp. 1,753,738
48,100 Wells Fargo & Co. 1,914,981
2,200 Zions Bancorp 109,450
------------
45,313,675
-------------------------------------------------------------
Chemical - 3.1%
31,800 Avery Dennison Corp. 1,745,025
38,900 Dow Chemicals Co. 4,420,012
16,165 Du Pont (E.I.) de Nemours & Co. 1,024,457
14,600 PPG Industries, Inc. 876,912
6,500 Rohm & Haas Co. 242,938
11,000 Sherwin Williams Co. 268,125
16,600 Vulcan Materials Co. 707,575
------------
9,285,044
-------------------------------------------------------------
Computer Hardware - 3.6%
1,500 Apple Computer, Inc.* 97,875
5,500 Electronics for Imaging, Inc.* 322,438
15,900 Hewlett-Packard Co. 1,675,462
44,400 International Business Machines, Inc. 5,530,575
39,400 Lexmark International Group, Inc.* 3,102,750
4,700 Pitney-Bowes Inc. 277,300
------------
11,006,400
-------------------------------------------------------------
Computer Software - 0.9%
3,300 Microsoft Corp.* 305,456
71,100 Novell, Inc.* 1,684,181
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Computer Software - (continued)
17,500 Oracle Corp.* $ 638,750
2,100 Unisys Corp.* 90,300
------------
2,718,687
----------------------------------------------------------
Consumer Durables - 0.2%
10,500 Whirlpool Corp. 742,219
----------------------------------------------------------
Defense/Aerospace - 1.8%
44,700 Allied Signal, Inc. 2,737,875
26,800 General Dynamics Corp. 1,688,400
17,200 Raytheon Co. Class B 1,171,750
------------
5,598,025
----------------------------------------------------------
Department Store - 0.2%
3,900 Federated Department Stores, Inc.* 179,400
7,600 J. C. Penney Co., Inc. 275,500
------------
454,900
----------------------------------------------------------
Drugs - 2.3%
28,000 Allergan, Inc. 2,796,500
24,400 Amgen, Inc.* 2,029,775
7,900 Andrx Corp.* 567,813
20,700 Bristol-Myers Squibb Co. 1,456,762
1,200 Genzyme Corp.* 67,725
600 Pharmacia & Upjohn, Inc. 31,350
------------
6,949,925
----------------------------------------------------------
Electrical Equipment - 0.7%
28,100 Johnson Controls, Inc. 1,921,338
3,100 Motorola, Inc. 285,975
------------
2,207,313
----------------------------------------------------------
Electrical Utilities - 5.6%
21,700 Alliant Energy Corp. 627,944
6,700 Calpine Corp.* 607,187
78,000 Dominion Resources, Inc. 3,607,500
29,500 DTE Energy Co. 1,163,406
7,800 Energy East Corp. 195,000
82,200 Entergy Corp. 2,450,587
35,500 FPL Group, Inc. 1,917,000
27,200 PECO Energy Co. 1,105,000
1,800 PG&E Corp. 54,563
45,100 Public Service Enterprise 1,849,100
2,200 Southern Co. 59,538
60,100 Texas Utilities Co. 2,430,294
25,900 Unicom Corp. 1,000,387
------------
17,067,506
----------------------------------------------------------
Energy Resources - 9.9%
24,100 Apache Corp. 1,096,550
5,500 Atlantic Richfield Co. 483,656
71,000 Chevron Corp. 6,549,750
34,028 Conoco, Inc. Class B 914,496
167,300 Exxon Corp. 13,195,787
----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
GOLDMAN SACHS CORE LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Energy Resources - continued
45,700 Mobil Corp. $ 4,678,538
48,900 Royal Dutch Petroleum Co. ADR 3,025,688
------------
29,944,465
--------------------------------------------------------------------
Entertainment - 0.5%
14,200 Carnival Cruise Lines Corp. 634,563
18,000 Royal Caribbean Cruise Lines 842,625
------------
1,477,188
--------------------------------------------------------------------
Financial Services - 3.0%
1,100 American Express Co. 151,250
12,000 Aon Corp. 400,500
4,700 C.I.T. Group, Inc. 111,919
13,200 Countrywide Credit Industries, Inc. 424,050
26,300 Federal National Mortgage Association 1,633,888
17,200 H&R Block, Inc. 956,750
10,600 Heller Financial, Inc. 242,475
44,600 Marsh & McLennan Co. 3,247,437
24,000 Providian Financial Corp. 1,863,000
------------
9,031,269
--------------------------------------------------------------------
Food & Beverage - 3.6%
45,900 ConAgra, Inc. 1,124,550
600 General Mills, Inc. 50,250
14,000 Hormel Foods Corp. 563,500
102,100 IBP, Inc. 2,341,919
191,600 Nabisco Group Holdings Corp. 3,400,900
87,400 Nabisco Holdings Corp. 3,435,912
6,500 Supervalu, Inc. 146,250
------------
11,063,281
--------------------------------------------------------------------
Forest - 0.5%
13,500 Georgia-Pacific Corp. 558,563
14,900 Weyerhaeuser Co. 838,125
------------
1,396,688
--------------------------------------------------------------------
Gas Utilities - 0.5%
52,700 Keyspan Corp. 1,554,650
--------------------------------------------------------------------
Gold - 1.7%
169,000 Barrick Gold Corp. 3,274,375
108,700 Freeport-McMoRan Copper & Gold, Inc. Class B 1,745,994
26,500 Placer Dome, Inc. 274,937
------------
5,295,306
--------------------------------------------------------------------
Grocery - 0.4%
63 Albertson's, Inc. 3,020
47,600 Kroger Co.* 1,100,750
------------
1,103,770
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Heavy Electrical - 0.9%
21,000 Emerson Electric Co. $ 1,315,125
22,600 Phelps Dodge Corp. 1,264,187
------------
2,579,312
--------------------------------------------------------------
Home Products - 0.2%
17,700 Fortune Brands, Inc. 663,750
2,100 Premark International, Inc. 69,825
------------
733,575
--------------------------------------------------------------
Hotel - 0.2%
19,900 Marriott International, Inc. 681,575
--------------------------------------------------------------
Industrial Parts - 2.1%
23,900 Ingersoll-Rand Co. 1,520,638
28,500 Parker Hannifin Corp. 1,246,875
12,600 Tecumseh Products Co. 718,200
2,200 Textron, Inc. 177,650
39,700 United Technologies Corp. 2,625,162
------------
6,288,525
--------------------------------------------------------------
Industrial Services - 0.6%
20,600 Dollar Thrifty Automotive Group, Inc.* 387,537
31,900 Hertz Corp. 1,285,969
------------
1,673,506
--------------------------------------------------------------
Information Services - 0.2%
7,400 Rhythms NetConnections, Inc.* 283,050
9,600 Sotheby's Holdings, Inc. 279,600
------------
562,650
--------------------------------------------------------------
Leisure - 1.4%
59,500 Eastman Kodak Co. 4,369,531
--------------------------------------------------------------
Life Insurance - 2.5%
6,300 Aetna, Inc. 489,825
23,100 American General Corp. 1,640,100
19,100 Cigna Corp. 1,715,419
40,600 Hartford Life, Inc. 1,763,562
9,800 Lincoln National Corp. 459,375
30,300 Nationwide Financial Services, Inc. 1,105,950
8,500 Unumprovident Corp. 306,531
------------
7,480,762
--------------------------------------------------------------
Media - 3.3%
67,800 Cox Communications, Inc.* 2,521,312
122,800 Fox Entertainment Group, Inc.* 2,832,075
113,700 Infinity Broadcasting Corp.* 3,077,006
4,200 Time Warner, Inc. 249,113
18,700 Univision Communications, Inc.* 1,379,125
------------
10,058,631
--------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
GOLDMAN SACHS CORE LARGE CAP VALUE FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Medical Products - 1.3%
34,800 Bausch & Lomb, Inc. $ 2,298,975
16,831 Tyco International Ltd. 1,705,191
------------
4,004,166
--------------------------------------------------------------
Medical Providers - 0.5%
19,600 Pacificare Health Systems * 1,176,000
2,300 Trigon Healthcare, Inc.* 83,519
4,700 United Healthcare Corp. 285,819
------------
1,545,338
--------------------------------------------------------------
Mining - 0.6%
9,100 Alcan Aluminum, Ltd. 299,163
6,600 Alcoa, Inc. 426,112
39,400 USX-US Steel Group 1,063,800
------------
1,789,075
--------------------------------------------------------------
Motor Vehicle - 1.8%
17,123 Delphi Automative Systems Corp. 321,056
27,900 Ford Motor Co. 1,454,288
63,700 Navistar International Corp.* 3,097,412
9,800 Paccar, Inc. 540,225
------------
5,412,981
--------------------------------------------------------------
Oil Refining - 0.7%
33,200 Texaco, Inc. 2,108,200
--------------------------------------------------------------
Property Insurance - 6.9%
3,600 Allmerica Financial Corp. 203,400
28,300 Allstate Corp. 928,594
22,400 AMBAC Financial Group, Inc. 1,183,000
80,125 American International Group, Inc. 7,426,586
76,200 Hartford Financial Services Group, Inc. 3,462,337
13,600 Jefferson-Pilot Corp. 907,800
43,500 Loews Corp. 3,414,750
6,900 The PMI Group, Inc. 293,250
88,400 Travelers Property & Casualty Corp. 3,138,200
------------
20,957,917
--------------------------------------------------------------
Publishing - 0.3%
9,800 Knight Ridder, Inc. 528,587
4,600 Mcgraw-Hill Companies, Inc. 237,763
5,500 R.R. Donnelley & Sons Co. 172,563
------------
938,913
--------------------------------------------------------------
Railroads - 1.1%
74,400 Burlington Northern Santa Fe Corp. 2,157,600
7,400 Canadian National Railway Co. 470,362
2,800 CSX Corp. 122,325
24,100 Norfolk Southern Corp. 631,119
------------
3,381,406
--------------------------------------------------------------
Restaurants - 0.2%
31,300 Brinker International, Inc.* 751,200
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Security/Asset Management - 2.0%
66,935 Bear Stearns Companies, Inc. $ 2,786,169
2,400 Equitable Companies, Inc. 148,200
19,100 Morgan Stanley Dean Witter & Co. 1,639,019
39,900 Paine Webber Group, Inc. 1,566,075
------------
6,139,463
--------------------------------------------------------
Semiconductors - 0.8%
5,500 LSI Logic Corp.* 312,125
15,000 Texas Instruments, Inc. 1,230,938
10,800 Xilinx, Inc.* 755,325
------------
2,298,388
--------------------------------------------------------
Specialty Retail - 3.7%
21,600 Best Buy Co., Inc.* 1,517,400
55,100 Circuit City Stores, Inc. 2,369,300
56,600 CVS Corp. 2,359,512
17,000 Lowes Co., Inc. 769,250
5,100 Staples, Inc.* 110,925
2,200 Tandy Corp. 103,950
9,000 The Home Depot, Inc. 550,125
39,800 Tiffany & Co. 2,104,425
37,000 Zale Corp.* 1,283,438
------------
11,168,325
--------------------------------------------------------
Telephone - 11.2%
57,800 Ameritech Corp. 3,648,625
188,246 AT&T Corp. 8,471,070
49,600 BCE, Inc. 2,318,800
63,300 Bell Atlantic Corp. 3,877,125
67,800 BellSouth Corp. 3,067,950
24,600 Centurytel, Inc. 967,088
71,400 GTE Corp. 4,899,825
5,100 MCI Worldcom, Inc.* 386,325
61,600 SBC Communications, Inc. 2,956,800
72,500 Sprint Corp. 3,217,187
------------
33,810,795
--------------------------------------------------------
Thrifts - 0.6%
19,100 Golden West Financial Corp. 1,734,519
--------------------------------------------------------
Tobacco - 0.2%
17,500 Philip Morris Companies, Inc. 655,156
--------------------------------------------------------
Truck Freight - 0.1%
5,200 FDX Corp.* 220,675
--------------------------------------------------------
Wireless - 1.3%
24,700 Telephone & Data Systems, Inc. 1,719,738
37,400 United States Cellular Corp.* 2,106,087
------------
3,825,825
--------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $298,694,782) $300,107,051
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
GOLDMAN SACHS CORE LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 0.3%
<S> <C> <C> <C>
Joint Repurchase Agreement
$800,000 5.52% 09/01/1999 $ 800,000
---------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $800,000) $ 800,000
---------------------------------------------
TOTAL INVESTMENTS
(Cost $299,494,782) $300,907,051
---------------------------------------------
</TABLE>
* Non-income producing security.
The percentages shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 99.2%
Belgium - 0.7%
14,700 Dexia Belgium Credit Communal (Banks) $ 2,150,619
100 Electrabel SA (Utilities) 33,460
19,400 Fortis B (Insurance) 666,974
------------
2,851,053
-----------------------------------------------------------------------
Britain - 14.7%
32,300 Abbey National (Banks) 555,498
43,829 Allied Domecq PLC (Tobacco) 403,329
103,900 Allied Zurich PLC (Insurance) 1,264,523
85,200 AMEC PLC (Construction) 365,976
140,800 Arjo Wiggins Appleton PLC (Paper) 487,016
58,800 AstraZeneca Group PLC (Health) 2,331,828
30,300 Barclays PLC (Banks) 900,351
193,971 BG (Utilities) 1,167,107
262,470 Billiton PLC (Nonferrous Metals) 1,069,378
335,600 BP Amoco PLC (Energy Resources) 6,225,203
83,800 British American Tobacco (Tobacco) 702,399
311,200 British Steel PLC (Steel) 817,326
385,100 British Telecom PLC (Telecommunication) 5,898,108
78,583 Cable & Wireless (Telecommunication) 900,142
1 Carillion PLC * (Construction) 2
16,790 Daily Mail & General Trust (Broadcasting) 945,412
29,600 Debenhams PLC (Merchandising) 187,625
78,400 Diageo PLC (Tobacco) 795,880
171,885 FKI PLC (Electrical Equipment) 587,624
11,400 General Electric Co. PLC (Electrical Equipment) 113,893
250,536 George Wimpey PLC (Construction) 606,891
119,380 Glaxo Wellcome PLC (Health) 3,136,798
11,100 Granada Group PLC (Leisure) 98,932
63,895 Halifax Group PLC (Banks) 713,393
41,800 Hanson PLC (Construction) 356,077
277,000 HSBC Holdings PLC (Banks) 3,431,411
64,150 J. Sainsbury PLC (Merchandising) 442,232
44,944 Kingfisher Group (Merchandising) 540,848
68,312 Lex Service PLC (Business Services) 673,689
43,100 National Power (Utilities) 305,960
88,700 National Westminster Bank PLC (Banks) 1,820,860
235,500 Norwich Union PLC (Insurance) 1,606,420
21,258 P & O Finance BV (Ship Transportation) 341,999
20,000 Pearson (Broadcasting) 412,497
35,300 Railtrack Group PLC (Business Services) 674,105
28,800 Reuters Group PLC (Business Services) 423,256
23,900 RMC Group PLC (Construction) 395,462
435,077 Rolls Royce (Defense/Aerospace) 1,730,632
122,325 Royal Bank of Scotland Group (Banks) 2,522,932
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Britain - (continued)
99,300 Safeway (Merchandising) $ 412,165
304,046 Smith Group (Health) 1,017,431
82,600 Smith Group (Merchandising) 761,442
184,300 Smithkline Beecham (Health) 2,398,701
59,400 Standard Chartered PLC (Banks) 864,843
1 Tarmac (Construction) 8
37,308 Thames Water (Business Services) 537,189
58,466 Unilever NV (Food & Beverage) 550,252
12,721 Unilever NV (Food & Beverage) 886,137
57,700 United Utility (Business Services) 686,926
118,900 Vodafone AirTouch PLC (Telecommunication) 2,394,906
50,900 Whitbread PLC (Leisure) 701,780
209,767 Williams PLC (Electrical Utilities) 1,191,281
51,300 Wolseley PLC (Construction) 404,404
------------
58,760,479
--------------------------------------------------------------------
Finland - 2.6%
85,000 Finnair Series 1 (Airlines) 427,107
153,000 Merita PLC (Banks) 809,255
85,550 Metsa Serla OY (Paper) 810,871
84,000 Nokia AB Oyj Series A (Telecommunication) 7,019,890
35,000 UPM Kymmene OY (Paper) 1,212,560
------------
10,279,683
--------------------------------------------------------------------
France - 8.0%
10,650 Assurances Generales de France (Insurance) 550,574
31,400 Axa (Insurance) 3,912,901
32,380 Banque National de Paris (Banks) 2,479,929
9,400 Carrefour SA (Specialty Retail) 1,531,343
10,500 Casino Guich Perr (Merchandising) 1,107,410
2,700 Compagnie de Saint Gobain (Construction) 522,683
1,800 Danone (Food & Beverage) 445,947
14,836 Dexia France (Banks) 1,935,102
12,500 Elf Aquitaine (Energy Resources) 2,195,038
689,300 Eurotunnel SA * (Business Services) 1,050,013
72,300 France Telecom (Telecommunication) 5,636,762
9,450 GTM Entrepose (Construction) 1,033,657
1,400 L' Oreal SA (Health) 905,625
1,310 Labinal (Electrical Equipment) 185,279
16,600 Lafarge SA (Construction) 1,785,883
11,200 Lagardere S.C.A. (Multi-Industrial) 454,960
8,800 Pechiney (Nonferrous Metals) 512,930
8,000 Pernod Ricard (Tobacco) 614,399
4,800 Pinault-Printemps-Redoute SA (Merchandising) 832,739
15,000 Rhone-Poulenc SA (Chemical) 728,647
4,300 SEITA (Tobacco) 234,716
--------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
France - (continued)
400 Societe Eurafrance SA (Financial Services) $ 245,844
17,400 Suez Lyonnaise Eaux (Business Services) 2,906,399
------------
31,808,780
-----------------------------------------------------------------------------
Germany - 9.0%
13,050 Allianz AG Holdings (Insurance) 3,441,571
350 AMB Aachener & Muenchener Beteiligungs AG (Insurance) 29,620
71,450 BASF AG (Chemical) 3,242,526
30,250 Bayer AG (Chemical) 1,316,798
59,800 Commerzbank AG (Banks) 2,144,494
91,715 Daimler Chrysler AG (Auto) 6,927,276
102,250 Deutsche Telekom AG (Telecommunication) 4,532,118
36,550 Fag Kugelfischer (Industrial Services) 384,711
11,275 Hoechst AG (Health) 477,090
6,800 HypoVereinsbank (Banks) 403,548
4,700 IWKA AG (Machinery) 89,047
300 Karstadt AG (Merchandising) 142,175
34,400 Lufthansa AG (Airlines) 665,937
57,750 Man AG (Machinery) 1,954,906
2,023 Mannesmann AG (Machinery) 310,732
46,100 Merck KGAA (Health) 1,570,293
4,700 Meto AG * (Appliance) 35,965
7,050 Metro AG (Merchandising) 404,961
50,525 Siemens AG (Electrical Equipment) 4,254,449
6,500 Thyssen AG * (Steel) 151,960
51,900 Veba AG (Utilities) 3,310,614
------------
35,790,791
-----------------------------------------------------------------------------
Hong Kong - 3.3%
760,000 Amoy Properties (Real Estate) 748,754
193,000 Bank of East Asia (Banks) 444,912
129,000 Cathay Pacific Airways (Airlines) 219,295
57,000 Cheung Kong Holdings Ltd. (Real Estate) 497,334
220,500 CLP Holdings Ltd. (Utilities) 1,042,171
319,000 Great Eagle Holdings Ltd. (Real Estate) 468,338
140,000 Hang Seng Bank Ltd. (Banks) 1,582,120
17,000 Harbour Centre Development Ltd. (Leisure) 13,574
118,000 Hong Kong & China Gas Co. Ltd. (Utilities) 167,922
272,000 Hong Kong Construction Holdings Ltd. (Construction) 133,112
801,400 Hong Kong Telecom (Telecommunication) 1,816,461
266,000 Hutchison Whampoa (Financial Services) 2,594,947
50,000 Johnson Electric Holdings Ltd. (Electrical Equipment) 225,373
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Hong Kong - (continued)
88,000 New World Development Co. Ltd. (Real Estate) $ 211,928
597,000 Sino Land Co. (Real Estate) 299,849
165,000 Sun Hung Kai Properties Co. Ltd. (Real Estate) 1,402,465
168,500 Swire Pacific Ltd. Class A (Multi-Industrial) 868,009
30,000 Television Broadcasts Ltd. (Media) 134,451
158,000 Wharf Holdings Co. Ltd. (Real Estate) 429,342
------------
13,300,357
------------------------------------------------------------------------
Italy - 5.7%
73,700 Assicurazioni Generali (Insurance) 2,490,934
327,600 Banca Commercial Italiana (Banks) 2,231,792
77,700 Banca Popolare di Milano BPM (Banks) 563,857
391,900 CIR-Compagnie Industriali Riunite SpA (Multi-
Industrial) 583,716
1,049,700 ENI SpA (Energy Resources) 6,318,316
492,200 Istituto Nazionale delle Assicurazioni SpA
(Insurance) 1,187,136
23,700 Italcementi SpA (Construction) 323,416
55,650 Magneti Marelli SpA (Industrial Services) 145,996
70,200 Mediaset SpA (Broadcasting) 620,822
559,900 Montedison SpA (Multi-Industrial) 844,013
10,800 Pirelli SpA * (Industrial Services) 20,222
59,300 Rolo Banca 1473 (Banks) 1,176,197
70,800 San Paolo-IMI SpA (Banks) 951,925
65,500 Sirti SpA (Construction) 338,824
32,400 Telecom Italia Mobile SpA (Telecommunication) 112,420
117,400 Telecom Italia SpA-ITL50 (Telecommunication) 684,296
395,125 Telecom Italia SpA-ITL1000 (Telecommunication) 3,983,376
------------
22,577,258
------------------------------------------------------------------------
Japan - 28.8%
41,000 77 Bank Ltd. (Banks) 401,619
29,200 Acom Co. (Financial Services) 2,967,138
80,000 Alps Electric Co. (Electrical Utilities) 2,326,794
520,000 Bank of Tokyo Mitsubishi (Banks) 7,776,100
41,000 Canon Sales Co., Inc. (Business Services) 652,865
46,000 Canon, Inc. (Computer Hardware) 1,346,321
39 Central Japan Railway Co. (Railroads) 253,258
79,000 Chiba Bank Ltd. (Banks) 296,968
32,000 Chugoku Electric Power Co. (Utilities) 527,992
79,000 Chuo Trust & Bank (Financial Services) 517,346
------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Japan - (continued)
111,000 Cosmo Oil Co. Ltd. (Energy Resources) $ 203,046
271,000 Daicel Chemical Industries (Chemical) 1,115,379
88,000 Daiichi Pharmaceutical Co. (Health) 1,361,028
117,000 Dainippon Pharmaceutical Co. Ltd. (Health) 721,251
57,000 Daito Trust Construction Co. Ltd. (Construction) 742,900
48,000 Daiwa Securities Group, Inc. (Financial Services) 435,067
271 DDI Corp. (Telecommunication) 1,710,248
241,000 Fuji Heavy Industries Ltd. (Auto) 1,922,093
102,000 Fujitsu Ltd. (Computer Hardware) 2,994,649
391,000 Hitachi (Electrical Equipment) 3,973,119
36,000 Hitachi Chemical Co. Ltd. (Chemical) 540,321
42,000 Honda Motor Co. Ltd. (Auto) 1,690,218
328,000 Industrial Bank of Japan Ltd. (Banks) 3,344,949
225,000 Ishikawajima Har (Machinery) 442,448
172,000 Izumiya Co. (Merchandising) 1,596,744
51,000 JUSCO Co. Ltd. (Merchandising) 984,223
59,000 Kaken Pharmaceutical Co. Ltd. (Health) 431,701
22,800 KDD Corp. (Telecommunication) 1,782,961
244,000 Konica Corp. (Multi-Industrial) 984,168
40,200 Kyocera Corp. (Electrical Utilities) 2,647,277
243,000 Kyowa Hakko Kogyo (Health) 1,844,697
55,600 Kyushu Electric Power Co., Inc. (Utilities) 889,925
120,000 Lion Corp. (Health) 460,969
108,000 Matsushita Electric Industrial Co. (Appliance) 2,133,626
202,000 Mazda Motor Corp. (Auto) 1,136,233
379,000 Mitsubishi Electric (Electrical Equipment) 1,920,391
626,000 Mitsubishi Heavy Industries Ltd. (Machinery) 2,731,074
73,000 Mitsubishi Trust & Banking (Banks) 767,824
254,000 Mitsui Co. (Wholesale) 1,791,137
731,000 Mitsui Osk Lines (Ship Transportation) 1,404,033
63,000 Mitsui Soko Co. (Business Services) 210,317
20,000 Mitsumi Electric Co. Ltd. (Electrical Equipment) 601,820
10,000 Nichiei Co.* (Financial Services) 923,766
344,000 Nippon Express Co. (Railroads) 2,633,448
59,000 Nippon Kayaku Co. Ltd. (Health) 339,964
514,000 Nippon Oil Co. Ltd. (Energy Resources) 2,280,057
129,000 Nippon Suisan Kaisha Ltd. (Food & Beverage) 253,670
466 Nippon Telephone & Telegraph Corp. (Telecommunication) 5,242,420
97,000 Nishimatsu Construction (Construction) 563,360
140,000 Nissan Motor Co.* (Auto) 816,939
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Japan - (continued)
128 NTT Mobile Communications Network, Inc.*
(Telecommunication) $ 2,118,992
173,000 Sakura Bank Ltd. (Banks) 917,730
75,000 Sankyo Co. Ltd. (Health) 2,092,194
3,000 Secom Co. Ltd. (Business Services) 410,207
151,000 Sekisui Chemical Co. Ltd. (Construction) 842,457
208,000 Sekisui House (Construction) 2,239,137
63,000 Sharp Corp. (Electrical Equipment) 962,272
15,000 Shikoku Electric Power (Utilities) 241,460
236,000 Shionogi & Co. (Health) 2,028,993
300,000 Showa Denko KK (Chemical) 411,579
397,000 Snow Brand Milk (Food & Beverage) 1,819,152
15,200 Sony Corp. (Appliance) 1,971,336
50,000 Sumitomo Bank (Banks) 685,965
419,000 Sumitomo Osaka Cement (Construction) 793,278
115,000 Suzuki Motor Corp. (Auto) 1,945,854
315,000 Taiheiyo Cement (Construction) 826,862
50,000 Takeda Chemical Industries Ltd. (Health) 2,515,206
65,000 Tokyo Electric Power (Electrical Utilities) 1,515,983
155,000 Toppan Printing Co. (Business Services) 1,984,726
185,000 Toshiba Corp. (Electrical Equipment) 1,646,362
104,000 Toyo Seikan Kaisha (Multi-Industrial) 2,425,573
210,000 Toyota Motor Corp. (Auto) 6,203,869
221 West Japan Railway (Railroads) 879,270
308,000 Yasuda Fire & Marine Insurance (Insurance) 2,121,224
------------
115,235,542
----------------------------------------------------------------------------
Netherlands - 5.5%
159,800 ABN AMRO Holding NV (Banks) 3,896,473
7,600 DSM NV (Chemical) 895,216
9,750 Heineken NV (Tobacco) 486,822
90,200 ING Groep NV (Financial Services) 4,952,196
38,200 Koninklijke Ahold NV (Merchandising) 1,369,894
6,400 Koninklijke Hoogovens NV (Steel) 370,670
71,200 Koninklijke Nedlloyd NV (Railroads) 2,033,610
35,786 Koninklijke Royal Philips Electronics NV (Appliance) 3,692,873
18,200 KPN NV (Telecommunication) 816,321
54,700 Royal Dutch Petroleum Co. (Energy Resources) 3,367,706
------------
21,881,781
----------------------------------------------------------------------------
Portugal - 0.5%
40,900 Banco Comercial Portugues SA (Banks) 1,087,708
10,100 Banco Espirito Santo SA (Banks) 256,530
9,700 Banco Mello SA (Banks) 90,811
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Portugal - (continued)
3,400 Banco Port Atlan* (Banks) $ 51,289
24,800 BPI-SGPS SA (Banks) 498,721
------------
1,985,059
-------------------------------------------------------------------------------
Singapore - 5.6%
543,000 Acma Ltd. (Telecommunication) 412,854
174,000 City Developments (Real Estate) 1,054,232
872,000 Comfort Group Ltd. (Railroads) 440,273
26,000 Creative Technology Ltd. (Electrical Equipment) 257,915
220,970 DBS Bank Ltd. (Banks) 2,533,247
532,000 DBS Land (Real Estate) 1,213,472
404,000 Hotel Properties Ltd. (Leisure) 371,963
68,000 Jurong Shipyard Ltd. (Machinery) 306,980
173,000 Keppel Corp. Ltd. (Multi-Industrial) 560,053
305,000 Marco Polo Development Ltd. (Real Estate) 456,549
242,000 Overseas Chinese Banking Corp.-- Alien Market (Banks) 1,696,228
98,500 Overseas Union Bank Ltd. (Banks) 514,880
372,400 Singapore Airlines Ltd. (Airlines) 3,495,052
99,000 Singapore Press Holdings Ltd. (Publishing) 1,646,570
767,000 Singapore Technologies Engineering Ltd. (Machinery) 924,865
1,607,700 Singapore Telecommunications Ltd. (Telecommunication) 2,855,375
298,300 United Engineers (Construction) 306,539
615,000 United Industrial Corp. Ltd. (Real Estate) 352,525
373,700 United Overseas Bank (Banks) 2,774,725
32,000 Venture Manufacturing Ltd. (Electrical Equipment) 306,029
------------
22,480,326
-------------------------------------------------------------------------------
Spain - 6.0%
13,400 Acerinox SA (Steel) 441,557
52,000 Argentaria Corp. Bancaria de Espana (Banks) 1,185,426
63,600 Banco Bilbao Vizcaya SA (Banks) 849,064
233,600 Banco Santander Central Hispano SA (Banks) 2,350,051
14,100 Compania Espanola de Petroleos SA (Energy Resources) 170,337
8,800 Corporacion Financiera Alba SA (Multi-Industrial) 258,048
103,600 Dragados Y Construcciones SA (Construction) 1,270,185
224,400 Endesa SA (Electrical Utilities) 4,510,247
13,500 Fomento de Construcciones y Contratas SA
(Construction) 799,020
5,700 Gas Natural SDG SA (Gas Utilities) 134,825
40,900 Iberdrola SA (Utilities) 589,716
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Spain - (continued)
185,950 Repsol SA (Energy Resources) $ 3,886,933
339,103 Telefonica de Espana SA * (Telecommunication) 5,416,672
161,100 Union Electric Fenosa (Utilities) 2,300,664
------------
24,162,745
---------------------------------------------------------------------------
Sweden - 2.9%
114,900 Electrolux AB (Appliance) 2,316,701
111,100 Ericsson Telecommunications Series B (Electrical
Equipment) 3,589,530
8,180 Esselte Series B (Business Services) 69,053
17,400 Hennes & Mauritz AB Series B (Merchandising) 440,653
15,600 Mo och Domsjoe AB Series B (Paper) 477,493
18,100 Scania AB Series B (Machinery) 682,625
64,300 Skandinaviska Enskilda Banken Series A (Banks) 667,758
156,650 Svenska Handelsbanken Series A (Banks) 2,178,601
6,700 Volvo AB Series A (Auto) 189,208
39,207 Volvo AB Series B (Auto) 1,100,063
------------
11,711,685
---------------------------------------------------------------------------
Switzerland - 5.9%
356 Alusuisse-Lonza Group Ltd. (Multi-Industrial) 423,613
1,879 Baloise Holdings (Insurance) 1,573,804
995 Compagnie Financiere Richemont AG Class A (Multi-
Industrial) 1,894,361
3,712 Credit Suisse Group (Banks) 701,813
3,215 George Fischer AG (Machinery) 988,283
281 Jelmoli Holding AG (Merchandising) 285,142
320 Movenpick Holdings (Leisure) 141,733
1,993 Nestle SA (Food & Beverage) 3,939,360
2,778 Novartis AG (Health) 4,003,464
90 Pargesa Holding AG (Financial Services) 142,791
36 Roche Holding AG--CHF 100 (Health) 642,559
301 Roche Holding AG--Genussheine NPV (Health) 3,486,164
205 Schindler Holdings AG (Machinery) 332,022
418 Schindler Holdings AG--PTG Certificates (Machinery) 637,763
1,485 Schw Ruckversicher (Insurance) 2,900,889
2,423 Valora Holding AG (Merchandising) 611,877
1,703 Zurich Allied AG (Insurance) 1,000,838
------------
23,706,476
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $355,012,667) $396,532,015
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C> <C>
Preferred Stocks - 0.0%
Germany -
0.0%
3,050 Rheinmetall AG
(Defense/Aerospace) $ 48,558
-------------------------------------
Italy - 0.0%
5,075 IFI Instituto
Finanziario (Multi-
Industrial) 133,678
-------------------------------------
TOTAL PREFERRED STOCKS
(Cost $223,137) $182,236
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Short-Term Obligation - 0.5%
Federal Home Loan Mortgage Corp.+
$2,000,000 5.12% 10/05/1999 $ 1,990,433
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $1,990,433) $ 1,990,433
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $357,226,237) $398,704,684
-----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
# This security is issued with a zero-coupon. The interest rate disclosed for
this security represents effective yield to maturity.
+ A portion of this security is segregated as collateral for initial margin
requirement on Futures transactions.
<TABLE>
<CAPTION>
Percentage of
Total Net Assets
Common and Preferred Stock Industry Classifications
<S> <C>
Airlines 1.2%
Appliance 2.5
Auto 5.5
Banks 15.8
Broadcasting 0.5
Business Services 2.6
Chemical 2.1
Computer Hardware 1.1
Construction 3.7
Defense/Aerospace 0.4
Electrical Equipment 4.7
Electrical Utilities 3.1
Energy Resources 6.2
Financial Services 3.2
Food & Beverage 2.0
Gas Utilities 0.0
Health 7.9
Industrial Services 0.1
Insurance 5.7
Leisure 0.3
Machinery 2.4
Media 0.0
Merchandising 2.5
Multi-Industrial 2.4
Nonferrous Metals 0.4
Paper 0.7
Publishing 0.4
Railroads 1.6
Real Estate 1.8
Ship Transportation 0.4
Specialty Retail 0.4
Steel 0.4
Telecommunication 13.3
Tobacco 0.8
Utilities 2.6
Wholesale 0.5
---------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 99.2%
---------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Assets and Liabilities
August 31, 1999
<TABLE>
<CAPTION>
CORE U.S.
Equity Fund
Assets:
<S> <C>
Investment in securities, at value (identified cost
$954,461,619, $739,325,430, $128,172,813, $299,494,782 and
$357,226,237, respectively) $1,213,653,217
Cash, at value(b) 1,262,143
Receivables:
Dividends and interest, at value 1,498,809
Fund shares sold 4,206,938
Variation margin --
Reimbursement from investment adviser 79,868
Other assets 43,817
-----------------------------------------------------------------------------
Total assets 1,220,744,792
-----------------------------------------------------------------------------
Liabilities:
Payables:
Fund shares repurchased 901,001
Amounts owed to affiliates 1,300,526
Variation margin 4,700
Accrued expenses and other liabilities, at value 111,274
-----------------------------------------------------------------------------
Total liabilities 2,317,501
-----------------------------------------------------------------------------
Net Assets:
Paid-in capital 839,411,583
Accumulated undistributed net investment income 804,328
Accumulated net realized gain (loss) on investment, futures
and foreign currency related transactions 119,046,115
Net unrealized gain on investments, futures and translation
of assets and liabilities denominated in foreign currencies 259,165,265
-----------------------------------------------------------------------------
NET ASSETS $1,218,427,291
-----------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $34.21
Class B $33.56
Class C $33.46
Institutional $34.61
Service $34.05
-----------------------------------------------------------------------------
Shares outstanding:
Class A 17,954,472
Class B 6,378,289
Class C 1,295,997
Institutional 9,691,645
Service 328,989
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number
of shares authorized) 35,649,392
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares of CORE U.S. Equity, CORE Large Cap Growth,
CORE Small Cap Equity, CORE Large Cap Value and CORE International Equity
is $36.20, $18.01, $10.83, $11.16 and $11.50, respectively. At redemp-
tion, Class B and Class C shares may be subject to a contingent deferred
sales charge, assessed on the amount equal to the lesser of the current
net asset value or the original purchase price of the shares.
(b) Includes restricted cash of $1,000,000, $840,000 and $730,000, respec-
tively for CORE U.S. Equity, CORE Large Cap Growth and CORE Large Cap
Value relating to initial margin requirements on futures transaction.
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
CORE Large Cap CORE Small Cap CORE Large Cap CORE International
Growth Fund Equity Fund Value Fund Equity Fund
<S> <C> <C> <C>
$868,081,737 $135,581,534 $300,907,051 $398,704,684
1,100,045 138,210 871,140 170,410
394,311 150,437 562,628 699,211
3,531,077 343,489 1,183,792 513,940
-- 6,038 -- --
93,491 80,885 75,161 66,216
16,168 7,958 11,674 390,148
---------------------------------------------------------------------------------
873,216,829 136,308,551 303,611,446 400,544,609
---------------------------------------------------------------------------------
1,277,379 711,057 153,665 142,388
801,680 141,779 218,553 375,052
68,112 -- 7,662 19,348
43,857 113,239 110,643 201,760
---------------------------------------------------------------------------------
2,191,028 966,075 490,523 738,548
---------------------------------------------------------------------------------
737,567,028 135,129,996 297,783,487 352,664,249
-- -- 478,248 2,637,600
4,870,886 (7,201,585) 3,465,457 2,990,037
128,587,887 7,414,065 1,393,731 41,514,175
---------------------------------------------------------------------------------
$871,025,801 $135,342,476 $303,120,923 $399,806,061
---------------------------------------------------------------------------------
$17.02 $10.23 $10.55 $10.87
$16.75 $10.09 $10.50 $10.81
$16.75 $10.10 $10.51 $10.82
$17.10 $10.30 $10.55 $11.00
$16.95 $10.22 $10.55 $10.93
---------------------------------------------------------------------------------
17,671,442 5,146,281 8,633,441 10,530,336
10,842,024 1,358,479 1,377,281 848,293
4,507,009 620,920 764,208 454,208
18,166,722 6,082,226 17,965,455 24,651,243
148,098 6,243 1,253 715
---------------------------------------------------------------------------------
51,335,295 13,214,149 28,741,638 36,484,795
---------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<CAPTION>
CORE U.S.
Equity Fund
<S> <C>
Investment income:
Dividends(a) $ 8,477,941
Interest 504,234
------------------------------------------------------------------------------
Total income 8,982,175
------------------------------------------------------------------------------
Expenses:
Management fees 5,212,778
Distribution and service fees(b) 2,231,754
Transfer agent fees(b) 1,018,447
Custodian fees 112,034
Registration fees 96,553
Printing fees 80,359
Professional fees 38,456
Trustee fees 6,426
Service share fees 34,586
Other 34,541
------------------------------------------------------------------------------
Total expenses 8,865,934
------------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived (688,087)
------------------------------------------------------------------------------
Net expenses 8,177,847
------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 804,328
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
foreign currency related transactions:
Net realized gain (loss) from:
Investment transactions 107,390,321
Futures transactions 547,400
Foreign currency related transactions --
Net change in unrealized gain (loss) on:
Investments (66,419,570)
Futures (757,943)
Translation of assets and liabilities denominated in foreign
currencies --
------------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures, and
foreign currency related transactions 40,760,208
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 41,564,536
------------------------------------------------------------------------------
</TABLE>
(a) For the CORE U.S. Equity, CORE Large Cap Growth, CORE Large Cap Value and
CORE International Equity Funds, taxes withheld on dividends were
$188,196, $85,193, $7,443, and $756,799, respectively.
