<PAGE>
Goldman Sachs Funds
INTERNATIONAL SMALL CAP FUND
[GRAPHIC APPEARS HERE]
Annual Report August 31, 1999
Long-term capital growth potential through a portfolio of smaller capitalization
companies located outside of the United States.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Market Overview
Dear Shareholder,
During the period under review, the Asian stock market rebounded dramatically
following last economic crisis. Japan also posted surprisingly strong returns,
while many European countries produced lackluster results.
. Market Review: Overall, Global Markets Performed Well -- As the
reporting period began, a cloud hovering over the world's equity
markets was appearing to lift. Concerted action from the G-7,
including multiple interest rates cuts by the Federal Reserve
Board, began to alleviate fears of a global financial meltdown,
after a severe reduction in liquidity in late 1998. The launch of
the euro reflected the continued move toward closer monetary
unification in Europe. While the Japanese government finally
appeared ready to seriously address its structural problems.
In most cases, this has led to positive market returns
around the world. The U.S. stock market has moved forward,
despite rising interest rates. In Asia, a dramatic rebound
unfolded after last year's currency crisis. Investors who were
previously underweight in the region moved to increase their
exposure, creating an attractive investment environment. And in
Japan, the market has generated very strong returns, due to
unexpected gains in the country's domestic economy, and a flood
of capital from institutional investors. Europe was relatively
disappointing, with the euphoria surrounding the launch of the
euro being short lived. European markets were also held back due
to the conflict in Bosnia, rising U.S. interest rates and data
indicating sluggish production in the region.
. Market Outlook: Mixed Signals Prevail -- The outlook for Asia as
a region has improved, although it is important to note that
intra-regional discrepancies still exist. We believe that several
countries have "bottomed out" and are now showing signs of
recovery following the crises of 1998. On a cautious note, we
recognize that a recovery in Asia is very dependent on the
continued strength of the U.S. market. Consequently, it will be
important to closely monitor all economic data coming out of the
U.S. in an effort to determine its impact on the Asian markets.
In Japan, for the time being, we remain cautious on the
market, given the recent rally and the concerns of equity
valuations. Based on the current price levels, the market seems
to have discounted much of the earnings recovery expected to
materialize in late 1999. On a positive note, many companies are
in the process of implementing restructuring plans that they
announced several months back -- benefits of which could improve
earnings.
And in Europe, we are positive on the outlook for the
continental region, as we see signals of sustained consumer and
producer confidence improvements, benefits from Asia and Japan
restocking inventories, the weaker euro, and continued industrial
reorganization and consolidation.
. Special Note: Reporting Period Change -- The fiscal year-end of
your Fund has been changed to August 31. Previously, your Fund
had a January 31 fiscal year-end. This will serve as the Fund's
annual report. This change does not affect your Fund's investment
objective or strategy in any way.
We encourage you to maintain your long term investment program
and we look forward to serving your investment needs in the years
to come.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Asset Management Goldman Sachs Asset Management
September 3, 1999
. NOT FDIC INSURED
. May Lose Value
. No Bank
Guarantee
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Fund Basics
as of August 31, 1999
Assets Under Management
$136.0 Million
Number of Holdings
136
NASDAQ Symbols
Class A Shares
GISAX
Class B Shares
GISBX
Class C Shares
GISCX
Institutional Shares
GISIX
Service Shares
GISSX
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Performance Review
- ----------------------------------------------------------------------------------------------
Fund Total Return MSCI
January 31, 1999-August 31, 1999 (without sales charge)/1/ Small Cap EAFE/2/
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Class A 24.67% 19.45%
Class B 24.32 19.45
Class C 24.32 19.45
Institutional 25.24 19.45
Service 24.79 19.45
- ----------------------------------------------------------------------------------------------
</TABLE>
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares. The Fund's performance assumes the
reinvestment of dividends and other distributions.
