<PAGE>
1933 Act Registration No. 33-33316
1940 Act Registration No. 811-6036
As filed with the Securities and Exchange Commission on May 31, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 17 ( X )
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 ( X )
(Check appropriate box or boxes)
____________
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(Formerly GS Capital Growth Fund, Inc.)
(Exact name of registrant as specified in charter)
One New York Plaza
New York, New York 10004
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
212-902-0800
_____________
with a copy to:
Michael J. Richman Ernest V. Klein
Goldman Sachs Asset Management Hale and Dorr
85 Broad Street 60 State Street
New York, New York Boston, Massachusetts
10004 02109
(name and address of agent for service)
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( X ) on May 31,1995 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of rule 485
REGISTRANT HAS REGISTERED AN UNLIMITED NUMBER OF ITS SHARES
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2.
ON MARCH 31, 1995, REGISTRANT FILED A RULE 24F-2 NOTICE
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495(a)*)
N-1A ITEM NO. LOCATION
- ------------- --------
PART A CAPTION
- ------ -------
Goldman Sachs Balanced Fund, Goldman Sachs Select Equity Fund, Goldman Sachs
- ----------------------------------------------------------------------------
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Small
- ------------------------------------------------------------------------------
Cap Fund, Goldman Sachs International Equity Fund and Goldman Sachs Asia Growth
- -------------------------------------------------------------------------------
Fund
- ----
<TABLE>
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Highlights
Item 3. Condensed Financial Financial Highlights
Information
Item 4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objectives and Policies;
Special Investment Methods and Risk
Factors; Reports to Shareholders;
Shares of the Company; Additional
Information
Item 5. Management of Fund Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities How to Invest Net Asset
Being Offered Value; Additional Information
Item 8. Redemption or How to Sell Shares of the
Repurchase Funds; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Select Equity Fund- Institutional Shares
- ------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Financial Highlights
Information
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objectives and Policies;
Special Investment Methods and Risk
Factors; Reports to Institutional
Shareholders; Shares of the Company;
Additional Information
Item 5. Management of Fund Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Institutional
Being Offered Shares; Net Asset Value;
Additional Information
Item 8. Redemption or Redemption of Institutional
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Select Equity Fund- Administration Shares
- -------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Financial Highlights
Information
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objectives and Policies;
Special Investment Methods and Risk
Factors; Reports to Shareholders;
Shares of the Company; Additional
Information
Item 5. Management of Fund Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Administration
Being Offered Shares; Net Asset Value;
Additional Information
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Item 8. Redemption or Redemption of Administration
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Mid-Cap Equity Fund- Institutional Shares
- -------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objectives and Policies;
Special Investment Methods and Risk
Factors; Reports to Institutional
Shareholders; Shares of the Company;
Additional Information
Item 5. Management of Fund Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Institutional Being
Offered Shares; Net Asset Value;
Additional Information
Item 8. Redemption or Redemption of Institutional
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Mid-Cap Equity Fund- Administration Shares
- --------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Not Applicable
Information
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objectives and Policies;
Special Investment Methods and Risk
Factors; Reports to Shareholders;
Shares of the Company; Additional
Information
Item 5. Management of Fund Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Administration
Being Offered Shares; Net Asset Value;
Additional Information
Item 8. Redemption or Redemption of Administration
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
</TABLE>
<PAGE>
PART B
Goldman Sachs Balanced Fund, Goldman Sachs Select Equity Fund, Goldman Sachs
- ----------------------------------------------------------------------------
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Small
- ------------------------------------------------------------------------------
Cap Fund, Goldman Sachs International Equity Fund and Goldman Sachs Asia Growth
- -------------------------------------------------------------------------------
Fund
- ----
<TABLE>
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information Introduction
and History
Item 13. Investment Objectives Investment Objective and
and Policies Policies; Investment
Restrictions
Item 14. Management of the Management
Registrant
Item 15. Control Persons and Not Applicable
Principal Holders of
Securities
Item 16. Investment Advisory and Management
Other Services
Item 17. Brokerage Allocation Portfolio Transactions
and Other Practices
Item 18. Capital Stock and Shares of the Company
Other Securities
Item 19. Purchase, Redemption Management; Net Asset of
and Pricing of Value; Other Information
Securities Being Regarding Purchases,
Offered Redemptions, Exchanges and
Dividends
Item 20. Tax Status Taxation
Item 21. Underwriters Management -- Distributor and
Transfer Agent; Management --
Distribution Plan
Item 22. Calculation of Performance Information
Performance Data
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE>
Goldman Sachs Select Equity Fund and Goldman Sachs Mid-Cap Equity Fund -
- ------------------------------------------------------------------------
Institutional Shares and Administration Shares
- ----------------------------------------------
<TABLE>
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information Introduction
and History
Item 13. Investment Objectives Investment Objective and
and Policies Policies; Investment
Restrictions
Item 14. Management of the Management
Registrant
Item 15. Control Persons and Not Applicable
Principal Holders of
Securities
Item 16. Investment Advisory and Management
Other Services
Item 17. Brokerage Allocation Portfolio Transactions
and Other Practices
Item 18. Capital Stock and Shares of the Company
Other Securities
Item 19. Purchase, Redemption Management; Net Asset of
and Pricing of Value
Securities Being
Offered
Item 20. Tax Status Taxation
Item 21. Underwriters Management -- Distributor and
Transfer Agent; Management --
Distribution Plan
Item 22. Calculation of Performance Information
Performance Data
Item 23. Financial Statements Financial Statements on Behalf
of Goldman Sachs Select Equity
Fund
</TABLE>
<PAGE>
PART C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this Registration
Statement.
*THIS POST-EFFECTIVE AMENDMENT IS BEING FILED SOLELY TO UPDATE THE FINANCIAL
INFORMATION OF THE GOLDMAN SACHS ASIA GROWTH FUND, GOLDMAN SACHS BALANCED FUND,
GOLDMAN SACHS CAPITAL GROWTH FUND, GOLDMAN SACHS SELECT EQUITY FUND - CLASS A
SHARES, GOLDMAN SACHS SMALL CAP EQUITY FUND, GOLDMAN SACHS GROWTH AND INCOME
FUND AND GOLDMAN SACHS INTERNATIONAL EQUITY FUND.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
June 1, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights........................ 3
Fees and Expenses...................... 7
Financial Highlights................... 10
Investment Objectives and Policies..... 14
Special Investment Methods and Risk
Factors............................... 19
Investment Restrictions................ 32
Portfolio Turnover..................... 32
Management............................. 32
Reports to Shareholders................ 36
How to Invest.......................... 36
Distribution and Authorized Dealer
Service Plan.......................... 43
How to Sell Shares of the Funds........ 43
Dividends.............................. 45
Net Asset Value........................ 46
Performance Information................ 46
Shares of the Company.................. 47
Taxation............................... 47
Additional Information................. 49
Appendix .............................. A-1
Account Application
</TABLE>
THE GOLDMAN SACHS EQUITY PORTFOLIOS
GOLDMAN SACHS BALANCED FUND
Seeks current income and long-term capi-
tal growth through investments in equity
and fixed income securities.
GOLDMAN SACHS SELECT EQUITY FUND
Seeks total return through investments
in equity securities consisting of capi-
tal appreciation plus dividend income
that, net of Fund expenses, exceeds the
total return realized on the Standard
and Poor's Index of 500 Common Stocks.
GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and
growth of income through investments in
equity securities that the Fund's In-
vestment Adviser considers to have fa-
vorable prospects for capital apprecia-
tion and/or dividend paying ability.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital
through investments in equity securities
of companies that the Fund's Investment
Adviser considers to have long-term cap-
ital appreciation potential.
GOLDMAN SACHS SMALL CAP EQUITY FUND
Seeks long-term capital growth through
investments in equity securities of com-
panies with public stock market capital-
izations of $1 billion or less at the
time of investment.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies that are organized outside
the U.S. or whose securities are princi-
pally traded outside the U.S.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies related (in the manner de-
scribed herein) to Asian countries.
(continued on next page)
----------
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF EMERGING MARKETS AND OTHER FOREIGN
ISSUERS AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE
UNITED STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS
WELL AS THE MANAGEMENT TECHNIQUES EMPLOYED BY THE FUNDS, ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN
PARTICULAR, THE SECURITIES MARKETS OF ASIAN AND OTHER EMERGING MARKET COUNTRIES
IN WHICH THE ASIA GROWTH AND INTERNATIONAL EQUITY FUNDS WILL INVEST ARE LESS
LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. THE FUNDS ARE INTENDED
FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND RISK
FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, Small Cap Equity and
International Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an
affiliate of Goldman Sachs, serves as investment adviser to the Capital Growth
and Select Equity Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Asia Growth Fund and subadviser to the International Equity
Fund. GSAM, GSFM and GSAMI are referred to in this Prospectus as the
"Investment Adviser." GSAM serves as each Fund's administrator and Goldman
Sachs serves as each Fund's distributor and transfer agent.
This Prospectus, which sets forth concisely the information about Goldman
Sachs Equity Portfolios, Inc. (the "Company") and the Funds that a prospective
investor ought to know before investing, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated June 1, 1995, containing further information about the Company and the
Funds which may be of interest to investors, has been filed with the Securities
and Exchange Commission, is incorporated herein by reference in its entirety,
and may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus.
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS GOLDMAN SACHS EQUITY PORTFOLIOS, INC.?
Goldman Sachs Equity Portfolios, Inc. is an open-end management investment
company that offers its shares in several series or funds. Each Fund pools
the resources of investors by selling its shares to the public and investing
the proceeds in a portfolio of securities designed to achieve that Fund's
stated investment objective. The Small Cap Equity, International Equity and
Asia Growth Funds are non-diversified funds and each of the other Funds is a
diversified fund as defined in the Investment Company Act of 1940 (the
"Act").
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objective will be achieved. For a complete
description of each Fund's investment objective and policies, see
"Investment Objectives and Policies" and "Special Investment Methods and
Risk Factors."
GOLDMAN SACHS BALANCED FUND--The Fund's investment objective is to provide
shareholders with current income and long-term capital growth. The Fund
seeks to achieve its objective by investing in a diversified portfolio of
equity and fixed income securities. Under normal market conditions, the Fund
will invest at least 25% of its total assets in fixed income senior
securities and the remainder of its assets in equity securities, other fixed
income securities and cash. Under normal market conditions, the Investment
Adviser expects that the Fund generally will invest between 50% and 70% of
its total assets in equity securities.
GOLDMAN SACHS SELECT EQUITY FUND--The investment objective of the Fund is
to provide investors with a total return through investments in equity
securities consisting of capital appreciation plus dividend income that, net
of Fund expenses, exceeds the total return realized on the Standard & Poor's
Index of 500 Common Stocks (the "S&P 500 Index"). Under normal
circumstances, the Fund will invest at least 90% of its total assets in
equity securities. The Fund seeks to achieve its investment objective by
investing in a portfolio of equity securities selected using both
fundamental research and a variety of quantitative techniques which seek to
maximize the Fund's risk to reward ratio. The Fund's portfolio is designed
to have risk, capitalization and industry characteristics similar to the S&P
500 Index.
GOLDMAN SACHS GROWTH AND INCOME FUND--The Fund's investment objectives are
to provide its shareholders with long-term growth of capital and growth of
income. The Fund seeks to achieve its investment objectives by investing,
under normal market conditions, at least 65% of its total assets in equity
securities that the Investment Adviser considers to have favorable prospects
for capital appreciation and/or dividend paying ability. Equity securities
in which the Fund may invest consist of common stocks, preferred stocks,
convertible securities, warrants and stock purchase rights, and interests in
real estate investment trusts. These securities may or may not pay a current
dividend. The Fund may invest up to 35% of its total assets in fixed income
securities.
3
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND--The Fund's investment objective is
long-term capital growth. The Fund seeks to achieve its objective by
investing primarily in securities that are considered by the Investment
Adviser to have long-term capital appreciation potential. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities, including common stocks, convertible securities,
preferred stocks, warrants and stock purchase rights, and interests in real
estate investment trusts. The Fund may also invest up to 25% of its total
assets in fixed income securities.
GOLDMAN SACHS SMALL CAP EQUITY FUND--The Fund's investment objective is
long-term capital growth. Dividend income, if any, is an incidental
consideration. The Fund seeks to achieve its investment objective by
investing, under normal conditions, 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. However, the Fund currently
emphasizes investments in companies with public stock market capitalizations
of $500 million or less at the time of investment. The Fund may invest up to
35% of its total assets in the equity securities of companies with public
stock market capitalizations in excess of $1 billion and in fixed income
securities.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND--The Fund's investment objective
is long-term capital appreciation. Under normal market conditions, the Fund
will invest substantially all, and at least 65%, of its total assets in
equity securities of companies organized outside the United States or whose
securities are principally traded outside the United States. Many of the
countries in which the Fund may invest have emerging economies or securities
markets which involve certain risks. The Fund may employ certain currency
management techniques to seek to hedge against currency exchange rate
fluctuations or to seek to increase total return. When used to enhance
return, these management techniques are considered speculative. See "Special
Investment Methods and Risk Factors--Foreign Transactions." The Fund may
also invest up to 35% of its total assets in fixed income securities of
foreign and domestic corporations, mortgage- and asset-backed issuers and
the U.S. Government, foreign governments and their respective agencies,
instrumentalities, political subdivisions and authorities and fixed income
securities issued or guaranteed by international or supranational entities
that, in the opinion of the Investment Adviser, offer the potential to
enhance total return.
GOLDMAN SACHS ASIA GROWTH FUND--The Fund's investment objective is long-
term capital appreciation. Under normal market conditions, the Fund will
invest substantially all, and at least 65%, of its total assets in equity
securities of companies in China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand which are considered by the Investment Adviser to have long-term
capital appreciation potential. Concentration of the Fund's assets in one or
a few of the Asian countries will subject the Fund, to a greater extent than
if the Fund's assets were less geographically concentrated, to the risks of
adverse changes in the securities and foreign exchange markets of such
countries and social, political or economic events which may occur in those
countries. The Fund may also invest up to 35% of its total assets in equity
securities of issuers in other countries, including Japan, and fixed income
securities. The Fund may employ certain currency techniques to hedge against
currency exchange rate fluctuations or to seek to increase total return.
When used to enhance return, these management techniques are considered
speculative. See "Special Investment Methods and Risk Factors--Foreign
Transactions."
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions so that an investment in any
of the Funds may be worth more or less when redeemed than when purchased.
None of the Funds should be relied upon as a complete investment program.
There can be no assurance that a Fund's investment objective will be
achieved.
There are certain risks associated with the investment policies of each of
the Funds. For instance, to the extent that a Fund invests in the securities
and related financial instruments of small to medium market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility because such securities may lack sufficient liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price. A Fund's use of certain investment techniques, including
derivatives, forward contracts and options and futures transactions, will
subject a Fund to greater risk than funds that do not employ such
techniques. To the extent that a Fund invests in securities of non-U.S.
issuers and foreign currencies, the Fund may face risks that are different
from those associated with investment in domestic securities. The risks of
foreign investments and currencies include changes in relative currency
exchange rates, political and economic developments and the imposition of
exchange controls or other governmental confiscation or restrictions.
Generally, there is less availability of data on foreign companies and
securities markets as well as less regulation of foreign stock exchanges,
brokers and issuers. A Fund's investments in emerging markets and countries
will involve greater risks than investments in the developed countries of
Western Europe, the U.S. and Japan. In addition, because the International
Equity and Asia Growth Funds will invest primarily outside the U.S., these
Funds may involve greater risks, since the securities markets of foreign
countries are generally less liquid and subject to greater price volatility.
In particular, the securities markets of the developing countries of Asia
are marked by 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 Small Cap Equity, International Equity and Asia Growth Funds are each
"non-diversified" funds as defined under the Act and are therefore subject
only to certain federal tax diversification requirements, in addition to the
policies adopted by the Investment Adviser. To the extent that a Fund is not
diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer of portfolio securities. See
"Special Investment Methods and Risk Factors--Non-Diversification Status."
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management, a separate operating division of Goldman
Sachs, acts as administrator to each Fund and serves as the Investment
Adviser to the Balanced, Growth and Income, Small Cap Equity and
International Equity Funds. Goldman Sachs Funds Management, L.P., an
affiliate of Goldman Sachs, serves as investment adviser to the Capital
Growth and Select Equity Funds. Goldman Sachs Asset Management
International, London, England, an affiliate of Goldman Sachs, serves as
investment adviser to the Asia Growth Fund and sub-adviser to the
International Equity Fund. As of April 27, 1995, the Investment Advisers,
together with their affiliates, acted as investment adviser, administrator
or distributor for assets in excess of $50 billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
5
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for purchases of shares of a Fund is
$1,500. The minimum initial investment for tax sheltered retirement plans is
$250. The minimum investment is $50 for purchases made through the Automatic
Investment Plan. The minimum subsequent investment is $50. See "How to
Invest--How to Buy Shares of the Funds."
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of
Securities Dealers, Inc. (the "NASD") and certain other financial service
firms that have sales agreements with Goldman Sachs ("Authorized Dealers").
Shares of the Funds may be purchased at the current net asset value per
share plus any applicable sales charge. The sales charge is paid at the time
of purchase. The maximum sales charge is currently 5.5% of the purchase
price with reduced sales charges for purchases amounting to $50,000 or more.
The sales charge is waived for specified classes of investors as described
under "How to Invest--Offering Price."
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after
receipt of such request in proper form. See "How to Sell Shares of the
Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Each Fund intends that all or substantially all of its net investment
income and net realized long-term and short-term capital gains for each
taxable year, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as
dividends. The Balanced and Growth and Income Funds will pay dividends in
respect of net investment income quarterly. Each other Fund will pay
dividends in respect of net investment income at least annually. All of the
Funds will pay dividends in respect of net realized long-term and short-term
capital gains at least annually.
You will receive dividends in additional shares of the Fund in which you
have invested or may elect to receive cash, shares of another Fund or
certain other mutual funds sponsored by Goldman Sachs whose shares are
subject to an initial sales charge (the "Goldman Sachs Portfolios") or ILA
Service Units of the Prime Obligations Portfolio or the Tax-Exempt
Diversified Portfolio of Goldman Sachs Money Market Trust (the "ILA
Portfolios"). For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
GROWTH SMALL
SELECT AND CAPITAL CAP INT'L ASIA
BALANCED EQUITY INCOME GROWTH EQUITY EQUITY GROWTH
FUND FUND FUND FUND FUND FUND FUND
-------- ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases/1/......... 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none none none
Redemption Fees/2/.... none none none none none none none
Exchange Fees/2/...... none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)
Management Fees
(including, after
applicable
limitations, advisory
and administration
fees)................ 0.65% 0.55% 0.70% 1.00% 1.00% 1.00% 1.00%
Distribution (Rule
12b-1) Fees/3/ (after
applicable
limitations)......... 0.00% 0.25% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses:
Authorized Dealer
Service Fees........ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)........ 0.10%/4/ 0.21%/6/ 0.30%/4/ 0.13% 0.28% 0.48% 0.65%/4/
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATION).......... 1.00%/5/ 1.26%/6/ 1.25%/5/ 1.38%/5/ 1.53%/5/ 1.73%/5/ 1.90%/5/
==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund................................... $65 $ 85 $N/A $N/A
Select Equity Fund.............................. 67 93 120 199
Growth and Income Fund.......................... 67 92 120 198
Capital Growth Fund............................. 68 96 126 212
Small Cap Equity Fund........................... 70 101 134 227
International Equity Fund....................... 72 106 144 248
Asia Growth Fund................................ 73 111 N/A N/A
</TABLE>
- --------
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases by certain classes of investors. See "How to Invest--Offering
Price."
/2/ 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 Portfolios or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege." A contingent deferred sales charge may be
7
<PAGE>
imposed in connection with certain redemptions of shares sold without an
initial sales charge to certain participant-directed plans. See "How to
Invest--Participant-Directed Plans." The transfer agency fee incurred by each
Fund (Class A Shares in the case of Select Equity Fund) is based on a fixed
per account charge plus transaction fees. See "Management--Distributor and
Transfer Agent."
/3/ Goldman Sachs voluntarily has agreed to waive the entire distribution fee
payable by each Fund (other than the Select Equity Fund). Goldman Sachs has
no current intention of modifying or discontinuing such limitation but may
do so in the future at its discretion. Without this waiver, the distribution
fees payable by each Fund (other than the Select Equity Fund) would be .25%
annually of average daily net assets and each Fund's Total Operating
Expenses would be correspondingly higher.
/4/ The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Balanced, Growth and Income and Asia Growth Funds
(excluding advisory, administration, distribution and authorized dealer
service fees, taxes, interest, brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.10% of the average daily net assets of the Balanced Fund,
0.30% of the average daily net assets of the Growth and Income Fund and
0.65% of the average daily net assets of the Asia Growth Fund. The
Investment Adviser to each Fund has no current intention of modifying or
discontinuing such limitation but may do so in the future at its discretion.
/5/ Based on estimated amounts for the current fiscal year. If Goldman Sachs and
the Investment Advisers had not agreed to the limits described above, the
"Other Expenses" and "Total Operating Expenses," respectively, of the Funds
would be (as a percentage of average daily net assets): Balanced--7.14% and
8.29%, Growth and Income--0.38% and 1.58%, Capital Growth--0.13% and 1.63%,
Small Cap Equity--0.28% and 1.78%, International Equity--0.48% and 1.98% and
Asia Growth--0.88% and 2.38%. During the fiscal year ended January 31, 1995,
the Authorized Dealer Service Plan was not in existence and the Distribution
(Rule 12b-1) Fees were contractually set at 0.50%. However, during that
period, Goldman Sachs agreed to limit the amount of the fees payable by the
Funds under their distribution plan to 0.25%. In addition, the Investment
Advisers agreed to reduce or limit certain "Other Expenses" of the Balanced,
Growth and Income and Asia Growth Funds to 0.10%, 0.30% and 0.65%,
respectively, of each Fund's average daily net assets. The annual
"Management Fees," "Distribution Fees," "Other Expenses" and "Total
Operating Expenses," respectively, incurred by each Fund during the fiscal
year ended January 31, 1995 (expressed as a percentage of average daily net
assets after fee adjustments and expense limitations) were as follows:
Balanced--0.65%, 0.25%, 0.10% and 1.00%, Growth and Income--0.70%, 0.25%,
0.30% and 1.25%, Capital Growth--1.00%, 0.25%, 0.13% and 1.38%, Small Cap
Equity--1.00%, 0.25%, 0.28% and 1.53%, International Equity--1.00%, 0.25%,
0.48% and 1.73% and Asia Growth--1.00%, 0.25%, 0.65% and 1.90%. See
"Management--Investor Advisers, Subadviser and Administrator" and
"Distribution and Authorized Dealer Service Plan."
/6/ Based on estimated amounts for the current fiscal year. GSFM and GSAM have
voluntarily agreed to limit their advisory and administration fees to 0.40%
and 0.15%, respectively, and to limit certain "Other Expenses" (excluding
transfer agency fees estimated to be 0.15% of average daily net assets,
advisory, administration, distribution and authorized dealer service fees,
taxes, interest, brokerage fees and litigation, indemnification and other
extraordinary expenses) to 0.06% of average daily net assets. GSFM and GSAM
have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, Select Equity Fund's "Management Fees," "Other Expenses," and
"Total Operating Expenses" would be 0.75%, 0.38% and 1.63%, respectively of
average daily net assets. During the fiscal year ended January 31, 1995, the
Authorized Dealer Service Plan was not in existence and the Distribution
(Rule 12b-1) Fees were contractually set at 0.50%. During that period,
Goldman Sachs agreed to limit the amount of the fees under Select Equity
Fund's distribution plan to 0.25% and did not waive any management fees or
limit "Other Expenses." The annual "Management Fees," "Distribution Fees,"
"Other Expenses" and "Total Operating Expenses," respectively, incurred by
the Select Equity Fund during the fiscal year ended January 31, 1995
(expressed as a percentage of average daily net assets after fee
adjustments) were 0.75%, 0.25%, 0.38% and 1.38%.
Investors should be aware that, due to the distribution fees, a long-term
shareholder in a Fund may pay over time more than the economic equivalent of
the maximum front-end sales charge permitted under the rules of the NASD.
The information with respect to the Select Equity Fund set forth in the
foregoing table and hypothetical example relates only to its Class A Shares
(the class offered by this Prospectus). The Select Equity Fund, but not the
other Funds, also offers Institutional Shares and Administration Shares which
are subject to different fees and expenses (which affects performance), have
different minimum investment requirements and are entitled to different
services. Information regarding Institutional and Administration Shares may be
obtained from your sales representative or from Goldman Sachs by calling the
number of the back cover page of this Prospectus.
8
<PAGE>
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor will bear directly or
indirectly. Since the Funds have changed and/or lowered their historical fees,
the costs and expenses included in the table and hypothetical example above are
based on estimated fees and expenses for the current fiscal year. The
information on cost and expenses included in the table and the hypothetical
example above should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those indicated.
Moreover, while the example assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. See "Management--Investment Advisers, Subadviser and Administrator."
9
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share of the Funds outstanding during
the period(s) indicated has been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference into
the Additional Statement from the Annual Report to shareholders for the Funds
for the year ended January 31, 1995 (the "Annual Report"). This information
should be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report also contains performance information and is available upon request and
without charge by calling the telephone number or writing to one of the
addresses on the back cover of this Prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND FOR THE PERIOD
ENDED
JANUARY 31,
1995(A)
--------------
<S> <C>
Net asset value, beginning of period.......................... $ 14.18
-------
Income from investment operations:
Net investment income........................................ 0.10
Net realized and unrealized gain on investment transactions.. 0.02
-------
Total income from investment operations...................... 0.12
-------
Distributions to shareholders:
From net investment income................................... (0.08)
-------
Total distributions to shareholders.......................... (0.08)
-------
Net increase in net asset value............................... 0.04
-------
Net asset value, end of period................................ $ 14.22
=======
Total return(b)............................................... 0.87 %(d)
Ratio of net expenses to average net assets................... 1.00 %(c)
Ratio of net investment income to average net assets.......... 3.39 %(c)
Portfolio turnover rate....................................... 14.71 %
Net assets at end of period (in thousands).................... $ 7,510
Ratios assuming no voluntary waiver of distribution fees or
expense limitations:
Ratio of expenses to average net assets...................... 8.29 %(c)
Ratio of net investment loss to average net assets........... (3.90)%(c)
</TABLE>
- --------
(a) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(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
charges. Total return would be reduced if a sales charge were taken into
account.
(c) Annualized.
(d) Not Annualized.
10
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECT EQUITY FUND FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
---------------------------- JANUARY 31,
1995 1994 1993 1992(A)
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 15.93 $ 15.46 $ 15.05 $ 14.17
------- ------- -------- --------
Income (loss) from investment
operations:
Net investment income.......... 0.20 0.17 0.22 0.11
Net realized and unrealized
gain (loss) on investments,
options and futures........... (0.38) 2.08 0.41 0.88
------- ------- -------- --------
Total income (loss) from
investment operations......... (0.18) 2.25 0.63 0.99
------- ------- -------- --------
Distributions to shareholders:
From net investment income..... (0.20) (0.17) (0.22) (0.11)
From net realized gain on
investment and futures
transactions.................. (0.94) (1.61) -- --
------- ------- -------- --------
Total distributions to
shareholders.................. (1.14) (1.78) (0.22) (0.11)
------- ------- -------- --------
Net increase (decrease) in net
asset value.................... (1.32) 0.47 0.41 0.88
------- ------- -------- --------
Net asset value, end of period.. $ 14.61 $ 15.93 $ 15.46 $ 15.05
======= ======= ======== ========
Total return(b)................. (1.10)% 15.12 % 4.30 % 7.01 %(d)
Ratio of net expenses to average
net assets..................... 1.38 % 1.42 % 1.28 % 1.57 %(c)
Ratio of net investment income
to average net assets.......... 1.33 % 0.92 % 1.30 % 1.24 %(c)
Portfolio turnover rate......... 56.18 % 87.73 % 144.93 % 135.02 %(c)
Net assets at end of period (in
thousands)..................... $94,968 $92,769 $117,757 $151,142
Ratios assuming no voluntary
waiver of distribution fees:
Ratio of expenses to average
net assets.................... 1.63 % 1.67 % 1.53 % 1.82 %(c)
Ratio of net investment income
to average net assets......... 1.08 % 0.67 % 1.05 % 0.99 %(c)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, JANUARY 31,
----------- ------------
1995 1994(F)
----------- ------------
<S> <C> <C>
Net asset value, beginning of period............ $ 15.79 $ 14.18
-------- -------
Income from investment operations:
Net investment income.......................... 0.20 (e) 0.15
Net realized and unrealized gain on investments
and options................................... 0.30 (e) 1.68
-------- -------
Total income from investment operations........ 0.50 1.83
-------- -------
Distributions to shareholders:
From net investment income..................... (0.20) (0.15)
From net realized gain on investment and option
transactions.................................. (0.33) (0.06)
In excess of net investment income............. (0.07) (0.01)
-------- -------
Total distributions to shareholders............ (0.60) (0.22)
-------- -------
Additional paid-in capital...................... 0.11 (e) --
-------- -------
Net increase in net asset value................. 0.01 1.61
-------- -------
Net asset value, end of period.................. $ 15.80 $ 15.79
======== =======
Total return(b)................................. 3.97 % 13.08 %(d)
Ratio of net expenses to average net assets..... 1.25 % 1.25 %(c)
Ratio of net investment income to average net
assets......................................... 1.28 % 1.23 %(c)
Portfolio turnover rate......................... 71.80 % 102.23 %(d)
Net assets at end of period (in thousands)...... $193,772 $41,528
Ratios assuming no voluntary waiver of
distribution fees or expense limitations:
Ratio of expenses to average net assets........ 1.58 % 3.24 %(c)
Ratio of net investment income (loss) to
average net assets............................ 0.95 % (0.76)%(c)
</TABLE>
- --------
(a) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(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 charges. Total return would be reduced if a sales charge were taken
into account. For the year ended January 31, 1995, total return for the
Growth and Income Fund, excluding additional paid in capital, would be
3.34%.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
11
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL GROWTH FOR THE YEAR ENDED FOR THE
FUND JANUARY 31, PERIOD ENDED
---------------------------------------- JANUARY 31,
1995 1994 1993 1992 1991(A)
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, $ 15.96 $ 14.64 $ 13.65 $ 11.10 $ 11.34
beginning of period.... -------- -------- -------- -------- --------
Income (loss) from
investment operations:
Net investment income.. 0.03 0.02 0.06 0.28 0.34
Net realized and
unrealized gain (loss)
on investments, (0.69) 2.40 2.28 2.90 (0.27)
options and futures... -------- -------- -------- -------- --------
Total income (loss)
from investment (0.66) 2.42 2.34 3.18 0.07
operations............ -------- -------- -------- -------- --------
Distributions to
shareholders:
From net investment
income................ (0.01) (0.01) (0.07) (0.31) (0.31)
From net realized gain
on investment, options
and futures
transactions.......... (1.62) (1.07) (1.28) (0.32) --
In excess of net -- (0.02) -- -- --
investment income..... -------- -------- -------- -------- --------
Total distributions to (1.63) (1.10) (1.35) (0.63) (0.31)
shareholders.......... -------- -------- -------- -------- --------
Net increase (decrease) (2.29) 1.32 0.99 2.55 (0.24)
in net asset value..... -------- -------- -------- -------- --------
Net asset value, end of $ 13.67 $ 15.96 $ 14.64 $ 13.65 $ 11.10
period................. ======== ======== ======== ======== ========
Total return(b)......... (4.38)% 16.89 % 18.01% 29.31% 0.84%(d)
Ratio of net expenses to
average net assets..... 1.38 % 1.38 % 1.41% 1.53% 1.27%(d)
Ratio of net investment
income to average net
assets................. 0.16 % 0.13 % 0.42% 2.09% 3.24%(d)
Portfolio turnover rate. 38.36 % 36.12 % 58.93% 48.93% 35.63%(d)
Net assets at end of
period (in thousands).. $862,105 $833,682 $665,976 $500,307 $437,533
Ratios assuming no
voluntary waiver of
distribution fees:
Ratio of expenses to
average net assets.... 1.63 % 1.63 % 1.66% 1.78% 1.47%(d)
Ratio of net investment
income (loss) to
average net assets.... (0.09)% (0.12)% 0.17% 1.84% 3.04%(d)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP EQUITY FUND FOR THE YEAR
ENDED FOR THE
JANUARY 31, PERIOD ENDED
------------------- JANUARY 31,
1995 1994 1993(E)
-------- -------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period..... $ 20.67 $ 16.68 $ 14.18
-------- -------- -------
Income (loss) from investment operations:
Net investment income (loss)............ (0.07) (0.04) 0.03
Net realized and unrealized gain (loss) (3.53) 5.03 2.50
on investments, options and futures.... -------- -------- -------
Total income (loss) from investment (3.60) 4.99 2.53
operations............................. -------- -------- -------
Distributions to shareholders:
From net investment income.............. -- -- (0.03)
From net realized gain on investment,
option and futures transactions........ (0.69) (1.00) --
In excess of realized gains on
investment, option and futures (0.24) -- --
transactions........................... -------- -------- -------
Total distributions to shareholders..... (0.93) (1.00) (0.03)
-------- -------- -------
Net increase (decrease) in net asset (4.53) 3.99 2.50
value................................... -------- -------- -------
Net asset value, end of period........... $ 16.14 $ 20.67 $ 16.68
======== ======== =======
Total return(b).......................... (17.53)% 30.13% 17.86%(d)
Ratio of net expenses to average net
assets.................................. 1.53 % 1.60% 1.65%(c)
Ratio of net investment income (loss) to
average net assets...................... (0.53)% (0.45)% 0.62%(c)
Portfolio turnover rate.................. 43.67 % 56.81% 7.12%(c)
Net assets at end of period (in
thousands).............................. $319,487 $261,074 $59,339
Ratios assuming no voluntary waiver of
distribution fees or expense
limitations:
Ratio of expenses to average net assets. 1.78 % 1.85 % 2.70 %(c)
Ratio of net investment loss to average
net assets............................. (0.78)% (0.70)% (0.43)%(c)
</TABLE>
- -------
(a) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(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 charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
12
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
-------------------- JANUARY 31,
1995 1994 1993(A)
--------- -------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 18.10 $ 14.35 $ 14.18
--------- -------- -------
Income (loss) from investment
operations:
Net investment income (loss)........... 0.06 0.05 (0.01)
Net realized and unrealized gain (loss)
on investments, options and futures... (3.04) 4.08 0.29
Net realized and unrealized loss on
foreign currency related transactions. (0.01) (0.38) (0.11)
--------- -------- -------
Total income (loss) from investment
operations............................ (2.99) 3.75 0.17
--------- -------- -------
Distributions to shareholders:
From net investment income............. -- -- --
From net realized gain on investment,
option and futures transactions....... (0.59) -- --
--------- -------- -------
Total distributions to shareholders.... (0.59) -- --
--------- -------- -------
Net increase (decrease) in net asset
value.................................. (3.58) 3.75 0.17
--------- -------- -------
Net asset value, end of period.......... $ 14.52 $ 18.10 $ 14.35
========= ======== =======
Total return(b)......................... (16.65)% 26.13% 1.23 %(d)
Ratio of net expenses to average net
assets................................. 1.73 % 1.76% 1.80 %(c)
Ratio of net investment income (loss) to
average net assets..................... 0.40 % 0.51% (0.42)%(c)
Portfolio turnover rate................. 85.54 % 60.04% 0.00 %
Net assets at end of period (in
thousands).............................. $ 275,086 $269,091 $66,063
Ratios assuming no voluntary waiver of
distribution fees or expense
limitations:
Ratio of expenses to average net
assets................................ 1.98 % 2.01% 2.58 %(c)
Ratio of net investment income (loss)
to average net assets................. 0.15 % 0.26% (1.20)%(c)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIA GROWTH FUND FOR THE
PERIOD ENDED
JANUARY 31,
1995(E)
------------
<S> <C>
Net asset value, beginning of period.......................... $ 14.18
--------
Income (loss) from investment operations:
Net investment income........................................ 0.11
Net unrealized loss on investments........................... (0.89)
Net realized and unrealized gain on foreign currency related
transactions................................................ 0.01
--------
Total loss from investment operations........................ (0.77)
--------
Distributions to shareholders:
From net investment income................................... (0.10)
--------
Total distributions to shareholders.......................... (0.10)
--------
Net decrease in net asset value............................... (0.87)
--------
Net asset value, end of period................................ $ 13.31
========
Total return(b)............................................... (5.46)%(d)
Ratio of net expenses to average net assets................... 1.90 %(c)
Ratio of net investment income to average net assets.......... 1.83 %(c)
Portfolio turnover rate....................................... 36.08 %
Net assets at end of period (in thousands).................... $124,298
Ratios assuming no voluntary waiver of distribution fees or
expense limitations:
Ratio of expenses to average net assets...................... 2.38% (c)
Ratio of net investment loss to average net assets........... 1.35% (c)
</TABLE>
- --------
(a) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(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 charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Potential equity investments for each Fund (other than the Select Equity Fund
which evaluates securities using both fundamental research and a variety of
quantitative techniques as described below under "Select Equity Fund")
generally are evaluated using fundamental analysis, including criteria such as
earnings, cash flow, asset values and/or dividend-paying ability. In choosing a
Fund's securities, the Investment Adviser utilizes first-hand fundamental
research, including visiting company facilities to assess operations and meet
decision-makers. The Investment Advisers may also use a macro analysis of
numerous economic and valuation variables to determine and anticipate changes
in company earnings and the overall investment climate. Each Investment Adviser
is able to draw on the research and market expertise of the Goldman Sachs
Research Department and other affiliates of the Investment Adviser as well as
information provided by other securities dealers.
The Investment Advisers intend to purchase equity securities of companies
that are, in their view, underpriced relative to a combination of such
companies' long-term earnings prospects, growth rate, free cash flow and/or
dividend-paying ability. The Funds may also purchase securities of companies
that have experienced difficulties and that, in the opinion of an Investment
Adviser, are available at attractive prices. Consideration will be given to the
business quality of the issuer. Factors positively affecting an 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 market 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.
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.
The investment objectives and principal investment policies of each Fund are
described below. Certain other investment practices and management techniques,
which involve certain risks, as well as the minimum rating criteria with
respect to a Fund's investments in fixed income securities, are described under
"Special Investment Methods and Risk Factors."
BALANCED FUND
The Balanced Fund's investment objective is to provide its shareholders with
current income and long-term capital growth. The Fund seeks to achieve its
objective by investing in a diversified portfolio of equity and fixed income
securities. Under normal market conditions, the Fund will invest at least 25%
of its total assets in fixed income senior securities and the remainder of its
assets in equity and equity-related securities, other fixed income securities
and cash. Under normal market conditions, the Investment Adviser expects that
the Fund generally will invest between 50% and 70% of its total assets in
equity securities. The Fund will invest in fixed income securities primarily to
provide income for regular quarterly dividends while seeking capital
appreciation primarily through the equity component of its portfolio. The
percentage of the portfolio invested in equity and fixed income securities will
vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This is subject to the Fund's intention to pay regular quarterly
dividends. The amount of quarterly dividends can also be expected to fluctuate
in accordance with factors such as prevailing interest rates and the percentage
of the Fund's assets invested in fixed-income securities.
14
<PAGE>
The equity securities in which the Fund will invest consist of common stocks,
preferred stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures and similar enterprises, warrants and stock
purchase rights and other rights to acquire stock that the Investment Adviser
believes offer the potential for capital appreciation. Although the Fund's
equity investments will 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 and
economies, and equity securities quoted in a foreign currency. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income include
interests in real estate investment trusts, convertible securities, preferred
stocks, utility stocks and interests in limited partnerships.
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
duration of a target, and instead focuses on seeking to add value through
sector selection, security selection and yield curve strategies.
The Fund's fixed income securities will primarily include securities issued
by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises, corporations or other entities, mortgage-backed and asset-backed
securities, municipal securities and custodial receipts. The Fund may also
invest in debt obligations (dollar and non-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 Fund's investments in fixed income securities that are issued by
foreign issuers, including issuers in countries with emerging markets may not
exceed 10% of the Fund's total assets.
SELECT EQUITY FUND
The Select Equity Fund's investment objective is to provide its shareholders
with a total return through investments in equity securities consisting of
capital appreciation plus dividend income that, net of Fund expenses, exceeds
the total return realized on the S&P 500 Index. Under normal circumstances, the
Fund will invest at least 90% of its total assets in equity securities. The
Fund may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund seeks to
achieve its investment objective by investing in a portfolio of equity
securities selected using both fundamental research and a variety of
quantitative techniques which seek to maximize the Fund's reward to risk ratio.
The Fund's portfolio is designed to have risk, capitalization and industry
characteristics similar to the S&P 500 Index. The Investment Adviser begins
with a universe primarily of large capitalization equity securities. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Investment Research Department (the "Research
Department") a second rating will be assigned based upon the Research
Department's evaluation. In selecting securities for the Fund, the Investment
Adviser utilizes optimization models to evaluate the ratings assigned by the
Multifactor Model and the Research Department to build a diversified portfolio.
This portfolio will be primarily comprised of securities rated highest by the
Investment Adviser's Multifactor Model and research analysts and will have risk
characteristics and industry weightings similar to the S&P 500 Index. Under
normal conditions, the securities of any one issuer may not exceed 5% of the
Fund's total assets.
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The Multifactor Model is a sophisticated computerized rating system for
valuing equity securities according to fundamental investment characteristics.
The factors used by the Multifactor Model incorporate many variables studied by
traditional fundamental analysis, and cover measures of value, yield, growth,
momentum, risk and liquidity (e.g., price/earnings ratio, book/price ratio,
long and short-term growth estimates, earning estimates, price momentum,
volatility and liquidity). All of the factors used by the Multifactor Model
have been shown to significantly impact the performance of equity securities.
The weightings assigned to the factors are derived using a statistical
formulation that considers each factor's historical performance in different
market environments. As such, the Multifactor Model is designed to evaluate
each security using only the factors that are statistically related to returns
in the anticipated market environment. Because it includes many disparate
factors, the Investment Adviser believes that the Multifactor Model is broader
in scope and provides a more thorough evaluation than most conventional, value-
oriented quantitative models. As a result, the securities ranked highest by the
Multifactor Model do not have one dominant investment characteristic (such as a
low price/earnings ratio); rather, such securities possess a number of
attractive investment characteristics.
If the equity security is followed by the Research Department, the security
is also assigned a rating based upon the Research Department's evaluation. The
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." With an annual budget
of more than $120 million, the Research Department has a staff of approximately
150 senior professionals who follow over 1,700 issuers. By employing both a
quantitative (i.e., the Multifactor Model) and a qualitative (i.e., the
analyst's ratings) method of selecting securities, the Fund seeks to capitalize
on the strengths of each discipline.
GROWTH AND INCOME FUND
The Growth and Income Fund's investment objectives are to provide its
shareholders with long-term growth of capital and growth of income. The Fund
seeks to achieve its investment objectives by investing, under normal market
conditions, at least 65% of its total assets in equity securities that the
Investment Adviser considers to have favorable prospects for capital
appreciation and/or dividend paying ability. Equity securities in which the
Fund may invest consist of common stocks, preferred stocks, convertible
securities, warrants and stock purchase rights and interests in real estate
investment trusts. These securities may or may not pay a current dividend. The
Fund may invest up to 35% of its total assets in mortgage-backed, asset-backed
and fixed income securities issued by corporations or other entities or by the
U.S. Government or its agencies, instrumentalities or sponsored enterprises if
such securities, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in countries with emerging markets and economies.
CAPITAL GROWTH FUND
The Capital Growth Fund's investment objective is to provide its shareholders
with long-term growth of capital. This objective is a fundamental policy that
cannot be changed without shareholder approval. The Fund seeks to achieve its
investment objective by investing primarily in securities that are considered
by the Investment Adviser to have long-term capital appreciation potential.
Among such investments, the Fund emphasizes the purchase of common stocks, but
may also purchase convertible debt securities, convertible preferred stock,
warrants, mortgage-backed and asset-backed securities and lower rated or
unrated debt
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obligations that the Investment Adviser believes offer the potential for long-
term capital growth. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities, including common stocks,
convertible securities, preferred stocks, warrants and stock purchase rights,
and interests in real estate investment trusts. At least 75% of the Fund's
total assets will be invested in securities of U.S. issuers and no more than
25% of the Fund's total assets may be invested in foreign equity or fixed
income securities, including issuers in countries with emerging markets and
economies. Up to 25% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by corporate issuers (both domestic and
foreign), the U.S. Government, or its agencies, instrumentalities or sponsored
enterprises that in the opinion of the Investment Adviser offer long-term
capital appreciation possibilities.
SMALL CAP EQUITY FUND
The Small Cap Equity Fund's investment objective is to provide its
shareholders with long-term capital growth. Dividend income, if any, is an
incidental consideration. The Fund seeks to achieve its investment objective by
investing, 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. However, the Fund currently
emphasizes investments in companies with public stock market capitalizations of
$500 million or less at the time of investment. Under normal market conditions,
the Fund's investment horizon for ownership of stocks will be two to three
years. Equity securities in which the Fund may invest include common stocks,
preferred stocks, convertible securities, warrants and interests in real estate
investment trusts. The Fund will invest 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 capitalization companies
which may have experienced financial difficulties. Investments may also be made
in companies that are in the early stages of their life and that the Investment
Adviser believes have significant growth potential. The Investment Adviser
believes that the companies in which the Fund may invest offer greater
opportunity for growth of capital than larger, more mature, better known
companies. However, investments in such small capitalization companies involve
special risks. See "Special Investment Methods and Risk Factors--Investing in
Small Capitalization Companies." The Investment Adviser expects that the Fund
will typically invest in the securities of approximately 30 to 50 companies.
The number of stocks owned is intended to provide the Fund with a moderate
level of diversification while at the same time not diluting the impact of any
one investment. However, the Fund is considered "non-diversified" as defined in
the Act. See "Special Investment Methods and Risk Factors--Non-Diversification
Status." 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 issuers in countries with emerging markets and economies. Up to 35%
of its total assets may be invested in the equity securities of companies with
public stock market capitalizations in excess of $1 billion and in fixed income
securities, which may include notes, bonds, debentures, government securities
and zero coupon bonds.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to provide its
shareholders with long-term capital appreciation. Under normal market
conditions, the Fund will seek to achieve its objective by investing
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The equity securities in which the Fund will
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primarily invest will consist of common stock, preferred stock, convertible
debt obligations, convertible preferred stock and warrants or other rights to
acquire stock that the Investment Adviser believes offer the potential for
long-term capital appreciation. The Fund expects to invest a substantial
portion of its assets in the securities of companies located in the developed
countries in Western Europe and in Japan. However, the Fund may also invest in
the securities of issuers located in the following countries: Argentina,
Australia, Bangladesh, Brazil, Canada, Chile, China, Colombia, Czech Republic,
Egypt, Hong Kong, Hungary, India, Indonesia, Israel, Jamaica, Jordan, Kenya,
Kuwait, Malaysia, Mexico, Morocco, New Zealand, Nigeria, Pakistan, Philippines,
Poland, The Republic of Slovakia, Singapore, South Korea, Sri Lanka, South
Africa, Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. Many of the countries
in which the Fund may invest have emerging markets or economies which involve
certain risks as described below under "Special Investment Methods and Risk
Factors--Special Risks of Investments in the Asian and Other Emerging Markets,"
which are not present in investments in more developed countries. The number of
stocks in which the Fund will typically invest is intended to provide the Fund
with a moderate level of diversification while at the same time not diluting
the impact of any one investment. However, the Fund is considered "non-
diversified" as defined in the Act. See "Special Investment Methods and Risk
Factors-Non-Diversification Status."
The Fund may employ certain currency techniques to seek to hedge against
currency exchange rate fluctuations or to seek to increase total return. When
used to enhance return, these management techniques are considered speculative.