(b) Class-specific distribution and service and transfer agent fees were as
follows:
<TABLE>
<CAPTION>
Distribution and Service
fees Transfer Agent fees
---------------------------- -----------------------------------------------
Class A Class B Class C Class A Class B Class C Institutional Service
-------- ---------- -------- -------- -------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORE U.S. Equity Fund $901,485 $1,115,835 $214,434 $685,129 $212,009 $40,742 $77,800 $2,767
CORE Large Cap Growth
Fund 366,944 858,809 343,654 278,878 163,174 65,294 68,733 511
CORE Small Cap Equity
Fund 84,036 80,244 34,375 63,867 15,246 6,531 14,387 14
CORE Large Cap Value
Fund 88,576 40,251 23,517 67,318 7,648 4,468 41,227 1
CORE International Eq-
uity Fund 321,043 47,034 25,018 121,996 8,936 4,753 62,671 2
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
CORE Large Cap CORE Small Cap CORE Large Cap CORE International
Growth Fund Equity Fund Value Fund Equity Fund
<S> <C> <C> <C>
$ 3,489,915 $ 940,243 $ 2,534,169 $ 5,529,675
640,310 46,896 254,574 48,544
--------------------------------------------------------------------------------
4,130,225 987,139 2,788,743 5,578,219
--------------------------------------------------------------------------------
3,300,995 689,175 869,263 1,938,801
1,569,407 198,655 152,344 393,095
576,590 100,045 120,662 198,358
78,061 68,779 78,440 333,972
114,096 91,643 52,789 76,842
80,207 85,213 57,431 32,313
39,551 37,516 40,096 46,483
6,426 6,426 4,664 6,074
6,385 176 13 20
23,069 21,408 11,667 10,405
--------------------------------------------------------------------------------
5,794,787 1,299,036 1,387,369 3,036,363
--------------------------------------------------------------------------------
(984,006) (275,311) (239,291) (223,253)
--------------------------------------------------------------------------------
4,810,781 1,023,725 1,148,078 2,813,110
--------------------------------------------------------------------------------
(680,556) (36,586) 1,640,665 2,765,109
--------------------------------------------------------------------------------
19,998,250 12,409,919 2,862,192 11,051,910
2,319,152 (296,710) 636,227 918,205
-- -- -- (179,050)
21,430,691 (11,427,160) 1,522,840 19,565,749
(638,509) 25,644 (19,531) (3,516)
-- -- -- 3,536
--------------------------------------------------------------------------------
43,109,584 711,693 5,001,728 31,356,834
--------------------------------------------------------------------------------
$ 42,429,028 $ 675,107 $ 6,642,393 $ 34,121,943
--------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Changes in Net Assets
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<CAPTION>
CORE U.S.
Equity Fund
<S> <C>
From operations:
Net investment income (loss) $ 804,328
Net realized gain from investment, futures and foreign
currency related transactions 107,937,721
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies (67,177,513)
------------------------------------------------------------------------------
Net increase in net assets resulting from operations 41,564,536
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares --
Class B shares --
Class C shares --
Institutional shares --
Service shares --
------------------------------------------------------------------------------
Total distributions to shareholders --
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 319,448,902
Reinvestment of dividends and distributions --
Cost of shares repurchased (246,210,936)
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share
transactions 73,237,966
------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) 114,802,502
------------------------------------------------------------------------------
Net assets:
Beginning of period 1,103,624,789
------------------------------------------------------------------------------
End of period $1,218,427,291
------------------------------------------------------------------------------
Accumulated undistributed net investment income $ 804,328
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
CORE Large Cap CORE Small Cap CORE Large Cap CORE International
Growth Fund Equity Fund Value Fund Equity Fund
<S> <C> <C> <C>
$ (680,556) $ (36,586) $ 1,640,665 $ 2,765,109
22,317,402 12,113,209 3,498,419 11,791,065
20,792,182 (11,401,516) 1,503,309 19,565,769
-----------------------------------------------------------------------------
42,429,028 675,107 6,642,393 34,121,943
-----------------------------------------------------------------------------
-- -- (229,621) (2,101)
-- -- (19,258) --
-- -- (7,228) --
-- -- (950,208) --
-- -- (5) --
-----------------------------------------------------------------------------
-- -- (1,206,320) (2,101)
-----------------------------------------------------------------------------
351,963,413 32,163,634 299,579,334 76,300,041
-- -- 301,711 2,066
(127,065,442) (46,364,918) (62,866,712) (112,849,452)
-----------------------------------------------------------------------------
224,897,971 (14,201,284) 237,014,333 (36,547,345)
-----------------------------------------------------------------------------
267,326,999 (13,526,177) 242,450,406 (2,427,503)
-----------------------------------------------------------------------------
603,698,802 148,868,653 60,670,517 402,233,564
-----------------------------------------------------------------------------
$ 871,025,801 $135,342,476 $ 303,120,923 $ 399,806,061
-----------------------------------------------------------------------------
$ -- $ -- $ 478,248 $ 2,637,600
-----------------------------------------------------------------------------
</TABLE>
47
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Statements of Changes in Net Assets
For the Year Ended January 31, 1999
<TABLE>
<CAPTION>
CORE U.S.
Equity Fund
<S> <C>
From operations:
Net investment income (loss) $ 2,036,756
Net realized gain (loss) from investment, futures and
foreign currency related transactions 27,478,562
Net change in unrealized gain (loss) on investments, futures
and foreign currency related transactions 176,422,425
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 205,937,743
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (627,909)
Class B shares --
Class C shares --
Institutional shares (1,448,951)
Service shares (34,929)
In excess of net investment income
Class A shares (111,425)
Class B shares --
Class C shares --
Institutional shares (257,121)
Service shares (6,198)
From net realized gain on investment, futures and foreign
currency related transactions
Class A shares (10,973,418)
Class B shares (2,631,225)
Class C shares (453,366)
Institutional shares (6,196,732)
Service shares (222,218)
------------------------------------------------------------------------------
Total distributions to shareholders (22,963,492)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 472,932,540
Reinvestment of dividends and distributions 21,759,127
Cost of shares repurchased (248,643,259)
------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 246,048,408
------------------------------------------------------------------------------
TOTAL INCREASE 429,022,659
------------------------------------------------------------------------------
Net assets:
Beginning of year 674,602,130
------------------------------------------------------------------------------
End of year $1,103,624,789
------------------------------------------------------------------------------
Accumulated undistributed (distributions in excess of) net
investment income $ --
------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was December 31, 1998 for all share clas-
ses.
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
CORE Large Cap CORE Small Cap CORE Large Cap CORE International
Growth Fund Equity Fund Value Fund(a) Equity Fund
<S> <C> <C> <C>
$ (15,644) $ 173,270 $ 37,422 $ 1,407,352
(16,923,839) (18,927,424) (32,964) (8,586,417)
102,776,431 18,052,638 (109,578) 21,848,298
-----------------------------------------------------------------------------
85,836,948 (701,516) (105,120) 14,669,233
-----------------------------------------------------------------------------
-- (47,356) -- (250,453)
-- -- -- --
-- -- -- --
-- (125,897) -- (808,555)
-- (17) -- (35)
-- (6,981) -- --
-- -- -- --
-- -- -- --
(125,793) (18,557) -- --
(218) (3) -- --
(10,120) -- -- --
(4,694) -- -- --
(1,573) -- -- --
(12,174) -- -- --
(85) -- -- --
-----------------------------------------------------------------------------
(154,657) (198,811) -- (1,059,043)
-----------------------------------------------------------------------------
502,793,514 153,543,862 62,186,814 470,437,011
57,232 80,120 -- 288,383
(61,380,388) (36,515,377) (1,411,177) (111,237,527)
-----------------------------------------------------------------------------
441,470,358 117,108,605 60,775,637 359,487,867
-----------------------------------------------------------------------------
527,152,649 116,208,278 60,670,517 373,098,057
-----------------------------------------------------------------------------
76,546,153 32,660,375 -- 29,135,507
-----------------------------------------------------------------------------
$ 603,698,802 $148,868,653 $60,670,517 $ 402,233,564
-----------------------------------------------------------------------------
$ (158,558) $ (61,646) $ 37,422 $ (153,510)
-----------------------------------------------------------------------------
</TABLE>
49
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements
August 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 CORE U.S. Equity Fund, CORE
Large Cap Growth Fund, CORE Small Cap Equity Fund, CORE Large Cap Value Fund
and the CORE International Equity Fund, collectively the "Funds" or individu-
ally a "Fund". Each Fund is a diversified portfolio offering five classes of
shares -- Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Funds. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year-end of the Funds
from January 31 to August 31. Accordingly, the financial statements of the
Funds are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by an independent pricing services, 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 last bid
price. Short-term debt obligations maturing in sixty days or less are valued
at amortized cost. Securities for which quotations are not readily available
are valued at fair value using methods approved by the Trust's Board of
Trustees.
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 Funds are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, foreign currency and other assets and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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.
50
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
D. Forward Foreign Currency Exchange Contracts -- The CORE International 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 posi-
tions. The CORE International Equity Fund may also purchase and sell forward
contracts to seek to increase total return. All commitments are "marked-to-
market" daily at the applicable translation rates and any resulting
unrealized gains or losses are recorded in the 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 extinguished by delivery of the currency.
Risks may arise upon entering into these contracts from the potential inabil-
ity of counterparties to meet the terms of their contracts and from unantici-
pated movements in the value of a foreign currency relative to the U.S.
dollar.
E. Option Accounting Principles -- When the Funds write call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Funds enter
into a closing purchase transaction, the Funds realize a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Funds realize a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Funds purchase upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Funds have purchased expires on the stipulated expiration date, the Funds
will realize a loss in the amount of the cost of the option. If the Funds en-
ter into a closing sale transaction, the Funds will realize a gain or loss,
depending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Funds exercise a pur-
chased put option, the Funds will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Funds exercise a purchased call option, the
cost of the security which the Funds purchase upon exercise will be increased
by the premium originally paid.
F. Segregation Transactions -- The Funds may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Funds are required to segregate liq-
uid assets on the accounting records equal to or greater than the market
value of the corresponding transactions.
G. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are generally allocated to the funds on a
straight-line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective Distribution and Service plans. Share-
holders of Service shares bear all expenses and fees paid to service organi-
zations. Each class of shares of the Funds separately bears its respective
class-specific transfer agency fees.
51
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements (continued)
August 31, 1999
H. Federal Taxes -- It is each Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provisions are required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of each 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.
The CORE Small Cap Equity Fund has approximately $6,229,000 at August 31,
1999, (the Funds' tax year-end) of capital loss carryforward expiring in 2006
for Federal tax purposes. This amount is available to be carried forward to
offset future capital gains to the extent permitted by applicable law or reg-
ulations.
At August 31, 1999, the Funds' aggregate unrealized gains and losses based
on cost for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
Tax Gross Gross Net Unrealized
Fund Cost Unrealized Gain Unrealized Loss Gain
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORE U.S. Equity $955,624,468 $288,195,962 $(30,167,213) $258,028,749
------------------------------------------------------------------------------
CORE Large Cap
Growth 739,371,161 155,297,694 (26,587,118) 128,710,576
------------------------------------------------------------------------------
CORE Small Cap
Equity 129,139,677 19,348,820 (12,906,963) 6,441,857
------------------------------------------------------------------------------
CORE Large Cap
Value 299,612,333 17,144,758 (15,850,040) 1,294,718
------------------------------------------------------------------------------
CORE Interna-
tional Equity 357,922,824 51,010,803 (10,228,943) 40,781,860
------------------------------------------------------------------------------
</TABLE>
3. AGREEMENTS
Pursuant to Investment Management Agreements ("the Agreements"), Goldman
Sachs Asset Management ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to CORE Large
Cap Growth, CORE Small Cap Equity, CORE Large Cap Value and CORE Interna-
tional Equity Fund and Goldman Sachs Funds Management, L.P. ("GSFM"), an af-
filiate of Goldman Sachs, serves as the investment adviser to CORE U.S.
Equity Fund. Under the Agreements, the respective adviser, subject to the
general supervision of the Trust's Board of Trustees, manages the Funds'
portfolios. As compensation for the services rendered pursuant to the Agree-
ments, the assumption of the expenses related thereto and administering the
Funds' business affairs, including providing facilities, the respective ad-
viser is entitled to a fee, computed daily and payable monthly, at an annual
rate equal to .75%, .75%, .85%, .60% and .85% of the average daily net assets
of CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE Large
Cap Value and CORE International Equity Funds, respectively. For the period
ended August 31, 1999, the advisers for CORE U.S. Equity and CORE Large Cap
Growth have voluntarily agreed to waive a portion of their management fee
equal annually to .05% and .15%, respectively, of each Fund's average daily
net assets. The advisers may discontinue or modify these waivers in the fu-
ture at their discretion.
52
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Each adviser has voluntarily agreed to limit certain "Other Expenses" for
the CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE
Large Cap Value and CORE International Equity Funds (excluding management
fees, distribution and service fees, transfer agent fees, taxes, interest,
brokerage, litigation, Service share fees, indemnification costs and extraor-
dinary expenses), to the extent such expenses exceed, on an annual basis,
..00%, .00%, .04%, .00%, and .12% of the average daily net assets of the
funds, respectively.
The Trust, on behalf of each Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from each Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25% (.50%
for CORE International Equity), 1.00% and 1.00% of the Funds' average daily
net assets attributable to Class A, Class B and Class C shares, respectively.
Goldman Sachs serves as the distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charge and has
advised the Funds that it retained approximately $248,000, $210,000, $26,000,
$47,000 and $21,000 during the period ended August 31, 1999 for the CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE Large Cap Value
and CORE International Equity Funds, respectively.
Goldman Sachs also serves as the transfer agent of the Funds for a fee.
Fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the average daily
net assets for Institutional and Service shares.
The Trust, on behalf of each Fund, has adopted a Service Plan. This plan
allows for Service shares to compensate service organizations for providing
varying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
..50% (on a annualized basis), of the average daily net asset value of the
Service shares.
For the period ended August 31, 1999, the Funds' advisers have voluntarily
agreed to waive certain fees and reimburse other expenses as follows (in
thousands):
<TABLE>
<CAPTION>
Fund Management Fees Waiver Reimbursement Total Waivers and Reimbursement
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORE U.S. Equity $347 $341 $688
--------------------------------------------------------------------------------------------
CORE Large Cap Growth 660 324 984
--------------------------------------------------------------------------------------------
CORE Small Cap Equity -- 275 275
--------------------------------------------------------------------------------------------
CORE Large Cap Value -- 239 239
--------------------------------------------------------------------------------------------
CORE International Eq-
uity -- 223 223
--------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements (continued)
August 31, 1999
At August 31, 1999, the amounts owed to affiliates were as follows (in thou-
sands):
<TABLE>
<CAPTION>
Management Distribution Transfer
Fund Fees and Service Fees Agent Fees Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORE U.S. Equity $727 $347 $227 $1,301
-------------------------------------------------------------------------------
CORE Large Cap Growth 432 272 98 802
-------------------------------------------------------------------------------
CORE Small Cap Equity 99 29 14 142
-------------------------------------------------------------------------------
CORE Large Cap Value 156 38 25 219
-------------------------------------------------------------------------------
CORE International Equity 285 60 30 375
-------------------------------------------------------------------------------
</TABLE>
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options) for the period ended August 31, 1999,
were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales or Maturities
--------------------------------------------------------------------------------------
<S> <C> <C>
CORE U.S. Equity $592,318,250 $487,142,120
--------------------------------------------------------------------------------------
CORE Large Cap Growth 474,330,442 239,077,147
--------------------------------------------------------------------------------------
CORE Small Cap Equity 71,726,971 82,445,566
--------------------------------------------------------------------------------------
CORE Large Cap Value 318,279,705 82,548,436
--------------------------------------------------------------------------------------
CORE International Equity 250,079,310 277,435,318
--------------------------------------------------------------------------------------
</TABLE>
For the period ended August 31, 1999, Goldman Sachs earned approximately
$5,000, $5,000, $700 and $1,800 of brokerage commissions from portfolio
transactions executed on behalf of the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity and CORE Large Cap Value Funds, respectively.
The Funds may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Funds are re-
quired to deposit with a broker or the Fund's custodian bank an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Funds, depending on the
fluctuations in the value of the contracts, and are recorded for financial
reporting purposes as unrealized gains or losses. When contracts are closed,
the Funds realize a gain or loss which is reported in the Statement of Opera-
tions.
54
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statements of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Funds' strategies and potentially
result in a loss. At August 31, 1999, open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Market Unrealized
Fund Type Long Month Value Gain (Loss)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE U.S. Equity Fund S&P 500 Index 3 September 1999 $ 989,850 $ (26,333)
---------------------------------------------------------------------------------------------
CORE Large Cap Growth
Fund S&P 500 Index 44 September 1999 $14,517,800 $(168,420)
---------------------------------------------------------------------------------------------
CORE Small Cap Equity
Fund Russell 2000 Index 5 September 1999 $ 1,071,000 $ 5,344
---------------------------------------------------------------------------------------------
CORE Large Cap Value
Fund S&P 500 Index 5 September 1999 $ 1,649,750 $ (18,538)
---------------------------------------------------------------------------------------------
CORE International Eq-
uity Fund FTSE 100 Index 8 September 1999 $ 802,405 $ 3,107
All Ordinaries Index 2 September 1999 94,324 (4,989)
CAC-40-10EU Index 7 September 1999 340,776 2,516
IBEX 35 Index 2 September 1999 207,804 (287)
Hang Seng Index 1 September 1999 87,638 (936)
TOPIX Index 6 September 1999 805,872 28,247
MIB 30 Index 1 September 1999 178,438 (2,337)
DAX Index 3 September 1999 419,583 8,171
---------------------
$ 2,936,840 $ 33,492
---------------------------------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Funds participated in a $250,000,000 uncommitted and a $50,000,000 com-
mitted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Funds now participate in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, each Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Funds based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Funds did not have any borrowings under any of
these facilities.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at each Fund's custodian.
55
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements (continued)
August 31, 1999
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having manage-
ment agreements with GSAM and GSFM or their affiliates, transfer uninvested
cash into joint accounts, the daily aggregate balance of which is invested in
one or more repurchase agreements.
At August 31, 1999, the CORE Large Cap Growth, CORE Small Cap Equity and
CORE Large Cap Value Funds had undivided interests in the repurchase agree-
ments in the joint account which equaled $13,600,000, $1,100,000 and
$800,000, respectively, in principal amount. At August 31, 1999, the follow-
ing repurchase agreements held in this joint account were fully collateral-
ized by Federal Agency obligations:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banc of America Securities LLC $1,300,000,000 5.52% 09/01/1999 $1,300,000,000
---------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 300,000,000 5.51 09/01/1999 300,000,000
---------------------------------------------------------------------------------------
Deutsche Bank Securities Inc. 1,006,800,000 5.50 09/01/1999 1,006,800,000
---------------------------------------------------------------------------------------
Lehman Brothers, Inc. 300,000,000 5.65 09/01/1999 300,000,000
---------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc. 200,000,000 5.50 09/01/1999 200,000,000
---------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $3,106,800,000
---------------------------------------------------------------------------------------
</TABLE>
8. OTHER MATTERS
As of August 31, 1999, Goldman, Sachs & Co. Profit Sharing Master Trust was
the beneficial owner of approximately 13% of the outstanding shares of the
CORE U.S. Equity Fund. In addition, the following Goldman Sachs Asset Alloca-
tion Portfolios were beneficial owners of the Funds (as a percentage of out-
standing shares):
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Conservative Strategy Balanced Strategy Growth and Income Growth Strategy Aggressive Growth
Fund Portfolio Portfolio Strategy Portfolio Portfolio Strategy Portfolio
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE Large Cap Growth 0.1% 1.0% 7.3% 6.3% 2.9%
----------------------------------------------------------------------------------------------------------------------
CORE Small Cap Equity -- 1.3 11.9 10.4 5.5
----------------------------------------------------------------------------------------------------------------------
CORE Large Cap Value 0.5 2.9 20.8 21.0 10.2
----------------------------------------------------------------------------------------------------------------------
CORE International Eq-
uity -- 5.2 23.7 21.3 9.3
----------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the CORE Large Cap Growth Fund
reclassified $838,413 from paid-in capital and $701 from accumulated net re-
alized gain on investment and futures transactions to accumulated undistrib-
uted net investment income. CORE Small Cap Equity reclassified $98,232 from
paid-in capital to accumulated undistributed net investment income. CORE
Large Cap Value reclassified $2 from accumulated undistributed net investment
income to accumulated net realized gain on investment and futures transac-
tions, and $6,483 from paid-in capital to accumulated undistributed net in-
vestment income. CORE International Equity Fund reclassified $28,102 and $433
from accumulated net realized gain on investment, futures and foreign cur-
rency related transactions to accumulated undistributed net investment income
and paid-in capital, respectively. These reclassifications have no impact on
the net asset values of each Fund and are designed to present each Fund's
capital accounts on a tax basis.
Goldman Sachs Trust -- CORE Equity Funds -- Tax Information (unaudited)
During the tax year ended August 31, 1999, 53.80% of the ordi-
nary income dividends paid by the CORE Large Cap Value Fund, qual-
ify for the dividends received deduction available for
corporations.
57
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements (continued)
August 31, 1999
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the seven-month period ended August 31, 1999, is as fol-
lows:
<TABLE>
<CAPTION>
CORE U.S. Equity Fund
-----------------------------
Shares Dollars
-----------------------------
<S> <C> <C>
Class A Shares
Shares sold 4,480,478 $152,209,945
Reinvestment of dividends and distributions -- --
Shares repurchased (4,885,988) (165,197,641)
-----------------------------
(405,510) (12,987,696)
---------------------------------------------------------------------
Class B Shares
Shares sold 2,114,834 70,617,885
Reinvestment of dividends and distributions -- --
Shares repurchased (424,409) (14,199,866)
-----------------------------
1,690,425 56,418,019
---------------------------------------------------------------------
Class C Shares
Shares sold 622,703 20,790,097
Reinvestment of dividends and distributions -- --
Shares repurchased (157,393) (5,321,657)
-----------------------------
465,310 15,468,440
----------------------------------------------------------------------
Institutional Shares
Shares sold 2,156,813 74,023,816
Reinvestment of dividends and distributions -- --
Shares repurchased (1,693,849) (58,817,319)
-----------------------------
462,964 15,206,497
----------------------------------------------------------------------
Service Shares
Shares sold 53,313 1,807,159
Reinvestment of dividends and distributions -- --
Shares repurchased (77,444) (2,674,453)
-----------------------------
(24,131) (867,294)
---------------------------------------------------------------------
NET INCREASE (DECREASE) 2,189,058 $ 73,237,966
---------------------------------------------------------------------
</TABLE>
58
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
CORE Large Cap Value
CORE Large Cap Growth Fund CORE Small Cap Equity Fund Fund CORE International Equity Fund
------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10,470,228 $ 170,184,476 1,258,148 $ 13,030,383 9,581,268 $104,106,541 4,236,762 $ 43,587,990
-- -- -- -- 20,832 227,047 193 2,066
(3,654,092) (60,336,764) (2,417,812) (24,600,070) (1,624,984) (18,072,273) (4,760,025) (49,081,701)
------------------------------------------------------------------------------------------------------------------------
6,816,136 109,847,712 (1,159,664) (11,569,687) 7,977,116 86,261,315 (523,070) (5,491,645)
------------------------------------------------------------------------------------------------------------------------
5,780,900 93,035,450 301,937 3,002,544 1,385,917 15,120,099 209,022 2,180,794
-- -- -- -- 1,345 14,579 -- --
(801,603) (12,987,080) (473,346) (4,654,066) (43,481) (468,504) (104,302) (1,068,660)
------------------------------------------------------------------------------------------------------------------------
4,979,297 80,048,370 (171,409) (1,651,522) 1,343,781 14,666,174 104,720 1,112,134
------------------------------------------------------------------------------------------------------------------------
2,791,478 45,140,043 159,684 1,608,796 751,112 8,221,628 495,659 5,019,291
-- -- -- -- 610 6,613 -- --
(604,096) (9,757,233) (189,207) (1,825,005) (13,955) (152,653) (417,071) (4,248,461)
------------------------------------------------------------------------------------------------------------------------
2,187,382 35,382,810 (29,523) (216,209) 737,767 8,075,588 78,588 770,830
------------------------------------------------------------------------------------------------------------------------
2,587,072 42,841,502 1,430,824 14,494,462 16,847,196 172,118,566 2,418,684 25,505,971
-- -- -- -- 4,958 53,468 -- --
(2,662,983) (43,943,062) (1,498,950) (15,266,801) (4,143,528) (44,173,282) (5,665,112) (58,430,254)
------------------------------------------------------------------------------------------------------------------------
(75,911) (1,101,560) (68,126) (772,339) 12,708,626 127,998,752 (3,246,428) (32,924,283)
------------------------------------------------------------------------------------------------------------------------
47,403 761,942 2,880 27,449 1,092 12,500 553 5,995
-- -- -- -- 1 4 -- --
(2,545) (41,303) (1,987) (18,976) -- -- (2,003) (20,376)
------------------------------------------------------------------------------------------------------------------------
44,858 720,639 893 8,473 1,093 12,504 (1,450) (14,381)
------------------------------------------------------------------------------------------------------------------------
13,951,762 $ 224,897,971 (1,427,829) $ (14,201,284) 22,768,383 $237,014,333 (3,587,640) $ (36,547,345)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Notes to Financial Statements (continued)
August 31, 1999
11. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended January 31, 1999, is as follows:
<TABLE>
<CAPTION>
CORE U.S. Equity Fund
---------------------
Shares Dollars
---------------------
<S> <C> <C>
Class A Shares
Shares sold 8,753,952 $ 259,032,390
Reinvestment of dividends and distributions 381,760 11,200,848
Shares repurchased (5,761,134) (166,304,148)
---------------------
3,374,578 103,929,090
-----------------------------------------------------------------------
Class B Shares
Shares sold 2,857,310 83,492,448
Reinvestment of dividends and distributions 83,374 2,414,741
Shares repurchased (501,968) (14,454,259)
---------------------
2,438,716 71,452,930
-----------------------------------------------------------------------
Class C Shares
Shares sold 670,600 19,394,950
Reinvestment of dividends and distributions 13,055 377,761
Shares repurchased (91,806) (2,614,971)
---------------------
591,849 17,157,740
-----------------------------------------------------------------------
Institutional Shares
Shares sold 3,495,701 106,922,172
Reinvestment of dividends and distributions 252,278 7,502,432
Shares repurchased (2,092,487) (62,588,379)
---------------------
1,655,492 51,836,225
-----------------------------------------------------------------------
Service Shares
Shares sold 138,492 4,090,580
Reinvestment of dividends and distributions 8,981 263,345
Shares repurchased (89,923) (2,681,502)
---------------------
57,550 1,672,423
-----------------------------------------------------------------------
NET INCREASE 8,118,185 $ 246,048,408
-----------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was December 31, 1998 for all share clas-
ses.
60
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
<TABLE>
<CAPTION>
CORE Large Cap Value
CORE Large Cap Growth Fund CORE Small Cap Equity Fund Fund(a) CORE International Equity Fund
----------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8,392,008 $ 114,907,937 6,683,657 $ 62,993,476 659,370 $ 6,646,109 16,982,750 $ 159,894,304
775 9,734 5,387 51,508 -- -- 25,532 247,660
(2,029,343) (26,663,301) (1,432,586) (14,382,982) (3,045) (30,471) (6,723,268) (65,336,060)
----------------------------------------------------------------------------------------------------------------------
6,363,440 88,254,370 5,256,458 48,662,002 656,325 6,615,638 10,285,014 94,805,904
----------------------------------------------------------------------------------------------------------------------
5,276,877 72,837,485 828,354 8,824,797 33,500 341,048 515,393 5,051,846
1,075 13,374 -- -- -- -- -- --
(577,338) (7,608,153) (241,316) (2,380,103) -- -- (67,362) (640,971)
----------------------------------------------------------------------------------------------------------------------
4,700,614 65,242,706 587,038 6,444,694 33,500 341,048 448,031 4,410,875
----------------------------------------------------------------------------------------------------------------------
2,156,694 29,856,923 565,318 5,743,510 26,441 266,200 308,917 2,996,602
93 1,154 -- -- -- -- -- --
(183,652) (2,472,936) (156,900) (1,557,935) -- -- (107,735) (1,051,525)
----------------------------------------------------------------------------------------------------------------------
1,973,135 27,385,141 408,418 4,185,575 26,441 266,200 201,182 1,945,077
----------------------------------------------------------------------------------------------------------------------
19,639,867 283,752,115 7,133,876 75,923,060 5,393,552 54,931,857 30,484,309 302,474,224
2,288 32,678 2,982 28,592 -- -- 4,168 40,723
(1,788,450) (24,482,623) (1,837,364) (18,190,952) (136,723) (1,380,706) (4,511,270) (44,208,971)
----------------------------------------------------------------------------------------------------------------------
17,853,705 259,302,170 5,299,494 57,760,700 5,256,829 53,551,151 25,977,207 258,305,976
----------------------------------------------------------------------------------------------------------------------
105,509 1,439,054 5,527 59,019 160 1,600 2,004 20,035
21 292 2 20 -- -- -- --
(11,909) (153,375) (339) (3,405) -- -- -- --
----------------------------------------------------------------------------------------------------------------------
93,621 1,285,971 5,190 55,634 160 1,600 2,004 20,035
----------------------------------------------------------------------------------------------------------------------
30,984,515 $ 441,470,358 11,556,598 $ 117,108,605 5,973,255 $60,775,637 36,913,438 $ 359,487,867
----------------------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset Net In excess Net increase
value, investment Net realized From net of net (decrease)
beginning income and unrealized investment investment From net in net asset
of period (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $32.98 $ 0.03 $1.20 $ -- $ -- $ -- $ 1.23
1999 - Class B Shares 32.50 (0.11) 1.17 -- -- -- 1.06
1999 - Class C Shares 32.40 (0.10) 1.16 -- -- -- 1.06
1999 - Institutional
Shares 33.29 0.11 1.21 -- -- -- 1.32
1999 - Service Shares 32.85 0.01 1.19 -- -- -- 1.20
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 26.59 0.04 7.02 (0.03) (0.01) (0.63) 6.39
1999 - Class B Shares 26.32 (0.10) 6.91 -- -- (0.63) 6.18
1999 - Class C Shares 26.24 (0.10) 6.89 -- -- (0.63) 6.16
1999 - Institutional
Shares 26.79 0.20 7.11 (0.15) (0.03) (0.63) 6.50
1999 - Service Shares 26.53 0.06 7.01 (0.10) (0.02) (0.63) 6.32
----------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 23.32 0.11 5.63 (0.12) -- (2.35) 3.27
1998 - Class B Shares 23.18 0.11 5.44 -- (0.06) (2.35) 3.14
1998 - Class C Shares
(commenced August 15,
1997) 27.48 0.03 1.22 -- (0.14) (2.35) (1.24)
1998 - Institutional
Shares 23.44 0.30 5.65 (0.24) (0.01) (2.35) 3.35
1998 - Service Shares 23.27 0.19 5.57 (0.07) (0.08) (2.35) 3.26
----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 19.66 0.16 4.46 (0.16) -- (0.80) 3.66
1997 - Class B Shares
(commenced May 1, 1996) 20.44 0.04 3.70 (0.04) (0.16) (0.80) 2.74
1997 - Institutional
Shares 19.71 0.30 4.51 (0.28) -- (0.80) 3.73
1997 - Service Shares
(commenced June 7, 1996) 21.02 0.13 3.15 (0.13) (0.10) (0.80) 2.25
----------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 14.61 0.19 5.43 (0.16) -- (0.41) 5.05
1996 - Institutional
Shares (commenced June
15, 1995) 16.97 0.16 3.23 (0.24) -- (0.41) 2.74
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
GOLDMAN SACHS CORE U.S. EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to income (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$34.21 3.73%(d) $614,310 1.14%(c) 0.15%(c) 1.24%(c) 0.05%(c) 41.84%(d)
33.56 3.26(d) 214,087 1.89(c) (0.60)(c) 1.99(c) (0.70)(c) 41.84(d)
33.46 3.27(d) 43,361 1.89(c) (0.61)(c) 1.99(c) (0.71)(c) 41.84(d)
34.61 3.97(d) 335,465 0.74(c) 0.54(c) 0.84(c) 0.44(c) 41.84(d)
34.05 3.65(d) 11,204 1.24(c) 0.06(c) 1.34(c) (0.04)(c) 41.84(d)
32.98 26.89 605,566 1.23 0.15 1.36 0.02 63.79
32.50 26.19 152,347 1.85 (0.50) 1.98 (0.63) 63.79
32.40 26.19 26,912 1.87 (0.53) 2.00 (0.66) 63.79
33.29 27.65 307,200 0.69 0.69 0.82 0.56 63.79
32.85 27.00 11,600 1.19 0.19 1.32 0.06 63.79
- ------------------------------------------------------------------------------------------------------------------------------
26.59 24.96 398,393 1.28 0.51 1.47 0.32 65.89
26.32 24.28 59,208 1.79 (0.05) 1.96 (0.22) 65.89
26.24 4.85(d) 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c) 65.89
26.79 25.76 202,893 0.65 1.16 0.82 0.99 65.89
26.53 25.11 7,841 1.15 0.62 1.32 0.45 65.89
- ------------------------------------------------------------------------------------------------------------------------------
23.32 23.75 225,968 1.29 0.91 1.53 0.67 37.28
23.18 18.59(d) 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c) 37.28
23.44 24.63 148,942 0.65 1.52 0.85 1.32 37.28
23.27 15.92(d) 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c) 37.28
- ------------------------------------------------------------------------------------------------------------------------------
19.66 38.63 129,045 1.25 1.01 1.55 0.71 39.35
19.71 20.14(d) 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c) 39.35
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
---------------------------- ------------------------------------
Net asset In excess
value, Net Net realized From net of net Net increase
beginning investment and unrealized investment investment From net in net asset
of period income (loss) gain income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $16.17 $(0.01) $0.86 $ -- $ -- $ -- $0.85
1999 - Class B Shares 15.98 (0.07) 0.84 -- -- -- 0.77
1999 - Class C Shares 15.99 (0.07) 0.83 -- -- -- 0.76
1999 - Institutional
Shares 16.21 0.03 0.86 -- -- -- 0.89
1999 - Service Shares 16.11 (0.02) 0.86 -- -- -- 0.84
FOR THE YEAR ENDED JANUARY 31,
1999 - Class A Shares 11.97 0.01 4.19 -- -- -- 4.20
1999 - Class B Shares 11.92 (0.06) 4.12 -- -- -- 4.06
1999 - Class C Shares 11.93 (0.05) 4.11 -- -- -- 4.06
1999 - Institutional
Shares 11.97 0.02 4.23 -- (0.01) -- 4.24
1999 - Service Shares 11.95 (0.01) 4.17 -- -- -- 4.16
FOR THE PERIOD ENDED JANUARY 31,
1998 - Class A Shares
(commenced May 1, 1997) 10.00 0.01 2.35 (0.01) -- (0.38) 1.97
1998 - Class B Shares
(commenced May 1, 1997) 10.00 (0.03) 2.33 -- -- (0.38) 1.92
1998 - Class C Shares
(commenced August 15,
1997) 11.80 (0.02) 0.54 -- (0.01) (0.38) 0.13
1998 - Institutional
Shares (commenced May 1,
1997) 10.00 0.01 2.35 (0.01) -- (0.38) 1.97
1998 - Service Shares
(commenced May 1, 1997) 10.00 (0.02) 2.35 -- -- (0.38) 1.95
</TABLE>
------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$17.02 5.26%(d) $300,684 1.04%(c) (0.11)%(c) 1.26%(c) (0.33)%(c) 32.74%(d)
16.75 4.82(d) 181,626 1.79(c) (0.87)(c) 2.01(c) (1.09)(c) 32.74(d)
16.75 4.75(d) 75,502 1.79(c) (0.87)(c) 2.01(c) (1.09)(c) 32.74(d)
17.10 5.49(d) 310,704 0.64(c) 0.31(c) 0.86(c) 0.09(c) 32.74(d)
16.95 5.21(d) 2,510 1.14(c) (0.21)(c) 1.36(c) (0.43)(c) 32.74(d)
16.17 35.10 175,510 0.97 0.05 1.46 (0.44) 63.15
15.98 34.07 93,711 1.74 (0.73) 2.11 (1.10) 63.15
15.99 34.04 37,081 1.74 (0.74) 2.11 (1.11) 63.15
16.21 35.54 295,734 0.65 0.35 1.02 (0.02) 63.15
16.11 34.85 1,663 1.15 (0.16) 1.52 (0.53) 63.15
11.97 23.79(d) 53,786 0.91(c) 0.12(c) 2.40(c) (1.37)(c) 74.97(d)
11.92 23.26(d) 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c) 74.97(d)
11.93 4.56(d) 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00)(c) 74.97(d)
11.97 23.89(d) 4,656 0.72(c) 0.42(c) 1.96(c) (0.82)(c) 74.97(d)
11.95 23.56(d) 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c) 74.97(d)
</TABLE>
- -------------------------------------------------------------------------------
65
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(a) shareholders
---------------------------- -------------------------
Net asset
value, Net Net realized From net Net increase
beginning investment and unrealized investment From net in net asset
of period income (loss) gain (loss) income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $10.16 $(0.01) $0.08 $ -- $ -- $0.07
1999 - Class B Shares 10.07 (0.05) 0.07 -- -- 0.02
1999 - Class C Shares 10.08 (0.05) 0.07 -- -- 0.02
1999 - Institutional
Shares 10.20 0.02 0.08 -- -- 0.10
1999 - Service Shares 10.16 (0.01) 0.07 -- -- 0.06
FOR THE YEAR ENDED JANUARY 31,
1999 - Class A Shares 10.59 0.01 (0.43) (0.01) -- (0.43)
1999 - Class B Shares 10.56 (0.05) (0.44) -- -- (0.49)
1999 - Class C Shares 10.57 (0.04) (0.45) -- -- (0.49)
1999 - Institutional
Shares 10.61 0.04 (0.43) (0.02) -- (0.41)