/2/ The unmanaged MSCI EAFE Small Cap Index, incepted 1/15/98, includes 1,502
securities from 23 developed markets with a capitalization range of
$200-$800 million and a general regional allocation of 60% Europe, 30%
Japan and 10% Asia. Total returns are calculated without dividends
reinvested. In addition, investors cannot invest directly in the Index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Standardized Total Returns/3/
- ---------------------------------------------------------------------------------------------------
For the period ended 6/30/99 Class A Class B Class C Institutional Service
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 6 months 10.81% 12.02% 15.92% 17.62% 17.31%
One Year 11.42 12.58 16.49 18.61 17.87
Since inception 12.98 14.99 18.24 19.31 18.58
(5/1/98)
- ---------------------------------------------------------------------------------------------------
</TABLE>
/3/ The Standardized Total Returns are average annual total returns or
cumulative total returns (only if the performance period is one year or
less) as of the most recent calendar quarter-end. They assume reinvestment
of all distributions at net asset value. These returns reflect a maximum
initial sales charge of 5.5% for Class A shares and the assumed deferred
sales charge for Class B shares (5% maximum declining to 0% after six
years) and the assumed deferred sales charge for Class C shares (1% if
redeemed within 12 months of purchase). Because Institutional and Service
shares do not involve a sales charge, such a charge is not applied to their
Standardized Total Returns.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Top 10 Holdings as of 8/31/99
- ----------------------------------------------------------------------------------------------------
% of Total
Holding Net Assets Country Line of Business
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Societe Generale D'Affichage 2.1% Switzerland Media
Rhoen-Klinikum AG 2.0 Germany Health
Banca Populare Commerico e Industria 1.5 Italy Banks
Kudelski SA 1.5 Switzerland Electrical Equipment
Lindt & Spruengli AG Class B 1.4 Switzerland Food & Beverage
Royal Canin SA 1.4 France Grocery
Charles Vogele Holding AG 1.3 Switzerland Apparel
Sumitomo Real Estate 1.3 Japan Real Estate
Falck A/S 1.2 Denmark Electrical Equipment
Hakuto Co. 1.1 Japan Electrical Equipment
- ----------------------------------------------------------------------------------------------------
</TABLE>
The top 10 holdings may not be representative of the Fund's future investments.
Total return figures represent past performance and do not indicate future
results, which will vary. The investment return and principal value of an
investment will fluctuate and, therefore, an investor's shares, when redeemed,
may be worth more or less than their original cost. Performance reflects expense
limitations in effect. In their absence, performance would be reduced.
1
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs International
Small Cap Fund for the seven-month period ended August 31, 1999. This reporting
period is based on the Fund's new August 31st fiscal year-end.
Performance Review
Over the seven-month period covered by this report, the Fund's A, B,
C, Institutional and Service share classes cumulative total returns,
without sales charges, of 24.67%, 24.32%, 24.32%, 25.24% and 24.79%,
respectively. All of the share classes outperformed the 19.45%
cumulative total return of the Fund's benchmark, the Morgan Stanley
Capital International (MSCI) Small Cap Europe, Australasia, Far East
Index EAFE.
The Portfolio's outperformance during the period is primarily
attributable to a significant contribution from regional stock
selection.
Portfolio Composition
The Fund's weightings in each of the three key regions of Japan,
Europe and Asia were 26.9%, 52.0% and 7.7%, respectively, as of August
31, 1999. Our objective is to add value more through stock selection
within each region than through asset allocation. Having said that, in
recent months some of the Fund's best performance has come from
Japanese and Asian stocks.
Portfolio Highlights
. Kamps AG -- Kamps, a German bakery chain, continued its strong
performance with the announcement of two major acquisitions -- one in
Germany and one in Holland. Kamps aims to consolidate the German
bakery market through an aggressive policy of acquisitions.
. Rhoen-Klinikum AG -- Rhoen-Klinikum, a German healthcare outsourcer,
continued its strong performance, as the underlying market for its
services continues to grow. Additionally, the company continues to
make smaller acquisitions as it seeks to expand capacity.
. Funespana -- Funespana is a Spanish funeral services company. The
company has performed well for the Fund, and could continue to grow in
the future, as it is winning contracts from municipalities.
2
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Investment
Process Overview
Company visits form the core of the investment process for the Goldman Sachs
International Small Cap Fund.