Such currency management techniques involve risks different from those
associated with investing solely in dollar-denominated securities of U.S.
issuers. To the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Special Investment Methods and
Risk Factors."
The Fund may invest in debt obligations (i) issued by foreign and U.S.
corporate, mortgage- and asset-backed issuers, (ii) issued or guaranteed by the
U.S. Government, foreign governments, or their respective agencies,
instrumentalities, political subdivisions and authorities and (iii) issued or
guaranteed by international or supranational organizations. The Fund will not,
under normal conditions, invest more than 35% of its total assets in such debt
obligations.
ASIA GROWTH FUND
The Asia Growth Fund's investment objective is to provide its shareholders
with long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Under normal market conditions, the Fund will invest substantially
all, and at least 65%, of its total assets in equity securities of companies
that satisfy at least one of the following criteria: (i) their securities are
traded principally on stock exchanges in one or more of the Asian countries,
(ii) they derive 50% or more of their total revenue from goods produced, sales
made or services performed in one or more of the Asian countries, (iii) they
maintain 50% or more of their assets in one or more of the Asian countries, or
(iv) they are organized under the laws of one of the Asian countries. For
purposes of the Fund's investment policies, Asian countries are China, Hong
Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and Thailand as well as any other country in the Asian
region (other than Japan) to the extent that foreign investors are permitted by
applicable law to make such investments. Many of the countries in which the
Fund may invest have emerging markets or economies which involve certain risks
as
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described below under "Special Investment Methods and Risk Factors--Special
Risks of Investments in the Asian and Other Emerging Markets," which are not
present in investments in more developed countries. The equity securities in
which the Fund will primarily invest will consist of common stock, preferred
stock, convertible debt obligations, convertible preferred stock, equity
interests in trusts, partnerships, joint ventures and similar enterprises,
warrants and stock purchase rights. The Fund may purchase equity securities of
issuers that have not paid dividends on a timely basis, securities of companies
that have experienced difficulties, and securities of companies without
performance records. The Investment Adviser expects that the Fund will
typically invest in the securities of approximately 25 to 40 companies. The
Fund intends to purchase that number of stocks which it believes will provide
the Fund with a moderate level of diversification while at the same time not
diluting the impact of any one investment. However, the Fund is considered
"non-diversified" as defined in the Act. See "Special Investment Method and
Risk Factors--Non-Diversification Status."
The Fund may employ certain currency management techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to increase total return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in dollar-denominated
securities of U.S. issuers. To the extent that the Fund is fully invested in
foreign securities while also maintaining currency positions, it may be exposed
to greater combined risk. The Fund's net currency positions may expose it to
risks independent of its securities positions. See "Special Investment Methods
and Risk Factors."
The Fund may allocate its assets among the Asian countries as determined from
time to time by the Investment Adviser. Allocation of the Fund's investments
will depend upon the relative attractiveness of the Asian markets and
particular 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 geographically concentrated. See "Special
Investment Methods and Risk Factors--Foreign Transactions." The Fund may invest
up to 35% of its total assets in equity securities of issuers in other
countries, including Japan, and fixed income securities. The Fund may invest in
fixed income securities (i) issued by foreign and U.S. corporate, mortgage- and
asset-backed issuers, (ii) issued or guaranteed by the U.S. Government, foreign
governments, or their respective agencies, instrumentalities, political
subdivisions and authorities and (iii) issued or guaranteed by international or
supranational organizations.
SPECIAL INVESTMENT METHODS AND RISK FACTORS
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar quality.
As with all debt securities, the market value of convertible securities tends
to decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the convertible security
tends to reflect the market price of the underlying common stock. As the market
price of the underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock. Convertible securities rank
senior to common stocks in an issuer's capital
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structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), or if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities, in which the Select Equity Fund invests,
are not subject to any minimum rating criteria. The convertible debt securities
in which the other Funds may invest are subject to the same rating criteria as
a Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
WARRANTS AND STOCK PURCHASE RIGHTS
Each Fund may purchase warrants and stock purchase rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an
investment in warrants and stock purchase rights may be considered to entail
greater investment risk than certain other types of investments. In addition,
the value of warrants and stock purchase rights does not necessarily change
with the value of the underlying securities, and they cease to have value if
they are not exercised on or prior to their expiration date. Investment in
warrants and stock purchase rights increases the potential profit or loss to be
realized from the investment of a given amount of a Fund's assets as compared
with investing the same amount in the underlying stock.
FOREIGN TRANSACTIONS
FOREIGN SECURITIES. Investments in foreign securities may offer potential
benefits that are not available from investments exclusively in securities of
domestic issuers. Foreign issuers may offer better investment opportunities
than domestic securities. Foreign countries may have economic policies or
business cycles different from those of the United States and securities
markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign or
U.S. laws or restrictions applicable to such investments and in exchange
control regulations (e.g., currency blockage). Some foreign exchanges may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign companies may be less liquid than securities of
comparable domestic companies. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
company than about a domestic company. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of
withholding taxes on dividend or interest payments, limitations on the removal
of funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
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INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American Depository
Receipts ("ADRs") and Global Depository Receipts ("GDRs"), and each Fund, other
than the Select Equity Fund, 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. Prices of ADRs are quoted in U.S. dollars and are traded in the United
States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency as
the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions such as stock splits or rights offerings involving
the foreign issuer in a timely manner. In addition, the lack of information may
result in inefficiencies in the valuation of such instruments. Investment in
Depository Receipts does not eliminate all the risks inherent in investing in
securities of non-U.S. issuers. The market value of Depository Receipts is
dependent upon the market value of the underlying securities and fluctuations
in the relative value of the currencies in which the Depository Receipt and the
underlying securities are quoted. However, by investing in Depository Receipts,
such as an ADR, that are quoted in U.S. dollars, a Fund will avoid currency
risks during the settlement period for purchases and sales.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in emerging markets involves
risks in addition to those discussed above. The International Equity and Asia
Growth Funds may each invest without limit in the securities of issuers in
countries with emerging economies or securities markets. The Balanced, Growth
and Income, Capital Growth, and Small Cap Equity Funds may invest up to 15%,
25%, 10% and 25%, respectively, of their total assets in securities of issuers
in countries with emerging economies or securities markets. These emerging
markets 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 markets 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 and its affiliates and
their respective clients and other service providers. A Fund may not be able to
sell securities in circumstances where price, trading or settlement volume
limitations have been reached.
Foreign investment in the securities markets of certain emerging markets is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a specific class
of securities which may have less advantageous terms (including price) than
securities of such company available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by a Fund. Due to restrictions on direct investment in equity
securities in certain Asian countries, such as Taiwan, it is anticipated that a
Fund may invest in such countries only through other investment funds in such
countries. See "Other Investment Companies." Furthermore, the repatriation of
both investment income and capital from several of the Asian countries is
subject to restrictions such as the need for certain governmental consents.
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Many of the emerging markets may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the United
States and Japan. Many of the emerging markets do not have fully democratic
governments. For example, some governments of emerging market countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging markets have periodically
used force to suppress civil dissent. Disparities of wealth, the pace and
success of democratization, and ethnic, religious and racial disaffection,
among other factors, have also led to social unrest, violence and/or labor
unrest in some of the Asian and other countries. The economies of most of the
emerging markets are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and the economic conditions
of their trading partners, principally, the United States, Japan, China and the
European Union. In addition, the economies of some of the emerging markets are
vulnerable to weakness in world prices for their commodity exports.
Settlement procedures in emerging markets are frequently less developed and
reliable than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for a Fund to
value its portfolio securities and could cause the Fund to miss attractive
investment opportunities, to have a portion of its assets uninvested or to
incur losses due to the failure of a counterparty to pay for securities the
Fund has delivered or the Fund's inability to complete its contractual
obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the emerging market countries. Consequently, there can be
no assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
FOREIGN CURRENCY TRANSACTIONS. A Fund may, to the extent it invests in
foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes. A Fund may enter into forward foreign currency
exchange contracts to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, the International Equity and Asia
Growth Funds may enter into such contracts to seek to increase total return
when the Investment Adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities denominated or quoted in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio. When entered into to seek to increase total return,
forward foreign currency exchange contracts are considered speculative. The
International Equity and Asia Growth 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 correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency or
the International Growth or Asia Growth Funds enter into forward foreign
currency exchange contracts to sell foreign currency to seek to increase total
return, the Fund will be required to place and maintain cash or liquid, high
grade debt securities in a segregated account with the Fund's custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. The Fund will incur costs in connection
with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate
as well. 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
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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. 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. To the extent that a
substantial portion of a Fund's total assets, adjusted to reflect the Fund's
net position after giving effect to currency transactions, is denominated or
quoted in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries.
The market in forward foreign currency exchange contracts used by each Fund,
and currency swaps and other privately negotiated currency instruments
authorized for use by the International Equity and Asia Growth Funds, offers
less protection against defaults by the other party to such instruments than is
available for currency instruments traded 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 the Fund of unrealized profits, transaction costs or the benefits of a
currency hedge or force the Fund to cover its purchase or sale commitments, if
any, at the current market price. A Fund will not enter into such transactions
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.
In addition to investing in securities denominated or quoted in a foreign
currency, the International Equity and Asia Growth Funds may engage in a
variety of foreign currency management techniques. The Funds may hold foreign
currency received in connection with investments in foreign securities when, in
the judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate. However, due to the limited market for these
instruments with respect to the currencies of certain Asian countries, the
Investment Adviser does not currently anticipate that a significant portion of
Asia Growth Fund's currency exposure will be covered by such instruments. The
opportunity for hedging currency exposure to other emerging markets is also
generally limited. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
Because investment in foreign issuers will usually involve currencies of
foreign countries, and because the International Equity and Asia Growth Funds
may have currency exposure independent of their securities positions, the value
of the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates.
OPTIONS ON FOREIGN CURRENCIES. A Fund may, to the extent it invests in
foreign securities, purchase and sell (write) 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 anticipated dividends on such
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the International Equity and Asia Growth Funds may
use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different currency, if there is a pattern of correlation between the two
currencies. 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. A 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
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position, the Fund may forfeit the entire amount of the premium plus related
transaction costs. In addition to purchasing put and call options for hedging
purposes, the International Equity and Asia Growth Funds may purchase call or
put options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
INVESTING IN SMALL CAPITALIZATION COMPANIES
The Small Cap Equity Fund will emphasize and the other Funds may invest in
smaller, lesser-known companies which the Investment Adviser believes offer
greater capital appreciation and/or growth potential than larger, more mature,
better known firms. Investing in the securities of such companies, however,
involves greater risk and the possibility of greater portfolio price
volatility. Historically, small capitalization stocks and stocks of recently
organized companies have been more volatile in price than the larger
capitalization stocks included in the S&P 500 Index. Among the reasons for the
greater price volatility of these small company and unseasoned stocks are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such stocks.
FIXED INCOME SECURITIES
Each Fund may invest in U.S. Government securities and corporate and certain
other fixed income securities. Select Equity Fund may only invest in debt
securities that are considered cash equivalents. Fixed income securities are
subject to the risk of the issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Except to the extent that values are independently affected by currency
exchange rate fluctuations, when interest rates decline, the value of fixed
income securities can generally be expected to rise. Conversely, when interest
rates rise, the value of fixed income securities can be expected to decline.
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
of interest.
RATING CRITERIA. The debt securities in which the Balanced, Growth and
Income, International Equity and Asia Growth Funds may invest will, except as
noted below, be rated investment grade at the time of investment. Investment
grade debt securities are securities rated BBB or higher by S&P or Baa or
higher by Moody's. A security will be deemed to have met a rating requirement
if it receives the minimum required rating from at least one such rating
organization even though it has been rated below the minimum rating by one or
more other rating organizations, or if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. The
Balanced Fund may invest up to 10% of its total assets in debt securities that
are rated BB or B by S&P or Ba or B by Moody's or, if unrated by such rating
organizations, determined by the Investment Adviser to be of comparable credit
quality. The Capital Growth, Small Cap Equity and Growth and Income Funds may
invest up to 25%, 35% and 10%, respectively, of their total assets in debt
securities which are unrated or rated in the lowest rating categories by S&P or
Moody's (i.e., BB or lower by S&P or Ba or lower by Moody's), including
securities rated D by Moody's or S&P. Fixed income securities rated BB or Ba or
below (or comparable unrated securities) are commonly referred to as "junk
bonds" and are considered predominantly speculative and may be questionable as
to principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects
24
<PAGE>
for reaching investment grade standing and be in default. As a result,
investment in such bonds will entail greater speculative risks than those
associated with investment in investment-grade bonds (i.e., bonds rated AAA,
AA, A or BBB by S&P or Aaa, Aa, A or Baa by Moody's). Also, to the extent that
the rating assigned to a security in a Fund's portfolio is downgraded by a
rating organization, the market price and liquidity of such security may be
adversely affected. See Appendix A to the Additional Statement for a
description of the corporate bond ratings assigned by S&P and Moody's.
GOVERNMENT DEBT OBLIGATIONS. Each Fund may invest in U.S. Government
securities which include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprise thereof supported by the full
faith and credit of the U.S. Government, the authority of the issuer to borrow
from the U.S. Treasury, or the discretionary authority of the U.S. Government
to purchase the obligations of the agency, instrumentality or enterprise;
obligations fully guaranteed as to principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; obligations of
U.S. Government agencies, instrumentalities or state government agencies or
instrumentalities, which may or may not be entitled to the full faith and
credit of the issuer. 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. A Fund's investment in zero coupon securities may require the
Fund to sell certain of its portfolio securities to generate sufficient cash to
satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the Select
Equity Fund) may invest in mortgage-backed securities, which represent direct
or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. Each Fund (other than the Select
Equity Fund) may also invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates would indicate as a result of the
pass-through of prepayments of principal on the underlying loans which may
increase the volatility of such investments relative to similarly rated debt
securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities can be expected to
accelerate and thus impair a Fund's ability to reinvest the returns of
principal at comparable yields. During periods of rising interest rates,
reduced prepayment rates may extend the average life of mortgage-backed and
asset-backed securities and increase a Fund's exposure to rising interest
rates. Accordingly, the market values of such securities will vary with changes
in market interest rates generally and in yield differentials among various
kinds of U.S. Government securities and other mortgage-backed and 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. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support payments
on these securities.
The Balanced Fund may also invest in stripped mortgage-backed securities
("SMBS") (including interest only and principal only securities), which are
derivative mortgage securities. SMBS are usually structured with two classes
that receive different proportions of the interest and principal distributions
from a pool of mortgage assets. The Fund's investments in such securities are
subject to the risk that if mortgage assets
25
<PAGE>
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities.
STRUCTURED SECURITIES. The Balanced Fund may invest in structured notes,
bonds or debentures. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of the Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, changes in the interest rates or the value of the security at
maturity may be a multiple of changes in the value of the Reference.
Consequently, structured securities may entail a greater degree of market risk
than other types of fixed income securities. Structured securities may also be
more volatile, less liquid and more difficult to accurately price than less
complex securities.
BANK OBLIGATIONS. The Balanced Fund may invest in U.S. dollar denominated
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.
MORTGAGE DOLLAR ROLLS. The Balanced Fund may enter into mortgage "dollar
rolls" in which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) securities on a specified future date.
During the roll period the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. The Fund will hold and
maintain in a segregated account until the settlement date cash or liquid, high
grade debt securities in an amount equal to the forward purchase price. The
benefits derived from the use of mortgage dollar rolls may depend upon the
Investment Adviser's ability to predict correctly mortgage prepayments and
interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund, other than the Select Equity Fund, may purchase put and call
options and write (sell) covered call and put options on any securities in
which it may invest or on any securities index composed of
26
<PAGE>
- --------------------------------------------------------------------------------
SEND TO:
The Goldman Sachs Portfolios
c/o NFDS
ACCOUNT APPLICATION P.O. Box 419711
Kansas City, MO 64141-6711
PLEASE PRINT OR TYPE ALL INFORMATION
ANY QUESTIONS? CALL GSAM AT:
1-800-526-7384
I. FUND SELECTION (MINIMUM $1,500 PER FUND)
<TABLE>
<CAPTION>
FUND NAME (AND NUMBER) AMOUNT
---------------------- ------
<S> <C>
[_] Asia Growth Fund (380) $
[_] Balanced Fund (670) $
[_] Capital Growth Fund (07) $
[_] Growth & Income Fund (114) $
[_] International Equity Fund
(115) $
[_] Select Equity Fund-A (117) $
[_] Small Cap Equity Fund (119) $
[_] Adjustable Rate Government Agency
Fund-A (677) $
[_] Global Income Fund-A (118) $
[_] Government Income Fund (112) $
[_] Municipal Income Fund (116) $
[_] ILA-Prime Obligations Portfolio-C
(16)* $
[_] ILA-Tax-Exempt Diversified Portfo-
lio-C (120)* $
[_] Other: $
</TABLE>
* Minimum $10,000 or transfer balance of
existing fund
A check in the amount of $ is enclosed.
If your order is placed through a broker, insert the order number here:
and the date of order here:
If you are exempt from sales charges, check here [_]. By checking this box I
certify that I am exempt from the sales charge in accordance with the terms of
the applicable Fund's prospectus and I agree to notify Goldman, Sachs & Co. at
or prior to purchase if I am no longer eligible for exemption. Reason for
Exemption:
II. ACCOUNT REGISTRATION (CHECK ONE) AND MAILING ADDRESS
[_] INDIVIDUAL
__________________________________ ___________________________
First Middle Last Social Security Number
[_] MULTIPLE OWNERS
(INCLUDING SPOUSES)
(as Joint Tenants with Rights of Survivorship)
__________________________________ ___________________________
First Middle Last Social Security Number
__________________________________ ___________________________
First Middle Last Social Security Number
[_] GIFT TO MINOR
_________________________________
Name of Custodian
_________________________________ ___________________________
Name of Minor Social Security Number of
Minor
Under the ________________ Uniform Gift to Minors Act _____________
State of Minor's Birthdate of
Residence Minor
[_] CORPORATION,
TRUST OR
OTHER ENTITY
__________________________________ ___________________________
Name of Corporation, Trust or Other Federal Tax I.D. Number
Entity
_________________________________ ___________________________
Date of Trust Instrument Name of Trustee (If to be
included in account
registration)
_________________________________
Name of Beneficiary (If to be
included in account registration)
MAILING
ADDRESS
__________________________________________________________________
Street Address or Post Office Box
__________________________________________________________________
City State Zip Code
_________________________ ________________________
Attention (if applicable) Daytime Telephone Number
<PAGE>
- --------------------------------------------------------------------------------
III. DIVIDEND AND DISTRIBUTION ALTERNATIVES (CHECK ONE)
[_] All dividends and distributions to be reinvested in my account. (This
option will apply if no box is checked.)
[_] All dividends and distributions to be sent by check to me at the address in
"Account Registration."
[_] All dividends and short-term capital gains distributions to be sent to me
by check at the address in "Account Registration", long- term capital gains
distributions to be reinvested in my account.
[_] All dividends and distributions to be invested in another Goldman Sachs
Portfolio.
If so, insert name of Fund here:________________________________________.
Insert name of account registration here:_____ and account number here:______.
[_] All distributions to be sent by check to a special payee (i.e., someone
other than you):
Name: ________________________________________________________________________
Street Address: ______________________________________________________________
City: __________________ State: _____________ Zip Code: ___
[_] All dividends and distributions to be directly deposited to the following
bank account: (ATTACH CHECK MARKED "VOID"):
Account Number: _______________
Bank Name: _____________________________
ABA Routing #: _________________________
Street Address: ________________________ Name on Account: _________
City: __________________ State: _____________ Zip Code: _____________________
IV. RIGHT OF ACCUMULATION (OPTIONAL)
If you previously purchased Goldman Sachs Portfolios on which you paid a
sales charge, and when combined with this purchase the total is $50,000 or
more, you may qualify for a reduced sales charge on this purchase. Purchases
by (a) spouses and children, (b) fiduciaries as to a single trust account, (c)
persons affiliated with the same business enterprise and (d) clients of
Goldman Sachs' PCS Division as to affiliated accounts, may qualify to be
aggregated. See the Statement of Additional Information or call Goldman Sachs
for additional details. List below accounts which should be aggregated for a
right of accumulation. Attach an additional page if necessary.
Name ____________________________ Name ____________________________
Fund ____________________________ Fund ____________________________
Acct No. ________________________ Acct No. ________________________
V. STATEMENT OF INTENTION (OPTIONAL)
Although not obligated to do so, I intend to invest, over a 13-month period
from this date, in shares of the Fund alone or in combination with shares of
any other fund, on which sales charge was paid, which qualify for a quantity
discount as described in the accompanying Prospectus, in an amount that will
equal or exceed the amount circled below. I agree to the Statement of Intention
and Escrow Agreement in the Appendix to the accompanying Prospectus and
incorporated by reference herein. Circle one:
$50,000 $100,000 $250,000 500,000 $1,000,000 $3,000,000
VI. AUTOMATIC INVESTMENT PLAN (OPTIONAL)
I authorize State Street Bank, the custodian for the Fund(s), to debit the
amount requested below from my bank account for investment in the Fund(s)
beginning in (month) and periodically thereafter. I understand that my
participation in the Automatic Investment Plan is subject to the terms and
conditions of such plan as amended from time to time.
Check One: [_] Monthly [_] Quarterly Check One: [_] 5th of the month
[_] 15th of the month (applicable unless 5th checked)
_________________________________________
Name of Fund $___________________________
Amount of each investment
(minimum $50)
_________________________________________
Name of Fund $___________________________
Amount of each investment
(minimum $50)
X X
___________________________ _____________________________________
Authorized Signature (as shown Authorized Signature (if joint bank
on bank records) account both sign)
_____________________________________ _____________________________
Bank Name Account Number
_____________________________________
Bank Street Address City State Zip Code
_____________________________________ _____________________________
ABA Routing # Name on Account
<PAGE>
- --------------------------------------------------------------------------------
VII.TELEPHONE EXCHANGE (CHECK IF APPLICABLE)
[_]I authorize Goldman, Sachs & Co. to accept and act upon telephone
instructions from myself or any other person for the exchange of shares of the
Fund(s) into any fund described in the accompanying prospectus. I understand
and agree that neither the Fund(s) nor Goldman, Sachs & Co. will be liable for
any loss, expense, or cost arising out of any telephone request effected
hereunder.
VIII.
TELEPHONE REDEMPTIONS (OPTIONAL) (ATTACH VOIDED CHECK)
[_] Goldman, Sachs & Co. is hereby authorized to honor telephone, telegraphic,
or other instructions, without signature guarantee, from any person for the
redemption of shares for the above account, without an obligation on behalf of
Goldman, Sachs & Co., to verify that such person is the shareholder of record
or authorized to give redemption instructions, provided that the proceeds are
transmitted to the following bank account only or are mailed to me at the
address in "Account Registration". Absent its own gross negligence neither the
Fund(s) nor Goldman, Sachs & Co. shall be liable for such redemption or for
payments made to any unauthorized account.
________________________________________________________________________________
Bank Name
ABA Routing #
________________________________________________________________________________
Bank Street Address City State Zip Code
_______________________________ _______________________________
Name(s) on Account Account Number
IX.AUTOMATIC EXCHANGES (OPTIONAL)
The originating Fund's balance must be at least $10,000 and the receiving
Fund's minimum investment must have been met prior to discontinuance.
I hereby authorize automatic exchanges of $ ______ (exact
dollars--$50 minimum):
Exchange from (Name of Fund) ____________________________
to (Name of Fund) _____________________________________
Account Name ____________________________________________
Account No. (if known) __________________________________
Please make exchanges on the 15th of the month (or next
business day) beginning the month of_______ Year________.
X.SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) (ATTACH VOIDED CHECK)
Frequency of withdrawals (check one): [_] Monthly [_] Quarterly Make
payments via (check one): [_] check [_] ACH (Attach voided check.)
Payments made via check are withdrawn from your account on or about the 25th of
the month.
Please withdraw $ from my account on the of each month beginning in
.
Complete the following section if withdrawal payments are to be made via ACH.
_______________________________ _______________________________
Bank Name
ABA Routing #
________________________________________________________________________________
Bank Street Address City State Zip Code
_______________________________ _______________________________
Name(s) on Account Account Number
Complete the following section if checks are to be paid to someone other than
registered owner(s).
________________________________________________________________________________
Name of check recipient
________________________________________________________________________________
Street Address City State Zip Code
<PAGE>
- --------------------------------------------------------------------------------
XI.CHECKWRITING PRIVILEGE FOR ILA ACCOUNTS (OPTIONAL)
[_]I have invested in the ILA-Prime Obligations Portfolio Service Units and/or
the ILA-Tax-Exempt Diversified Portfolio Service Units and would like an
application for checkwriting sent to me.
XII.
SIGNATURE AND CERTIFICATION--ALL REGISTERED OWNERS MUST SIGN
You are required by law to provide the Fund with your correct Social Security
or other Taxpayer Identification Number (TIN). Failure to do so and to complete
this section may subject you to penalties and result in backup withholding of
31% of Fund distributions or other payments. If you have been notified by the
IRS that you are subject to backup withholding because you failed to report all
of your interest and/or dividend income and have not received IRS notice that
such withholding should cease, you must cross out item (2) in this section. If
you do not have but are applying for a TIN, write "Applied For" in the space
provided for your TIN and provide your TIN and required certifications within
60 days. Backup withholding could apply to payments relating to your account
prior to the Fund's receipt of your TIN and required certifications. If you are
an exempt recipient, please furnish your TIN and write "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others. If you are a nonresident alien or foreign
entity, write "NRA" after your signature and provide a completed Form W-8 to
the Fund in order to avoid backup withholding on certain payments. I certify
under penalties of perjury that: (1) The number shown on this form is my
correct TIN (or I am waiting for a number to be issued to me), and (2) I am not
subject to backup withholding because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all interest
or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
By the execution of this Account Application, the undersigned represents and
warrants that it has full right, power and authority to make the investment
applied for pursuant to this Application and is acting for itself or in some
fiduciary capacity in making such investment. THE UNDERSIGNED UNDERSTANDS THAT
NON-MONEY MARKET FUNDS DO NOT MAINTAIN A CONSTANT NET ASSET VALUE AND FURTHER
THAT A CONSTANT NET ASSET VALUE IN MONEY MARKET FUNDS IS NOT GUARANTEED. AS A
RESULT THE UNDERSIGNED MAY EXPERIENCE A LOSS OF PRINCIPAL ON ITS INVESTMENTS.
The undersigned affirms that it has received a current Prospectus for the Funds
and has reviewed the same.
X _______________________________ X _______________________________
Signature of Owner, Date Signature of Co-Owner Date
Custodian or Officer
SPACE BELOW FOR DEALER USE ONLY
Investment dealer's signature is required for Systematic Withdrawal Plan
("SWP") or Statement of Intention. If an SWP is being opened, we believe that
the amount to be withdrawn is reasonable in light of the investor's
circumstances and we recommend establishment of the account.
________________________________________________________________________________
Name of Dealer Firm Home Office Location
________________________________________________________________________________
City State
Zip Code
________________________________________________________________________________
Branch Office Location
Branch Number/Branch Phone
________________________________________________________________________________
Authorized Signature State
Zip Code
________________________________________________________________________________
Reg. Rep. Name Reg. Rep's Number
<PAGE>
securities in which it may invest. A Fund will purchase and write such options
that are listed on national or foreign securities exchanges or traded in the
over-the-counter market. The writing and purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with direct investments in equity securities. The use of
options 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 puts for hedging purposes also depends in
part on the ability of the Investment Adviser to predict future price
fluctuations and the degree of correlation between the options and securities
markets. If the Investment Adviser is incorrect in its expectation of changes
in securities prices or determination of the correlation between the securities
indices on which options are written and purchased and the securities in a
Fund's investment portfolio, the investment performance of the Fund will be
less favorable than it would have been in the absence of such options
transactions. The writing of options could significantly increase a Fund's
portfolio turnover rate and, therefore, associated brokerage commissions or
spreads.
The Balanced Fund may also purchase options and write covered options on the
yield "spread," or yield 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency
exchange rates or to seek to increase total return, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. The Select Equity Fund may enter into
such transactions only with respect to the S&P 500 Index. A Fund will engage in
futures and related options transactions only for bona fide hedging purposes as
defined in regulations of the Commodity Futures Trading Commission or (except
with respect to transactions by the Balanced, Growth and Income, Select Equity,
Capital Growth and Small Cap Equity Funds, in futures on foreign currencies) to
seek to increase total return to the extent permitted by such regulations. A
Fund may not purchase or sell futures contracts or purchase or sell related
options to seek to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial margin
deposits and premiums paid on the Fund's outstanding positions in futures and
related options entered into for the purpose of seeking to increase total
return would exceed 5% of the market value of the Fund's net assets. These
transactions involve brokerage costs, require margin deposits and, in the case
of contracts and options obligating a Fund to purchase securities or
currencies, require the Fund to segregate and maintain cash or liquid, high
grade debt securities with a value equal to the amount of the Fund's
obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from the
use of futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance of the Fund than if it had not entered into any futures contracts
or options transactions. The loss incurred by a Fund in writing 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 net asset value. The profitability of a
27
<PAGE>
Fund's trading in futures to seek to increase total return depends upon the
ability of the Investment Adviser to correctly analyze the futures markets. In
addition, because of the low margin deposits normally required in futures
trading, a relatively small price movement in a futures contract may result in
substantial losses to a Fund. Further, futures contracts and options on futures
may be illiquid, and exchanges may limit fluctuations in futures contract
prices during a single day.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection
may not be obtained and the Fund may be exposed to risk of loss. Perfect
correlation between a Fund's futures positions and its portfolio positions will
be impossible to achieve. A Fund's transactions in options and futures
contracts may be limited by the requirements of the Internal Revenue Code of
1986, as amended (the "Code") for qualification as a regulated investment
company.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
FLOORS AND COLLARS
The Balanced Fund may enter into currency swaps for hedging purposes and the
International 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, index and interest rate swaps and other
interest rate swap arrangements such as rate caps, floors and collars, for
hedging purposes or to seek to increase total return. Currency swaps involve
the exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by a Fund with another party of the respective amounts
payable with respect to a notional principal amount at interest rates equal to
two specified indices. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below
a predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that
the Fund is contractually entitled to receive. In contrast, currency swaps
usually involve the delivery of a gross payment stream in one designated
currency in exchange for the gross payment stream in another designated
currency. Therefore, the entire payment stream under a currency swap is subject
to the risk that the other party to the swap will default on its contractual
delivery obligations. To the extent that the net amount payable under an
interest rate, index or mortgage swap and the entire amount of the payment
stream payable by a Fund under a currency swap or an interest rate floor, cap
or collar is held in a segregated account consisting of cash or liquid, high
grade debt securities, 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 restriction.
28
<PAGE>
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.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an 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 staff
of the SEC currently take the position that swaps, caps, floors and collars
are illiquid and thus subject to a Fund's 15% limitation on investments in
illiquid securities.
RISKS OF DERIVATIVE TRANSACTIONS
A Fund's transactions, if any, in options, futures, options on futures, swap
transactions, structured securities and currency forward contracts involve
certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets being hedged, the
potential illiquidity of the markets for derivative instruments, the risks
arising from the margin requirements and related leverage factors associated
with such transactions. The use of these management techniques to seek to
increase total return may be regarded as a speculative practice and involves
the risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices, interest rates or currency prices.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond customary settlement time. A Fund is required to hold and
maintain in a segregated account with the Fund's custodian until the
settlement date, cash or liquid, high grade debt securities in an amount
sufficient to meet the purchase price. Alternatively, each Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Although a Fund would generally purchase
securities on a when-issued or forward commitment basis with the intention of
acquiring securities for its portfolio, the Fund may dispose of when-issued
securities or forward commitments prior to settlement if its Investment
Adviser deems it appropriate to do so.
INVESTMENT IN UNSEASONED COMPANIES
Each Fund may invest up to 5% of its total assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities
which have been rated investment grade or better by at least one nationally
recognized statistical rating organization. The securities of such companies
may have limited liquidity, which can result in their being priced higher or
lower than might otherwise be the case. In addition, investments in unseasoned
companies are more speculative and entail greater risk than do investments in
companies with an established operating record.
ILLIQUID AND RESTRICTED SECURITIES
A Fund may not invest more than 10% of its total assets in securities that
are subject to restrictions on resale ("restricted securities") under the
Securities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund
will not invest more
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<PAGE>
than 15% of its net assets in illiquid investments, which includes securities
(both foreign and domestic) that are not readily marketable, swap transactions,
repurchase agreements maturing in more than seven days, time deposits with a
notice or demand period of more than seven days, certain over-the-counter
options, and certain restricted securities, unless it is determined, based upon
the continuing review of the trading markets for a specific restricted
security, that such restricted security is eligible for sale under Rule 144A
and, therefore, is liquid. The Board of Directors has adopted guidelines and
delegated to the Investment Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board of Directors,
however, retains oversight focusing on factors such as valuation, liquidity and
availability of information and is ultimately responsible for each
determination. Investing in restricted securities eligible for resale pursuant
to Rule 144A could have the effect of increasing the level of illiquidity in
the Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price and
subsequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.
OTHER INVESTMENT COMPANIES
A Fund reserves the right to invest up to 10% of its total assets in the
securities of other investment companies, but may not invest more than 5% of
its total assets in the securities of any one investment company or 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 paid by the Fund.
However, to the extent that the Fund invests in a money market fund for which
an Investment Adviser acts as 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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The International Equity and Asia Growth Funds may
also enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a loss
to the extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the related repurchase
agreement are less than the repurchase price. In addition, in the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, the Fund could suffer losses, including loss of interest on or
principal of the security and costs associated with delay and enforcement of
the repurchase agreement. The Directors of the Company have reviewed and
approved certain sellers whom they believe to be creditworthy and have
authorized the Funds to enter into repurchase agreements with such sellers. In
addition, each Fund, together with other registered investment companies having
advisory agreements with an Investment Adviser, may transfer uninvested cash
balances into a single joint account, the daily aggregate balance of which will
be invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions, such
as certain broker-dealers, and are required to be secured
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<PAGE>
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the total
assets of a Fund. See "Investment Restrictions" in the Additional Statement. A
Fund may experience a loss or delay in the recovery of its securities if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the Select Equity Fund) may make short sales of
securities or maintain a short position, provided that at all times when a
short position is open the Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. Short sales will be made primarily to defer realization of
gain or loss for federal tax purposes; a gain or loss in a Fund's long position
will be offset by a gain or loss in its short position.
TEMPORARY INVESTMENTS
Notwithstanding a Fund's investment objective, each Fund may on occasion, for
temporary defensive purposes to preserve capital, hold part or all of its
assets (except that the Select Equity Fund may only hold up to 35% of its total
assets) in cash, obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities, political subdivisions or authorities, commercial
paper rated at least A-2 by S&P or P-2 by Moody's, certificates of deposit,
bankers' acceptances, repurchase agreements, non-convertible preferred stocks,
non-convertible corporate bonds with a remaining maturity of less than one year
or, subject to certain tax restrictions, foreign currencies. When a Fund's
assets are invested in such instruments, the Fund may not be achieving its
investment objective.
NON-DIVERSIFICATION STATUS
Since the Small Cap Equity, International Equity and Asia Growth Funds are
"non-diversified" under the Act, they are subject only to certain federal tax
diversification requirements. Under federal tax laws, each of these Funds may,
with respect to 50% of its total assets, invest up to 25% of its total assets
in the securities of any issuer (except that this limitation does not apply to
U.S. Government securities). With respect to the remaining 50% of a Fund's
total assets, (1) the Fund may not invest more than 5% of its total assets in
the securities of any one issuer (other than the U.S. Government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject to certain conditions and limitations under the Code. With
respect to 75% of each non-diversified Fund's total assets, the Fund, as a
matter of investment policy, may not acquire more than 10% of the outstanding
voting securities of any one issuer. Since the Small Cap Equity, International
Equity and Asia Growth Funds are not diversified under the Act, they will be
more susceptible to adverse developments affecting any single issuer. The
Balanced, Select Equity, Growth and Income and Capital Growth Funds are also
subject to the same tax diversification requirements in addition to the
diversification requirements arising out of their diversified status under the
Act.
31
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described in
detail under "Investment Restrictions" in the Additional Statement. These
investment restrictions are fundamental policies of a Fund that can not be
changed without approval of a majority of the outstanding shares of that Fund.
For more information on a Fund's investment restrictions, an investor should
obtain the Additional Statement. 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, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights" for a
statement of each Fund's historical portfolio turnover ratio. The portfolio
turnover rate is calculated by dividing the lesser of the dollar amount of
sales or purchases of portfolio securities by the average monthly value of a
Fund's portfolio securities, excluding securities having a maturity at the date
of purchase of one year or less. Notwithstanding the foregoing, the Investment
Adviser may, from time to time, make short-term investments when it believes
such investments are in the best interest of a Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for deciding matters of
general policy and reviewing the actions of the Investment Advisers,
Subadviser, administrator, distributor and transfer agent. The officers of the
Company conduct and supervise each Fund's daily business operations. The
Additional Statement contains information as to the identity of, and other
information about, the Directors and officers of the Company.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
INVESTMENT ADVISERS AND SUBADVISER. Goldman Sachs Asset Management, a
separate operating division of Goldman Sachs, serves as the investment adviser
to the Balanced, Growth and Income, Small Cap Equity and International Equity
Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs
Funds Management, L.P., a Delaware limited partnership which is an affiliate of
Goldman Sachs, serves as the investment adviser to the Capital Growth and
Select Equity Funds. Goldman Sachs Funds Management, L.P. registered as an
investment adviser in 1990. Goldman Sachs Asset Management International, an
affiliate of Goldman Sachs, serves as the investment adviser to the Asia Growth
Fund and subadviser to the International Equity Fund. Goldman Sachs Asset
Management International became a member of the Investment Management
Regulatory Organisation Limited in 1990 and registered as an investment adviser
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<PAGE>
in 1991. Goldman Sachs Asset Management serves as administrator to each Fund.
As of April 27, 1995, GSAM, GSFM and GSAMI, together with their affiliates,
acted as investment adviser, administrator or distributor for assets in excess
of $50 billion.
Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, and in the case of the International Equity Fund under a
Subadvisory Agreement, the Subadviser, subject to the general supervision of
the Company's Board of Directors, provides day-to-day advice as to the Fund's
portfolio transactions. Goldman Sachs has agreed to permit the Company to use
the name "Goldman Sachs" or a derivative thereof as part of each Fund's name
for as long as a Fund's Investment Advisory Agreement is in effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Hong Kong and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices.
The Balanced Fund's portfolio managers are Jonathan A. Beinner, Mitchell E.
Cantor, Ronald E. Gutfleish, Richard C. Lucy and Theodore T. Sotir. Mr. Cantor
and Mr. Gutfleish are primarily responsible for the Fund's equity investments
and Mr. Beinner, Mr. Lucy and Mr. Sotir are primarily responsible for the
Fund's fixed income investments. Mr. Cantor joined the Investment Adviser in
1991 and is a Vice President and Co-Chief Investment Officer of GSAM's Active
Equity Team. Prior to 1991, Mr. Cantor was a senior partner and served as
research director of the Institutional Division and as the investment
management research director for Sanford C. Bernstein & Co., Inc. Mr. Gutfleish
joined the Investment Adviser in 1993 and is a Vice President. Prior to 1993,
he was a principal of Sanford C. Bernstein & Co., Inc. in its Investment
Management Research Department and a member of the Research Review Committee.
Mr. Beinner joined the Investment Adviser in 1990 and is a Vice President.
Prior to 1990, Mr. Beinner worked in the trading and arbitrage group of
Franklin Savings Association. Mr. Lucy joined the Investment Adviser in 1992
and is a Vice President. Prior to 1992, Mr. Lucy spent nine years managing
fixed income assets at Brown Brothers Harriman & Co. Mr. Sotir joined the
Investment Adviser in 1993 and is a Vice President. Mr. Sotir is a strategist
and member of the risk control team. Prior to 1993, Mr. Sotir worked as a
portfolio manager at Fidelity Management Trust Company. Prior to joining
Fidelity, Mr. Sotir worked for Goldman Sachs for six years.
The Select Equity Fund's portfolio manager is Robert C. Jones. Mr. Jones is a
Vice President and brings 15 years of investment experience to his work in
developing and implementing the Investment Advisers' quantitative equity
management services. Prior to joining the Investment Adviser in 1989, Mr. Jones
was the senior quantitative analyst in Goldman Sachs' Investment Research
Department and the author of the monthly Stock Selection publication.
Mitchell E. Cantor and Ronald E. Gutfleish are also the Growth and Income
Fund's senior portfolio managers.
The Capital Growth Fund's senior portfolio manager is James S. McClure. Mr.
McClure is a Vice President and has over 20 years of investment experience in
managing equity and fixed income assets. Before joining the Investment Adviser
in 1989, he served as chief investment officer at National Securities and
Research Corporation and Oppenheimer Management.
The Small Cap Equity Fund's senior portfolio manager is Paul D. Farrell who
is also a Vice President and Co-Chief Investment Officer of GSAM's Active
Equity Team. Prior to joining the Investment Adviser in 1991, Mr. Farrell
served as a managing director at Plaza Investments, the investment subsidiary
of GEICO
33
<PAGE>
Corp., a major insurance company. He was previously a Vice President in the
Goldman Sachs research department and was responsible for the formation of the
firm's Emerging Growth Research Group.
The International Equity Fund's portfolio managers are Roderick D. Jack
(Executive Director), Marcel Jongen (Executive Director), Warwick Negus
(Executive Director) and Shogo Maeda (Vice President). Before joining the
Investment Adviser in 1992, Mr. Jack spent five years with the advisory and
financing group for S.G. Warburg in London. Before joining the Investment
Adviser in 1992, Mr. Jongen was with Philips pension fund in Eindhaven where
he was head of equities. Before joining Goldman Sachs Asset Management Japan
Limited in 1994, Mr. Maeda spent most of the last thirteen years at Nomura and
a period at Manufacturers Hanover Bank in New York. See below for information
about Mr. Negus.
The Asia Growth Fund's portfolio manager is Warwick Negus, who is based in
Asia. His responsibilities include Asian equities and emerging equities
markets. Mr. Negus joined the Investment Adviser in January 1994 after seven
years as Vice President of Bankers Trust Australia Ltd. where he was head of
its Southeast Asian equities group.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to an Investment Advisory Agreement, GSAM is entitled to a fee from
the Balanced, Growth and Income, Small Cap Equity and International Equity
Funds, computed daily and payable monthly, at the annual rates of 0.50%,
0.55%, 0.75% and 0.25%, respectively, of average daily net assets. As
compensation for its services rendered and assumption of certain expenses
pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from
the Select Equity and Capital Growth Funds, computed daily and payable
monthly, at the annual rate of 0.50% and 0.75%, respectively of average daily
net assets; however, GSFM is currently only imposing its advisory fee with
respect to the Select Equity Fund at the annual rate of 0.40% of average daily
net assets. GSFM may discontinue or modify such limitation in the future at
its discretion, although it has no current intention to do so. As compensation
for its services rendered and assumption of certain expenses pursuant to
Investment Advisory and Subadvisory Agreements, GSAMI is entitled to a fee
from the Asia Growth and International Equity Funds, computed daily and
payable monthly at the annual rates of 0.75% and 0.50%, respectively, of
average daily net assets. For the fiscal period ended January 31, 1995, each
Fund paid fees at the foregoing rates, except that the Select Equity Fund paid
an advisory fee equal to 0.50% of its average daily net assets. The advisory
fee paid by the Capital Growth, Small Cap Equity, International Equity and
Asia Growth Funds is higher than the fees paid by most funds but the
Investment Adviser believes such fees are comparable to advisory fees paid by
funds with similar investment strategies. Each Investment Adviser has
voluntarily agreed to reduce the fees payable to it by a Fund (to the extent
of its fees) by the amount (if any) that the Fund's expenses would exceed the
applicable expense limitations imposed by state securities administrators. See
"Management--Expenses" in the Additional Statement. In addition, the
Investment Adviser to the Balanced, Select Equity, Growth and Income and Asia
Growth Funds has voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding advisory, administration, distribution and
authorized dealer service fees, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses, and in the case of Select
Equity Fund, transfer agency fees) to the extent such expenses exceed 0.10%,
0.06%, 0.30% and 0.65% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the Investment Adviser
in its discretion at any time.
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<PAGE>
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with each Fund, GSAM provides personnel for supervisory, administrative, and
clerical functions; oversees the performance of administrative and
professional services to each Fund by others; provides office facilities; and
prepares, but does not pay for, reports to shareholders, the SEC and other
regulatory authorities. As compensation for the services rendered to the
Funds, GSAM is entitled to a fee from the Balanced and Growth and Income
Funds, computed daily and payable monthly, at an annual rate equal to 0.15% of
a Fund's average daily net assets and GSAM is entitled to a fee from each
other Fund, computed daily and payable monthly at an annual rate equal to
0.25% of each such Fund's average daily net assets; however, GSAM is currently
only imposing its administration fee with respect to the Select Equity Fund at
the annual rate of 0.15% of average daily net assets. GSAM may discontinue or
modify such limitation in the future at its discretion, although it has no
current intention to do so. For the period ended January 31, 1995, each Fund
paid GSAM a fee for administration services at the foregoing rates, except
that the Select Equity Fund paid an administrative fee equal to 0.25% of its
average daily net assets. GSAM has agreed to reduce its fees payable by a Fund
(to the extent of its fees) by the amount (if any) that a Fund's expenses
exceed the applicable expense limitations imposed by state securities
administrators. See "Management--Expenses" in the Additional Statement.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers for performing administrative
services for their customers. These services include maintaining account
records, processing orders to purchase, redeem and exchange Fund shares and
responding to certain customer inquiries. The amount of such compensation may
be up to 0.125% annually of the average daily net assets of the Balanced and
Select Equity Funds, 0.1375% annually of the average daily net assets of the
Growth and Income Fund and 0.1875% annually of the average daily net assets of
the Capital Growth, Small Cap Equity, International Equity and Asia Growth
Funds attributable to shares held by customers of such Authorized Dealers. In
addition, Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers who perform administrative services
with respect to depository institutions whose customers purchase shares of a
Fund. These services include responding to certain inquiries from and
providing written materials to depository institutions about a Fund;
furnishing advice about and assisting depository institutions in obtaining
from state regulatory agencies any rulings, exemptions or other authorizations
that may be required to conduct a mutual fund sales program; acting as liaison
between depository institutions and national regulatory organizations;
assisting with the preparation of sales material; and providing general
assistance and advice in establishing and maintaining mutual fund sales
programs on the premises of depository institutions. The amount of such
compensation may be up to 0.08% annually of the average net assets of a Fund's
shares attributable to purchases through, and held by the customers of, such
depository institutions. Such compensation does not represent an additional
expense to a Fund or its shareholders, since it will be paid from the assets
of Goldman Sachs or its affiliates.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its
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<PAGE>
affiliates and it is possible that a Fund could sustain losses during periods
in which Goldman Sachs and its affiliates and other accounts and Funds achieve
significant profits on their trading for proprietary or other accounts. From
time to time, a Fund's activities may be limited because of regulatory
restrictions applicable to Goldman Sachs and its affiliates, and/or their
internal policies designed to comply with such restrictions. See "Management--
Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York, serves as the exclusive
distributor of each Fund's shares. Shares may also be sold by Authorized
Dealers. Authorized Dealers include investment dealers that are members of the
NASD and certain other financial service firms. To become an Authorized Dealer,
a dealer or financial service firm must enter into a sales agreement with
Goldman Sachs. The minimum investment requirements, services, programs and
purchase and redemption options for shares purchased through a particular
Authorized Dealer may be different from those available to investors purchasing
through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, also serves as each
Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs as transfer agent and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a
fee from each Fund, and in the case of the Select Equity Fund from Class A
shares of the Fund, equal to $12,000 per year plus $3.50 per account, together
with out-of-pocket and transaction-related expenses (including those out-of-
pocket expenses payable to servicing agents). Shareholders with inquiries
regarding any Fund should contact Goldman Sachs (as Transfer Agent) at the
address or the telephone number set forth on the back cover page of this
Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for any
account will be provided upon request made to Goldman Sachs. The Funds do not
generally provide sub-accounting services.