1999 - Service Shares 10.60 0.01 (0.44) (0.01) -- (0.44)
FOR THE PERIOD ENDED JANUARY 31,
1998 - Class A Shares
(commenced August 15,
1997) 10.00 (0.01) 0.65 -- (0.05) 0.59
1998 - Class B Shares
(commenced August 15,
1997) 10.00 (0.03) 0.64 -- (0.05) 0.56
1998 - Class C Shares
(commenced August 15,
1997) 10.00 (0.02) 0.64 -- (0.05) 0.57
1998 - Institutional
Shares (commenced August
15, 1997) 10.00 0.01 0.65 -- (0.05) 0.61
1998 - Service Shares
(commenced August 15,
1997) 10.00 0.01 0.64 -- (0.05) 0.60
</TABLE>
------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Net assets Ratio of Ratio of Ratio of
Net asset at end of net expenses net investment Ratio of net investment Portfolio
value, end Total period to average income (loss) to expenses to loss to turnover
of period return(b) (in 000s) net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$10.23 0.69%(d) $52,660 1.33%(c) (0.12)%(c) 1.67%(c) (0.46)%(c) 52.03%(d)
10.09 0.20(d) 13,711 2.08(c) (0.86)(c) 2.42(c) (1.20)(c) 52.03(d)
10.10 0.20(d) 6,274 2.08(c) (0.86)(c) 2.42(c) (1.20)(c) 52.03(d)
10.30 0.98(d) 62,633 0.93(c) 0.28(c) 1.27(c) (0.06)(c) 52.03(d)
10.22 0.59(d) 64 1.43(c) (0.22)(c) 1.77(c) (0.56)(c) 52.03(d)
10.16 (3.97) 64,087 1.31 0.08 2.00 (0.61) 75.38
10.07 (4.64) 15,406 2.00 (0.55) 2.62 (1.17) 75.38
10.08 (4.64) 6,559 2.01 (0.56) 2.63 (1.18) 75.38
10.20 (3.64) 62,763 0.94 0.60 1.56 (0.02) 75.38
10.16 (4.07) 54 1.44 0.01 2.06 (0.61) 75.38
10.59 6.37(d) 11,118 1.25(c) (0.36)(c) 3.92(c) (3.03)(c) 37.65(d)
10.56 6.07(d) 9,957 1.95(c) (1.04)(c) 4.37(c) (3.46)(c) 37.65(d)
10.57 6.17(d) 2,557 1.95(c) (1.07)(c) 4.37(c) (3.49)(c) 37.65(d)
10.61 6.57(d) 9,026 0.95(c) 0.15(c) 3.37(c) (2.27)(c) 37.65(d)
10.60 6.47(d) 2 1.45(c) 0.40(c) 3.87(c) (2.02)(c) 37.65(d)
</TABLE>
- -------------------------------------------------------------------------------
67
<PAGE>
GOLDMAN SACHS CORE LARGE CAP VALUE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(a) shareholders
------------------------- -------------------------
Net asset
value, Net Net realized From net Net increase
beginning investment and unrealized investment From net in net asset
of period income gain income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $10.15 $0.04 $0.40 $(0.04) $ -- $0.40
1999 - Class B Shares 10.15 0.01 0.36 (0.02) -- 0.35
1999 - Class C Shares 10.15 0.01 0.37 (0.02) -- 0.36
1999 - Institutional
Shares 10.16 0.06 0.38 (0.05) -- 0.39
1999 - Service Shares 10.16 0.02 0.40 (0.03) -- 0.39
FOR THE PERIOD ENDED JANUARY 31,
1999 - Class A Shares
(commenced December 31,
1998) 10.00 0.01 0.14 -- -- 0.15
1999 - Class B Shares
(commenced December 31,
1998) 10.00 -- 0.15 -- -- 0.15
1999 - Class C Shares
(commenced December 31,
1998) 10.00 -- 0.15 -- -- 0.15
1999 - Institutional
Shares (commenced Decem-
ber 31, 1998) 10.00 0.01 0.15 -- -- 0.16
1999 - Service Shares
(commenced December 31,
1998) 10.00 0.02 0.14 -- -- 0.16
</TABLE>
------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
GOLDMAN SACHS CORE LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
------------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment income
value, end Total period net expenses to income to expenses to (loss) to
of period return(b)(d) (in 000s) average net assets(c) average net assets(c) average net assets(c) average net assets(c)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$10.55 4.31% 91,072 1.04% 0.87% 1.21% 0.70%
10.50 3.68 14,464 1.79 0.05 1.96 (0.12)
10.51 3.73 8,032 1.79 0.09 1.96 (0.08)
10.55 4.35 189,540 0.64 1.29 0.81 1.12
10.55 4.11 13 1.14 0.72 1.31 0.55
- -----------------------------------------------------------------------------------------------------------------------------
10.15 1.50 6,665 1.08 1.45 8.03 (5.50)
10.15 1.50 340 1.82 0.84 8.77 (6.11)
10.15 1.50 268 1.83 0.70 8.78 (6.25)
10.16 1.60 53,396 0.66 1.97 7.61 (4.98)
10.16 1.60 2 1.16 2.17 8.11 (4.78)
<CAPTION>
Portfolio
turnover
rate(d)
- -----------------------------------------------------------------------------------------------------------------------------
<C>
36.10%
36.10
36.10
36.10
36.10
- -----------------------------------------------------------------------------------------------------------------------------
0.00
0.00
0.00
0.00
0.00
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(a) shareholders
------------------------- -------------------------
Net asset Net Net increase
value, investment Net realized From net (decrease)
beginning income and unrealized investment From net in net asset
of period (loss) gain (loss) income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $ 9.98 $ 0.05 $0.84 $ -- $ -- $ 0.89
1999 - Class B Shares 9.95 0.01 0.85 -- -- 0.86
1999 - Class C Shares 9.96 0.01 0.85 -- -- 0.86
1999 - Institutional
Shares 10.06 0.09 0.85 -- -- 0.94
1999 - Service Shares 10.02 0.01 0.90 -- -- 0.91
FOR THE YEAR ENDED JANUARY 31,
1999 - Class A Shares 9.22 (0.01) 0.79 (0.02) -- 0.76
1999 - Class B Shares 9.21 -- 0.74 -- -- 0.74
1999 - Class C Shares 9.22 -- 0.74 -- -- 0.74
1999 - Institutional
Shares 9.24 0.05 0.80 (0.03) -- 0.82
1999 - Service Shares 9.23 -- 0.81 (0.02) -- 0.79
FOR THE PERIOD ENDED JANUARY 31,
1998 - Class A Shares
(commenced August 15,
1997) 10.00 -- (0.78) -- -- (0.78)
1998 - Class B Shares
(commenced August 15,
1997) 10.00 (0.02) (0.77) -- -- (0.79)
1998 - Class C Shares
(commenced August 15,
1997) 10.00 (0.02) (0.76) -- -- (0.78)
1998 - Institutional
Shares (commenced August
15, 1997) 10.00 0.02 (0.76) (0.02) -- (0.76)
1998 - Service Shares
(commenced August 15,
1997) 10.00 0.01 (0.78) -- -- (0.77)
</TABLE>
------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income (loss) to expenses to income (loss) to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$10.87 8.92%(d) $114,502 1.66%(c) 0.78%(c) 1.76%(c) 0.68%(c) 64.97%(d)
10.81 8.64(d) 9,171 2.16(c) 0.26(c) 2.26(c) 0.16(c) 64.97(d)
10.82 8.63(d) 4,913 2.16(c) 0.23(c) 2.26(c) 0.13(c) 64.97(d)
11.00 9.34(d) 271,212 1.01(c) 1.43(c) 1.11(c) 1.33(c) 64.97(d)
10.93 9.08(d) 8 1.51(c) 0.07(c) 1.61(c) (0.03)(c) 64.97(d)
9.98 8.37 110,338 1.63 (0.11) 1.94 (0.42) 194.61
9.95 8.03 7,401 2.08 (0.03) 2.39 (0.34) 194.61
9.96 8.03 3,742 2.08 (0.04) 2.39 (0.35) 194.61
10.06 9.20 280,731 1.01 0.84 1.32 0.53 194.61
10.02 8.74 22 1.50 0.02 1.81 (0.29) 194.61
9.22 (7.66)(d) 7,087 1.50(c) (0.27)(c) 4.87(c) (3.90)(c) 25.16(d)
9.21 (7.90)(d) 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c) 25.16(d)
9.22 (7.80)(d) 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c) 25.16(d)
9.24 (7.45)(d) 17,719 1.00(c) 0.59 (c) 4.12(c) (2.53)(c) 25.16(d)
9.23 (7.70)(d) 1 1.50(c) 0.26 (c) 4.62(c) (2.86)(c) 25.16(d)
</TABLE>
- --------------------------------------------------------------------------------
71
<PAGE>
GOLDMAN SACHS TRUST - CORE EQUITY FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust - CORE Eq-
uity Funds:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs CORE U.S. Equity Fund, CORE Large Cap Growth Fund, CORE Small
Cap Equity Fund, CORE Large Cap Value Fund and CORE International Equity
Fund, portfolios of Goldman Sachs Trust--Equity Funds (a Delaware Business
Trust), including the statements of investments, as of August 31, 1999, and
the related statements of operations, the statements of changes in net assets
and the financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility 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 August 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 CORE U.S. Equity Fund, CORE Large Cap Growth Fund, CORE
Small Cap Equity Fund, CORE Large Cap Value Fund and CORE International Eq-
uity Fund as of August 31, 1999, the results of their operations, the changes
in their net assets and the financial highlights for the periods presented,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 8, 1999
72
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 94.4%
<C> <S> <C>
Australia - 2.9%
116,900 Brambles Industries Ltd. (Multi-Industrial) $ 3,257,405
352,500 Broken Hill Proprietary Co. Ltd. (Nonferrous Metals) 3,791,857
260,747 Lend Lease Corp. (Financial Services) 3,186,394
301,300 National Australia Bank (Banks) 4,556,770
294,074 News Corp. Ltd. (Media) 2,149,587
697,500 Pioneer International Ltd. (Construction) 1,781,136
231,700 Rio Tinto Ltd. (Mining) 3,978,975
358,270 Tab Corp. Holdings Ltd. (Entertainment) 2,447,299
518,800 Telstra Corp. (Utilities) 2,699,296
637,493 Westpac Banking Corp. (Banks) 3,866,267
1,011,923 Woolworths Ltd. (Specialty Retail) 3,538,852
------------
35,253,838
------------------------------------------------------------------------------
Britain - 19.2%
1,186,336 Allied Zurich PLC (Insurance) 14,438,395
352,825 AstraZeneca Group PLC (Health) 13,991,960
209,531 Barclays PLC (Banks) 6,226,119
824,048 BP Amoco PLC (Energy Resources) 15,285,656
1,258,528 British Telecom PLC (Telecommunications) 19,275,342
862,237 Carlton Communications PLC (Media) 6,540,495
820,771 Diageo PLC (Tobacco) 8,332,084
915,203 General Electric Co. PLC (Electrical Equipment) 9,143,475
812,351 Glaxo Wellcome PLC (Health) 21,345,123
650,383 Great Universal Stores PLC (Specialty Retail) 6,550,068
485,537 Halifax Group PLC (Banks) 5,421,058
1,026,247 HSBC Holdings PLC* (Banks) 12,712,908
721,857 Lloyds TSB Group PLC (Banks) 9,993,194
1,010,181 Misys PLC (Business Services) 8,946,616
246,063 National Westminster Bank PLC (Banks) 5,051,255
1,179,425 Rentokil Initial PLC (Business Services) 4,724,675
938,923 Select Appointment Holdings PLC* (Business Services) 13,398,490
1,287,886 Shell Transport & Trading Co. (Energy Resources) 10,271,702
1,686,049 Stagecoach Holdings PLC (Railroads) 5,865,818
891,858 Unilever NV (Food & Beverage) 8,393,708
1,287,439 Vodafone AirTouch PLC (Telecommunications) 25,931,835
------------
231,839,976
------------------------------------------------------------------------------
China - 0.5%
1,715,000 China Telecom Ltd.* (Telecommunications) 5,322,863
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Denmark - 0.6%
125,884 ISS International Service System Series B* (Business
Services) $ 6,942,659
------------------------------------------------------------------------------
Finland - 1.6%
234,954 Nokia AB Oyj Series A (Telecommunications) 19,635,133
------------------------------------------------------------------------------
France - 11.5%
18,297 Accor SA (Hotel) 4,409,177
240,293 Alstom (Machinery) 8,103,700
107,295 Axa (Insurance) 13,370,532
27,624 Carrefour SA (Specialty Retail) 4,500,193
60,020 Dexia France (Banks) 7,828,580
92,345 Elf Aquitaine (Energy Resources) 16,216,061
90,001 Equant* (Computer Software) 7,973,630
416,153 Rhone-Poulenc SA (Chemicals) 20,215,236
220,418 SEITA (Tobacco) 12,031,525
62,995 Societe Generale (Banks) 12,348,250
33,291 ST Microelectronics (Semiconductors) 2,213,380
102,374 Total Fina SA Class B (Energy Resources) 13,212,147
217,263 Vivendi (Business Services) 16,800,688
------------
139,223,099
------------------------------------------------------------------------------
Germany - 5.0%
321,097 Commerzbank AG (Banks) 11,514,892
65,099 HypoVereinsbank (Financial Services) 3,863,324
134,287 Mannesmann AG (Machinery) 20,626,450
322,640 Preussag AG (Multi-Industrial) 18,396,317
74,969 Siemens AG (Diversified Industrial Manufacturing) 6,312,751
------------
60,713,734
------------------------------------------------------------------------------
Hong Kong - 3.0%
532,000 Cheung Kong Holdings Ltd. (Real Estate) 4,641,785
416,000 CLP Holdings Ltd. (Utilities) 1,966,181
377,000 Hang Seng Bank Ltd. (Banks) 4,260,422
1,881,000 Hong Kong & China Gas Co. Ltd. (Utilities) 2,676,796
2,380,800 Hong Kong Telecom (Telecommunications) 5,396,345
951,000 Hutchison Whampoa (Financial Services) 9,277,422
10,000 New World China Land Ltd.* (Real Estate) 8,049
1,756,000 New World Development Co. Ltd. (Real Estate) 4,228,928
469,000 Sun Hung Kai Properties Co. Ltd. (Real Estate) 3,986,400
------------
36,442,328
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Ireland - 0.6%
723,130 Bank of Ireland* (Banks) $ 6,555,731
----------------------------------------------------------------------------
Italy - 1.9%
502,859 San Paolo-IMI SpA (Banks) 6,761,074
9,444,971 Seat Pagine Gialle SpA (Business Services) 7,933,139
1,854,575 Unicredito Italiano SpA (Banks) 8,573,334
------------
23,267,547
----------------------------------------------------------------------------
Japan - 24.8%
203,059 Aderans Co. Ltd. (Specialty Retail) 9,137,516
773,000 Asahi Glass Co. Ltd. (Home Products) 4,892,450
893,000 Bank of Tokyo-Mitsubishi (Banks) 13,353,958
264,000 Bridgestone Corp. (Auto) 7,485,252
190,265 Canon, Inc. (Computer Hardware) 5,568,647
806,000 Chiba Bank Ltd. (Banks) 3,029,826
302,600 Circle K Japan Co. (Specialty Retail) 12,924,882
536,000 Fuji Bank Ltd. (Banks) 5,539,672
215,000 Fuji Photo Film Ltd. (Leisure) 7,865,734
121,000 Honda Motor Co. Ltd. (Auto) 4,869,438
252 Hoya Corp. (Electrical Equipment) 15,120
108 Inaba Denkisangyo (Electrical Equipment) 1,827
302,000 Kao Corp. (Food & Beverage) 8,590,296
700,000 Kirin Brewery Ltd. (Alcohol) 8,515,114
497 Kokuyo Co. Ltd. (Specialty Retail) 8,864
85,300 Konami Co. Ltd. (Computer Software) 7,481,840
776 Max Co. (Electrical Equipment) 9,028
750 Mirai Industry Co. Ltd. (Multi-Industrial) 12,073
1,792,790 Mitsui Marine & Fire (Insurance) 9,854,729
730,000 NGK Insulators Ltd. (Multi-Industrial) 7,678,237
56,742 Nintendo Co. Ltd. (Entertainment) 9,860,502
1,327 Nippon Telephone & Telegraph Corp.
(Telecommunications) 14,928,523
122 NTT Mobile Communications Network, Inc. New Shares
(Telecommunications) 2,030,823
488 NTT Mobile Communications Network, Inc.*
(Telecommunications) 8,078,657
716,000 Ricoh Co. Ltd. (Computer Hardware) 12,783,025
83,800 Rohm Co. (Electrical Equipment) 16,708,648
54 Shimachu Co. (Specialty Retail) 1,003
391,000 Shin-Etsu Chemical Co. Ltd. (Chemicals) 15,949,696
95,811 SMC Corp. (Machinery) 14,634,323
171,000 Taisho Pharmaceutical Co. Ltd. (Drugs) 7,210,043
112,200 Takefuji Corp. (Financial Services) 18,071,450
142,037 TDK Corp. (Computer Hardware) 17,278,018
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Japan - (continued)
327,000 Terumo Corp. (Medical Products) $ 10,467,828
231,600 Tokyo Electric Power (Electrical Utilities) 5,401,564
451,500 Toppan Forms Co. Ltd. (Publishing) 10,674,784
397,000 Yamanouchi Pharmaceutical (Drugs) 17,719,486
57 Yoshinoya D&C Co. Ltd. (Restaurants) 1,355,467
------------
299,988,343
------------------------------------------------------------------------------
Netherlands - 10.0%
78,256 Aegon NV (Financial Services) 6,854,439
244,773 Benckiser NV Class B (Food & Beverage) 14,966,328
252,752 Fortis Netherlands NV* (Financial Services) 8,569,324
438,948 Getronics NV (Business Services) 21,522,203
246,178 ING Groep NV (Financial Services) 13,515,761
116,017 Koninklijke Royal Philips Electronics NV (Appliance) 11,972,168
270,740 KPN NV (Telecommunications) 12,143,453
316,949 Libertel NV* (Telecommunications) 6,035,118
313,463 TNT Post Group NV (Business Services) 7,742,783
450,273 VNU NV (Media) 17,290,456
------------
120,612,033
------------------------------------------------------------------------------
New Zealand - 0.1%
277,000 Telecom Corp. of New Zealand Ltd. (Utilities) 1,241,862
------------------------------------------------------------------------------
Singapore - 1.3%
451,000 City Developments (Real Estate) 2,732,521
312,847 DBS Bank Ltd. (Banks) 3,586,544
778,000 First Capital Corp. Ltd. (Real Estate) 1,081,390
507,000 Natsteel Electronics Ltd. (Electrical Equipment) 2,529,730
111,000 Singapore Airlines Ltd. (Airlines) 1,041,758
173,000 Singapore Press Holdings Ltd. (Publishing) 2,877,339
1,025,000 Singapore Technologies Engineering Ltd. (Machinery) 1,235,967
489,000 Singapore Telecommunications Ltd.
(Telecommunications) 868,494
------------
15,953,743
------------------------------------------------------------------------------
Spain - 2.6%
196,201 Acerinox SA (Steel) 6,465,218
347,008 Endesa SA (Electrical Utilities) 6,974,563
1,136,043 Telefonica de Espana SA* (Telecommunications) 18,146,615
------------
31,586,396
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Sweden - 4.7%
432,337 Ericsson Telecommunications Series B
(Electrical Equipment) $ 13,968,376
1,317,205 Securitas AB Series B* (Business Services) 18,878,925
1,142,082 Skandia Forsakring (Insurance) 23,304,965
--------------
56,152,266
---------------------------------------------------------------------------
Switzerland - 4.1%
4,850 Nestle SA (Food & Beverage) 9,586,501
8,606 Novartis AG (Health) 12,402,380
1,172 Roche Holding AG (Health) 13,574,033
50,093 UBS AG (Banks) 14,156,645
--------------
49,719,559
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,001,564,056) $1,140,451,110
---------------------------------------------------------------------------
Preferred Stocks - 0.9%
Germany - 0.9%
84,259 Henkel KGAA Vorzug, Non-Voting (Chemicals) $ 6,105,634
13,347 SAP AG (Computer Software) 5,365,265
--------------
11,470,899
---------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $11,625,088) $ 11,470,899
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligation - 3.8%
<S> <C> <C> <C>
State Street Bank & Trust Euro-Time Deposit
$45,418,000 5.50% 09/01/1999 $ 45,418,000
---------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION (Cost $45,418,000) $ 45,418,000
---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $1,058,607,144) $1,197,340,009
---------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
As a % of total
net assets
<S> <C>
Common and Preferred Stock Industry Classifications
Airlines 0.1%
Alcohol 0.7
Appliance 1.0
Auto 1.0
Banks 12.0
Business Services 8.9
Chemicals 3.5
Computer Hardware 3.0
Computer Software 1.7
Construction 0.1
Diversified Industrial Manufacturing 0.5
Drugs 2.1
Electrical Equipment 3.5
Electrical Utilities 1.0
Energy Resources 4.6
Entertainment 1.0
Financial Services 5.2
Food & Beverage 3.4
Health 5.1
Home Products 0.4
Hotel 0.4
Insurance 5.0
Leisure 0.7
Machinery 3.7
Media 2.2
Medical Products 0.9
Mining 0.3
Multi-Industrial 2.4
Nonferrous Metals 0.3
Publishing 1.1
Railroads 0.5
Real Estate 1.4
Restaurants 0.1
Semiconductors 0.2
Specialty Retail 3.0
Steel 0.5
Telecommunications 11.4
Tobacco 1.7
Utilities 0.7
--------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 95.3%
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$1,058,607,144) $1,197,340,009
Cash, at value 564,230
Receivables:
Investment securities sold, at value 15,459,246
Dividends and interest, at value 1,826,341
Fund shares sold 12,708,631
Forward foreign currency exchange contracts, at value 26,518
Variation margin(a) 2,471,516
Reimbursement from investment adviser 95,641
Other assets, at value 1,095,742
----------------------------------------------------------------------------
Total assets 1,231,587,874
----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 18,009,154
Fund shares repurchased 3,382,461
Amounts owed to affiliates 1,613,562
Forward foreign currency exchange contracts, at value 416,413
Accrued expenses and other liabilities, at value 345,377
----------------------------------------------------------------------------
Total liabilities 23,766,967
----------------------------------------------------------------------------
Net Assets:
Paid-in capital 946,201,036
Accumulated undistributed net investment income 6,242,794
Accumulated net realized gain from investment, options,
futures and foreign currency related transactions 116,694,141
Net unrealized gain on investments, futures and translation
of assets and liabilities denominated in foreign currencies 138,682,936
----------------------------------------------------------------------------
NET ASSETS $1,207,820,907
----------------------------------------------------------------------------
Net asset value, offering and redemption price per share(b)
Class A $23.12
Class B $22.73
Class C $22.54
Institutional $23.49
Service $23.14
----------------------------------------------------------------------------
Shares Outstanding:
Class A 40,815,150
Class B 3,021,681
Class C 498,644
Institutional 7,687,724
Service 166,459
----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number
of shares authorized) 52,189,658
----------------------------------------------------------------------------
</TABLE>
(a) Includes approximately $1,145,000 relating to initial margin requirements
for futures transactions.
(b) Maximum public offering price per share for Class A shares is $24.47 (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.
10
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 12,961,397
Interest 621,135
------------------------------------------------------------------------------
Total income 13,582,532
------------------------------------------------------------------------------
Expenses:
Management fees 6,475,659
Distribution and service fees(b) 3,070,949
Transfer agent fees(c) 1,113,047
Custodian fees 726,028
Registration fees 113,873
Professional fees 45,335
Service share fees 10,635
Trustee fees 5,773
Other 93,505
------------------------------------------------------------------------------
Total expenses 11,654,804
------------------------------------------------------------------------------
Less -- expenses reimbursed (311,046)
------------------------------------------------------------------------------
Net expenses 11,343,758
------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,238,774
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
foreign currency related transactions:
Net realized gain (loss) from:
Investment transactions 96,860,780
Futures transactions (863,213)
Foreign currency related transactions 2,725,602
Net change in unrealized gain (loss) on:
Investments (33,864,411)
Futures 334,730
Translation of assets and liabilities denominated in foreign
currencies 123,621
------------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures and
foreign currency related transactions 65,317,109
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 67,555,883
------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $1,557,370.
(b) Class A, Class B and Class C had distribution and service fees of
$2,622,519, $388,156 and $60,274, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $996,557, $73,750, $11,452, $30,437 and $851, re-
spectively.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month
Period Ended
August 31, 1999
<S> <C>
From operations:
Net investment income $ 2,238,774
Net realized gain from investment, futures and foreign cur-
rency related transactions 98,723,169
Net change in unrealized gain (loss) on investments,
futures, and translation of assets and liabilities
denominated in foreign currencies (33,406,060)
------------------------------------------------------------------------------
Net increase in net assets resulting from operations 67,555,883
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 1,029,391,946
Reinvestment of dividends and distributions --
Cost of shares repurchased (1,032,832,481)
------------------------------------------------------------------------------
Net decrease in net assets resulting from share
transactions (3,440,535)
------------------------------------------------------------------------------
TOTAL INCREASE 64,115,348
------------------------------------------------------------------------------
Net assets:
Beginning of period 1,143,705,559
------------------------------------------------------------------------------
End of period $ 1,207,820,907
------------------------------------------------------------------------------
Accumulated undistributed net investment income $ 6,242,794
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<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 from 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:
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>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
-------------------------- ------------------------------------
Net asset Net In excess
value, investment Net realized From net of net
beginning income and unrealized investment investment From net
of period (loss) gain (loss) income income realized gains
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $21.92 $ 0.04 $1.16 $ -- $ -- $ --
1999 - Class B Shares 21.63 (0.02) 1.12 -- -- --
1999 - Class C Shares 21.45 (0.03) 1.12 -- -- --
1999 - Institutional
Shares 22.20 0.12(e) 1.17(e) -- -- --
1999 - Service Shares 21.93 0.06 1.15 -- -- --
FOR THE YEARS ENDED JANUARY 31,
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)
----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no
voluntary expense
limitations
------------------
Ratio of Ratio of
Net increase Net assets Ratio of net investment Ratio of net investment
(decrease) Net asset at end of net expenses income (loss) to expenses to income (loss) Portfolio
in net asset value, end Total period to average average net average net to average net turnover
value of period return(b) (in 000s) net assets assets assets assets rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1.20 $23.12 5.47%(d) $943,473 1.79%(c) 0.31%(c) 1.84%(c) 0.26%(c) 61.10%(d)
1.10 22.73 5.09(d) 68,691 2.29(c) (0.19)(c) 2.34(c) (0.24)(c) 61.10(d)
1.09 22.54 5.08(d) 11,241 2.29(c) (0.26)(c) 2.34(c) (0.31)(c) 61.10(d)
1.29 23.49 5.81(d) 180,564 1.14(c) 0.89(c) 1.19(c) 0.84(c) 61.10(d)
1.21 23.14 5.52(d) 3,852 1.64(c) 0.47(c) 1.69(c) 0.42(c) 61.10(d)
2.07 21.92 16.39 947,973 1.73 (0.28) 1.82 (0.37) 113.79
1.93 21.63 15.80 69,231 2.24 (0.79) 2.32 (0.87) 113.79
1.89 21.45 15.70 11,619 2.24 (0.98) 2.32 (1.06) 113.79
2.23 22.20 17.09 111,315 1.13 0.23 1.21 0.15 113.79
2.09 21.93 16.49 3,568 1.63 (0.18) 1.71 (0.26) 113.79
- -------------------------------------------------------------------------------------------------------------------------
0.53 19.85 11.12 697,590 1.67 (0.27) 1.80 (0.40) 40.82
0.46 19.70 10.51 55,324 2.20 (0.90) 2.30 (1.00) 40.82
(3.04) 19.56 (5.92)(d) 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c) 40.82
0.57 19.97 11.82 56,263 1.08 0.30 1.18 0.20 40.82
0.50 19.84 11.25 3,035 1.55 (0.36) 1.65 (0.46) 40.82
- -------------------------------------------------------------------------------------------------------------------------
2.12 19.32 13.48 536,283 1.69 (0.07) 1.88 (0.26) 38.01
0.33 19.24 2.83(d) 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c) 38.01
1.95 19.40 12.53(d) 68,374 1.10(c) 0.43(c) 1.25(c) 0.28(c) 38.01
1.64 19.34 10.42(d) 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c) 38.01
- -------------------------------------------------------------------------------------------------------------------------
2.68 17.20 28.68 330,860 1.52 0.26 1.77 0.01 68.48
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements
August 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"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securi-
ties are valued at prices supplied by independent pricing services, 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 last bid
price. Short-term debt obligations maturing in sixty days or less are valued
at amortized cost. Securities for which quotations are not readily available,
are valued at fair value using methods approved by the Board of Trustees of
the Trust.
B. 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; and (ii) currency gains and losses between trade
date and settlement date on investment securities transactions and forward
exchange contracts; and (iii) gains and losses from the difference between
amounts of dividends, interest and foreign withholding taxes recorded and the
amounts actually received.
16
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
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 upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. Short Securities Positions -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked-
to-market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and the sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
F. 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.
17
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
G. Segregation Transaction -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued and forward commitments represent examples of such transactions.
As a result of entering into those transactions the Fund is required to seg-
regate liquid assets on the accounting records equal to or greater than the
market value of the corresponding transactions.
H. Expenses -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are allocated to the funds based on 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 Service plans. Shareholders of Service shares bear all
expenses and fees paid to service organizations. Each class of shares of the
Fund separately bears its respective class-specific transfer agency fees.
I. 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $1,060,091,222. Accordingly gross unrealized gain on
investments was $168,699,398 and the gross unrealized loss on investments was
$31,450,611 resulting in a net unrealized gain of $137,248,787.
18
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman, Sachs &
Co. ("Goldman Sachs"), serves as the investment adviser to the Fund. Under
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 facili-
ties, 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" (ex-
cluding 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 exceed,
on an annual basis, .10% of the average daily net assets of the Fund. Goldman
Sachs has agreed to reimburse approximately $311,000 for the period ended Au-
gust 31, 1999.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized 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 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 $818,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$990,000, $457,000 and $167,000 for management, distribution and service and
transfer agent fees, respectively.
19
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures) for the period ended August 31, 1999, were
$665,136,041 and $667,728,986, respectively.
At August 31, 1999, the Fund had the following outstanding forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
Value on
Open Forward Foreign Currency Settlement Current Unrealized Unrealized
Sale Contracts Date Value Gain Loss
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hong Kong Dollar
expiring 9/10/1999 $20,448,129 $20,444,586 $ 3,543 $ --
expiring 12/8/1999 20,847,800 21,260,082 -- 412,282
--------------------------------------------------------------------------------------------
TOTAL OPEN FORWARD FOREIGN CURRENCY
SALE CONTRACTS $41,295,929 $41,704,668 $ 3,543 $412,282
--------------------------------------------------------------------------------------------
<CAPTION>
Closed but Unsettled Realized Realized
Forward Foreign Currency Contracts Purchase Value Sale Value Gain Loss
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro
expiring 10/26/1999 $16,956,131 $16,979,106 $22,975 $ --
Hong Kong Dollar
expiring 12/8/1999 573,886 569,755 -- 4,131
--------------------------------------------------------------------------------------------
TOTAL CLOSED BUT UNSETTLED FORWARD FOREIGN
CURRENCY CONTRACTS $17,530,017 $17,548,861 $22,975 $ 4,131
--------------------------------------------------------------------------------------------
</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 August 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 $26,518 and $416,413, respectively, in the accompanying State-
ment of Assets and Liabilities.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank, an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("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.
20
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statement of Assets and Liabilities. Changes in the value of the futures con-
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.
At August 31, 1999 the following futures contracts were open as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Market Unrealized
Type Long Month Value Gain
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FTSE 100 Index 76 September 1999 $ 7,622,852 $ 58,496
MIB 30 Index 28 September 1999 4,996,266 113,232
DAX Index 45 September 1999 6,293,742 163,002
------------------------------------------------------------------------------------
$18,912,860 $334,730
------------------------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified
$2,963,894 from accumulated net realized gain on investment, options, futures
and foreign currency related transactions to accumulated undistributed net
investment income and $1,628 from accumulated net realized gain on invest-
ment, options, futures and foreign currency related transactions to paid-in
capital. 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.
21
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
7. SUMMARY OF SHARE TRANSACTIONS
Share activity for:
<TABLE>
<CAPTION>
Seven Month Period Year Ended
Ended August 31, 1999 January 31, 1999
-------------------------------------------------------
Shares Dollars Shares Dollars
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 40,503,629 $ 878,896,664 90,785,418 $ 1,949,815,404
Reinvestments of divi-
dends and distributions -- -- 1,669,818 34,480,481
Shares repurchased (42,925,516) (937,796,470) (84,367,795) (1,819,683,956)
-------------------------------------------------------
(2,421,887) (58,899,806) 8,087,441 164,611,929
----------------------------------------------------------------------------------
Class B Shares
Shares sold 231,545 5,004,374 794,593 17,488,784
Reinvestments of divi-
dends and distributions -- -- 156,073 3,180,373
Shares repurchased (410,880) (8,878,625) (557,697) (11,834,003)
-------------------------------------------------------
(179,335) (3,874,251) 392,969 8,835,154
----------------------------------------------------------------------------------
Class C Shares
Shares sold 3,386,747 71,812,024 6,644,608 139,922,460
Reinvestments of divi-
dends and distributions -- -- 19,517 394,623
Shares repurchased (3,429,722) (73,325,070) (6,294,716) (133,220,855)
-------------------------------------------------------
(42,975) (1,513,046) 369,409 7,096,228
----------------------------------------------------------------------------------
Institutional Shares
Shares sold 3,229,820 73,161,867 2,805,737 62,386,145
Reinvestments of divi-
dends and distributions -- -- 131,238 2,741,464
Shares repurchased (556,938) (12,395,514) (740,110) (16,145,728)
-------------------------------------------------------
2,672,882 60,766,353 2,196,865 48,981,881
----------------------------------------------------------------------------------
Service Shares
Shares sold 23,838 517,017 78,227 1,765,950
Reinvestments of divi-
dends and distributions -- -- 8,677 179,257
Shares repurchased (20,037) (436,802) (77,199) (1,698,555)
-------------------------------------------------------
3,801 80,215 9,705 246,652
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) 32,486 (3,440,535) 11,056,389 $ 229,771,844
----------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Goldman Sachs International Equity Fund -- Tax Information
(unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the Fund
designated $50,214,365 as capital gain dividends paid during its
year ended August 31, 1999.
23
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
Goldman Sachs Trust -- International Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs International Equity Fund, one of the portfolios constituting
Goldman Sachs Trust -- Equity Funds (a Delaware Business Trust), including
the statement of investments, as of August 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 August 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 August 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
October 8, 1999
24
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 95.5%
<C> <S> <C>
Britain - 30.3%
121,196 Allied Zurich PLC (Insurance) $ 1,475,025
42,860 AstraZeneca Group PLC (Health) 1,699,697
22,305 Barclays PLC (Banks) 662,783
46,943 Bowthorpe PLC (Electrical Equipment) 451,621
87,317 BP Amoco PLC (Energy Resources) 1,619,684
129,489 British Telecom PLC (Telecommunications) 1,983,226
88,372 Carlton Communications PLC (Media) 670,346
92,363 Diageo PLC (Tobacco) 937,626
78,932 General Electric Co. PLC (Electrical Equipment) 788,582
85,150 Glaxo Wellcome PLC (Health) 2,237,379
73,445 Great Universal Stores PLC (Specialty Retail) 739,671
52,108 Halifax Group PLC (Banks) 581,790
104,497 HSBC Holdings PLC (Banks) 1,294,484
81,121 Lloyds TSB Group PLC (Banks) 1,123,017
105,521 Misys PLC (Business Services) 934,541
25,888 National Westminster Bank PLC (Banks) 531,437
126,406 Rentokil Initial PLC (Business Services) 506,372
95,407 Select Appointment Holdings PLC* (Business Services) 1,361,464
137,804 Shell Transport & Trading Co. (Energy Resources) 1,099,074
156,383 Stagecoach Holdings PLC (Railroads) 544,061
94,890 Unilever NV (Food & Beverage) 893,056
134,029 Vodafone AirTouch PLC (Telecommunications) 2,699,637
-----------
24,834,573
---------------------------------------------------------------------------
Denmark - 0.8%
11,974 ISS International Service System Series B* (Business
Services) 660,381
---------------------------------------------------------------------------
Finland - 2.4%
23,897 Nokia AB Oyj Series A (Telecommunications) 1,997,075
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
France - 17.3%
1,943 Accor SA (Hotel) $ 468,221
22,636 Alstom* (Machinery) 763,382
10,951 Axa (Insurance) 1,364,655
2,694 Carrefour SA* (Specialty Retail) 438,876
5,915 Dexia France (Banks) 771,510
9,323 Elf Aquitaine (Energy Resources) 1,637,147
9,331 Equant* (Computer Software) 826,679
45,309 Rhone-Poulenc SA (Chemicals) 2,200,951
23,175 SEITA (Tobacco) 1,265,008
6,566 Societe Generale (Banks) 1,287,064
3,425 ST Microelectronics (Semiconductors) 227,714
10,349 Total Fina SA Class B (Energy Resources) 1,335,618
21,334 Vivendi (Business Services) 1,649,733
-----------
14,236,558
----------------------------------------------------------------------------
Germany - 7.5%
33,372 Commerzbank AG (Banks) 1,196,757
6,976 HypoVereinsbank (Financial Services) 413,993
13,303 Mannesmann AG (Machinery) 2,043,337
32,826 Preussag AG (Multi-Industrial) 1,871,676
7,880 Siemens AG (Diversified Industrial Manufacturing) 663,534
-----------
6,189,297
----------------------------------------------------------------------------
Ireland - 0.9%
82,997 Bank of Ireland* (Banks) 752,432
----------------------------------------------------------------------------
Italy - 3.0%
52,272 San Paolo-IMI SpA (Banks) 702,811
641,261 Seat Pagine Gialle SpA (Business Services) 885,257
196,071 Unicredito Italiano SpA (Banks) 906,397
-----------
2,494,465
----------------------------------------------------------------------------
Netherlands - 15.3%
8,349 Aegon NV (Financial Services) 731,289
25,778 Benckiser NV Class B (Food & Beverage) 1,576,162
26,572 Fortis Netherlands NV (Financial Services) 900,899
42,355 Getronics NV (Business Services) 2,076,722
25,394 ING Groep NV (Financial Services) 1,394,191
11,307 Koninklijke Royal Philips Electronics NV* (Appliance) 1,166,806
31,248 KPN NV (Telecommunications) 1,401,561
33,293 Libertel NV* (Telecommunications) 633,942
32,942 TNT Post Group NV (Business Services) 813,693
47,326 VNU NV (Media) 1,817,316
-----------
12,512,581
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Spain - 4.6%
21,843 Acerinox SA (Steel) $ 719,771
37,474 Endesa SA (Electrical Utilities) 753,195
16,700 Sogecable SA* (Broadcasting) 455,432
112,677 Telefonica de Espana SA* (Telecommunications) 1,799,849
-----------
3,728,247
-----------------------------------------------------------------------
Sweden - 6.9%
45,731 Ericsson Telecommunications Series B (Electrical
Equipment) 1,477,523
134,705 Securitas AB Series B (Business Services) 1,930,668
109,417 Skandia Forsakring (Insurance) 2,232,729
-----------
5,640,920
-----------------------------------------------------------------------
Switzerland - 6.5%
510 Nestle SA (Food & Beverage) 1,008,065
927 Novartis AG (Health) 1,335,929
118 Roche Holding AG* (Health) 1,366,669
5,743 UBS AG (Banks) 1,623,013
-----------
5,333,676
-----------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $74,061,084) $78,380,205
-----------------------------------------------------------------------
Preferred Stocks - 1.6%
Germany - 1.6%
10,723 Henkel KGAA Vorzug, Non-Voting (Chemicals) $ 777,017
1,422 SAP AG (Computer Software) 571,620
-----------
1,348,637
-----------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $1,419,946) $ 1,348,637
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligations - 6.1%
<S> <C> <C> <C>
State Street Bank & Trust Euro-Time Deposits
$2,255,535 2.50% 09/01/1999 $ 2,360,080
2,527,933 2.45 09/02/1999 2,674,173
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $5,034,253) $ 5,034,253
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $80,515,283) $84,763,095
----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements. 7
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
As a % of total
net assets
<C> <S>
Common and Preferred Stock Industry Classifications
Appliance 1.4%
Banks 13.9
Broadcasting 0.6
Business Services 13.2
Chemicals 3.6
Computer Software 1.7
Diversified Industrial Manufacturing 0.8
Electrical Equipment 3.3
Electrical Utilities 0.9
Energy Resources 6.9
Financial Services 4.2
Food & Beverage 4.2
Health 8.1
Hotel 0.6
Insurance 6.2
Machinery 3.4
Media 3.0
Multi-Industrial 2.3
Railroads 0.7
Semiconductors 0.3
Specialty Retail 1.4
Steel 0.9
Telecommunications 12.8
Tobacco 2.7
----------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 97.1%
----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost $80,515,283) $84,763,095
Cash, at value 576,666
Receivables:
Investment securities sold, at value 498,662
Dividends and interest, at value 176,916
Fund shares sold 50,195
Variation Margin(a) 287,388
Reimbursement from investment adviser 63,662
Other assets, at value 109,165
------------------------------------------------------------------------------
Total assets 86,525,749
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 4,188,750
Fund shares repurchased 22,229
Amounts owed to affiliates 112,743
Accrued expenses and other liabilities, at value 105,581
------------------------------------------------------------------------------
Total liabilities 4,429,303
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 74,025,095
Accumulated undistributed net realized gain from investment,
futures and foreign currency related transactions 3,868,953
Net unrealized gain on investments, futures, and translation of
assets and liabilities denominated in foreign currencies 4,202,398
------------------------------------------------------------------------------
NET ASSETS $82,096,446
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $11.75
Class B $11.71
Class C $11.72
Institutional $11.82
Service $11.76
------------------------------------------------------------------------------
Shares outstanding:
Class A 6,371,125
Class B 75,037
Class C 33,088
Institutional 504,557
Service 160
------------------------------------------------------------------------------
Total shares outstanding, $0.001 par value (unlimited number of
shares authorized) 6,983,967
------------------------------------------------------------------------------
</TABLE>
(a) Includes approximately $95,000 relating to initial margin requirements
for futures transactions.