Company Visits
Internal Research
Return Expectations
Stock Selection
Portfolio
Construction
. Stock, Industry & Country Views Relative to Benchmark
Portfolio Review
& Analysis
. Performance Measurement & Attribution
. Risk Management
. Currency Management
Key New Acquisitions
. Banca Populare Commerico e Industria (BPCI) -- BPCI, an Italian
regional bank, was added to the portfolio in May. We believe the
company is very well positioned to benefit from the growth in asset
management and other commission-based services in Northern Italy.
Additionally, BPCI has pursued a very aggressive on-line banking
strategy and has gained a clear competitive advantage.
. Sogecable SA -- Sogecable, the dominant private provider of cable
television in Spain, was acquired in July. Sogecable has won the
television rights to highly valued content such as Spanish football
and U.S. feature films. As such, we believe the company is strongly
positioned to capitalize on the growth of pay television in Europe.
Portfolio Outlook
We remain positive on the long-term potential for the Fund. Our
strategy is driven by bottom-up stock selection and seeks to identify
fast growing companies at attractive valuations. We focus on companies
that are either benefiting from a structural change within their
market, or operating in a particularly attractive market niche. We
believe that the strong growth rates for the companies in the Fund
relative to other growth stocks bodes well for providing attractive
return opportunities for investors.
We thank you for your investment and look forward to your continued
confidence.
Goldman Sachs International Small Cap Equity Investment Team
London
September 3, 1999
3
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
The Goldman Sachs Advantage
Founded in 1869, Goldman, Sachs & Co. is a premier financial services firm
traditionally known on Wall Street and around the world for its institutional
expertise.
Today, the firm's Asset Management Division provides individual
investors the opportunity to tap the resources of a global
institutional powerhouse -- and put this expertise to work in their
individual portfolios.
What Sets Goldman Sachs Funds Apart?
1
---------------------------
Resources and Relationships
---------------------------
Our portfolio management teams are located on-site, around the
world, in New York, London, Tokyo and Singapore. Their
understanding of local economies, markets, industries and
cultures helps deliver what many investors want: access to global
investment opportunities and consistent, risk-adjusted
performance.
2
---------------------------
In-Depth Research
---------------------------
Our portfolio management teams make on-site visits to hundreds of
companies each month, then construct selective portfolios with an
emphasis on their best ideas. Our teams also have access to
Goldman, Sachs & Co.'s Global Investment Research Department.
3
---------------------------
Risk Management
---------------------------
In this, our institutional heritage is clear. Institutions, as
well as many individual investors, often look to us to manage the
risks of global investing over time in different market
environments.
To learn more about the Goldman Sachs Family of Funds, call your
investment professional today.
4
<PAGE>
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Performance Summary
August 31, 1999
The following graph shows the value as of August 31, 1999, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5% for Class A and a maxi-
mum contingent deferred sales charges of 5.0% declining to 0% after six years
for Class B and 1% if redeemed within twelve months for Class C and at NAV
for the Institutional and Service Classes) on May 1, 1998 (commencement of
operations) in Goldman Sachs International Small Cap Fund. For comparative
purposes, the performance of the Fund's benchmarks (Morgan Stanley Capital
International EAFE Small Cap Index unhedged ("MSCI Small Cap EAFE")) is
shown. This performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
International Small Cap Fund's Lifetime Performance
Growth of a $10,000 Investment, Distributions Reinvested May 1, 1998 to
August 31, 1999
[LINE GRAPH APPEARS HERE]
MSCI Small Institutional
Cap EAFE Class A Class B Class C Class Service Class
5/1/98 10,000 9,450 10,000 10,000 10,000 10,000
May-98 10,033 9,830 10,400 10,400 10,400 10,400
Jun-98 9,634 9,783 10,350 10,350 10,360 10,350
Jul-98 9,502 10,038 10,620 10,620 10,630 10,620
Aug-98 8,237 8,856 9,370 9,370 9,400 9,370
Sep-98 7,858 8,384 8,870 8,870 8,900 8,870
Oct-98 8,488 9,008 9,520 9,520 9,560 9,530
Nov-98 8,893 9,348 9,880 9,880 9,930 9,890