HOW TO INVEST
HOW TO BUY SHARES OF THE FUNDS
You may purchase shares of the Funds through any Authorized Dealer (including
Goldman Sachs) or directly from a Fund c/o National Financial Data Services,
Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711. The purchase price
is the net asset value next determined after receipt of an order, plus any
applicable sales charge. If, by the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m. New York time), a purchase order is
received by a Fund, Goldman Sachs or an Authorized Dealer, the price per share
will be based on the net asset value computed on the day the purchase order is
received. The minimum initial investment is $1500. An initial investment
minimum of $250 applies to purchases in
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<PAGE>
connection with Individual Retirement Account Plans. For purchases through the
Automatic Investment Plan, the minimum investment is $50. The minimum
subsequent investment is $50. These requirements may be waived at the
discretion of the Company's officers.
You may pay for purchases of shares by check (except that a check drawn on a
foreign bank will not be accepted), Federal Reserve draft, Federal Funds wire,
ACH transfer or bank wire. Purchases of shares by check or Federal Reserve
draft should be made payable as follows: (i) to an investor's Authorized
Dealer, if purchased through such Authorized Dealer, or (ii) to Goldman Sachs
Equity Portfolios, Inc.--(Name of Fund) and sent to NFDS, Inc., P.O. Box
419711, Kansas City, MO 64141-6711. Federal Funds wires, ACH transfers and bank
wires should be sent to State Street Bank and Trust Company ("State Street").
Effective June 7, 1995, payment must be received within three Business Days of
receipt of the purchase order. An investor's Authorized Dealer is responsible
for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Fund may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose account
balance is less than $50 as a result of earlier redemptions. Such redemptions
will not be implemented if the value of a shareholder's account falls below the
minimum account balance solely as a result of market conditions. A Fund will
give sixty (60) days' prior written notice to shareholders whose shares are
being redeemed to allow them to purchase sufficient additional shares of the
Fund to avoid such redemption. In addition, the Funds and Goldman Sachs reserve
the right to modify the minimum investment, the manner in which shares are
offered and the sales charge rates applicable to future purchases of shares.
OFFERING PRICE
The offering price is the next determined net asset value per share plus a
sales charge, if any, paid to Goldman Sachs at the time of purchase of shares
of the Funds as shown in the following table or as set forth under
"Participant--Directed Plans":
<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 up to (but less than) $3 million.... 1.25 1.27 1.15
$3 million or more............................. 0.00 0.00 *
</TABLE>
- --------
* Goldman Sachs may pay a one-time commission equal to 0.50% of the amount of
shares purchased to Authorized Dealers who initiate or are responsible for
purchases of $3 million or more of shares of the Funds, provided such shares
remain in the Fund for at least twelve months.
37
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For purchases of shares of the Balanced Fund during the period June 1, 1995
through June 30, 1995, the entire amount of the sales charge will be reallowed
to Authorized Dealers.
In addition to concessions allowed to Authorized Dealers, Goldman Sachs may,
from time to time, assist Authorized Dealers by, among other things, providing
sales literature to and holding informational programs for the benefit of
Authorized Dealers' registered representatives. Authorized Dealers may limit
the participation of registered representatives in such informational programs
by means of sales incentive programs which may require the sale of minimum
dollar amounts of shares of the Goldman Sachs Portfolios. Goldman Sachs may
also provide additional promotional incentives to Authorized Dealers in
connection with sales of shares of the Goldman Sachs Portfolios. These
incentives may include payment for travel expenses, including lodging, incurred
in connection with trips taken by qualified registered representatives and
members of their families within or without the United States. Incentive
payments will be provided for out of the sales charge and distribution fees or
out of Goldman Sachs' other resources. Other than sales charges and
distribution fees, a Fund and its shareholders do not bear distribution
expenses. An Authorized Dealer receiving such incentives may be deemed to be an
underwriter under the 1933 Act. In some instances, such incentives may be made
available only to certain Authorized Dealers whose representatives have sold or
are expected to sell significant amounts of shares.
Shares of the Funds may be sold at net asset value without payment of any
initial sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Director or officer of the Company and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors or investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of any
Authorized Dealer or their respective spouses and children; (e) banks, trust
companies or other types of depository institutions investing for their own
account or investing for accounts for which they have investment discretion;
(f) banks, trust companies or other types of depository institutions investing
for accounts for which they do not have investment discretion, provided they
have entered into an agreement with GSAM specifying aggregate minimums and
certain operating policies and standards; (g) any state, county or city, or any
instrumentality, department, authority or agency thereof, which is prohibited
by applicable investment laws from paying a sales charge or commission in
connection with the purchase of shares of a Fund; (h) pension and profit
sharing plans, pension funds and other company-sponsored benefit plans having
either 200 eligible employees or at least $500,000 under management with GSAM
and its affiliates; (i) qualified non-profit organizations, foundations and
endowments that have at least $1,000,000 under management with GSAM and its
affiliates; (j) shareholders whose purchase is attributable to redemption
proceeds (subject to appropriate documentation) from a registered open-end
management investment company not distributed or managed by Goldman Sachs or
its affiliates, if such redemption has occurred no more than 60 days prior to
the purchase of shares of the Funds and the shareholder either (i) paid an
initial sales charge or (ii) was at some time subject to a deferred sales
charge with respect to the redemption proceeds; (k) "wrap" accounts for the
benefit of clients of broker-dealers, financial institutions or financial
planners, provided that they have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards; and
(l) registered investment advisers who have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards.
Purchasers must certify eligibility for an exemption on the Account Application
and notify Goldman Sachs if the shareholder is no longer eligible for an
exemption. Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Investors purchasing shares of the Funds at net asset value
without payment of any initial sales charge may be charged a fee if they effect
transactions in shares through a broker or agent. Goldman Sachs reserves the
right to limit
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<PAGE>
the participation in the Fund of its partners and employees. In addition, under
certain circumstances, dividends and distributions from any of the Goldman
Sachs Portfolios may be reinvested in shares of each Fund at net asset value,
as described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."
PARTICIPANT-DIRECTED PLANS
Participant-directed qualified retirement plans, including 401(k), 403(b),
457 and tax-sheltered annuity plans, may purchase shares of the Funds at the
next determined net asset value per share plus a sales charge paid, except as
set forth below, at the time of purchase of shares of the Funds, as shown in
the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE
- -------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
Less than $50,000............................ 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000....... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000...... 3.75 3.90 3.00
$250,000 up to (but less than) $500,000...... 2.75 2.83 2.25
$500,000 or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable by participant-directed plans at the time of
purchase on investments of $500,000 or more, but for such investments a
contingent deferred sales charge, as described below, may be imposed in the
event of certain redemptions within one year of purchase.
** Goldman Sachs may pay a one-time commission equal to a percentage of the
amount of shares purchased to Authorized Dealers who initiate or are
responsible for purchases by participant-directed plans of $500,000 or more
of shares of the Funds, at the rates shown in the following table:
<TABLE>
<CAPTION>
MAXIMUM DEALER
ALLOWANCE AS
PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE
------------------ --------------
<S> <C>
$500,000 up to (but less than) $2 million..................... 1.00%
$2 million up to (but less than) $3 million................... 0.80
$3 million up to (but less than) $50 million.................. 0.50
$50 million up to (but less than) $100 million................ 0.25
$100 million or more.......................................... 0.15
</TABLE>
Participant-directed plans are defined as qualified employee benefit plans not
affiliated with Goldman Sachs which allow their participants to select among
one or more investment options, including any of the Funds. In order to take
advantage of the reduced sales charge rate described herein, the sponsor of a
participant-directed plan must submit an investment authorization form to
Goldman Sachs (the "Authorization Form") which establishes a Fund as an
eligible investment for the plan.
CUMULATIVE QUANTITY DISCOUNTS. In determining the amount of purchase and the
sales charge rate applicable to purchases by participant-directed plans, shares
of the Funds and any other Goldman Sachs Portfolio will be combined with shares
purchased or held for all participants in the same participant-directed plan.
Participant-directed plans may qualify for cumulative quantity discounts by
using the right of accumulation and statement of intention described below. If
a plan does not purchase the entire amount of shares contemplated by a
statement of intention, Goldman Sachs may elect not to pursue the recovery of
any additional sales charge due if the amount of the sales charge or the
investment shortfall is considered de minimis by Goldman Sachs.
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<PAGE>
CONTINGENT DEFERRED SALES CHARGE. Purchases by participant-directed plans of
$500,000 or more of Fund shares will be made at net asset value without an
initial sales charge. However, if, within 12 months after the effective date of
the applicable Authorization Form, the plan sponsor notifies Goldman Sachs that
it is terminating the eligibility of the Funds as an investment for its plan, a
contingent deferred sales charge ("CDSC") will be imposed on all redemptions
resulting from such termination. Any CDSCs will be paid to the Funds' principal
distributor, Goldman Sachs. The amount of the CDSC will be equal to 1% of the
current market value or the original purchase cost of the redeemed shares,
whichever is less. No CDSC will be imposed on increases in account value above
the initial purchase price, including any dividends that have been reinvested
in additional Fund shares. In determining whether a CDSC applies to a
redemption, the calculation will be made in a manner that results in the lowest
possible CDSC.
EXCHANGES. No CDSC is imposed upon exchanges between the Funds and another
Goldman Sachs Portfolio or an ILA Portfolio. However, shares acquired in an
exchange will be subject to the CDSC to the same extent as if there had been no
exchange. (As stated above, no CDSC will be imposed unless the plan sponsor
terminates the eligibility of the Fund as an investment for the plan within the
first twelve months). For purposes of determining whether the CDSC is
applicable, the length of time a plan has owned shares acquired by exchange
will be measured from the date the plan acquired the original shares and will
not be affected by any subsequent exchange.
OTHER PURCHASE INFORMATION
If shares of a Fund are held in a "street name" account or were purchased
through an Authorized Dealer, shareholders should contact the Authorized Dealer
to purchase, redeem or exchange shares, to make changes in or give instructions
concerning the account or to obtain information about the account. Authorized
Dealers who receive a portion of the sales charge applicable to the purchase of
shares of the Fund will not be permitted to impose any other fees in connection
with the purchase of such shares.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). The Funds or Goldman
Sachs may reject or restrict purchases or exchanges of shares by a particular
purchaser or group, for example, when a pattern of frequent purchases and sales
of shares of a Fund is evident, or if the purchase and sale or exchange orders
are, or a subsequent abrupt redemption might be, of a size that would disrupt
management of a Fund.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who redeems shares of a Fund may reinvest at net asset value
any portion or all of his redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his purchase to the nearest full share)
in shares of a Fund or any other Goldman Sachs Portfolio. Shareholders should
obtain and read the applicable prospectuses of such other funds and consider
their objectives, policies and applicable fees carefully before investing in
any of such funds. This reinvestment privilege is subject to the condition that
the shares redeemed have been held for at least thirty (30) days before the
redemption and that the reinvestment is effected within ninety (90) days after
such redemption. Shares are sold to a reinvesting shareholder at the net asset
value next determined following timely receipt by Goldman Sachs or an
Authorized Dealer of a written purchase order indicating that the shares are
eligible for reinvestment at net asset value.
A reinvesting shareholder may realize a gain or loss for federal tax purposes
as a result of such redemption. If the redemption occurs within ninety (90)
days after the original purchase of the shares, any
40
<PAGE>
sales charge paid on the original purchase cannot be taken into account by a
shareholder reinvesting at net asset value pursuant to the reinvestment
privilege for purposes of determining gain or loss realized on the redemption,
but instead will be added to the tax basis of the shares received in the
reinvestment. To the extent that any loss is realized and shares of the same
Fund are purchased within thirty (30) days before or after the redemption, some
or all of the loss may not be allowed as a deduction depending upon the number
of shares purchased. Shareholders should consult their own tax advisers
concerning the tax consequences of a reinvestment. Upon receipt of a written
request, the reinvestment privilege may be exercised once annually by a
shareholder, except that there is no such time limit as to the availability of
this privilege in connection with transactions the sole purpose of which is to
reinvest the proceeds at net asset value in a tax-sheltered retirement plan.
RIGHT OF ACCUMULATION
Purchases 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. Shares of the Goldman Sachs Portfolios may be combined under
the Right of Accumulation. See Additional Statement for more information about
the Right of Accumulation.
STATEMENT OF INTENTION
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Shares of the Goldman Sachs Portfolios may be combined
under the Statement of Intention. See Additional Statement for more information
about the Statement of Intention.
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund at net asset value without a sales charge in
shares of any other Fund, Goldman Sachs Portfolio or units of the ILA
Portfolios. Shareholders may also elect to exchange automatically a specified
dollar amount of shares of a Fund at net asset value without an additional
sales charge for shares of any other Fund, Goldman Sachs Portfolio or units of
the ILA Portfolios. Automatic exchanges are made monthly on the fifteenth day
of each month or the first Business Day thereafter. The minimum dollar amount
for automatic exchanges must be at least $50 per month. Cross-reinvestments and
automatic exchanges are subject to the following conditions: (i) the value of
the shareholder's account(s) in the fund which is paying the dividend or from
which the automatic exchange is being made must equal or exceed $10,000 and
(ii) the value of the account in the acquired fund must equal or exceed the
acquired fund's minimum initial investment requirement or the shareholder must
elect to continue cross reinvestment or automatic exchanges until the value of
acquired fund shares in the shareholder's account equals or exceeds the
acquired fund's minimum initial investment requirement. A Fund shareholder may
elect cross-reinvestment into an identical account or an account registered in
a different name or with a different address, social security or other taxpayer
identification number, provided that the account in the acquired fund has been
established, appropriate signatures have been obtained and the minimum initial
investment requirement has been satisfied. A Fund shareholder should obtain and
read the prospectus of the Fund into which dividends are invested or automatic
exchanges are made.
41
<PAGE>
TAX-SHELTERED RETIREMENT PLANS
The Funds offer their shares for purchase by retirement plans, including IRA
Plans for individuals and their non-employed spouses and defined contribution
plans such as 401(k) Salary Reduction Plans. See "Participant-Directed Plans."
Detailed information concerning these plans and copies of the plans may be
obtained from the Transfer Agent. This information should be read carefully,
and consultation with an attorney or tax adviser may be advisable. The
information sets forth the service fee charged for retirement plans and
describes the federal income tax consequences of establishing a plan. Under all
plans, dividends and distributions will be automatically reinvested in
additional shares of a Fund or, if so directed by the shareholder, in cash, in
shares of another Goldman Sachs Portfolio or in units of the ILA Portfolios.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without an additional
sales charge for: (i) shares of any other Fund or any Goldman Sachs Portfolio;
and (ii) units of the ILA Portfolios. A shareholder needs to obtain and read
the prospectus of the fund into which the exchange is made. The shares or units
of these other funds acquired by an exchange may later be exchanged for shares
of the original Fund at the next determined net asset value without a sales
charge if the dollar amount in the Fund resulting from such exchanges is below
the shareholder's all-time highest dollar amount on which it has previously
paid a sales charge. Shares or units of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for shares of the
Funds without a sales charge. In addition to free automatic exchanges pursuant
to the Automatic Exchange Program, six free exchanges are permitted in each
twelve-month period. A fee of $12.50 may be charged for each subsequent
exchange during such period. The exchange privilege may be modified or
withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.
An exchange may be made by identifying the applicable Fund and either writing
to Goldman Sachs, Attention: Goldman Sachs Equity Portfolios, Inc., Shareholder
Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-6711 or, if
previously elected in the Fund's Account Application, by telephone at 800-526-
7384 (8:00 a.m. to 3:00 p.m. Chicago time). Certain procedures are employed to
prevent unauthorized or fraudulent exchange requests as set forth under "How to
Sell Shares of the Funds." Under the telephone exchange privilege, shares may
be exchanged among accounts with different names, addresses and social security
or other taxpayer identification numbers only if the exchange request is in
writing and is received in accordance with the procedures set forth under "How
to Sell Shares of the Funds." In times of drastic economic or market changes
the telephone exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a sale of the shares surrendered in the exchange, on
which an investor may realize a gain or loss, followed by a purchase of shares
or units received in the exchange. If such sale occurs within ninety (90) days
after the purchase of such shares, to the extent a sales charge that would
otherwise apply to the shares or units received in the exchange is not imposed,
the sales charge paid on such purchase cannot be taken into account by the
exchanging shareholder for purposes of determining gain or loss realized on
such sale for federal income tax purposes, but instead will be added to the tax
basis of the shares or units received in the exchange. Shareholders should
consult their own tax advisers concerning the tax consequences of an exchange.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are being
exchanged. Exchanges are available only in states where exchanges may legally
be made.
42
<PAGE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLAN
DISTRIBUTION PLAN
The Company, on behalf of each Fund, has adopted a Distribution Plan pursuant
to Rule 12b-1 under the Act (the "Distribution Plan"). Under the Distribution
Plan, Goldman Sachs is entitled to a quarterly fee from each Fund for
distribution services equal, on an annual basis, to 0.25% of a Fund's average
daily net assets. Currently, Goldman Sachs has voluntarily agreed to waive the
entire amount of such fee for each Fund (other than the Select Equity Fund).
Goldman Sachs has no current intention of modifying or discontinuing such
waiver, but may do so in the future at its discretion. Effective June 1, 1995,
each Fund's Distribution Plan was amended to reduce the fee to 0.25% of average
daily net assets from 0.50% of such assets and to eliminate the provision of
certain services under the Distribution Plan which are currently provided under
the Authorized Dealer Service Plan, discussed below. For the period ended
January 31, 1995, each Fund paid Goldman Sachs a fee at the rate of 0.25% of
the Fund's average daily net assets.
Goldman Sachs may use the distribution fee for its expenses of distribution
of shares of the Funds. The types of expenses for which Goldman Sachs may be
compensated for distribution services under the Distribution Plan include
compensation paid to and expenses incurred by their respective officers,
employees and sales representatives, allocable overhead, telephone and travel
expenses, the printing of prospectuses for prospective shareholders,
preparation and distribution of sales literature, advertising of any type and
all other expenses incurred in connection with activities primarily intended to
result in the sale of Fund shares. If the fee received by Goldman Sachs
pursuant to the Distribution Plan exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements. The Distribution Plan will be
reviewed and is subject to approval annually by the Board of Directors of the
Company. The aggregate compensation that may be received under the Distribution
Plan for distribution services may not exceed the limitations imposed by the
NASD's Rules of Fair Practice.
AUTHORIZED DEALER SERVICE PLAN
The Company on behalf of each Fund has adopted, effective June 1, 1995, a
non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan") pursuant to
which Goldman Sachs and Authorized Dealers are compensated for providing
personal and account maintenance services. Each Fund pays a fee under its
Service Plan equal on an annual basis to 0.25% of its average daily net assets
(or, in the case of Select Equity Fund, the average daily net assets
attributable to Class A shares). The fee for personal and account maintenance
services paid pursuant to the Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives and
employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or similar
services not otherwise provided on behalf of the Funds.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form. See "Net Asset Value." Effective June 7, 1995
redemption proceeds will be mailed by check to a shareholder within three (3)
Business Days of
43
<PAGE>
receipt of a properly executed request. If shares to be redeemed were recently
purchased by check, a Fund may delay transmittal of redemption proceeds until
such time as it has assured itself that good funds have been collected for the
purchase of such shares. This may take up to fifteen (15) days. Redemption
requests may be made by writing to or calling the Transfer Agent at the address
or telephone number set forth on the back cover page of this Prospectus or an
Authorized Dealer.
A shareholder may request redemptions by telephone if the optional telephone
redemption privilege is elected on the Account Information Form. It may be
difficult to implement redemptions by telephone in times of drastic economic or
market changes. In an effort to prevent unauthorized or fraudulent redemption
and exchange requests by telephone, Goldman Sachs and NFDS each employ
reasonable procedures specified by the Company to confirm that such
instructions are genuine. Consequently, proceeds of telephone redemption
requests will be sent only to the shareholder's address of record or authorized
bank account designated in the Account Information Form and exchanges of shares
will be made only to an identical account. Telephone requests will also be
recorded. The Company may implement other procedures from time to time. If
reasonable procedures are not implemented, the Company may be liable for any
loss due to unauthorized or fraudulent transactions. In all other cases,
neither a Fund, the Company nor Goldman Sachs will be responsible for the
authenticity of instructions received by telephone. Proceeds of telephone
redemptions will be mailed to the shareholder's address of record or wired to
the authorized bank account indicated on the Account Information Form, unless
the shareholder provides written instructions (accompanied by a signature
guarantee) indicating another address.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan association,
a building and loan association, a cooperative bank, a federal savings bank or
association, a national securities exchange, a registered securities
association or a clearing agency, provided that such institution satisfies the
standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as Federal Funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in Federal Funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if the
Federal Reserve Bank is closed on the day redemption proceeds would ordinarily
be wired. A transaction fee of $7.50 may be charged for payments of redemption
proceeds by wire. In order to change the bank designated on the Account
Information Form to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Company, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance of
intermediaries or the shareholder's bank in the transfer process. If a problem
with such performance arises, the shareholder should deal directly with such
intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
Except with respect to shareholders whose account balances are less than $50
or who have not provided a social security number or other taxpayer
identification number and certification (if required) that such number is
correct, shares are not redeemable at the option of a Fund unless the Board of
Directors of the
44
<PAGE>
Company determines in its sole discretion that failure to so redeem may have
material adverse consequences to the shareholders of that Fund. The Company,
however, assumes no responsibility to compel redemptions of a Fund.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically with monthly checks in
any amount specified by the shareholder over $50. Each systematic withdrawal is
a sale for tax purposes. A minimum balance of $10,000 in Fund shares is
required. The maintenance of a withdrawal plan concurrently with purchases of
additional shares would be disadvantageous because of the sales charge included
in such purchases. See Additional Statement for more information about the
Systematic Withdrawal Plan.
DIVIDENDS
Each dividend from net investment income and capital gain distribution, if
any, declared by a Fund on its outstanding shares will, at the election of each
shareholder, be paid in (i) cash, (ii) additional shares of the Fund or (iii)
shares of any other Fund or any of the Goldman Sachs Portfolios or units of the
ILA Portfolios, as described under "How to Invest-Cross-Reinvestment of
Dividends and Distributions and Automatic Exchange Program." Reinvestment or
cross-reinvestment of dividends and distributions must be made in the same
class of shares of the Fund or a Goldman Sachs Portfolio or units of the ILA
Portfolios. This election should initially be made on a shareholder's Account
Application and may be changed upon written notice to Goldman Sachs at any time
prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in the applicable Fund. If cash dividends are
elected with respect to a Fund's net investment income dividends then cash
dividends must also be elected with respect to the short-term capital gains
component, if any, of the Fund's annual dividend.
The election to reinvest dividends and distributions paid by a Fund in
additional shares or units of the Fund or any other Goldman Sachs Portfolio or
ILA Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Portfolio
or an ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-term
and short-term capital gains, reduced by available capital losses, at least
annually. From time to time a portion of any 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
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions (or portions thereof) of taxable income or
realized appreciation on such shares may be taxable to the investor even if the
net asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.
45
<PAGE>
NET ASSET VALUE
The net asset value per share of each Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each Business
Day (as such term is defined under "Additional Information"). Net asset value
per share of each class is calculated by determining the net assets
attributable to each class and dividing by the number of outstanding shares of
that class. Portfolio securities are valued based on market quotations or, if
accurate quotations are not readily available, at fair value as determined in
good faith under procedures established by the Company's Board of Directors.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield in advertisements
and communications to shareholders or prospective investors. Average annual
total return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all dividends and distributions at net asset value. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. 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 net asset value. Any performance data which is based
on a Fund's net asset value per share would be reduced if a sales charge were
taken into account. In addition to the above, each Fund may from time to time
advertise its performance relative to certain performance rankings and indices.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution of
net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rates are being calculated.
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided in
shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
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<PAGE>
SHARES OF THE COMPANY
Each Fund is a series of the Company, which was incorporated under the laws
of the State of Maryland on September 27, 1989. The authorized capital stock of
the Company consists of 1,000,000,000 shares of common stock, par value of
$.001 per share. The Directors of the Company have authority under the
Company's Charter to create and classify shares of capital stock in separate
series, without further action by shareholders. Additional series may be added
in the future. The Directors also have authority to classify and reclassify any
series or portfolio of shares into one or more classes. The Funds, other than
the Select Equity Fund, have not divided their shares into classes. The Select
Equity Fund offers three classes of shares, Institutional Shares,
Administration Shares and the shares offered by this Prospectus which are
designated as Class A Shares.
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 Fund available for distribution to such shareholders. All shares
entitle their holders to one vote per share, are freely transferable and have
no preemptive, subscription or conversion rights.
Unless otherwise required by the Act, ordinarily it will not be necessary for
the Company to hold annual meetings of shareholders. As a result, Fund
shareholders may not consider each year the election of Directors or the
appointment of independent accountants. However, pursuant to the Company's By-
Laws, the recordholders of at least 10% of the shares outstanding and entitled
to vote at a special meeting may require the Company to hold such special
meeting of shareholders for any purpose and recordholders may, under certain
circumstances as permitted by the Act, communicate with other shareholders in
connection with requiring a special meeting of shareholders. Shareholders of
the Company may remove a Director by the affirmative vote of a majority of the
Company's outstanding voting shares. The Board of Directors, however, will call
a special meeting of shareholders for the purpose of electing Directors if, at
any time, less than a majority of Directors holding office at the time were
elected by shareholders.
In the interest of economy and convenience, the Company does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected or
intends to elect to be treated as a regulated investment company and to qualify
for such treatment for each taxable year under Subchapter M of the Code. To
qualify as such, a Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, a Fund will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.
47
<PAGE>
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from the excess of net long-term capital gain over net short-term capital loss
will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders from
qualifying dividends such Fund receives from U.S. domestic corporations may be
eligible, in the hands of such corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements
and debt financing limitations under the Code. Dividends paid by International
Equity Fund and Asia Growth Fund are not generally expected to qualify, in the
hands of corporate shareholders, for the corporate dividends-received
deduction, but a portion of each other Fund's dividends may generally so
qualify. Certain distributions paid by a Fund in January of a given year may be
taxable to shareholders as if received the prior December 31. Shareholders will
be informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events on which a shareholder
may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
non-resident alien withholding at the rate of 30% (or a lower rate provided by
an applicable tax treaty) on amounts treated as ordinary dividends from the
Funds.
Each Fund anticipates that it will be subject to foreign withholding or other
foreign taxes on income or gain from certain foreign securities. The Funds do
not anticipate that they will elect to pass such foreign taxes through to their
shareholders, who therefore will generally not take such taxes into account on
their own tax returns. The Funds will generally deduct such taxes in
determining the amounts available for a distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on payments received from the Funds. A state income (and possibly
local income and/or intangible property) tax exemption is generally available
to the extent (if any) a Fund's distributions are derived from interest on (or,
in the case of intangibles taxes, the value of its assets is attributable to)
certain U.S. Government obligations, provided in some states that certain
thresholds for holdings of such obligations and/or reporting requirements are
satisfied. For a further discussion of certain tax consequences of investing in
shares of the Funds, see "Taxation" in the Additional Statement. Shareholders
are urged to consult their own tax advisers regarding specific questions as to
federal, state and local taxes as well as to any foreign taxes.
48
<PAGE>
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
49
<PAGE>
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of shares of a Fund
alone or in combination with shares of another fund described in this
Prospectus within a 13-month period, the shareholder may obtain shares of the
Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional shares will apply toward the completion of
this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman, Sachs & Co. that this Statement of Intention is
in effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name. All
income dividends and capital gains distributions on escrowed shares will be
paid to the investor or to his order. When the minimum investment so specified
is completed (either prior to or by the end of the thirteenth month), the
shareholder will be notified and the escrowed shares will be released. In
signing the Account Application, the investor irrevocably constitutes and
appoints the Transfer Agent his attorney to surrender for redemption any or all
escrowed shares with full power of substitution in the premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman, Sachs & Co. 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 & Co. pay such
difference in the sales charge, the Transfer Agent will redeem an appropriate
number of the escrowed shares in order to realize such difference. Shares
remaining after any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQI/350K/0695
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GOLDMAN SACHS
EQUITY PORTFOLIOS
- --------------------------------------------------------------------------------
PROSPECTUS
LOGO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
INSTITUTIONAL SHARES
------------
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," and
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates, Goldman Sachs Funds Management, L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the
"Company"), an open-end, management investment company. Institutional Shares
of the Funds are offered to certain institutional investors.
Select Equity Fund seeks total return through investments in equity
securities consisting of capital appreciation plus dividend income that, net
of Fund expenses, exceeds the total return realized on the Standard & Poor's
Index of 500 Common Stocks (the "S&P 500 Index"). Under normal market
conditions, Select Equity Fund will invest at least 90% of its total assets in
equity securities. Equity securities are selected using both fundamental
research and a variety of quantitative techniques which seek to maximize the
Fund's risk to reward ratio. The Fund's portfolio is designed to have risk,
capitalization and industry characteristics similar to the S&P 500 Index.
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Mid-Cap Equity Fund seeks to meet its objective by investing, under normal
circumstances, substantially all of its assets in equity securities and at
least 65% of its total assets in equity securities of companies ("Mid Cap
Companies") with public stock market capitalizations of between $500 million
and $7 billion at the time of investment. However, Mid-Cap Equity Fund
currently intends to emphasize investments in companies with public stock
market capitalizations under $5 billion at the time of investment. Mid-Cap
(continued on next page)
------------
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN INSTITUTIONAL
SHARES OF THE FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------
The date of this Prospectus is June 1, 1995
<PAGE>
Equity Fund may invest up to 35% of its total assets in fixed income
securities including mortgage-backed, asset-backed and debt securities issued
by corporations or other entities or by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further the Fund's
investment objectives. Certain types of investments and techniques that may be
used by Mid-Cap Equity Fund entail certain risks. There can be no assurance
that the Funds will achieve their respective investment objectives.
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment
adviser to Select Equity Fund. Goldman Sachs Asset Management ("GSAM"), New
York, New York, a separate operating division of Goldman Sachs, serves as the
investment adviser to Mid-Cap Equity Fund and as the administrator to each
Fund. GSFM and GSAM are each sometimes referred to as an "Investment Adviser."
Goldman Sachs serves as the distributor and transfer agent for each Fund. The
custodian for each Fund is State Street Bank and Trust Company.
This Prospectus, which sets forth concisely the information about the
Company and the Funds that a prospective investor ought to know before
investing in Institutional Shares of the Funds, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated June 1, 1995, containing further information about the Company and the
Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission, is incorporated herein by reference in its
entirety, and may be obtained without charge from Goldman Sachs by calling the
telephone number, or writing to one of the addresses, listed below.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
PORTFOLIOS, INC. ONE NEW YORK PLAZA INVESTMENT ADVISER TO GOLDMAN SACHS
NEW YORK, NEW YORK 10004 SELECT EQUITY FUND ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO. GOLDMAN SACHS ASSET MANAGEMENT
DISTRIBUTOR 85 BROAD STREET NEW INVESTMENT ADVISER TO GOLDMAN SACHS
YORK, NEW YORK 10004 MID-CAP EQUITY FUND ONE NEW YORK
PLAZA NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT 4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.).................. 800-621-2550
2
<PAGE>
SUMMARY
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (a "Fund," or the "Funds") are part
of a family of funds advised by GSAM or its affiliates, GSFM and Goldman Sachs
Asset Management International. Each Fund is organized as a separate
diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the "Company"),
an open-end, management investment company.
SELECT EQUITY FUND
The investment objective of Select Equity Fund is to provide its shareholders
with a total return through investments in equity securities consisting of
capital appreciation plus dividend income that, net of Fund expenses, exceeds
the total return realized on the Standard & Poor's Index of 500 Common Stocks
(the "S&P 500 Index"). There can be no assurance that Select Equity Fund will
achieve its investment objective.
Under normal circumstances, Select Equity Fund will invest at least 90% of
its total assets in equity securities. Select Equity Fund seeks to achieve its
investment objective by investing in a portfolio of equity securities selected
by using both fundamental research and a variety of quantitative techniques
which seek to maximize Select Equity Fund's risk to reward ratio. Select Equity
Fund's portfolio is designed to have risk, capitalization and industry
characteristics similar to the S&P 500 Index.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to meet its investment objective by investing, under normal
circumstances, substantially all of its assets in equity securities and at
least 65% of its total assets in equity securities of companies ("Mid Cap
Companies") with public stock market capitalizations of between $500 million
and $7 billion at the time of investment. However, Mid-Cap Equity Fund
currently intends to emphasize investments in companies with public stock
market capitalizations under $5 billion at the time of investment. There can be
no assurance that Mid-Cap Equity Fund will achieve its investment objective.
Equity securities in which Mid-Cap Equity Fund may invest consist of common
stocks, preferred stocks, convertible securities, warrants and other stock
purchase rights, equity interests in trusts, limited partnerships, joint
ventures and similar enterprises and interests in real estate investment
trusts. These securities may or may not pay a current dividend. Securities in
which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operations. Mid-Cap Equity Fund may invest up to 35% of its total assets in the
equity securities of companies with public stock market capitalizations greater
or less than Mid Cap Companies and fixed income securities including mortgaged-
backed, asset-backed and debt
3
<PAGE>
securities issued by corporations or other entities or by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises if such securities, in
the opinion of the Investment Adviser, offer the potential to further Mid-Cap
Equity Fund's investment objective. In addition, Mid-Cap Equity Fund may engage
in certain investment techniques that entail special risks. See "Investment
Objective and Policies--Mid-Cap Equity Fund" and "Special Investment Methods
and Risk Factors."
INVESTMENT ADVISERS AND ADMINISTRATOR
Pursuant to separate Investment Advisory Agreements, Goldman Sachs Funds
Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as the
investment adviser for Select Equity Fund. Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as the
investment adviser for Mid-Cap Equity Fund. For its advisory services, GSFM
receives from Select Equity Fund a monthly fee which is currently being charged
at a rate equal on an annual basis to 0.40% of the Fund's average daily net
assets. For its advisory services, GSAM receives from Mid-Cap Equity Fund a
monthly fee equal on an annual basis to 0.60% of the Fund's average daily net
assets. GSFM and Goldman Sachs are each registered with the Securities and
Exchange Commission ("SEC") as investment advisers. In performing their
advisory services, the Investment Advisers, while remaining ultimately
responsible for the management of the Funds, are able to draw upon the research
and expertise of their affiliate offices for portfolio decisions and management
with respect to certain portfolio securities. See "Management--Investment
Advisers and Administrator."
GSAM serves as the administrator for each Fund pursuant to separate
Administration Agreements for which it receives from Select Equity Fund and
Mid-Cap Equity Fund, a monthly fee currently being charged at an annual rate
equal to 0.15%, of each Fund's average daily net assets. See "Management--
Investment Advisers and Administrator." As of April 27, 1995, the Investment
Advisers, together with their affiliates, acted as investment adviser,
administrator or distributor for assets in excess of $50 billion.
PURCHASE AND REDEMPTION OF INSTITUTIONAL SHARES
The minimum initial investment is $1,000,000 in Institutional Shares of each
Fund alone or in combination with other assets under the management of GSAM and
its affiliates. Institutional Shares of the Funds are offered to certain
Institutional investors as described under "Purchase of Shares". Institutional
Shares of each Fund may be purchased through Goldman Sachs at the current net
asset value per share without the imposition of a sales load. Each Fund will
redeem its Institutional Shares upon request of a shareholder on any Business
Day at the net asset value next determined after receipt of such request in
proper form. See "Redemption of Institutional Shares."
4
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs serves as the distributor for each Fund in the sale of its
shares. Under the Transfer Agency Agreement with the Company, Goldman Sachs
provides transfer agency services and responds to shareholder inquiries. See
"Management--Distributor and Transfer Agent."
DIVIDEND POLICY
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends at least annually. Shareholders will
receive dividends in additional Institutional Shares of the Fund paying the
dividend or may elect to receive cash as described under "Dividends."
RISK FACTORS
Each Fund's share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions so that an investment
in either of the Funds may be worth more or less when redeemed than when
purchased. Neither Fund should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objective
will be achieved.
There are certain risks associated with the investment policies of each
of the Funds. For instance, to the extent that a Fund invests in the
securities and related financial instruments of small to medium sized
market capitalization companies, the Fund may be exposed to a higher
degree of risk and price volatility because such securities may lack
sufficient liquidity to enable a Fund to effect sales at an advantageous
time or without a substantial drop in price. A Fund's use of certain
investment techniques, including derivatives, forward contracts and
options and futures transactions will subject a Fund to greater risk than
funds that do not employ such techniques. To the extent that a Fund
invests in securities of non-U.S. issuers and foreign currencies, the
Fund may face risks that are different from those associated with
investment in domestic securities. The risks of foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments and the imposition of exchange controls or
other governmental confiscation or restrictions. Generally, there is less
availability of data on foreign companies and securities markets as well
as less regulation of foreign stock exchanges, brokers and issuers. Mid-
Cap Equity Fund's investments in emerging markets and countries will
involve greater risks than investments in the developed countries of
Western Europe, the U.S. and Japan.
5
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)*
<TABLE>
<CAPTION>
SELECT MID-CAP
EQUITY EQUITY
FUND FUND
------ -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases..................... None None
Maximum Sales Charge Imposed on Reinvested Dividends.......... None None
Redemption Fees............................................... None None
Exchange Fees................................................. None None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average
daily net assets)
Management Fees (including advisory and administration
fees)**...................................................... 0.55% 0.75%
Distribution (Rule 12b-1) Fees................................ None None
Other Expenses (after expense limitation)**................... 0.10% 0.10%
---- ----
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE LIMITATION)**... 0.65% 0.85%
==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period
Select Equity Fund............................ $ 7 $21 $36 $81
Mid-Cap Equity Fund........................... $ 9 $27 N/A N/A
</TABLE>
- --------------------
* The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Funds. Each Fund also offers
Administration Shares and, in the case of Select Equity Fund, Class A
Shares which are subject to different fees and expenses (which affects
performance), have different minimum investment requirements and are
entitled to different services. Information regarding Administration
Shares and, in the case of Select Equity Fund, Class A Shares, may be
obtained from an investor's sales representative or from Goldman Sachs by
calling the number on the inside cover of this prospectus.
** Based on estimated amounts for the current fiscal year. GSFM and GSAM have
voluntarily agreed to limit their advisory and administration fees to 0.40%
and 0.15%, respectively, of the average daily net assets of Select Equity
Fund. Without such limitations, Select Equity Fund's advisory and
administration fees would be 0.50% and 0.25%, respectively. GSFM and GSAM
have voluntarily agreed to reduce or limit certain "Other Expenses" of the
Funds (excluding transfer agency fees estimated to be 0.04% of average
daily net assets, advisory and administration fees, fees under
administration, distribution and authorized dealer service plans, taxes,
interest and brokerage and litigation, indemnification and other
extraordinary expenses) to 0.06% of each Fund's average daily net assets.
GSFM and GSAM have no current intention of modifying or discontinuing
such limitations but may do so in the future at their discretion. If GSFM
and GSAM did not agree
6
<PAGE>
to limit certain "Other Expenses" of each Fund to 0.06% and to limit the
fees of the Select Equity Fund as described above, the "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of Select Equity
Fund would be 0.27% and 1.02%, respectively; and the "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of Mid-Cap Equity
Fund would be 0.32% and 1.07% respectively. Annual operating expenses
incurred by Select Equity Fund Class A Shares during the fiscal year ended
January 31, 1995 (expressed as a percentage of average daily net assets
after fee adjustments) included Management Fees, Other Expenses and Total
Operating Expenses of 0.75%, 0.38% and 1.38%, respectively.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of the Funds that an investor in the Funds will
bear directly or indirectly. The costs and expenses included in the table and
hypothetical example above are based upon estimated fees and expenses for the
current year. The information on costs and expenses included in the table and
hypothetical example above should not be considered as representative of
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers and Administrator."
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OF SELECT EQUITY FUND OUTSTANDING THROUGHOUT
EACH PERIOD
The following data with respect to a Class A share of Select Equity Fund
outstanding during the periods indicated has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report incorporated
by reference into the Additional Statement from Select Equity Fund's Annual
Report to shareholders for the year ended January 31, 1995 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by writing to one of the
addresses on the inside cover of this Prospectus. No Institutional or
Administration Shares of the Fund were outstanding during the periods
indicated.
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
--------------------------- JANUARY 31,
1995 1994 1993 1992(A)
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of pe-
riod............................ $ 15.93 $ 15.46 $ 15.05 $ 14.17
------- ------- -------- --------
INCOME (LOSS) FROM INVESTMENT OP-
ERATIONS:
Net investment income............ 0.20 0.17 0.22 0.11
Net realized and unrealized gain
(loss) on investments, options
and futures..................... (0.38) 2.08 0.41 0.88
------- ------- -------- --------
Total income (loss) from invest-
ment operations................. (0.18) 2.25 0.63 0.99
------- ------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income............ (0.20) (0.17) (0.22) (0.11)
Net realized gain on investment
and futures transactions........ (0.94) (1.61) -- --
------- ------- -------- --------
Total distributions to sharehold-
ers............................. (1.14) (1.78) (0.22) (0.11)
------- ------- -------- --------
Net increase (decrease) in net
asset value..................... (1.32) 0.47 0.41 0.88
------- ------- -------- --------
Net asset value, end of period... $ 14.61 $ 15.93 $ 15.46 $ 15.05
======= ======= ======== ========
Total return(b).................. (1.10)% 15.12% 4.30% 7.01%(d)
Ratio of net expenses to average
net assets...................... 1.38% 1.42% 1.28% 1.57%(c)
Ratio of net investment income to
average net assets.............. 1.33% 0.92% 1.30% 1.24%(c)
Portfolio turnover rate.......... 56.18% 87.73% 144.93% 135.02%(c)
Net assets at end of period ($ in
thousands)...................... $94,968 $92,769 $117,757 $151,142
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF DISTRIBUTION FEES:
Ratio of expenses to average net
assets.......................... 1.63% 1.67% 1.53% 1.82%(c)
Ratio of net investment income to
average net assets.............. 1.08% 0.67% 1.05% 0.99%(c)
</TABLE>
- ---------------------
(a) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(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 charges. Total return would be reduced if sales charges were taken
into account.
(c) Annualized.
(d) Not annualized.
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INVESTMENT OBJECTIVE AND POLICIES
SELECT EQUITY FUND
Select Equity Fund's investment objective is to provide its shareholders
with a total return through investments in equity securities consisting of
capital appreciation plus dividend income that, net of fund expenses, exceeds
the total return realized on the S&P 500 Index. Under normal circumstances,
the Fund will invest at least 90% of its total assets in equity securities.
The Fund may invest in equity securities of foreign issuers that are traded in
the United States and that comply with U.S. accounting standards. The Fund
seeks to achieve its investment objective by investing in a portfolio of
equity securities selected using both fundamental research and a variety of
quantitative techniques which seek to maximize the Fund's reward to risk
ratio. The Fund's portfolio is designed to have risk, capitalization and
industry characteristics similar to the S&P 500 Index. The Investment Adviser
begins with a universe primarily of large capitalization equity securities.
The Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Investment Research Department (the "Research
Department"), a second rating will be assigned based upon the Research
Department's evaluation. In selecting securities for the Fund, the Investment
Adviser utilizes optimization models to evaluate the ratings assigned by the
Multifactor Model and the Research Department to build a diversified
portfolio. This portfolio will be primarily comprised of securities rated
highest by the Investment Adviser's Multifactor Model and research analysts
and will have risk characteristics and industry weightings similar to the S&P
500 Index. Under normal conditions, the securities of any one issuer may not
exceed 5% of the Fund's total assets.
The Multifactor Model is a sophisticated computerized rating system for
valuing equity securities according to fundamental investment characteristics.
The factors used by the Multifactor Model incorporate many variables studied
by traditional fundamental analysis, and cover measures of value, yield,
growth, momentum, risk and liquidity (e.g., price/earnings ratio, book/price
ratio, long and short-term growth estimates, earning estimates, price
momentum, volatility and liquidity). All of the factors used by the
Multifactor Model have been shown to significantly impact the performance of
equity securities. The weightings assigned to the factors are derived using a
statistical formulation that considers each factor's historical performance in
different market environments. As such, the Multifactor Model is designed to
evaluate each security using only the factors that are statistically related
to returns in the anticipated market environment. Because it includes many
disparate factors, the Investment Adviser believes that the Multifactor Model
is broader in scope and provides a more thorough evaluation than most
conventional, value-oriented quantitative models. As a result, the securities
ranked highest by the Multifactor Model do not have one dominant investment
characteristic (such as a low price/earnings ratio); rather, such securities
possess a number of attractive investment characteristics.
If the equity security is followed by the Research Department, the security
is also assigned a rating based upon the Research Department's evaluation. The
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." With an annual budget
of more than $120 million, the Research Department has a staff of
approximately 150 senior
9
<PAGE>
professionals who follow over 1,700 issuers. By employing both quantitative
(i.e., the Multifactor Model) and qualitative (i.e., the analysts' ratings)
methods of selecting securities, Select Equity Fund seeks to capitalize on the
strengths of each discipline.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to achieve its investment objective by investing, under normal
circumstances, substantially all of its assets in equity securities and at
least 65% of its total assets in equity securities of companies ("Mid Cap
Companies") with public stock market capitalizations (based upon shares
available for trading on an unrestricted basis) of between $500 million and $7
billion at the time of investment. However, Mid-Cap Equity Fund currently
intends to emphasize investments in Mid Cap Companies with public stock market
capitalizations of below $5 billion at the time of investment. Equity
securities in which Mid-Cap Equity Fund may invest consist of common stocks,
preferred stocks, convertible securities, warrants and other stock purchase
rights, equity interests in trusts, limited partnerships, joint ventures and
similar enterprises and interests in real estate investment trusts. Securities
in which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operation. Mid-Cap Equity Fund may invest up to 35% of its total assets in
mortgage-backed, asset-backed and fixed income securities issued by
corporations or other entities or by the U.S. Government or its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further the investment
objectives of Mid-Cap Equity Fund. In addition, investments in Mid Cap
Companies as well as certain investment techniques may involve special risks.
See "Special Investment Methods and Risk Factors."
Potential equity investments for Mid-Cap Equity Fund generally are evaluated
using fundamental analysis, including criteria such as earnings, cash flow,
asset values and/or dividend-paying ability. In choosing Mid-Cap Equity Fund's
securities, the Investment Adviser utilizes first-hand fundamental research,
including visiting company facilities to assess operations and meet decision-
makers. The Investment Adviser may also use a macro analysis of numerous
economic and valuation variables to determine and 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
Research Department and other affiliates of the Investment Adviser as well as
information provided by other securities dealers.
The Investment Adviser intends to purchase securities of companies that are,
in the Investment Adviser's view, underpriced relative to a combination of
such companies' long-term earnings prospects, growth rate, free cash flow
and/or dividend-paying ability. Mid-Cap Equity Fund may also purchase
securities of companies that have experienced difficulties and that, in the
opinion of the Investment Adviser, are available at attractive prices.
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
market 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.
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Equity securities in Mid-Cap Equity Fund's portfolio will generally be sold
when the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation, when other more attractive
investments are identified.
OTHER INVESTMENT POLICIES AND RISKS
Mid-Cap Equity Fund may invest up to 35% of its total assets in mortgage-
backed, asset-backed and fixed income securities issued or guaranteed by
corporations or other entities or by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further Mid-Cap Equity
Fund's investment objective. The fixed income securities in which Mid-Cap
Equity Fund may invest will be rated B or better, at the time of investment,
by Standard & Poor's Ratings Group ("Standard and Poor's") or by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by such rating
organizations, determined by the Investment Adviser to be of comparable credit
quality. Mid-Cap Equity Fund will limit its investments in fixed income
securities rated below investment grade to no more than 10% of its total
assets. See Appendix A to the Additional Statement for a description of the
ratings issued by investment rating organizations. In addition, although Mid-
Cap Equity Fund will invest primarily in U.S. securities, it may invest up to
25% of its total assets in foreign securities, including American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs").