(b) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $12.43. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 1,142,109
Interest 34,247
-----------------------------------------------------------------------------
Total income 1,176,356
-----------------------------------------------------------------------------
Expenses:
Management fees 451,498
Distribution and service fees(b) 200,123
Custodian fees 145,205
Transfer agent fees(c) 76,945
Professional fees 42,920
Registration fees 40,319
Trustee fees 6,273
Service share fees 6
Other 39,707
-----------------------------------------------------------------------------
Total expenses 1,002,996
-----------------------------------------------------------------------------
Less -- expenses reimbursed (227,469)
-----------------------------------------------------------------------------
Net expenses 775,527
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 400,829
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
foreign currency related transactions:
Net realized gain from:
Investment transactions 1,771,250
Futures transactions 18,310
Foreign currency related transactions 192,409
Net change in unrealized gain on:
Investments (4,993,757)
Futures (38,422)
Translation of assets and liabilities denominated in foreign
currencies (40,697)
-----------------------------------------------------------------------------
Net realized and unrealized loss on investment, futures and
foreign currency related transactions (3,090,907)
-----------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,690,078)
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $132,015.
(b) Class A, Class B and Class C had distribution and service fees of
$192,446, $4,365 and $3,312, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $73,129, $829, $629, $2,357 and $1, respectively.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month For the
Period Ended Period Ended
August 31, 1999 January 31, 1999(a)
<S> <C> <C>
From operations:
Net investment income (loss) $ 400,829 $ (172,676)
Net realized gain from investment,
futures and foreign currency related
transactions 1,981,969 1,555,106
Net change in unrealized gain on
investments, futures and translation
of assets and liabilities denominated
in foreign currencies (5,072,876) 9,275,274
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (2,690,078) 10,657,704
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 30,108,519 65,352,139
Cost of shares repurchased (20,233,820) (1,098,018)
-----------------------------------------------------------------------------
Net increase in net assets resulting
from share transactions 9,874,699 64,254,121
-----------------------------------------------------------------------------
TOTAL INCREASE 7,184,621 74,911,825
-----------------------------------------------------------------------------
Net assets:
Beginning of period 74,911,825 --
-----------------------------------------------------------------------------
End of period $82,096,446 $74,911,825
-----------------------------------------------------------------------------
Accumulated net investment loss $ -- $ (175,403)
-----------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was October 1, 1998 for all share clas-
ses.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset Net In excess Net increase
value, investment Net realized From net of net (decrease)
beginning income and unrealized investment investment From net in net asset
of period (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $12.20 $0.05 $(0.50) $-- $-- $-- $(0.45)
1999 - Class B Shares 12.19 0.03 (0.51) -- -- -- (0.48)
1999 - Class C Shares 12.20 0.04 (0.52) -- -- -- (0.48)
1999 - Institutional
Shares 12.23 0.18 (0.59) -- -- -- (0.41)
1999 - Service Shares 12.20 0.08 (0.52) -- -- -- (0.44)
FOR THE PERIOD ENDED JANUARY 31,
1999 - Class A Shares
(commenced October 1,
1998) 10.00 (0.03) 2.23 -- -- -- 2.20
1999 - Class B Shares
(commenced October 1,
1998) 10.00 (0.02) 2.21 -- -- -- 2.19
1999 - Class C Shares
(commenced October 1,
1998) 10.00 (0.01) 2.21 -- -- -- 2.20
1999 - Institutional
Shares (commenced Octo-
ber 1, 1998) 10.00 (0.01) 2.24 -- -- -- 2.23
1999 - Service Shares
(commenced October 1,
1998) 10.00 (0.03) 2.23 -- -- -- 2.20
</TABLE>
------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of Ratio of
Net assets Ratio of net investment Ratio of net investment
Net asset at end of net expenses income (loss) to expenses to income (loss) to Portfolio
value, end Total period to average average net average net average net turnover
of period return(b) (in 000s) net assets assets assets assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$11.75 (3.69)%(d) $74,862 1.79%(c) 0.80%(c) 2.29%(c) 0.30%(c) 54.98%(d)
11.71 (3.94)(d) 879 2.29(c) 0.43(c) 2.79(c) (0.07)(c) 54.98(d)
11.72 (3.93)(d) 388 2.29(c) 0.42(c) 2.79(c) (0.08)(c) 54.98(d)
11.82 (3.35)(d) 5,965 1.14(c) 1.53(c) 1.64(c) 1.03(c) 54.98(d)
11.76 (3.61)(d) 2 1.64(c) 1.10(c) 2.14(c) 0.60(c) 54.98(d)
12.20 22.00(d) 61,151 1.79(c) (1.19)(c) 2.80(c) (2.20)(c) 70.77(d)
12.19 21.90(d) 432 2.29(c) (1.78)(c) 3.30(c) (2.79)(c) 70.77(d)
12.20 22.00(d) 587 2.29(c) (1.83)(c) 3.30(c) (2.84)(c) 70.77(d)
12.23 22.30(d) 12,740 1.14(c) (0.33)(c) 2.15(c) (1.34)(c) 70.77(d)
12.20 22.00(d) 2 1.64(c) (0.69)(c) 2.65(c) (1.70)(c) 70.77(d)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Notes to Financial Statements
August 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 European Equity
Fund (the "Fund"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for a seven-month period ended August 31, 1999.
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 last bid price. Debt securi-
ties are valued at prices supplied by independent pricing services, 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 last bid
price. Short-term debt obligations maturing in sixty days or less are valued
at amortized cost. Securities for which quotations are not readily available
are valued at fair value using methods approved by the Board of Trustees of
the Trust.
B. 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.
14
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
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 the 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
F. 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.
15
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
G. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into these transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
H. Expenses -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are generally allocated to the funds
based on 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. Shareholders of Service
shares bear all expenses and fees paid to service organizations. Each class
of shares of the Fund separately bears its respective class-specific transfer
agency fees.
I. 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $80,573,070. Accordingly, the gross unrealized gain on
investments was $7,311,967 and the gross unrealized loss on investments was
$3,121,942 resulting in a net unrealized gain of $4,190,025.
16
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman, Sachs &
Co. ("Goldman Sachs"), serves as the investment adviser to the Fund. Under
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 facili-
ties, 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" (ex-
cluding 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 exceed,
on an annual basis, .10% of the average daily net assets of the Fund. Goldman
Sachs has agreed to reimburse approximately $227,000 for the period ended Au-
gust 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 $218,000 for the period ended
August 31, 1999.
The Trust on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from the Fund for distribution
and shareholder maintenance services equal, on an annual basis, up 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. 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$69,000, $32,000 and $12,000 for management, distribution and service and
transfer agent fees, respectively.
17
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures) for the period ended August 31, 1999, were
$56,125,932 and $41,061,882, respectively.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank, an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("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 risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contracts may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss.
At August 31, 1999, open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Market Unrealized
Type Long Month Value Loss
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FTSE 100 Index 3 September 1999 $300,902 $ (1,407)
MIB 30 Index 2 September 1999 356,876 (6,443)
EURX DAX Index 6 September 1999 839,166 (30,572)
----------------------------------------------------------------------------------
$(38,422)
----------------------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. This facility is to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
18
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified $250,368
from accumulated undistributed net investment income to accumulated undis-
tributed net realized gain from investments, futures and foreign currency re-
lated transactions and $24,942 from paid-in-capital to accumulated
undistributed net investment income. These reclassifications have no impact
on the net asset value of the Fund and are designed to present the Fund's
capital accounts on a tax basis.
7. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month Period Ended For the Period Ended
August 31, 1999 January 31, 1999(a)
---------------------------------- ----------------------------
Shares Dollars Shares Dollars
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 2,119,807 $24,745,494 5,087,352 $53,619,415
Shares repurchased (759,657) (8,753,714) (76,377) (844,311)
-------------------------------------------------------------------
1,360,150 15,991,780 5,010,975 52,775,104
-----------------------------------------------------------------------------------------
Class B Shares
Shares sold 53,116 627,367 35,445 410,945
Shares repurchased (13,524) (156,078) -- --
-------------------------------------------------------------------
39,592 471,289 35,445 410,945
-----------------------------------------------------------------------------------------
Class C Shares
Shares sold 148,372 1,718,395 48,110 570,630
Shares repurchased (163,394) (1,909,241) -- --
-------------------------------------------------------------------
(15,022) (190,846) 48,110 570,630
-----------------------------------------------------------------------------------------
Institutional Shares
Shares sold 254,200 3,017,263 1,062,367 10,749,551
Shares repurchased (791,417) (9,414,787) (20,593) (253,707)
-------------------------------------------------------------------
(537,217) (6,397,524) 1,041,774 10,495,844
-----------------------------------------------------------------------------------------
Service Shares
Shares sold -- -- 160 1,598
-------------------------------------------------------------------
-- -- 160 1,598
-----------------------------------------------------------------------------------------
NET INCREASE 847,503 $ 9,874,699 6,136,464 $64,254,121
-----------------------------------------------------------------------------------------
</TABLE>
(a)Commencement date of operations was October 1, 1998 for all share classes.
19
<PAGE>
GOLDMAN SACHS EUROPEAN EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- European
Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs European Equity Fund, one of the portfolios constituting
Goldman Sachs Trust -- Equity Funds (a Delaware Business Trust), including
the statement of investments, as of August 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 August 31, 1999 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment 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 European Equity Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 84.1%
<C> <S> <C>
Australia - 1.6%
61,300 AAPT Ltd.* (Telecommunications) $ 189,017
43,472 Cochlear Ltd. (Drugs) 450,701
66,500 Fairfax (John) Holdings Ltd. (Publishing) 193,164
35,000 Macquarie Bank Ltd. (Banks) 466,990
131,600 North Ltd.* (Mining) 290,686
51,200 Tab Corp. Holdings Ltd. (Entertainment) 349,741
91,500 Village Roadshow Ltd. (Entertainment) 176,409
-----------
2,116,708
-----------------------------------------------------------------------------
Britain - 6.2%
1,375,000 Belgo Group (Grocery) 154,847
88,000 Capita Group PLC (Construction) 981,111
184,000 Cattles PLC (Financial Services) 1,019,787
125,000 F.I. Group (Computer Software) 723,960
103,400 Future Network PLC* (Media) 781,845
89,611 Jarvis PLC (Construction) 425,291
174,785 Mayflower Corp. PLC (Auto) 719,857
72,500 Nestor Healthcare Group PLC (Health) 601,852
30,346 PizzaExpress PLC (Restaurants) 361,395
52,800 Serco Group (Business Services) 1,274,170
400,000 TBI (Financial Services) 604,909
62,356 The Berkeley Group PLC (Construction) 788,001
-----------
8,437,025
-----------------------------------------------------------------------------
China - 0.4%
562,000 Legend Holdings (Electrical Equipment) 542,827
-----------------------------------------------------------------------------
Denmark - 4.8%
20,268 Bang & Olufsen Holding A/S Series B (Entertainment) 1,192,710
12,103 Coloplast Class B (Medical Products) 1,212,846
18,654 Falck A/S (Electrical Equipment) 1,696,975
26,961 ISS International Service System Series B* (Business
Services) 1,486,933
16,424 Sondagsavisen A/S (Publishing) 867,681
-----------
6,457,145
-----------------------------------------------------------------------------
Finland - 2.3%
6,966 Helsingin Puhelin Oyj (Utilities) 324,235
30,220 Nokian Renkaat Oyj (Auto) 1,035,770
85,295 Rapala Normark Corp.* (Specialty Retail) 604,536
35,855 Tieto Corp. (Business Services) 1,213,735
-----------
3,178,276
-----------------------------------------------------------------------------
France - 7.9%
7,500 ALTEN* (Business Services) 618,842
5,500 Altran Technologies (Business Services) 1,502,834
5,000 Cerg Finance (Computer Software) 513,057
22,145 Entrelec Groupe SA (Electrical Utilities) 994,437
16,146 Etam (Specialty Retail) 785,682
6,327 FI System* (Business Services) 501,976
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
France - (continued)
12,306 GFI Informatique (Business Services) $ 909,951
15,912 IPSOS* (Media) 729,689
11,625 Laurent-Perrier* (Alcohol) 442,095
14,310 Leon de Bruxelles SA (Restaurants) 595,825
29,809 Royal Canin SA (Grocery) 1,876,239
4,215 Serp Recyclage SA* (Environmental Services) 579,649
5,354 Unibail (Real Estate) 739,116
-----------
10,789,392
-----------------------------------------------------------------------------
Germany - 4.0%
8,986 Allbecon AG (Business Services) 556,091
1,165 Bien-Haus AG (Construction) 208,275
11,944 Dis Deutscher Industrie (Business Services) 732,827
7,962 Intershop Communications AG* (Computer Software) 714,236
18,933 Kamps AG (Food & Beverage) 1,049,481
32,535 NSE Software AG* (Computer Software) 636,717
6,590 Rhoen-Klinikum AG (Health) 773,806
4,938 Tecis Holding AG* (Financial Services) 156,188
6,519 Wanderer-Werke AG* (Multi-Industrial) 596,515
-----------
5,424,136
-----------------------------------------------------------------------------
Hong Kong - 3.5%
950,000 Cafe De Coral Holdings (Restaurants) 449,619
165,200 Dah Sing Financial Holdings (Banks) 657,404
459,000 Dickson Concepts International Ltd. (Specialty
Retail) 425,607
686,000 Esprit Holdings (Multi-Industrial) 543,330
1,074,000 First Tractor Co. (Machinery) 221,304
758,000 Giordano International Ltd. (Specialty Retail) 702,855
680,000 Hengan International Group Co. Ltd.* (Health) 251,774
725,600 HKR International Ltd. (Real Estate) 560,677
280,000 Hong Kong Construction Holdings Ltd.* (Construction) 137,027
1,130,000 JCG Holdings Ltd. (Financial Services) 734,910
-----------
4,684,507
-----------------------------------------------------------------------------
Ireland - 0.5%
240,000 Kingspan Group PLC (Construction) 698,181
-----------------------------------------------------------------------------
Italy - 5.3%
80,000 Banca Popolare Commercio e Industria Ordinary Shares
(Banks) 1,926,979
3,566 Banca Popolare Commercio e Industria New Shares*
(Banks) 85,631
125,000 Banca Popolare di Milano BPM (Banks) 907,106
121,404 Brembo SpA* (Auto) 1,483,334
100,000 Gruppo Buffetti (Restaurants) 751,073
144,250 Gruppo Coin SpA* (Department Store) 1,254,329
128,563 Simint SpA (Apparel) 844,562
-----------
7,253,014
-----------------------------------------------------------------------------
</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 - 26.9%
18,000 Able, Inc.* (Real Estate) $ 1,198,518
30,000 Aderans Co. Ltd. (Specialty Retail) 1,349,979
17,400 Aiphone Co. (Electrical Equipment) 265,770
15,000 Citizen Electronic (Electrical Equipment) 1,193,579
199,000 Daiwa Electronics (Consumer Durables) 768,080
7,500 Fuji Seal (Heavy Machinery) 1,022,088
87,000 Fujitec Co. Ltd. (Construction) 911,099
4,500 Funai Electric Co. Ltd. (Electrical Equipment) 1,298,532
55,000 Hakuto Co. (Electrical Equipment) 1,549,367
170,000 Hitachi Powdered Metals (Mining) 1,114,831
67,000 Inaba Denkisangyo (Electrical Equipment) 1,133,672
52,000 Iuchi Seieido Co. (Electrical Equipment) 1,521,928
50,000 Japan Business Computer Co. Ltd. (Computer Software) 1,189,006
57,400 Japan CBM Corp. (Electrical Equipment) 1,107,733
141,000 Kato Sangyo Co. Ltd. (Food & Beverage) 1,031,692
81,000 Kawasumi Labs, Inc. (Chemicals) 1,252,024
18,000 Koekisha Co. Ltd. (Medical Providers) 559,747
48,500 Komeri Co. Ltd. (Home Products) 1,525,952
20,000 Meitec Corp. (Business Services) 713,404
50,000 Ministop Co. Ltd. (Specialty Retail) 1,440,527
31,000 Mirai Industry Co. Ltd. (Multi-Industrial) 499,017
16,900 Misumi Corp. (Industrial Parts) 1,095,907
1,300 Nichii Gakkan Co. (Business Services) 201,180
58,000 Nippon Kanzai Co. (Business Services) 1,469,429
82,000 Ogura Clutch Co. Ltd. (Auto) 1,177,482
20,000 People Co. Ltd. (Health) 1,093,886
15,300 Riso Kagaku Corp. (Specialty Retail) 825,628
24,000 Rock Field Co. Ltd. (Grocery) 1,404,857
50,000 Sato Corp. (Machinery) 1,280,468
44,500 Sumitomo Real Estate (Real Estate) 1,786,756
9,000 Taiyo Ink Manufacturing Co. (Chemicals) 1,012,485
500 Toyo Kohan Co. Ltd. (Steel) 1,943
68,800 Trusco Nakayama (Wholesale) 1,025,692
63 Yoshinoya D&C Co. Ltd. (Restaurants) 1,498,148
-----------
36,520,406
---------------------------------------------------------------------------
Norway - 0.7%
40,542 Schibsted ASA (Media) 414,090
16,514 Tomra Systems ASA (Machinery) 580,863
-----------
994,953
---------------------------------------------------------------------------
Portugal - 0.5%
88,042 Seguros Imperio (Insurance) 629,594
---------------------------------------------------------------------------
Singapore - 2.0%
116,000 Datacraft Asia Ltd. (Telecommunications) 447,760
231,000 First Capital Corp. Ltd. (Real Estate) 321,081
436,000 GES International Ltd. (Computer Hardware) 437,684
115,000 Marco Polo Development Ltd. (Real Estate) 172,141
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Singapore - (continued)
50,000 Natsteel Electronics Ltd. (Electrical Equipment) $ 249,480
110,000 Venture Manufacturing Ltd. (Electrical Equipment) 1,051,975
------------
2,680,121
---------------------------------------------------------------------------
Spain - 5.4%
89,760 Azkoyen SA* (Consumer Durables) 1,120,440
20,749 Banco Pastor (Banks) 976,745
17,310 Baron de Ley SA* (Alcohol) 657,378
49,700 Funespana (Medical Providers) 1,232,361
47,500 Sogecable SA* (Broadcasting) 1,295,390
42,600 Telefonica Publicidad e Informacion SA*
(Publishing) 977,897
212,384 TelePizza SA* (Restaurants) 1,112,118
------------
7,372,329
---------------------------------------------------------------------------
Sweden - 3.1%
135,900 Europolitan Holdings AB (Telecommunications) 1,271,019
54,677 Getinge Industrier AB Class B (Medical Products) 760,417
10,800 Icon Medialab International AB* (Business Services) 755,593
35,894 Iro AB (Machinery) 355,321
26,035 Sifo Group AB Series B (Business Services) 154,952
239,035 Swedish Match AB (Tobacco) 966,825
------------
4,264,127
---------------------------------------------------------------------------
Switzerland - 9.0%
728 Bachem AB Class B (Chemicals) 1,010,643
2,642 Belimo Holding AG (Construction) 890,739
10,465 Charles Voegele Holding AG* (Apparel) 1,826,377
1,168 Komax Group AG (Machinery) 652,449
535 Kudelski SA* (Electrical Equipment) 2,003,553
750 Lindt & Spruengli AG Class B (Food & Beverage) 1,946,024
2,390 Selecta Group (Food & Beverage) 1,056,991
4,970 Societe Generale D'Affichage (Media) 2,907,681
------------
12,294,457
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $95,026,851) $114,337,198
---------------------------------------------------------------------------
Preferred Stocks - 2.5%
Australia - 0.2%
308,500 Star City Holdings (Entertainment) $ 295,420
---------------------------------------------------------------------------
Germany - 2.3%
439 Porsche AG (Auto) 1,107,584
15,700 Rhoen-Klinikum AG Non-Voting (Health) 1,943,164
------------
3,050,748
---------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $2,806,193) $ 3,346,168
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligation - 12.9%
<C> <S> <C> <C>
State Street Bank & Trust Euro-
Time Deposit
$17,603,000 5.50% 09/01/1999 $ 17,603,000
-----------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $17,603,000) $ 17,603,000
-----------------------------------------------
TOTAL INVESTMENTS
(Cost $115,436,044) $135,286,366
-----------------------------------------------
</TABLE>
* Non-income producing security.
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
Common and Preferred Stock Industry Classi-
fications
<S> <C>
Alcohol 0.8%
Apparel 2.0
Auto 4.1
Banks 3.7
Broadcasting 1.0
Business Services 8.9
Chemicals 2.4
Computer Hardware 0.3
Computer Software 2.8
Construction 3.7
Consumer Durables 1.4
Department Store 0.9
Drugs 0.3
Electrical Equipment 10.0
Electrical Utilities 0.7
Entertainment 1.5
Environmental Services 0.4
Financial Services 1.9
Food & Beverage 3.7
Grocery 2.5
Health 3.4
Heavy Machinery 0.8
Home Products 1.1
Industrial Parts 0.8
Insurance 0.5
Machinery 2.3
Media 3.6
Medical Products 1.5
Medical Providers 1.3
Mining 1.0
Multi-Industrial 1.2
Publishing 1.5
Real Estate 3.5
Restaurants 3.5
Specialty Retail 4.5
Steel 0.0
Telecommunications 1.4
Tobacco 0.7
Utilities 0.2
Wholesale 0.8
----------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 86.6%
----------------------------------------------------
</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
August 31, 1999
Assets:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$115,436,044) $135,286,366
Cash, at value 849,190
Receivables:
Investment securities sold, at value 1,123,139
Dividends and interest, at value 67,375
Fund shares sold 436,859
Variation margin(a) 318,162
Reimbursement from investment adviser 45,452
Deferred organization expenses, net 11,394
Other assets, at value 47,759
------------------------------------------------------------------------------
Total assets 138,185,696
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 2,000,858
Fund shares repurchased 24,340
Amounts owed to affiliates 153,194
Accrued expenses and other liabilities, at value 53,748
------------------------------------------------------------------------------
Total liabilities 2,232,140
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 112,525,738
Accumulated net realized gain from investment, futures and
foreign currency related transactions 3,553,389
Net unrealized gain on investments, futures and translation
of assets and liabilities denominated in foreign currencies 19,874,429
------------------------------------------------------------------------------
NET ASSETS $135,953,556
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share(a)
Class A $13.24
Class B $13.19
Class C $13.19
Institutional $13.35
Service $13.24
------------------------------------------------------------------------------
Shares outstanding:
Class A 5,245,931
Class B 22,961
Class C 31,736
Institutional 4,927,802
Service 161
------------------------------------------------------------------------------
Total shares of beneficial interest outstanding, $.001 par
value (unlimited number of shares authorized) 10,228,591
------------------------------------------------------------------------------
</TABLE>
(a) Includes approximately $241,000 relating to initial margin requirements
for futures transactions.
(b) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $14.01. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 574,017
Interest 106,276
-----------------------------------------------------------------------------
Total income 680,293
-----------------------------------------------------------------------------
Expenses:
Management fees 598,694
Custodian fees 121,972
Distribution and service fees(b) 118,084
Registration fees 60,428
Transfer agent fees(c) 55,015
Professional fees 36,828
Trustee fees 6,074
Amortization of deferred organization expenses 1,497
Service share fees 5
Other 38,258
-----------------------------------------------------------------------------
Total expenses 1,036,855
-----------------------------------------------------------------------------
Less -- expenses reimbursed (183,234)
-----------------------------------------------------------------------------
Net expenses 853,621
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (173,328)
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
foreign currency related transactions:
Net realized gain (loss) from:
Investment transactions 3,763,753
Futures transactions (59,630)
Foreign currency related transactions (43,302)
Net change in unrealized gain (loss) on:
Investments 17,331,142
Futures 27,792
Translation of assets and liabilities denominated in foreign
currencies (42,019)
-----------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures and
foreign currency related transactions 20,977,736
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $20,804,408
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $76,617.
(b) Class A, Class B and Class C had distribution and service fees of
$115,648, $1,354 and $1,082, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $43,945, $257, $206, $10,606 and $1, respectively.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month For the
Period Ended Period Ended
August 31, 1999 January 31, 1999(a)
<S> <C> <C>
From operations:
Net investment loss $ (173,328) $ (147,894)
Net realized gain from investment,
futures and foreign currency related
transactions 3,660,821 232,160
Net change in unrealized gain on
investments, futures and translation
of assets and liabilities denominated
in foreign currencies 17,316,915 2,557,514
------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 20,804,408 2,641,780
------------------------------------------------------------------------------
Distributions to shareholders:
In excess of net investment income
Class A shares -- --
Class B shares -- --
Class C shares -- --
Institutional shares (3,921) (21,659)
Service shares -- --
------------------------------------------------------------------------------
Total distributions to shareholders (3,921) (21,659)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 58,890,454 81,743,079
Reinvestment of dividends 2,349 8,522
Cost of shares repurchased (14,124,187) (13,987,269)
------------------------------------------------------------------------------
Net increase in net assets resulting
from share transactions 44,768,616 67,764,332
------------------------------------------------------------------------------
TOTAL INCREASE 65,569,103 70,384,453
------------------------------------------------------------------------------
Net assets:
Beginning of period 70,384,453 --
------------------------------------------------------------------------------
End of period $135,953,556 $ 70,384,453
------------------------------------------------------------------------------
Accumulated distributions in excess of
net investment income $ -- $ (106,697)
------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998 for all share classes.
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 each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
--------------------------- ------------------------------------
Net asset In excess
value, Net Net realized From net of net
beginning investment and unrealized investment investment From net
of period loss gain income loss realized gains
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $10.62 $(0.03) $2.65 $-- $ -- $--
1999 - Class B Shares 10.61 (0.08)(e) 2.66(e) -- -- --
1999 - Class C Shares 10.61 (0.08)(e) 2.66(e) -- -- --
1999 - Institutional
Shares 10.66 -- 2.69 -- -- --
1999 - Service Shares 10.61 (0.02) 2.65 -- -- --
FOR THE PERIOD ENDED JANUARY 31,
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) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares methodology.
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(b) (in 000s) net assets assets assets assets rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2.62 $13.24 24.67%(d) $69,458 2.05%(c) (0.68)%(c) 2.42%(c) (1.05)%(c) 58.81%(d)
2.58 13.19 24.32(d) 303 2.55(c) (1.16)(c) 2.92(c) (1.53)(c) 58.81(d)
2.58 13.19 24.32(d) 419 2.55(c) (1.21)(c) 2.92(c) (1.58)(c) 58.81(d)
2.69 13.35 25.24(d) 65,772 1.40(c) (0.05)(c) 1.77(c) (0.42)(c) 58.81(d)
2.63 13.24 24.79(d) 2 1.90(c) (0.35)(c) 2.27(c) (0.72)(c) 58.81(d)
--------------------------------------------------------------------------------------------------------------------------------
0.62 10.62 6.20(d) 33,002 2.02(c) (1.03)(c) 3.60(c) (2.61)(c) 96.11(d)
0.61 10.61 6.10(d) 213 2.51(c) (1.30)(c) 4.09(c) (2.88)(c) 96.11(d)
0.61 10.61 6.10(d) 175 2.51(c) (1.45)(c) 4.09(c) (3.03)(c) 96.11(d)
0.66 10.66 6.67(d) 36,992 1.40(c) (0.19)(c) 2.98(c) (1.77)(c) 96.11(d)
0.61 10.61 6.10(d) 2 1.90(c) (0.26)(c) 3.48(c) (1.84)(c) 96.11(d)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Notes to Financial Statements
August 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"). The Fund is a diversified portfolio offering
five classes of shares -- Class A, Class B, Class C, Institutional and Serv-
ice.
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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for a seven-month period ended August 31, 1999.
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 last bid price. Debt securi-
ties are valued at prices supplied by independent pricing services, 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 last bid
price. Short-term debt obligations maturing in sixty days or less are valued
at amortized cost. Securities for which quotations are not readily available
are valued at fair value using methods approved by the Board of Trustees of
the Trust.
B. 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
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.
14
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
F. Deferred Organization Expenses -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
G. Option Accounting Principles -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
H. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, when-issued securities
and forward commitments represent examples of such transactions. As a result
of entering into those transactions, the Fund is required to segregate liquid
assets on the accounting records equal to or greater than the market value of
the corresponding transactions.
I. 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $115,509,337. Accordingly, the gross unrealized gain
on investments was $22,822,821 and the gross unrealized loss on investments
was $3,045,792 resulting in a net unrealized gain of $19,777,029.
15
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Notes to Financial Statements (continued)
August 31, 1999
J. 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. Shareholders of Service
shares bear all expenses and fees paid to service organizations. Each class
of shares of the Fund separately bears its respective class-specific transfer
agency fees.
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman, Sachs &
Co. ("Goldman Sachs"), serves as the investment adviser to the Fund. Under
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 facili-
ties, 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" (ex-
cluding 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 exceed,
on an annual basis, .16% of the average daily net assets of the Fund. Goldman
Sachs has agreed to reimburse approximately $183,000 for the period ended Au-
gust 31, 1999.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized 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 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 $301,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$119,000, $23,000 and $11,000 for management, distribution and service, and
transfer agent fees, respectively.
16
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures) for the period ended August 31, 1999, were
$78,432,241 and $49,097,556, respectively.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank, an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("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 risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss.
At August 31, 1999, open futures contracts were open as follows:
<TABLE>
<CAPTION>
Number of
Type Contracts Long Settlement Month Market Value Unrealized Gain
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FTSE 100 Index 50 September 1999 $5,015,034 $27,792
-----------------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. This facility is to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified $2,262
from paid-in-capital to accumulated undistributed net investment income and
$281,684 from accumulated net realized gain from investment, futures and for-
eign currency related transactions to accumulated undistributed net invest-
ment income. These reclassifications have no impact on the net asset value of
the Fund and are designed to present the Fund's capital accounts on a tax ba-
sis.
17
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Notes to Financial Statements (continued)
August 31, 1999
7. SUMMARY OF SHARE TRANSACTIONS
Share activity for the:
<TABLE>
<CAPTION>
Seven-Month Nine-Month
Period Ended Period Ended
August 31, 1999 January 31, 1999(a)
---------------------- ----------------------
Shares Dollars Shares Dollars
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 2,607,810 $32,403,673 3,789,828 $39,461,070
Shares repurchased (470,755) (5,480,465) (680,952) (6,496,553)
------------------------------------------
2,137,055 26,923,208 3,108,876 32,964,517
--------------------------------------------------------------------------
Class B Shares
Shares sold 6,837 79,235 24,738 250,752
Shares repurchased (3,975) (41,451) (4,639) (43,306)
------------------------------------------
2,862 37,784 20,099 207,446
--------------------------------------------------------------------------
Class C Shares
Shares sold 21,336 268,279 19,740 196,453
Shares repurchased (6,059) (68,915) (3,281) (32,610)
------------------------------------------
15,277 199,364 16,459 163,843
--------------------------------------------------------------------------
Institutional Shares
Shares sold 2,231,140 26,139,267 4,172,165 41,833,210
Reinvestment of dividends 183 2,349 851 8,522
Shares repurchased (773,017) (8,533,356) (703,520) (7,414,800)
------------------------------------------
1,458,306 17,608,260 3,469,496 34,426,932
--------------------------------------------------------------------------
Service Shares
Shares sold -- -- 161 1,594
------------------------------------------
-- -- 161 1,594
--------------------------------------------------------------------------
NET INCREASE 3,613,500 $44,768,616 6,615,091 $67,764,332
--------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998 for all share classes.
18
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
8. OTHER MATTERS
As of August 31, 1999 the Goldman Sachs Growth and Income Strategy Portfolio
and the Goldman Sachs Growth Strategy Portfolio were the beneficial owners of
approximately 7% and 6% of the outstanding shares of the Fund, respectively.
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 August 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 August 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 Small Cap Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 83.1%
<C> <S> <C>
China - 2.6%
1,402,000 Angang New Steel Co. Ltd. Class H (Steel) $ 198,613
356,000 China Telecom Ltd.* (Telecommunications) 1,104,921
330,000 Great Wall Technology Co. Class H (Electrical
Equipment) 214,619
444,000 Guangdong Kelon Electrical Holdings Co. Ltd. Class H
(Appliance) 454,584
1,238,000 Shandong International Power Development Co. Ltd.
Class H* (Electrical Utilities) 247,125
1,262,000 Yanzhou Coal Mining Co. Ltd. Class H (Mining) 552,589
------------
2,772,451
-------------------------------------------------------------------------------
Hong Kong - 25.8%
391,000 Axa China Region Ltd. (Insurance) 274,434
869,000 Cathay Pacific Airways (Airlines) 1,477,263
198,000 Cheung Kong Holdings Ltd. (Real Estate) 1,727,582
159,000 CLP Holdings Ltd. (Utilities) 751,497
1,178,000 Cosco Pacific Ltd. (Industrial Services) 1,031,617
262,400 Dah Sing Financial Holdings (Banks) 1,044,206
283,000 Dao Heng Bank Group Ltd. (Financial Services) 1,290,190
345,500 Dickson Concepts International Ltd. (Specialty
Retail) 320,365
486,000 First Pacific Co. (Financial Services) 375,536
744,000 Giordano International Ltd. (Specialty Retail) 689,874
168,000 Hang Seng Bank Ltd. (Banks) 1,898,543
1,060,000 Hengan International Group Co. Ltd.* (Health) 392,471
405,184 HKR International Ltd. (Real Estate) 313,089
729,000 Hong Kong & China Gas Co. Ltd. (Utilities) 1,037,418
1,051,400 Hong Kong Telecom (Telecommunications) 2,383,114
605,000 Hutchison Whampoa (Financial Services) 5,902,040
234,500 Johnson Electric Holdings Ltd. (Electrical Equipment) 1,057,000
370,000 Li & Fung Ltd. (Wholesale) 1,186,493
10,000 New World China Land Ltd.* (Real Estate) 8,049
425,000 New World Development Co. Ltd. (Real Estate) 1,023,516
862,000 South China Morning Post Holdings Ltd. (Publishing) 543,961
137,000 Sun Hung Kai Properties Co. Ltd. (Real Estate) 1,164,471
109,000 Television Broadcasts Ltd. (Media) 488,506
356,000 Wharf Holdings Co. Ltd. (Real Estate) 967,379
------------
27,348,614
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
India - 11.2%
440 Colgate Palmolive Ltd. (Home Products) $ 2,839
2,144 Glaxo India Ltd. (Drugs) 34,767
34,300 Hindalco Industries Ltd. (Nonferrous Metals) 724,264
71,465 Hindustan Lever Ltd. (Home Products) 4,380,776
1,885 Hindustan Lever Ltd. (Tobacco) 115,550
43,000 Housing Development Finance Corp. Ltd.*
(Construction) 255,577
22,200 Infosys Technologies Ltd. (Computer Software) 2,859,575
68,796 ITC Ltd. (Multi-Industrial) 1,625,943
510 Larsen & Toubro Ltd. (Multi-Industrial) 4,593
87,400 Mahanagar Telephone Nigam Ltd. (Telephone) 406,091
14,400 Niit Ltd. (Business Services) 702,197
23,100 Punjab Tractors Ltd. (Agriculture) 732,266
------------
11,844,438
----------------------------------------------------------------------------
Indonesia - 2.3%
1,108,500 Pab K Tjiwi Kimia (Paper) 317,953
1,612,500 PT Bank Pan Indonesia Tbk - Alien Market (Banks) 294,329
133,600 PT Gudang Garam Tbk (Tobacco) 322,242
790,000 PT Indofood Sukses* (Food & Beverage) 844,589
2,516,000 PT Matahari Putra Prima Tbk* (Merchandising) 254,224
640,520 PT Telekomunikasi Indonesia Series B
(Telecommunications) 246,354
413,000 PT Tempo Scan Pacific Tbk (Health) 218,077
------------
2,497,768
----------------------------------------------------------------------------
Malaysia - 2.1%
84,000 Berjaya Sports Toto Berhad (Leisure) 194,526
53,000 Edaran Otomobil Nasional Berhad (Auto) 195,263
209,000 Malayan Banking Berhad (Banks) 687,500
69,000 New Straits Times Press M Berhad (Publishing) 150,711
28,000 Public Bank Berhad - Alien Market (Banks) 26,379
343,000 Public Bank Berhad (Banks) 288,842
189,000 Resorts World Berhad (Leisure) 479,961
79,000 Tenaga Nasional Berhad (Electrical Utilities) 180,868
------------
2,204,050
----------------------------------------------------------------------------
Philippines - 1.6%
108,000 Bank of the Philippine Islands (Banks) 310,321
54,190 Manila Electric Co. Class B (Electrical Utilities) 161,170
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Philippines - (continued)
45,400 Metropolitan Bank and Trust (Banks) $ 374,758
20,400 Philippine Long Distance Telephone Co.