Dec-98 8,927 9,830 10,400 10,400 10,447 10,400
Jan-99 8,815 10,038 10,610 10,610 10,667 10,610
Feb-99 8,704 9,981 10,550 10,550 10,617 10,550
Mar-99 9,175 10,302 10,880 10,880 10,967 10,890
Apr-99 9,857 10,822 11,430 11,430 11,527 11,440
May-99 9,499 10,473 11,050 11,050 11,157 11,080
Jun-99 10,004 11,531 12,170 12,160 12,288 12,200
Jul-99 10,310 12,070 12,730 12,730 12,879 12,770
Aug-99 10,528 12,514 12,790 13,190 13,360 13,240
<TABLE>
<CAPTION>
Average Annual Total Return through
August 31, 1999(a) Since Inception One Year Seven Months
<S> <C> <C> <C>
Class A
Excluding sales charges 23.36% 41.30% 24.67%
Including sales charges 18.26% 33.47% 17.79%
----------------------------------------------------------------------------
Class B
Excluding contingent deferred sales
charges 23.01% 40.77% 24.32%
Including contingent deferred sales
charges 20.21% 35.77% 19.32%
----------------------------------------------------------------------------
Class C
Excluding contingent deferred sales
charges 23.01% 40.77% 24.32%
Including contingent deferred sales
charges 23.01% 39.77% 23.32%
----------------------------------------------------------------------------
Institutional Class 24.19% 42.12% 25.24%
----------------------------------------------------------------------------
Service Class 23.36% 41.30% 24.79%
----------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was May 1, 1998 for all classes.
5
<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 FUND PROFILE
Goldman Sachs
International Small Cap Fund
An Investment Idea for the Long Term
History has shown that a long-term plan that includes international
stocks can help provide greater protection against market volatility
over time than a portfolio that invests only in U.S. stocks.
Goldman Sachs International SmallCap Fund provides investors access to
the benefits associated with international investing. The Fund seeks
long-term capital growth, primarily through equity securities of
smaller capitalization companies located outside of the United States.
Target Your Needs
The Goldman Sachs International Small Cap Fund has a distinct
investment objective and a defined place on the risk/return spectrum.
As your investment objectives change, you can exchange shares within
Goldman Sachs Funds without any additional charge.* (Please note: in
general, greater returns are associated with greater risk.)
----------------------------------------------------------------------
Goldman Sachs Funds
Goldman Sachs Funds offers more
than 30 investment options for
global diversification across
borders, investment styles, asset
classes and security capitalizations.
[GRAPHIC APPEARS HERE]
For More Information
To learn more about the Goldman Sachs International Small Cap Fund and
other Goldman Sachs Funds, call your investment professional today.
* The exchange privilege is subject to termination and its terms are
subject to change.
<PAGE>
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GOLDMAN SACHS ASSET MANAGEMENT 32 OLD SLIP, 17TH FLOOR, NEW YORK, NEW YORK 10005
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TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
Jesse H. Cole, Vice President
James A. Fitzpatrick, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Adrien E. Deberghes, Jr., Assistant Treasurer
Philip V. Giuca, Jr., Assistant Treasurer
Michael J. Richman, Secretary
Amy E. Belanger, Assistant Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS & CO.
Distributor and Transfer Agent
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Investment Adviser
GOLDMAN SACHS INTERNATIONAL
Peterborough Court, 133 Fleet Street
London EC4A 2BB, England
Visit our internet address: www.gs.com/funds
This material is not authorized for distribution to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
Emerging markets securities are volatile. They are subject to substantial
currency fluctuations and sudden economic and political developments. At times,
the Fund may be unable to sell certain of its portfolio securities without a
substantial drop in price, if at all.
The stocks of smaller companies are often more volatile and present greater
risks than stocks of larger companies. At times, the Fund may be unable to sell
the securities it holds without a substantial drop in price, if at all.
An investment in a money market fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any government agency. Although a money market
fund seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
Copyright 1999 Goldman, Sachs & Co. All rights reserved. Date of first use:
October 15, 1999
INTLSMCAPAR / 6.5K / 10-99