SPECIAL INVESTMENT METHODS AND RISK FACTORS
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all debt securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, an Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which Mid-Cap Equity Fund invests are subject to the same rating
criteria as its investments in fixed income securities. The convertible
securities in which the Select Equity Fund invests are not subject to any
minimum rating criteria. Convertible debt securities are equity investments
for purposes of each Fund's investment policies.
WARRANTS AND STOCK PURCHASE RIGHTS
Each Fund may purchase warrants and stock purchase rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise
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<PAGE>
voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. As a result, an investment
in warrants and stock purchase rights may be considered to entail greater
investment risk than certain other types of investments. In addition, the
value of warrants and stock purchase rights does not necessarily change with
the value of the underlying securities, and they cease to have value if they
are not exercised on or prior to their expiration date. Investment in warrants
and stock purchase rights increases the potential profit or loss to be
realized from the investment of a given amount of a Fund's assets as compared
with investing the same amount in the underlying stock.
FOREIGN TRANSACTIONS
FOREIGN SECURITIES. Investments in foreign securities may offer potential
benefits that are not available from investments exclusively in securities of
domestic issuers. Foreign issuers may offer better investment opportunities
than domestic securities. Foreign countries may have economic policies or
business cycles different from those of the United States and securities mar-
kets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign
or U.S. laws or restrictions applicable to such investments and in exchange
control regulations (e.g., currency blockage). Some foreign exchanges may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign companies may be less liquid than securities of
comparable domestic companies. Commissions on transactions in foreign securi-
ties may be higher than those for similar transactions on domestic stock mar-
kets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus mak-
ing it difficult to conduct such transactions.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
company than about a domestic company. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of nationaliza-
tion, expropriation or confiscatory taxation, imposition of withholding taxes
on dividend or interest payments, limitations on the removal of funds or other
assets, political or social instability or diplomatic developments which could
affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign securi-
ties which take the form of sponsored and unsponsored American Depository Re-
ceipts ("ADRs") and Global Depository Receipts ("GDRs") and Mid-Cap Equity
Fund 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. Prices of ADRs are
quoted in U.S. dollars and are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. EDRs and GDRs
are receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are
not
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<PAGE>
necessarily quoted in the same currency as the underlying security. To the ex-
tent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate actions
such as stock splits or rights offerings involving the foreign issuer in a
timely manner. In addition, the lack of information may result in inefficien-
cies in the valuation of such instruments. Investment in Depository Receipts
does not eliminate all the risks inherent in investing in securities of non-
U.S. issuers. The market value of Depository Receipts is dependent upon the
market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying se-
curities are quoted. However, by investing in Depository Receipts, such as an
ADR, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. Mid-Cap Equity Fund's in-
vestment in foreign securities may include securities of issuers in countries
with emerging economies or securities markets. These emerging markets are gen-
erally located in the Asia-Pacific region, Eastern Europe, Latin and South
America and Africa. Mid-Cap Equity Fund's purchase and sale of portfolio secu-
rities in certain emerging markets may be constrained by limitations as to
daily changes in the prices of listed securities, periodic trading or settle-
ment 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 the Fund, the Investment Adviser and its affiliates and their re-
spective clients and other service providers. The Fund may not be able to sell
securities in circumstances where price trading or settlement volume limita-
tions have been reached.
Foreign investment in the securities markets of certain emerging markets is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of such company available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by the Fund. Due to restrictions on direct investment in
equity securities in certain Asian countries, such as Taiwan, it is
anticipated that Mid-Cap Equity Fund may invest in such countries only through
other investment funds in such countries. See "Other Investment Companies."
Furthermore, the repatriation of both investment income and capital from
several of the Asian countries is subject to restrictions such as the need for
certain governmental consents.
Many of the emerging markets may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States and Japan. Many of the emerging markets do not have fully
democratic governments. For example, some governments of emerging market
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging markets have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
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<PAGE>
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some of the Asian and other countries. The economies of
most of the emerging markets are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners, principally, the United States, Japan,
China and the European Union. In addition, the economies of some of the
emerging markets are vulnerable to weakness in world prices for their
commodity exports.
Settlement procedures in emerging markets are frequently less developed and
reliable than those in the United States and may involve Mid-Cap Equity Fund's
delivery of securities before receipt of payment for their sale. In addition,
significant delays are common in certain markets in registering transfer of
securities. Settlement or registration problems may make it more difficult for
Mid-Cap Equity Fund to value its portfolio securities and could cause the Fund
to miss attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its con-
tractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the emerging market countries. Consequently, there can
be no assurance that suitable instruments for hedging currency and market-
related risks will be available at the times when Mid-Cap Equity Fund wishes
to use them.
FOREIGN CURRENCY TRANSACTIONS. Mid-Cap Equity Fund may, to the extent it in-
vests in foreign securities, purchase or sell forward foreign currency ex-
change contracts for hedging purposes. Mid-Cap Equity Fund may enter into for-
ward foreign currency exchange contracts to seek to protect against antici-
pated changes in future foreign currency exchange rates. If Mid-Cap Equity
Fund enters into a forward foreign currency exchange contract to buy foreign
currency, Mid-Cap Equity Fund will be required to place and maintain cash or
liquid, high grade debt securities in a segregated account with Mid-Cap Equity
Fund's custodian in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract. Mid-Cap Equity Fund
will incur costs in connection with conversions between various currencies.
Select Equity Fund will not engage in foreign currency transactions.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, Mid-Cap Equity Fund's net asset value
to fluctuate as well. They generally are determined by the forces of supply
and demand in the foreign exchange markets and the relative merits of invest-
ments 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 cur-
rency controls or political developments in the U.S. or abroad. The market in
forward foreign currency exchange contracts offers less protection against de-
faults by the other party to such instruments than is available for currency
instruments traded on an exchange. To the extent that a substantial portion of
Mid-Cap Equity Fund's total assets, adjusted to reflect the Fund's net posi-
tion after giving effect to currency transactions, is denominated or quoted in
the currencies of foreign countries, Mid-Cap Equity Fund will be more suscep-
tible to the risk of adverse economic and political developments within those
countries.
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<PAGE>
The market in forward foreign currency exchange contracts used by Mid-Cap
Equity Fund offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded 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 Mid-Cap Equity 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.
Mid-Cap Equity Fund will not enter into such transactions 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.
OPTIONS ON FOREIGN CURRENCIES. Mid-Cap Equity Fund may, to the extent it in-
vests in foreign securities, purchase and sell (write) 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 anticipated dividends on such
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 writ-
ing of an option on foreign currency will constitute only a partial hedge, up
to the amount of the premium received. Mid-Cap Equity 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 the Fund's position, Mid-Cap
Equity Fund may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written or purchased by
Mid-Cap Equity Fund will be traded on U.S. and for-eign exchanges or over-the-
counter.
INVESTING IN SMALL CAPITALIZATION COMPANIES
Each of Mid-Cap Equity Fund and Select Equity Fund may invest in smaller,
lesser-known companies which the Investment Adviser believes offer greater
growth potential than larger, more mature, better known firms. Investing in
the securities of such companies, however, involves greater risk and the
possibility of greater portfolio price volatility. Historically, small
capitalization stocks and stocks of recently organized companies have been
more volatile in price than the larger capitalization stocks included in the
S&P 500 Index. Among the reasons for the greater price volatility of these
small company and unseasoned stocks are the less certain growth prospects of
smaller firms and the lower degree of liquidity in the markets for such
stocks.
FIXED INCOME SECURITIES
Each Fund may invest in U.S. Government securities and Mid-Cap Equity Fund
may invest in corporate and certain other fixed income securities. Select
Equity Fund may only invest in debt securities that are considered cash
equivalents. Fixed income securities are subject to the risk of the issuer's
inability to meet principal and interest payments on the obligations (credit
risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Except to the extent that
values are independently affected by currency exchange rate fluctuations, when
interest rates decline, the value of fixed income securities can generally be
expected to rise. Conversely, when interest rates rise, the value of fixed
income securities can be expected to decline. The interest rates payable on
certain
15
<PAGE>
fixed income securities in the Funds may invest are not fixed and may
fluctuate based upon changes in market rates of interest.
Fixed income securities rated in the BBB or Baa category 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. Also, to the extent that the
rating assigned to a security in Mid-Cap Equity Fund's portfolio is downgraded
by a rating organization, the market price and liquidity of such security may
be adversely affected. Fixed income securities rated BB, Ba, B or below,
including securities rated D by Moody's or Standard and Poor's (or comparable
unrated securities) are commonly referred to as "junk bonds," are considered
predominately speculative with respect to an issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and
involve a major risk of exposure to adverse business, financial or economic
conditions. In some cases, these obligations may be highly speculative and
have poor prospects for obtaining investment standing and be in default. As a
result, investment in such bonds will entail greater speculative risks than
those associated with investment in investment-grade bonds (i.e., bonds rated
AAA, AA, A or BBB by Standard and Poor's or Aaa, Aa, A or Baa by Moody's).
Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard and Poor's and Moody's.
GOVERNMENT DEBT OBLIGATIONS. Each Fund may invest in U.S. Government
securities which include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprises thereof supported by the full
faith and credit of the U.S. Government, the authority of the issuer to borrow
from the U.S. Treasury, or the discretionary authority of the U.S. Government
to purchase the obligations of the agency, instrumentality or enterprise;
obligations fully guaranteed as to principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; obligations of
U.S. Government agencies, instrumentalities or state government agencies or
instrumentalities, which may or may not be entitled to the full faith and
credit of the issuer. 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. A Fund's investments in zero coupon securities may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mid-Cap Equity Fund may invest
in mortgage-backed securities, which represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mid-Cap Equity Fund may also invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sale contracts, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other
categories of receivables.
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<PAGE>
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates would indicate as a result of the
pass-through of prepayments of principal on the underlying loans which may
increase the volatility of such investments relative to similarly rated debt
securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities can be expected to
accelerate, and thus impair the Fund's ability to reinvest the returns of
principal at comparable yields. During periods of rising interest rates,
reduced prepayment rates may extend the average life of mortgage-backed and
asset-backed securities and increase Mid-Cap Equity Fund's exposure to rising
interest rates. Accordingly, the market values of such securities will vary
with changes in market interest rates generally and in yield differentials
among various kinds of U.S. Government securities and other mortgage-backed
and 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. There is the
possibility that, in some cases, recoveries on repossessed collateral may not
be available to support payments on these securities.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Mid-Cap Equity Fund may purchase put and call options and write (sell) cov-
ered call and put options on any securities in which it may invest or on any
securities index composed of securities in which it may invest. Mid-Cap Equity
Fund will purchase and write such options that are listed on national securi-
ties exchanges or traded in the over-the-counter market. The writing and pur-
chase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with direct investments
in equity securities. The use of options 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
puts for hedging purposes also depends in part on the Investment Adviser's
ability to predict future price fluctuations and the degree of correlation be-
tween the options and securities markets. If the Investment Adviser is incor-
rect 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 Mid-Cap Equity Fund's investment portfo-
lio, the investment performance of Mid-Cap Equity Fund will be less favorable
than it would have been in the absence of such options transactions. The writ-
ing of options could significantly increase Mid-Cap Equity Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency
exchange rates or to seek to increase total return, Select Equity Fund may
purchase and sell future contracts on the S&P 500 Index and Mid-Cap Equity
Fund may purchase and sell various kinds of futures contracts, and purchase
and write call and put options on any of such futures contracts. A Fund will
engage in futures and Mid-Cap Equity Fund will engage in related options
transactions only for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission or, except for futures on foreign
currencies purchased or sold by Mid-Cap Equity Fund, to seek to increase total
return to the extent permitted by such regulations. A Fund may not purchase or
sell futures contracts or purchase or sell related options to 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
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<PAGE>
to increase total return would exceed 5% of the market value of the Fund's net
assets. These transactions involve brokerage costs, require margin deposits
and, in the case of contracts and options obligating the Mid-Cap Equity Fund
to purchase securities or currencies, require the Fund to segregate and main-
tain cash or liquid, high grade debt securities with a value equal to the
amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures, and in the case of Mid-Cap Equity Fund, options on
futures, unanticipated changes in interest rates, securities prices or cur-
rency exchange rates may result in a poorer overall performance of the Fund
than if it had not entered into any futures contracts or options transactions.
The loss incurred by Mid-Cap Equity Fund in writing options on futures is po-
tentially unlimited and may exceed the amount of premium received. Futures
markets are highly volatile and the use of futures may increase the volatility
of a Fund's net asset value. The profitability of a Fund's trading in futures
to seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and
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 corre-
lation between a Fund's futures positions and its portfolio positions will be
impossible to achieve. A Fund's transactions in futures contracts and, for
Mid-Cap Equity Fund, options may be limited by the requirements of the Inter-
nal Revenue Code of 1986, as amended (the "Code") for qualification as a regu-
lated investment company.
RISKS OF DERIVATIVE TRANSACTIONS
Select Equity Fund's transactions in futures and Mid-Cap Equity Fund's
transactions in futures, options, options on futures and currency forward con-
tracts involve certain risks, including a possible lack of correlation between
changes in the value of hedging instruments and the portfolio assets being
hedged, the potential illiquidity of the markets for derivative instruments,
the risks arising from the margin requirements and related leverage factors
associated with such transactions. The use of these management techniques to
seek to increase total return may be regarded as a speculative practice, and
involves the risk of loss if the Investment Adviser is incorrect in its expec-
tation of fluctuations in securities prices, interest rates or currency pric-
es.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advanta-
geous price and yield to the Fund at the time of entering into the transac-
tion. Each Fund may also purchase securities on a forward commitment basis;
that is, make
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contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. A Fund is required to hold and maintain in a segre-
gated account with the Fund's custodian until the settlement date, cash or
liquid, high grade debt securities in an amount sufficient to meet the pur-
chase price. Alternatively, each Fund may enter into offsetting contracts for
the forward sale of other securities that it owns. The purchase of securities
on a when-issued or forward commitment basis involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Although a Fund would generally purchase securities on a when-issued or for-
ward commitment basis with the intention of acquiring securities for its port-
folio, the Fund may dispose of when-issued securities or forward commitments
prior to settlement if its Investment Adviser deems it appropriate to do so.
INVESTMENT IN UNSEASONED COMPANIES
Each Fund may invest up to 5% of its assets, calculated at the time of pur-
chase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities
which have been rated investment grade or better by at least one nationally
recognized statistical rating organization. The securities of such companies
may have limited liquidity, which can result in their being priced 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.
ILLIQUID AND RESTRICTED SECURITIES
A Fund may not invest more than 10% of its total assets in securities that
are subject to restrictions on resale ("restricted securities") under the Se-
curities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund
will not invest more than 15% of its net assets in illiquid investments, which
includes securities (both foreign and domestic) that are not readily marketable,
repur-chase agreements maturing in more than seven days, time deposits with a
notice or demand period of more than seven days, certain over-the-counter
options, and certain restricted securities, unless it is determined, based upon
the continuing review of the trading markets for the specific restricted
security, that such restricted security is eligible for sale under Rule 144A and
is liq-uid. The Board of Directors has adopted guidelines and delegated to the
In-vestment Adviser the daily function of determining and monitoring the liquid-
ity of restricted securities. The Board of Directors, however, retains over-
sight focusing on factors such as valuation, liquidity and availability of in-
formation and is ultimately responsible for each determination. Investing in
restricted securities eligible for resale pursuant to Rule 144A could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.
OTHER INVESTMENT COMPANIES
A Fund reserves the right to invest up to 10% of its total assets in the se-
curities of other investment companies, but may not invest more than 5% of its
total assets in the securities of any one investment company or 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
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<PAGE>
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 paid by the Fund. However, to the extent
that a Fund invests in a money market fund for which an Investment Adviser or
any of its affiliates acts as 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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S. Govern-
ment 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 re-
purchase 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 in connection with the re-
lated repurchase agreement are less than the repurchase price. In addition, in
the event of bankruptcy of the seller or failure of the seller to repurchase
the securities as agreed, the Fund could suffer losses, including loss of in-
terest on or principal of the security and costs associated with delay and en-
forcement of the repurchase agreement. The Directors of the Company have re-
viewed and approved certain sellers whom they believe to be creditworthy and
have authorized the Funds to enter into repurchase agreements with such sell-
ers. In addition, each Fund, together with other registered investment compa-
nies having advisory agreements with an Investment Adviser, may transfer
uninvested cash balances into a single joint account, the daily aggregate bal-
ance of which will be invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio securi-
ties. Under present regulatory policies, such loans may be made to institu-
tions, such as certain broker-dealers, and are required to be secured continu-
ously by collateral in cash, cash equivalents, or U.S. Government securities
maintained on a current basis in an amount at least equal to the market value
of the securities loaned. Cash collateral may be invested in cash equivalents.
If an Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of a
Fund. See "Investment Restrictions" in the Additional Statement. A Fund may
experience a loss or delay in the recovery of its securities if the institu-
tion with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Mid-Cap Equity Fund may make short sales of securities or maintain a short
position, provided that at all times when a short position is open Mid-Cap Eq-
uity Fund owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for an
equal amount of the securities of the same issuer as the securities sold short
(a short sale against-the-box). Not more than 25% of Mid-Cap Equity Fund's net
assets (determined at the time of short sale) may be subject to such short
sales. Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes; a gain or loss in Mid-Cap Equity Fund's long posi-
tion will be offset by a gain or loss in its short position.
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<PAGE>
TEMPORARY INVESTMENTS
Notwithstanding a Fund's investment objective, each Fund may on occasion,
for temporary defensive purposes to preserve capital, hold part or all of its
assets (except that Select Equity Fund may only hold up to 35% of its total
assets) in cash, obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities, political subdivisions or authorities, commercial
paper rated at least A-2 by Standard and Poor's or P-2 by Moody's,
certificates of deposit, bankers' acceptances, repurchase agreements, non-
convertible preferred stocks, non-convertible corporate bonds with a remaining
maturity of less than one year or, subject to certain tax restrictions,
foreign currencies. When a Fund's assets are invested in such instruments, the
Fund may not be achieving its investment objective.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement. These
investment restrictions are fundamental policies of a Fund that cannot be
changed without approval of a majority of the outstanding shares of that Fund.
For more information on a Fund's investment restrictions, an investor should
obtain the Additional Statement. 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, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial positions and
needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (above 100%) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. Mid-Cap Equity Fund does not ex-
pect its annual portfolio turnover rate to exceed 100%. See "Financial High-
lights" for a statement of Select Equity Fund's historical portfolio turnover
ratio. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, the Investment Adviser may, from time to time, make short-term in-
vestments when it believes such investments are in the best interest of a
Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for deciding matters of gen-
eral policy and reviewing the actions of the Investment Advisers, administra-
tor, distributor and transfer agent. The officers of the Company conduct and
supervise the Funds' daily business operations. The Additional Statement con-
tains information as to the identity of, and other information about, the Di-
rectors and officers of the Company.
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<PAGE>
INVESTMENT ADVISERS AND ADMINISTRATOR
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P. ("GSFM"), a Dela-
ware limited partnership which is an affiliate of Goldman Sachs, serves as the
investment adviser to Select Equity Fund. Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as the in-
vestment adviser to Mid-Cap Equity Fund. GSAM also serves as administrator to
each Fund. Goldman Sachs and GSFM registered as investment advisers in 1981
and 1990, respectively. As of April 27, 1995, GSAM and GSFM, together with
their affiliates, acted as investment adviser, administrator or distributor
for assets in excess of $50 billion.
Under an Investment Advisory Agreement with each Fund, the applicable In-
vestment Adviser, subject to the general supervision of the Company's Board of
Directors, provides day-to-day advice as to the Fund's portfolio transactions.
Goldman Sachs has agreed to permit the Company to use the name "Goldman Sachs"
or a derivative thereof as part of each Fund's name for as long as a Fund's
Investment Advisory Agreement is in effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Hong Kong and Tokyo affiliates
and is able to draw upon the research and expertise of its other affiliate of-
fices.
Select Equity Fund's Portfolio Manager is Robert C. Jones. Mr. Jones is a
Vice President and brings 15 years of investment experience to his work in de-
veloping and implementing the Investment Advisers' quantitative equity manage-
ment services. Prior to joining the Investment Adviser in 1989, Mr. Jones was
the senior quantitative analyst in Goldman Sachs' Investment Research Depart-
ment and the author of the monthly Stock Selection publication.
The portfolio managers for Mid-Cap Equity Fund are Paul D. Farrell, Mitchell
E. Cantor and Ronald E. Gutfleish. Mr. Farrell is a Vice President and Co-
Chief Investment Officer of GSAM's Active Equity Team. Prior to joining the
Investment Adviser in 1991, Mr. Farrell served as a managing director at Plaza
Investments, the investment subsidiary of GEICO Corp., a major insurance com-
pany. He was previously a Vice President in the Goldman Sachs research depart-
ment and was responsible for the formation of the firm's Emerging Growth Re-
search Group. Mr. Cantor joined the Investment Adviser in 1991 and is also a
Vice President and Co-Chief Investment Officer of GSAM's Active Equity Team.
Prior to 1991, Mr. Cantor was a senior partner and served as research director
of the Institutional Division and as the investment management research direc-
tor for Sanford C. Bernstein & Co., Inc. Mr. Gutfleish joined the Investment
Adviser in 1993 and is a Vice President. Prior to 1993, he was a principal of
Sanford C. Bernstein & Co., Inc. in its Investment Management Research Depart-
ment and a member of its Research Review Committee.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from
Select Equity Fund, computed daily
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<PAGE>
and payable monthly, at the annual rate of 0.50% of average daily net assets;
however, GSFM is currently only imposing its advisory fee at the annual rate
of 0.40% of average daily net assets. GSFM may discontinue or modify such lim-
itation in the future at its discretion, although it has no current intention
to do so. For the fiscal year ended January 31, 1995, Select Equity Fund paid
GSFM an advisory fee at the rate of 0.50% of its average daily net assets. As
compensation for its services rendered and assumption of certain expenses pur-
suant to an Investment Advisory Agreement, GSAM is entitled to a fee from Mid-
Cap Equity Fund, computed daily and payable monthly, at the annual rate of
0.60% of average daily net assets. Each Investment Adviser has voluntarily
agreed to reduce the fees payable to it by a Fund (to the extent of its fees)
by the amount (if any) that a Fund's expenses would exceed the applicable ex-
pense limitations imposed by state securities administrators. See "Manage-
ment--Expenses" in the Additional Statement. In addition, each Investment Ad-
viser has voluntarily agreed to reduce or limit certain "Other Expenses" of
Select Equity Fund and Mid-Cap Equity Fund (excluding advisory, transfer
agency and administration fees and fees under administration, distribution and
authorized dealer service plans, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.06% per annum of such Funds' average daily net assets. Such reduc-
tions or limits, if any, are calculated monthly on a cumulative basis and may
be discontinued or modified by the Investment Adviser in its discretion at any
time.
EXPENSES. Except as set forth above under "Management--Investment Advisers
and Administrator," each Fund is responsible for the payment of its expenses.
The expenses borne by a Fund include, without limitation, the fees payable to
its Investment Adviser and Goldman Sachs, including transfer agent fees, the
fees and expenses of the Fund's custodian and subcustodians, brokerage fees
and commissions, filing fees for the registration or qualification of the
Fund's shares under federal or state securities laws, expenses of the organi-
zation of the Fund, a portion of the fees and expenses incurred by the Company
in connection with membership in investment company organizations, taxes, in-
terest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for dam-
ages or other relief asserted against, the Company for violation of any law,
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investments Advisers and
Goldman Sachs with respect to the Company), 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
Fund's shareholders and regulatory authorities, any expenses assumed by the
Fund pursuant to its Distribution, Authorized Dealer Service and/or Adminis-
tration plan and the Fund's allocable share of the compensation and expenses
of the Company's "non-interested" Directors and extraordinary expenses, if
any, incurred by the Company.
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with each Fund, GSAM provides personnel for supervisory, administrative, and
clerical functions; oversees the performance of administrative and profes-
sional services to each Fund by others; provides office facilities; and pre-
pares, but does not pay for, reports to shareholders, the SEC and other regu-
latory authorities. As compensation for the services rendered to the Funds,
GSAM is entitled to a fee from Select Equity Fund and Mid-Cap Equity Fund,
computed daily and payable monthly, at an annual rate equal to 0.25% and
0.15%, respectively, of each such Fund's average daily net assets; however,
GSAM is currently only imposing its administration fee with respect to Select
Equity Fund at the annual rate of 0.15% of average daily net
23
<PAGE>
assets. GSAM may discontinue or modify such limitation in the future at its
discretion, although it has no current intention to do so. For the period
ended January 31, 1995, Select Equity Fund paid GSAM an administration fee
equal to 0.25% of its average daily net assets. GSAM has agreed to reduce its
fees payable by a Fund (to the extent of its fees) by the amount (if any) that
a Fund's expenses exceed the applicable expense limitations imposed by state
securities administrators. See "Management--Expenses" in the Additional State-
ment.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in or compete for transactions in the same type of securities, curren-
cies and instruments as the Funds. Goldman Sachs and its affiliates will not
have any obligation to make available any information regarding their proprie-
tary 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
in general it is not anticipated that the Investment Advisers will have access
to proprietary information for the purpose of managing a Fund. The results of
a Fund's investment activities, therefore, may differ from those of Goldman
Sachs and its affiliates and it is possible that a Fund could sustain losses
during periods in which Goldman Sachs and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other ac-
counts. From time to time, a Fund's activities may be limited because of regu-
latory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See "Activ-
ities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the ex-
clusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois, also serves as each Fund's transfer agent (the "Transfer
Agent") and as such performs various shareholder servicing functions. Share-
holders of record with inquiries regarding a Fund should contact Goldman Sachs
(as Transfer Agent) at the address or the telephone number set forth on the
inside front cover page of this Prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is calculated by the Fund's custo-
dian as of the close of regular trading on the New York Stock Exchange (nor-
mally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each Business Day
(as such term is defined under "Additional Information"). Net asset value per
share of each class is calculated by determining the net assets attributable
to each class and dividing by the number of outstanding shares of that class.
Portfolio securities are valued based on market quotations or, if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Company's Board of Directors.
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<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return for a
particular class of its shares in advertisements and communications to share-
holders or prospective investors. Average annual total return is determined by
computing the average annual percentage change in value of $1,000 invested at
the maximum public offering price for the relevant class for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value. The total return calculation
assumes a complete redemption of the investment at the end of the relevant pe-
riod. Each Fund may also from time to time advertise total return on a cumula-
tive, 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 net asset value. Any performance data which are based on the net
asset value per share would be reduced if a sales charge were taken into ac-
count. In addition to the above, each Fund may from time to time advertise its
performance relative to certain performance rankings and indices.
The investment results of a Fund will fluctuate over time and any presenta-
tion of investment results for any prior period should not be considered a
representation of what an investment may earn or what the Fund's performance
may be in any future period. In addition to information provided in share-
holder reports, the Funds may, in their discretion, from time to time make a
list of its holdings available to investors upon request.
SHARES OF THE COMPANY
Each Fund is a series of the Company, which was incorporated under the laws
of the State of Maryland on September 27, 1989. The authorized capital stock
of the Company consists of 1,000,000,000 shares of common stock, par value
$.001 per share. The Directors of the Company have authority under the
Company's Charter to create and classify shares of capital stock in separate
series, without further action by shareholders. Additional series may be added
in the future. The Directors also have authority to classify and reclassify
any series or portfolio of shares into one or more classes. Select Equity Fund
offers three classes of shares: Institutional Shares, Administration Shares
and Class A Shares. Mid-Cap Equity Fund offers two classes of shares: Institu-
tional Shares and Administration Shares.
When issued, shares are fully paid and nonassessable. In the event of liqui-
dation, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to such shareholders. All shares entitle their
holders to one vote per share, are freely transferable and have no preemptive,
subscription or conversion rights.
Unless otherwise required by the Investment Company Act of 1940 (the "Act"),
ordinarily it will not be necessary for the Company to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of independent accountants. However,
pursuant to the Company's By-Laws, the recordholders of at least 10% of the
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<PAGE>
shares outstanding and entitled to vote at a special meeting may require the
Company to hold a special meeting of shareholders for any purpose and
recordholders may, under certain circumstances as permitted by the Act, commu-
nicate with other shareholders in connection with requiring a special meeting
of shareholders. Shareholders of the Company may remove a Director by the af-
firmative vote of a majority of the Company's outstanding voting shares. The
Board of Directors, however, will call a special meeting of shareholders for
the purpose of electing Directors if, at any time, less than a majority of Di-
rectors holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Company does not issue cer-
tificates representing the Funds' shares. Instead, the Transfer Agent main-
tains a record of each shareholder's ownership. Each shareholder receives con-
firmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Select Equity
Fund has elected and Mid-Cap Equity Fund intends to elect to be treated as a
regulated investment company and to qualify for such treatment for each tax-
able year under Subchapter M of the Code. To qualify as such, each Fund must
satisfy certain requirements relating to the sources of its income, diversifi-
cation of its assets and distribution of its income to shareholders. As a reg-
ulated investment company, each Fund will not be subject to federal income or
excise tax on any net investment income and net realized capital gains that
are distributed to its shareholders in accordance with certain timing require-
ments of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply regard-
less of whether distributions are received in cash or reinvested in shares. A
Fund's dividends that are paid to its corporate shareholders and are attribut-
able to qualifying dividends such Fund receives from U.S. domestic corpora-
tions may be eligible, in the hands of such corporate shareholders, for the
corporate dividends-received deduction, subject to certain holding period re-
quirements and debt financing limitations under the Code. Certain distribu-
tions paid by a Fund in January of a given year may be taxable to shareholders
as if received the prior December 31. Shareholders will be informed annually
about the amount and character of distributions received from the Funds for
federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the rec-
ord date for a distribution will pay a per share price that includes the value
of the anticipated distribution and will be taxed on the distribution even
though the distribution represents a return of a portion of the purchase
price.
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<PAGE>
Redemptions and exchanges of shares are taxable events on which a share-
holder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and ex-
changes if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup with-
holding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject
to nonresident alien withholding at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from a
Fund.
Mid-Cap Equity Fund and/or Select Equity Fund anticipates that they will be
subject to foreign withholding or other foreign taxes on income or gain from
certain foreign securities. The Funds do not anticipate that they will elect
to pass such foreign taxes through to their shareholders, who therefore will
generally not take such taxes into account on their own tax returns. The Funds
will generally deduct such taxes in determining the amounts available for a
distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from a Fund. A state income (and possi-
bly local income and/or intangible property) tax exemption is generally avail-
able to the extent (if any) a Fund's distributions are derived from interest
on (or, in the case of intangibles taxes, the value of its assets is attribut-
able to) certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting require-
ments are satisfied. For a further discussion of certain tax consequences of
investing in shares of a Fund, see "Taxation" in the Additional Statement.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state and local taxes as well as to any foreign tax-
es.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
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<PAGE>
REPORTS TO INSTITUTIONAL SHAREHOLDERS
Institutional Shareholders will receive annual reports containing audited
financial statements and semi-annual reports. Each Institutional Shareholder
will also be provided with a printed confirmation for each transaction in the
shareholder's account and an individual quarterly statement. A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.
The Fund does not generally provide subaccounting services.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional Insti-
tutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular divi-
dend or distribution. If no election is made, all dividends from net invest-
ment income and capital gains distributions will be reinvested in Institu-
tional Shares of the applicable Fund. If cash dividends are elected with re-
spect to a Fund's net investment income dividends then cash dividends must
also be elected with respect to the short-term capital gains component, if
any, of the Fund's annual dividend.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Institutional Shares of the Fund will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. Each Fund
will pay dividends from net investment income at least annually. Both of the
Funds will pay dividends from net realized long-term and short-term capital
gains, reduced by available capital losses, at least annually. From time to
time, a portion of 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
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securi-
ties. Therefore, subsequent distributions (or portions thereof) of taxable in-
come or realized appreciation on such shares may be taxable to the investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares of a Fund may be purchased, without the imposition of a
sales load, through Goldman Sachs at the net asset value per share next deter-
mined after receipt of an order. If, by the close of regular trading on the
New York Stock Exchange (currently 4:00 p.m. New York time), an order is re-
ceived by the Fund or Goldman Sachs, the price per share will be the net asset
value per share computed on the day the purchase order is received. See "Net
Asset Value."
28
<PAGE>
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring Federal Funds to State Street
Bank and Trust Company ("State Street") or initiating an ACH transfer. Pur-
chases may also be made by check (except that a check drawn on a foreign bank
will not be accepted) or Federal Reserve draft made payable to "Goldman Sachs
Equity Portfolios, Inc.--[Goldman Sachs Mid-Cap Equity Fund] [Goldman Sachs
Select Equity Fund]" and should be directed to "Goldman Sachs Equity Portfo-
lios, Inc.--[Goldman Sachs Mid-Cap Equity Fund] [Goldman Sachs Select Equity
Fund]", c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box 419711,
Kansas City, MO 64141-6711. Effective June 7, 1995, payment must be received
within three Business Days of receipt of the purchase order by the Fund or
Goldman Sachs. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Institutional Shares."
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing necessary information to the Fund or
Goldman Sachs. An Account Information Form, a copy of which is attached to
this Prospectus, should be used to establish such an account. Subsequent pur-
chases of shares may be made in the manner set forth in the preceding para-
graph.
The minimum initial investment is $1,000,000 in Institutional Shares of each
Fund alone or in combination with other assets under the management of GSAM
and its affiliates. Institutional Shares of the Fund are offered to (a) banks,
trust companies or other types of depository institutions investing for their
own account or on behalf of their clients; (b) pension and profit sharing
plans, pension funds and other company-sponsored benefit plans; (c) qualified
non-profit organizations, foundations and endowments; (d) any state, county,
city or any instrumentality, department, authority or agency thereof; (e) cor-
porations and other for-profit business organizations with assets of at least
$100 million or publicly traded securities outstanding; (f) "wrap" accounts
for the benefit of clients of broker-dealers, financial institutions or finan-
cial planners, provided that they have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards;
and (g) registered investment advisers who have entered into an agreement with
GSAM specifying aggregate minimums and certain operating policies and stan-
dards. The minimum investment requirement may be waived at the discretion of
the Company's officers. No minimum amount is required for subsequent invest-
ments.
Each Fund reserves the right to redeem the Institutional Shares of any In-
stitutional Shareholder whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Company will give sixty (60)
days' prior written notice to Institutional Shareholders whose Institutional
Shares are being redeemed to allow them to purchase sufficient additional In-
stitutional Shares of a Fund to avoid such redemption.
OTHER PURCHASE INFORMATION
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in In-
stitutional Shares. Such institutions should be consulted for information re-
garding such charges.
29
<PAGE>
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). Each Fund or Goldman
Sachs may reject or restrict purchases or exchanges of Institutional Shares by
a particular purchaser or group of related purchasers, for example, when a
pattern of frequent purchases and sales or exchanges of Institutional Shares
of a Fund is evident, or if the purchase and sale or exchange orders are, or a
subsequent abrupt redemption might be, of a size that would disrupt management
of the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as
an eligible fund for this purpose and (ii) the corresponding class of any
portfolio of Goldman Sachs Money Market Trust at the net asset value next de-
termined either by writing to Goldman Sachs, Attention: Goldman Sachs Equity
Portfolios, Inc.-- [Goldman Sachs Select Equity Fund] [Goldman Sachs Mid-Cap
Equity Fund], c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illi-
nois 60606 or, if previously elected in the Fund's Account Information Form,
by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago time). A share-
holder should obtain and read the prospectus relating to any other fund and
its shares or units and consider its investment objective, policies and appli-
cable fees before making an exchange. Under the telephone exchange privilege,
Institutional Shares may be exchanged among accounts with different names, ad-
dresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the pro-
cedures set forth under "Redemptions of Institutional Shares."
In times of drastic economic or market changes the telephone exchange privi-
lege may be difficult to implement. In an effort to prevent unauthorized or
fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures
as set forth under "Redemption of Institutional Shares" to confirm that such
instructions are genuine. For federal income tax purposes, an exchange is
treated as a sale of the shares surrendered in the exchange on which an in-
vestor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any portfolio of Goldman Sachs Money
Market Trust received in the exchange. Shareholders should consult their own
tax adviser concerning the tax consequences of an exchange.
All exchanges which represent an initial investment in a fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of such fund. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be mod-
ified or withdrawn at any time on sixty (60) days' written notice to Institu-
tional Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
Each Fund will redeem its Institutional Shares upon request of an Institu-
tional Shareholder on any Business Day at the net asset value next determined
after the receipt by the Transfer Agent of such request in proper form. See
"Net Asset Value." If Institutional Shares to be redeemed were recently
30
<PAGE>
purchased by check, a Fund may delay transmittal of redemption proceeds until
such time as it has assured itself that good funds have been collected for the
purchase of such Institutional Shares. This may take up to fifteen (15) days.
Redemption requests, may be made by writing to or calling the Transfer Agent
at the address or telephone number set forth on the inside front cover page of
this Prospectus. An Institutional Shareholder may request redemptions by tele-
phone if the optional telephone redemption privilege is elected on the Account
Information Form accompanying this Prospectus. It may be difficult to imple-
ment redemptions by telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Company to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or ad-
dress other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account Informa-
tion Form. Any such written request is also confirmed by telephone with both
the requesting party and the designated bank account to verify instructions.
Exchanges among accounts with different names, addresses and social security
or other taxpayer identification numbers must be in writing and signed by an
authorized person designated on the Account Information Form. Other procedures
may be implemented from time to time. If reasonable procedures are not imple-
mented, the Company may be liable for any loss due to unauthorized or fraudu-
lent transactions. In all other cases, neither the Funds, the Company nor
Goldman Sachs will be responsible for the authenticity of redemption or ex-
change instructions received by telephone.
Written requests for redemptions must be signed by each Institutional Share-
holder whose signature has been guaranteed by a bank, a securities broker or
dealer, a credit union having authority to issue signature guarantees, a sav-
ings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such in-
stitution satisfies the standards established by the Transfer Agent.
Each Fund will arrange for the proceeds of redemptions effected by any means
to be wired as Federal Funds to the bank account designated in the Institu-
tional Shareholder's Account Information Form or, if the shareholder elects in
writing, by check. Redemption proceeds paid by wire transfer of Federal Funds
will normally be wired on the next Business Day in Federal Funds (for a total
one-day delay), but, effective June 7, 1995, may be paid up to three (3) Busi-
ness Days after receipt of a properly executed redemption request. Wiring of
redemption proceeds may be delayed one additional Business Day if the Federal
Reserve Bank is closed on the day redemption proceeds would originally be
wired. With respect to redemption proceeds paid by check, effective June 7,
1995, a check for the redemption proceeds will normally be mailed to the ad-
dress of record within three (3) Business Days of receipt of a properly exe-
cuted redemption request. In order to change the bank designated on the Ac-
count Information Form to receive redemption proceeds or the record address, a
written request must be received by the Transfer Agent. This request must be
signature guaranteed as set forth above. Further documentation may be required
for executors, trustees or corporations. Once wire transfer instructions have
been given by Goldman Sachs, neither the Funds, the Company nor Goldman Sachs
assumes any
31
<PAGE>
further responsibility for the performance of intermediaries or the Institu-
tional Shareholder's bank in the transfer process. If a problem with such per-
formance arises, the Institutional Shareholder should deal directly with such
intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper
form until such additional documentation has been received.
Except with respect to Institutional Shareholders whose account balances are
less than $50, Institutional Shares are not redeemable at the option of a Fund
unless the Board of Directors determines in its sole discretion that failure
to so redeem may have material adverse consequences to the shareholders of the
Funds. Each Fund, however, assumes no responsibility to compel redemptions.
32
<PAGE>
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section (the "Certification
Section") of the Account Information Form could result in withholding of 31%
by the Fund for the federal backup withholding tax on distributions,
redemptions, exchanges and other payments relating to your account. The Fund
reserves the right to refuse to open an account for, or to close the account
of, any investor who fails to (1) provide a TIN or (2) certify that such TIN
is correct (if required to do so under applicable law) in establishing an
account.
Any tax withheld may be credited against taxes owed on your federal income
tax return. Special rules apply for certain entities.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN and required
certifications.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
Section.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification Section or write "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
[LOGO OF GOLDMAN SACHS]
GOLDMAN SACHS PORTFOLIOS -- ACCOUNT INFORMATION FORM
This Account Information Form Should be Forwarded Promptly to Goldman, Sachs &
Co. No Redemption Can be Made Prior to Its Receipt
Send to: Goldman Sachs Portfolios Master No. ________________
4900 Sears Tower Fund Use Only
Chicago, IL 60606
1-800-621-2550 Date: _____________________
[_] GOLDMAN SACHS -- MONEY MARKET TRUST [_] GS -- SHORT-TERM GOVERNMENT
Fill in Portfolio(s):_____________ AGENCY FUND
[_] GS -- ADJUSTABLE RATE GOVERNMENT [_] GS -- SHORT DURATION TAX-FREE
AGENCY FUND FUND
[_] OTHER [_] GS -- CORE FIXED INCOME FUND
[_] THE GOLDMAN SACHS EQUITY
PORTFOLIOS
Class of Shares:__________________ Fill in Fund(s):______________
A. ACCOUNT RECORD
- -------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------
Name of Account Telephone Number
- ------------------------------------- U.S. Citizen or
Street or P.O. Box Resident? Yes [_] No [_]
- ------------------------------------- If no is checked, fill in country of
City State Zip tax residence:
- ------------------------------------- -------------------------------------
Attention
B. DIVIDENDS AND DISTRIBUTIONS -- Check appropriate box (see "Dividends" in
Prospectus)
- -------------------------------------------------------------------------------
Dividends (including net short-term capital gains) [_] Cash [_] Units/Shares
Net Long-Term Capital Gains Distributions [_] Cash [_] Units/Shares
Dividends and Capital Gains reinvested in another
fund in the Goldman Sachs Portfolios (see
Prospectus for more information) [_] Units/Shares
Fill in Fund(s): ____________________
(If no box is checked, dividends and capital gains distributions will be
reinvested in the account.)
C. SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
- -------------------------------------------------------------------------------
Taxpayer Identification Number: ______________
Under penalties of perjury, I certify that (1) The number shown on this form
is my correct Taxpayer Identification Number (or I am waiting for a number to
be issued to me), and (2) I am not subject to backup withholding because I am
exempt from backup withholding or I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or the IRS has notified me that I
am no longer subject to backup withholding. See the "Guidelines for
Certification of Taxpayer Identification Number on Account Information Form,"
contained in the Appendix to the accompanying Prospectus.
S I G N HERE
------------------------------ -------------------------------------
Signature Name (print) and Title (if any)
------------------------------ -------------------------------------
Date
D. OPTIONAL TELEPHONE EXCHANGE (see "Exchange Privilege" in Prospectus)
- -------------------------------------------------------------------------------
[_] Goldman, Sachs & Co. is hereby authorized to accept and act upon telephone
instructions from the undersigned or any other person for the exchange of
shares/units of the Fund into any fund described in the accompanying
Prospectus. The undersigned understands and agrees that neither the
applicable Fund nor Goldman, Sachs & Co. will be liable for any loss,
expense, or cost arising out of any telephone request affected hereunder.
Continued on reverse side
<PAGE>
E. REDEMPTION PLANS -- check one box only (see "Redemption of Units/Shares" in
Prospectus)
- -------------------------------------------------------------------------------
[_] I authorize GOLDMAN, SACHS & CO. to honor telephone, telegraphic or other
instructions WITHOUT SIGNATURE GUARANTEE, from any person for the redemption
of shares/units for the above account provided that the proceeds are
transmitted to the following bank account(s) only. I understand any changes
to the following information must be made in writing to GOLDMAN, SACHS &
CO., must contain the appropriate number of signatures listed below and all
signatures MUST BE SIGNATURE GUARANTEED. Absent its own gross negligence,
neither the applicable Fund nor GOLDMAN, SACHS & CO. shall be liable for
such redemptions or for payments made to any unauthorized account.
[_] I have furnished GOLDMAN, SACHS & CO., WITH A SIGNATURE GUARANTEE (See
section G). I authorize GOLDMAN, SACHS & CO. to honor telephone,
telegraphic, or other instructions from any person for the redemption of
shares/units for the above account provided that the proceeds are
transmitted to the following bank account(s) only. Any changes to the
following information must be made in writing to GOLDMAN, SACHS & CO., (but
without signature guarantee) and contain the appropriate number of
signatures listed below. Absent its own gross negligence, neither the
applicable Fund nor GOLDMAN, SACHS & CO. shall be liable for such
redemptions or for payments made to any unauthorized account.
Please complete the following bank account information and place a line
through the unused portion.
Additional instructions may be added on separate pages, if necessary
Number of Bank Account Destinations completed in Section E of this form: [_]
1)___________________________________ 3)___________________________________
Bank Name Bank Routing No. Bank Name Bank Routing No.
------------------------------------ ------------------------------------
Street Address Street Address
------------------------------------ ------------------------------------
City State Zip City State Zip
------------------------------------ ------------------------------------
Account Name Account No. Account Name Account No.
2)___________________________________ 4)___________________________________
Bank Name Bank Routing No. Bank Name Bank Routing No.
------------------------------------ ------------------------------------
Street Address Street Address
------------------------------------ ------------------------------------
City State Zip City State Zip
------------------------------------ ------------------------------------
Account Name Account No., Account Name Account No.,
[_] Special Draft (Transfer Agent to Supply)[_] By Mail
F. SIGNATURE AUTHORIZATION
- -------------------------------------------------------------------------------
By the execution of this Account Information Form, the undersigned represents
and warrants that it has full right, power and authority to make the
investment applied for pursuant to this application and is acting for itself
or in some fiduciary capacity in making such investment, and the individual(s)
signing on behalf of the undersigned represent and warrant that they are duly
authorized to sign this application and to purchase and redeem Fund
units/shares on behalf of the undersigned. THE UNDERSIGNED AFFIRMS THAT IT HAS
RECEIVED AND REVIEWED A CURRENT FUND PROSPECTUS.
The undersigned understands that non-money market funds, do not maintain a
constant net asset value and further that a constant net asset value in money
market funds is not guaranteed. As a result, the undersigned may experience a
loss of principal on its investments.
Number of Signatures required to make changes to this form: [_]
S I G N HERE
------------------------------ -------------------------------------
Signature Name (print) and Title (if any) Date
------------------------------ -------------------------------------
Signature Date
------------------------------ -------------------------------------
Signature Date
G. SIGNATURE GUARANTEE
- -------------------------------------------------------------------------------
- ------------------------------------- Affix Guarantee Stamp Here
Signature Guaranteed By
- -------------------------------------
Authorized Signature
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THE FUNDS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... 3
Financial Highlights....................................................... 8
Investment Objective and Policies.......................................... 9
Special Investment Methods and Risk Factors................................ 11
Investment Restrictions.................................................... 21
Portfolio Turnover......................................................... 21
Management................................................................. 21
Net Asset Value............................................................ 24
Performance Information.................................................... 25
Shares of the Company...................................................... 25
Taxation................................................................... 26
Additional Information..................................................... 27
Reports to Institutional Shareholders...................................... 28
Dividends.................................................................. 28
Purchase of Institutional Shares........................................... 28
Exchange Privilege......................................................... 30
Redemption of Institutional Shares......................................... 30
Appendix A................................................................. A-1
Account Information Form
</TABLE>
MID1/6K/0695
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND
INSTITUTIONAL SHARES
MANAGED BY
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.,
AN AFFILIATE OF
GOLDMAN, SACHS & CO.