(Telecommunications) 483,327
2,074,400 SM Prime (Construction) 381,679
------------
1,711,255
---------------------------------------------------------------------------
Singapore - 5.1%
152,000 City Developments (Real Estate) 920,939
22,000 Cycle & Carriage Ltd. (Auto) 124,146
178,000 Datacraft Asia Ltd. (Telecommunications) 687,080
150,000 First Capital Corp. Ltd. (Real Estate) 208,494
348,000 GES International Ltd. (Computer Hardware) 349,344
75,664 Singapore Press Holdings Ltd. (Publishing) 1,258,445
474,000 Singapore Telecommunications Ltd.
(Telecommunications) 841,853
107,000 Venture Manufacturing Ltd. (Electrical Equipment) 1,023,285
------------
5,413,586
---------------------------------------------------------------------------
South Korea - 17.1%
12,150 Daelim Industrial Co. (Construction) 186,804
47,440 Hana Bank (Banks) 421,957
100,278 Hankook Tire Co. Ltd. (Auto) 464,651
15,010 Hite Brewery Co.* (Alcohol) 469,182
23,420 Honam Petrochemical Corp. (Chemicals) 480,105
8,030 Housing & Commercial Bank* (Banks) 187,741
17,000 Hyundai Motor Co. Ltd.* (Auto) 527,065
23,570 Hyundai Securities (Financial Services) 557,055
84,340 Korea Electric Power Corp. (Electrical Utilities) 3,143,549
7,900 Korea Telecom Corp. ADR* (Telecommunications) 256,750
30,500 LG Chemical Ltd. (Chemicals) 974,036
20,000 LG Electronics (Appliance) 847,099
3,381 Pohang Iron & Steel Co. Ltd. (Steel) 452,518
28,630 Pohang Iron & Steel Co. Ltd. ADR (Steel) 1,052,153
28,749 Samsung Electronics (Consumer Durables) 5,455,126
115,690 Shinhan Bank (Banks) 1,244,611
274 Sindo Ricoh (Electrical Equipment) 10,677
6,330 SK Corp. (Energy Resources) 152,821
171 SK Telecom Co. Ltd. (Telecommunications) 171,072
5,898 SK Telecom Co. Ltd. ADR (Telecommunications) 66,721
14,433 Trigem Computer, Inc. (Computer Software) 1,075,903
------------
18,197,596
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Taiwan - 12.1%
303,600 Acer Peripherals, Inc. (Business Services) $ 787,642
239,750 Acer, Inc. (Computer Hardware) 512,673
60,000 Asustek Computer, Inc. (Computer Hardware) 645,283
1,006,356 Bank Sinopac (Financial Services) 620,270
217,850 Cathay Life Insurance Co. (Insurance) 654,235
674,560 Chinatrust Commercial Bank (Banks) 674,560
98,800 Compeq Manufacturing Co. Ltd. (Electrical Equipment) 497,107
452,720 Evergreen Marine Corp. (Ship Transportation) 468,380
719,040 Far Eastern Textile Ltd. (Apparel) 1,042,382
151,650 Formosa Plastics Corp. (Chemicals) 290,901
176,400 Hon Hai Precision (Electrical Equipment) 1,148,264
589,200 Kang Na Hsiung Enterprise (Home Products) 383,536
421,000 Macronix International Co. Ltd. (Semiconductors) 513,673
198,240 President Chain Stores (Specialty Retail) 585,992
56,640 Quanta Computer (Business Services) 552,151
1 Siliconware Precis (Electrical Equipment) 2
543,156 Taiwan Semiconductor (Electrical Equipment) 2,305,851
437,000 United Microelectonics Corp. Ltd. (Electrical
Equipment) 1,113,113
------------
12,796,015
------------------------------------------------------------------------------
Thailand - 3.2%
40,000 Advanced Info Service Public-Alien Market*
(Telecommunications) 549,060
52,000 BEC World PLC - Alien Market (Entertainment) 309,395
58,000 Delta Electronics Thailand Public Co. Ltd. - Alien
Market (Electrical Equipment) 460,125
258,000 Land and House Public Co. Ltd. - Alien Market* (Real
Estate) 390,501
12,500 Siam Cement Public - Alien Market* (Construction) 323,591
847,300 TelecomAsia Corp. Public - Alien Market*
(Telecommunications) 812,585
211,300 Thai Farmers Bank - Alien Market* (Banks) 303,275
242,000 Tipco Asphalt Public Co. Ltd. - Alien Market*
(Construction) 268,398
------------
3,416,930
------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $69,760,620) $ 88,202,703
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares/
Units Description Value
Preferred Stock - 0.2%
<C> <S> <C>
Thailand - 0.2%
210,400 Siam Commercial Bank Public Co. Ltd.* (Banks) $ 238,841
----------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $147,829) $ 238,841
----------------------------------------------------------------------------
Rights - 0.2%
Taiwan - 0.0%
38,640 Quanta Computer Inc. - Rights exp. 09/09/1999*
(Computer Hardware) $ 110
Thailand - 0.2%
211,300 Thai Farmers Bank Public Co. Ltd. -Alien Market -
Rights exp. 09/16/1999* (Banks) 192,993
----------------------------------------------------------------------------
TOTAL RIGHTS
(Cost $0) $ 193,103
----------------------------------------------------------------------------
Warrants - 0.1%
Indonesia - 0.0%
178,500 PT Bank Pan Indonesia Tbk -Alien Market exp.
07/08/2002* (Banks) $ 9,891
----------------------------------------------------------------------------
Thailand - 0.1%
210,400 Siam Commercial Bank Public Co. Ltd. - Alien Market
exp. 05/10/2002* (Banks) 94,713
----------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $0) $ 104,604
----------------------------------------------------------------------------
</TABLE>
Equity Swaps - 3.1%
<TABLE>
<S> <C> <C>
Singapore - 3.1%
87,000 Units Development Bank of Singapore
Equity Swap*
exp. 05/18/2000 $ 992,890
69,000 Units Development Bank of Singapore
Equity Swap*
exp. 05/25/2000 787,465
64,000 Units Development Bank of Singapore
Equity Swap*
exp. 07/28/2000 727,855
123,000 Units Overseas Chinese Banking
Corporation Equity Swap*
exp. 05/18/2000 811,720
----------------------------------------------------------
TOTAL EQUITY SWAPS
(Cost $2,850,462) $ 3,319,930
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Units Description Value
Structured Notes - 11.2%
<C> <S> <C>
Singapore - 2.0%
33,000 Units Merrill Lynch International - SIA exp.
02/18/2000* $ 302,445
91 Units UBS AG Equity Linked Note -Overseas Chinese
Banking Corporation exp. 04/10/2000* 653,007
74 Units UBS AG Equity Linked Note -Singapore Airlines
exp. 04/10/2000* 693,395
70 Units UBS AG Equity Linked Note -United Overseas
Bank exp. 04/10/2000* 456,645
-----------------------------------------------------------------------------
2,105,492
-----------------------------------------------------------------------------
South Korea - 3.6%
396,323 Units Merrill Lynch Call Warrant on KOSPI 200 exp.
09/03/2000* 3,768,279
-----------------------------------------------------------------------------
Taiwan - 5.6%
161,224 Units Taiwan Index Linked Note exp. 12/30/1999 1,804,096
3,300,000 Units Taiwan Index Linked Note exp. 03/27/2000 4,148,430
-----------------------------------------------------------------------------
5,952,526
-----------------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(Cost $8,265,020) $ 11,826,297
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligation - 2.4%
<S> <C> <C> <C>
State Street Bank & Trust Euro-
Time Deposit
$2,595,000 5.50% 09/01/1999 $ 2,595,000
-----------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $2,595,000) $ 2,595,000
-----------------------------------------------
TOTAL INVESTMENTS
(Cost $83,618,931) $106,480,478
-----------------------------------------------
</TABLE>
* Non-income producing security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
<TABLE>
<CAPTION>
As a % of
total net assets
Common and Preferred Stock Industry Classifications
<S> <C>
Agriculture 0.7%
Airlines 1.4
Alcohol 0.5
Apparel 1.0
Appliance 1.2
Auto 1.2
Banks 7.5
Business Services 1.9
Chemicals 1.7
Computer Hardware 1.4
Computer Software 3.7
Construction 1.3
Consumer Durables 5.1
Drugs 0.0
Electrical Equipment 7.4
Electrical Utilities 3.5
Energy Resources 0.2
Entertainment 0.3
Financial Services 8.2
Food & Beverage 0.8
Health 0.6
Home Products 4.5
Industrial Services 1.0
Insurance 0.9
Leisure 0.6
Media 0.5
Merchandising 0.2
Mining 0.5
Multi-Industrial 1.5
Nonferrous Metals 0.7
Paper 0.3
Publishing 1.8
Real Estate 6.3
Semiconductors 0.5
Ship Transportation 0.5
Specialty Retail 1.5
Steel 1.6
Telecommunications 7.2
Telephone 0.4
Tobacco 0.4
Utilities 1.7
Wholesale 1.1
---------------------------------------------------
TOTAL COMMON AND
PREFERRED STOCK 83.3%
---------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$83,618,931) $106,480,478
Cash, at value 280,501
Receivables:
Investment securities sold, at value 1,497,940
Dividends and interest, at value 154,163
Fund shares sold 149,471
Reimbursement from investment adviser 67,546
Other assets, at value 35,994
------------------------------------------------------------------------------
Total assets 108,666,093
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 1,029,743
Capital gains tax 1,147,250
Fund shares repurchased 82,050
Amounts owed to affiliates 144,295
Accrued expenses and other liabilities, at value 92,135
------------------------------------------------------------------------------
Total liabilities 2,495,473
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 181,349,428
Accumulated net realized loss from investment, futures and
foreign currency related transactions (96,891,937)
Net unrealized gain on investments, futures and translation of
assets and liabilities denominated in foreign currencies 21,713,129
------------------------------------------------------------------------------
NET ASSETS $106,170,620
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share(a)
Class A $11.07
Class B $10.88
Class C $10.85
Institutional $11.24
------------------------------------------------------------------------------
Shares outstanding:
Class A 7,609,126
Class B 667,091
Class C 210,286
Institutional 1,099,697
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 9,586,200
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $11.71. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 686,073
Interest 47,286
-----------------------------------------------------------------------------
Total income 733,359
-----------------------------------------------------------------------------
Expenses:
Management fees 501,770
Distribution and service fees(b) 250,094
Custodian fees 137,465
Transfer agent fees(c) 88,932
Registration fees 72,739
Professional fees 45,145
Trustee fees 6,074
Other 32,460
-----------------------------------------------------------------------------
Total expenses 1,134,679
-----------------------------------------------------------------------------
Less -- expenses reimbursed (211,592)
-----------------------------------------------------------------------------
Net expenses 923,087
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (189,728)
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and
foreign currency related transactions:
Net realized gain (loss) from:
Investment transactions 2,517,806
Futures transactions 774,816
Foreign currency related transactions (79,301)
Net change in unrealized gain (loss) on:
Investments 26,459,314
Translation of assets and liabilities denominated in foreign
currencies 2,769
-----------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures and
foreign currency related transactions 29,675,404
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,485,676
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $54,723.
(b) Class A, Class B and Class C had distribution and service fees of
$208,976, $32,196 and $8,922, respectively.
(c) Class A, Class B, Class C and Institutional Class had transfer agent fees
of $79,412, $6,117, $1,695 and $1,708, respectively.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Changes in Net Assets
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
From operations:
Net investment loss $ (189,728)
Net realized gain from investment, futures and foreign
currency related transactions 3,213,321
Net change in unrealized gain (loss) on investments and
translation of assets and liabilities denominated in foreign
currencies 26,462,083
----------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,485,676
----------------------------------------------------------------------------
Distributions to shareholders:
In excess of net investment income
Class A shares --
Class B shares --
Class C shares --
Institutional shares (43,226)
----------------------------------------------------------------------------
Total distributions to shareholders (43,226)
----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 97,742,029
Reinvestment of dividends and distributions 40,413
Cost of shares repurchased (90,383,194)
----------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 7,399,248
----------------------------------------------------------------------------
TOTAL INCREASE 36,841,698
----------------------------------------------------------------------------
Net assets:
Beginning of period 69,328,922
----------------------------------------------------------------------------
End of period $106,170,620
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Statement of Changes in Net Assets
For the Year Ended January 31, 1999
<TABLE>
<S> <C>
From operations:
Net investment income $ 492,262
Net realized loss from investment, futures and foreign
currency related transactions (27,883,885)
Net change in unrealized loss on investments, futures and
translation of assets and liabilities denominated in foreign
currencies 21,285,501
-----------------------------------------------------------------------------
Net decrease in net assets resulting from operations (6,106,122)
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 138,273,446
Cost of shares repurchased (154,943,929)
-----------------------------------------------------------------------------
Net decrease in net assets resulting from share transactions (16,670,483)
-----------------------------------------------------------------------------
TOTAL DECREASE (22,776,605)
-----------------------------------------------------------------------------
Net assets:
Beginning of year 92,105,527
-----------------------------------------------------------------------------
End of year $ 69,328,922
-----------------------------------------------------------------------------
Accumulated distributions in excess of net investment income $ (105,797)
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset Net In excess Net increase
value, investment Net realized From net of net (decrease)
beginning income and unrealized investment investment From net in net asset
of period (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $ 7.79 $(0.02) $3.30 $ -- $ -- $ -- $3.28
1999 - Class B Shares 7.68 (0.04) 3.24 -- -- -- 3.20
1999 - Class C Shares 7.68 (0.04) 3.21 -- -- -- 3.17
1999 - Institutional
Shares 7.91 0.01 3.36 -- (0.04) -- 3.33
FOR THE YEARS ENDED JANUARY 31,
1999 - Class A Shares 8.38 0.07 (0.66) -- -- -- (0.59)
1999 - Class B Shares 8.31 0.01 (0.64) -- -- -- (0.63)
1999 - Class C Shares 8.29 -- (0.61) -- -- -- (0.61)
1999 - Institutional
Shares 8.44 0.03 (0.56) -- -- -- (0.53)
----------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 16.31 -- (7.90) -- (0.03) -- (7.93)
1998 - Class B Shares 16.24 0.01 (7.91) -- (0.03) -- (7.93)
1998 - Class C Shares
(commenced August 15,
1997) 15.73 0.01 (7.42) -- (0.03) -- (7.44)
1998 - Institutional
Shares 16.33 0.10 (7.96) (0.03) -- -- (7.89)
----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 16.49 0.06 (0.11) (0.12) -- (0.01) (0.18)
1997 - Class B Shares
(commenced May 1, 1996) 17.31 (0.05) (0.48) (0.51) (0.03) -- (1.07)
1997 - Institutional
Shares (commenced Febru-
ary 2, 1996) 16.61 0.04 (0.11) (0.11) (0.06) (0.04) (0.28)
----------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 13.31 0.17 3.44 (0.12) (0.14) (0.17) 3.18
FOR THE PERIOD ENDED JANUARY 31,
1995 - Class A Shares
(commenced July 8, 1994) 14.18 0.11 (0.89) 0.01 -- (0.10) (0.87)
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of Ratio of
Net assets Ratio of net investment Ratio of net investment
Net asset at end of net expenses income (loss) expenses income (loss) to Portfolio
value, end Total period to average to average to average average turnover
of period return(b) (in 000s) net assets net assets net assets net assets rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$11.07 42.11%(d) $84,269 1.85%(c) (0.38)%(c) 2.27%(c) (0.80)%(c) 96.58%(d)
10.88 41.67(d) 7,258 2.35(c) (0.90)(c) 2.77(c) (1.32)(c) 96.58(d)
10.85 41.28(d) 2,281 2.35(c) (0.89)(c) 2.77(c) (1.31)(c) 96.58(d)
11.24 42.61(d) 12,363 1.20(c) 0.14(c) 1.62(c) (0.28)(c) 96.58(d)
- ---------------------------------------------------------------------------------------------------------------------
7.79 (7.04) 59,940 1.93 0.63 2.48 0.08 106.00
7.68 (7.58) 4,190 2.45 0.10 2.97 (0.42) 106.00
7.68 (7.36) 999 2.45 0.10 2.97 (0.42) 106.00
7.91 (6.28) 4,200 1.16 1.10 1.68 0.58 106.00
- ---------------------------------------------------------------------------------------------------------------------
8.38 (48.49) 87,437 1.75 0.31 1.99 0.07 105.16
8.31 (48.70) 3,359 2.30 (0.29) 2.50 (0.49) 105.16
8.29 (47.17)(d) 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c) 105.16
8.44 (48.19) 874 1.11 0.87 1.31 0.67 105.16
- ---------------------------------------------------------------------------------------------------------------------
16.31 (1.01) 263,014 1.67 0.20 1.87 -- 48.40
16.24 (6.02)(d) 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c) 48.40
16.33 (1.09)(d) 13,322 1.10(c) 0.54(c) 1.26(c) 0.38(c) 48.40
- ---------------------------------------------------------------------------------------------------------------------
16.49 26.49 205,539 1.77 1.05 2.02 0.80 88.80
- ---------------------------------------------------------------------------------------------------------------------
13.31 (5.46)(d) 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c) 36.08(d)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Notes to Financial Statements
August 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 Asia Growth
Fund (the "Fund"). The Fund is a diversified portfolio offering five classes
of shares -- Class A, Class B, Class C, Institutional and Service (Service
shares have not commenced operations).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 the valuation date or, if no sale occurs, at the last bid
price. Short-term debt obligations maturing in sixty days or less are valued
at amortized cost. Securities for which quotations are not readily available
are valued at fair value using methods approved by the Board of Trustees of
the Trust.
Investing in emerging markets may involve special risks and considerations
not typically associated with investing in the United States. These risks in-
clude revaluation of currencies, high rates of inflation, repatriation re-
strictions on income and capital and future adverse political and economic
developments. Moreover, securities issued in these markets may be less liq-
uid, subject to government ownership controls, delayed settlements, and their
prices may be more volatile than those of comparable securities in the United
States.
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. In ad-
dition, it is the Fund's policy to accrue for estimated capital gains taxes
on appreciated foreign securities held.
C. Derivative Financial Instruments -- The Fund may utilize derivative finan-
cial instruments such as structured notes and equity swaps. Such instruments
are used by the Fund as a means of investing in a particular market or in-
creasing the return on the Fund's investments or both. The value of the prin-
cipal and/or interest on such securities is determined by reference to
changes in the value of the financial indicators including, but not limited
to indices, currencies or interest rates. These financial instruments may
subject the Fund to a greater degree of market or counterparty risk and loss
than other types of securities.
16
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
D. Foreign Currency Translations -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, 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.
E. 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 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 extinguished by de-
livery of the currency. Risks may arise upon entering these contracts from
the potential inability of counterparties to meet the terms of their con-
tracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
F. Short Securities Positions -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked-
to-market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and the sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
17
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
G. Option Accounting Principles -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
18
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
H. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into these transactions, the Fund is
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
I. Expenses -- Expenses incurred by the Trust which do not specifically re-
late to an individual Fund of the Trust are allocated to the Funds based on a
straight-line or pro rata basis depending on 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. Shareholders of Service
shares bear all expenses and fees paid to service organizations. Each class
of shares of the Fund separately bears its respective class-specific transfer
agency fees.
J. 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.
The Fund had approximately $95,393,000 at August 31, 1999 (the Fund's tax
year end) of capital loss carryforwards expiring 2002 through 2007 for fed-
eral tax purposes. These amounts are available to be carried forward to off-
set future capital gains to the extent permitted by applicable laws or
regulations.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $85,163,314. Accordingly, the gross unrealized gain on
investments was $23,258,713 and the gross unrealized loss on investments was
$1,941,549 resulting in a net unrealized gain of $21,317,164.
19
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
3. AGREEMENTS
Pursuant to the Investment Management Agreement (the "Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman, Sachs &
Co. ("Goldman Sachs"), serves as the investment adviser to the Fund. Under
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 facili-
ties, 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" (ex-
cluding management fees, distribution and service fees, transfer agent fees,
taxes, interest, brokerage, litigation, indemnification costs and other ex-
traordinary expenses) to the extent such expenses exceed, on an annual basis,
..16% of the average daily net assets of the Fund. Goldman Sachs has agreed to
reimburse approximately $212,000 for the period ended August 31, 1999.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized 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 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 $106,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agency services are calculated daily and pay-
able 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 shares.
As of August 31, 1999, the amounts owed to affiliates were approximately
$87,000, $42,000 and $15,000 for management, distribution and service and
transfer agent fees, respectively.
20
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for the period ended August 31,
1999, were $89,434,272 and $81,172,174, respectively.
For the period ended August 31, 1999, Goldman Sachs earned approximately
$35,000 of brokerage commissions from portfolio transactions.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank, an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Fund, depending on the fluc-
tuations in the value of the contracts, and are recorded as unrealized gains
or losses. When contracts are closed, the Fund realizes a gain or loss which
is reported in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contracts may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, the Fund had no open futures
contracts.
21
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Notes to Financial Statements (continued)
August 31, 1999
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. The facility is to be used solely for temporary or emergency pur-
poses. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
22
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
6. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month
Period For the Year Ended
Ended August 31, 1999 January 31, 1999
-----------------------------
--------------------------
Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 7,428,461 $ 68,519,866 15,227,587 $ 114,095,624
Shares repurchased (7,511,626) (69,221,284) (17,965,578) (136,028,026)
---------------------------------------------------
(83,165) (701,418) (2,737,991) (21,932,402)
------------------------------------------------------------------------------
Class B Shares
Shares sold 201,786 2,022,897 345,699 2,823,123
Shares repurchased (80,372) (733,280) (204,359) (1,519,808)
---------------------------------------------------
121,414 1,289,617 141,340 1,303,315
------------------------------------------------------------------------------
Class C Shares
Shares sold 2,420,991 19,122,822 2,148,809 16,213,829
Shares repurchased (2,340,851) (18,439,726) (2,071,174) (15,859,777)
---------------------------------------------------
80,140 683,096 77,635 354,052
------------------------------------------------------------------------------
Institutional Shares
Shares sold 753,741 8,076,444 636,785 5,140,870
Reinvestment of divi-
dends 3,661 40,413 -- --
Shares repurchased (188,772) (1,988,904) (209,306) (1,536,318)
---------------------------------------------------
568,630 6,127,953 427,479 3,604,552
------------------------------------------------------------------------------
NET INCREASE (DECREASE) 687,019 $ 7,399,248 (2,091,537) $ (16,670,483)
------------------------------------------------------------------------------
</TABLE>
7. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified $338,751
from paid-in capital to accumulated undistributed net investment income and
$624,078 from paid-in capital to accumulated net realized loss from invest-
ment, futures and foreign currency related transactions. These reclassifica-
tions 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.
23
<PAGE>
GOLDMAN SACHS ASIA GROWTH FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees ofGoldman Sachs Trust -- Asia
Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Asia Growth Fund, one of the portfolios constituting Goldman
Sachs Trust -- Equity Funds (a Delaware Business Trust), including the state-
ment of investments, as of August 31, 1999, and the related statement of op-
erations, 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 August 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 Asia Growth Fund as of August 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
October 8, 1999
24
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 90.3%
<C> <S> <C>
Japan - 90.3%
38,000 77 Bank Ltd. (Banks) $ 372,232
4,100 Advantest Corp. (Electrical Equipment) 556,867
5,750 Aiful Corp. (Financial Services) 999,748
10,700 Aiphone Co. (Electrical Equipment) 163,433
161,000 Asahi Chemical Industry Co. Ltd. (Chemicals) 861,435
170,000 Asahi Glass Co. Ltd. (Home Products) 1,075,959
98,000 Bank of Tokyo-Mitsubishi (Banks) 1,465,496
40,000 Bridgestone Corp. (Auto) 1,134,129
14,000 Canon, Inc. (Computer Hardware) 409,750
48,000 Chiba Bank Ltd. (Banks) 180,436
51,000 Citizen Watch Co. (Specialty Retail) 439,402
35,000 Dai-Ichi Kangyo Bank Ltd. (Banks) 368,455
88 East Japan Railway Co. (Railroads) 533,626
19,600 Familymart Co. (Specialty Retail) 1,007,472
20,100 Fanuc Ltd. (Machinery) 1,213,335
36,000 Fuji Bank Ltd. (Banks) 372,068
34,000 Fuji Photo Film Ltd. (Leisure) 1,243,884
63,000 Fujitec Co. Ltd. (Construction) 659,761
51,000 Fujitsu Ltd. (Computer Hardware) 1,497,325
45,000 Hitachi Construction Machinery Co. Ltd. (Heavy
Machinery) 279,874
25,000 Honda Motor Co. Ltd. (Auto) 1,006,082
30,000 Inaba Denkisangyo (Electrical Equipment) 507,614
90,000 Industrial Bank of Japan Ltd. (Banks) 917,821
7,000 Ito En Ltd. (Food & Beverage) 541,638
53 Japan Tobacco, Inc. (Tobacco) 736,818
33,000 Kao Corp. (Food & Beverage) 938,675
2,000 Keyence Corp. (Industrial Parts) 454,566
72,000 Kirin Brewery Ltd. (Alcohol) 875,840
12,100 Konami Co. Ltd. (Computer Software) 1,061,316
10,000 Matsumotokyoshi (Specialty Retail) 748,159
8,800 Meitec Corp. (Business Services) 313,898
44,000 Minebea Co. (Electrical Equipment) 531,211
28,100 Ministop Co. Ltd. (Specialty Retail) 809,576
9,600 Misumi Corp. (Industrial Parts) 622,527
70,000 Mitsubishi Corp. (Wholesale) 583,253
161,000 Mitsui Co. (Wholesale) 1,135,327
168,000 Mitsui Marine & Fire (Insurance) 923,474
251,000 Mitsui Mining & Smelting (Mining) 1,485,316
12,000 Murata Manufacturing Co. Ltd. (Industrial Parts) 965,839
58,000 NEC Corp. (Computer Hardware) 944,254
7,900 Nintendo Co. Ltd. (Entertainment) 1,372,845
76,000 Nippon Mining & Metals Co. Ltd. (Mining) 590,845
194 Nippon Telephone & Telegraph Corp. (Telecommunications) 2,182,467
125 NTT Mobile Communications Network, Inc.
(Telecommunications) 2,071,615
80,000 Ricoh Co. Ltd. (Computer Hardware) 1,428,271
7,800 Riso Kagaku Corp. (Specialty Retail) 420,908
4,000 Rohm Co. (Electrical Equipment) 797,549
123,000 Sakura Bank Ltd. (Banks) 652,490
85,000 Sanwa Bank (Banks) 1,166,141
8,000 Secom Co. Ltd. (Business Services) 1,093,886
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Japan - (continued)
77,000 Sharp Corp. (Electrical Equipment) $ 1,176,110
30,000 Shin-Etsu Chemical Co. Ltd. (Chemicals) 1,223,762
3,500 SMC Corp. (Machinery) 534,596
117,000 Sumitomo Bakelite (Chemicals) 1,224,201
50,000 Sumitomo Electric Industries (Electrical Equipment) 681,392
21,000 Taisho Pharmaceutical Co. Ltd. (Drugs) 885,444
16,000 Takeda Chemical Industries Ltd. (Health) 804,866
9,000 Takefuji Corp. (Financial Services) 1,449,582
11,000 TDK Corp. (Computer Hardware) 1,338,089
23,000 Terumo Corp. (Medical Products) 736,269
5,300 Toho Co. (Specialty Retail) 819,225
49,000 Tokyo Electric Power (Electrical Utilities) 1,142,818
54,000 Toppan Forms Co. Ltd. (Publishing) 1,276,718
31,000 Yamanouchi Pharmaceutical (Drugs) 1,383,637
15,300 York-Benimaru Co. Ltd. (Specialty Retail) 597,531
22 Yoshinoya D&C Co. Ltd. (Restaurants) 523,163
--------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $44,374,508) $58,512,311
--------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Short-Term Obligation - 4.3%
<S> <C> <C> <C>
State Street Bank & Trust Euro-Time Deposit
$2,785,000 5.50% 09/01/1999 $ 2,785,000
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $2,785,000) $ 2,785,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $47,159,508) $61,297,311
----------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
<TABLE>
<CAPTION>
As a % of
total net assets
<S> <C>
Common Stock Industry Concentrations
Alcohol 1.3%
Auto 3.3
Banks 8.5
Business Services 2.2
Chemicals 5.1
Computer Hardware 8.7
Computer Software 1.6
Construction 1.0
Drugs 3.5
Electrical Equipment 6.8
Electrical Utilities 1.8
Entertainment 2.1
Financial Services 3.8
Food & Beverage 2.3
Health 1.2
Heavy Machinery 0.4
Home Products 1.7
Industrial Parts 3.2
Insurance 1.4
Leisure 1.9
Machinery 2.7
Medical Products 1.1
Mining 3.2
Publishing 2.0
Railroads 0.8
Restaurants 0.8
Specialty Retail 7.5
Telecommunications 6.6
Tobacco 1.1
Wholesale 2.7
-------------------------------------------------------
TOTAL COMMON STOCK 90.3%
-------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost $47,159,508) $61,297,311
Cash, at value 3,468,919
Receivables:
Investment securities sold, at value 647,838
Dividends and interest, at value 18,484
Fund shares sold 360,773
Variation margin(a) 578,571
Reimbursement from investment adviser 65,324
Deferred organization expenses, net 11,364
Other assets 587
------------------------------------------------------------------------------
Total assets 66,449,171
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 1,145,071
Fund shares repurchased 205,000
Amounts owed to affiliates 76,394
Forward foreign currency exchange contracts, at value 141,914
Accrued expenses and other liabilities, at value 87,256
------------------------------------------------------------------------------
Total liabilities 1,655,635
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 46,431,275
Accumulated undistributed net investment income 270,409
Accumulated net realized gain from investment, futures and
foreign currency related transactions 3,907,447
Net unrealized gain on investments, futures and translation of
assets and liabilities denominated in foreign currencies 14,184,405
------------------------------------------------------------------------------
NET ASSETS $64,793,536
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(b)
Class A $16.24
Class B $16.14
Class C $16.16
Institutional $16.36
Service $16.22
------------------------------------------------------------------------------
Shares outstanding:
Class A 2,111,110
Class B 261,435
Class C 221,794
Institutional 1,388,399
Service 161
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 3,982,899
------------------------------------------------------------------------------
</TABLE>
(a) Includes approximately $182,000 relating to initial margin requirements
for futures transactions.
(b) Maximum public offering price per share for Class A shares is $17.19 (NAV
per share multiplied by 1.0582). At redemption, Class B and Class C
shares are subject to a contingent deferred sales charge, assessed on the
amount equal to the lesser of the current net asset value or the original
purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 107,462
Interest 27,508
-----------------------------------------------------------------------------
Total income 134,970
-----------------------------------------------------------------------------
Expenses:
Management fees 226,009
Distribution and service fees(b) 79,638
Registration fees 61,739
Custodian fees 52,275
Professional fees 36,828
Transfer agent fees(c) 29,296
Trustee fees 6,273
Amortization of deferred organization expenses 1,493
Service share fees 6
Other 52,975
-----------------------------------------------------------------------------
Total expenses 546,532
-----------------------------------------------------------------------------
Less -- expenses reimbursed (208,419)
-----------------------------------------------------------------------------
Net expenses 338,113
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (203,143)
-----------------------------------------------------------------------------
Realized and unrealized gain on investment, futures and foreign
currency related transactions:
Net realized gain from:
Investment transactions 4,007,670
Futures transactions 101,078
Foreign currency related transactions 221,442
Net change in unrealized gain (loss) on:
Investments 12,189,344
Futures 20,305
Translation of assets and liabilities denominated in foreign
currencies 33,076
-----------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures and
foreign currency related transactions 16,572,915
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,369,772
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $19,075.
(b) Class A, Class B and Class C had distribution and service fees of
$55,407, $15,230 and $9,001, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $21,053, $2,894, $1,710, $3,638 and $1, respec-
tively.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month For the
Period Ended Period Ended
August 31, 1999 January 31, 1999(a)
<S> <C> <C>
From operations:
Net investment loss $ (203,143) $ (86,973)
Net realized gain from investment,
futures and foreign currency related
transactions 4,330,190 140,585
Net change in unrealized gain on
investments, futures and translation
of assets and liabilities denominated
in foreign currencies 12,242,725 1,941,680
-----------------------------------------------------------------------------
Net increase in net assets resulting
from operations 16,369,772 1,995,292
-----------------------------------------------------------------------------
Distributions to shareholders:
In excess of net investment income
Class A shares (1,121) --
Class B shares -- --
Class C shares (715) --
Institutional shares (1,768) (6,204)
Service shares -- --
-----------------------------------------------------------------------------
Total distributions to shareholders (3,604) (6,204)
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 29,653,297 23,719,687
Reinvestment of dividends and
distributions 3,181 --
Cost of shares repurchased (2,751,373) (4,186,512)
-----------------------------------------------------------------------------
Net increase in net assets resulting
from share transactions 26,905,105 19,533,175
-----------------------------------------------------------------------------
TOTAL INCREASE 43,271,273 21,522,263
-----------------------------------------------------------------------------
Net assets:
Beginning of period 21,522,263 --
-----------------------------------------------------------------------------
End of period $64,793,536 $21,522,263
-----------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess) of net
investment income $ 270,409 $ (34,385)
-----------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 1, 1998 for all share classes.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements
August 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 Japanese Equity
Fund (the "Fund"). The Fund is a diversified portfolio offering 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 the valuation date or, if no sale occurs the last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available are
valued at fair value using methods approved by the Board of Trustees of the
Trust.
B. 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
valuations, 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 exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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.
11
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
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
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 Position -- 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 sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
F. Deferred Organization Expenses -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
G. Option Accounting Principles -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
12
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
H. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into these transactions, the Fund is
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
I. Expenses -- Expenses incurred by the Trust which do not specifically re-
late to an individual Fund of the Trust are allocated to the Funds based on a
straight-line or prorata 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. Shareholders of Service
shares bear all expenses and fees paid to service organizations. Each class
of shares of the Fund separately bears its respective class-specific transfer
agency fees.
J. 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.
At August 31, 1999, the aggregate cost of portfolio securities for federal
income tax purposes is $47,261,756. Accordingly, the gross unrealized gain on
investments was $14,350,960 and the gross unrealized loss on investments was
$315,405 resulting in a net unrealized gain of $14,035,555.
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman Sachs &
Co. ("Goldman Sachs") serves as the investment adviser to the Fund. Under 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 ren-
dered 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" (ex-
cluding 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 exceed,
on an annual basis, .01% of the average daily net assets of the Fund. Goldman
Sachs has agreed to reimburse approximately $208,000 for the period ended Au-
gust 31, 1999.
The Trust, on behalf of the Fund, had adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or Autho-
rized 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.
13
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements (continued)
August 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 $13,000 for the period ended
August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. The
fees charged for such transfer agent services are calculated daily and pay-
able 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 compensation 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 August 31, 1999, the amounts owed to affiliates were approximately
$50,000, $19,000 and $7,000 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 transactions) for the period ended August 31,
1999, were $38,131,660 and $16,215,586, respectively.
For the period ended August 31, 1999, Goldman Sachs earned approximately
$3,000 of brokerage commissions from portfolio transactions.
At August 31, 1999, the Fund had the following outstanding forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
Value on Unrealized
Open Forward Foreign Currency Settlement Current ----------------
Sale Contracts Date Value Gain Loss
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen
expiring 9/10/1999 $ 250,000 $ 275,276 $ -- $ 25,276
expiring 9/20/1999 108,396 116,638 $ -- 8,242
--------------------------------------------------------------------------------
TOTAL OPEN FORWARD FOREIGN CURRENCY
SALE CONTRACTS $ 358,396 $ 391,914 $ -- $ 33,518
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Realized
Closed but Unsettled Purchase -------------
Forward Currency Contracts Value Sale Value Gain Loss
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen
expiring 9/20/1999 $4,002,000 $3,893,604 $ -- $108,396
--------------------------------------------------------------------------
TOTAL CLOSED BUT UNSETTLED FORWARD
FOREIGN CURRENCY CONTRACTS $4,002,000 $3,893,604 $ -- $108,396
--------------------------------------------------------------------------
</TABLE>
14
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
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 August 31,
1999, the Fund had sufficient cash and securities to cover any commitments
under these contracts.
The Fund has recorded a "Payable for forward foreign currency exchange con-
tracts" of $141,914 in the accompanying Statement of Assets and Liabilities.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank, an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Fund, depending on the fluc-
tuations in the value of the contracts, and are recorded as unrealized gains
or losses. When contracts are closed, the Fund realizes a gain or loss which
is reported in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contracts may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss.
At August 31, 1999, open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Market Unrealized
Type Long Month Value Gain
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOPIX Index 25 September 1999 $3,357,799 $20,305
---------------------------------------------------------------------------------------
$3,357,799 $20,305
---------------------------------------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
proposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
15
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund reclassified $509,285
from accumulated net realized gain from investment and foreign currency re-
lated transactions to accumulated undistributed net investment income and
$2,256 from paid-in-capital to accumulated undistributed net investment in-
come. 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.
7. OTHER MATTERS
As of August 31, 1999, the Goldman Sachs Group was the beneficial owner of
approximately 25% of the outstanding shares of the Fund.
16
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
8. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month
Period Ended For the Period Ended
August 31, 1999 January 31, 1999(a)
---------------------- ----------------------
Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 1,490,616 $19,567,798 974,018 $ 9,912,925
Reinvestment of dividends and
distributions 61 921 -- --
Shares repurchased (138,512) (1,823,081) (215,073) (2,211,327)
-------------------------------------
1,352,165 17,745,638 758,945 7,701,598
------------------------------------------------------------------------------
Class B Shares
Shares sold 156,293 2,037,345 143,378 1,452,502
Reinvestment of dividends and
distributions -- -- -- --
Shares repurchased (24,231) (344,034) (14,005) (144,559)
-------------------------------------
132,062 1,693,311 129,373 1,307,943
------------------------------------------------------------------------------
Class C Shares
Shares sold 209,165 2,748,964 197,598 2,047,960
Reinvestment of dividends and
distributions 44 665 -- --
Shares repurchased (13,133) (201,949) (171,880) (1,830,626)
-------------------------------------
196,076 2,547,680 25,718 217,334
------------------------------------------------------------------------------
Institutional Shares
Shares sold 384,318 5,299,190 1,028,740 10,304,702
Reinvestment of dividends and
distributions 104 1,595 -- --
Shares repurchased (24,763) (382,309) -- --
-------------------------------------
359,659 4,918,476 1,028,740 10,304,702
------------------------------------------------------------------------------
Service Shares
Shares sold -- -- 161 1,598
-------------------------------------
-- -- 161 1,598
------------------------------------------------------------------------------
NET INCREASE 2,039,962 $26,905,105 1,942,937 $19,533,175
------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 1, 1998 for all share classes.