GOLDMAN SACHS MID-CAP EQUITY FUND
INSTITUTIONAL SHARES
MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
ADMINISTRATION SHARES
------------
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," and
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates, Goldman Sachs Funds Management, L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate diversified portfolio of the Goldman Sachs Equity Portfolios, Inc.
(the "Company"), an open-end management investment company.
The investment objective of Select Equity Fund is to provide shareholders
with a total return consisting of capital appreciation plus dividend income
that, net of fund expenses, exceeds the total return realized on the Standard
& Poor's Index of 500 Common Stocks (the "S&P 500 Index"). The investment
objective of Mid-Cap Equity Fund is long-term capital growth. There can be no
assurance that the Funds will achieve their respective investment objectives.
Under normal circumstances, Select Equity Fund will invest at least 90% of
its total assets in equity securities. Select Equity Fund seeks to achieve its
investment objective by investing in a portfolio of equity securities selected
by a portfolio optimization model that seeks to maximize Select Equity Fund's
risk to reward ratio (the "Optimization Model"). Select Equity Fund's
portfolio is designed to have risk, capitalization and industry
characteristics similar to the S&P 500 Index but which is intended to provide
a total return that exceeds the total return on the S&P 500 Index. Select
Equity Fund may also purchase and sell futures contracts on the S&P 500.
(continued on next page)
------------
ADMINISTRATION SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN ADMINISTRATION
SHARES OF THE FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------
The date of this Prospectus is May 31, 1995
<PAGE>
Mid-Cap Equity Fund seeks to meet its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations of
between $500 million and $7 billion at the time of investment. However, Mid-
Cap Equity Fund currently intends to emphasize investments in companies with
public stock market capitalizations under $5 billion at the time of
investment. Mid-Cap Equity Fund may invest up to 35% of its total assets in
fixed income securities including mortgage-backed, asset-backed and debt
securities issued by corporations or other entities or by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises if such securities,
in the opinion of the Investment Adviser, offer the potential to further the
Fund's investment objectives. Certain types of investments and techniques that
may be used by Mid-Cap Equity Fund entail certain risks.
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Securities"), serves as the
investment adviser to Select Equity Fund. Goldman Sachs Asset Management
("GSAM"), New York, New York, a separate operating division of Goldman Sachs
serves as the investment adviser to Mid-Cap Equity Fund and as the
administrator to each Fund. GSFM and GSAM are each sometimes referred to
individually as an "Investment Adviser" and collectively as the "Investment
Advisers." Goldman Sachs serves as the distributor and transfer agent for each
Fund. The custodian for each Fund is State Street Bank and Trust Company.
This Prospectus, which sets forth concisely the information about the
Company and the Funds that a prospective investor ought to know before
investing in Administration Shares of the Funds, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated May 31, 1995, containing further information about the Company and the
Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission, is incorporated herein by reference in its
entirety, and may be obtained without charge, from institutions ("Service
Organizations") that hold, directly or through an agent, Administration Shares
for the benefit of their customers, or Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed below.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
PORTFOLIOS, INC. INVESTMENT ADVISER TO GOLDMAN SACHS
ONE NEW YORK PLAZA SELECT
NEW YORK, NEW YORK 10004 EQUITY FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO. GOLDMAN SACHS ASSET MANAGEMENT
DISTRIBUTOR INVESTMENT ADVISER TO GOLDMAN SACHS
85 BROAD STREET MID-CAP
NEW YORK, NEW YORK 10004 EQUITY FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) ...................800-621-2550
2
<PAGE>
SUMMARY
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (a "Fund," or the "Funds") are part
of a family of funds advised by GSAM or its affiliates GSFM and Goldman Sachs
Asset Management International. Each Fund is organized as a separate
diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the "Company"),
an open-end management investment company.
SELECT EQUITY FUND
Select Equity Fund's investment objective is to provide shareholders with a
total return consisting of capital appreciation plus dividend income that, net
of fund expenses, exceeds the total return realized on the Standard & Poor's
Index of 500 Common Stocks (the "S&P 500 Index"). There can be no assurance
that Select Equity Fund will achieve its investment objective.
Under normal circumstances, Select Equity Fund will invest at least 90% of
its total assets in equity securities. Select Equity Fund seeks to achieve its
investment objective by investing in a portfolio of equity securities selected
by a portfolio optimization model that seeks to maximize Select Equity Fund's
risk to reward ratio (the "Optimization Model"). Select Equity Fund's portfolio
is designed to have risk, capitalization and industry characteristics similar
to the S&P 500 Index but which is intended to provide a total return that
exceeds the total return on the S&P 500 Index.
The Optimization Model selects a portfolio for Select Equity Fund based upon
two sets of criteria. First, the Optimization Model considers the ratings
assigned by the Multifactor Model and the Research Department. Second, the
Optimization Model takes into account certain characteristics of the S&P 500
Index, such as industry category, capitalization and volatility. Using these
two criteria, the Optimization Model selects a portfolio that has risk
characteristics and industry weightings similar to the S&P 500 but that is
composed of equity securities with such characteristics that have been assigned
higher ratings. Although it has a bias toward the highest rated securities, the
Optimization Model does not necessarily select only the highest rated
securities but seeks to achieve a balance between ratings and the risk profile
of the S&P 500.
Under normal conditions, the securities of any one issuer may not exceed 5%
of Select Equity Fund's net assets. Select Equity Fund will normally maintain a
cash position approximately equal to 2% to 5% of Select Equity Fund's net
assets, but may purchase futures contracts on the S&P 500 Index in order to
keep Select Equity Fund's effective equity exposure close to 100%. Select
Equity Fund may also purchase securities on a when-issued or forward commitment
basis and engage in securities lending. See "Special Investment Methods and
Risk Factors."
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to meet its investment objective by
3
<PAGE>
investing, under normal circumstances, at least 65% of its total assets in
equity securities of companies ("Mid Cap Companies") with public stock market
capitalizations of between $500 million and $7 billion at the time of
investment. However, Mid-Cap Equity Fund currently intends to emphasize
investments in companies with public stock market capitalizations under $5
billion at the time of investment. There can be no assurance that Mid-Cap
Equity Fund will achieve its investment objective.
Potential investments for Mid-Cap Equity Fund are evaluated using fundamental
analysis including criteria such as earnings, cash flow, asset values and
dividend-paying ability. The Fund intends to purchase securities of companies
that are, in the Investment Adviser's view, underpriced relative to the
company's long-term future growth prospects, current cash flow and dividend-
paying ability. Mid-Cap Equity Fund may purchase securities of companies that
have experienced difficulties and that the Investment Adviser believes are thus
available at attractive prices relative to the Investment Adviser's view of
earnings potential.
Equity securities in which Mid-Cap Equity Fund may invest consist of common
stocks, preferred stocks, convertible securities, warrants and other stock
purchase rights, equity interests in trusts limited partnerships, joint
ventures and similar enterprises and interests in real estate investment
trusts. These securities may or may not pay a current dividend. Securities in
which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operations. Mid-Cap Equity Fund may invest up to 35% of its total assets in the
equity securities of companies with public stock market capitalizations greater
or less than Mid Cap Companies and fixed income securities including mortgaged-
backed, asset-backed and debt securities issued by corporations or other
entities or by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises if such securities, in the opinion of the Investment
Adviser, offer the potential to further Mid-Cap Equity Fund's investment
objective. In addition, Mid-Cap Equity Fund may engage in certain investment
techniques that entail special risks. See "Investment Objective and Policies--
Mid-Cap Equity Fund" and "Special Investment Methods and Risk Factors."
INVESTMENT ADVISERS AND ADMINISTRATOR
Pursuant to separate Investment Advisory Agreements, Goldman Sachs Funds
Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as the
investment adviser for Select Equity Fund and Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as investment
adviser for Mid-Cap Equity Fund. As compensation for its services rendered and
assumption of certain expenses pursuant to an Investment Advisory Agreement,
GSFM is entitled to a fee from Select Equity Fund computed daily and payable
monthly, at the annual rate of 0.50%; however, GSFM is currently only imposing
its advisory fee at the annual rate of 0.40% of average daily net assets. GSAM
may discontinue or modify such limitation in the future at its discretion,
although it has no current intention to do so. As compensation for its services
rendered and assumption of certain expenses pursuant to an Investment Advisory
Agreement, GSAM is entitled to a fee from Mid-Cap Equity Fund computed daily
and payable monthly at the annual rate of 0.40% of average daily net assets.
Each Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of
4
<PAGE>
the Funds (excluding advisory, transfer agency, administration and distribution
and service fees, taxes, interest and brokerage and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.06% per
annum of the average daily net asses of each of Select Equity Fund and Mid-Cap
Equity Fund. GSAM and Goldman Sachs are each registered with the Securities and
Exchange Commission ("SEC") as investment advisers. In performing their
advisory services, the Investment Advisers, while remaining ultimately
responsible for the management of the Funds, are able to draw upon the research
and expertise of their affiliate offices for portfolio decisions and management
with respect to certain portfolio securities. See "Management--Investment
Advisers and Administrator."
GSAM serves as the administrator for each Fund pursuant to separate
Administration Agreements. As compensation for the services rendered to the
Funds, GSAM is entitled to a fee from Select Equity Fund and Mid-Cap Equity
Fund, computed daily and payable monthly, at an annual rate equal to 0.25% and
0.15%, respectively, of each such Fund's average daily net assets; however,
GSAM is currently only imposing its administration fee with respect to Select
Equity Fund at the annual rate of 0.15% of average daily net assets. GSAM may
discontinue or modify such limitation in the future at its discretion, although
it has no current intention to do so. See "Management--Investment Advisers and
Administrator."
PURCHASE AND REDEMPTION OF ADMINISTRATION SHARES
It is expected that all purchasers of Administration Shares of the Funds will
be Service Organizations or their nominees. Customers of Service Organizations
may invest in Administration Shares only through their Service Organizations.
Administration Shares of each Fund may be purchased by Service Organizations
through Goldman Sachs at the current net asset value per share without the
imposition of a sales load. The Fund does not have any minimum purchase or
account requirements with respect to Administration Shares. A Service
Organization may, however, impose a minimum amount for initial and subsequent
investments in Administration Shares, and may establish other requirements such
as a minimum account balance. See "Purchase of Administration Shares." Each
Fund will redeem its Administration Shares upon request of a shareholder on any
Business Day at the net asset value next determined after receipt of such
request in proper form. See "Redemption of Administration Shares."
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs serves as the distributor and transfer agent for each Fund.
Under a Distribution Agreement with the Company, Goldman Sachs acts as
exclusive agent for each Fund in the sale of its shares. Under a Transfer
Agency Agreement with the Company, Goldman Sachs provides transfer agency
services and responds to shareholder inquiries. See "Management--Distributor
and Transfer Agent."
5
<PAGE>
DIVIDEND POLICY
Each Fund intends that substantially all of its net investment income and net
realized long-term and short-term capital gains, after reduction by available
capital losses, including any capital losses carried forward from prior years,
will be declared as dividends at least annually. Shareholders will receive
dividends in additional shares of the Fund paying the dividend or may elect to
receive cash as described under "Dividends."
RISK FACTORS
GENERAL. Each Fund is intended for long-term investors who can accept the
risks associated with investing primarily in equity securities. Changes in the
value of these securities will cause a Fund's share price to fluctuate, and the
value of a Fund's shares when redeemed may be more or less than their original
cost. Investing in equity securities involves different risks and may involve
greater risks than are customarily associated with investing in debt
securities. In addition, certain of the potential investments and management
techniques entail special risks. Mid-Cap Equity Fund is a newly organized
portfolio of the Company and involves risks of investing in Mid-Cap Companies.
There can be no assurance that the Funds will achieve their investment
objectives. See "Investment Objective and Policies" and "Special Investment
Methods and Risk Factors."
INVESTMENTS IN RESTRICTED SECURITIES. The Funds may purchase securities that
are not registered or are offered in an exempt non-public offering ("restricted
securities") under the Securities Act of 1933. The purchase price and
subsequent valuation of restricted securities normally reflect a discount from
the price at which such securities would trade if they were not restricted,
since the restriction makes them less liquid. This investment practice could
have the effect of increasing the level of illiquidity in a Fund.
INVESTMENTS IN FIXED INCOME, MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. As
described below, Mid-Cap Equity Fund may make a variety of investments,
including investments in mortgage-backed, asset-backed and debt securities
issued by corporations or other entities or by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises which will be rated B or
better, at the time of investment, by Standard & Poor's Ratings Group
("Standard and Poor's") or by Moody's Investors Service, Inc. ("Moody's") or,
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. Fixed income securities rated B or below
(or comparable unrated securities) are commonly referred to as "junk bonds" and
are considered speculative and payments of principal and interest thereon may
be questionable. In some cases, such bonds may be highly speculative, have poor
prospects for reaching investment grade standing and be in default. As a
result, investment in such securities will entail greater speculative risks
than those associated with investment in investment grade bonds (i.e., bonds
rated AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or Baa by Moody's).
Mid-Cap Equity Fund may invest up to 35% of its total assets in fixed income
securities and will limit its investments in fixed income securities rated
below
6
<PAGE>
investment grade to no more than 10% of its total assets. Accordingly, the
performance of Mid-Cap Equity Fund may be affected in part by interest rate
changes. To the extent Mid-Cap Equity Fund invests in fixed income securities,
its investments will tend to decrease in value when interest rates rise, and
increase in value when interest rates fall.
INVESTMENT IN SECURITIES OF FOREIGN ISSUERS. Mid-Cap Equity Fund may Invest
in foreign securities. Select Equity Fund may invest in securities of foreign
issuers that are traded in the United States and that comply with U.S.
accounting standards. Investing in securities of foreign issuers may involve
risks not present in U.S. investments. Foreign issuers may not be subject to
accounting standards or governmental supervision comparable to that applicable
to U.S. issuers and there may be less publicly available information about
their operations. Foreign securities markets generally provide less liquidity
(and thus potentially greater price volatility), and typically provide fewer
regulatory protections for investors. Foreign securities can be affected by
political and financial instability abroad. In addition, the value of
securities quoted or denominated in a foreign currency will be affected by
changes in currency exchange rates or exchange control regulations.
OTHER INVESTMENTS AND PRACTICES. The Funds may engage in certain investment
practices and enter into transactions in certain derivative instruments. Select
Equity Fund may purchase and sell future contracts on the S&P 500 Index,
purchase securities on a when-issued or forward commitment basis and engage in
securities lending. In the case of Mid-Cap Equity Fund, such investment
practices and instruments include futures contracts, options, options on
futures contracts, forward commitments, forward foreign currency transactions,
lending portfolio securities and repurchase agreements. The Funds may enter
into these transactions, except for transactions with respect to currencies,
for hedging purposes and to seek to increase total return. The use of such
investment practices and derivative instruments by the Funds involves certain
risks, including the risk of loss if an Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates in
connection with transactions to increase total return and, in the case of
hedging transactions, a possible lack of correlation between changes in the
value of a hedging instrument and the portfolio security being hedged.
CONFLICTS OF INTEREST. The involvement of Goldman Sachs, and its affiliates,
divisions (including the Investment Advisers), partners and officers in the
investment activities and business operations of the Funds may present certain
conflicts of interest, as described under "Management--Investment Advisers and
Administrator."
7
<PAGE>
ADMINISTRATION PLAN
The Company, on behalf of each Fund, has adopted an Administration Plan with
respect to the Administration Shares of each Fund which authorizes each Fund to
compensate Service Organizations for providing account administration services
to their customers who are the beneficial owners of such Shares. The Company,
on behalf of each Fund, will enter into agreements with each Service
Organization which will provide for compensation to the Service Organization in
an amount up to 0.25% (on an annualized basis) of the average daily net assets
of the Administration Shares of a Fund attributable to or held in the name of
the Service Organization for its customers. See "Administration Plans."
8
<PAGE>
FEES AND EXPENSES
(ADMINISTRATION SHARES)*
<TABLE>
<CAPTION>
SELECT MID-CAP
EQUITY EQUITY
FUND FUND
------ -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases......................... None None
Maximum Sales Load Imposed on Reinvestment Dividends............ None None
Redemption Fees................................................. None None
Exchange Fees................................................... None None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average net
assets)
Management Fees (including advisory and administration fees)
(after Select Equity Fund's fee limitation)**.................. 0.55% 0.55%
Account Administration Fees.................................... 0.25% 0.25%
Other Expenses (after expense limitations)***
Transfer Agency Fees.......................................... 0.04% 0.04%
Other Expenses................................................ 0.06% 0.06%
---- ----
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE LIMITATION)****.. 0.90% 0.90%
==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the end
of each time period
Select Equity Fund........................... $ 9 $29 $50 $111
Mid-Cap Equity Fund.......................... $11 $35 N/A N/A
</TABLE>
- --------------------
* The information set forth in the foregoing table and hypothetical example
relates only to Administration Shares of the Funds. Each Fund also offers
Administration Shares and, in the case of Select Equity Fund, Class A
Shares which are subject to different fees and expenses (which may affect
performance), have different minimum investment requirements and are
entitled to different services. Information regarding Administration
Shares and, in the case of Select Equity Fund, Class A Shares may be
obtained from an investor's sales representative or from Goldman Sachs by
calling the number on the inside cover page of this Prospectus. Each Fund
also offers Institutional Shares and, in the case of Select Equity Fund,
Class A Shares which are subject to different fees and expenses (which may
affect performance), have different minimum investment requirements and
are entitled to different services. Information regarding Institutional
Shares and, in the case of Select Equity Fund, Class A Shares may be
obtained from an investor's sales representative or from Goldman Sachs by
calling the number on the inside cover page of this Prospectus.
** Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Administration Shares in
connection with their customer accounts. See "Administration Plans."
9
<PAGE>
*** The Investment Advisers voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding advisory, transfer agency,
administration and distribution and service fees, payments to Service
Organizations, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.06% and % per annum of the average daily net assets of
Select Equity Fund and Mid-Cap Equity Fund, respectively. The Investment
Adviser to each Fund has no current intention of modifying or
discontinuing such limitation but may do so in the future at its
discretion. If the Investment Adviser to Select Equity Fund and Mid-Cap
Equity Fund did not agree to limit the "Other Expenses" of each such Fund
to 0.60%, the Other Expenses and Total Operating Expenses of the
Administration Shares of Select Equity Fund would have been % and %,
respectively; and the Other Expenses and Total Operating Expenses of the
Administration Shares of Mid-Cap Equity Fund would have been % and %,
respectively.
**** Based on estimated amounts for the current fiscal year, GSFM and GSAM have
voluntarily agreed to limit their management and administration fees to
0.55% of the average daily net assets of Select Equity Fund. Without such
limitations, Select Equity Fund's management fees and administration fees
would be 0.75% and 0.25%, respectively. GSFM and GSAM have no current
intention of modifying or discontinuing any of such limitations but may do
so in the future at their discretion.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of the Funds that an investor in the Funds will
bear directly or indirectly. Since the Mid-Cap Equity Fund has no operating
history and Select Equity Fund has lowered its historical fees, the costs and
expenses included in the table and hypothetical example above are based on
estimated fees and expenses for the current fiscal year, and should not be
considered as representative of future expenses. Actual fees and expenses may
be greater or less than those indicated. Moreover, while the example assumes a
5% annual return, the actual performance of each Fund will vary and may result
in an actual return greater or less than 5%. See "Management--Investment
Advisers and Administrator."
10
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OF SELECT EQUITY FUND OUTSTANDING THROUGHOUT
EACH PERIOD
The following data with respect to a Class A share of Select Equity Fund
outstanding during the periods indicated has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report incorporated
by reference into the Additional Statement from Select Equity Fund's Annual
Report to shareholders for the year ended January 31, 1995 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by writing to one of the
addresses on the inside cover of this Prospectus. No Institutional or
Administration Shares of the Fund were outstanding during the periods
indicated.
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
--------------------------- JANUARY 31,
1995 1994 1993 1992(A)
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of pe-
riod............................ $ 15.93 $ 15.46 $ 15.05 $ 14.17
------- ------- -------- --------
INCOME (LOSS) FROM INVESTMENT OP-
ERATIONS:
Net investment income............ 0.20 0.17 0.22 0.11
Net realized and unrealized gain
(loss) on investments, options
and futures..................... (0.38) 2.08 0.41 0.88
------- ------- -------- --------
Total income (loss) from invest-
ment operations................. (0.18) 2.25 0.63 0.99
------- ------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income............ (0.20) (0.17) (0.22) (0.11)
Net realized gain on investment
and futures transactions........ (0.94) (1.61) -- --
------- ------- -------- --------
Total distributions to sharehold-
ers............................. (1.14) (1.78) (0.22) (0.11)
------- ------- -------- --------
Net increase (decrease) in net
asset value..................... (1.32) 0.47 0.41 0.88
------- ------- -------- --------
Net asset value, end of period... $ 14.61 $ 15.93 $ 15.46 $ 15.05
======= ======= ======== ========
Total return(b).................. (1.10)% 15.12% 4.30% 7.01%(d)
Ratio of net expenses to average
net assets...................... 1.38% 1.42% 1.28% 1.57%(c)
Ratio of net investment income to
average net assets.............. 1.33% 0.92% 1.30% 1.24%(c)
Portfolio turnover rate.......... 56.18% 87.73% 144.93% 135.02%(c)
Net assets at end of period ($ in
thousands)...................... $94,968 $92,769 $117,757 $151,142
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF DISTRIBUTION FEES:
Ratio of expenses to average net
assets.......................... 1.63% 1.67% 1.53% 1.82%(c)
Ratio of net investment income to
average net assets.............. 1.08% 0.67% 1.05% 0.99%(c)
</TABLE>
- ---------------------
(a) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(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 charges. Total return would be reduced if sales charges were taken
into account.
(c) Annualized.
(d) Not annualized.
11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
SELECT EQUITY FUND
Select Equity Fund's investment objective is to provide its shareholders
with a total return through investments in equity securities consisting of
capital appreciation plus dividend income that, net of fund expenses, exceeds
the total return realized on the S&P 500 Index. Under normal circumstances,
the Fund will invest at least 90% of its total assets in equity securities.
The Fund may invest in equity securities of foreign issuers that are traded in
the United States and that comply with U.S. accounting standards. The Fund
seeks to achieve its investment objective by investing in a portfolio of
equity securities selected using both fundamental research and a variety of
quantitative techniques which seek to maximize the Fund's reward to risk
ratio. The Fund's portfolio is designed to have risk, capitalization and
industry characteristics similar to the S&P 500 Index. The Investment Adviser
begins with a universe primarily of large capitalization equity securities.
The Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Investment Research Department (the "Research
Department"), a second rating will be assigned based upon the Research
Department's evaluation. In selecting securities for the Fund, the Investment
Adviser utilizes optimization models to evaluate the ratings assigned by the
Multifactor Model and the Research Department to build a diversified
portfolio. This portfolio will be primarily comprised of securities rated
highest by the Investment Adviser's Multifactor Model and research analysts
and will have risk characteristics and industry weightings similar to the S&P
500 Index. Under normal conditions, the securities of any one issuer may not
exceed 5% of the Fund's total assets.
The Multifactor Model is a sophisticated computerized rating system for
valuing equity securities according to fundamental investment characteristics.
The factors used by the Multifactor Model incorporate many variables studied
by traditional fundamental analysis, and cover measures of value, yield,
growth, momentum, risk and liquidity (e.g., price/earnings ratio, book/price
ratio, long and short-term growth estimates, earning estimates, price
momentum, volatility and liquidity). All of the factors used by the
Multifactor Model have been shown to significantly impact the performance of
equity securities. The weightings assigned to the factors are derived using a
statistical formulation that considers each factor's historical performance in
different market environments. As such, the Multifactor Model is designed to
evaluate each security using only the factors that are statistically related
to returns in the anticipated market environment. Because it includes many
disparate factors, the Investment Adviser believes that the Multifactor Model
is broader in scope and provides a more thorough evaluation than most
conventional, value-oriented quantitative models. As a result, the securities
ranked highest by the Multifactor Model do not have one dominant investment
characteristic (such as a low price/earnings ratio); rather, such securities
possess a number of attractive investment characteristics.
If the equity security is followed by the Research Department, the security
is also assigned a rating based upon the Research Department's evaluation. The
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." With an annual budget
of more than $120 million, the Research Department has a staff of
approximately 150 senior
12
<PAGE>
professionals who follow over 1,700 issuers. By employing both quantitative
(i.e., the Multifactor Model) and qualitative (i.e., the analysts' ratings)
methods of selecting securities, Select Equity Fund seeks to capitalize on the
strengths of each discipline.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to achieve its investment objective by investing, under normal
circumstances, substantially all of its assets in equity securities and at
least 65% of its total assets in equity securities of companies ("Mid Cap
Companies") with public stock market capitalizations (based upon shares
available for trading on an unrestricted basis) of between $500 million and $7
billion at the time of investment. However, Mid-Cap Equity Fund currently
intends to emphasize investments in Mid Cap Companies with public stock market
capitalizations of below $5 billion at the time of investment. Equity
securities in which Mid-Cap Equity Fund may invest consist of common stocks,
preferred stocks, convertible securities, warrants and other stock purchase
rights, equity interests in trusts, limited partnerships, joint ventures and
similar enterprises and interests in real estate investment trusts. Securities
in which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operation. Mid-Cap Equity Fund may invest up to 35% of its total assets in
mortgage-backed, asset-backed and fixed income securities issued by
corporations or other entities or by the U.S. Government or its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further the investment
objectives of Mid-Cap Equity Fund. In addition, investments in Mid Cap
Companies as well as certain investment techniques may involve special risks.
See "Special Investment Methods and Risk Factors."
Potential equity investments for Mid-Cap Equity Fund generally are evaluated
using fundamental analysis, including criteria such as earnings, cash flow,
asset values and/or dividend-paying ability. In choosing Mid-Cap Equity Fund's
securities, the Investment Adviser utilizes first-hand fundamental research,
including visiting company facilities to assess operations and meet decision-
makers. The Investment Adviser may also use a macro analysis of numerous
economic and valuation variables to determine and 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
Research Department and other affiliates of the Investment Adviser as well as
information provided by other securities dealers.
The Investment Adviser intends to purchase securities of companies that are,
in the Investment Adviser's view, underpriced relative to a combination of
such companies' long-term earnings prospects, growth rate, free cash flow
and/or dividend-paying ability. Mid-Cap Equity Fund may also purchase
securities of companies that have experienced difficulties and that, in the
opinion of the Investment Adviser, are available at attractive prices.
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
market 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.
13
<PAGE>
Equity securities in Mid-Cap Equity Fund's portfolio will generally be sold
when the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation, when other more attractive
investments are identified.
OTHER INVESTMENT POLICIES AND RISKS
Mid-Cap Equity Fund may invest up to 35% of its total assets in mortgage-
backed, asset-backed and fixed income securities issued or guaranteed by
corporations or other entities or by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further Mid-Cap Equity
Fund's investment objective. The fixed income securities in which Mid-Cap
Equity Fund may invest will be rated B or better, at the time of investment,
by Standard & Poor's Ratings Group ("Standard and Poor's") or by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by such rating
organizations, determined by the Investment Adviser to be of comparable credit
quality. Mid-Cap Equity Fund will limit its investments in fixed income
securities rated below investment grade to no more than 10% of its total
assets. See Appendix A to the Additional Statement for a description of the
ratings issued by investment rating organizations. In addition, although Mid-
Cap Equity Fund will invest primarily in U.S. securities, it may invest up to
25% of its total assets in foreign securities, including American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs").
SPECIAL INVESTMENT METHODS AND RISK FACTORS
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all debt securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, an Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which Mid-Cap Equity Fund invests are subject to the same rating
criteria as its investments in fixed income securities. The convertible
securities in which the Select Equity Fund invests are not subject to any
minimum rating criteria. Convertible debt securities are equity investments
for purposes of each Fund's investment policies.
WARRANTS AND STOCK PURCHASE RIGHTS
Each Fund may purchase warrants and stock purchase rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise
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voting rights with respect to the underlying securities, and they do not
represent any rights in the assets of the issuer. As a result, an investment
in warrants and stock purchase rights may be considered to entail greater
investment risk than certain other types of investments. In addition, the
value of warrants and stock purchase rights does not necessarily change with
the value of the underlying securities, and they cease to have value if they
are not exercised on or prior to their expiration date. Investment in warrants
and stock purchase rights increases the potential profit or loss to be
realized from the investment of a given amount of a Fund's assets as compared
with investing the same amount in the underlying stock.
FOREIGN TRANSACTIONS
FOREIGN SECURITIES. Investments in foreign securities may offer potential
benefits that are not available from investments exclusively in securities of
domestic issuers. Foreign issuers may offer better investment opportunities
than domestic securities. Foreign countries may have economic policies or
business cycles different from those of the United States and securities mar-
kets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign
or U.S. laws or restrictions applicable to such investments and in exchange
control regulations (e.g., currency blockage). Some foreign exchanges may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign companies may be less liquid than securities of
comparable domestic companies. Commissions on transactions in foreign securi-
ties may be higher than those for similar transactions on domestic stock mar-
kets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus mak-
ing it difficult to conduct such transactions.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
company than about a domestic company. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of nationaliza-
tion, expropriation or confiscatory taxation, imposition of withholding taxes
on dividend or interest payments, limitations on the removal of funds or other
assets, political or social instability or diplomatic developments which could
affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign securi-
ties which take the form of sponsored and unsponsored American Depository Re-
ceipts ("ADRs") and Global Depository Receipts ("GDRs") and Mid-Cap Equity
Fund 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. Prices of ADRs are
quoted in U.S. dollars and are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. EDRs and GDRs
are receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are
not
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necessarily quoted in the same currency as the underlying security. To the ex-
tent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate actions
such as stock splits or rights offerings involving the foreign issuer in a
timely manner. In addition, the lack of information may result in inefficien-
cies in the valuation of such instruments. Investment in Depository Receipts
does not eliminate all the risks inherent in investing in securities of non-
U.S. issuers. The market value of Depository Receipts is dependent upon the
market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying se-
curities are quoted. However, by investing in Depository Receipts, such as an
ADR, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. Mid-Cap Equity Fund's in-
vestment in foreign securities may include securities of issuers in countries
with emerging economies or securities markets. These emerging markets are gen-
erally located in the Asia-Pacific region, Eastern Europe, Latin and South
America and Africa. Mid-Cap Equity Fund's purchase and sale of portfolio secu-
rities in certain emerging markets may be constrained by limitations as to
daily changes in the prices of listed securities, periodic trading or settle-
ment 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 the Fund, the Investment Adviser and its affiliates and their re-
spective clients and other service providers. The Fund may not be able to sell
securities in circumstances where price trading or settlement volume limita-
tions have been reached.
Foreign investment in the securities markets of certain emerging markets is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of such company available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by the Fund. Due to restrictions on direct investment in
equity securities in certain Asian countries, such as Taiwan, it is
anticipated that Mid-Cap Equity Fund may invest in such countries only through
other investment funds in such countries. See "Other Investment Companies."
Furthermore, the repatriation of both investment income and capital from
several of the Asian countries is subject to restrictions such as the need for
certain governmental consents.
Many of the emerging markets may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States and Japan. Many of the emerging markets do not have fully
democratic governments. For example, some governments of emerging market
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging markets have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
16
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disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some of the Asian and other countries. The economies of
most of the emerging markets are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners, principally, the United States, Japan,
China and the European Union. In addition, the economies of some of the
emerging markets are vulnerable to weakness in world prices for their
commodity exports.
Settlement procedures in emerging markets are frequently less developed and
reliable than those in the United States and may involve Mid-Cap Equity Fund's
delivery of securities before receipt of payment for their sale. In addition,
significant delays are common in certain markets in registering transfer of
securities. Settlement or registration problems may make it more difficult for
Mid-Cap Equity Fund to value its portfolio securities and could cause the Fund
to miss attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its con-
tractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the emerging market countries. Consequently, there can
be no assurance that suitable instruments for hedging currency and market-
related risks will be available at the times when Mid-Cap Equity Fund wishes
to use them.
FOREIGN CURRENCY TRANSACTIONS. Mid-Cap Equity Fund may, to the extent it in-
vests in foreign securities, purchase or sell forward foreign currency ex-
change contracts for hedging purposes. Mid-Cap Equity Fund may enter into for-
ward foreign currency exchange contracts to seek to protect against antici-
pated changes in future foreign currency exchange rates. If Mid-Cap Equity
Fund enters into a forward foreign currency exchange contract to buy foreign
currency, Mid-Cap Equity Fund will be required to place and maintain cash or
liquid, high grade debt securities in a segregated account with Mid-Cap Equity
Fund's custodian in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract. Mid-Cap Equity Fund
will incur costs in connection with conversions between various currencies.
Select Equity Fund will not engage in foreign currency transactions.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, Mid-Cap Equity Fund's net asset value
to fluctuate as well. They generally are determined by the forces of supply
and demand in the foreign exchange markets and the relative merits of invest-
ments 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 cur-
rency controls or political developments in the U.S. or abroad. The market in
forward foreign currency exchange contracts offers less protection against de-
faults by the other party to such instruments than is available for currency
instruments traded on an exchange. To the extent that a substantial portion of
Mid-Cap Equity Fund's total assets, adjusted to reflect the Fund's net posi-
tion after giving effect to currency transactions, is denominated or quoted in
the currencies of foreign countries, Mid-Cap Equity Fund will be more suscep-
tible to the risk of adverse economic and political developments within those
countries.
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The market in forward foreign currency exchange contracts used by Mid-Cap
Equity Fund offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded 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 Mid-Cap Equity 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.
Mid-Cap Equity Fund will not enter into such transactions 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.
OPTIONS ON FOREIGN CURRENCIES. Mid-Cap Equity Fund may, to the extent it in-
vests in foreign securities, purchase and sell (write) 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 anticipated dividends on such
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 writ-
ing of an option on foreign currency will constitute only a partial hedge, up
to the amount of the premium received. Mid-Cap Equity 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 the Fund's position, Mid-Cap Equity Fund may forfeit the entire amount of
the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by Mid-Cap Equity Fund will be traded on U.S. and for-
eign exchanges or over-the-counter.
INVESTING IN SMALL CAPITALIZATION COMPANIES
Each of Mid-Cap Equity Fund and Select Equity Fund may invest in smaller,
lesser-known companies which the Investment Adviser believes offer greater
growth potential than larger, more mature, better known firms. Investing in
the securities of such companies, however, involves greater risk and the
possibility of greater portfolio price volatility. Historically, small
capitalization stocks and stocks of recently organized companies have been
more volatile in price than the larger capitalization stocks included in the
S&P 500 Index. Among the reasons for the greater price volatility of these
small company and unseasoned stocks are the less certain growth prospects of
smaller firms and the lower degree of liquidity in the markets for such
stocks.
FIXED INCOME SECURITIES
Each Fund may invest in U.S. Government securities and Mid-Cap Equity Fund
may invest in corporate and certain other fixed income securities. Select
Equity Fund may only invest in debt securities that are considered cash
equivalents. Fixed income securities are subject to the risk of the issuer's
inability to meet principal and interest payments on the obligations (credit
risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Except to the extent that
values are independently affected by currency exchange rate fluctuations, when
interest rates decline, the value of fixed income securities can generally be
expected to rise. Conversely, when interest rates rise, the value of fixed
income securities can be expected to decline. The interest rates payable on
certain
18
<PAGE>
fixed income securities in the Funds may invest are not fixed and may
fluctuate based upon changes in market rates of interest.
Fixed income securities rated in the BBB or Baa category 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. Also, to the extent that the
rating assigned to a security in Mid-Cap Equity Fund's portfolio is downgraded
by a rating organization, the market price and liquidity of such security may
be adversely affected. Fixed income securities rated BB, Ba, B or below,
including securities rated D by Moody's or Standard and Poor's (or comparable
unrated securities) are commonly referred to as "junk bonds," are considered
predominately speculative with respect to an issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and
involve a major risk of exposure to adverse business, financial or economic
conditions. In some cases, these obligations may be highly speculative and
have poor prospects for obtaining investment standing and be in default. As a
result, investment in such bonds will entail greater speculative risks than
those associated with investment in investment-grade bonds (i.e., bonds rated
AAA, AA, A or BBB by Standard and Poor's or Aaa, Aa, A or Baa by Moody's).
Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard and Poor's and Moody's.
GOVERNMENT DEBT OBLIGATIONS. Each Fund may invest in U.S. Government
securities which include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprises thereof supported by the full
faith and credit of the U.S. Government, the authority of the issuer to borrow
from the U.S. Treasury, or the discretionary authority of the U.S. Government
to purchase the obligations of the agency, instrumentality or enterprise;
obligations fully guaranteed as to principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; obligations of
U.S. Government agencies, instrumentalities or state government agencies or
instrumentalities, which may or may not be entitled to the full faith and
credit of the issuer. 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. A Fund's investments in zero coupon securities may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mid-Cap Equity Fund may invest
in mortgage-backed securities, which represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mid-Cap Equity Fund may also invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sale contracts, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other
categories of receivables.
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Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates would indicate as a result of the
pass-through of prepayments of principal on the underlying loans which may
increase the volatility of such investments relative to similarly rated debt
securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities can be expected to
accelerate, and thus impair the Fund's ability to reinvest the returns of
principal at comparable yields. During periods of rising interest rates,
reduced prepayment rates may extend the average life of mortgage-backed and
asset-backed securities and increase Mid-Cap Equity Fund's exposure to rising
interest rates. Accordingly, the market values of such securities will vary
with changes in market interest rates generally and in yield differentials
among various kinds of U.S. Government securities and other mortgage-backed
and 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. There is the
possibility that, in some cases, recoveries on repossessed collateral may not
be available to support payments on these securities.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Mid-Cap Equity Fund may purchase put and call options and write (sell) cov-
ered call and put options on any securities in which it may invest or on any
securities index composed of securities in which it may invest. Mid-Cap Equity
Fund will purchase and write such options that are listed on national securi-
ties exchanges or traded in the over-the-counter market. The writing and pur-
chase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with direct investments
in equity securities. The use of options 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
puts for hedging purposes also depends in part on the Investment Adviser's
ability to predict future price fluctuations and the degree of correlation be-
tween the options and securities markets. If the Investment Adviser is incor-
rect 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 Mid-Cap Equity Fund's investment portfo-
lio, the investment performance of Mid-Cap Equity Fund will be less favorable
than it would have been in the absence of such options transactions. The writ-
ing of options could significantly increase Mid-Cap Equity Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency
exchange rates or to seek to increase total return, Select Equity Fund may
purchase and sell future contracts on the S&P 500 Index and Mid-Cap Equity
Fund may purchase and sell various kinds of futures contracts, and purchase
and write call and put options on any of such futures contracts. A Fund will
engage in futures and Mid-Cap Equity Fund will engage in related options
transactions only for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission or, except for futures on foreign
currencies purchased or sold by Mid-Cap Equity Fund, to seek to increase total
return to the extent permitted by such regulations. A Fund may not purchase or
sell futures contracts or purchase or sell related options to 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
20
<PAGE>
to increase total return would exceed 5% of the market value of the Fund's net
assets. These transactions involve brokerage costs, require margin deposits
and, in the case of contracts and options obligating the Mid-Cap Equity Fund
to purchase securities or currencies, require the Fund to segregate and main-
tain cash or liquid, high grade debt securities with a value equal to the
amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures, and in the case of Mid-Cap Equity Fund, options on
futures, unanticipated changes in interest rates, securities prices or cur-
rency exchange rates may result in a poorer overall performance of the Fund
than if it had not entered into any futures contracts or options transactions.
The loss incurred by Mid-Cap Equity Fund in writing options on futures is po-
tentially unlimited and may exceed the amount of premium received. Futures
markets are highly volatile and the use of futures may increase the volatility
of a Fund's net asset value. The profitability of a Fund's trading in futures
to seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and
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 corre-
lation between a Fund's futures positions and its portfolio positions will be
impossible to achieve. A Fund's transactions in futures contracts and, for
Mid-Cap Equity Fund, options may be limited by the requirements of the Inter-
nal Revenue Code of 1986, as amended (the "Code") for qualification as a regu-
lated investment company.
RISKS OF DERIVATIVE TRANSACTIONS
Select Equity Fund's transactions in futures and Mid-Cap Equity Fund's
transactions in futures, options, options on futures and currency forward con-
tracts involve certain risks, including a possible lack of correlation between
changes in the value of hedging instruments and the portfolio assets being
hedged, the potential illiquidity of the markets for derivative instruments,
the risks arising from the margin requirements and related leverage factors
associated with such transactions. The use of these management techniques to
seek to increase total return may be regarded as a speculative practice, and
involves the risk of loss if the Investment Adviser is incorrect in its expec-
tation of fluctuations in securities prices, interest rates or currency pric-
es.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advanta-
geous price and yield to the Fund at the time of entering into the transac-
tion. Each Fund may also purchase securities on a forward commitment basis;
that is, make
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<PAGE>
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. A Fund is required to hold and maintain in a segre-
gated account with the Fund's custodian until the settlement date, cash or
liquid, high grade debt securities in an amount sufficient to meet the pur-
chase price. Alternatively, each Fund may enter into offsetting contracts for
the forward sale of other securities that it owns. The purchase of securities
on a when-issued or forward commitment basis involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Although a Fund would generally purchase securities on a when-issued or for-
ward commitment basis with the intention of acquiring securities for its port-
folio, the Fund may dispose of when-issued securities or forward commitments
prior to settlement if its Investment Adviser deems it appropriate to do so.
INVESTMENT IN UNSEASONED COMPANIES
Each Fund may invest up to 5% of its assets, calculated at the time of pur-
chase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities
which have been rated investment grade or better by at least one nationally
recognized statistical rating organization. The securities of such companies
may have limited liquidity, which can result in their being priced 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.
ILLIQUID AND RESTRICTED SECURITIES
A Fund may not invest more than 10% of its total assets in securities that
are subject to restrictions on resale ("restricted securities") under the Se-
curities Act of 1933, as amended ("1933 Act"), including securities eligible for
resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund will not
invest more than 15% of its net assets in illiquid investments, which includes
securities (both foreign and domestic) that are not readily marketable, repur-
chase agreements maturing in more than seven days, time deposits with a notice
or demand period of more than seven days, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for the specific restricted security,
that such restricted security is eligible for sale under Rule 144A and is liq-
uid. The Board of Directors has adopted guidelines and delegated to the In-
vestment Adviser the daily function of determining and monitoring the liquid-ity
of restricted securities. The Board of Directors, however, retains over-sight
focusing on factors such as valuation, liquidity and availability of in-
formation and is ultimately responsible for each determination. Investing in
restricted securities eligible for resale pursuant to Rule 144A could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.
OTHER INVESTMENT COMPANIES
A Fund reserves the right to invest up to 10% of its total assets in the se-
curities of other investment companies, but may not invest more than 5% of its
total assets in the securities of any one investment company or 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
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<PAGE>
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 paid by the Fund. However, to the extent
that a Fund invests in a money market fund for which an Investment Adviser or
any of its affiliates acts as 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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S. Govern-
ment 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 re-
purchase 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 in connection with the re-
lated repurchase agreement are less than the repurchase price. In addition, in
the event of bankruptcy of the seller or failure of the seller to repurchase
the securities as agreed, the Fund could suffer losses, including loss of in-
terest on or principal of the security and costs associated with delay and en-
forcement of the repurchase agreement. The Directors of the Company have re-
viewed and approved certain sellers whom they believe to be creditworthy and
have authorized the Funds to enter into repurchase agreements with such sell-
ers. In addition, each Fund, together with other registered investment compa-
nies having advisory agreements with an Investment Adviser, may transfer
uninvested cash balances into a single joint account, the daily aggregate bal-
ance of which will be invested in one or more repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio securi-
ties. Under present regulatory policies, such loans may be made to institu-
tions, such as certain broker-dealers, and are required to be secured continu-
ously by collateral in cash, cash equivalents, or U.S. Government securities
maintained on a current basis in an amount at least equal to the market value
of the securities loaned. Cash collateral may be invested in cash equivalents.
If an Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of a
Fund. See "Investment Restrictions" in the Additional Statement. A Fund may
experience a loss or delay in the recovery of its securities if the institu-
tion with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Mid-Cap Equity Fund may make short sales of securities or maintain a short
position, provided that at all times when a short position is open Mid-Cap Eq-
uity Fund owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for an
equal amount of the securities of the same issuer as the securities sold short
(a short sale against-the-box). Not more than 25% of Mid-Cap Equity Fund's net
assets (determined at the time of short sale) may be subject to such short
sales. Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes; a gain or loss in Mid-Cap Equity Fund's long posi-
tion will be offset by a gain or loss in its short position.
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<PAGE>
TEMPORARY INVESTMENTS
Notwithstanding a Fund's investment objective, each Fund may on occasion,
for temporary defensive purposes to preserve capital, hold part or all of its
assets (except that Select Equity Fund may only hold up to 35% of its total
assets) in cash, obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities, political subdivisions or authorities, commercial
paper rated at least A-2 by Standard and Poor's or P-2 by Moody's,
certificates of deposit, bankers' acceptances, repurchase agreements, non-
convertible preferred stocks, non-convertible corporate bonds with a remaining
maturity of less than one year or, subject to certain tax restrictions,
foreign currencies. When a Fund's assets are invested in such instruments, the
Fund may not be achieving its investment objective.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement. These
investment restrictions are fundamental policies of a Fund that cannot be
changed without approval of a majority of the outstanding shares of that Fund.
For more information on a Fund's investment restrictions, an investor should
obtain the Additional Statement. 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, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial positions and
needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (above 100%) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. Mid-Cap Equity Fund does not ex-
pect its annual portfolio turnover rate to exceed 100%. See "Financial High-
lights" for a statement of Select Equity Fund's historical portfolio turnover
ratio. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, the Investment Adviser may, from time to time, make short-term in-
vestments when it believes such investments are in the best interest of a
Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for deciding matters of gen-
eral policy and reviewing the actions of the Investment Advisers, administra-
tor, distributor and transfer agent. The officers of the Company conduct and
supervise the Funds' daily business operations. The Additional Statement con-
tains information as to the identity of, and other information about, the Di-
rectors and officers of the Company.
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<PAGE>
INVESTMENT ADVISERS AND ADMINISTRATOR
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P. ("GSFM"), a Dela-
ware limited partnership which is an affiliate of Goldman Sachs, serves as the
investment adviser to Select Equity Fund. Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as the in-
vestment adviser to Mid-Cap Equity Fund. GSAM also serves as administrator to
each Fund. Goldman Sachs and GSFM registered as investment advisers in 1981
and 1990, respectively. As of April 27, 1995, GSAM and GSFM, together with
their affiliates, acted as investment adviser, administrator or distributor
for assets in excess of $50 billion.
Under an Investment Advisory Agreement with each Fund, the applicable In-
vestment Adviser, subject to the general supervision of the Company's Board of
Directors, provides day-to-day advice as to the Fund's portfolio transactions.
Goldman Sachs has agreed to permit the Company to use the name "Goldman Sachs"
or a derivative thereof as part of each Fund's name for as long as a Fund's
Investment Advisory Agreement is in effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Hong Kong and Tokyo affiliates
and is able to draw upon the research and expertise of its other affiliate of-
fices.
Select Equity Fund's Portfolio Manager is Robert C. Jones. Mr. Jones is a
Vice President and brings 15 years of investment experience to his work in de-
veloping and implementing the Investment Advisers' quantitative equity manage-
ment services. Prior to joining the Investment Adviser in 1989, Mr. Jones was
the senior quantitative analyst in Goldman Sachs' Investment Research Depart-
ment and the author of the monthly Stock Selection publication.
The portfolio managers for Mid-Cap Equity Fund are Paul D. Farrell, Mitchell
E. Cantor and Ronald E. Gutfleish. Mr. Farrell is a Vice President and Co-
Chief Investment Officer of GSAM's Active Equity Team. Prior to joining the
Investment Adviser in 1991, Mr. Farrell served as a managing director at Plaza
Investments, the investment subsidiary of GEICO Corp., a major insurance com-
pany. He was previously a Vice President in the Goldman Sachs research depart-
ment and was responsible for the formation of the firm's Emerging Growth Re-
search Group. Mr. Cantor joined the Investment Adviser in 1991 and is also a
Vice President and Co-Chief Investment Officer of GSAM's Active Equity Team.