17
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset In excess
value, Net Net realized From net of net Net increase
beginning investment and unrealized investment investment From net in net asset
of period loss gains income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $11.06 $(0.06) $5.24 $-- $-- $-- $5.18
1999 - Class B Shares 11.03 (0.09) 5.20 -- -- -- 5.11
1999 - Class C Shares 11.04 (0.08) 5.20 -- -- -- 5.12
1999 - Institutional
Shares 11.10 (0.03) 5.29 -- -- -- 5.26
1999 - Service Shares 11.04 (0.06) 5.24 -- -- -- 5.18
FOR THE PERIOD ENDED JANUARY 31,
1999 - Class A Shares
(commenced May 1, 1998) 10.00 (0.06) 1.12 -- -- -- 1.06
1999 - Class B Shares
(commenced May 1, 1998) 10.00 (0.08) 1.11 -- -- -- 1.03
1999 - Class C Shares
(commenced May 1, 1998) 10.00 (0.09) 1.13 -- -- -- 1.04
1999 - Institutional
Shares (commenced May 1,
1998) 10.00 (0.02) 1.13 -- (0.01) -- 1.10
1999 - Service Shares
(commenced May 1, 1998) 10.00 (0.05) 1.09 -- -- -- 1.04
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY 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 asset at end of net expenses loss to expenses to net investment loss Portfolio
value, end Total period to average average net average to average net turnover
of period return(b) (in 000s) net assets assets net assets assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$16.24 46.84%(d) $34,279 1.70%(c) (1.17)%(c 2.62%(c (2.09)%(c) 44.83%(d)
16.14 46.33(d) 4,219 2.20(c) (1.57)(c) 3.12(c) (2.49)(c) 44.83(d)
16.16 46.41(d) 3,584 2.20(c) (1.81)(c) 3.12(c) (2.73)(c) 44.83(d)
16.36 47.40(d) 22,709 1.05(c) (0.37)(c) 1.97(c) (1.29)(c) 44.83(d)
16.22 46.92(d) 3 1.55(c) (0.74)(c) 2.47(c) (1.66)(c) 44.83(d)
11.06 10.60(d) 8,391 1.64(c) (1.20)(c) 4.18(c) (3.74)(c) 53.29(d)
11.03 10.30(d) 1,427 2.15(c) (1.76)(c) 4.69(c) (4.30)(c) 53.29(d)
11.04 10.40(d) 284 2.15(c) (1.69)(c) 4.69(c) (4.23)(c) 53.29(d)
11.10 11.06(d) 11,418 1.03(c) (0.36)(c) 3.57(c) (2.90)(c) 53.29(d)
11.04 10.43(d) 2 1.53(c) (0.68)(c) 4.07(c) (3.22)(c) 53.29(d)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
Goldman Sachs Trust -- Japanese Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Japanese Equity Fund, one of the portfolios constituting
Goldman Sachs Trust--Equity Funds (a Delaware Business Trust), including the
statement of investments, as of August 31, 1999, and the related statement of
operations, the statements of changes in net assets and the financial high-
lights for the periods presented. These financial statements and the finan-
cial highlights are the responsibility of the Fund's management. Our
responsibility 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 August 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 Japanese Equity Fund as of August 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
October 8, 1999
20
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - 80.7%
Argentina - 1.6%
22,251 Cresud S.A.C.I.F.y A. ADR (Agriculture) $ 229,464
18,483 IRSA Inversiones y Represent SA GDR (Real Estate) 536,007
155,700 Perez Compac SA Class B (Energy Resources) 906,296
38,700 Telefonica de Argentina SA Class B ADR
(Telecommunications) 1,151,325
------------
2,823,092
------------------------------------------------------------------------------
Brazil - 5.1%
224,916,200 Cia Energetica Class A (Utilities) 491,492
33,100 Companhia Cervejaria Brahma ADR (Food & Beverage) 349,619
6,485 Companhia Energetica de Minas Gerais-CEMIG ADR
(Electrical Utilities) 98,086
168,087 Embratel Participacoes SA ADR (Telecommunications) 1,796,430
45,676 Tele Centro Sul Participacoes SA ADR
(Telecommunications) 2,497,906
143,154 Tele Norte Leste Participacoes SA ADR
(Telecommunications) 2,290,464
88,128 Telesp Participacoes SA ADR (Telecommunications) 1,437,588
------------
8,961,585
------------------------------------------------------------------------------
Britain - 0.2%
196,915 Coca-Cola Beverages PLC* (Food & Beverage) 398,847
------------------------------------------------------------------------------
Chile - 3.3%
26,600 Banco BHIF ADR (Financial Services) 412,300
27,400 Banco Santiago ADR (Banks) 575,400
57,000 Cia de Telecomunicaciones de Chile SA ADR
(Telecommunications) 1,282,500
23,100 Compania Cervecerias Unidas SA ADR (Food &
Beverage) 604,931
56,800 Distribucion y Servicio D&S SA ADR (Merchandising) 937,200
68,900 Embotelladora Andina SA Series B ADR (Food &
Beverage) 900,007
56,446 Empresa Nacional de Electricidad SA Endesa ADR
(Electrical Utilities) 698,519
21,404 Enersis SA ADR (Electrical Utilities) 480,252
------------
5,891,109
------------------------------------------------------------------------------
China - 1.5%
1,158,000 Angang New Steel Co. Ltd. Class H (Steel) 164,046
1,387,000 Beijing Datang Power Generation Co. Ltd. Class H
(Electrical Utilities) 370,645
368,000 Beijing Yanhua Petrochemical Co. Ltd. Class H
(Chemicals) 77,724
609,000 China Southern Airlines Co. Ltd. Class H*
(Airlines) 142,742
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
China - (continued)
198,000 China Telecom Ltd.* (Telecommunications) $ 614,535
215,000 Guangdong Kelon Electrical Holdings Co. Ltd. Class
H (Appliance) 220,125
1,219,000 Jiangxi Copper Co. Ltd. Class H (Nonferrous Metals) 219,784
282,000 Legend Holdings (Electrical Equipment) 272,380
720,000 Qingling Motors Co. Ltd. Class H (Machinery) 160,414
516,000 Shandong International Power Development Co. Ltd.
Class H* (Electrical Utilities) 103,002
1,393,000 Zhejiang Expressway Co. Ltd. Class H (Business
Services) 247,568
------------
2,592,965
-------------------------------------------------------------------------------
Colombia - 0.7%
29,200 Banco Ganadero SA Class B ADR (Banks) 512,825
237,700 Bavaria SA (Food & Beverage) 719,863
------------
1,232,688
-------------------------------------------------------------------------------
Czech Republic - 0.9%
16,450 Ceska Sporitelna* (Banks) 81,375
141,100 CEZ* (Electrical Utilities) 307,820
12,980,864 Spif Cesky* (Financial Services) 392,337
45,815 SPT Telecom AS* (Telecommunications) 779,734
------------
1,561,266
-------------------------------------------------------------------------------
Greece - 4.1%
14,635 Alpha Credit Bank (Banks) 1,100,947
10,835 Attica Enterprises (Ship Transportation) 186,029
7,020 Commercial Bank of Greece (Banks) 681,741
3,480 EFG Eurobank (Banks) 132,588
1,740 Ergo Bank SA (Banks) 157,977
94,515 Hellenic Telecommunications Organization SA (OTE)
(Telecommunications) 1,961,401
7,130 Heracles General Cement SA (Construction) 224,026
896 Intracom (Electrical Equipment) 77,834
11,528 Mailis (Industrial Services) 306,142
20,755 National Bank of Greece (Banks) 1,534,416
28,146 STET Hellas Telecommunications SA ADR*
(Telecommunications) 482,000
3,005 Titan Cement Co SA (Construction) 328,903
------------
7,174,004
-------------------------------------------------------------------------------
Hungary - 1.0%
6,000 BorsodChem Rt. (Chemicals) 174,478
3,230 Gedeon Richter Ltd. Class S GDR (Medical Products) 161,500
21,572 Magyar Travkozlesi Rt ADR (Telecommunications) 655,249
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Hungary - (continued)
19,580 Mol Magyar Olaj-es Gazipari Rt Class S GDR (Energy
Resources) $ 496,353
4,800 North American Bus Industries Rt.* (Motor Vehicle) 91,989
3,445 OTP Bank Rt. GDR (Banks) 156,748
------------
1,736,317
------------------------------------------------------------------------------
India - 9.0%
86,050 Hindalco Industries Ltd. GDR+ (Nonferrous Metals) 2,387,887
44,000 Infosys Technologies Ltd. ADR (Business Services) 4,364,250
89,600 ITC Ltd. GDR (Tobacco) 2,755,200
148,150 Mahanagar Telephone Nigam Ltd. GDR
(Telecommunications) 1,592,612
183,500 Mahindra & Mahindra Ltd. GDR (Auto) 2,137,775
44,700 Ranbaxy Laboratories Ltd. GDR (Medical Products) 1,173,375
77,800 Reliance Industries Ltd. GDR (Chemicals) 863,580
41,100 State Bank of India GDR (Banks) 570,263
------------
15,844,942
------------------------------------------------------------------------------
Indonesia - 2.4%
55,024 Daya Guna Samudera (Food & Beverage) 22,239
1,122,500 Indah Kiat Paper & Pulp. Corp.* (Paper) 409,778
2,582,800 PT Bank Pan Indonesia Tbk -Alien Market (Banks) 471,437
292,000 PT Gudang Garam Tbk (Tobacco) 704,302
798,000 PT Indofood Sukses* (Food & Beverage) 853,142
1,872,000 PT Matahari Putra Prima Tbk* (Merchandising) 189,153
201,500 PT Semen Gresik Persero Tbk (Construction) 394,068
368,500 PT Tambang Timah Tbk (Nonferrous Metals) 242,624
2,394,200 PT Telekomunikasi Indonesia Series B
(Telecommunications) 920,846
------------
4,207,589
------------------------------------------------------------------------------
Israel - 3.4%
461,430 Bank Hapoalim (Banks) 1,063,797
288,562 Bank Leumi (Banks) 498,606
207,697 Bezeq Israel Telecomm* (Telecommunications) 751,541
24,300 Blue Square-Israel Ltd. ADR (Specialty Retail) 344,756
2,400 Check Point Software Technologies Ltd. (Computer
Software) 185,100
24,400 ECI Telecom Ltd. (Electrical Equipment) 692,350
7,500 Formula Systems Ltd.* (Computer Software) 187,935
5,200 Gilat Satellite Networks Ltd.* (Electrical
Equipment) 245,050
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Israel - (continued)
176,217 ICL Israel Chemical (Chemicals) $ 172,805
9,706 IDB Holding Corp. Ltd. (Multi-Industrial) 262,204
1,300 Israel Corp. Ltd.* (Multi-Industrial) 139,740
21,413 Koors Industries Ltd. ADR (Multi-Industrial) 377,404
11,800 Scitex Corp Ltd.* (Computer Hardware) 110,625
68,418 Super Sol (Merchandising) 179,506
17,860 Teva Pharmaceutical Industries Ltd. ADR (Medical
Products) 840,536
------------
6,051,955
------------------------------------------------------------------------------
Malaysia - 1.6%
148,000 Edaran Otomobil Nasional Berhad (Auto) 545,263
335,000 Malayan Banking Berhad (Banks) 1,101,974
186,000 New Straits Times Press M Berhad (Publishing) 406,263
302,000 Resorts World Berhad (Leisure) 766,921
------------
2,820,421
------------------------------------------------------------------------------
Mexico - 10.2%
285,100 Alfa SA Series A (Multi-Industrial) 1,077,854
959,900 Cifra Ser C Class C* (Merchandising) 1,451,606
46,100 Desc SA de CV Series C ADR (Multi-Industrial) 901,831
29,100 Fomento Economico Mexicano, SA de CV Series B
(Food & Beverage) 962,119
273,400 Grupo Carso SA Series A (Multi-Industrial) 1,058,370
515,900 Grupo Financiero Banamax Accival, SA de CV Banacci
Series O* (Banks) 988,946
733,000 Grupo Modelo SA Series C (Tobacco) 1,955,447
35,800 Grupo Televisa SA ADR* (Broadcasting) 1,302,225
299,400 Kimberly Clark Class A (Medical Products) 946,984
98,200 Telefonos de Mexico SA ADR (Telecommunications) 7,303,625
------------
17,949,007
------------------------------------------------------------------------------
Pakistan - 0.3%
79,000 Fauji Fertilizer Co. Ltd. (Chemicals) 78,124
352,000 Hub Power Co. Ltd. (Electrical Utilities) 124,515
37,000 Pakistan State Oil Co. Ltd. (Energy Resources) 89,156
610,000 Pakistan Telecommunications Co. Ltd. Class A
(Telecommunications) 246,940
------------
538,735
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Peru - 0.7%
31,100 Credicorp Ltd. (Banks) $ 320,719
68,800 Telefonica del Peru SAA Class B ADR
(Telecommunications) 941,700
------------
1,262,419
------------------------------------------------------------------------------
Philippines - 3.6%
3,113,000 Ayala Land, Inc. (Real Estate) 776,779
113,800 Bank of the Philippine Islands (Banks) 326,987
238,500 Manila Electric Co. Class B (Electrical Utilities) 709,338
129,130 Metropolitan Bank and Trust (Banks) 1,065,912
2,322,700 Petron Corp. (Energy Resources) 207,828
11,700 Philippine Long Distance Telephone Co.
(Telecommunications) 277,202
58,250 Philippine Long Distance Telephone Co. ADR
(Telecommunications) 1,379,797
440,540 San Miguel Corp. "B" Class B (Tobacco) 716,190
5,088,300 SM Prime (Construction) 936,222
------------
6,396,255
------------------------------------------------------------------------------
Poland - 1.0%
12,800 Bank Handlowy Warszawie (Banks) 185,274
2,240 Bank Slaski (Banks) 148,300
3,860 BRE Bank SA (Banks) 126,318
20,130 Elektrim Spolka Akcyjna SA (Multi-Industrial) 253,367
44,800 KGHM Polska Miedz SA (Nonferrous Metals) 289,833
19,200 Orbis SA (Leisure) 161,430
93,200 Telekomunikacja Polska SA (Telecommunications) 633,455
12,100 Wielkopolski Bank Kredytowy (Financial Services) 81,631
------------
1,879,608
------------------------------------------------------------------------------
Russia - 2.1%
45,573 LUKoil Holding ADR (Energy Resources) 1,389,976
27,108 Mosenergo ADR (Electrical Utilities) 81,324
15,755 Rao Gazprom ADR (Electrical Utilities) 127,221
1,865 RAO Unified Energy Systems GDR (Electrical
Utilities) 14,454
79,897 RAO Unified Energy Systems Class S (Electrical
Utilities) 559,279
10,300 Rostelecom ADR (Telecommunications) 70,169
182,402 Surgutneftegaz ADR (Energy Resources) 1,436,416
------------
3,678,839
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
South Africa - 8.0%
77,700 ABSA Group Ltd. (Financial Services) $ 399,640
52,700 Anglo American Platinum Corp. (Nonferrous Metals) 1,198,534
15,029 Angloglold (Mining) 753,241
49,500 Bidvest Group Ltd. (Multi-Industrial) 354,646
437,500 BOE Ltd. (Financial Services) 323,515
60,100 Comparex Holdings Ltd. (Business Services) 372,323
91,680 De Beers Centenary (Agriculture) 2,500,843
153,959 Dimension Data Holdings Ltd. (Computer Software) 638,808
935,898 FirstRand Ltd. (Financial Services) 948,893
90,020 Gold Fields Ltd. (Mining) 310,643
21,000 Impala Platinum Holdings Ltd. (Nonferrous Metals) 672,911
13,120 Investec Group Ltd. (Banks) 457,060
46,519 Liberty Life Association of Africa (Information
Services) 545,034
60,400 Nedcor Investment Bank Holdings (Financial Services) 43,175
55,900 Nedcor Ltd. (Banks) 1,111,478
85,500 Rembrandt Group (Tobacco) 640,670
411,000 Sanlam Ltd.* (Information Services) 489,648
152,425 Sasol (Chemicals) 1,107,088
116,879 South African Brewery (Alcohol) 960,307
28,228 Tiger Oats (Food & Beverage) 241,206
------------
14,069,663
-------------------------------------------------------------------------------
South Korea - 9.8%
4,100 Cheil Jedang Corp. (Food & Beverage) 324,735
38,000 Daewoo Heavy Industries (Machinery) 60,195
7,000 Daewoo Securities (Financial Services) 128,674
9,700 Dongwon Securities (Financial Services) 236,646
55,001 Hankook Tire Co. Ltd. (Auto) 254,854
22,730 Housing & Commercial Bank* (Banks) 531,426
55,400 Hyundai Engineering & Construction Co.
(Construction) 492,757
21,222 Hyundai Motor Co. Ltd.* (Auto) 657,963
57,800 Korea Electric Power Corp. ADR (Electrical
Utilities) 1,040,400
45,200 Korea Electric Power Corp. (Electrical Utilities) 1,684,710
67,000 Korea Exchange Bank* (Banks) 332,588
22,000 Korea Telecom Corp. ADR* (Telecommunications) 715,000
23,000 Korean Air (Airlines) 457,857
17,000 LG Chemical Ltd. (Chemicals) 542,906
15,800 LG Electronics (Appliance) 669,208
7,888 Pohang Iron & Steel Co. Ltd. (Steel) 1,055,742
6,500 Pohang Iron & Steel Co. Ltd. ADR (Steel) 238,875
19,000 Samsung Corp.* (Wholesale) 334,773
7,470 Samsung Display Devices Co. (Electrical Equipment) 432,191
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
South Korea - (continued)
11,924 Samsung Electro-Mechanics Co. (Electrical
Equipment) $ 626,250
17,006 Samsung Electronics (Consumer Durables) 3,226,890
4,000 Samsung Fire & Marine Insurance (Insurance) 197,543
9,974 Samsung Securities Co. Ltd. (Financial Services) 391,187
158,160 Shinhan Bank (Banks) 1,701,510
2,648 SK Corp. (Energy Resources) 63,929
601 SK Telecom Co. Ltd. (Telecommunications) 601,254
22,101 SK Telecom Co. Ltd. ADR (Telecommunications) 250,018
------------
17,250,081
------------------------------------------------------------------------------
Taiwan - 5.1%
354,200 Acer Peripherals, Inc. (Business Services) 918,915
609,850 Bank Sinopac (Financial Services) 375,882
213,900 Cathay Life Insurance Co. (Insurance) 642,373
124,800 China Development Industrial Bank (Financial
Services) 217,811
589,900 China Steel Corp. (Steel) 460,048
455,160 Chinatrust Commercial Bank (Banks) 455,160
615,600 Evergreen Marine Corp. (Ship Transportation) 636,894
555,330 Far Eastern Textile Ltd. (Apparel) 805,054
180,960 Formosa Chemicals & Fibre Corp. (Chemicals) 182,098
155,720 Formosa Plastics Corp. (Chemicals) 298,708
147,840 Hon Hai Precision (Electrical Equipment) 962,355
140,970 Nan Ya Plastic Corp. (Chemicals) 232,734
256,060 President Chain Stores (Specialty Retail) 756,907
40,960 Quanta Computer (Business Services) 399,296
70,720 Siliconware Precis (Electrical Equipment) 138,994
374,842 Taiwan Semiconductor (Electrical Equipment) 1,591,310
------------
9,074,539
------------------------------------------------------------------------------
Thailand - 2.5%
33,000 Advanced Info Service Public-Alien Market*
(Telecommunications) 452,975
117,800 Bangkok Bank Public-Alien Market (Banks) 299,726
431,100 Bangkok Expressway* (Construction) 253,125
93,000 BEC World PLC-Alien Market (Entertainment) 553,340
178,600 Electricity Generating Public Co.-Alien Market
(Utilities) 279,645
65,000 Land and House Public Co. Ltd.-Alien Market* (Real
Estate) 98,382
82,500 PTT Exploration & Production Public-Alien Market*
(Energy Resources) 650,183
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Common Stocks - (continued)
Thailand - (continued)
9,600 Shin Corp. PLC* (Computer Hardware) $ 43,841
26,200 Siam Cement Public-Alien Market* (Construction) 678,247
749,800 TelecomAsia Corp. Public-Alien Market*
(Telecommunications) 719,080
218,300 Thai Farmers Bank-Alien Market* (Banks) 313,322
249,400 United Broadcasting Corp. Public Co. Ltd.*
(Broadcasting) 130,167
------------
4,472,033
----------------------------------------------------------------------------
Turkey - 1.5%
15,604,401 Akbank (Banks) 206,704
7,132,000 Akcansa Cimento AS (Construction) 97,677
4,803,100 Arcelik AS (Consumer Durables) 110,534
695,300 Aygaz AS (Electrical Utilities) 53,857
630,100 Ege Biracilik Ve Malt Sanayii AS (Tobacco) 47,392
12,470,300 Eregli Demir ve Celik Fabrikalari TAS Erdemir
(Steel) 218,384
566,830 Migros (Merchandising) 225,892
42,912,040 Turkiye Garanti Bankasi AS (Banks) 289,035
42,762,026 Turkiye Is Bankasi Isbank Class C (Banks) 652,855
596,800 Vestel Elektronik Sanayi ve Ticaret AS*
(Consumer Durables) 63,646
47,110,740 Yapi Kredi Bankesi (Banks) 613,476
------------
2,579,452
----------------------------------------------------------------------------
Venezuela - 1.1%
41,200 C.A. La Electricidad de Caracas ADR (Electrical
Utilities) 587,100
64,600 Compania Anonima Nacional Telefonos de Venezuela
Class D ADR (Telecommunications) 1,287,963
------------
1,875,063
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $122,040,420) $142,322,474
----------------------------------------------------------------------------
Preferred Stocks - 5.6%
Brazil - 5.2%
284,625,400 Banco Bradesco SA (Banks) $ 1,125,470
1,358,000 Companhia Cervejaria Brahma (Food & Beverage) 718,567
29,847,623 Companhia Energetica de Minas Gerais-CEMIG
(Electrical Utilities) 459,672
150,998,000 Companhia Paranaense de Energia-Copel Class B
(Electrical Utilities) 1,044,887
50,700 Companhia Vale do Rio Doce Class A (Steel) 1,123,736
13,490,100 Petroleo Brasileiro SA (Energy Resources) 1,803,827
1,000 Tele Centro Sul Participacoes SA
(Telecommunications) 11
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Preferred Stocks - (continued)
Brazil - (continued)
15,269,912 Telecomunicacoes de Sao Palo SA
(Telecommunications) $ 1,338,540
37,178,991 Telesp Celular SA Class B (Telecommunications) 1,682,920
-------------
9,297,630
------------------------------------------------------------------------------
Russia - 0.2%
48,155 LUKoil Holding ADR (Energy Resources) 300,969
------------------------------------------------------------------------------
Thailand - 0.2%
276,100 Siam Commercial Bank Public Co. Ltd.* (Banks) 313,424
------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $13,513,997) $ 9,912,023
------------------------------------------------------------------------------
Rights - 0.2%
Greece - 0.1%
7,020 Commercial Bank of Greece SA -Rights exp.
10/01/1999* (Banks) $ 160,818
------------------------------------------------------------------------------
Taiwan - 0.0%
96,000 China Development Industrial - Rights exp.
09/13/1999* (Industrial Services) 4,679
40,960 Quanta Computer Inc. - Rights exp. 09/09/1999*
(Computer Hardware) 116
-------------
4,795
------------------------------------------------------------------------------
Thailand - 0.1%
218,300 Thai Farmers Bank Public Co. Ltd. - Alien
Market - Rights exp. 09/16/1999* (Banks) 199,387
------------------------------------------------------------------------------
TOTAL RIGHTS
(Cost $0) $ 365,000
------------------------------------------------------------------------------
Warrants - 0.3%
Indonesia - 0.0%
138,600 PT Bank Pan Indonesia Tbk -Alien Market exp.
07/08/2002* (Banks) $ 7,680
------------------------------------------------------------------------------
Philippines - 0.2%
931,500 Jollibee Foods exp. 03/24/2003* (Food & Beverage) 410,870
------------------------------------------------------------------------------
Thailand - 0.1%
276,100 Siam Commercial Bank Public Co. Ltd. - Alien
Market exp. 05/10/2002* (Banks) 124,288
------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $445,202) $ 542,838
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Bond - 0.3%
Russia - 0.3%
American Development Bank
RUB17,900,000 31.0% 05/08/2000 $ 552,128
--------------------------------------------------------------------------------------------
TOTAL BOND
(Cost $2,022,577) $ 552,128
--------------------------------------------------------------------------------------------
</TABLE>
Structured Notes - 7.0%
<TABLE>
<C> <S> <C>
South Korea - 6.4%
1,187,570 units Merrill Lynch
Call Warrant
on KOSPI 200*
exp. 12/09/1999 $ 11,315,523
------------------------------------------------
Taiwan - 0.6%
90,314 units Taiwan Index
Linked Note exp.
12/30/1999 1,010,614
------------------------------------------------
TOTAL STRUCTURED NOTES
(Cost $6,416,488) $ 12,326,137
------------------------------------------------
</TABLE>
Short-Term Obligation - 5.5%
<TABLE>
<S> <C> <C> <C>
State Street Bank & Trust Euro-Time Deposit
$9,664,000 5.50% 09/01/1999 $ 9,664,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $9,664,000) $ 9,664,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $154,102,684) $ 175,684,600
-----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified institu-
tional buyers in transactions exempt from registration. Total market-value
of Rule 144A securities amounted to $2,387,887 at August 31, 1999.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
As a %
of Total
Net Assets
<S> <C>
Common and Preferred Stock Industry Classifications
Agriculture 1.5%
Airlines 0.3
Alcohol 0.5
Apparel 0.5
Appliance 0.5
Auto 2.0
Banks 11.5
Broadcasting 0.8
Business Services 3.6
Chemicals 2.1
Computer Hardware 0.1
Computer Software 0.6
Construction 1.9
Consumer Durables 1.9
Electrical Equipment 2.9
Electrical Utilities 4.8
Energy Resources 4.2
Entertainment 0.3
Financial Services 2.2
Food & Beverage 3.5
Industrial Services 0.2
Information Services 0.6
Insurance 0.5
Leisure 0.5
Machinery 0.1
Medical Products 1.8
Merchandising 1.7
Mining 0.6
Motor Vehicle 0.1
Multi-Industrial 2.5
Nonferrous Metals 2.8
Paper 0.2
Publishing 0.2
Real Estate 0.8
Ship Transportation 0.5
Specialty Retail 0.6
Steel 1.9
Telecommunications 20.5
Tobacco 3.9
Utilities 0.4
Wholesale 0.2
-----------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 86.3%
-----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Assets and Liabilities
August 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$154,102,684) $175,684,600
Cash, at value 914,695
Receivables:
Investment securities sold, at value 22,586
Dividends and interest, at value 575,404
Fund shares sold 106,457
Forward foreign currency exchange contracts 136,576
Reimbursement from investment adviser 114,611
Deferred organization expenses, net 9,686
Other assets, at value 6,156
------------------------------------------------------------------------------
Total assets 177,570,771
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 403,598
Fund shares repurchased 234,829
Amounts owed to affiliates 221,172
Capital gains tax 195,098
Accrued expenses and other liabilities, at value 175,127
------------------------------------------------------------------------------
Total liabilities 1,229,824
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 188,103,207
Accumulated net investment loss (45,928)
Accumulated net realized loss from investment and foreign
currency related transactions (33,113,120)
Net unrealized gain on investments and translation of assets
and liabilities denominated in foreign currencies 21,396,788
------------------------------------------------------------------------------
NET ASSETS $176,340,947
------------------------------------------------------------------------------
Net asset value, offering and redemption price per share(a)
Class A $9.26
Class B $9.21
Class C $9.24
Institutional $9.37
Service $9.05
------------------------------------------------------------------------------
Shares outstanding:
Class A 7,093,000
Class B 105,545
Class C 118,481
Institutional 11,593,102
Service 166
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 18,910,294
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share X 1.0582) for
Class A shares is $9.80. At redemption, Class B and Class C shares may be
subject to a contingent deferred sales charge, assessed on the amount
equal to the lesser of the current net asset value or the original pur-
chase price of the shares.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Operations
For the Seven-Month Period Ended August 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 1,533,844
Interest 278,432
----------------------------------------------------------------------------
Total income 1,812,276
----------------------------------------------------------------------------
Expenses:
Management fees 1,148,664
Custodian fees 319,452
Distribution and service fees(b) 184,703
Transfer agent fees(c) 92,504
Registration fees 78,419
Professional fees 42,051
Trustee fees 6,074
Amortization of deferred organization expenses 1,710
Service share fees 4
Other 55,548
----------------------------------------------------------------------------
Total expenses 1,929,129
----------------------------------------------------------------------------
Less -- expenses reimbursed (355,841)
----------------------------------------------------------------------------
Net expenses 1,573,288
----------------------------------------------------------------------------
NET INVESTMENT INCOME 238,988
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and foreign
currency related transactions:
Net realized gain (loss) from:
Investment transactions 12,353,122
Foreign currency related transactions (202,406)
Net change in unrealized gain on:
Investments 30,854,273
Translation of assets and liabilities denominated in foreign
currencies 316,179
----------------------------------------------------------------------------
Net realized and unrealized gain on investment and foreign
currency related transactions: 43,321,168
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $43,560,156
----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $138,247.
(b) Class A, Class B and Class C had distribution and service fees of
$176,746, $4,255 and $3,702, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $67,162, $808, $703, $23,830 and $1, respectively.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Seven-Month For the
Period Ended Year Ended
August 31, 1999 January 31, 1999
<S> <C> <C>
From operations:
Net investment income $ 238,988 $ 1,649,430
Net realized gain (loss) from investment
and foreign currency related transactions 12,150,716 (41,326,432)
Net change in unrealized gain (loss) on
investments and translation of assets and
liabilities denominated in foreign
currencies 31,170,452 (8,910,101)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 43,560,156 (48,587,103)
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares -- (569,869)
Class B shares -- (4,352)
Class C shares -- (2,737)
Institutional shares -- (1,092,333)
Service shares -- (11)
In excess of net investment income
Class A shares -- (1,680,766)
Class B shares -- (12,834)
Class C shares -- (8,074)
Institutional shares -- (3,221,713)
Service shares -- (33)
------------------------------------------------------------------------------
Total distributions to shareholders -- (6,592,722)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 32,173,466 220,344,538
Reinvestment of dividends and
distributions -- 4,301,531
Cost of shares repurchased (43,018,256) (62,779,701)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (10,844,790) 161,866,368
------------------------------------------------------------------------------
TOTAL INCREASE 32,715,366 106,686,543
------------------------------------------------------------------------------
Net assets:
Beginning of period 143,625,581 36,939,038
------------------------------------------------------------------------------
End of period $176,340,947 $143,625,581
------------------------------------------------------------------------------
Accumulated undistributed net investment
income (loss) $ (45,928) $ 26,133
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements
August 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 management
investment company. The Trust includes the Goldman Sachs Emerging Markets
Equity Fund (the "Fund"). At August 31, 1999, the Fund is a diversified port-
folio offering five classes of shares -- Class A, Class B, Class C, Institu-
tional 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. Actual
results could differ from those estimates. Effective for fiscal year 1999,
the Board of Trustees approved a change in the fiscal year end of the Fund
from January 31 to August 31. Accordingly, the financial statements of the
Fund are presented for the seven-month period ended August 31, 1999.
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 last bid price. Debt securities
are valued at prices supplied by independent pricing services, broker / deal-
er-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 last bid price.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Securities for which quotations are not readily available, are
valued at fair value using methods approved by the Board of Trustees of the
Trust.
Investing in emerging markets may involve special risks and considerations
not typically associated with investing in the United States. These risks in-
clude revaluation of currencies, high rates of inflation, repatriation re-
strictions on income and capital, and adverse political and economic
developments. Moreover, securities issued in these markets may be less liq-
uid, subject to government ownership controls, delayed settlements, and their
prices more volatile than those of comparable securities in the United
States.
B. 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. It is
the Fund's policy, where necessary, to accrue for estimated capital gains
taxes on appreciated foreign securities.
C. Foreign Currency Translations -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, 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; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based on currency
exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) 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.
15
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
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 upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. Derivative Financial Instruments -- The Fund may utilize derivative finan-
cial instruments such as structured notes and equity swaps. Such instruments
are used by the Fund as a means of investing in a particular market or in-
creasing the return on the Fund's investments or both. The value of the prin-
cipal of and/or interest on such securities is determined by reference to
changes in the value of the financial indicators including, but not limited
to indices, currencies or interest rates. These financial instruments may
subject the Fund to a greater degree of market or counterparty risk and loss
than other types of securities.
F. Short Securities Positions -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked-
to-market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and the sales proceeds is re-
ported as an unrealized gain or loss. Gains and losses are realized when a
short position is closed out by delivering securities back to the broker.
G. Deferred Organization Expenses -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
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. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into these transactions, the Fund is
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
16
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
J. 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. Shareholders of Service
shares bear all expenses and fees paid to service organizations. Each class
of shares of the Fund separately bears its respective class-specific transfer
agency fees.
K. 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.
At August 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $160,175,226. Accordingly, the gross unrealized gain
on investments was $30,901,434 and the gross unrealized loss on investments
was $15,392,060 resulting in a net unrealized gain of $15,509,374.
The Fund had approximately $27,002,000 at August 31, 1999 (the Fund's tax
year end) of capital loss carryforward expiring 2006 for federal tax purpos-
es. This amount is available to be carried forward to offset future capital
gains to the extent permitted by applicable laws or regulations.
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs
Asset Management ("GSAM"), a separate operating division of Goldman, Sachs &
Co. ("Goldman Sachs"), serves as the investment adviser to the Fund. Under
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 facili-
ties, 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.
The adviser has voluntarily agreed to limit certain "Other Expenses" (ex-
cluding 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 exceed,
on an annual basis, 0.15% of the average daily net assets of the Fund.
Goldman Sachs has agreed to reimburse approximately $356,000 for the period
ended August 31, 1999.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized 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 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 has retained approximately $67,000 for the period
ended August 31, 1999.
Goldman Sachs also serves as the transfer agent of the Fund for a fee. 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
17
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
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 August 31, 1999, the amounts owed to affiliates were approximately
$178,000, $29,000 and $14,000 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) for the year ended August 31, 1999, were $99,812,263 and
$120,924,457, respectively.
<TABLE>
<CAPTION>
Unrealized
------------
Open Forward Foreign Currency Value on
Sale Contracts Settlement Date Current Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Czech Koruna
expiring 2/2/2000 $1,453,272 $1,390,705 $62,567 $ --
------------------------------------------------------------------------------
TOTAL OPEN FORWARD FOREIGN
CURRENCY SALE CONTRACTS $1,453,272 $1,390,705 $62,567 $ --
------------------------------------------------------------------------------
<CAPTION>
Realized
------------
Closed but Unsettled
Forward Foreign Currency Contracts Purchase Value Sale Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Czech Koruna
expiring 2/2/2000 $1,472,719 $1,546,728 $74,009 $ --
------------------------------------------------------------------------------
TOTAL CLOSED BUT UNSETTLED FORWARD
FOREIGN CURRENCY CONTRACTS $1,472,719 $1,546,728 $74,009 $ --
------------------------------------------------------------------------------
</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 August 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 purchased" of $136,576 in the accompanying Statement of Assets and
Liabilities.
18
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
For the period ended August 31, 1999, Goldman Sachs earned approximately
$50,000 of brokerage commissions from portfolio transactions.
The Fund may enter into futures transactions to hedge against changes in
interest rates, securities prices, currency exchange rates or to seek to in-
crease total return. Upon entering into a futures contract, the Fund is re-
quired to deposit with a broker or the Fund's custodian bank, an amount of
cash or securities equal to the minimum "initial margin" requirement of the
associated futures exchange. Subsequent payments for futures contracts
("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 risk which may exceed the amounts recognized in the Statement of Assets
and Liabilities. Changes in the value of the futures contract may not di-
rectly correlate with changes in the value of the underlying securities. This
risk may decrease the effectiveness of the Fund's hedging strategies and po-
tentially result in a loss. At August 31, 1999, the Fund had no open futures
contracts.
5. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted unsecured revolving line of credit facility which was terminated on April
30, 1999. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. This facility is to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the period
ended August 31, 1999, the Fund did not have any borrowings under any of
these facilities.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$710,409 from paid-in-capital to accumulated net realized loss from invest-
ment and foreign currency related transactions and $311,049 from accumulated
net investment loss to accumulated net realized loss from investment and for-
eign currency related transactions. These reclassifications have no impact on
the net asset value of the Fund and are designed to present the Fund's capi-
tal accounts on a tax basis.
19
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
August 31, 1999
7. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Seven-Month Period Ended August 31, 1999 For the Year Ended January 31, 1999
---------------------------------------------------------------------------------------
Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 2,397,786 $ 20,583,469 10,357,445 $ 89,405,582
Reinvestment of divi-
dends and distributions -- -- 318,269 2,176,957
Shares repurchased (2,788,776) (23,870,559) (5,015,931) (38,121,169)
---------------------------------------------------------------------------------------
(390,990) (3,287,090) 5,659,783 53,461,370
------------------------------------------------------------------------------------------------------------------
Class B Shares
Shares sold 54,000 468,026 73,263 638,031
Reinvestment of divi-
dends and distributions -- -- 1,969 13,468
Shares repurchased (13,777) (120,123) (16,489) (112,961)
---------------------------------------------------------------------------------------
40,223 347,903 58,743 538,538
------------------------------------------------------------------------------------------------------------------
Class C Shares
Shares sold 92,068 838,996 44,699 387,030
Reinvestment of divi-
dends and distributions -- -- 1,550 10,621
Shares repurchased (12,341) (114,463) (15,015) (115,705)
---------------------------------------------------------------------------------------
79,727 724,533 31,234 281,946
------------------------------------------------------------------------------------------------------------------
Institutional Shares
Shares sold 1,216,533 10,282,975 13,487,704 129,913,895
Reinvestment of divi-
dends and distributions -- -- 304,854 2,100,442
Shares repurchased (2,338,484) (18,913,111) (3,049,355) (24,429,866)
---------------------------------------------------------------------------------------
(1,121,951) (8,630,136) 10,743,203 107,584,471
------------------------------------------------------------------------------------------------------------------
Service Shares
Shares sold -- -- -- --
Reinvestment of divi-
dends and distributions -- -- 6 43
---------------------------------------------------------------------------------------
-- -- 6 43
------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) (1,392,991) $ (10,844,790) 16,492,969 $ 161,866,368
------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
8. OTHER MATTERS
As of August 31, 1999, the Goldman Sachs Growth and Income Strategy Portfo-
lio, the Goldman Sachs Growth Strategy Portfolio and the Goldman Sachs Ag-
gressive Growth Strategy Portfolio were beneficial owners of approximately
15%, 12% and 6% of the outstanding shares of the Fund, respectively. In addi-
tion, two clients are the beneficial owners of 13% and 12% of the outstanding
shares of the Fund, respectively.