Prior to 1991, Mr. Cantor was a senior partner and served as research director
of the Institutional Division and as the investment management research direc-
tor for Sanford C. Bernstein & Co., Inc. Mr. Gutfleish joined the Investment
Adviser in 1993 and is a Vice President. Prior to 1993, he was a principal of
Sanford C. Bernstein & Co., Inc. in its Investment Management Research Depart-
ment and a member of its Research Review Committee.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from
Select Equity Fund, computed daily
25
<PAGE>
and payable monthly, at the annual rate of 0.50% of average daily net assets;
however, GSFM is currently only imposing its advisory fee at the annual rate
of 0.40% of average daily net assets. GSFM may discontinue or modify such lim-
itation in the future at its discretion, although it has no current intention
to do so. For the fiscal year ended January 31, 1995, Select Equity Fund paid
GSFM an advisory fee at the rate of 0.50% of its average daily net assets. As
compensation for its services rendered and assumption of certain expenses pur-
suant to an Investment Advisory Agreement, GSAM is entitled to a fee from Mid-
Cap Equity Fund, computed daily and payable monthly, at the annual rate of
0.60% of average daily net assets. Each Investment Adviser has voluntarily
agreed to reduce the fees payable to it by a Fund (to the extent of its fees)
by the amount (if any) that a Fund's expenses would exceed the applicable ex-
pense limitations imposed by state securities administrators. See "Manage-
ment--Expenses" in the Additional Statement. In addition, each Investment Ad-
viser has voluntarily agreed to reduce or limit certain "Other Expenses" of
Select Equity Fund and Mid-Cap Equity Fund (excluding advisory, transfer
agency and administration fees and fees under administration, distribution and
authorized dealer service plans, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.06% per annum of such Funds' average daily net assets. Such reduc-
tions or limits, if any, are calculated monthly on a cumulative basis and may
be discontinued or modified by the Investment Adviser in its discretion at any
time.
EXPENSES. Except as set forth above under "Management--Investment Advisers
and Administrator," each Fund is responsible for the payment of its expenses.
The expenses borne by a Fund include, without limitation, the fees payable to
its Investment Adviser and Goldman Sachs, including transfer agent fees, the
fees and expenses of the Fund's custodian and subcustodians, brokerage fees
and commissions, filing fees for the registration or qualification of the
Fund's shares under federal or state securities laws, expenses of the organi-
zation of the Fund, a portion of the fees and expenses incurred by the Company
in connection with membership in investment company organizations, taxes, in-
terest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for dam-
ages or other relief asserted against, the Company for violation of any law,
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investments Advisers and
Goldman Sachs with respect to the Company), 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
Fund's shareholders and regulatory authorities, any expenses assumed by the
Fund pursuant to its Distribution, Authorized Dealer Service and/or Adminis-
tration plan and the Fund's allocable share of the compensation and expenses
of the Company's "non-interested" Directors and extraordinary expenses, if
any, incurred by the Company.
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with each Fund, GSAM provides personnel for supervisory, administrative, and
clerical functions; oversees the performance of administrative and profes-
sional services to each Fund by others; provides office facilities; and pre-
pares, but does not pay for, reports to shareholders, the SEC and other regu-
latory authorities. As compensation for the services rendered to the Funds,
GSAM is entitled to a fee from Select Equity Fund and Mid-Cap Equity Fund,
computed daily and payable monthly, at an annual rate equal to 0.25% and
0.15%, respectively, of each such Fund's average daily net assets; however,
GSAM is currently only imposing its administration fee with respect to Select
Equity Fund at the annual rate of 0.15% of average daily net
26
<PAGE>
assets. GSAM may discontinue or modify such limitation in the future at its
discretion, although it has no current intention to do so. For the period
ended January 31, 1995, Select Equity Fund paid GSAM an administration fee
equal to 0.25% of its average daily net assets. GSAM has agreed to reduce its
fees payable by a Fund (to the extent of its fees) by the amount (if any) that
a Fund's expenses exceed the applicable expense limitations imposed by state
securities administrators. See "Management--Expenses" in the Additional State-
ment.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in or compete for transactions in the same type of securities, curren-
cies and instruments as the Funds. Goldman Sachs and its affiliates will not
have any obligation to make available any information regarding their proprie-
tary 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
in general it is not anticipated that the Investment Advisers will have access
to proprietary information for the purpose of managing a Fund. The results of
a Fund's investment activities, therefore, may differ from those of Goldman
Sachs and its affiliates and it is possible that a Fund could sustain losses
during periods in which Goldman Sachs and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other ac-
counts. From time to time, a Fund's activities may be limited because of regu-
latory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See "Activ-
ities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the ex-
clusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois, also serves as each Fund's transfer agent (the "Transfer
Agent") and as such performs various shareholder servicing functions. Share-
holders of record with inquiries regarding a Fund should contact Goldman Sachs
(as Transfer Agent) at the address or the telephone number set forth on the
inside front cover page of this Prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is calculated by the Fund's custo-
dian as of the close of regular trading on the New York Stock Exchange (nor-
mally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each Business Day
(as such term is defined under "Additional Information"). Net asset value per
share of each class is calculated by determining the net assets attributable
to each class and dividing by the number of outstanding shares of that class.
Portfolio securities are valued based on market quotations or, if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Company's Board of Directors.
27
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return for a
particular class of its shares in advertisements and communications to share-
holders or prospective investors. Average annual total return is determined by
computing the average annual percentage change in value of $1,000 invested at
the maximum public offering price for the relevant class for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value. The total return calculation
assumes a complete redemption of the investment at the end of the relevant pe-
riod. Each Fund may also from time to time advertise total return on a cumula-
tive, 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 net asset value. Any performance data which are based on the net
asset value per share would be reduced if a sales charge were taken into ac-
count. In addition to the above, each Fund may from time to time advertise its
performance relative to certain performance rankings and indices.
The investment results of a Fund will fluctuate over time and any presenta-
tion of investment results for any prior period should not be considered a
representation of what an investment may earn or what the Fund's performance
may be in any future period. In addition to information provided in share-
holder reports, the Funds may, in their discretion, from time to time make a
list of its holdings available to investors upon request.
SHARES OF THE COMPANY
Each Fund is a series of the Company, which was incorporated under the laws
of the State of Maryland on September 27, 1989. The authorized capital stock
of the Company consists of 1,000,000,000 shares of common stock, par value
$.001 per share. The Directors of the Company have authority under the
Company's Charter to create and classify shares of capital stock in separate
series, without further action by shareholders. Additional series may be added
in the future. The Directors also have authority to classify and reclassify
any series or portfolio of shares into one or more classes. Select Equity Fund
offers three classes of shares: Institutional Shares, Administration Shares
and Class A Shares. Mid-Cap Equity Fund offers two classes of shares: Institu-
tional Shares and Administration Shares.
When issued, shares are fully paid and nonassessable. In the event of liqui-
dation, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to such shareholders. All shares entitle their
holders to one vote per share, are freely transferable and have no preemptive,
subscription or conversion rights.
Unless otherwise required by the Investment Company Act of 1940 (the "Act"),
ordinarily it will not be necessary for the Company to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of independent accountants. However,
pursuant to the Company's By-Laws, the recordholders of at least 10% of the
28
<PAGE>
shares outstanding and entitled to vote at a special meeting may require the
Company to hold a special meeting of shareholders for any purpose and
recordholders may, under certain circumstances as permitted by the Act, commu-
nicate with other shareholders in connection with requiring a special meeting
of shareholders. Shareholders of the Company may remove a Director by the af-
firmative vote of a majority of the Company's outstanding voting shares. The
Board of Directors, however, will call a special meeting of shareholders for
the purpose of electing Directors if, at any time, less than a majority of Di-
rectors holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Company does not issue cer-
tificates representing the Funds' shares. Instead, the Transfer Agent main-
tains a record of each shareholder's ownership. Each shareholder receives con-
firmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Select Equity
Fund has elected and Mid-Cap Equity Fund intends to elect to be treated as a
regulated investment company and to qualify for such treatment for each tax-
able year under Subchapter M of the Code. To qualify as such, each Fund must
satisfy certain requirements relating to the sources of its income, diversifi-
cation of its assets and distribution of its income to shareholders. As a reg-
ulated investment company, each Fund will not be subject to federal income or
excise tax on any net investment income and net realized capital gains that
are distributed to its shareholders in accordance with certain timing require-
ments of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply regard-
less of whether distributions are received in cash or reinvested in shares. A
Fund's dividends that are paid to its corporate shareholders and are attribut-
able to qualifying dividends such Fund receives from U.S. domestic corpora-
tions may be eligible, in the hands of such corporate shareholders, for the
corporate dividends-received deduction, subject to certain holding period re-
quirements and debt financing limitations under the Code. Certain distribu-
tions paid by a Fund in January of a given year may be taxable to shareholders
as if received the prior December 31. Shareholders will be informed annually
about the amount and character of distributions received from the Funds for
federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the rec-
ord date for a distribution will pay a per share price that includes the value
of the anticipated distribution and will be taxed on the distribution even
though the distribution represents a return of a portion of the purchase
price.
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<PAGE>
Redemptions and exchanges of shares are taxable events on which a share-
holder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and ex-
changes if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup with-
holding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject
to nonresident alien withholding at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from a
Fund.
Mid-Cap Equity Fund and/or Select Equity Fund anticipates that they will be
subject to foreign withholding or other foreign taxes on income or gain from
certain foreign securities. The Funds do not anticipate that they will elect
to pass such foreign taxes through to their shareholders, who therefore will
generally not take such taxes into account on their own tax returns. The Funds
will generally deduct such taxes in determining the amounts available for a
distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from a Fund. A state income (and possi-
bly local income and/or intangible property) tax exemption is generally avail-
able to the extent (if any) a Fund's distributions are derived from interest
on (or, in the case of intangibles taxes, the value of its assets is attribut-
able to) certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting require-
ments are satisfied. For a further discussion of certain tax consequences of
investing in shares of a Fund, see "Taxation" in the Additional Statement.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state and local taxes as well as to any foreign tax-
es.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
30
<PAGE>
ADMINISTRATION PLANS
The Company, on behalf of each Fund, has adopted an Administration Plan with
respect to the Administration Shares which authorizes each Fund to compensate
Service Organizations for providing account administration services to their
customers who are beneficial owners of such Shares. The Company, on behalf of
each Fund, will enter into agreements with Service Organizations which pur-
chase Administration Shares on behalf of their customers ("Service Agree-
ments"). The Service Agreements will provide for compensation to the Service
Organizations in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the Administration Shares of a Fund attributable to or
held in the name of the Service Organization for its customers. The services
provided by the Service Organizations may include acting, directly or through
an agent, as the sole shareholder of record, maintaining account records for
customers and processing orders to purchase, redeem or exchange Administration
Shares for customers.
Holders of Administration Shares of a Fund will bear all expenses and fees
paid to Service Organizations with respect to such Shares as well as any other
expenses which are directly attributable to such Shares.
Services Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of Administration Shares in con-
nection with their customer accounts. These fees would be in addition to any
amounts received by the Service Organization under a Service Agreement and may
affect the return earned on an investment in a Fund. The Company, on behalf of
each Fund, will accrue payments made pursuant to a Service Agreement daily.
All inquiries of beneficial owners of Administration Shares should be directed
to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Administration Shares of a Fund will receive an annual re-
port containing audited financial statements and a semi-annual report. Each
recordholder of Administration Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account state-
ment. A year-to-date statement for any account will be provided to a Service
Organization upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each trans-
action.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid (i) in cash or (ii) in additional Administration
Shares of such Fund. This election should initially be made on a sharehold-
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<PAGE>
er's Account Information Form and may be changed upon written notice to
Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment in-
come and capital gains distributions will be reinvested in Administration
Shares of the Fund paying the dividend. If cash dividends are elected with re-
spect to a Fund's net investment income dividends then cash dividends must
also be elected with respect to the short-term capital gains component, if
any, of the Fund's annual dividend.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Administration Shares of the Fund will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Administration Shares of a Fund.
Each Fund intends that all or substantially all its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends at least annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securi-
ties. Therefore, subsequent distributions (or portions thereof) of taxable in-
come or realized appreciation on such shares may be taxable to the investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
PURCHASE OF ADMINISTRATION SHARES
It is expected that all direct purchasers of Administration Shares of the
Funds will be Service Organizations or their nominees. Customers of Service
Organizations may invest in Administration Shares only through Service Organi-
zations. Administration Shares of a Fund may be purchased by a Service Organi-
zation through Goldman Sachs at the net asset value per share next determined
after receipt from a Service Organization of an order without the imposition
of a sales load. If, by 3:00 p.m. Chicago time (4:00 p.m. New York), an order,
a check or a Federal Reserve draft is received from a Service Organization by
Goldman Sachs, the price per share will be the net asset value per share com-
puted on the day the purchase order or such form of payment is received. See
"Net Asset Value."
PURCHASE PROCEDURES
Purchases of Administration Shares by a Service Organization may be made by
placing an order with Goldman Sachs at 800-621-2550 and either wiring Federal
Funds to The Northern Trust Company ("Northern") as subcustodian for State
Street Bank and Trust Company ("State Street") on the next Business Day or in-
itiating an ACH transfer to ensure receipt by Northern on the next Business
Day. Purchases may also be made by a Service Organization by check (except
that a check drawn on a foreign bank will not be accepted) or Federal Reserve
draft made payable to "Goldman Sachs Equity Portfolios, Inc.--[Goldman Sachs
Mid-Cap Equity Fund] [Goldman Sachs Select Equity Fund"] and should be di-
rected to "Goldman Sachs Equity Portfolios, Inc.--[Goldman Sachs Mid-Cap Eq-
uity Fund] [Goldman Sachs Select Equity Fund"], c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago,
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<PAGE>
Illinois 60606. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Administration Shares."
The Service Organizations are responsible for the timely transmittal of pur-
chase orders to Goldman Sachs and payments to Northern or Goldman Sachs. In
order to facilitate timely transmittal, the Service Organizations have estab-
lished times by which purchase orders and payments must be received by them.
OTHER PURCHASE INFORMATION
Neither Fund has any minimum purchase or account requirements with respect
to Administration Shares. A Service Organization may, however, impose a mini-
mum amount for initial and subsequent investments in Administration Shares,
and may establish other requirements such as a minimum required account bal-
ance. A Service Organization may effect redemptions of noncomplying accounts,
and may impose a charge for any special services rendered to its customers.
Customers should contact their Service Organization for further information
concerning such requirements and charges.
Each Fund reserve the right to redeem Administration Shares of any Service
Organization whose account balance is less than $100 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of such
shareholder's account falls below the minimum account balance solely as a re-
sult of market conditions. The Company will give sixty (60) days prior written
notice of Service Organizations whose Administration Shares are being redeemed
to allow them to purchase sufficient additional Administration Shares to avoid
such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). Each Fund or Goldman
Sachs may reject or restrict purchases or exchanges of Administration Shares
by a particular purchaser or group of related purchasers, for example, when a
pattern of frequent purchases and sales or exchanges of Administration Shares
of a Fund is evident, or if the purchase and sale or exchange orders are, or a
subsequent abrupt redemption might be, of a size that would disrupt management
of a Fund.
EXCHANGE PRIVILEGE
Administration Shares of the Fund may be exchanged by a Service Organization
for (i) Administration Shares of any other mutual fund sponsored by Goldman
Sachs and designated as an eligible fund for this purpose and (ii) the rele-
vant class of any portfolio of Goldman Sachs Money Market Trust at the net as-
set value next determined either by writing to Goldman Sachs, Attention:
Goldman Sachs Equity Portfolios, Inc.--[Goldman Sachs Select Equity Fund]
[Goldman Sachs Mid-Cap Equity Fund], c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago
time). A Shareholder should obtain and read the prospectus relating to any
other Fund and its shares or units and consider its investment objective, pol-
icies and applicable fees before making an exchange. Under the telephone ex-
change privilege, Administration Shares may be exchanged among account
33
<PAGE>
with different names, addresses and social security or other taxpayer identi-
fication numbers only if the exchange request is in writing and is received in
accordance with the procedures set forth under "Redemptions of Administration
Shares."
In times of drastic economic or market changes the telephone exchange privi-
lege may be difficult to implement. In an effort to prevent unauthorized or
fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures
as set forth under "Redemption of Administration Shares" to confirm that such
instructions are genuine. For federal income tax purposes, an exchange is
treated as a sale of the shares surrendered in the exchange on which an in-
vestor may realize a gain or loss, followed by a purchase of Administration
Shares or units received in the exchange. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be mod-
ified or withdrawn at any time on sixty (60) days' written notice to Adminis-
tration Shareholders and is subject to certain limitations. See "Purchase of
Administration Shares."
REDEMPTION OF ADMINISTRATION SHARES
Each Fund will redeem its Administration Shares upon request of the
recordholder on any Business Day at the net asset value next determined after
the receipt by the Transfer Agent of such request in proper form. See "Net As-
set Value." If Administration Shares to be redeemed were recently purchased by
check, a Fund may delay transmittal of redemption proceeds until such time as
it has assured itself that good funds have been collected for the purchase of
such Administration Shares. This may take up to fifteen (15) days.
A Service Organization may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form. It
may be difficult to implement redemptions by telephone in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
redemption or exchange requests by telephone, Goldman Sachs employs reasonable
procedures specified by the Company to confirm that such instructions are gen-
uine. Among other things, any redemption request in excess of a certain mini-
mum size that requires money to go to an account or address other than that
designated on the Account Information Form must be in writing and signed by an
authorized person designated on the Account Information Form. Any such written
request is also confirmed by telephone with both the requesting party and the
designated bank account to verify instructions. Exchanges among accounts with
different names, addresses and social security or other taxpayer identifica-
tion numbers must be in writing and signed by an authorized person designated
on the Account Information Form. Other procedures may be implemented from time
to time. If reasonable procedures are not implemented, the Company may be lia-
ble for any loss due to unauthorized or fraudulent transactions. In all other
cases, neither the Funds, the Company nor Goldman Sachs will be responsible
for the authenticity of redemption or exchange instructions received by tele-
phone. If Goldman Sachs receives a redemption request by 3:00 p.m. Chicago
time, the Administration Shares to be redeemed earn dividends with respect to
the day the request is received.
Each Fund will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Administration Shares or if the
recordholder so elects in writing, by check. Redemption
34
<PAGE>
proceeds will normally be wired on the next Business Day in Federal Funds (for
a total one-day delay), but may be paid up to seven (7) days after receipt of
a properly executed redemption request. Wiring of redemption proceeds may be
delayed one ad ditional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would ordinarily be wired. Once wire transfer in-
structions have been given by Goldman Sachs, neither a Fund, the Company nor
Goldman Sachs assumes any further responsibility for the performance of inter-
mediaries or the customer's Service Organization in the transfer process. If a
problem with such performance arises, the customer should deal directly with
such intermediaries or Service Organization. With respect to redemption pro-
ceeds paid by check, a check for the redemption proceeds will normally be
mailed to the address of record within 5 Business Days of receipt of a prop-
erly executed redemption request.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The re-
quest for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Administration Shares.
The Service Organizations are responsible for the timely transmittal of re-
demption requests by their customers to the Transfer Agent. In order to facil-
itate timely transmittal of redemption requests, Service Organizations have
established times by which redemption requests must be received by them. Addi-
tional documentation may be required when deemed appropriate by a Service Or-
ganization.
Except with respect to Service Organizations whose account balances are less
than $100, Administration Shares of a Fund are not redeemable at the option of
a Fund unless the Board of Directors of the Company determines in its sole
discretion that failure to so redeem may have material adverse consequences to
the shareholders of a Fund. Each Fund, however, assumes no responsibility to
compel redemptions.
35
<PAGE>
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Social
Security or Other Taxpayer Identification Number (TIN), regardless of whether
you file tax returns. Failure to do so may subject you to penalties. Failure
to provide your correct TIN, to check the appropriate boxes in, and to sign
your name in the Social Security Number or Other Taxpayer Identification
Number Certification section (the "Certification Section") of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account. The Fund reserves the right to refuse
to open an account for, or to close the account of, any investor who fails to
(1) provide a TIN or (2) certify that such TIN is correct (if required to do
so under applicable law) in establishing an account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). If you do not have a TIN but have applied for or intend
to apply for one, you should check the first box in the Certification Section.
In this event, you should provide your TIN and required certifications within
60 days. Backup withholding could also apply to payments relating to your
account prior to the Fund's receipt of your TIN and required certifications.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
Section.
If you are an exempt recipient, you should furnish your TIN and check the
second box in the Certification Section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, check the third box in the
Certification Section and provide a completed Form W-8 to the Fund in order to
avoid backup withholding on certain payments. Other payments to you may be
subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THE FUNDS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary.................................................................... 3
Financial Highlights....................................................... 11
Investment Objective and Policies.......................................... 12
Investment Advisers and Administrator...................................... 15
Special Investment Methods and Risk Factors................................ 15
Investment Restrictions.................................................... 25
Portfolio Turnover......................................................... 25
Management................................................................. 26
Net Asset Value............................................................ 29
Performance Information.................................................... 29
Shares of the Company...................................................... 29
Taxation................................................................... 30
Additional Information..................................................... 32
Administration Plans....................................................... 33
Reports to Shareholders.................................................... 33
Dividends.................................................................. 33
Purchase of Administration Shares.......................................... 34
Exchange Privilege......................................................... 35
Redemption of Administration Shares........................................ 36
Appendix A................................................................. A-1
Account Information Form
</TABLE>
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GOLDMAN SACHS SELECT EQUITY FUND
ADMINISTRATION SHARES
MANAGED BY
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.,
AN AFFILIATE OF
GOLDMAN SACHS & CO.
GOLDMAN SACHS MID-CAP EQUITY FUND
ADMINISTRATION SHARES
MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS SELECT EQUITY FUND (CLASS A SHARES)
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS SMALL CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
(PORTFOLIOS OF GOLDMAN SACHS EQUITY PORTFOLIOS, INC.)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the combined Prospectus of Goldman Sachs Balanced Fund, Goldman Sachs Select
Equity Fund (Class A Shares), Goldman Sachs Growth and Income Fund, Goldman
Sachs Capital Growth Fund, Goldman Sachs Small Cap Equity Fund, Goldman Sachs
International Equity Fund and Goldman Sachs Asia Growth Fund, dated June 1, 1995
as amended and/or supplemented from time to time (the "Prospectus"), which may
be obtained without charge from Goldman, Sachs & Co. by calling the telephone
number, or writing to one of the addresses, listed below.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
====
<S> <C>
Introduction.............................................. B-3
Investment Policies....................................... B-4
Investment Restrictions................................... B-43
Management................................................ B-58
Portfolio Transactions and Brokerage...................... B-76
Net Asset Value........................................... B-82
Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends................................... B-84
Performance Information................................... B-87
Shares of the Company..................................... B-102
Taxation.................................................. B-105
Financial Statements...................................... B-113
Other Information......................................... B-114
Appendix A:............................................... 1-A
Appendix B:............................................... 1-B
Appendix C:............................................... 1-C
Appendix D:............................................... 1-D
</TABLE>
The date of this Additional Statement is June 1, 1995.
<PAGE>
GOLDMAN SACHS FUNDS MANAGEMENT, L.P. GOLDMAN, SACHS & CO.
Adviser to Goldman Sachs Capital Distributor
Growth Fund and 85 Broad Street
Goldman Sachs Select Equity Fund New York, New York 10004
One New York Plaza
New York, New York 10004
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
Administrator to all Funds and Adviser to MANAGEMENT INTERNATIONAL
Goldman Sachs Small Cap Equity Fund, Adviser to Goldman Sachs
Goldman Sachs International Equity Fund, Asia Growth Fund
Goldman Sachs Growth and Income Fund Subadviser to Goldman Sachs
and Goldman Sachs Balanced Fund International Equity Fund
One New York Plaza 140 Fleet Street
New York, New York 10004 London, England EC4A 2BJ
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free.......800-526-7384
B-2
<PAGE>
INTRODUCTION
Goldman Sachs Equity Portfolios, Inc. (the "Company") is an open-end,
management investment company currently offering eight series of shares,
including Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Select
Equity Fund ("Select Equity Fund"), Goldman Sachs Growth and Income Fund
("Growth and Income Fund"), Goldman Sachs Capital Growth Fund ("Capital Growth
Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap Fund"), Goldman Sachs
International Equity Fund ("International Fund") and Goldman Sachs Asia Growth
Fund ("Asia Growth Fund"). Balanced Fund, Growth and Income Fund, Select Equity
Fund, Capital Growth Fund, Small Cap Fund, International Fund and Asia Growth
Fund are sometimes referred to collectively herein as the "Funds."
The Company was organized under the laws of the State of Maryland on
September 27, 1989. The Company assumed its current name on May 14, 1991. The
Directors of the Company have authority under the Company'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 Directors have created the Funds, and
additional series may be added in the future from time to time. Each Fund, other
than Select Equity Fund, currently offers a single class of shares. Select
Equity Fund currently offers three classes of shares: Class A Shares,
Institutional Shares and Administration Shares. See "Shares of the Company."
Goldman Sachs Funds Management, L.P., ("GSFM") an affiliate of Goldman,
Sachs & Co.("Goldman Sachs"), serves as investment adviser to Capital Growth
Fund and Select Equity Fund. Goldman Sachs Asset Management ("GSAM"), a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced
Fund, Growth and Income Fund, Small Cap Fund and International Fund. Goldman
Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs,
serves as the investment adviser to Asia Growth Fund and subadviser to
International Fund. GSFM, GSAM and GSAMI are sometimes referred to collectively
herein as the "Advisers." In addition, GSAM serves as administrator of each
Fund. 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 Prospectus. See the Prospectus for a
fuller description of the Funds' investment objectives and policies. There is no
assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
INVESTING IN ASIA
=================
Asia Growth Fund is intended for long-term investors who can accept the
risks associated with investing primarily in equity and equity-related
securities of Asian Companies (as defined in the Prospectus) as well as the
risks associated with investments quoted or denominated in foreign currencies.
In addition, certain of Asia Growth Fund's potential investment and management
techniques entail special risks. There can be no assurance that Asia Growth Fund
will achieve its investment objective. See "Investment Objective and Policies"
and "Special Investment Methods and Risk Factors" in the Prospectus.
The pace of change in Asia over the last 10 years has been rapid.
Accelerating economic growth in the region has combined with capital market
development, high government expenditure, increasing consumer wealth and
taxation policies favoring company expansion. As a result, stock market returns
in many Asian countries have been relatively attractive. GSAMI believes that
Asia offers an attractive investment environment and that new opportunities will
continue to emerge in the years ahead. Asia Growth Fund concentrates on
companies that GSAMI believes are taking full advantage of the region's growth
and that have the potential for long-term capital appreciation. See "Special
Investment Methods and Risk Factors" in the Prospectus.
Each of the securities markets of the Asian 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. Certain of the Asian securities markets are
marked by a high concentration of market capitalization and trading volume in a
small number of issuers representing a limited number of industries, as well as
a high concentration of ownership of such securities by a limited number of
investors. The limited liquidity of Asian markets may also affect Asia Growth
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.
B-4
<PAGE>
Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions may
limit Asia Growth Fund's investment in certain of the Asian countries and may
increase the expenses of Asia Growth Fund. Certain Asian countries require
governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of both investment
income and capital from several of the Asian countries is subject to
restrictions such as the need for certain governmental consents. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of Asia Growth Fund.
Each of the Asian countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States, Japan
and most Western European countries. Such instability may result from, among
other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, including changes or
attempted changes in governments through extra-constitutional means; (ii)
popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which Asia Growth Fund invests and adversely
affect the value of Asia Growth Fund's assets.
Asia Growth 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 to reduce the otherwise applicable tax rates. Asia Growth
Fund may elect, when eligible, to "pass through" to Asia Growth Fund's
shareholders those taxes that are treated as income or excess profits taxes for
U.S. federal income tax purposes. If Asia Growth Fund is eligible for and makes
such election, U.S. shareholders will be required to include in income their
proportionate share of the amount of qualifying non-U.S. taxes paid by Asia
Growth Fund and may be entitled to claim either a credit or deduction for all or
a portion of such taxes. Certain shareholders, including shareholders not
subject to U.S. taxation, will not be entitled to the benefit of a deduction or
credit with respect to non-U.S. income taxes paid by Asia Growth Fund. See
"Taxation."
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when
B-5
<PAGE>
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
Asia Growth Fund is uninvested and no return is earned on such assets. The
inability of Asia Growth Fund to make intended security purchases or sales due
to settlement problems could result either in losses to Asia Growth Fund due to
subsequent declines in value of the portfolio securities or, if Asia Growth Fund
has entered into a contract to sell the securities, could result in possible
liability to the purchaser.
INTERNATIONAL FUND
==================
International Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAM and GSAMI believe that the high historical returns and less efficient
pricing of foreign markets create favorable conditions for International Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAM's and GSAMI's equity team in London, Hong Kong and Tokyo
seeks to identify companies that have a high probability of achieving superior
long-term returns. Stocks are carefully selected for International Fund's
portfolio through a three-stage investment process. Because International Fund
is a long-term holder of stocks, the portfolio managers adjust International
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 portfolio managers
first identify attractive industries around the world. Such industries have
favorable underlying economics and allow companies to generate sustainable and
predictable high returns. As a rule, they are less economically sensitive,
relatively free of regulation and favor strong franchises.
Within these industries the portfolio managers identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry.
B-6
<PAGE>
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 always act in the interests of the owners and seek to maximize
returns to all stockholders.
GSAM'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. See "Investment Policies" and "Advisory and Administrative
Services."
The members of GSAM and 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. In addition, they have access to over 200 economic, equity and
currency research professionals of Goldman Sachs in London, Frankfurt, Hong
Kong, Tokyo and New York.
BALANCED FUND
=============
The investment objective of the Balanced Fund is to provide shareholders
with current income and long-term capital growth. The Balanced Fund seeks to
achieve its investment objective by investing in a balanced portfolio
diversified among both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
B-7
<PAGE>
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio is designed to provide high returns relative to a market benchmark,
the Lehman Brothers Aggregate Bond Index, while also providing high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways. These
include diversifying the fixed income portion of the Balanced Fund's portfolio
among various types of fixed income securities and utilizing sophisticated
quantitative models to understand how the fixed income portion of the portfolio
will perform under a variety of market and economic scenarios. In addition, GSAM
uses extensive credit analysis to select and 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.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers -those with low but
stable credit - enhances total returns by providing incremental yield. Selecting
securities from the second type of issuers -those with low and intermediate but
improving credit quality -enhances total returns in two stages. Initially, these
securities provide incremental yield. Eventually, price appreciation occurs
relative
B-8
<PAGE>
to alternative securities as credit quality improves, the nationally recognized
statistical rating organizations upgrade credit ratings, and credit spreads
narrow. Securities from the third type of issuers - issuers with deteriorating
credit quality -will be avoided, since total returns are 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.
SELECT EQUITY FUND
==================
Select Equity Fund's investment objective is to provide its shareholders
with a total return consisting of capital appreciation plus dividend income
that, net of fund expenses, exceeds the total return realized on the S&P 500
Index. Under normal circumstances, the Fund will invest at least 90% of its
total assets in equity securities.
The investment strategy of Select Equity Fund will be implemented to the
extent it is consistent with maintaining the Fund's qualification as a regulated
investment company under the Internal Revenue Code. The Fund's strategy may be
limited, in particular, by the requirement for such qualification that less than
30% of the Fund's annual gross income be derived from the sale or other
disposition of stocks or securities (including options and futures contracts)
held for less than three months.
Since normal settlement for equity securities is three trading days, the
Fund will need to hold cash balances to satisfy shareholder redemption requests.
Such cash balances will normally range from 2% to 5% of the Fund's net assets.
The Fund may purchase futures contracts on the S&P 500 Index in order to keep
B-9
<PAGE>
the Fund's effective equity exposure close to 100%. For example, if cash
balances are equal to 10% of the net assets, the Fund may enter into long
futures contracts covering an amount equal to 10% of the Fund's net assets. As
cash balances fluctuate based on new contributions or withdrawals, the Fund may
enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a sophisticated computerized
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, yield, growth, momentum, risk and liquidity (e.g.
price/earnings ratio, sustainable growth rate, earnings momentum and market
liquidity). All of these factors have been shown to significantly impact the
performance of equity securities.
Because it includes many disparate factors, the Investment Adviser believes
that the Multifactor Model is broader in scope and provides a more thorough
evaluation than most conventional, value-oriented quantitative models. As a
result, the securities ranked highest by the Multifactor Model do not have one
dominant investment characteristic (such as a low price/earnings ratio);
rather, such securities possess many different investment characteristics. By
using a variety of relevant factors to select securities, the 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 securities.
The Investment Adviser will monitor, and may occasionally suggest and make
changes to, the method by which securities are selected for or weighted in the
Fund. Such changes (which may be the result of changes in the Multifactor Model
or the method of applying the Multifactor Model) may include: (i) evolutionary
changes to the structure of the Multifactor Model (e.g., the addition of new
factors or a new means of weighting the factors); (ii) changes in trading
procedures (e.g., trading frequency or the manner in which the Fund uses futures
on the S&P 500 Index); or (iii) changes in the method by which securities are
weighted in the Fund. Any such changes will preserve the Fund's basic investment
philosophy of combining qualitative and quantitative methods of selecting
securities using a disciplined investment process.
CORPORATE DEBT OBLIGATIONS
==========================
Each Fund may invest, under normal market conditions, in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
Select Equity Fund may only invest
B-10
<PAGE>
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 Growth and Income Fund, Capital Growth Fund, Small Cap Fund and
Balanced Fund to dispose of a particular security when necessary to meet their
redemption requests or other liquidity needs. Under adverse market or economic
conditions, the secondary market for junk bonds could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, the Advisers could find it difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under such circumstances, may be less than the
prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Capital Growth
Fund, Small Cap Fund, Growth and Income Fund and Balanced Fund 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.
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Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
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 tax and accounting purposes which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund's distribution obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
=====================================
The interest rates payable on certain securities in which Balanced Fund may
invest are not fixed and may fluctuate based upon changes in market rates. A
variable rate obligation has an interest rate which is adjusted at predesignated
periods in response to changes in the market rate of interest on which the
interest rate is based. Variable and floating rate obligations are less
effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
CUSTODIAL RECEIPTS
==================
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Each Fund may invest up to 5% of its total assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
Securities.
MUNICIPAL SECURITIES
====================
Balanced Fund may invest up to 5% of its total assets in municipal
securities. Municipal securities consist of bonds, notes and other instruments
issued by or on behalf of states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal
payments are to be made or the assets collateralizing such obligations. Revenue
bonds, including private activity bonds, are backed only by specific assets or
revenue sources and not by the full faith and credit of the governmental issuer.
STRUCTURED SECURITIES
=====================
Balanced Fund may invest in structured notes, bonds or
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<PAGE>
debentures. The value of the principal of and/or interest on such securities is
determined by reference to changes in the value of specific interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, may result in the loss of the Balanced Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference. Consequently, structured securities may
entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
BANK OBLIGATIONS
================
Balanced Fund may invest up to 5% of its total assets in U.S. dollar
denominated obligations issued or guaranteed by U.S. 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 operations of this industry.
MORTGAGE-BACKED SECURITIES
==========================
GENERAL CHARACTERISTICS. Each Fund (excluding Select Equity Fund) 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
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<PAGE>
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, the
Advisers may seek to manage these potential risks by investing in a variety of
mortgage-backed securities and by using certain hedging techniques.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types of
guaranteed mortgage-backed securities currently available, including guaranteed
mortgage pass-through certificates and multiple class securities, which include
guaranteed Real Estate Mortgage Investment Conduit Certificates ("REMIC
Certificates"), collateralized mortgage obligations and stripped mortgage-backed
securities. A Fund is permitted to invest in other types of mortgage-backed
securities that may be available in the future to the extent consistent with its
investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee
the timely payment of the principal of and interest on certificates that are
based on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA
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<PAGE>
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
participations 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.
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<PAGE>
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties
or multifamily projects. Each mortgage loan must meet the applicable standards
set forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac
Certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than Select Equity Fund)
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
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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 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,
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<PAGE>
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.
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
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<PAGE>
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 as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities that represent direct ownership interests in, a pool of mortgage
loans or mortgage-backed securities the payments on which are used to make
payments on the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
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<PAGE>
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 participations 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
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<PAGE>
account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. 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
================================
Balanced Fund may invest up to 5% of its total assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed . An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may
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<PAGE>
exceed its stated final maturity. Certain inverse floaters may be deemed to be
illiquid securities for purposes of the Fund's 15% limitation on investments in
such securities.
ASSET-BACKED SECURITIES
=======================
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
A Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
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,
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<PAGE>
in some cases, recoveries on repossessed collateral may not be available to
support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
==================================================
Each Fund may purchase and sell futures contracts. Each Fund, other than
Select Equity Fund, may also purchase and write options on futures contracts.
Select Equity Fund may only purchase and sell futures contracts on 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, except for Select Equity Fund, related options transactions, only
for bona fide hedging purposes as defined below or for purposes of seeking to
increase total return to the extent permitted by regulations of the Commodity
Futures Trading Commission ("CFTC"). All futures contracts entered into by a
Fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the CFTC or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising, a
Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than Select Equity Fund) can
sell futures contracts on a specified currency to protect against a decline in
the value of such currency and its portfolio securities which are quoted or
denominated in such currency. Each Fund (other than Select Equity Fund) can
purchase futures contracts on foreign currency to establish the price in U.S.
dollars of a security quoted or denominated in such currency that such Fund has
acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are
B-24
<PAGE>
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
more certainly 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 in order to hedge
against an anticipated rise in interest rates or a decline in market prices or
(other than Select Equity Fund) foreign currency rates that would adversely
affect the dollar value of such Fund's portfolio securities. Such futures
contracts may (except in the case of Select Equity Fund) include contracts for
the future delivery of securities held by the Fund or securities with
characteristics similar to those of the Fund's portfolio securities. Similarly,
each Fund (other than Select Equity Fund) may sell futures contracts on a
currency in which its portfolio securities are quoted or denominated or in one
currency to hedge against fluctuations in the value of securities quoted or
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies. If, in the opinion of the
applicable Adviser, there is a sufficient degree of correlation between price
trends for a Fund's portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, a Fund may also
enter into such futures contracts as part of its hedging strategy. Although
under some circumstances prices of securities in a Fund's portfolio may be more
or less volatile than prices of such futures contracts, the Advisers will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having a Fund enter into a
greater or lesser number of futures contracts or by attempting to achieve only a
partial hedge against price changes affecting a Fund's securities portfolio.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates
the subsequent purchase of particular securities when it has the necessary
cash, but expects the prices or currency exchange rates then available in the
applicable market to be less favorable than prices or rates that are currently
available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not
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<PAGE>
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 series.
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
(except for Select Equity Fund) will engage in related options transactions only
for bona fide hedging as defined in the regulations of the CFTC or to seek to
increase total return to the extent permitted by such regulations. A Fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase.
Except as stated below, each Fund's futures transactions will be entered into
for traditional hedging purposes -- i.e., futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns, or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase. As
evidence of this hedging intent, each Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities (or assets
quoted or denominated in the related
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<PAGE>
currency) in the cash market at the time when the futures or options position is
closed out. However, in particular cases, when it is economically advantageous
for a Fund to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase. Each Fund will engage in transactions in futures contracts
and (except for Select Equity Fund) will engage in related options transactions
only to the extent such transactions are consistent with the requirements of the
Code for maintaining its qualification as a regulated investment company for
federal income tax purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid, high grade debt securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts available to hedge a Fund's portfolio are various
futures on U.S. Government securities, securities indices and foreign
currencies. In addition, it is not possible for a Fund to hedge fully or
perfectly against currency fluctuations affecting the value of securities quoted
or denominated in foreign currencies because the value of such securities is
likely to fluctuate as a result of independent factors not related to currency
fluctuations.
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<PAGE>
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, although Select Equity Fund
has no present intention of doing so. 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 would have deposited with
its custodian cash or liquid, high grade debt securities with a value at least
equal to the exercise price of the put option. The purpose of writing such
options is to generate additional income for the Fund. However, in return for
the option premium, each Fund accepts the risk that it may be required to
purchase the underlying securities at a price in excess of the securities'
market value at the time of purchase.
Call and put options written by a Fund will also be considered to be covered
to the extent that the Fund's liabilities under such options are wholly or
partially offset by its rights under call and put options purchased by the Fund.
In addition, a written call option or put option may be covered by
maintaining cash or liquid, high grade debt securities (either of which may be
quoted or denominated in any currency) in a segregated account, by entering into
an offsetting forward contract and/or by purchasing an offsetting option which,
by virtue of its exercise price or otherwise, reduces a Fund's net exposure on
its written option position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
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<PAGE>
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 held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid, high grade debt securities with
a value equal to the exercise price in a segregated account with its custodian.
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 based on
securities in which it may invest although Select Equity Fund has no present
intention of doing so. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise
such a Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of
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<PAGE>
protective put options would tend to be offset by countervailing changes in the
value of the underlying portfolio securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
YIELD CURVE OPTIONS. Balanced Fund 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.
Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, Balanced Fund may purchase
a call option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid, high grade debt securities
sufficient to cover the Balanced Fund's net liability under the two options.
Therefore, the Balanced Fund's liability for such a covered option is generally
limited to the difference between the amount of the Balanced Fund's liability
under the option written by the Balanced Fund less the value of the option held
by the Balanced Fund. Yield curve options may also be covered in such other
manner as may be in accordance with the requirements of the counterparty with
which the option is traded and applicable laws and regulations. Yield curve
options are traded over-the-counter, and because they have been only recently
introduced, established trading markets for these options have not yet
developed.
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<PAGE>
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 assets held in a segregated account 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 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. Until such time as the staff of the Securities and Exchange
Commission ("SEC") changes its position, each Fund will treat purchased over-
the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
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
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<PAGE>
purchased by a single investor or group of investors acting in concert. Thus,
the number of options which a Fund may write or purchase may be affected by
options written or purchased by other investment advisory clients of the
Advisers. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
=============================
The Capital Growth Fund, Small Cap Fund and Growth and Income Fund may
invest in shares of REITs. The Balanced Fund may invest up to 15% of its total
assets (determined at the time of purchase) in shares of REITs that are not
self-administered or self-managed. 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
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Like regulated investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
certain requirements under the Code. A Fund will indirectly bear its
proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
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<PAGE>
WARRANTS AND STOCK PURCHASE RIGHTS
==================================
Each Fund may invest up to 5% of its total assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants and
rights only if such equity securities are deemed appropriate by the Adviser for
investment by the Fund. Select Equity Fund has no present intention of acquiring
warrants or rights. Each Fund will not invest more than 2% of its total assets,
calculated at the time of purchase, in warrants or rights which are not listed
on the New York or American Stock Exchanges. Warrants and rights have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
FOREIGN SECURITIES
==================
Investments in foreign securities may offer potential benefits not available
from investments solely in securities of U.S. issuers. Such benefits may include
the opportunity to invest in foreign issuers that appear, in the opinion of the
applicable Adviser, to offer better opportunity for long-term growth of capital
and income than investments in U.S. securities, the opportunity to invest in
foreign countries with economic policies or business cycles different from those
of the United States and the opportunity to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not necessarily move
in a manner parallel to U.S. markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in securities of U.S. issuers. Investments in foreign securities may
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. International Fund and
Asia Growth Fund may be subject to currency exposure independent of their
securities positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from
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<PAGE>
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 companies generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of Foreign Securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ 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.
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
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<PAGE>
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.
International Fund, Asia Growth Fund, Capital Growth Fund, Small Cap Fund,
Growth and Income Fund and Balanced Fund may also 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. In addition, unanticipated political
or social developments may affect the value of a Fund's investments in those
countries and the availability to a Fund of additional investments in those
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make a Fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and a Fund may be
required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
A Fund (other than Select Equity Fund) may invest in securities of issuers
domiciled in a country other than the country in whose currency the instrument
is denominated or quoted. The Funds may also invest in securities quoted or
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain of the member
states of the European Community. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of the European Community
from time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities quoted or
denominated in other currency "baskets."
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Capital Growth Fund, Small Cap
Fund, Growth and Income Fund and Balanced Fund
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<PAGE>
may enter into forward foreign currency exchange contracts for hedging purposes.
International Fund and Asia Growth Fund may enter into forward foreign currency
exchange contracts for hedging purposes and to seek to increase total return. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
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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.
International Fund and Asia Growth Fund 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.
International Fund and Asia Growth Fund may also purchase and sell forward
contracts to seek to increase total return when GSAM or GSAMI anticipates that
the foreign currency will appreciate or depreciate in value, but securities
quoted or denominated in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio.
A Fund's custodian will place cash or liquid, high grade debt securities
into a segregated account of such Fund in an amount equal to the value of the
Fund's total assets committed to the consummation of forward foreign currency
exchange contracts requiring the Fund to purchase foreign currencies or, in the
case of International Fund and Asia Growth Fund, forward contracts entered into
to increase total return. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of a Fund's commitments with respect to such contracts. The segregated account
will be marked-to-market on a daily basis. Although the contracts are not
presently regulated by the CFTC, the CFTC may in the future assert authority to
regulate these contracts. In such event, a Fund's ability to utilize forward
foreign currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward
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foreign currency exchange contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a Fund of unrealized
profits or force the Fund to cover its commitments for purchase or resale, if
any, at the current market price.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. International Fund,
Capital Growth Fund, Small Cap Fund, Growth and Income Fund, Asia Growth Fund
and Balanced Fund each may write covered put and call options and purchase put
and call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of portfolio securities and against increases
in the U.S. dollar cost of securities to be acquired. As with other kinds of
option transactions, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
and when a Fund seeks to close out an option, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by a Fund will be traded on U.S. and
foreign exchanges or over-the-counter. International Fund and Asia Growth Fund
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different currency with a pattern of correlation. In addition, International
Fund and Asia Growth Fund may purchase call options on currency to seek to
increase total return when the Adviser anticipates that the currency will
appreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not included in the
Fund's portfolio.
A call option written by a Fund obligates a Fund to sell specified currency
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. A put option written by a Fund would
obligate a Fund to purchase specified currency from the option holder at a
specified price if the option is exercised at any time before the expiration
date. The writing of currency options involves a risk that a Fund will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Fund.
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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,
International Fund and Asia Growth Fund may use options on currency to seek to
increase total return. International Fund and Asia Growth Fund 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, International Fund and Asia
Growth Fund may forego the opportunity to profit from an increase in the market
value of the underlying currency. Also, when writing put options, International
Fund and Asia Growth Fund accept, in return for the option premium, the risk
that it may be required to purchase the underlying currency at a price in excess
of the currency's market value at the time of purchase.
International Fund and Asia Growth Fund would normally purchase call options
to seek to increase total return in anticipation of an increase in the market
value of a currency. International Fund and Asia Growth 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
International Fund and Asia Growth Fund would realize either no gain or a loss
on the purchase of the call option. Put options may be purchased by either Fund
for the purpose of benefiting from a
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decline in the value of currencies which it does not own. International Fund and
Asia Growth Fund would ordinarily realize a gain if, during the option period,
the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise the
Fund would realize either no gain or a loss on the purchase of the put
option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities
of the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS
==============
The Balanced Fund may enter into currency swaps for hedging purposes and
International Fund and Asia Growth Fund may enter into currency swaps for
hedging purposes and to seek to increase total return. Inasmuch as swaps are
entered into for good faith hedging purposes or are offset by a segregated
account as described below,
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<PAGE>
the Advisers believe that swaps do not constitute senior securities as defined
in the Act, and, accordingly, will not treat them as being subject to a Fund's
borrowing restrictions. An amount of cash or liquid, high grade debt securities
having an aggregate net asset value at least equal to the entire amount of the
payment stream payable by the Fund will be maintained in a segregated account by
the Fund's custodian.