21
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------
Net asset Net In excess Net increase
value, investment Net realized From net of net (decrease)
beginning income and unrealized investment investment From net in net asset
of period (loss) gain (loss) income income realized gains value
FOR THE SEVEN-MONTH PERIOD ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $ 7.04 $(0.01) $2.23 $ -- $ -- $ -- $ 2.22
1999 - Class B Shares 7.03 (0.03) 2.21 -- -- -- 2.18
1999 - Class C Shares 7.05 (0.03) 2.22 -- -- -- 2.19
1999 - Institutional
Shares 7.09 0.02 2.26 -- -- -- 2.28
1999 - Service Shares 6.87 0.01 2.17 -- -- -- 2.18
FOR THE YEAR ENDED JANUARY 31,
1999 - Class A Shares 9.69 0.04 (2.40) (0.07) (0.22) -- (2.65)
1999 - Class B Shares 9.69 0.03 (2.41) (0.07) (0.21) -- (2.66)
1999 - Class C Shares 9.70 0.01 (2.39) (0.07) (0.20) -- (2.65)
1999 - Institutional
Shares 9.70 0.06 (2.36) (0.08) (0.23) -- (2.61)
1999 - Service Shares 9.69 (0.13) (2.41) (0.07) (0.21) -- (2.82)
FOR THE PERIOD ENDED JANUARY 31,
1998 - Class A Shares
(commenced December 15,
1997) 10.00 -- (0.31) -- -- -- (0.31)
1998 - Class B Shares
(commenced December 15,
1997) 10.00 -- (0.31) -- -- -- (0.31)
1998 - Class C Shares
(commenced December 15,
1997) 10.00 -- (0.30) -- -- -- (0.30)
1998 - Institutional
Shares (commenced Decem-
ber 15, 1997) 10.00 0.01 (0.31) -- -- -- (0.30)
1998 - Service Shares
(commenced December 15,
1997) 10.00 -- (0.31) -- -- -- (0.31)
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) 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.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-----------------------------------
Ratio of
Net assets Ratio of net investment Ratio of Ratio of net
Net asset at end of net expenses income (loss) expenses to investment income Portfolio
value, end Total period to average to average average net (loss) to average turnover
of period return(b) (in 000s) net assets net assets assets net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$9.26 31.53%(d) $65,698 2.04%(c) (0.15)%(c) 2.41%(c) (0.52)%(c) 63.24%(d)
9.21 31.01(d) 972 2.54(c) (0.71)(c) 2.91(c) (1.08)(c) 63.24(d)
9.24 31.06(d) 1,095 2.54(c) (0.85)(c) 2.91(c) (1.22)(c) 63.24(d)
9.37 32.16(d) 108,574 1.39(c) 0.50(c) 1.76(c) 0.13(c) 63.24(d)
9.05 31.73(d) 2 1.89(c) 0.12(c) 2.26(c) (0.25)(c) 63.24(d)
7.04 (24.32) 52,704 2.09 0.80 2.53 0.36 153.67
7.03 (24.51) 459 2.59 0.19 3.03 (0.25) 153.67
7.05 (24.43) 273 2.59 0.28 3.03 (0.16) 153.67
7.09 (23.66) 90,189 1.35 1.59 1.79 1.15 153.67
6.87 (26.17) 1 1.85 (1.84) 2.29 (2.28) 153.67
9.69 (3.10)(d) 17,681 1.90(c) 0.55(c) 5.88(c) (3.43)(c) 3.35(d)
9.69 (3.10)(d) 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c) 3.35(d)
9.70 (3.00)(d) 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c) 3.35(d)
9.70 (3.00)(d) 19,120 1.30(c) 0.80(c) 5.28(c) (3.18)(c) 3.35(d)
9.69 (3.10)(d) 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c) 3.35(d)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
Goldman Sachs Trust -- Emerging Markets Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Emerging Markets Equity Fund, one of the portfolios constitut-
ing Goldman Sachs Trust--Equity Funds (a Delaware Business Trust), including
the statement of investments, as of August 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 August 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 Emerging Markets Equity Fund as of August 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
October 8, 1999
24
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
The following exhibits relating to Goldman Sachs Trust are incorporated
herein by reference to Post-Effective Amendment No. 26 to Goldman Sachs Trust's
Registration Statement on Form N-1A (Accession No. 000950130-95-002856); to
Post-Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931); to Post-Effective Amendment No. 29 to such Registration
Statement (Accession No. 0000950130-97-000573); to Post-Effective Amendment No.
31 to such Registration Statement (Accession No. 0000950130-97-000805); to Post-
Effective Amendment No. 32 to such Registration Statement (Accession No.
0000950130-97-0001846); to Post-Effective Amendment No. 40 to such Registration
Statement (Accession No. 0000950130-97-004495); to Post-Effective Amendment No.
41 to such Registration Statement (Accession No 0000950130-98-000676); to Post-
Effective Amendment No. 43 to such Registration Statement (Accession No.
0000950130-98-000965); to Post-Effective Amendment No. 44 to such Registration
Statement (Accession No. 0000950130-98-002160); to Post-Effective Amendment No.
46 to such Registration Statement (Accession No. 0000950130-98-003563); to Post-
Effective Amendment No. 47 to such Registration Statement (Accession No.
0000950130-98-004845); to Post-Effective Amendment No. 48 to such Registration
Statement (Accession No. 0000950109-98-005275); to Post-Effective Amendment No.
50 to such Registration Statement (Accession No. 0000950130-98-006081); to Post-
Effective Amendment No. 51 to such Registration Statement (Accession No.
0000950130-99-000178); to Post-Effective Amendment No. 52 to such Registration
Statement (Accession No. 0000950130-99-000742); to Post-Effective Amendment No.
53 to such Registration Statement (Accession No. 0000950130-99-001069); to Post-
Effective Amendment No. 54 to such Registration Statement (Accession No.
0000950130-99-002212); to Post-Effective Amendment No. 55 to such Registration
Statement (accession No. 0000950109-99-002544); to Post-Effective Amendment No.
56 to such Registration Statement (accession No. 0000950130-99-005294)and to
Post-Effective Amendment No. 57 to such Registration Statement (accession No.
0000950109-99-003474).
(a)(1). Agreement and Declaration of Trust dated January 28, 1997.
(Accession No. 0000950130-97-000573).
(a)(2). Amendment No. 1 dated April 24, 1997 to Agreement and Declaration
of Trust January 28, 1997. (Accession No. 0000950130-97-004495).
(a)(3). Amendment No. 2 dated July 21, 1997 to Agreement and Declaration
of Trust, as amended, dated January 28, 1997. (Accession No.
0000950130-97-004495).
3
<PAGE>
(a)(4). Amendment No.3 dated October 21, 1997 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676).
(a)(5). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676).
(a)(6). Amendment No. 5 dated April 23, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845).
(a)(7). Amendment No. 6 dated July 22, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845).
(a)(8). Amendment No. 7 dated November 3, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997
(Accession No. 0000950130-98-006081).
(a)(9). Amendment No. 8 dated January 22, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997
(Accession No. 0000950130-99-000742).
(a)(10). Amendment No. 9 dated April 28, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950109-99-002544)
(a)(11). Amendment No. 10 dated July 27, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997(accession No.
0000950130-99-005294).
(a)(12). Amendment No. 11 dated July 27, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997 (accession No.
0000950130-99-005294).
(b). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997. (Accession No. 0000950130-97-000573).
(b)(2). Amended and restated by-laws of the Delaware
business trust dated January 28, 1997, as amended
or restated July 27, 1999 (accession No.
0000950130-99-005294).
(c). Not applicable.
4
<PAGE>
(d)(1). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676).
(d)(2). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Adjustable Rate Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676).
(d)(3). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Tax-Free Fund, and Goldman
Sachs Asset Management. (Accession No. 0000950130-98-000676).
(d)(4). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Core Fixed Income Fund, and Goldman Sachs
Asset Management. (Accession No. 0000950130-98-000676).
(d)(5). Management Agreement dated April 30, 1997 between the Registrant,
on behalf of Goldman Sachs - Institutional Liquid Assets, and
Goldman Sachs Asset Management. (Accession No. 0000950130-98-
000676).
(d)(6). Management Agreement dated April 30, 1997 as amended November 3,
1998, between Registrant, Goldman Sachs Asset Management,
Goldman Sachs Fund Management L.P. and Goldman, Sachs Asset
Management International (Accession No. 0000950109-98-005275).
(d)(7). Management Agreement dated January 1, 1998 on behalf of the
Goldman Sachs Asset Allocation Portfolios and Goldman Sachs
Asset Management (Accession No. 0000950130-98-000676).
(d)(8). Amended Annex A to Management Agreement dated January 1, 1998 on
behalf of the Goldman Sachs Asset Allocation Portfolios and
Goldman Sachs Asset Management (Conservative Strategy Portfolio)
(Accession No. 0000950130-99-000742).
(d)(9). Amended Annex A dated April 28, 1999 to Management Agreement
dated April 30, 1997. (Accession No. 0000950109-99-002544)
(d)(10). Amended Annex A dated July 27, 1999 to Management
Agreement dated April 30, 1997 (accession No.
0000950130-99-005294).
5
<PAGE>
(e). None.
(f). Not applicable.
(g)(1). Custodian Agreement dated July 15, 1991, between Registrant and
State Street Bank and Trust Company. (Accession No. 0000950130-
95-002856).
(g)(2). Custodian Agreement dated December 27, 1978 between Registrant
and State Street Bank and Trust Company, on behalf of Goldman
Sachs - Institutional Liquid Assets, filed as Exhibit 8(a).
(Accession No. 0000950130-98-000965).
(g)(3). Letter-Agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs
- Institutional Liquid Assets, pertaining to the fees payable by
Registrant pursuant to the Custodian Agreement, filed as Exhibit
8(b). (Accession No. 0000950130-98-000965).
(g)(4). Amendment dated May 28, 1981 to the Custodian Agreement referred
to above as Exhibit (g)(2) (Accession No. 0000950130-98-000965).
(g)(5). Fee schedule relating to the Custodian Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and State Street Bank and Trust Company. (Accession
No. 0000950130-97-004495).
(g)(6). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges under the Custodian Agreement, filed as Exhibit 8(d).
(Accession No. 0000950130-98-000965).
(g)(7). Letter Agreement dated March 29, 1983 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the latter's
designation of Bank of America, N.T. and S.A. as its subcustodian
and certain other matters, filed as Exhibit 8(f). (Accession No.
0000950130-98-000965).
(g)(8). Letter Agreement dated March 21, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the creation of a
joint repurchase agreement account,
6
<PAGE>
filed as Exhibit 8(g). (Accession No. 0000950130-98-000965).
(g)(9). Letter Agreement dated November 7, 1985, with attachments,
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets,
authorizing State Street Bank and Trust Company to permit
redemption of units by check, filed as Exhibit 8(h). (Accession
No. 0000950130-98-000965).
(g)(10). Money Transfer Services Agreement dated November 14, 1985,
including attachment, between Registrant and State Street Bank
and Trust Company, on behalf of Goldman Sachs - Institutional
Liquid Assets, pertaining to transfers of funds on deposit with
State Street Bank and Trust Company, filed as Exhibit 8(i).
(Accession No. 0000950130-98-000965).
(g)(11). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965).
(g)(12). Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges. (Accession No. 0000950130-98-000965).
(g)(13). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965).
(g)(14). Letter Agreement between Registrant and State Street Bank and
Trust Company, on behalf of Goldman Sachs - Institutional Liquid
Assets, pertaining to the latter's designation of Security
Pacific National Bank as its sub-custodian and certain other
matters. (Accession No. 0000950130-98-000965).
(g)(15). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets. (Accession No.
0000950130-98-000965).
7
<PAGE>
(g)(16). Amendment dated December 19, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets. (Accession
No. 0000950130-98-000965).
(g)(17). Custodian Agreement dated April 6, 1990 between Registrant and
State Street Bank and Trust Company on behalf of Goldman Sachs
Capital Growth Fund. (Accession No. 0000950130-98-006081).
(g)(18). Sub-Custodian Agreement dated March 29, 1983 between State Street
Bank and Trust Company and Bank of America, National Trust and
Savings Association on behalf of Goldman Sachs Institutional
Liquid Assets. (Accession No. 0000950130-98-006081).
(g)(19). Fee schedule dated January 8, 1999 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (Conservative Strategy
Portfolio)(Accession No. 0000950130-99-000742).
(g)(20). Fee schedule dated April 12, 1999 relating to Custodian Agreement
dated April 6, 1990 between Registrant and State Street Bank and
Trust Company (Strategic Growth and Growth Opportunities
Portfolios). (Accession No. 0000950109-99-002544)
(g)(21). Fee schedule dated July 19, 1999 relating to
Custodian Agreement dated April 6, 1990 between
Registrant and State Street Bank and Trust Company
(Internet Tollkeeper Fund) (accession No.
0000950130-99-005294).
(h)(1). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust
Company. (Accession No. 0000950130-98-000965).
(h)(2). Letter Agreement dated June 20, 1987 regarding use of checking
account between Registrant and The Northern Trust Company.
(Accession No. 0000950130-98-000965).
(h)(3). Transfer Agency Agreement dated July 15, 1991 between Registrant
and Goldman, Sachs & Co. (Accession No. 0000950130-95-002856).
8
<PAGE>
(h)(4). Fee schedule relating to Transfer Agency Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and Goldman, Sachs & Co. (Accession No. 0000950130-
97-004495).
(h)(7). Fee schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of all Funds of Goldman Sachs Trust other than the Institutional
Liquid Assets and Financial Square Money Market Funds.
(Accession No. 0000950130-98-004845).
(h)(8). Transfer Agency Agreement dated May 1, 1988 between Goldman Sachs
Institutional Liquid Assets and Goldman, Sachs & Co. (Accession
No. 0000950130-98-006081).
(h)(9). Fee Schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of ILA Money Market Funds. (Accession No. 0000950130-98-006081).
(h)(10). Transfer Agency Agreement dated April 30, 1997 between Registrant
and Goldman, Sachs & Co. on behalf of the Financial Square Funds.
(Accession No. 0000950130-98-006081).
(h)(11). Transfer Agency Agreement dated April 6, 1990 between GS-Capital
Growth Fund, Inc. and Goldman Sachs & Co. (Accession No.
0000950130-98-006081).
(h)(12). Goldman Sachs - Institutional Liquid Assets Administration Class
Administration Plan dated April 22, 1998. (Accession No.
0000950130-98-006081).
(h)(13). FST Administration Class Administration Plan dated April 22,
1998. (Accession No. 0000950130-98-006081).
(h)(14). Goldman Sachs - Institutional Liquid Assets Service Class Service
Plan dated April 22, 1998. (Accession No. 0000950130-98-006081).
(h)(15). FST Service Class Service Plan dated April 22, 1998. (Accession
No. 0000950130-98-006081).
(h)(16). FST Preferred Class Preferred Administration Plan dated April 22,
1998. (Accession No. 0000950130-98-006081).
(h)(17). Goldman Sachs Trust Administration Class Administration Plan
dated April 23, 1998. (Accession No. 0000950130-98-006081).
9
<PAGE>
(h)(18). Goldman Sachs Trust Service Class Service Plan dated April 22,
1998 (Accession No. 0000950130-98-006081).
(h)(19). Cash Management Shares Service Plan dated May 1, 1998.
(Accession No. 0000950130-98-006081).
(h)(20). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to Class A Shares of Goldman Sachs Asset Allocation
Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds and Goldman Sachs International Equity
Funds. (Accession No. 0000950130-98-006081).
(h)(21). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to the Preferred Class, Administration Class, Service
Class and Cash Management Class, as applicable, of Goldman Sachs
Financial Square Funds, Goldman Sachs - International Liquid
Asset Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds, Goldman Sachs International Equity Funds
and Goldman Sachs Asset Allocation Portfolios. (Accession No.
0000950130-98-006081).
(h)(22). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the Administrative Class, Service Class and
Cash Management Class of Goldman Sachs - Institutional Liquid
Assets Portfolios. (Accession No. 0000950130-98-006081).
(h)(23). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the FST Shares, FST Preferred Shares, FST
Administration Shares and FST Service Shares of Goldman Sachs
Financial Square Funds. (Accession No. 0000950130-98-006081).
(h)(24). Fee Schedule dated July 31, 1998 relating to
Transfer Agency Agreement dated July 15, 1991
between the Registrant and Goldman, Sachs & co.
Internet Tollkeeper Fund) (accession No.
0000950130-99-005294).
(i)(1). Opinion of Drinker, Biddle & Reath LLP. (With respect to the
Asset Allocation Portfolios). (Accession No. 0000950130-97-
004495).
(i)(2). Opinion of Morris, Nichols, Arsht & Tunnell. (Accession No.
0000950130-97-001846)
10
<PAGE>
(i)(3). Opinion of Drinker Biddle & Reath LLP.(With respect to Japanese
Equity and International Small Cap). (Accession No. 0000950130-
98-003563).
(i)(4). Opinion of Drinker Biddle & Reath LLP. (With respect to Cash
Management Shares). (Accession No. 0000950130-98-003563)
(i)(5). Opinion of Drinker Biddle & Reath LLP. (With respect to the
European Equity Fund). (Accession No. 0000950130-98-006081).
(i)(6). Opinion of Drinker Biddle & Reath LLP. (With respect to the CORE
Large Cap Value Fund). (Accession No. 0000950130-98-006081).
(i)(7). Opinion of Drinker Biddle & Reath LLP (with respect to the
Conservative Strategy Portfolio) (Accession No. 0000950130-99-
001069).
(i)(8). Opinion of Drinker Biddle & Reath LLP (with respect to the
Strategic Growth and Growth Opportunities Portfolios). (Accession
No. 0000950109-99-002544)
(j) None.
(k). Not applicable.
(l). Not applicable.
(m)(1). Class A Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(2). Class B Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(3). Class C Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(4). Cash Management Shares Plan of Distribution pursuant to Rule 12b-
1 dated May 1, 1998. (Accession No. 0000950130-98-006081).
(n) None.
(o). Plan dated September 1, 1998 entered into by Registrant pursuant
to Rule 18f-3. (Accession No. 0000950130-98-004845)
11
<PAGE>
(p)(1). Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Springer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor. (Accession No.
0000950130-97-000805)
(p)(2). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak. (Accession No. 0000950130-
98-000676)
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
(a)(13). Amendment No. 12 dated October 26, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(d)(11). Amended Annex A dated October 26, 1999 to Management Agreement
dated April 30, 1997.
(e)(1). Distribution Agreement dated April 30, 1997 as amended October
26, 1999 between Registrant and Goldman, Sachs & Co.
(i)(9) Opinion of Drinker Biddle & Reath LLP (with respect to the
Internet Tollkeeper Fund)
J. Consent of Arthur Andersen LLP.
Item 24. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
Not Applicable.
Item 25. Indemnification
---------------
Article IV of the Declaration of Trust of Goldman Sachs Trust, Delaware business
trust, provides for indemnification of the Trustees, officers and agents of the
Trust, subject to certain limitations. The Declaration of Trust is incorporated
by reference to Exhibit (a)(1).
The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Investment Adviser or from reckless disregard by the Investment Adviser of
its obligations or duties under the Management Agreement. Section 7 of the
Management Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by
12
<PAGE>
reason of its willful misfeasance, bad faith or gross negligence or the
Adviser's reckless disregard of its obligation under the Management Agreement.
The Management Agreements are incorporated by reference to Exhibits (d)(1)
through (d)(7);
Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs
dated April 30, 1997, as amended October 26, 1999 and Section 7 of the Transfer
Agency Agreements between the Registrant and Goldman, Sachs & Co. dated July 15,
1991, May 1, 1988, April 30, 1997 and April 6, 1990 each provide that the
Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A
copy of the Distribution Agreement is included herewith as Exhibit (e)(1). The
Transfer Agency Agreements are incorporated by reference as Exhibits (h)(3),
(h)(8), (h)(10) and (h)(11), respectively, to the Registrant's Registration
Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Trust for Credit Unions, Goldman Sachs Variable Insurance Trust
and The Commerce Funds insure such persons and their respective trustees,
partners, officers and employees, subject to the policies' coverage limits and
exclusions and varying deductibles, against loss resulting from claims by reason
of any act, error, omission, misstatement, misleading statement, neglect or
breach of duty.
Item 26. Business and Other Connections of Investment Adviser.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the texts of which are hereby incorporated by reference.
Item 27. Principal Underwriters.
----------------------
(a) Goldman, Sachs & Co. or an affiliate or a division thereof currently serves
as investment adviser and distributor of the units of Trust for Credit Unions,
for shares of Goldman Sachs Trust and for shares of Goldman Sachs Variable
Insurance Trust. Goldman, Sachs & Co., or a division thereof currently serves as
administrator and distributor of the units or shares of The Commerce Funds.
(b) Set forth below is certain information pertaining to the Managing Directors
of Goldman, Sachs & Co., the Registrant's principal underwriter, who are members
of Goldman, Sachs & Co.'s Management Committee. None of the members of the
management committee holds a position or office with the Registrant, except John
P. McNulty who is a trustee of the Registrant.
13
<PAGE>
GOLDMAN SACHS MANAGEMENT COMMITTEE
Name and Principal
Business Address Position
- ------------------ --------
Henry M. Paulson, Jr. (1) Chairman and Chief
Executive Officer
Robert J. Hurst (1) Vice Chairman
John A. Thain (1)(3) President and Co-Chief
Operating Officer
John L. Thornton (3) President and Co-Chief
Operating Officer
Lloyd C. Blankfein (1) Managing Director
Richard A. Friedman (1) Managing Director
Steven M. Heller (1) Managing Director
Robert S. Kaplan (1) Managing Director
Robert J. Katz (1) Managing Director
John P. McNulty (2) Managing Director
Michael P. Mortara (1) Managing Director
Daniel M. Neidich (1) Managing Director
Robin Neustein (2) Managing Director
Mark Schwartz (4) Managing Director
Robert K. Steel (2) Managing Director
Leslie C. Tortora (2) Managing Director
Patrick J. Ward (3) Managing Director
Gregory K. Palm (1) Counsel and Managing
Director
_______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(4) ARK Mori Building, 12-32 Akasaka I-Chome Minato-KY, Tokyo 107-6019, Japan
14
<PAGE>
(c) Not Applicable.
Item 28. Location of Accounts and Records.
--------------------------------
The Declaration of Trust, By-laws and minute books of the Registrant and certain
investment adviser records are in the physical possession of Goldman Sachs Asset
Management, One New York Plaza, New York, New York 10004. All other accounts,
books and other documents required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated thereunder are in the
physical possession of State Street Bank and Trust Company, P.O. Box 1713,
Boston, Massachusetts 02105 except for certain transfer agency records which are
maintained by Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 58 pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 58 to its Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City and State of New York on
the 19th day of November, 1999.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/Michael J. Richman
---------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
*Douglas C. Grip President and
--------------- Trustee November 19, 1999
Douglas C. Grip
*John M. Perlowski Principal Accounting
----------------- Officer And Principal
John M. Perlowski Financial Officer November 19, 1999
*David B. Ford Trustee November 19, 1999
-------------
David B. Ford
*Mary Patterson McPherson Trustee November 19, 1999
------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Chairman and Trustee November 19, 1999
---------------
Ashok N. Bakhru
*Alan A. Shuch Trustee November 19, 1999
-------------
Alan A. Shuch
*Jackson W. Smart Trustee November 19, 1999
----------------
Jackson W. Smart, Jr.
*John P. McNulty Trustee November 19, 1999
---------------
John P. McNulty
*William H. Springer Trustee November 19, 1999
-------------------
William H. Springer
*Richard P. Strubel Trustee November 19, 1999
------------------
Richard P. Strubel
</TABLE>
*By:/s/ Michael J. Richman
------------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
16
<PAGE>
EXHIBIT INDEX
(a)(13). Amendment No. 12 dated October 26, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(d)(11). Amended Annex A dated October 26, 1999 to Management Agreement
dated April 30, 1997.
(e)(1). Distribution Agreement dated April 30, 1997 as amended October 26,
1999 between Registrant and Goldman, Sachs & Co.
(i)(9) Opinion of Drinker Biddle & Reath LLP (with respect to the
Internet Tollkeeper Fund)
j. Consent of Arthur Andersen LLP.
17
<PAGE>
Exhibit (a)(13)
AMENDMENT NO.12
TO THE
DECLARATION OF TRUST
OF
GOLDMAN SACHS TRUST
This AMENDMENT NO. 12 dated the 26th day October, 1999 to the AGREEMENT AND
DECLARATION OF TRUST (the "Declaration"), as amended, dated the 28th day of
January, 1997 is made by the Trustees name below;
WHEREAS, the Trustees have established a trust for the investment and
reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in the trust assets
into transferable shares of beneficial interest and divided such shares of
beneficial interest into separate Series;
WHEREAS, the Trustees desire to create new Series and designate new Classes
of shares;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
Trust and acting in accordance with Article V, Section 1 of the Declaration,
hereby amend the Declaration as follows:
The Trust shall consist of one or more Series. Without limiting the
authority of the Trustees to establish and designate any further Series,
the Trustees hereby establish the following 52 Series: Goldman Sachs
Adjustable Rate Government Fund, Goldman Sachs Short Duration Government
Fund, Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Balanced Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap
Equity Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs
Mid Cap Value Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs
Emerging Markets Equity Fund, Goldman Sachs Real Estate Securities Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs Japanese Equity
Fund, Goldman Sachs European Equity Fund, Goldman Sachs CORE Large Cap
Value Fund, Goldman Sachs Strategic Growth Fund, Goldman Sachs Growth
Opportunities Fund, Goldman Sachs Internet Tollkeeper Fund, Goldman Sachs
Large Cap Value Fund, Goldman Sachs Growth Strategy Portfolio, Goldman
Sachs Aggressive Growth Strategy Portfolio, Goldman Sachs Balanced Strategy
Portfolio, Goldman Sachs Growth and Income Strategy Portfolio, Goldman
Sachs Conservative Strategy Portfolio, Institutional Liquid Assets- - Prime
Obligations Portfolio, Institutional Liquid Assets-Government Portfolio,
Institutional Liquid Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional Liquid Assets-Federal
Portfolio, Institutional Liquid Assets-Treasury Instruments Portfolio,
Institutional Liquid Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax-Exempt New York Portfolio, Institutional Liquid Assets-
Tax-Exempt California Portfolio, Goldman Sachs-Financial Square Prime
<PAGE>
Obligations Fund, Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund, Goldman Sachs-Financial
Square Money Market Fund, Goldman Sachs-Financial Square Premium Money
Market Fund, Goldman Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Money Market Fund, Goldman Sachs-
Financial Square Federal Fund, and Goldman Sachs-Financial Square Treasury
Instruments Fund (the "Existing Series"). Each additional Series shall be
established and is effective upon the adoption of a resolution of a
majority of the Trustees or any alternative date specified in such
resolution. The Trustees may designate the relative rights and preferences
of the Shares of each Series. The Trustees may divide the Shares of any
Series into Classes. Without limiting the authority of the Trustees to
establish and designate any further Classes, the Trustees hereby establish
the following classes of shares with respect to the series set forth below:
Class A Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Global Income Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs High
Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman
Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap
Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Mid Cap Value Fund,
Goldman Sachs Capital Growth Fund, Goldman Sachs Small Cap
Value Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia
Growth Fund, Goldman Sachs Real Estate Securities Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs
Japanese Equity Fund, Goldman Sachs European Equity Fund,
Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
Strategic Growth Fund, Goldman Sachs Growth Opportunities
Fund, Goldman Sachs Internet Tollkeeper Fund, Goldman Sachs
Large Cap Value Fund, Goldman Sachs Growth Strategy
Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Balanced Strategy Portfolio,
Goldman Sachs Growth and Income Strategy Portfolio, Goldman
Sachs Conservative Strategy Portfolio.
Class B Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman
Sachs High Yield Fund, Goldman Sachs Short Duration
Government Fund, Goldman Sachs Short Duration Tax-Free Fund,
Goldman Sachs Core Fixed Income Fund, Goldman Sachs Balanced
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid Cap
Value Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs
Small Cap Value Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Emerging Markets Equity Fund, Goldman
Sachs Asia Growth Fund, Goldman Sachs International Small
Cap Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs
CORE Large Cap Value Fund, Goldman Sachs Growth
Opportunities Fund, Goldman Sachs Strategic Growth Fund,
Goldman Sachs Internet Tollkeeper Fund, Goldman Sachs Large
Cap Value Fund, Institutional Liquid Assets Prime
Obligations Portfolio, Goldman Sachs Real Estate Securities
Fund, Goldman Sachs European Equity Fund, Goldman Sachs
Growth Strategy Portfolio, Goldman Sachs Aggressive Growth
Strategy Portfolio, Goldman Sachs Balanced Strategy
Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio, Goldman Sachs Conservative Strategy Portfolio.
Class C Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman
Sachs High Yield Fund, Goldman Sachs Short Duration
Government Fund, Goldman Sachs Short Duration Tax-Free Fund,
Goldman Sachs Core Fixed Income Fund, Goldman Sachs Balanced
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid Cap
Value Fund, Goldman Sachs Capital
<PAGE>
Growth Fund, Goldman Sachs Small Cap Value Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs
Japanese Equity Fund, Institutional Liquid Assets Prime
Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs European Equity Fund,
Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
Strategic Growth Fund, Goldman Sachs Growth Opportunities
Fund, Goldman Sachs Internet Tollkeeper Fund, Goldman
Sachs Large Cap Value Fund, Goldman Sachs Growth Strategy
Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Balanced Strategy Portfolio,
Goldman Sachs Growth and Income Strategy Portfolio,
Goldman Sachs Conservative Strategy Portfolio.
Institutional Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs Global Income Fund,
Goldman Sachs High Yield Fund, Goldman Sachs Balanced
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
Capital Growth Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE
International Equity Fund, Goldman Sachs Growth and
Income Fund, Goldman Sachs Mid Cap Value Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs
Japanese Equity Fund, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs European Equity Fund,
Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
Growth Opportunities Fund, Goldman Sachs Strategic Growth
Fund, Goldman Sachs Internet Tollkeeper Fund, Goldman
Sachs Large Cap Value Fund, Goldman Sachs-Financial
Square Prime Obligations Fund, Goldman Sachs-Financial
Square Government Fund, Goldman Sachs-Financial Square
Treasury Obligations Fund, Goldman Sachs-Financial Square
Money Market Fund, Goldman Sachs-Financial Square Premium
Money Market Fund, Goldman Sachs-Financial Square
Municipal Money Market Fund, Goldman Sachs-Financial
Square Tax-Free Money Market Fund, Goldman Sachs-
Financial Square Federal Fund, Goldman Sachs-Financial
Square Treasury Instruments Fund, Institutional Liquid
Assets-Prime Obligations Portfolio, Institutional Liquid
Assets-Government Portfolio, Institutional Liquid Assets-
Treasury Obligations Portfolio, Institutional Liquid
Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-
Treasury Instruments Portfolio, Institutional Liquid
Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax-Exempt New York Portfolio,
Institutional Liquid Assets-Tax-Exempt California
Portfolio, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio,
Goldman Sachs Balanced Strategy Portfolio, Goldman Sachs
Growth and Income Strategy Portfolio, Goldman Sachs
Conservative Strategy Portfolio.
Service Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax- Free Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs Global Income Fund,
Goldman Sachs High Yield Fund, Goldman Sachs Balanced
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
Capital Growth Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE
International Equity Fund, Goldman Sachs Growth and
Income Fund, Goldman Sachs Mid Cap Value Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs
Japanese Equity Fund, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs European Equity Fund,
Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
Strategic Growth Fund, Goldman Sachs Growth
<PAGE>
Opportunities Fund, Goldman Sachs Internet Tollkeeper
Fund, Goldman Sachs Large Cap Value Fund, Goldman Sachs-
Financial Square Prime Obligations Fund, Goldman Sachs-
Financial Square Government Fund, Goldman Sachs-
Financial Square Treasury Obligations Fund, Goldman
Sachs-Financial Square Money Market Fund, Goldman Sachs-
Financial Square Premium Money Market Fund, Goldman
Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Money Market
Fund, Goldman Sachs-Financial Square Federal Fund,
Goldman Sachs-Financial Square Treasury Instruments
Fund, Institutional Liquid Assets-Prime Obligations
Portfolio, Institutional Liquid Assets-Government
Portfolio, Institutional Liquid Assets-Treasury
Obligations Portfolio, Institutional Liquid Assets-Money
Market Portfolio, Institutional Liquid Assets-Federal
Portfolio, Institutional Liquid Assets-Treasury
Instruments Portfolio, Institutional Liquid Assets-Tax-
Exempt Diversified Portfolio, Institutional Liquid
Assets-Tax-Exempt New York Portfolio, Institutional
Liquid Assets-Tax-Exempt California Portfolio, Goldman
Sachs Growth Strategy Portfolio, Goldman Sachs
Aggressive Growth Strategy Portfolio, Goldman Sachs
Balanced Strategy Portfolio, Goldman Sachs Growth and
Income Strategy Portfolio, Goldman Sachs Conservative
Strategy Portfolio.
Administration Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund,
Goldman Sachs-Financial Square Money Market Fund,
Goldman Sachs-Financial Square Premium Money Market
Fund, Goldman Sachs-Financial Square Municipal Money
Market Fund, Goldman Sachs-Financial Square Tax-Free
Money Market Fund, Goldman Sachs-Financial Square
Federal Fund, Goldman Sachs-Financial Square Treasury
Instruments Fund, Institutional Liquid Assets-Prime
Obligations Portfolio, Institutional Liquid Assets-
Government Portfolio, Institutional Liquid Assets-
Treasury Obligations Portfolio, Institutional Liquid
Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-
Treasury Instruments Portfolio, Institutional Liquid
Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax-Exempt New York Portfolio and
Institutional Liquid Assets-Tax-Exempt California
Portfolio.
Preferred
Administration Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund,
Goldman Sachs-Financial Square Money Market Fund,
Goldman Sachs-Financial Square Premium Money Market
Fund, Goldman Sachs-Financial Square Municipal Money
Market Fund, Goldman Sachs-Financial Square Tax-Free
Money Market Fund, Goldman Sachs-Financial Square
Federal Fund and Goldman Sachs-Financial Square Treasury
Instruments Fund. Cash Management Shares: Institutional
Liquid Assets-Prime Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional
Liquid Assets-Government Portfolio, Institutional Liquid
Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax-Exempt California Portfolio,
Institutional Liquid Assets-Tax-Exempt New York
Portfolio.
<PAGE>
Select Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund, Goldman
Sachs-Financial Square Money Market Fund, Goldman
Sachs-Financial Square Premium Money Market Fund, Goldman
Sachs-Financial Square Municipal Money Market Fund, Goldman
Sachs-Financial Square Tax-Free Money Market Fund, Goldman
Sachs-Financial Square Federal Fund and Goldman
Sachs-Financial Square Treasury Instruments Fund.
All capitalized terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
date first written above.
/s/ Ashok N. Bakhru,
_________________________________________
Ashok N. Bakhru,
as Trustee and not individually
/s/ David B. Ford,
_________________________________________
David B. Ford,
as Trustee and not individually
/s/ Douglas Grip,
_________________________________________
Douglas Grip,
as Trustee and not individually
/s/ John P. McNulty,
_________________________________________
John P. McNulty,
as Trustee and not individually,
/s/ Mary P. McPherson
_________________________________________
Mary P. McPherson
as Trustee and not individually,
/s/ Alan A. Shuch
_________________________________________
Alan A. Shuch
as Trustee and not individually,
<PAGE>
/s/ Jackson W. Smart, Jr.
_________________________________________
Jackson W. Smart, Jr.
as Trustee and not individually,
/s/ William H. Springer
_________________________________________
William H. Springer
as Trustee and not individually,
/s/ Richard P. Strubel
_________________________________________
Richard P. Strubel
as Trustee and not individually,
<PAGE>
Exhibit (D)(11)
Amended Annex A
The compensation payable under Paragraph 5 of the Management Agreement between
Goldman Sachs Trust and each of the undersigned shall be as follows:
Goldman Sachs Asset Management Annual Rate
------------
Goldman Sachs Government Income Fund 0.65%
Goldman Sachs Municipal Income Fund 0.55%
Goldman Sachs High Yield Fund 0.70%
Goldman Sachs Balanced Fund 0.65%
Goldman Sachs Growth and Income Fund 0.70%
Goldman Sachs CORE Large Cap Value Fund/4/ 0.60%
Goldman Sachs CORE Large Cap Growth Fund 0.75%
Goldman Sachs CORE Small Cap Equity Fund/1/ 1.00%
Goldman Sachs CORE International Equity Fund/1/ 1.00%
Goldman Sachs Mid Cap Value Fund 0.75%
Goldman Sachs Small Cap Value Fund 1.00%
Goldman Sachs Real Estate Securities Fund/1/ 1.00%
Goldman Sachs Strategic Growth Fund/5/ 1.00%
Goldman Sachs Growth Opportunities Fund/5/ 1.00%
Goldman Sachs Internet Toll-Keeper Fund/6/ 1.00%
Goldman Sachs Large Cap Value Fund/7/ 0.75%
Goldman Sachs-Financial Square Prime Obligations Fund 0.205%
Goldman Sachs-Financial Square Money Market Fund 0.205%
Goldman Sachs-Financial Square Premium Money Market Fund 0.205%
Goldman Sachs-Financial Square Treasury Obligations Fund 0.205%
Goldman Sachs-Financial Square Treasury Instruments Fund 0.205%
Goldman Sachs-Financial Square Government Fund 0.205%
Goldman Sachs-Financial Square Federal Fund 0.205%
Goldman Sachs-Financial Square Tax-Free Money Market Fund 0.205%
Goldman Sachs-Financial Square Municipal Money Market Fund 0.205%
Goldman Sachs Funds Management L.P.
Goldman Sachs CORE U.S. Equity Fund 0.75%
Goldman Sachs Capital Growth Fund 1.00%
Goldman Sachs Asset Management International
Goldman Sachs Global Income Fund 0.90%
Goldman Sachs International Equity Fund 1.00%
Goldman Sachs Emerging Markets Equity Fund 1.20%
Goldman Sachs Asia Growth Fund 1.00%
Goldman Sachs International Small Cap Fund/2/ 1.20%
Goldman Sachs Japanese Equity Fund/2/ 1.00%
Goldman Sachs European Equity Fund/3/ 1.00%
/1/ Please note that the CORE Small Cap Equity Fund, CORE International Equity
Fund and Real Estate Securities Fund were approved at the July 21, 1997
Goldman Sachs Trust Board Meeting.
/2/ Please note that the International Small Cap Fund and Japanese Equity Fund
were approved at the April 23, 1998 Goldman Sachs Trust Board Meeting.
/3/ Please note that the European Equity Fund was approved at the July 22, 1998
Goldman Sachs Trust Board Meeting.
/4/ Please note that the CORE Large Cap Value Fund was approved at the November
3, 1998 Goldman Sachs Trust Board Meeting.
/5/ Please note that the Strategic Growth Fund and Growth Opportunities Fund
were approved at the April 28, 1999 Goldman Sachs Trust Board Meeting.
/6/ Please note that the Internet Toll-Keeper Fund was approved at the July 27,
1999 Goldman Sachs Trust Board Meeting.
/7/ Please note that the Large Cap Value Fund was approved at the October 26,
1999 Goldman Sachs Trust Board Meeting.
<PAGE>
Exhibit (e)(1)
GOLDMAN SACHS TRUST
Distribution Agreement
April 30, 1997, as amended October 26, 1999
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Goldman Sachs Trust (the "Trust"), an open-end
-----
management investment company organized as a business trust under the laws of
the State of Delaware, and consisting of one or more separate series, has
appointed you, the "Distributor," and that you shall be the exclusive
-----------
distributor in connection with the offering and sale of the shares of beneficial
interest, par value $.001 per share (the "Shares"), corresponding to each of the
------
series of the Trust listed in Exhibit A, as the same may be supplemented from
---------
time to time (each such series, a "Fund"). Each Fund may offer one or more
----
classes of its shares (each a "Class") which Classes shall have such relative
rights and conditions and shall be sold in the manner set forth from time to
time in the Trust's Registration Statements, as defined below. The
organization, administration and policies of each Fund are described in its
respective Prospectuses and SAIs (as those terms are defined below). (This
letter, as amended from time to time, shall be referred to hereinafter as the
"Agreement".)
---------
1. Definitions. (a) The terms which follow, when used in this Agreement, shall
-----------
have the meanings indicated.