A Fund will not enter into any currency swap unless the credit quality of
the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Adviser. If there is a
default by the other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market. However, the staff of the SEC takes
the position that currency swaps are illiquid investments that are subject to
each Fund's 15% limitation on such investments.
LENDING OF PORTFOLIO SECURITIES
===============================
Each Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis at an amount at least
equal to the market value of the securities loaned. A Fund would be required to
have the right to call a loan and obtain the securities loaned at any time on
five days' notice. For the duration of a loan, a Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from investment of the collateral. A
Fund would not have the right to vote any securities having voting rights during
the existence of the loan, but a Fund would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovering, or even
loss of rights in, the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Advisers to be of good standing, and when, in the judgment of the Advisers, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Advisers determine to make securities
loans, it is intended that the value of the securities loaned would not exceed
one-third of the value of the total assets of a Fund.
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WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
==============================================
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually purchasing or selling the securities. If deemed advisable as a matter
of investment strategy, however, a Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's average duration,
the maturity of when-issued or forward commitment securities will be calculated
from the commitment date. A Fund is required to hold and maintain in a
segregated account with the Fund's custodian until the settlement date, cash and
liquid, high grade debt securities in an amount sufficient to meet the purchase
price. Alternatively, a Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. Securities purchased or sold on a when-
issued or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date or if the value
of the security to be sold increases prior to the settlement date.
REPURCHASE AGREEMENTS
=====================
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities is maintained by a Fund's custodian. The repurchase
price may be higher than the purchase price, the difference being income to a
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to a Fund together with the repurchase price on repurchase. In
either case, the income to a Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and for tax purposes, a repurchase agreement is
deemed to be a loan from a Fund to the seller of the security. For other
purposes, it is not clear whether a court would consider the security purchased
by a Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of
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<PAGE>
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, a Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers
seek to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, if the
market value of the security subject to the repurchase agreement becomes less
than the repurchase price (including accrued interest), a Fund will direct the
seller of the security to deliver additional securities so that the market value
of all securities subject to the repurchase agreement equals or exceeds the
repurchase price. Certain repurchase agreements which provide for settlement in
more than seven days can be liquidated before the nominal fixed term on seven
days or less notice. Such repurchase agreements will be regarded as liquid
instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Company 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 Capital Growth Fund
is fundamental and may not be changed without the affirmative approval of a
majority (as defined in the Act) of the outstanding voting securities of Capital
Growth Fund. The investment objective of each other Fund and all other
investment policies or practices of each Fund are considered by the Company not
to be fundamental and accordingly may be changed without shareholder approval.
See "Investment Objectives and Policies" in each Fund's Prospectus. For purposes
of the Act, "majority" means the lesser of (a) 67% or more of the
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shares of the Company or a Fund present at a meeting, if the holders of more
than 50% of the outstanding shares of the Company or a Fund are present or
represented by proxy, or (b) more than 50% of the shares of the Company or a
Fund. For purposes of the following limitations, any limitation which involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Fund. With respect
to each Fund's fundamental investment restriction no. 1, asset coverage of at
least 300% (as defined in the Act), inclusive of any amounts borrowed, must be
maintained.
CAPITAL GROWTH FUND AND SELECT EQUITY FUND
==========================================
Each of Capital Growth Fund and Select Equity Fund may not:
1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding 10% of the applicable Fund's
total assets (in the case of the Capital Growth Fund not including the amount
borrowed); while such borrowings exceed 5% of such Fund's assets, the Fund will
not make any additional investments; and (b) in connection with the redemption
of Fund shares, but only if after each such borrowing there is asset coverage of
at least 300% as defined in the Act. For purposes of this investment
restriction, short sales, the entry into currency transactions, options, futures
contracts, including those relating to indexes, options on futures contracts or
indexes and forward commitment transactions shall not constitute borrowing.
2. Purchase the securities of any one issuer, other than the United States
Government or any of its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or that Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities. (As a matter of non-fundamental policy, under normal
conditions, the securities of any one issuer may not exceed 5% of the Select
Equity Fund's net assets at the time of purchase.)
3. Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal
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business activities in the same industry. This limitation does not apply to
investments or obligations of the U.S. Government or any of its agencies or
instrumentalities.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Fund may make margin
deposits in connection with transactions in currencies, options, futures and
options on futures.
6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by a Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for a Fund as a result of the ownership of securities.
9. Invest in commodities except that a Fund may purchase and sell futures
contracts, including those relating to securities, currencies, indexes, and
options on futures contracts or indexes and currencies underlying or related to
any such future contracts, and purchase and sell currencies (and options
thereon) or securities on a forward commitment or delayed-delivery basis as
described in the Prospectus.
10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, a Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the Securities
and Exchange Commission and the Company's Board of Directors.
11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction Nos. 1, 4, 5 and 9.
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In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment policies in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, a Fund may not:
1. Purchase or retain the securities of any issuers if the officers,
directors or partners of the Company, its advisers or managers owning
beneficially more than one-half of 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
2. Purchase the securities of any issuer if by such purchase a Fund would
own more than 10% of the voting securities of such issuer.
3. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the voting securities of any other investment company.
4. Write covered calls or put options with respect to more than 25% of
the value of its net assets, invest more than 25% of its net assets in puts,
calls, spreads or straddles, other than protective put options. The aggregate
value of premiums paid on all options held by a Fund at any time will not
exceed 20% of the Fund's total net assets.
5. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act");
or (b) more than 10% of its net assets in restricted securities (including those
eligible for resale under Rule 144A).
6. Invest in securities of companies having a record together with
predecessors, of less than three years of continuous operation, if more than 5%
of a Fund's total assets would be invested in such securities. This restriction
shall not apply to mortgage-backed securities, asset-basked securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
SMALL CAP FUND
==============
Small Cap Fund may not:
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<PAGE>
(1) Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding 10% of the Fund's total
assets, not including the amount borrowed; while such borrowings exceed 5% of
the Fund's total assets, the Fund will not make any additional investments; and
(b) in connection with the redemption of Fund shares, but only if after each
such borrowing there is asset coverage of at least 300% as defined in the Act.
For purposes of this investment restriction, short sales, the entry into
currency transactions, options, futures contracts, including those relating to
indices, options on futures contracts or indices and forward commitment
transactions shall not constitute borrowing.
(2) Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments or obligations of
the U.S. Government or any of its agencies or instrumentalities.
(3) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
(4) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.
(5) Make short sales of securities, except short sales against-the-box, or
maintain a short position.
(6) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
(7) Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.
(8) Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies
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<PAGE>
or securities on a forward commitment or delayed-delivery basis as described in
the Prospectus.
(9) Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restrictions 1, 3, 4 and 8.
In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of
the Directors of the Company without prior notice to or approval of
shareholders. Accordingly, the Fund may not:
1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.
2. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the voting securities of any other investment company.
3. Write covered calls or put options with respect to more than 25% of
the value of its net assets, invest more than 25% of its net assets in
protective put options or more than 5% of its total assets in puts, calls,
spreads or straddles, or any combination thereof other than protective put
options. The aggregate value of premiums paid on all options held by the Fund
at any time will not exceed 20% of the Fund's total net assets.
4. Invest (a) more than 15% or its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 10%
of its net assets in restricted securities (including those eligible for resale
under Rule 144A).
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<PAGE>
5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.
INTERNATIONAL FUND
==================
International Fund may not:
(1) Borrow money, except from banks on a temporary basis, provided that
the Fund is required to maintain asset coverage of at least 300% for all
borrowings. For purposes of this investment restriction, short sales,
transactions in currency, forward contracts, swaps, options, futures contracts
and options on futures contracts, and forward commitment transactions shall not
constitute borrowing.
(2) Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments in obligations of
the U.S. Government or any of its agencies, instrumentalities, political
subdivisions or authorities.
(3) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
(4) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.
(5) Make short sales of securities, except short sales against-the-box,
or maintain a short position.
(6) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
(7) Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
by the Fund as a result of the ownership of securities.
B-49
<PAGE>
(8) Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies or securities on a forward commitment or
delayed- delivery basis, as described in the Prospectus.
(9) Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act) except as permitted in Investment Restriction No. (1).
In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:
1. Purchase the securities of any issuer if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.
2. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the voting securities of any other investment company.
3. Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads or straddles, other than protective put options.
4. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 10%
of its net assets in restricted securities (including those eligible for resale
under Rule 144A).
B-50
<PAGE>
5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.
6. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.
ASIA GROWTH FUND
================
The Asia Growth Fund may not:
1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding one-third of the Fund's total
assets, including the amount borrowed; (b) in connection with the redemption of
shares of such Fund or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; and (c) in order
to fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets, but only if after each
such borrowing there is asset coverage of at least 300% as defined in the Act.
For purposes of this investment restriction, short sales, the entry into
currency transactions, options, futures contracts, including those relating to
indices, options on futures contracts or indices and forward commitment
transactions shall not constitute borrowing.
2. Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments in obligations of
the U.S. Government or any of its agencies or instrumentalities.
3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
4. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.
5. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
B-51
<PAGE>
6. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
7. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.
8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
9. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may enter into repurchase agreements and may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets.
10. Issue any senior security (as such term is defined in Section 18(f) of
the Act), except as permitted in fundamental investment restrictions 1, 3, 4 and
8.
In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of the Fund's affairs. These represent
intentions of the Directors based upon current circumstances. They differ from
fundamental investment restrictions in that they may be changed or amended by
action of the Directors of the Company without prior notice to or approval of
shareholders. Accordingly, the Fund may not:
1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.
2. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the voting securities of any other investment company.
3. Write covered calls or put options with respect to more than 25% of
the value of its net assets or invest more than 5% of its net assets in puts,
calls, spreads or straddles, other than protective put options. The aggregate
value of premiums paid on
B-52
<PAGE>
all options held by the Fund at any time will not exceed 5% of the Fund's total
assets.
4. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 10% of its net
assets in restricted securities (including those eligible for resale under Rule
144A).
5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.
6. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.
GROWTH AND INCOME FUND
======================
Growth and Income Fund may not:
1. Borrow money, except from banks on a temporary basis in an aggregate
amount not exceeding 10% of the value of the Fund's total assets, provided that
the Fund is required to maintain asset coverage of at least 300% for all
borrowings. For purposes of this investment restriction, forward contracts,
swaps, options, futures contracts and options on futures contracts, and forward
commitment transactions shall not constitute borrowing.
2. Purchase the securities of any one issuer, other than the United States
Government or any of its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities.
3. Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments or obligations of
the U.S. Government or any of its agencies or instrumentalities.
B-53
<PAGE>
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
5. Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.
6. Make short sales of securities (except short sales against-the-box, or
maintain a short position).
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the 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 for the Fund as a result of the ownership of
securities.
9. Invest in commodities except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies and indices, and
options on futures contracts, securities, currencies or indices, and purchase
and sell currencies or securities on a forward commitment or delayed delivery
basis as described in the Prospectus.
10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.
11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction No. 1.
In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment
B-54
<PAGE>
restrictions in that they may be changed or amended by action of the Directors
of the Company without prior notice to or approval of shareholders. Accordingly,
the Fund may not:
1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its investment advisers or managers owning
beneficially more than one-half of 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
2. Write covered calls or put options with respect to more than 25% of
the value of its net assets, invest more than 25% of its net assets in
protective put options or more than 5% of its total assets in puts, calls,
spreads or straddles, or any combination thereof other than protective put
options. The aggregate value of premiums paid on all options other than
protective put options, held by the Fund at any time will not exceed 5% of the
Fund's total net assets.
3. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 10%
of its net assets in restricted securities (including those eligible for resale
under Rule 144A).
4. Purchase additional securities while the Fund's borrowings exceed 5% of
its total assets.
BALANCED FUND
=============
The Balanced Fund may not:
1. Borrow money, except (a) from banks for temporary or emergency
purposes or for clearance of transactions in amounts not exceeding one-third of
the Fund's total assets, including the amount borrowed; (b) in connection with
the redemption of shares of such Fund or to finance failed settlements of
portfolio trades without immediately liquidating portfolio securities or other
assets; (c) in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities or assets
and (d) transactions in mortgage dollar rolls which are accounted for as
financings, but only if after each such borrowing there is asset coverage of at
least 300% as defined in the Act. For purposes of this investment restriction,
short sales, currency transactions, forward contracts, currency, mortgage, index
and interest rate swaps, interest rate caps, floors and collars, options,
futures contracts, options on
B-55
<PAGE>
futures contracts or indices and forward commitment transactions shall not
constitute borrowing.
2. Purchase the securities of any one issuer, other than the U.S.
Government or any or its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repur chase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities.
3. Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments or obligations of
the U.S. Government or any of its agencies or instrumentalities.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures and
options on futures.
6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts,
B-56
<PAGE>
securities, currencies or indices, and purchase and sell currencies or
securities on a forward commitment or delayed-delivery basis.
10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may enter into repurchase agreements and may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets.
11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction Nos. 1, 4, 5 and 9.
In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of
the Directors of the Company without prior notice to or approval of
shareholders. Accordingly, the Fund may not:
1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.
2. Write covered calls or put options with respect to more than 25% of
the value of its net assets or invest more than 5% of its net assets in puts,
calls, spreads or straddles, other than protective put options. The aggregate
value of premiums paid on all options, other than protective puts, held by the
Fund at any time will not exceed 5% of the Fund's total net assets.
3. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 10%
of its net assets in restricted securities (including those eligible for resale
under Rule 144A).
4. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.
5. Invest in securities of companies having a record together with
predecessors, of less than three years of continuous operation, if more than 5%
of a Fund's total assets would be
B-57
<PAGE>
invested in such securities. This restriction shall not apply to mortgage-
backed securities, asset-basked securities or obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
For purposes of the foregoing limitations, with respect to each Fund any
limitation which involves a maximum percentage will not be violated unless an
excess over the percentage occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of, or borrowings by, a Fund.
With respect to each Fund's fundamental investment restriction regarding
borrowings, the Fund must maintain asset coverage of at least 300% (as defined
in the Act), inclusive of any amounts borrowed.
MANAGEMENT
Information pertaining to the Board of Directors and officers of the Company
is set forth below. Directors and officers deemed to be "interested persons" of
the Company for purposes of the Act are indicated by an asterisk.
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
Paul C. Nagel, Jr. 72; Chairman; Retired. Director and
19223 Riverside Dr. Chairman of the Finance and Audit
Tequesta, FL 33469 Committees, Great Atlantic & Pacific Tea Co., Inc.;
Director, United Conveyor Construction.
Ashok N. Bakhru 52; Director; President, ABN Associates,
1235 Westlakes Inc. since June 1994. Retired, Senior
Drive, Suite 385 Vice President of Scott Paper Company;
Berwyn, PA 19312 Director of Arkwright Mutual Insurance Company; Trustee of
International House of Philadelphia; Member of Cornell
University Council; Trustee of the Walnut Street Theatre.
*Marcia L. Beck 39; President and Director; Director
One New York Plaza Institutional Funds Group, GSAM (since
New York, NY 10004 September 1992); Vice President and Senior Portfolio
Manager, (GSAM from June 1988 to present).
B-58
<PAGE>
*David B. Ford 49; Director; General Partner, Goldman
One New Plaza Sachs, since 1986. Chairman and Chief
New York, NY 10004 Executive Officer of GSAM since December
1994.
*Alan A. Shuch 45; Director; Director and Vice President
One New York Plaza of Goldman Sachs Fund Management, Inc.
New York, NY 1004 (from April 1990 to November 1994);
President and Chief Operating Officer, GSAM (from
September 1988 to November 1994); Limited Partner, Goldman
Sachs (since December 1994).
B-59
<PAGE>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
Jackson W. Smart 64; Director; Chairman and Chief Executive
One Northfield Plaza Officer, MSP Communications Inc. (a company
#218 engaged in radio broadcasting) (since
Northfield, IL November 1988); Consultant, Thomas
60093 Industries, Inc. (a manufacturer of lighting fixtures, home
decorations and hardware items) (August 1987 to November
1988); Chairman and member of Executive Committee,
Thomas Industries, Inc. (October 1983 to August 1987);
Director, Federal Express Corporation; Director, North
American Private Equity Group (a venture capital
fund).
William H. Springer 65; Director; Vice Chairman of Ameritech
701 Morningside Dr. (a telecommunications holding company;
Lake Forest, IL February 1987 to retirement in August
60045 1992); Vice Chairman, Chief Financial and Administrative
Officer, Ameritech (prior thereto); Director, American
Information Technologies corporation; Director Walgreen
Co. (a retail drugstore business); Director of Baker,
Fentress & Co. (a closed-ended, non-diversified management
investment company).
Richard P. Strubel 55; Director; Managing Director, Tandem
70 West Madison St. Partners, Inc. (since 1990); President
Suite 1400 and Chief Executive Officer, Microdot,
Chicago, IL 60602 Inc. (a diversified manufacturer of
fastening systems and connectors)
(January 1984 to October 1994).
*Scott M. Gilman 35; Treasurer; Director, Mutual Funds
One New York Plaza Administration, GSAM (since April 1994);
New York, NY 10004 Assistant Treasurer of Goldman Sachs Funds Management, Inc.
(since March 1993); Vice President, Goldman Sachs (since
March 1990); Assistant Treasurer of the Company
(April 1990 to October 1991); formerly Manager, Arthur
Andersen LLP (prior to March 1990).
*Pauline Taylor 48; Vice President; Vice President of
4900 Sears Tower Goldman Sachs (since June 1992);
Chicago, IL 60606 Consultant (1989 to June 1992); Senior
Vice President of Fidelity Investments (prior to
1989).
B-60
<PAGE>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
*John W. Mosior 56; Vice President; Vice President,
4900 Sears Tower Goldman Sachs, and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group.
*Nancy L. Mucker 45; Vice President; Vice President, Goldman
4900 Sears Tower Sachs, and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group.
*Michael J. Richman 34; Secretary; Vice President and Assistant
85 Broad Street General Counsel of Goldman Sachs (since
New York, NY 10004 June 1992); Associate General Counsel to
the Funds Group, GSAM (since February 1994); Partner,
Hale and Dorr (September 1991 to June 1992); Attorney-at-
law, Gaston & Snow (September 1985 to September 1991).
*Howard B. Surloff 29; Assistant Secretary; Counsel and Vice
85 Broad Street President, Goldman Sachs (since November
New York, NY 10004 1993 and May 1994, respectively); Counsel to the Funds
Group of GSAM (since November 1993); Formerly Associate of
Shereff Friedman, Hoffman & Goodman (prior thereto).
*Steven E. Hartstein 31; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs (June 1993 to
New York, NY 10004 present); Funds Compliance Officer, Citibank Global Asset
Management (August 1991 to June 1993); Legal Assistant,
Brown & Wood (prior thereto).
*Gail M. Shanley 26; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs since June
New York, NY 10004 1994. Formerly Blue Sky Legal Assistant at Smith Barney
Shearson.
_____________
* "Interested person" of the Company for purposes of the Act.
The Company's Directors and officers hold comparable positions with certain
other investment companies of which the Advisers or Goldman Sachs are the
investment adviser, administrator, and/or distributor. As of April 27, 1995,
the Directors and officers of the Company as a group owned less than 1% of the
outstanding shares of common stock of each of the Funds.
B-61
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Director of the Company for the one-year period ended
January 31, 1995:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits from Goldman Sachs
Compensation Accrued as Mutual Funds
from the Part of Company's (including
Name of Trustee Company Expenses the Company)*
=============== ============ ================= ==================
<S> <C> <C> <C>
Paul C. Nagel, Jr. $13,065 $0 $101,000
Ashok N. Bakhru 7,865 0 61,000
Marcia L. Beck 0 0 0
David B. Ford 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart 7,865 0 61,000
William H. Springer 7,865 0 61,000
Richard P. Strubel 7,865 0 61,000
</TABLE>
______________
* The Goldman Sachs Mutual Funds consisted of 32 mutual funds, including the
seven series of the Company, on January 31, 1995.
ADVISORY AND ADMINISTRATIVE SERVICES
====================================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York,
New York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85
Broad Street, New York, New York, serves as investment adviser to Capital Growth
Fund and Select Equity Fund. GSAM, One New York Plaza, New York, New York, a
separate operating division of Goldman Sachs, serves as investment adviser to
Small Cap Fund, International Fund, Balanced Fund and Growth and Income
Fund. GSAMI, 140 Fleet Street, London, England, EC4A 2BJ acts as the
Investment Adviser and Subadviser to Asia Growth Fund and International Fund,
respectively. GSAM serves as administrator to each Fund pursuant to an
administration agreement. See "Management" in the Funds' Prospectus for a
description of the applicable Adviser's duties as investment adviser or
subadviser and GSAM's duties as administrator to the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades
B-62
<PAGE>
and makes markets in a wide range of equity and debt securities 24-hours a day.
The firm is headquartered in New York and has offices throughout the U.S. and in
Beijing, Frankfurt, George Town, Hong Kong, London, Madrid, Milan, Montreal,
Osaka, Paris, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto,
Vancouver and Zurich. It has trading professionals throughout the United States,
as well as in London, Tokyo, Hong Kong and Singapore. The active participation
of Goldman Sachs in the world's financial markets enhances its ability to
identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $120
million, Goldman Sachs' Investment Research Department covers approximately
1,700 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 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 portfolios of Funds, GSAM and GSAMI 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 the
Institutional Investor's annual "All British Research Team Survey" in the
following categories: Economics (U.K.) 1986-1993; Economics/International 1989-
1993; and Currency Forecasting 1986-1993. In addition, the team has also earned
top rankings in the annual "Extel Financial Survey" of U.K. investment managers
in the following categories: U.K. Economy 1989-1994; International Economies
1986, 1988-1994; and Currency Movements 1986-1993.
In allocating assets in International Fund's portfolio among various
currencies, GSAM and GSAMI 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,
B-63
<PAGE>
will adjust until investors globally are comfortable holding the pool of
outstanding assets. Using the model, GSAM and GSAMI 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 the International Fund's investment objective and criteria.
Each Fund's investment advisory agreement and administration agreement and
International Fund's subadvisory agreement provides that the Adviser and GSAM,
respectively, may render similar services to others as long as the services
provided by the Adviser and GSAM thereunder are not impaired thereby.
The Funds' advisory agreements were most recently approved by the
Directors of the Company, including a majority of the Directors of the Company
who are not parties to the investment advisory agreement or "interested persons"
(as such term is defined in the Act) of any party thereto (the "non-interested
Directors"), on April 26, 1995. These arrangements were most recently approved
by the shareholders of Capital Growth Fund and Select Equity Fund, at
shareholders' meetings held on November 27, 1991 and by the sole initial
shareholder of each of Small Cap Fund, International Fund, Growth and Income
Fund, Asia Growth Fund and Balanced Fund on September 16, 1992, October 23,
1992, January 29, 1993, June 1, 1994 and October 4, 1994, respectively. Each
Fund's agreement will remain in effect until June 30, 1996 and 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 Directors of the Company, and (b) the vote of a
majority of the non-interested Directors of the Company, cast in person at a
meeting called for the purpose of voting on such approval. Each advisory
agreement will terminate automatically if assigned (as defined in the Act) and
is terminable at any time without penalty by the Directors of the Company or by
vote of a majority of the outstanding voting securities of the affected
Fund on 60 days' written notice to the Adviser and by the Adviser on 60
days' written notice to the Company.
Pursuant to the advisory agreements for Small Cap Fund, International Fund,
Growth and Income Fund and Balanced Fund, GSAM is entitled to receive a fee
payable monthly by such Funds equal on an annual basis to 0.75%, 0.25%, 0.55%
and 0.50%, respectively, of such Funds' average daily net assets.
Pursuant to the advisory agreements for Capital Growth Fund and Select
Equity Fund, GSFM is entitled to receive a fee payable monthly by such Funds
equal on an annual basis to 0.75% and 0.50%,
B-64
<PAGE>
respectively, of such Fund's average daily net assets. GSFM voluntarily has
agreed to limit its advisory fee with respect to Select Equity Fund to an annual
rate equal to 0.40% of Select Equity Fund's average daily net assets. Although
it has no current intention to do so, GSFM may modify or discontinue such
limitation in the future at its discretion.
Pursuant to a separate Subadvisory Agreement with GSAMI and GSAM, the
International Fund pays GSAMI a monthly subadvisory fee equal on an annual basis
to 0.50% of such Fund's average daily net assets. The fee paid by International
Fund to GSAMI is in addition to the fee it pays to GSAM for advisory
services.
Pursuant to Asia Growth Fund's advisory agreement, GSAMI is entitled to
receive a fee payable monthly by the Fund equal on an annual basis to 0.75% of
the Fund's average daily net assets.
For the last three fiscal years the amounts of the investment advisory fees
incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
==== ==== ====
<S> <C> <C> <C>
Balanced Fund/1/ $ 6,814 $ N/A $ N/A
Select Equity Fund/2/ 462,255 475,941 662,844
Growth and Income Fund/3/ 621,416 100,926 N/A
Capital Growth Fund 6,543,621 5,469,962 4,096,495
Small Cap Fund 2,539,424 941,891 83,455
International Fund 796,627 331,134 25,607
Asia Growth Fund/4/ 414,813 N/A N/A
</TABLE>
- ----------------------------
1 Commenced operations on October 12, 1994.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM to limit advisory fees to 0.40% of Select Equity
Fund's average daily net assets.
3 Commenced operations on February 5, 1993.
4 Commenced operations on July 8, 1994.
For the fiscal period from December 1, 1992 (commencement of operations)
through January 31, 1993 and for the fiscal years ended January 31, 1994 and
January 31, 1995, International Fund paid GSAMI subadvisory fees of $51,214,
$662,267 and $1,593,255, respectively.
Pursuant to the administration agreements, GSAM's administrative
responsibilities include, subject to the general supervision of the Directors of
the Company, (a) providing supervision of all aspects of the Company's non-
investment operations (the parties giving due recognition to the fact that
B-65
<PAGE>
certain of such operations are performed by others pursuant to agreements with
each Fund), (b) providing the Company, to the extent not provided pursuant to
its custodian and transfer agency agreements or agreements with other
institutions, with personnel to perform such executive, administrative and
clerical services as are reasonably necessary to provide effective
administration of the Company, (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at the Company's expense, of
its tax returns, reports to shareholders, periodic updating of the prospectuses
and reports filed with the SEC and other regulatory authorities, (d) providing
the Company, to the extent not provided pursuant to such agreements, with
adequate office space and certain related office equipment and services, and (e)
maintaining all of the Company's records other than those maintained pursuant to
such agreements.
GSAM voluntarily has agreed to limit its administration fee with respect
to Select Equity Fund to an annual rate equal to 0.15% of Select Equity Fund's
average daily net assets. Although it has no current intention to do so, GSAM
may modify or discontinue such limitation in the future at its discretion.
For the last three fiscal years the amounts of the administration fees
paid by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
==== ==== ====
<S> <C> <C> <C>
Balanced Fund/1/ $ 2,044 $ N/A $ N/A
Select Equity Fund/2/ 231,128 237,970 331,422
Growth and Income Fund/3/ 169,477 27,525 N/A
Capital Growth Fund 2,181,207 1,823,321 1,365,498
Small Cap Fund 846,475 313,964 27,818
International Fund 796,627 331,134 25,607
Asia Growth Fund/4/ 138,271 N/A N/A
</TABLE>
- -----------------------------
1 Commenced operations on October 12, 1994.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSAM to limit Select Equity Fund's administration fee to
0.15% of the Fund's average daily net assets.
3 Commenced operations on February 5, 1993.
4 Commenced operations on July 8, 1994.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman
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<PAGE>
Sachs may present conflicts of interest with respect to the Funds or impede
their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek to
purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers will not initiate or
recommend certain types of transactions in certain securities or instruments
with respect to which the Advisers and/or their affiliates are performing
services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs nor
any of its affiliates will have any obligation to make available any information
regarding their proprietary activities or strategies, or the activities or
strategies used for other accounts managed by them, for the benefit of the
management of the Funds and it is not anticipated that the Advisers will have
access to such information for the purpose of managing the Funds.
B-67
<PAGE>
The proprietary activities or portfolio strategies of Goldman Sachs and its
affiliates or the activities or strategies used for accounts managed by them or
other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by a Fund. Moreover, it is possible that a Fund will sustain losses during
periods in which Goldman Sachs and its affiliates achieve significant profits on
their trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding a Fund's
activities, but will not be involved in the day-to-day management of such Fund.
In such instances, those individuals may, as a result, obtain information
regarding the Fund's proposed investment activities which is not generally
available to the public. In addition, by virtue of their affiliation with
Goldman Sachs, any such member of an investment policy committee will have
direct or indirect interests in the activities of Goldman Sachs and its
affiliates in securities and investments similar to those in which the Fund
invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund in which customers of Goldman Sachs serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and
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<PAGE>
its affiliates may also create, write or issue derivative instruments for
customers of Goldman Sachs or its affiliates, the underlying securities or
instruments of which may be those in which a Fund invests or which may be based
on the performance of a Fund. The Funds may, subject to applicable law, purchase
investments which are the subject of an underwriting or other distribution by
Goldman Sachs or its affiliates and may also enter transactions with other
clients of Goldman Sachs or its affiliates where such other clients have
interests adverse to those of the Funds. 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 Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Company dated February 1, 1993. Pursuant to the distribution agreement,
after the Prospectus and
B-69
<PAGE>
periodic reports have been prepared, set in type and mailed to shareholders,
Goldman Sachs will pay for the printing and distribution of copies thereof used
in connection with the offering to prospective investors. Goldman Sachs will
also pay for other supplementary sales literature and advertising costs. Goldman
Sachs may enter into sales agreements with certain investment dealers and other
financial service firms (the "Authorized Dealers") to solicit subscriptions for
Class A Shares of the Funds.
For the last three fiscal years the amounts of the sales load retained by
Goldman Sachs for each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
==== ==== ====
<S> <C> <C> <C>
Balanced Fund/1/ $ 14,000 $ N/A $ N/A
Select Equity Fund 58,000 37,000 111,000
Growth and Income Fund/2/ 361,000 59,000 N/A
Capital Growth Fund 815,000 859,000 796,000
Small Cap Fund 868,000 1,035,000 456,000
International Fund 660,000 1,121,000 815,000
Asia Growth Fund/3/ 829,000 N/A N/A
</TABLE>
- ----------
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on July 8, 1994.
Goldman Sachs serves as the Company's transfer agent. Under its transfer
agency agreement with the Company, Goldman Sachs has undertaken with the Company
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 Company's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Company by Goldman Sachs as transfer agent and the assumption by Goldman Sachs
of the expenses related thereto, Goldman Sachs is entitled to receive a fee with
respect to each Fund (other than Select Equity Fund) equal to $12,000 per year
plus $3.50 per account, together with out-of-pocket and transaction-related
expenses (including those out-of-pocket expenses payable to servicing agents).
Select Equity Fund pays Goldman Sachs a fee for transfer agency services
at the foregoing rate with respect to its Class A shares and at a rate equal to
0.04% of Select Equity Fund's average
B-70
<PAGE>
daily net assets attributable to its Institutional Shares and Administrative
Shares. The transfer agency fees paid by Select Equity Fund with respect to a
particular class are allocated to the shares of such class.
B-71
<PAGE>
For the last three fiscal years the amounts paid to Goldman Sachs by each Fund
then in existence for transfer agency services performed were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
==== ==== ====
<S> <C> <C> <C>
Balanced Fund/1/ $ 20,000 $ N/A $ N/A
Select Equity Fund 151,230 111,104 115,697
Growth and Income Fund/2/ 262,158 74,053 N/A
Capital Growth Fund 694,014 498,169 382,909
Small Cap Fund 600,618 142,256 23,584
International Fund 481,169 150,203 13,174
Asia Growth Fund/3/ 120,000 N/A N/A
</TABLE>
- -------------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on July 8, 1994.
The Company'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 Company will indemnify Goldman Sachs against certain
liabilities.
DISTRIBUTION PLAN
=================
As described in the Prospectus, each Fund has adopted a distribution plan,
(the "Distribution Plans") pursuant to Rule 12b-1 under the Act. Select Equity
Fund's Distribution Plan is only applicable to its Class A Shares. See
"Distribution and Authorized Dealer Service Plan" in the Prospectus. Each Plan
was amended as of June 1, 1995.
The Distribution Plans have been approved by a majority vote of Directors
of the Company, including a majority of the non-interested Directors of the
Company who have no direct or indirect financial interest in the Distribution
Plan, cast in person at a meeting called for the purpose of approving the
Distribution Plans. The compensation payable under each Distribution Plan may
not exceed 0.25% per annum of each Fund's average daily net assets.
Goldman Sachs is currently waiving its entire fee under each Distribution
Plan, other than Select Equity Fund's Distribution Plan. Select Equity Fund is
currently paying a fee under its Distribution Plan equal to 0.25% of its average
daily net assets attributable to its Class A shares. Goldman Sachs has no
current intention of modifying or discontinuing its fee waiver for the other
Funds but may do so in the future at its discretion.
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<PAGE>
Each Distribution Plan was amended effective June 1, 1995 to reduce the fee
payable under the Distribution Plan from 0.50% of average daily net assets to
0.25% of average daily net assets and to discontinue the provision of personal
and account maintenance services under the Distribution Plan. At the time of
such amendment the Board of Directors approved the authorized dealer service
plan pursuant to which personal and account maintenance services are provided.
See "Management --Authorized Dealer Service Plans."
For the fiscal year ended January 31, 1995 the amounts paid to Goldman
Sachs pursuant to its Distribution Plan by each Fund then in existence were as
follows:
<TABLE>
<CAPTION>
1995
====
<S> <C>
Balanced Fund/1/ $ 3,407
Select Equity Fund 231,128
Growth and Income Fund 282,462
Capital Growth Fund 2,181,207
Small Cap Fund 846,475
International Fund 796,627
Asia Growth Fund/2/ 138,271
</TABLE>
- -----------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on July 8, 1994.
Prior to June 1,1995, Goldman Sachs limited its fees under each Fund's
Distribution Plan to 0.25% of the Fund's average daily net assets. Had Goldman
Sachs' voluntary limitation not been in effect, Balanced Fund, Select Equity
Fund, Growth and Income Fund, Capital Growth Fund, Small Cap Fund, International
Fund and Asia Growth Fund would have paid Goldman Sachs $6,814, $462,256,
$564,924, $4,362,414, $1,692,950, $1,593,254 and $276,542, respectively during
1995 pursuant to their respective Distribution Plans.
B-73
<PAGE>
During the fiscal year ended January 31, 1995, Goldman Sachs incurred the
following expenses in connection with distribution and personal and account
maintenance services under the Distribution Plan of each Fund then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
To Dealers Personnel Expenses Shareholders Advertising
============ =========== ============ ============ ==============
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995:
Balanced Fund/1/ $ 0 $ 34,041 $ 54,000 $19,793 $ 46,283
Select Equity Fund 69,700 153,548 200,666 52,056 57,990
Growth and Income Fund 248,392 436,608 679,500 70,948 194,495
Capital Growth Fund 664,352 1,471,380 1,231,000 89,551 200,397
Small Cap Fund 259,502 941,292 924,333 71,367 162,553
International Fund 211,627 840,795 641,333 77,491 122,914
Asia Growth Fund/2/ 0 318,510 364,000 43,797 75,561
</TABLE>
- ----------
/1/ Commenced operation on October 12, 1994.
/2/ Commenced operation on July 8, 1994.
B-74
<PAGE>
The Distribution Plans are compensation plans which provide for the payment
of a specified fee without regard to the expenses actually incurred by Goldman
Sachs. If such fee exceeds its expenses, Goldman Sachs may realize a profit from
these arrangements. If the Distribution Plans were terminated by the Directors
of the Company and no successor plans were adopted, each Fund would cease to
make payments to Goldman Sachs under the Distribution Plans and Goldman Sachs
would be unable to recover the amount of any of its unreimbursed distribution
expenditures.
Under the Distribution Plans, Goldman Sachs, as distributor of each Fund's
shares, will provide to the Directors of the Company for their review, and the
Directors of the Company 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 Distribution Plans will remain in effect until June 1, 1996 and from
year to year thereafter, provided that the continuance of each Distribution Plan
is approved annually by a majority vote of the Directors of the Company,
including a majority of the non-interested Directors of the Company who have no
direct or indirect financial interest in the Distribution Plan. The Distribution
Plans may not be amended to increase materially the amount to be spent for the
services described therein as to a Fund without approval of a majority of the
outstanding voting securities of the affected Fund. All material amendments of
the Distribution Plans must also be approved by the Directors of the Company in
the manner described above. The Distribution Plans may be terminated at any time
as to any Fund without payment of any penalty by a vote of a majority of the
non-interested Directors of the Company or by vote of a majority of the
outstanding voting securities of the affected Distribution Plan. So long as the
Distribution Plans are in effect, the selection and nomination of non-interested
Directors of the Company shall be committed to the discretion of the non-
interested Directors. The Directors of the Company have determined that in their
judgment there is a reasonable likelihood that the Distribution Plan will
benefit the Funds and their shareholders.
The Funds' Distribution Plans were most recently approved by the Directors
of the Company, including the non-interested Directors at a meeting held on
April 27, 1995. The Distribution Plans for Capital Growth Fund and Select Equity
Fund were most recently approved by shareholders at a meeting held on November
27, 1991. The Distribution Plans for each of Small Cap Fund, International Fund,
Growth and Income Fund, Asia Growth Fund and Balanced Fund were approved by its
sole initial shareholder on September 16, 1992, October 23, 1992, January 29,
1993, June 1, 1994 and October 4, 1994, respectively.
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<PAGE>
AUTHORIZED DEALER SERVICE PLAN
==============================
As described in the prospectus, each Fund has adopted a non- Rule 12b-1
Authorized Dealer Service Plan (the "Service Plan") pursuant to which Goldman
Sachs and Authorized Dealers are compensated for the provision of personal and
account maintenance services. Each Service Plan has been approved by the Board
of Directors, including a majority of the non-interested Directors who have no
direct or indirect financial interest in the Service Plan, at a meeting held on
April 26, 1995. Each Fund's Service Plan provides for the compensation for
personal and account maintenance services at an annual rate of up to 0.25% of
the Fund's average daily net assets, or in the case of Select Equity Fund,
average daily net assets attributable to its Class A shares.
The Service Plans will remain in effect until June 1, 1996 and from year to
year thereafter, provided that the continuance of each service plan is approved
annually by a majority vote of the Directors of the Company, including a
majority of the non-interested Directors who have no direct or indirect
financial interest in the Service Plans. All material amendments of the
Service Plans must also be approved by the Directors of the Company in the
manner described above. The Service Plans may be terminated at any time as to
any Fund without payment of any penalty by a vote of a majority of the non-
interested Directors of the Company or by vote of a majority of the outstanding
voting securities of the affected Fund. The Directors of the Company have
determined that in their judgment there is a reasonable likelihood that the
Service Plans will benefit the Funds and their shareholders.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Company is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees payable to GSAM, the fees
and expenses payable to the Company's custodian and subcustodians, transfer
agent fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Company's shares under federal or state securities laws,
expenses of the organization of the Company, fees and expenses incurred by the
Company 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 Company 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 Company), 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 Company's
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<PAGE>
shareholders and regulatory authorities, any expenses assumed by a Fund pursuant
to its distribution, authorized dealer service and administration plans,
compensation and expenses of its "non-interested" Directors and extraordinary
expenses, if any, incurred by the Company. In the case of Select Equity Fund,
the fees under authorized dealer service, distribution and administration plans
and transfer agency fees are allocated to the class to which such expenses
relate.
The Adviser has voluntarily agreed to reduce or limit certain "Other
Expenses" of the Balanced, Select Equity, Asia Growth and Growth and Income
Funds (excluding advisory, administration, distribution and authorized dealer
service fees, and in the case of Select Equity Fund, transfer agency fees,
taxes, interest, brokerage fees and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed 0.10% of the average
daily net assets of Balanced Fund, 0.06% of the average net assets of Select
Equity Fund, 0.30% of the average daily net assets of Growth and Income Fund and
0.65% of the average daily net assets of Asia Growth Fund. Such reductions or
limits, if any, are calculated monthly on a cumulative basis and may be
discontinued or modified by the Adviser at 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 appicable Adviser's costs of
performing certain accounting services not being provided by a Fund's
Custodian.
For the last three fiscal years the amounts of the expenses of each Fund
then in existence that were reduced or otherwise limited were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
==== ==== ====
<S> <C> <C> <C>
Balanced Fund/1/ $ 95,906 $ N/A $ N/A
Growth and Income Fund/2/ 106,725 319,899 N/A
Small Cap Fund N/A 0 89,147
International Fund N/A 0 53,775
Asia Growth Fund/3/ 135,905 N/A N/A
</TABLE>
______________________________
/1/ Commenced operations on October 12, 1994.
/2/ Commenced operations on February 5, 1993.
/3/ Commenced operations on July 8, 1994.
Each Adviser has voluntarily agreed to reduce the fees
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<PAGE>
payable to it by a Fund (to the extent of its fees) by an amount (if any) that
the Fund's expenses would exceed the expense limitations applicable to such Fund
imposed by states securities administrators, as such limitations may be lowered
or raised from time to time. These expense limitations apply to the advisory and
administration fees paid by each Fund and the subadvisory fees paid by
International Fund, but do not apply to taxes, interest, brokerage, fees and
distribution, authorized dealer service and administration fees and, where
permitted, extraordinary expenses such as for litigation. The Advisers will
reduce their respective fees by the amount of such excess in amounts
proportionate to such investment advisory, administration and subadvisory fees.
Currently, the most restrictive expense limitation of state securities
commissions of which the Company is aware is 2-1/2% of a Fund's average daily
net assets up to $30 million, 2% of the next $70 million of such assets and 1-
1/2% of such assets in excess of $100 million.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Company's portfolio securities and cash. State Street also maintains
the Company's accounting records. State Street may appoint sub-custodians from
time to time to hold certain securities purchased by the Company and to hold
cash for the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
Arthur Andersen LLP, independent public accountants, One International
Place, Boston, Massachusetts 02110, have been selected as auditors of the
Company. In addition to audit services, Arthur Andersen LLP prepares the
Company's federal and state tax returns, and provides consultation and
assistance on accounting, internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
negotiated 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
B-78
<PAGE>
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. A Fund will not deal with Goldman Sachs in any transaction in which
Goldman Sachs acts as principal.
In placing orders for portfolio securities of a Fund, the Advisers are
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that an Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Advisers will consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of a Fund, the Advisers and their affiliates, or their other
clients. Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Advisers in connection with all of their investment
activities, and some of such services obtained in connection with the execution
of transactions for a Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than those of a Fund, and the services furnished by such brokers may be used by
the Advisers in providing investment advisory services for the Company.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the applicable Adviser in
the manner it considers to be most 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 are established pursuant to negotiations with the broker
based on the quality and quantity of execution services
B-79
<PAGE>
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 Directors of the Company.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs 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 Directors of the Company, including a majority of
the Directors who are not "interested" Directors, 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.
In addition, Goldman Sachs, as a member firm of the New York Stock Exchange
may effect exchange transactions and receive compensation therefor if expressly
so authorized in a written contract with the Company. The Company, on behalf of
each Fund, has entered into such a contract with Goldman Sachs. Goldman Sachs
will provide the Company at least annually with a statement setting forth the
total amount of all compensation retained by Goldman Sachs in connection with
effecting transactions for the accounts of the Funds. The Directors of the
Company will review and approve all the Funds' portfolio transactions with
Goldman Sachs and the compensation received by Goldman Sachs in connection
therewith. The Company, of course, will effect its portfolio transactions in a
manner consistent with all applicable laws.
B-80
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995:
Balanced Fund/(1)/ $ 9,652 $ 1,522(16%)/2/ $ 7,216,224(10%)/3/ 0
Select Equity Fund 119,192 0(0%)/2/ 99,616,396(0%)/3/ 0
Growth and Income
Fund 637,080 77,404(12%)/2/ 468,165,610(7%)/3/ 0
Capital Growth Fund 1,427,413 273,076(19%)/2/ 786,135,073(13%)/3/ 0
Small Cap Fund 555,667 23,137(4%)/2/ 392,235,715(2%)/3/ 0
International Fund 1,799,525 0(0%)/2/ 546,364,113(0%)/3/ 0
Asia Growth Fund/(4)/ 1,002,148 67,754(7%)/2/ 171,880,775(2%)/3/ 0
</TABLE>
B-81
<PAGE>
<TABLE>
<CAPTION>
Total Brokerage
Amount of Commissions
Total Total Brokerage Transactions Paid
Brokerage Commissions Paid on Which to Brokers
Commissions to Affiliated Commissions Providing
Paid Persons Paid Research
============= ================ ============ ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1994:
Select Equity Fund $ 187,041 $ 3,857(2%)/(2)/ $306,043,566(1%)/(3)/ -0-
Growth and
Income Fund/(5)/ 2,974,075 274,704(9%)/(2)/ 74,091,306(27%)/(3)/ -0-
Capital Growth Fund 1,448,921 225,448(16%)/(2)/ 652,557,899(12%)/(3)/ -0-
Small Cap Fund 448,145 27,826(6%)/(2)/ 520,543,798(1%)/(3)/ -0-
International Fund 765,594 -0-(0%)/(2)/ 202,360,486(0%)/(3)/ -0-
</TABLE>
B-82
<PAGE>
<TABLE>
<CAPTION>
Amount of Commissions
Total Total Brokerage Transactions Paid
Brokerage Commissions Paid on Which to Brokers
Commissions to Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ============ ===========
<S> <C> <C> <C> <C>
Commissions
Fiscal Year Ended
January 31, 1993:
Select Equity Fund $ 466,732 $ 99,522(21%)/(2)/ $ 83,349,921(21%)/(3)/ -0-
Capital Growth Fund 2,211,707 346,972(16)/(2)/ 124,894,275(19%)/(3)/ -0-
Small Cap Fund/(6)/ 59,030 8,379(14%)/(2)/ 2,208,078(5%)/(3)/ -0-
International Fund/(7)/ 124,560 0(0%)/(2)/ 0(0%)/(3)/ -0-
</TABLE>
==========
1 Balanced Fund commenced operations on October 12, 1994.
2 Percentage of total commissions paid.
3 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
4 Asia Growth Fund commenced operations on July 8, 1994.
5 Growth and Income Fund commenced operations on February 5, 1993.
6 Small Cap Fund commenced operations on October 22, 1992.
7 International Fund commenced operations on December 1, 1992.
B-83
<PAGE>
During the fiscal year ended January 31, 1995, the Company acquired and sold
securities of its regular broker-dealers: Daiwa Securities, Kidder Peabody &
Co., Lehman Brothers, Chemical Securities, United Bank of Switzerland,Sanwa
Securities, Swiss Bank Corp., JP Morgan & Co., Bankers Trust Company and
NationsBank Corp. As of January 31, 1995, the Company held the following amounts
of securities of its regular broker/dealers, as defined in Rule 10b-1 under the
Act, or their parents ($ in thousands): Capital Growth Fund and Small Cap Fund
owned securities issued by Swiss Bank Corp. in the amounts of $51,409 and
$12,673, respectively. The Select Equity Fund owned securities issued by Swiss
Bank Corp. and NationsBank Corp. in the amounts of $2,144 and $1,321,
respectively. The Growth and Income Fund owned securities issued by Lehman
Brothers, Chemical Securities and Swiss Bank Corp. in the amounts of $2,305,
$758 and $15,588, respectively. The Balanced Fund owned securities issued by
Bankers Trust Company, Chemical Securities and Lehman Brothers in the amounts of
$50, $12, and $250, respectively.