"Effective Date" shall mean the date that any Registration Statement or
--------------
any post-effective amendment thereto becomes effective.
"Preliminary Prospectus" shall mean any preliminary prospectus relating
----------------------
to the Shares of a Fund or Funds or one or more Classes included in any
Registration Statement or filed with the Securities and Exchange Commission
(the "Commission") pursuant to Rule 497(a).
"Prospectus" shall mean any prospectus relating to the Shares of a Fund
----------
or Funds or one or more Classes, filed with the Commission pursuant to Rule
497 or, if no filing pursuant to Rule 497 is required, the form of final
prospectus relating thereto included in any Registration Statement, in each
case together with any amendments or supplements thereto.
"Registration Statement" shall mean any registration statement on Form
----------------------
N-1A relating to the Shares of a Fund, including all exhibits thereto, as of
the Effective Date of the most recent post-effective amendment thereto. The
registration statements of the Trust may be separately filed with the
Commission according to its fixed income, equity and money market fund
offerings.
"Rule 497" refers to such rule (or any successor rule or rules) under
--------
the Securities Act (as defined in Section 2 below).
"SAI" shall mean any statement of additional information relating to
---
the Shares of a Fund or Funds or one or more Classes, filed with the
Commission pursuant to Rule 497 or, if no filing pursuant to Rule 497 is
required, the final statement of additional information included in any
Registration Statement.
<PAGE>
The "Initial Acceptance Date" of any Fund shall mean the first date on
-----------------------
which the Trust sells Shares of such Fund pursuant to any Registration
Statement.
References in this Agreement to "Rules and Regulations" shall be deemed
---------------------
to be references to such rules and regulations as then in effect, and
references to this Agreement and the Fund Agreements (as defined in Section
2 below), shall be deemed to be references to such agreements as then in
effect.
2. Representations and Warranties. The Trust represents and warrants to and
------------------------------
agrees with you, for your benefit and the benefit of each Authorized Dealer
(as defined in Section 3 below), as set forth below in this Section 2. Each
of the representations, warranties and agreements made in this Section 2
shall be deemed made on the date hereof, on the date of any filing of any
Prospectus pursuant to Rule 497 and any Effective Date after the date
hereof, with the same effect as if made on each such date.
(a) The Trust meets the requirements for use of Form N-1A under the Securities
Act of 1933, as amended (the "Securities Act"), the Investment Company Act
--------------
of 1940, as amended (the "Investment Company Act"), and the Rules and
----------------------
Regulations of the Commission under each such Act and in respect of said
form (or of such successor form as the Commission may adopt). The Trust has
filed with the Commission Registration Statements (File Number 33-17619) on
Form N-1A with respect to an indefinite number of Shares of the Funds and is
duly registered as an open-end management investment company. Prior to the
date hereof, the Trust has filed post-effective amendments to the
Registration Statements, including related Preliminary Prospectuses, for the
registration under the Securities Act and the Investment Company Act of the
offering and sale of the Shares of the Funds, each of which has previously
been furnished to you. Each such amendment has become effective and no stop
order suspending the effectiveness of any such amendment has been issued and
no proceeding for that purpose has been initiated or threatened by the
Commission.
(b) The Trust's notification of registration on Form N-8A (as amended) complies
with the applicable requirements of the Investment Company Act and the Rules
and Regulations thereunder.
(c) Each Registration Statement, Prospectus and SAI conform, and any further
amendments or supplements to any Registration Statement, Prospectus or SAI
will conform, in all material respects, with the Securities Act and
Investment Company Act and the Rules and Regulations thereunder; the
Prospectuses and the SAIs do not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and, on each Effective Date, the Registration
Statements did not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; provided,
--------
however, that the Trust makes no representations or warranties as to the
-------
information contained in or omitted from any Registration Statement,
Prospectus or SAI in reliance upon and in conformity with information
furnished in writing to the Trust by you (with respect to information
relating solely to your role as distributor of the Shares of the Funds)
expressly for use therein.
(d) No order preventing or suspending the use of any Preliminary Prospectus has
been issued by the Commission, and each Preliminary Prospectus, at the time
of filing thereof, conformed in all material respects to the requirements of
the Securities Act and the Rules and Regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this
-2-
<PAGE>
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Trust by you (with respect to information relating solely to
your role as the exclusive distributor of the Shares of the Funds) expressly
for use therein.
(e) The Trust has been duly created and is lawfully and validly existing as a
business trust under the laws of the State of Delaware, and has, on the date
hereof, and will have, on and after the date hereof, full power and
authority to own its properties and conduct its business as described in
each Registration Statement, Prospectus and SAI, and is duly qualified to do
business under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts
material business.
(f) The Trust's authorized capitalization is as set forth in the Registration
Statements. Issuance of the Shares of the Funds as contemplated by this
Agreement and by each Prospectus and SAI has been duly and validly
authorized, and the Shares of the Funds, when issued and paid for as
contemplated hereby and thereby, will be fully-paid and, except as
contemplated by the Prospectus and SAI, nonassessable and will conform to
the description thereof contained in the corresponding Prospectus and SAI.
The holders of outstanding shares of each Fund are not entitled to
preemptive or other rights to subscribe for the Shares of any Fund, other
than as contemplated by the Prospectus and SAI relating to each Fund.
(g) This Agreement has been duly authorized, executed and delivered by the
Trust.
(h) On or prior to the Initial Acceptance Date, all of the agreements described
in each Prospectus and SAI relating to the Fund or Funds whose Shares are
first being sold on such date (collectively, the "Fund Agreements") will
---------------
have been duly authorized, executed and delivered by the Trust, and will
comply in all material respects with the Investment Company Act and the
Rules and Regulations thereunder.
(i) The Fund Agreements constitute or will constitute, on and after the Initial
Acceptance Date, assuming due authorization, execution and delivery by the
parties thereto other than the Trust, valid and legally binding instruments,
enforceable in accordance with their respective terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
(j) No consent, approval, authorization or order of any court or governmental
agency or body is or shall be required, as the case may be, for the
consummation from time to time of the transactions contemplated by this
Agreement and the Fund Agreements, except such as may be required (i) under
the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Investment Company Act, the Rules and Regulations under
------------
each of the foregoing or the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") (any of which that were required
----
before offers were made will have been obtained before such offers were made
and all of which will have been obtained, with respect to each Fund, by the
Effective Date of the post-effective amendment relating to the Fund, except
for those which become required under such acts or rules or any other law or
regulation after the Fund's Effective Date but that were not required before
such Effective Date, all of which shall be obtained in a timely manner) or
(ii) state securities laws of any jurisdiction in connection with the
issuance, offer or redemption of the Shares of each Fund by the Trust.
(k) The operations and activities of the Trust and each Fund as contemplated by
the Prospectuses and the SAIs, the performance by the Trust and each Fund of
this Agreement and the Fund Agreements,
-3-
<PAGE>
the making of the offer or the sale of Shares of each Fund and consummation
from time to time of such sales, the redemption of Shares of each Fund, or
any other transactions contemplated herein, in the Fund Agreements, in the
Prospectuses or in the SAIs, will not conflict with, result in a breach of,
or constitute a default under, the declaration of trust or the Trust's By-
laws or, in any material respect, the terms of any other agreement or
instrument to which the Trust is a party or by which it is bound, or any
order or regulation applicable to the Trust of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Trust.
(l) There is not pending, or to the best knowledge of the Trust, threatened, any
action, suit or proceeding before any court or governmental agency,
authority or body or any arbitrator to which the Trust is (or, to the best
knowledge of the Trust, is threatened to be) a party, of a character
required to be described in any Registration Statement, Prospectus or SAI
which is not described as required.
(m) There is no contract or other document of a character required to be
described in any Registration Statement, Prospectus or SAI, or to be filed
as an exhibit, which is not described or filed as required.
(n) Except as stated or contemplated in the Registration Statements,
Prospectuses and SAIs, (i) the Trust has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, whether
or not in the ordinary course of business, that are material to the Trust,
(ii) there has not been any material adverse change, or, any development
involving a prospective material adverse change, in the condition (financial
or other) of the Trust, (iii) there has been no dividend or distribution
paid or declared in respect of the Trust, and (iv) the Trust has not
incurred any indebtedness for borrowed money.
(o) Each Fund will elect or has elected to be treated as a regulated investment
company as defined in Section 851(a) of the Internal Revenue Code of 1986
for its first taxable year and will operate so as to qualify as such in its
current and all subsequent taxable years.
(p) Except as stated or contemplated in any Prospectus or SAI, the Trust owns
all of its assets free and clear in all material respects of all liens,
security interests, pledges, mortgages, charges and other encumbrances or
defects.
3. Selection of Authorized Dealers; Other Services as Distributor.
--------------------------------------------------------------
(a) With respect to each Class subject to a sales charge, the Distributor shall
have the right on the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions herein
set forth, to make arrangements for (i) securities dealers (including bank-
affiliated dealers) that are members in good standing of the NASD, (ii)
foreign securities dealers which are not eligible for membership in the NASD
who have agreed to comply as though they were NASD members with the
provisions of Sections 2730, IM-2730, 2740, IM-2740, 2750 and IM-2750 of the
Conduct Rules of the NASD and with Section 2420 thereof as that Section
applies to a non-NASD member broker or dealer in a foreign country, or (iii)
banks, as defined in Section 3(a)(6) of the Exchange Act, which are duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are organized, to solicit from the public orders
to purchase Shares of the Funds. Such securities dealers and banks
("Authorized Dealers") selected by you in accordance with dealer agreements
------------------
with you ("Dealer Agreements") shall solicit such orders pursuant to their
-----------------
respective Dealer Agreements. You will act only on your own behalf as
principal in entering into each such Dealer Agreement. With respect to each
Class that is not subject to a sales charge, you shall act as Principal
Underwriter of such shares.
(b) You acknowledge that the only information provided to you by the Trust is
that contained in each
-4-
<PAGE>
Registration Statement, Prospectus and SAI. Neither you nor any Authorized
Dealer nor any other person is authorized by the Trust to give any
information or to make any representations, other than those contained in
the relevant Registration Statement, Prospectus and SAI and any sales
literature approved by appropriate representatives of the Trust. You may
undertake or arrange for such advertising and promotion as you believe is
reasonable in connection with the solicitation of orders to purchase Shares
of a Fund; provided, however, that you will provide the Trust with and
-------- -------
obtain the Trust's approval of copies of any advertising and promotional
materials approved, produced or used by you prior to their use. You will
file such materials with the Commission and the NASD as may be required by
the Exchange Act and the Investment Company Act and the Rules and
Regulations thereunder and by the rules of the NASD.
(c) You agree to perform such services as are described in each Registration
Statement, Prospectus and SAI as to be performed by the Distributor
including, without limitation, distributing Account Information Forms.
(d) All of your activities as distributor of the Shares of the Funds shall
comply, in all material respects, with all applicable laws, Rules and
Regulations, including, without limitation, all rules and regulations made
or adopted by the Commission or by any securities association registered
under the Exchange Act, including the NASD, as in effect from time to time.
4. Offering by the Distributor.
---------------------------
(a) You will act as agent for the Trust in the distribution of Shares of the
Funds and you agree to use your best efforts to offer and sell Shares of the
Funds subject to a sales charge to the public at the public offering price
as set forth in the relevant Prospectus, subject to any waivers or
reductions of any applicable sales charges, dealer allowances and fees as
you and each of the Authorized Dealers, if any, shall have agreed to in
writing. You may also subscribe for Shares of a Fund as principals for
resale to the public or for resale to Authorized Dealers. You shall devote
reasonable time and effort to effect sales of Shares of the Funds, but you
shall not be obligated to sell any specific number of Shares. Nothing
contained herein shall prevent you from entering into like distribution
arrangements with other investment companies.
(b) The Distributor is authorized to purchase Shares of any Fund presented to
them by Authorized Dealers at the price determined in accordance with, and
in the manner set forth in, the Prospectus for such Fund.
(c) Unless you are otherwise notified by the Trust, any right granted to you to
accept orders for Shares of any Fund or to make sales on behalf of the Trust
or to purchase Shares of any Fund for resale will not apply to (i) Shares
issued in connection with the merger or consolidation of any other
investment company with the Trust or its acquisition, by purchase or
otherwise, of all or substantially all of the assets of any investment
company or substantially all the outstanding securities of any such company,
and (ii) Shares that may be offered by the Trust to shareholders by virtue
of their being such shareholders.
5. Compensation.
------------
(a) With respect to any Class which is sold to the public subject to a sales
charge, you will be entitled to receive that portion of the sales charges
applicable to sales of Shares of such Class and not reallocated to
Authorized Dealers as set forth in the relevant Prospectus, subject to any
waivers or
-5-
<PAGE>
reductions of such sales charges, if any, in accordance with Section 4 of
this Agreement. In addition, you shall be entitled to receive the entire
--------------------------------------------------------
amount of any contingent deferred sales charge imposed and paid by
------------------------------------------------------------------
shareholders upon the redemption or repurchase of Shares of any Class
---------------------------------------------------------------------
subject to such charges as set forth in the relevant Prospectus, subject to
---------------------------------------------------------------------------
any waivers or reductions of such sales charges that may be disclosed in
------------------------------------------------------------------------
such Prospectus. With respect to any shares sold subject to a contingent
---------------
deferred sales charge, such charge shall be payable in such amounts as
disclosed in the applicable Prospectus as the same was in effect at the time
of sale. The right to receive any contingent deferred sales charge granted
hereunder shall apply to all shares sold during the term of this Agreement,
and to the extent permitted by the Investment Company Act and other
applicable laws, shall continue with respect to such shares notwithstanding
termination of this Agreement. In connection with each transaction in which
you are acting as an Authorized Dealer, you also will be entitled to that
portion of the sales charges, if any, payable to an Authorized Dealer in
such transaction.
(b) The Trust has entered into Plans of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plans") with respect to certain classes of
certain Funds. The Trust shall pay to you as distributor of such Classes
the compensation pursuant to the Rule 12b-1 Plans as shall be set forth from
time to time in the Prospectuses and SAIs and provided for under the Rule
12b-1 Plan.
(c) The amounts payable as compensation pursuant to this Section 5 shall be
subject to the limitations in Section 2830 of the Conduct Rules of the NASD.
6. Undertakings. The Trust agrees with you, for your benefit, that:
------------
(a) The Trust shall sell Shares of the Funds so long as it has such Shares
available for sale and shall cause the transfer agent (the "Transfer Agent")
--------------
to record on its books the ownership of such Shares registered in such names
and amounts as you have requested in writing or other means, as promptly as
practicable after receipt by the Trust of the payment therefor. The Trust
will make such filings under the Investment Company Act with, and pay such
fees to, the Commission as are necessary to register Shares of any Fund sold
by you on behalf of the Trust. Prior to the termination of this Agreement,
the Trust will not file any amendment to any Registration Statement or
amendment or supplement to any Prospectus or SAI (whether pursuant to the
Securities Act, the Investment Company Act, or otherwise) without prior
notice to you; provided, however, that nothing contained in this Agreement
-------- -------
shall in any way limit the Trust's right to file such amendments to any
Registration Statement, or amendments or supplements to any Prospectus or
SAI as the Trust may deem advisable, such right being in all respects
absolute and unconditional, it being understood that this proviso shall not
relieve the Trust of its obligation to give prior notice of any such
amendment or supplement to you. Subject to the foregoing sentence, if the
filing of any Prospectus or SAI, as the case may be, contained in any
Registration Statement at the relevant Effective Date, or any amendment or
supplement thereto, is required under Rule 497, the Trust will cause such
Prospectus or SAI, and any amendment or supplement thereto, to be filed with
the Commission pursuant to the applicable paragraph of Rule 497 within the
time period prescribed and will, if requested, provide evidence satisfactory
to you of such timely filing. The Trust will promptly advise you (i) when
such Prospectus or SAI shall have been filed (if required) with the
Commission pursuant to Rule 497, (ii) when, prior to termination of this
Agreement, any amendment to any Registration Statement shall have been filed
or become effective, (iii) of any request by the Commission for any
amendment of any Registration Statement or amendment or supplement to any
Prospectus or SAI or for any additional information relating to or that
could affect disclosure in any of the foregoing, (iv) of the issuance by the
Commission of any order suspending the effectiveness of any Registration
Statement, or suspending the registration of the Trust under the Investment
Company Act, or the institution or (to the best knowledge of the Trust)
threatening of any proceeding for that purpose, and (v) of the receipt by
the Trust of any notification with respect to the suspension of the
qualification of the offer or sale of Shares
-6-
<PAGE>
of a Fund in any jurisdiction or the initiation or (to the best knowledge of
the Trust) threatening of any proceeding for such purpose. The Trust will
use its best efforts to prevent the issuance of any such order or suspension
and, if issued, to obtain as soon as possible the withdrawal or suspension
thereof.
(b) If, at any time when a Prospectus or SAI is required to be delivered under
the Securities Act, any event occurs as a result of which such Prospectus or
SAI would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of
the circumstances under which they were made not misleading, or if it shall
be necessary to amend any Registration Statement or amend or supplement any
Prospectus or SAI to comply with the Securities Act, the Investment Company
Act or the Rules and Regulations thereunder, the Trust will notify you
promptly of any such circumstance and promptly will prepare and file with
the Commission, subject to the third sentence of Section 6(a), an amendment
or supplement which will correct such statement or omission or effect such
compliance.
(c) As soon as practicable (giving effect to the normal periodic reporting
requirements under the Investment Company Act and the Rules and Regulations
thereunder), the Trust will make generally available to its shareholders
and, subject to Section 8 of this Agreement, to you (with sufficient copies
for the Authorized Dealers), a report containing the financial statements
required to be included in such reports under Section 30(d) of the
Investment Company Act and Rule 30d-1 thereunder.
(d) Subject to Section 8 of this Agreement, the Trust will furnish to you as
many conformed copies of the Registration Statements including exhibits
thereto, on each Effective Date, as you may reasonably request for yourself
and for delivery to the Authorized Dealers and, so long as delivery of a
Prospectus or SAI by you or any Authorized Dealer may be required by law,
the number of copies of each Prospectus and each SAI as you may reasonably
request for yourself and for delivery to the Authorized Dealers.
(e) To the extent required by applicable state law, the Trust will use its best
efforts to arrange for the qualification of an appropriate number of the
Shares of the Funds for sale under the laws of such of the 50 states of the
United States, the District of Columbia, the Commonwealth of Puerto Rico,
the Territory of Guam, and such other jurisdiction as you and the Trust may
approve, and will maintain such qualifications in effect as long as may be
reasonably requested by you, provided that the Trust shall not be required
in connection herewith or as a condition hereto to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction. You shall furnish such information and other material
relating to your affairs and activities as may be required by the Trust in
connection with such qualifications.
(f) The Trust shall keep you fully informed with respect to its affairs and,
subject to Section 8 of this Agreement, the Trust, if so requested, will
furnish to you, as soon as they are available (with sufficient copies for
the Authorized Dealers), copies of all reports, communications and financial
statements sent by the Trust to its shareholders or filed by, or on behalf
of, the Trust with the Commission.
(g) The Trust agrees that on each date the Trust is required to file with the
Commission a notice under paragraph (b)(1) of Rule 24f-2 under the
Investment Company Act, the Trust, if so requested, shall furnish to you a
copy of the opinion of counsel for the Trust required by such Rule to the
effect that the Shares covered by the notice were legally issued, fully paid
and nonassessable. The Trust further agrees that if, in connection with the
filing of any post-effective amendment to any Registration Statement after
the date of this Agreement:
(i) a change is made to the statements under the caption "Shares of the Fund"
in any Prospectus or SAI
-7-
<PAGE>
that is deemed material by you, the Trust, if so requested, shall furnish
to you an opinion of counsel for the Trust, dated the date of such post-
effective amendment, to the effect of paragraph 2 (to the extent it
relates to the description of the Shares);
(ii) the Fund Agreements are amended or modified in any manner, the Trust, if
so requested, shall furnish to you an opinion of counsel for the Trust,
dated the date of such post-effective amendment; or
(iii) any change is made to the statements under the caption "Taxation" in any
Prospectus or SAI, the Trust, if so requested, shall furnish to you an
opinion of counsel for the Trust, dated the date of such post-effective
amendment.
Any opinion or statement furnished pursuant to this Section 6(g) shall be
modified as necessary to relate to this Agreement and the Fund Agreements
and the Rules and Regulations as then in effect and shall state that the
Authorized Dealers may rely on it.
(h) The Trust, if so requested, shall furnish to you on each subsequent
Effective Date with respect to an amendment of a Registration Statement
which first includes certified financial statements for the preceding
fiscal year, in respect of a Fund, a copy of the report of the Trust's
independent public accountants with respect to the financial statements
and selected per share data and ratios relating to such Fund, addressed to
you. The Trust further agrees that the Trust, if so requested, shall
furnish to you (i) on each date on which the Trust, pursuant to the
preceding sentence, furnishes to you a report of its independent public
accountants, a certificate of its treasurer or assistant treasurer in a
form reasonably satisfactory to you describing in reasonable detail how
the figures included under the captions "Portfolio Transactions" and
"Performance Information" (or similar captions) in the Prospectus or SAI
of such Fund and the figures relating to the aggregate amounts of
remuneration paid to officers, trustees and members of the advisory board
and affiliated persons thereof (as required by Section 30(d)(5) of the
Investment Company Act) were calculated and confirming that such
calculations are in conformity with the Rules and Regulations under the
Investment Company Act and (ii) on each date the Trust files with the
Commission the Trust's required semi-annual financial statements, a
certificate of its treasurer or assistant treasurer in a form reasonably
satisfactory to you, describing the manner in which such financial
statements were prepared and confirming that such financial statements
have been prepared in conformity with the Rules and Regulations under the
Investment Company Act.
7. Conditions to Your Obligations as Distributor and Principal Underwriter.
-----------------------------------------------------------------------
Your obligations as distributor of the Shares of the Funds shall be
subject to the accuracy of the representations and warranties on the part
of the Trust contained herein as of the dates when made or deemed to have
been made, to the accuracy in all material respects of the statements made
in any certificates, letters or opinions delivered pursuant to the
provisions of Sections 6 or 7 of this Agreement, to the performance by the
Trust of its obligations hereunder and to the following additional
conditions:
(a) If filing of any Prospectus or SAI, or any amendment or supplement to any
Prospectus or SAI, or any other document is required pursuant to any
applicable provision of Rule 497, such Prospectus or SAI, or any such
amendment or supplement and other document will be filed in the manner and
within the time period required by the applicable provision of Rule 497;
and no order suspending the effectiveness of the amendment shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the best knowledge of the Trust, threatened and the Trust shall have
complied with any request of the Commission for additional information (to
be included in the relevant Registration Statement, Prospectus, SAI or as
the Commission otherwise shall have requested).
-8-
<PAGE>
(b) At the Initial Acceptance Date with respect to each Fund, you shall have
received from counsel to the Distributors, if so requested, such opinion
or opinions, dated the Initial Acceptance Date, with respect to the
issuance and sale of the Shares, the relevant Registration Statement,
Prospectus and SAI and other related matters as you may reasonably
require, and the Trust shall have furnished to such counsel such documents
as they may request for the purpose of enabling them to pass upon such
matters. Each such opinion shall state that the Authorized Dealers may
rely on it.
(c) There shall not have been any change, or any development involving a
prospective change, in or affecting the Trust the effect of which in any
case is, in your good faith judgment, so material and adverse as to make
it impractical or inadvisable to proceed with the offering of Shares of
the Funds as contemplated by this Agreement.
(d) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; (iii) the outbreak or escalation of
hostilities involving the United States or the declaration of a national
emergency or war if the effect of any such event specified in this Clause
(iii) in your judgment makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares of a Fund on the
terms and in the manner contemplated in any Prospectus.
(e) The Trust shall have furnished to you such further information,
certificates and documents as you may have reasonably requested.
If any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions, certificates or letters mentioned above or
elsewhere in this Agreement shall not be in all material respects
reasonably satisfactory in form and substance to you, this Agreement and
all your obligations hereunder may be cancelled by you. In the event of
such cancellation, the Trust shall remain liable for the expenses set
forth in Section 8.
8. Expenses.
--------
(a) The Trust will pay (or will enter into arrangements providing that parties
other than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of the
Registration Statements (including Prospectuses and SAIs) under the
Securities Act or the Investment Company Act, or both, and any
amendments or supplements thereto that may be made from time to time;
(2) in connection with the registration and qualification of Shares of
the Funds for sale in the various jurisdictions in which it is
determined to be advisable to qualify such Shares of the Funds for
sale (including registering the Trust as a broker or dealer or any
officer of the Trust or other person as agent or salesman of the
Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy
statement, report, Prospectus, SAI or other communication to
shareholders in their capacity as such;
(4) of preparing, setting in type, printing and mailing Prospectuses
annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares of the Funds
resulting from the
-9-
<PAGE>
acceptance by you of orders to purchase Shares of the Funds placed
with you by investors, including the expenses of printing and mailing
confirmations of such purchase orders and the expenses of printing
and mailing a Prospectus included with the confirmation of such
orders and, if requested by the purchaser, an SAI;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this Section 8;
(8) of wiring funds in payment of Share purchases or in satisfaction of
redemption or repurchase requests, unless such expenses are paid for
by the investor or shareholder who initiates the transaction;
(9) of the cost of printing and postage of business reply envelopes sent
to shareholders;
(10) of one of more CRT terminals connected with the computer facilities
of the Transfer Agent other than the portion allocated to you in this
Section 8;
(11) permitted to be paid or assumed by any Fund or Funds or any Class
thereof pursuant to (a) a Rule 12b-1 Plan adopted by such Fund or
Funds in conformity with the requirements of Rule 12b-1 under the
Investment Company Act ("Rule 12b-1") or any successor rule,
----------
notwithstanding any other provision to the contrary herein or (b) any
other plan adopted by a Fund providing for account administration or
shareholder liaison services (a "Service Plan");
(12) of the expense of setting in type, printing and postage of any
periodic newsletter to shareholders other than the portion allocated
to you in this Section 8; and
(13) of the salaries and overhead of persons employed by you as
shareholder representatives other than the portion allocated to you
in this Section 8.
(b) Except as provided in any Rule 12b-1 Plan or Service Plan, you shall pay
or arrange for the payment of all fees and expenses:
(1) of printing and distributing any Prospectuses or reports prepared for
your use in connection with the offering of Shares of the Funds to
the public;
(2) of preparing, setting in type, printing and mailing any other
literature used by you in connection with the offering of Shares of
the Funds to the public;
(3) of advertising in connection with the offering of Shares of the Funds
to the public;
(4) incurred in connection with your registration as a broker or dealer
or the registration or qualification of your officers, partners,
directors, agents or representatives under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines allocated to
you on the basis of use by investors (but not shareholders) who
request information or Prospectuses;
(6) of that portion of the expense of setting in type, printing and
postage of any periodic newsletter to shareholders attributable to
promotional material included in such newsletter at your
-10-
<PAGE>
request concerning investment companies other than the Trust or
concerning the Trust to the extent you are required to assume the
expense thereof pursuant to this Section 8, except such material which
is limited to information, such as listings of other investment
companies and their investment objectives, given in connection with
the exchange privilege as from time to time described in the
Prospectuses;
(7) of that portion of the salaries and overhead of persons employed by you
as shareholder representatives attributable to the time spent by such
persons in responding to requests from investors, but not shareholders,
for information about the Trust;
(8) of any activity which is primarily intended to result in the sale of
Shares of any Class of a Fund, unless a 12b-1 Plan shall be in effect
which provides that shares of such Classes shall bear some or all of
such expenses, in which case such Class shall bear such expenses in
accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the
computer facilities of the Transfer Agent attributable to your use of
such terminal(s) to gain access to such of the Transfer Agent's records
as also serve as your records.
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent
practicable reflect studies of relevant empirical data.
9. Indemnification and Contribution.
--------------------------------
(a) The Trust will indemnify you and hold you harmless against any losses,
claims, damages or liabilities, to which you may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact contained
in any Preliminary Prospectus, Registration Statement, Prospectus, or SAI or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, and will reimburse you for any legal
or other expenses reasonably incurred by you in connection with
investigating or defending any such action or claim; provided, however, that
-------- -------
the Trust shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in any Registration Statement, any Preliminary Prospectus, or any Prospectus
or SAI in reliance upon and in conformity with written information furnished
to the Trust by you expressly for use therein.
(b) You will indemnify and hold harmless the Trust against any losses, claims,
damages or liabilities to which the Trust may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof), arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement, any Preliminary Prospectus, or any Prospectus
or SAI, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Registration
Statement, any Preliminary Prospectus, or any Prospectus or SAI in reliance
upon and in conformity with written information furnished to the Trust by
you expressly for use therein; and will reimburse the Trust for any legal or
other expenses reasonably incurred by the Trust in connection with
investigating or defending any such action or claim.
-11-
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection (a) or (b)
above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party otherwise than under such subsection. In case any such action shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 9 is unavailable to, or
insufficient to hold harmless, an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Trust on the one hand and you on the other
from the offering of the Shares of the Fund or Funds in respect of which
such losses, claims, damages or liabilities (or actions in respect thereof)
arose. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Trust on the one
hand and you on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relative equitable considerations.
The relative benefits received by the Trust on the one hand and you on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares of the relevant Funds (before deducting
expenses) received by the Trust bear to the total compensation received by
you in selling Shares of such Funds under this Agreement, including any
sales charge as set forth in the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Trust on the one hand or you on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Trust and you agree that it would not be just
and equitable if the contributions pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), you shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Shares of the relevant Funds sold by you and
distributed to the public were offered to the public exceeds the amount of
any damages which you have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
-12-
<PAGE>
(e) The obligations of the Trust under this Section 9 shall be in addition to
any liability which the Trust may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls you within
the meaning of the Securities Act; and your obligations under this Section 9
shall be in addition to any liability which you may otherwise have and shall
extend, upon the same terms and conditions, to each trustee or officer of
the Trust (including any person who, with his consent, is named in the
relevant Registration Statement as about to become a trustee of the Trust)
and to each person, if any, who controls the Trust within the meaning of the
Securities Act.
(f) It is understood, however, that nothing in this paragraph 9 shall protect
any indemnified party against, or entitle any indemnified party to
indemnification against, or contribution with respect to, any liability to
the Trust or its shareholders to which such indemnified party is subject, by
reason of its willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of any reckless disregard of its
obligations and duties, under this Agreement, or otherwise to an extent or
in a manner that is inconsistent with Section 17(i) of the Investment
Company Act.
10. Term.
----
(a) This Agreement shall commence on the date first set forth above and continue
in effect until June 30, 1998 and then for successive annual periods after
June 30, 1998, provided such continuance is specifically approved at least
annually by (i) the Trustees of the Trust or (ii) a vote of a majority (as
defined in the Investment Company Act) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved
by a vote of a majority of the Trustees of the Trust who are not interested
persons (as defined in the Investment Company Act) of the Trust or any party
to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Trust authorizes, if and when you
so determine, you to assign to a third party any payments with respect to
one or more Classes of Shares that you are entitled to receive for your
services hereunder, including any payments of initial or deferred sales
charges or payments in accordance with a Rule 12b-1 or Service Plan so long
as such Plan is in effect, free and clear of any offset, defense or
counterclaim the Trust may have against you and except to the extent that
any change or modification after the date hereof of (x) the provisions of
the Investment Company Act, the Rules and Regulations thereunder or other
applicable law or (y) any interpretation of the Investment Company Act, the
Rules and Regulations thereunder or other applicable law shall restrict your
right to make such transfer free and clear of any offset, defense or
counterclaim.
(b) The sale of Shares of the Funds in accordance with the terms of this
Agreement shall be subject to termination or suspension in the absolute
discretion of the Trust, by notice given to you as set forth in Section 12
hereof.
(c) This Agreement will terminate automatically in the event of its assignment
(as defined in the Investment Company Act). In addition, this Agreement may
be terminated by the Trust at any time with respect to any Class of its
Shares, without the payment of any penalty, by vote of a majority of the
Trustees of the Trust who are not interested persons (as defined in the
Investment Company Act) of the Trust or by a vote of a majority of the
outstanding voting securities of such Class on 60 days' written notice.
11. Representation and Indemnities to Survive. The respective agreements,
-----------------------------------------
representations, warranties, indemnities and other statements of the Trust
and you set forth in or made pursuant to this Agreement will, to the extent
permitted by applicable law, remain in full force and effect, regardless of
any investigation made by or on behalf of you, any Authorized Dealer or the
Trust, or any of the controlling persons referred to in Section 9 hereof,
and will survive the offer of the Shares of the Funds.
-13-
<PAGE>
The provisions of Section 8, 9 and 11 hereof and your right to receive any
contingent deferred sale charges shall, to the extent permitted by
applicable law, survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and effective only
-------
on receipt, and, if sent to you, mailed, delivered or telegraphed and
confirmed to you at Goldman, Sachs & Co., 85 Broad Street, York, New York
10004, Attention: Registration Department (Distributors - Goldman Sachs
Funds) or, if sent to the Trust, mailed, delivered or telegraphed and
confirmed to it at Goldman Sachs Trust, 4900 Sears Tower, Chicago, Ill.
60606, Attention: Secretary.
13. Affiliates. The Trust recognizes that your partners, officers and employees
----------
may from time to time serve as directors, trustees, officers and employees
of corporations and business entities (including other investment
companies), and that you or your affiliates may enter into distribution or
other agreements with other corporations and business entities.
14. Successors. This Agreement will inure to the benefit of and be binding upon
----------
the parties hereto and their respective successors and, to the extent set
forth herein, each of the officers, trustees and controlling persons
referred to in Section 9 hereof, and no other person will have any right or
obligation hereunder.
15. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Miscellaneous. The captions in this Agreement are included for convenience
-------------
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
The name "Goldman Sachs Trust" is the designation of the Trustees for the
time being under a Declaration of Trust dated January 28, 1997, as amended
from time to time, and all persons dealing with the Trust must look solely
to the property of the Trust for the enforcement of any claims against the
Trust as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust. No
series of the Trust shall be liable for any claims against any other series
of the Trust.
-14-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between you and
the Trust, and, to the extent set forth herein, shall be for the benefit of each
Authorized Dealer.
Very truly yours,
GOLDMAN SACHS TRUST
By: /s/ Douglas C. Grip
--------------------------
Name: Douglas C. Grip
Title: President of the Trust
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
/s/ Goldman, Sachs & Co.
- ------------------------
(Goldman, Sachs & Co.)
-15-
<PAGE>
EXHIBIT A
---------
Series ("Funds") of GOLDMAN SACHS TRUST, a Delaware business trust (the "Trust")
- ------------------------------------------ -------------------------------------
GOLDMAN SACHS FIXED INCOME FUNDS:
- --------------------------------
Goldman Sachs Adjustable Rate Government Fund
Goldman Sachs Core Fixed Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Government Income Fund
Goldman Sachs Municipal Income Fund
Goldman Sachs Short Duration Tax-Free Fund
Goldman Sachs Short Duration Government Fund
Goldman Sachs High Yield Fund
GOLDMAN SACHS EQUITY FUNDS:
- --------------------------
Goldman Sachs Balanced Fund
Goldman Sachs CORE Large Cap Growth Fund
Goldman Sachs CORE U.S. Equity Fund
Goldman Sachs CORE Small Cap Equity Fund
Goldman Sachs CORE International Equity Fund
Goldman Sachs CORE Large Cap Value Fund
Goldman Sachs Growth and Income Fund
Goldman Sachs Capital Growth Fund
Goldman Sachs International Equity Fund
Goldman Sachs Small Cap Value Fund
Goldman Sachs Asia Growth Fund
Goldman Sachs Emerging Markets Equity Fund
Goldman Sachs Mid Cap Value Fund
Goldman Sachs Real Estate Securities Fund
Goldman Sachs International Small Cap Fund
Goldman Sachs Japanese Equity Fund
Goldman Sachs European Equity Fund
Goldman Sachs Strategic Growth Fund
Goldman Sachs Growth Opportunities Fund
Goldman Sachs Internet Toll-Keeper Fund
Goldman Sachs Large Cap Value Fund
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
- -----------------------------------------
Goldman Sachs Growth Strategy Portfolio
Goldman Sachs Aggressive Growth Strategy Portfolio
Goldman Sachs Balanced Strategy Portfolio
Goldman Sachs Growth and Income Strategy Portfolio
Goldman Sachs Conservative Strategy Portfolio
-16-
<PAGE>
GOLDMAN SACHS MONEY MARKET FUNDS:
--------------------------------
Goldman Sachs-Institutional Liquid Assets Portfolios:
----------------------------------------------------
Prime Obligations Portfolio
Government Portfolio
Treasury Obligations Portfolio
Federal Portfolio
Money Market Portfolio
Treasury Instruments Portfolio
Tax-Exempt Diversified Portfolio
Tax-Exempt California Portfolio
Tax-Exempt New York Portfolio
Financial Square Funds:
----------------------
Prime Obligations Fund
Government Fund
Treasury Obligations Fund
Money Market Fund
Tax-Free Money Market Fund
Federal Fund
Treasury Instruments Fund
Municipal Money Market Fund
Premium Money Market Fund
-17-
<PAGE>
Law Offices
DRINKER BIDDLE & REATH LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19107-6996
Telephone: (215) 988-2700
FAX: (215) 988-2757
October 1, 1999
Goldman Sachs Trust
4900 Sears Tower
Chicago, IL 60606
Re: Internet Tollkeeper Fund of Goldman Sachs Trust
------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Goldman Sachs Trust, a Delaware business trust
(the "Trust"), in connection with the registration under the Securities Act of
1933 of shares of beneficial interest ("Shares") representing interests in an
additional series, or fund, of the Trust known as the Internet Tollkeeper Fund.
The Internet Tollkeeper Fund has five classes of shares: Class A Shares, Class B
Shares, Class C Shares, Institutional Shares and Service Shares. The Trust is
authorized to issue an unlimited number of shares of each class. These classes
are hereinafter referred to as the "Shares."
We have reviewed the Trust's Declaration of Trust, its by-laws, and certain
resolutions adopted by its Board of Trustees, and have considered such other
legal and factual matters as we have deemed appropriate.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
Based on the foregoing, we are of the opinion that the Shares, when issued
against payment therefor as described in the Trust's prospectuses relating
thereto, will be legally issued, fully paid and non-assessable by the Trust, and
that the holders of the Shares will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware (except
that we express no opinion as to such holders who are also trustees of the
Trust). Pursuant to Section 2 of Article VIII of the Declaration of Trust, the
Trustees have the power to cause shareholders, or shareholders of a particular
series or class, to pay certain custodian, transfer, servicing or similar agent
charges by setting off the same against declared but unpaid dividends or by
reducing Share ownership (or by both means).
<PAGE>
Goldman Sachs Trust
October 1, 1999
Page 2
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of a Post-Effective Amendment to the Registration
Statement of the Trust. Except as provided in this paragraph, the opinion set
forth above is expressed solely for the benefit of the addressee hereof in
connection with the matters contemplated hereby and may not be relied upon by,
or filed with, any other person or entity or for any other purpose without our
prior written consent.
Very truly yours,
/S/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
<PAGE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Trust - Equity Funds dated October 8, 1999 (and to all
references to our firm) included in or made a part of Post-Effective Amendment
No. 58 and Amendment No. 60 to Registration Statement File Nos. 33-17619 and
811-5349, respectively.
Arthur Andersen LLP
Boston, Massachusetts
November 17, 1999