NET ASSET VALUE
Under the Act, the Directors of the Company are responsible for determining
in good faith the fair value of securities of each Fund. In accordance with
procedures adopted by the Directors of the Company, the net value per share of
each class of each Fund is calculated by determining the value of the net assets
attributable to each class of that Fund and dividing by the number of
outstanding shares of that class. All securities are valued as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. New York
time) on each Business Day (as defined in the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Directors of the Company will
reconsider the time at which net asset value is computed. In addition, each
Fund may compute its net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations are
available are valued as follows: (a) securities listed on any U.S. or foreign
stock exchange or on the Nasdaq National Market ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the mean
between the closing bid and asked prices; and (ii) on a foreign exchange will be
valued at the last sale price (also referred to as the close price). The last
sale
B-84
<PAGE>
price for securities traded principally on a foreign exchange will be determined
as of the close of the London Stock Exchange or, for securities traded on
exchanges located in the Asia Pacific region, noon London time; (b) 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 mean between the last bid and
asked price; (c) exchange traded options and futures contracts will be valued at
the last sale price in the market where such contracts are principally traded;
(d) forward foreign currency exchange contracts will be valued using a pricing
service (such as Reuters), then calculating the mean between the last bid and
asked quotations supplied by certain independent dealers in such contracts; (e)
debt securities, other than money market instruments, will be valued on the
basis of dealer-supplied quotations or by using a pricing service approved by
the Board of Directors if such prices are believed by the Adviser to accurately
represent market value; money market instruments, which are defined as those
debt securities with a remaining maturity of 60 days or less, will be valued at
amortized cost; (f) overnight repurchase agreements will be valued at cost and
term repurchase agreements will be valued at the average of bid quotations
obtained daily from at least two recognized dealers; (g) OTC and exchange traded
options will be valued by an independent unaffiliated broker identified by the
portfolio manager/trader and contacted by the custodian bank; and (h) all other
securities, including those for which a pricing service supplies no quotation or
a quotation that is believed by the portfolio manager/trader to be inaccurate,
will be valued at fair value in accordance with procedures established by the
Board of Directors of the Company.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each business day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the New York Stock Exchange will not be reflected in a Fund's calculation of net
asset values unless the Directors deem that the particular event would
materially affect net asset value, in which case an adjustment will be made.
The proceeds received by each Fund and each other series of the Company
(as defined herein under "Shares of the Company")
B-85
<PAGE>
established by the Directors of the Company 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 Company. Expenses of the Company with respect to
the Funds and the other series of the Company 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.
OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS
The following information supplements the information in the Prospectus
under the captions "How to Invest," "How to Sell Shares of the Funds"
and "Dividends." Please see the Prospectus for more complete information.
OTHER PURCHASE INFORMATION
==========================
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distributions
relating to the beneficial owner's account will be performed by the Authorized
Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have
no record of the beneficial owner's transactions, a beneficial owner should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain information
about the account. The transfer of shares in a "street name" account to an
account with another dealer or to an account directly with the Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Dealer.
RIGHT OF ACCUMULATION
=====================
A shareholder qualifies for cumulative quantity discounts if the current
purchase price of the new investment plus the shareholder's current holdings of
existing shares (acquired by purchase or exchange) of the Funds and shares of
any other Goldman Sachs Portfolio (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 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
$60,000). Shares purchased without the imposition of a sales charge may not be
B-86
<PAGE>
aggregated with shares purchased subject to a sales charge. Shares of the Funds
and any other Goldman Sachs Portfolio purchased (i) by an individual, his spouse
and his minor 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 Portfolio purchased by an existing client of the Private
Client Services Division of Goldman Sachs will be combined with shares held by
any other account over which such client or the client's spouse exercises
investment or voting power. In addition, shares of the Funds and shares of any
other Goldman Sachs Portfolio purchased by partners, directors, officers or
employees of the same business organization or by groups of individuals
represented by and investing on the recommendation of the same accounting firm
or other similar organization (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 or firm's agreement to cooperate in the offering of the
Funds' shares to eligible persons; and (ii) notification to the Funds at the
time of purchase that the investor is eligible for this right of accumulation.
STATEMENT OF INTENTION
======================
If a shareholder anticipates purchasing at least $50,000 of shares of a
Fund alone or in combination with shares of any other Goldman Sachs Portfolio
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 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
shares purchased within ninety (90) days before submitting the Statement. The
Statement authorizes the Transfer Agent to hold in escrow a sufficient number of
shares which can be redeemed to make up any difference in the sales charge on
the amount actually invested. For purposes of satisfying the amount specified
on the Statement, the gross amount of each investment, exclusive of any
appreciation on shares previously purchased, will be taken into account.
B-87
<PAGE>
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
=================================================
A Fund shareholder should obtain and read the prospectus relating to any
other Fund, Goldman Sachs Portfolio or ILA Portfolio (as defined in the
Prospectus) and its shares or units and consider its investment objective,
policies and applicable fees before electing cross-reinvestment into that Fund
or Portfolio. The election to cross-reinvest dividends and capital gain
distributions will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends
and distributions in shares of other Goldman Sachs Portfolios or in units of ILA
Portfolios is available only in states where such reinvestment may legally be
made.
AUTOMATIC EXCHANGE PROGRAM
==========================
A Fund shareholder may elect cross-reinvestment into an identical account
or an account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus relating to any other
Goldman Sachs Portfolio and its shares and consider its investment objective,
policies and applicable fees and expenses before electing an automatic exchange
into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
==========================
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $10,000.
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. Furthermore, each withdrawal constitutes a redemption
B-88
<PAGE>
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.
DIVIDENDS
=========
Net loss, if any, from certain foreign currency transactions or instruments
that is otherwise taken into account in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account in
determining the amount of dividends to be declared and paid, with the result
that a portion of a Fund's dividends may be treated as a return of capital,
nontaxable to the extent of a shareholder's tax basis in his shares. In
determining amounts of capital gains to be distributed, capital losses,
including any available capital loss carryovers from prior years, will be offset
against capital gains realized during the current year.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return and/or
yield information in advertisements, shareholder reports or sales literature.
Average annual total return and yield are computed pursuant to formulas
specified by the SEC.
Yield is computed by dividing net investment income earned: during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all
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<PAGE>
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
From time to time the Company 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, Changing Times, Financial World, Forbes, Fortune, Money, Personal
Investor, Sylvia Porter's Personal Finance and The Wall Street Journal. The
Company may also advertise information which has been provided to the NASD for
publication in regional and local newspapers. In addition, the Company 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
B-90
<PAGE>
five years); (f) the Lehman Brothers Aggregate Bond Index or its component
indices; (g) the Standard & Poor's Bond Indices (which measure yield and price
of corporate, municipal and U.S. Government bonds); (h) the J.P. Morgan Global
Government Bond Index; (i) other taxable investments including certificates of
deposit (CDs), money market deposit accounts (MMDAs), checking accounts, savings
accounts, money market mutual funds and repurchase agreements; (j) Donoghues'
Money Fund Report (which provides industry averages for 7-day annualized and
compounded yields of taxable, tax-free and U.S. Government money funds); (k) the
Hambrecht & Quist Growth Stock Index; (l) the NASDAQ OTC Composite Prime Return;
(m) the Russell Midcap Index; (n) the Russell 2000 Index - Total Return; (o) the
Value-Line Composite-Price Return; (p) the Wilshire 4500 Index; (q) the FT-
Actuaries Europe and Pacific Index, and (r) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, Salomon Brothers, Merrill
Lynch, Donaldson Lufkin and Jenrette or other providers of such data and (s) the
FT-Actuaries Europe and Pacific 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 the Fund's
portfolio. These indices and averages are generally unmanaged and the items
included in the calculations of such indices and averages may not be identical
to the formulas used by a Fund to calculate its performance figures.
B-91
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Capital ended
Growth
Fund 4/20/90* 1/31/95 $1,000
- -Assumes 5.5% $1,625.40 62.54% 10.67%
sales charge
- -Assumes no $1,720.00 72.00% 11.99%
sales charge
one year
ended
2/1/94 1/31/95 $1,000
- -Assumes 5.5%
sales charge $903.60 (9.64)% (9.64)%
- -Assumes no
sales charge $956.20 (4.38)% (4.38)%
</TABLE>
B-92
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Select
Equity Fund 5/24/91* ended
1/31/95 $1,000
- -Assumes 5.5%
sales charge $1,200.90 20.09% 5.08%
- -Assumes no
sales charge $1,270.80 27.08% 6.70%
one year
2/1/94 ended
1/31/95 $1,000
- -Assumes 5.5%
sales charge $934.60 (6.54)% (6.54)%
- -Assumes no
sales charge $989.00 (1.10)% (1.10)%
</TABLE>
B-93
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Small
Cap Fund 10/22/92* ended $1,000
1/31/95
- -Assumes 5.5%
sales charge $1,195.30 19.53% 8.14%
- -Assumes no
sales charge $1,264.90 26.49% 10.86%
one year
ended
2/1/94 1/31/95 $1,000
- -Assumes 5.5%
sales charge $779.40 (22.06)% (22.06)%
- -Assumes no
sales charge $824.70 (17.53)% (17.53)%
</TABLE>
B-94
<PAGE>
VALUE OF $1,000 INVESTMENT(TOTAL RETURN)
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
International
Fund 12/1/92* ended $1,000
1/31/95
- -Assumes 5.5%
sales charge $1,005.80 0.58% 0.26%
- -Assumes no
sales charge $1,064.30 6.43% 2.91%
one year
ended
2/1/94 1/31/95 $1,000
- -Assumes 5.5%
sales charge $787.70 (21.23)% (21.23)%
- -Assumes no
sales charge $833.50 (16.65)% (16.65)%
</TABLE>
B-95
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Growth
and Income ended
Fund 2/5/93* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $1,111.00 11.10% 5.44%
- -Assumes no
sales charge $1,175.70 17.57% 8.48%
2/1/94 one year
ended
1/31/95 $1,000
- -Assumes 5.5%
sales charge $982.50 (1.75)% (1.75)%
- -Assumes no
sales charge $1,039.70 3.97% 3.97%
</TABLE>
B-96
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Asia Growth ended
Fund 7/8/94* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $893.40 (10.66)% N/A
- -Assumes no
sales charge $945.40 (5.46)% N/A
Balanced ended
Fund 10/12/94* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $953.20 (4.68)% N/A
- -Assumes no
sales charge $1,008.70 0.87% N/A
</TABLE>
B-97
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Capital ended
Growth
Fund ** 4/20/90* 1/31/95 $1,000
- -Assumes 5.5% $1,596.20 59.62% 10.26%
sales charge
- -Assumes no $1,689.10 68.91% 11.57%
sales charge
one year
ended
2/1/94 1/31/95 $1,000
- -Assumes 5.5%
sales charge $901.50 (9.85)% (9.85)%
- -Assumes no
sales charge $954.00 (4.60)% (4.60)%
</TABLE>
B-98
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Investment Net Asset Value
Investment Period Amount of Investment
Fund Date ended Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Select ended
Equity Fund ** 5/24/91* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $1,189.60 18.96% 4.81%
- -Assumes no
sales charge $1,259.20 25.92% 6.44%
one year
2/1/94 ended
1/31/95 $1,000
- -Assumes 5.5%
sales charge $932.50 (6.75)% (6.75)%
- -Assumes no
sales charge $986.70 (1.33)% (1.33)%
</TABLE>
B-99
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Small
Cap Fund ** 10/22/92* ended $1,000
1/31/95
- -Assumes 5.5%
sales charge $1,188.60 18.86% 7.87%
- -Assumes no
sales charge $1,257.70 25.77% 10.58%
one year
ended
2/1/94 1/31/95 $1,000
- -Assumes 5.5%
sales charge $777.50 (22.25)% (22.25)%
- -Assumes no
sales charge $822.70 (17.73)% (17.73)%
</TABLE>
B-100
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
International
Fund** 2/1/92* ended $1,000
1/31/95
- -Assumes 5.5%
sales charge $1,000.30 0.03% 0.01%
- -Assumes no
sales charge $1,058.50 5.85% 2.66%
one year
ended
2/1/94 1/31/95 $1,000
- -Assumes 5.5%
sales charge $785.80 (21.42)% (21.42)%
- -Assumes no
sales charge $831.40 (16.86)% (16.86)%
</TABLE>
B-101
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Growth
and Income ended
Fund ** 2/5/94* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $1,080.00 8.00% 3.94%
- -Assumes no
sales charge $1,117.40 11.74% 5.74%
2/1/94 one year
ended
1/31/95 $1,000
- -Assumes 5.5%
sales charge $978.80 (2.12)% (2.12)%
- -Assumes no
sales charge $1,035.90 3.59% 3.59%
</TABLE>
B-102
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
====================== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Asia Growth ended
Fund ** 7/8/94* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $883.80 (11.62)% N/A
- -Assumes no
sales charge $935.30 (6.47)% N/A
Balanced ended
Fund ** 10/12/94* 1/31/95 $1,000
- -Assumes 5.5%
sales charge $922.90 (7.71)% N/A
- -Assumes no
sales charge $976.60 (2.34)% N/A
</TABLE>
* Commencement of Operations
** Assumes no voluntary waiver of
distribution fees and no expense
reimbursements.
B-103
<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 Company may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the adviser's
views as to markets, the rationale for a Fund's investments and discussions of a
Fund's current asset allocation.
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
Company may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE COMPANY
The Funds are series of the Company, which is a Maryland corporation
authorized to issue 1,000,000,000 shares of common stock. The Company assumed
its present name in May 1991. Prior thereto, the name of the Company was Goldman
Sachs Capital Growth Fund, Inc. Each Fund then in existence commenced "doing
business" under the name used herein in February 1994. As specified in the
Company's Charter, the names of the funds are Goldman Sachs Balanced Fund, GS
Select Equity Fund, GS Growth and Income Fund, GS Capital Growth Fund, GS Small
Cap Equity Fund, GS International Equity Fund, Goldman Sachs Asia Growth Fund
and Goldman Sachs Mid-Cap Equity Fund. The Directors of the Company have
authority under the Company's Charter to create and classify shares of capital
stock in separate series without further action by shareholders. As of the date
of this Additional Statement, the Directors of the Company have authorized
shares of eight series, seven of which are described in this Additional
Statement. Additional series may be added in the future.
The Act requires that where more than one class or series of shares exists,
each class or series must be preferred over all
B-104
<PAGE>
other classes or series in respect of assets specifically allocated to such
class or series.
The Directors 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 Directors have classified the shares of Select Equity Fund into
three classes: Institutional Shares, Administration Shares and Class A Shares.
As of December 31, 1994, there were no Institutional Shares or Administration
Shares of Select Equity Fund outstanding. As of the date of this Additional
Statement, the Directors have classified the shares of Mid-Cap Equity Fund into
two classes: Institutional Shares and Administration Shares. As of December 31,
1994, there were no Institutional Shares or Administration Shares of Mid-Cap
Equity Fund outstanding. Each other series of the Company has one class of
shares outstanding, which class is equivalent to Class A Shares.
Each Institutional Share, Administration Share and Class A Share of a
Fund represents a proportionate interest in the assets belonging to the Fund.
All expenses of a Fund are borne at the same rate by each class of shares,
except that fees under Administration Plans are borne exclusively by
Administration Shares, fees under Distribution and Authorized Dealer Service
Plans are borne exclusively by Class A Shares and transfer agency fees are borne
at different rates by Class A Shares than Institutional and Administration
Shares. The Directors 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. Each class of shares may have
different minimum investment requirements and are entitled to different
shareholder services. Currently, shares of a class may only be exchanged for
shares of the same or an equivalent class of another fund. See "Exchange
Privilege" in the Prospectus.
Institutional Shares may be purchased at net asset value without a
sales charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Institutional Shares pay a transfer agency fee equal to 0.04% of the average
daily net assets of a Fund attributable to such class.
Administration 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 services to its customers,
including maintenance of account records and processing orders to purchase,
redeem and exchange Administration Shares. Administration Shares bear the cost
of account administration fees at the annual rate of up to 0.25% of the average
daily net assets of the Fund attributable to Administration Shares.
Administration Shares pay transfer agency
B-105
<PAGE>
fees at the rate of 0.04% of the average daily net assets of the Fund
attributable to Administration Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%, through
brokers and dealers who are members of the National Association of Securities
Dealers, Inc. and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. Except for Select Equity Fund, Goldman Sachs has
voluntarily agreed to waive its entire distribution fee. Goldman Sachs has no
current intention of modifying or discontinuing such limitation but may do so in
the future at its discretion. Class A Shares also bear the cost of an Authorized
Dealer Service Plan at an annual rate of up to 0.25% of the average daily net
assets attributable to Class A Shares. Class A Shares pay a transfer agency fee
equal to $12,000 per year plus $3.50 per account together with out-of-pocket and
transaction related expenses.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration and Class A 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.
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 relevant Fund available for distribution to such shareholders. All shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.
As of May 19, 1995, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was the holder of record of 13% of Capital Growth
Fund's and 22% of Select Equity Fund's outstanding shares. In addition, as of
the same date, the Goldman Sachs Group LP, Attention: Elaine King, 85 Broad
Street-10th Floor, New York, New York 10004-2434 was the holder of record of 5%
of Balanced Fund.
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 Company shall not be deemed to have been effectively acted upon unless
approved by the holders of
B-106
<PAGE>
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 directors from the separate voting requirements of Rule 18f-2.
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 Company. 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 and has elected to be treated or
intends to elect to be treated and to qualify for each taxable year, as a
regulated investment company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derive at least 90% of its annual gross
income 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");
(b) such Fund derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities; (ii) options, futures or forward contracts
(other than options, futures or forward contracts on foreign currencies); and
(iii) foreign currencies and foreign currency options, futures and forward
contracts that are not directly related to the Fund's principal business of
investing in stock or securities or options and futures with respect to stocks
or securities (the "short-short test"); and (c) such Fund diversify its holdings
so that, at the end 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
B-107
<PAGE>
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 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. Gains from the sale or other disposition of foreign currencies (or
options, futures or forward contracts on foreign currencies) 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 will be
treated as gains from the sale of investments held less than three months under
the short-short test (even though characterized as ordinary income for some
purposes) if such currencies or instruments were held for less than three
months. 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 requirements, at
least 90% of its "investment company taxable income" (which includes dividends,
interest, 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 and certain net realized foreign exchange gains and is reduced
by deductible expenses), 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
B-108
<PAGE>
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 at least annually to its shareholders
all or substantially all of its investment company taxable income and net
capital gain. 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 Asia Growth Fund or
International Fund and may therefore make it more difficult for such a Fund to
satisfy the distribution requirements described above, as well as the excise tax
distribution requirements described below. However, each Fund generally expects
to be able to obtain sufficient cash to satisfy such requirements from new
investors, the sale of securities or other sources. If for any taxable year a
Fund fails to distribute at least 90% of its investment company taxable income
or otherwise 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.
Select Equity Fund has received a private letter ruling from the Internal
Revenue Service which confirms that its issuance of multiple classes of shares
will not adversely affect its tax status and the tax treatment of its
distributions.
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 treated as
distributed by the Fund and 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
B-109
<PAGE>
income tax purposes, each Fund is permitted to carry forward a net capital loss
in any year to offset its own net capital gains, if any, during the eight years
following the year of the loss. Asia Growth Fund has $183,543 of capital loss
carryforwards, which expire in 2002, available to offset future capital
gains.
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. The short-short test described above may limit a
Fund's ability to use options, forward contracts, and futures transactions as
well as its ability to engage in short sales. Moreover, application of certain
requirements for qualification as a regulated investment company and/or these
tax rules to certain derivatives such as interest rate or currency swaps,
floors, caps and collars 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.
B-110
<PAGE>
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 options,
futures or forward contracts, as described above, will generally cause it to
realize income prior to the receipt of cash payments with respect to these
securities. In order to distribute this income, 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 Select Equity Fund) 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. If, as may occur for
Asia Growth Fund and International Fund, 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 will be required to (i) include in
income (in addition to taxable distributions 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, and
(ii) treat such respective pro rata portions as foreign taxes paid by them.
If the Asia Growth and International Funds make this election, their
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.
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 the Asia Growth and International Funds, 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 Asia Growth Fund or
International Fund, 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
B-111
<PAGE>
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 Asia Growth
Fund and International Fund may not be able to claim a credit for the full
amount of their proportionate share of the foreign taxes paid by such Fund.
Shareholders who are not liable for U.S. income taxes, including tax-exempt
shareholders, will ordinarily not benefit from this election. Each year that the
Asia Growth Fund or International 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 its investment company taxable income.
If a Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rentals, royalties or capital gains) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. In some cases, elections may be available that would ameliorate these
adverse tax consequences, but such elections would require the Fund to include
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. Each Fund may limit its
investments in passive foreign investment companies or dispose of such
investments if potential adverse tax consequences are deemed material in
particular situations.
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
B-112
<PAGE>
securities, in order to eliminate or minimize any adverse tax consequences.
U.S. SHAREHOLDERS - DISTRIBUTIONS
=================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received. Distributions from investment company taxable income for the
year will be taxable as ordinary income. Distributions designated as derived
from a Fund's dividend income, if any, that would be eligible for the dividends
received deduction if such Fund were not a regulated investment company will be
eligible, subject to certain holding period and debt-financing restrictions, for
the 70% dividends received deduction for corporations. 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 Asia
Growth Fund or International Fund 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. Distributions, if any, that are in excess
of a Fund's current and accumulated earnings and profits will first reduce a
shareholder's tax basis in his shares and, after such basis is reduced to zero,
will 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.
U.S. SHAREHOLDERS - SALE OF SHARES
==================================
B-113
<PAGE>
When a shareholder's shares are sold, redeemed or otherwise disposed of,
the shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or fair
market value of any property, received. Assuming the shareholder holds the
shares as a capital asset at the time of such sale or other disposition, such
gain or loss should be capital in character, and long-term if the shareholder
has a tax holding period for the shares of more than one year, otherwise short-
term. If, however, 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 the sale or redemption, 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 the 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 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.
Each Fund may be required to withhold federal income tax at a rate of 31%
from dividends and share redemption and exchange proceeds to individuals and
other non-exempt shareholders ("backup withholding") 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. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
Shareholders who, as to the United States, 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. 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
B-114
<PAGE>
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 the Fund which are designated as undistributed capital gains, to a
non-U.S. shareholder will not be subject to U.S. 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. withholding tax on deemed
income resulting from any election by Asia Growth Fund or International Fund 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 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. investors should
consult their tax advisers about the applicability of U.S. federal income or
withholding taxes to certain distributions received by them.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have different tax consequences
for shareholders than would 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 Independent Public
Accountants, contained in the 1994 Annual Report
B-115
<PAGE>
of each of the Funds, are incorporated herein by reference into this Additional
Statement and attached hereto.
OTHER INFORMATION
Shares of each Fund are sold at a maximum sales charge of 5.5%. Using the
initial offering price per share, as of January 31, 1995, the maximum offering
price of each Fund's shares would be as follows:
<TABLE>
<S> <C>
Balanced Fund
Net Asset Value $14.22
Maximum Sale Charge $0.83
Offering Price to Public $15.05
Select Equity Fund
Net Asset Value $14.61
Maximum Sale Charge $0.85
Offering Price to Public $15.46
Growth and Income Fund
Net Asset Value $15.80
Maximum Sale Charge $ 0.92
Offering Price to Public $16.72
Capital Growth Fund
Net Asset Value $13.67
Maximum Sale Charge $0.80
Offering Price to Public $14.47
Small Cap Fund
Net Asset Value $16.14
Maximum Sale Charge $0.94
Offering Price to Public $17.08
International Fund
Net Asset Value $14.52
Maximum Sale Charge $0.85
Offering Price to Public $15.37
Asia Growth Fund
Net Asset Value $13.31
Maximum Sale Charge $0.77
Offering Price to Public $14.08
</TABLE>
B-116
<PAGE>
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions exceeding
$250,000 or 1% of the net asset value of the Fund at the time of redemption by a
distribution in kind of securities (instead of cash) from such Fund. The
securities distributed in kind would be readily marketable and would be valued
for this purpose using the same method employed in calculating the Fund's net
asset value per share. See "Net Asset Value." If a shareholder receives
redemption proceeds in kind, the shareholder should expect to incur transaction
costs upon the disposition of the securities received in the redemption.
The right of a shareholder to redeem shares and the date of payment by
each Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
B-117
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
DEAR SHAREHOLDERS:
We welcome this opportunity to review the performance and investment
activities of the Goldman Sachs Equity Portfolios for the 12-month period ended
January 31, 1995. In addition, we will discuss trends in the stock markets in
the U.S. and abroad during the period.
For the convenience of those shareholders who have invested in several funds
in the Goldman Sachs Equity Portfolios, we have included all of our equity
funds in one annual report for the first time. Another newsworthy item that may
interest many of you: We are pleased to note that the Goldman Sachs Capital
Growth Fund will celebrate its fifth anniversary on April 20, 1995.
As you are probably well aware, 1994 was a difficult year for U.S. stocks.
Still, it is important to realize that over the long term, U.S. stocks have
outperformed other financial investments, such as U.S. long-term government
bonds, and outpaced inflation as well./1/ For that reason, stocks have been a
valuable choice for many investors seeking long-term growth who have both the
financial ability and commitment to weather periods of market volatility.
Diversifying investments among different asset classes (stocks, bonds and
money markets) and within an asset class (for example, domestic and
international stocks) also plays an important role in any investment plan. How
you allocate your portfolio is an individual decision based on your personal
goals and tolerance for risk, which your investment representative can help you
evaluate. As you'll see in this report, Goldman Sachs offers a variety of
domestic and international equity funds from which to choose.
MARKET OVERVIEW: THE IMPACT OF HIGHER INTEREST RATES ON THE U.S. STOCK MARKET
For the 12 months ended January 31, 1995, the U.S. stock market was less
rewarding than in the previous three years. The market returned a modest 0.53%
as measured by the S&P 500 stock index, far below the historical average annual
return of 10.2% for large-capitalization stocks, as measured by the S&P 500 for
the period from 1926 through 1994./1/ Stocks with smaller capitalizations
experienced greater volatility and significantly underperformed large-
capitalization stocks for most of 1994.
The lackluster market performance, in the midst of a robust economic recovery,
generally strong corporate profits and low unemployment, reflected the impact
of rapidly rising interest rates. From February 4, 1994 through January 31,
1995, the Federal Reserve moved aggressively to pre-empt inflation by raising
the federal funds rate (the rate banks charge one another for overnight loans)
six times from 3.00% to 5.50%.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction/Market Overview........ 1
Goldman Sachs Balanced Fund......... 3
Goldman Sachs Growth and Income
Fund................................ 9
Goldman Sachs Select Equity Fund.... 15
Goldman Sachs Capital Growth Fund... 21
Goldman Sachs Small Cap Equity Fund. 26
</TABLE>
<TABLE>
<S> <C>
Goldman Sachs International Equity
Fund............................... 31
Goldman Sachs Asia Growth Fund..... 37
GSAM Equity Portfolio Management
Team............................... 43
Financial Statements............... 44
Notes to Financial Statements...... 52
Report of Independent Public
Accountants........................ 66
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
As interest rates rose, the skittish stock market reflected investors'
uncertainty as to exactly when, and by how much, the Fed would move next and
whether a recession would ultimately occur. For example, March was a
particularly difficult month, with the stock market declining sharply after the
first Fed increase. Despite two additional Fed hikes during the second quarter,
the market was relatively stable. A strong summer rally followed, but in
September the market retreated as fears of inflation and weakness in the bond
market affected stocks as well. The fourth quarter of 1994 was particularly
difficult, with the market shunning the stocks of cyclical companies (such as
automobile manufacturers), whose businesses tend to move in the same direction
as the economy, in favor of consumer growth companies, whose fortunes are less
dependent on the growth of the economy. Large-capitalization stocks, perceived
as safer and more stable, far outperformed small stocks during the quarter and
for the year.
The volatility throughout the equity market, though unpleasant, was not
unusual according to past history. During the recovery phase of most economic
cycles, the stock market has experienced relatively sharp corrections
associated with rapidly rising interest rates. Typically, the market has
resumed its ascent as the pace of interest rate increases and economic growth
slowed. We believe rates will be less volatile in 1995, allowing the market's
historical pattern to prevail.
MARKET OVERVIEW: VOLATILITY IN THE INTERNATIONAL MARKET ENVIRONMENT
During 1994, international equity markets were turbulent, marked by a
significant slowdown in new investments from the U.S. and elsewhere.
. The volatility in the Asian markets (excluding Japan) was largely triggered
by the sharp increase in U.S. short-term interest rates and significant mutual
fund redemptions that caused a sell-off in stocks. Following a brief summer
rally, Asian markets suffered a sharp correction in September that persisted
through the end of January.
. In Europe, economic recovery faltered as unemployment remained high; the
resulting uncertainty regarding expectations for corporate profit growth put
pressure on stock prices. European equity markets were strong at the beginning
of 1994, peaking in most cases by early February, with major market indices
subsequently declining 10% to 15% by year end.
. The Japanese economy was weak during the year, hindered by a strong yen and
low domestic consumption. The government stepped in with an aggressive fiscal
stimulus program that resulted in some patchy economic recovery in the last
few months of 1994. After posting gains from January through May of 1994, the
Japanese market, as measured by the Nikkei 300, had declined almost 11% by
January 1995, a good part of which occurred after the devastating Kobe
earthquake.
We appreciate your support, particularly during this difficult market period,
and want to assure you that we will continue to strive to help meet your long-
term investment objectives.
Sincerely,
/s/ David B. Ford
David B. Ford
Chairman, Chief Executive Officer
Goldman Sachs Asset Management, March 15, 1995
- -------
/1/ Data compiled by Ibbotson Associates, Chicago, Stocks, Bonds, Bills and In-
flation 1995 Yearbook(TM) . Please note that along with their superior histor-
ical returns, stocks have been more volatile than bonds during the period from
1926 through 1994. Past performance is not indicative of future results.
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVES AND INVESTMENT APPROACH
The Goldman Sachs Balanced Fund seeks to provide investors with a combination
of long-term growth of capital and current income by investing in a diversified
portfolio that includes both equity and fixed income securities. Under normal
market conditions, the fund is expected to maintain an asset mix of
approximately 50% to 70% in stocks and other equity securities, with the
remainder (at minimum 25%) in bonds and other senior fixed income securities.
The fund's "neutral" weighting will typically be 60% stocks and 40% bonds.
However, Goldman Sachs Asset Management's (GSAM's) portfolio management team
will review the fund's asset mix on a regular basis and adjust it to reflect
changes in the economic environment. The fund will focus primarily on U.S.
common stocks, other equity securities and fixed income securities.
Stocks are selected using a value style, identifying those judged to be
inexpensive relative to their expected long-term earnings, free cash flow and
ability to pay dividends. We also consider the degree to which a company's
management is committed to increasing value for shareholders.
On the fixed income portion of the portfolio, our approach is to seek to
control risk. Our emphasis is on sector and individual security selection,
rather than on trying to predict interest rate movements.
PERFORMANCE
Since its inception on October 12, 1994 through January 31, 1995, the Goldman
Sachs Balanced Fund had a total return of 0.87% based on net asset value
compared with a return of 2.06% for its benchmark, a combination of the S&P 500
stock index (weighted at 60%) and the Lehman Brothers Aggregate Bond Index
(weighted at 40%).
The fund's underperformance relative to the benchmark reflects the fact that
it began investing just as the stock market entered a very difficult period
marked by high volatility and rising interest rates. The latter caused some
investors to fear slower economic growth in the future, which, in turn, took
its toll on interest rate-sensitive and cyclical stocks represented in the
fund's portfolio.
PORTFOLIO COMPOSITION AND REVIEW
As of January 31, the fund's asset mix was allocated to stocks (58%) compared
with the benchmark weighting of 60%, reflecting a neutral to slightly bearish
outlook for the equity market on the part of the fund's portfolio managers.
. Equities: The fund's top-performing stocks during the period included
McDonnell Douglas (aerospace/defense), Texas Instruments (semiconductors),
Anheuser-Busch (alcoholic beverages) and Amgen (biotechnology), which all
benefited from strong earnings reports among other things. With the exception
of Texas Instruments, these companies have been active buyers of their own
stock.
Reflecting the market's general rejection of cyclical stocks in October and
November, a number of our holdings including General Motors (automotive) and
Stone Container, Georgia-Pacific and Champion International (all in paper and
forest products) did poorly in November and then rebounded in December. We
remain committed to these stocks based on our research which indicates that
they have the potential to post much stronger earnings than many in the
investment community currently expect.
3
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
TOP 10 EQUITY HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
PERCENTAGE
OF EQUITY
COMPANY LINE OF BUSINESS HOLDINGS
<S> <C> <C>
General Motors Corp. Automotive Products 4.3%
Stone Container Corp. Containers and Paper Products 4.1%
Georgia-Pacific Corp. Paper and Forest Products 3.9%
McDonnell Douglas Corp. Aerospace/Defense 3.9%
Consolidated Truckers 3.6%
Freightways, Inc.
Northrup Grumman Corp. Aerospace/Defense 3.3%
National Medical Hospital Management 2.8%
Enterprises, Inc.
Chiquita Brands Grocery Products 2.8%
International Inc.
Universal Corp. Tobacco Producer 2.8%
PartnerRe Holdings Ltd. Property/Casualty 2.7%
Reinsurer
</TABLE>
. Fixed Income: During the period, the fixed income portion of the portfolio
was primarily invested in U.S. Treasury notes, with a small position in Federal
National Mortgage Association medium-term notes. As the fund's assets increase,
we intend to further diversify the portfolio's fixed income investments to
include corporate, mortgage-backed and asset-backed securities.
OUTLOOK
We will continue to carefully monitor the fund's asset allocation. We believe
that our fundamental research will uncover underpriced stocks and attractive
fixed income opportunities that will help in seeking to achieve the fund's
investment objectives over time. In addition, we believe that many of the
fund's equity holdings are poised to show earnings growth even if the economy
slows.
/s/ Mitchell E. Cantor /s/ Ronald E. Gutfleish
Mitchell E. Cantor, Ronald E. Gutfleish
Co-Head, U.S. Actively
Managed Equity
Investments
Portfolio Managers, Equities
/s/ Jonathan A. Beinner
Jonathan A. Beinner
/s/ Theodore T. Sotir
Theodore T. Sotir
Portfolio Managers, Fixed Income
4
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the period ended January 31, 1995. The
Goldman Sachs Balanced Fund's ("GS Balanced") performance (assuming both the
maximum sales charge of 5.50% and no sales charge) is compared with its bench-
mark--a combination of the Standard & Poor's 500 Index (weighted at 60%) and
the Lehman Brothers Aggregate Bond Index (weighted at 40%) ("S&P 500/LBABI").
All performance data shown represents past performance and should not be con-
sidered indicative of future performance which will fluctuate as market condi-
tions change. The investment return and principal value of an investment will
fluctuate with changes in market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Balanced GS Balanced
(w/sales charge) (no sales charge) S&P 500/LBABI
---------------- ----------------- -------------
<S> <C> <C> <C>
10/12/94 $9,450 $10,000 $10,000
1/31/95 $9,532 $10,087 $10,206
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Return/(b)/
---------------------------
Since Inception/(a)/
--------------------
<S> <C>
GS Balanced 0.87%
excluding sales charge
GS Balanced (4.68%)
including sales charge
</TABLE>
(a) Commenced operations October 12, 1994.
(b) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Fund has not completed a full twelve months
of operations.
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--51.0%
AEROSPACE/DEFENSE--4.9%
800 Lockheed Corp. $ 57,600
700 Martin Marietta Corp. 31,238
3,000 McDonnell Douglas Corp. 150,000
3,200 Northrop Grumman Corp. 129,200
- -----------------------------------------------------------------------------------------
368,038
- -----------------------------------------------------------------------------------------
AUTOMOBILE--2.4%
600 Ford Motor Company 15,150
4,300 General Motors Corp. 166,625
- -----------------------------------------------------------------------------------------
181,775
- -----------------------------------------------------------------------------------------
AUTOPARTS--ORIGINAL EQUIPMENT--1.0%
4,100 Lear Seating Corp.* 75,338
- -----------------------------------------------------------------------------------------
BEVERAGES--ALCOHOLIC--1.0%
1,400 Anheuser Busch Companies, Inc. 76,650
- -----------------------------------------------------------------------------------------
BROKERAGE FIRMS--1.0%
4,300 Bear Stearns Companies, Inc. 71,487
- -----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.6%
1,300 Mellon Bank Corp. 45,500
- -----------------------------------------------------------------------------------------
CONTAINERS--METAL & GLASS--1.2%
8,400 Owens-Illinois, Inc.* 87,150
- -----------------------------------------------------------------------------------------
CONTAINERS--PAPER--2.1%
9,400 Stone Container Corp.* 159,800
- -----------------------------------------------------------------------------------------
ELECTRIC COMPANIES--1.2%
2,600 Texas Utilities Co. 90,350
- -----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.7%
1,000 General Electric Co. 51,500
- -----------------------------------------------------------------------------------------
ELECTRONICS--0.9%
400 E-Systems, Inc.* 16,350
1,300 Loral Corp. 50,537
- -----------------------------------------------------------------------------------------
66,887
- -----------------------------------------------------------------------------------------
ELECTRONICS--SEMICONDUCTORS--2.1%
2,500 Advanced Micro Devices, Inc.* 73,438
1,200 Texas Instruments Inc. 82,800
- -----------------------------------------------------------------------------------------
156,238
- -----------------------------------------------------------------------------------------
FINANCIAL SERVICES--2.3%
500 Federal National Mortgage Association 35,750
2,600 North American Mortgage Co. 41,600
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (CONTINUED)
500 Student Loan Marketing Association $ 18,688
2,100 Travelers, Inc. 77,438
- ------------------------------------------------------
173,476
- ------------------------------------------------------
GROCERY PRODUCTS--1.4%
8,400 Chiquita Brands International, Inc. 108,150
- ------------------------------------------------------
HOMEBUILDERS--1.2%
2,000 Centex Corp. 45,500
3,100 Lennar Corp. 47,662
- ------------------------------------------------------
93,162
- ------------------------------------------------------
HOSPITAL MANAGEMENT--1.9%
3,000 Community Psychiatric Centers 36,750
7,400 National Medical Enterprises, Inc.* 108,225
- ------------------------------------------------------
144,975
- ------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.4%
5,100 PartnerRe Holdings, Ltd. 103,913
- ------------------------------------------------------
LEISURE TIME--1.2%
3,800 Brunswick Corp. 74,575
900 Outboard Marine Corp. 18,900
- ------------------------------------------------------
93,475
- ------------------------------------------------------
LIFE INSURANCE--0.5%
1,000 USLife Corp. 35,375
- ------------------------------------------------------
MONEY CENTER BANKS--2.0%
2,100 BankAmerica Corp. 90,563
800 Bankers Trust New York Corp. 50,100
300 Chemical Banking Corp. 11,662
- ------------------------------------------------------
152,325
- ------------------------------------------------------
MULTI-LINE INSURANCE--1.2%
1,500 Aetna Life & Casualty Co. 74,250
200 Cigna Corp. 13,525
- ------------------------------------------------------
87,775
- ------------------------------------------------------
OIL--DOMESTIC INTEGRATED--0.7%
700 Amoco Corp. 40,600
300 Tenneco Inc. 13,200
- ------------------------------------------------------
53,800
- ------------------------------------------------------
OIL AND GAS--4.1%
800 Atlantic Richfield Co. 85,200
600 Chevron Corp. 26,775
1,200 Exxon Corp. 75,000
600 Texaco, Inc. 36,975
3,000 Tosco Corp. 85,875
- ------------------------------------------------------
309,825
- ------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PAPER & FOREST PRODUCTS--4.1%
2,700 Champion International Corp. $ 103,275
2,100 Georgia Pacific Corp. 151,200
700 International Paper Co. 49,787
- ------------------------------------------------------------------------------------------
304,262
- ------------------------------------------------------------------------------------------
PETROLEUM REFINING--0.6%
1,300 Ashland Oil Co. 42,412
- ------------------------------------------------------------------------------------------
PHARMACEUTICALS/BIOTECHNOLOGY--0.5%
600 Amgen, Inc.* 38,175
- ------------------------------------------------------------------------------------------
PUBLISHING--1.0%
5,000 Valassis Communications, Inc.* 75,000
- ------------------------------------------------------------------------------------------
RETAIL--DEPARTMENT STORES--0.1%
200 Sears Roebuck & Co. 8,825
- ------------------------------------------------------------------------------------------
RETAIL--SPECIALTY APPAREL STORES--1.1%
6,000 TJX Companies, Inc. 80,250
- ------------------------------------------------------------------------------------------
SAVINGS AND LOANS--0.8%
2,900 GP Financial Corp. 62,531
- ------------------------------------------------------------------------------------------
TOBACCO--3.6%
1,200 Philip Morris Companies, Inc. 71,550
3,000 UST, Inc. 88,500
5,400 Universal Corp. 106,650
- ------------------------------------------------------------------------------------------
266,700
- ------------------------------------------------------------------------------------------
TRUCKERS--1.8%
6,600 Consolidated Freightways, Inc. 137,775
- ------------------------------------------------------------------------------------------
UTILITIES--0.4%
1,300 CMS Energy Corp. 30,550
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,792,765) $3,833,444
- ------------------------------------------------------------------------------------------
PREFERRED STOCK--0.3%
- ------------------------------------------------------------------------------------------
3,400 RJR Nabisco Holdings,
Convertible Preferred, 6.50% $ 21,250
- ------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $23,870) $ 21,250
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT AGENCY OBLIGATIONS--1.1%
Federal National Mortgage Association
$ 40,000 5.400% 12/30/98 $ 36,761
30,000 5.620 02/23/98 28,255
20,000 5.850 02/02/98 18,979
- -----------------------------------------------------------------------------------------------------
TOTAL GOVERNMENT AGENCY
OBLIGATIONS (Cost $82,992) $ 83,995
- -----------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--38.1%
United States Treasury Bond
$ 30,000 8.000% 11/15/21 $ 30,750
United States Treasury Interest Only Stripped Secu-
rities**
450,000 7.870 08/15/17 78,323
United States Treasury Notes
40,000 4.250 05/15/96 38,625
460,000 5.875 05/31/96 453,026
520,000 6.500 05/15/97 511,061
470,000 6.750 06/30/99 456,412
1,025,000 6.375 08/15/02 954,849
316,000 6.250 02/15/03 290,622
United States Treasury Principal Only
Stripped Securities**
30,000 7.880 02/15/16 5,884
300,000 7.840 05/15/20 42,765
- -----------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,831,268) $2,862,317
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- ----------------------------------------------------------------------------------------
<C> <S> <C>
SHORT TERM OBLIGATIONS--9.3%
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--9.3%
$700,000 Joint Repurchase Agreement Account
5.860%, 02/01/95 $ 700,000
- ----------------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(Cost $700,000) $ 700,000
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $7,430,895)*** $7,501,006
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $139,875
Gross unrealized loss for investments in
which cost exceeds value (75,101)
- -------------------------------------------------------
Net unrealized gain $ 64,774
- -------------------------------------------------------
</TABLE>
* Non-income producing security.
** The interest rates disclosed for these securities represent effective yields
to maturity.
*** The aggregate cost for federal income tax purposes is $7,436,232.
The percentage shown for each investment category reflects the value of invest-
ments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Growth and Income Fund seeks long-term growth of capital and
growth of income primarily through investments in a diversified portfolio of
common stocks and other equity securities. The fund is managed with a value
approach, which means we focus on stocks we consider inexpensive relative to
their expected earnings, free cash flow and ability to pay dividends.
Investments may include well-known companies that are temporarily out of favor
due to cyclical economic conditions or to specific difficulties the portfolio
managers judge to be temporary in nature. In-depth fundamental research
regarding a company's long-term financial strength, its competitive position in
the market and its management's commitment to increasing shareholder value are
all critical aspects of the fund's investment approach.
PERFORMANCE
For the 12 months ended January 31, 1995, the Goldman Sachs Growth and Income
Fund had a total return of 3.97% based on net asset value, outperforming the
S&P 500 stock index, which had a total return of 0.53%. The fund also did well
compared with its peers, ranking in the top 6.5% (23rd out of the 356 funds)
based on total return in the Lipper growth and income category, which returned
an average -4.26% during the period under review. (Please note that Lipper
rankings do not take sales charges into account.) The fund has paid a regular
quarterly dividend of 5.5 cents per share from income, and a special
distribution from income and capital gains of 38.1 cents per share in December
1994.
PORTFOLIO REVIEW
The fund's positive performance reflects the above-average returns of several
key holdings including McDonnell Douglas, which benefited from the company's
announcement of a three-for-one stock split, a 70% dividend increase and a 15%
stock repurchase plan; Consolidated Freightways, one of the three largest
trucking carriers in the U.S., which saw gains after turning around its
previously troubled Emery Air Freight division; National Medical Enterprises, a
hospital management company, whose stock rebounded during the third quarter
after the company settled a governmental investigation; and Advanced Micro
Devices, which rallied significantly in January.
During the course of the year, the fund saw its share of volatility. In
October and November, for example, investors' concerns surrounding the Federal
Reserve's much anticipated sixth interest rate increase for the year had a
negative impact on financial services stocks, which accounted for approximately
20% of the fund's assets as of January 31, 1995. Nonetheless, the fund's
portfolio managers continue to believe in the long-term potential of a number
of its financial holdings including BankAmerica, a dominant force in California
retail banking, and Traveler's Corp., a diversified insurance and financial
services firm, which was recently added to the fund.
During the fourth quarter, the market was similarly unkind to cyclical stocks
in general, which were also well represented in the fund through investments in
General Motors, the fund's largest holding as of January 31; Geon, a polyvinyl
chloride producer; and three paper and forest products companies: Stone
Container, Georgia-Pacific and Champion International. Despite recent stock
price
9
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
declines, we believe each of those companies is fundamentally sound and will
prosper over time. In particular, General Motors appears to be very focused on
reducing manufacturing costs, and we have continued to add to our position.
In terms of other key sectors, the fund began the reporting period
significantly underweighted in utilities and consumer nondurables (food and
drug companies). By mid-year, we had purchased several electric utilities we
considered to be of high quality, such as Texas Utilities. In the consumer
products area, we realized significant profits from our investment in Borden,
which received an unsolicited takeover bid from Kohlberg Kravis Roberts & Co.
in September.
PORTFOLIO COMPOSITION
As of January 31, 1995, 89% of the fund's portfolio was invested in common
stocks, 2% in convertible preferred stock and 9% in cash or cash equivalents.
TOP 10 PORTFOLIO HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
COMPANY LINE OF BUSINESS PERCENTAGE
<S> <C> <C>
General Motors Corp. Automotive Products 4.2%
Stone Container Corp. Containers and Paper Products 3.9%
Consolidated Freightways, Inc. Truckers 3.9%
National Medical Enterprises, Inc. Hospital Management 3.7%
McDonnell Douglas Aerospace/Defense 3.6%
Corp.
Bear Stearns Cos., Inc. Investment Banking/Brokerage 3.0%
Chiquita Brands International Inc. Grocery Products 2.9%
Georgia-Pacific Corp. Paper and Forest Products 2.8%
BankAmerica Corp. Money Center Banks 2.8%
Valassis Communications, Inc. Publishing 2.5%
</TABLE>
OUTLOOK
While over the short term the market favors different investment styles and
sectors, we believe our emphasis on undervalued companies will prove rewarding
over the long term.
/s/ Mitchell E. Cantor
Mitchell E. Cantor
Co-Head, U.S. Actively Managed
Equity Investments
Portfolio Manager
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Portfolio Manager
10
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the period ended January 31, 1995. The
Goldman Sachs Growth and Income Fund's ("GS Growth & Income") performance
(assuming both the maximum sales charge of 5.50% and no sales charge) is
compared with its benchmark--the Standard & Poor's 500 Index ("S&P 500"). All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate as market conditions
change. The investment return and principal value of an investment will
fluctuate with changes in market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Growth & GS Growth &
Income Income
(w/sales charge) (no sales charge) S&P 500
---------------- ----------------- -------
<S> <C> <C> <C>
2/5/93 $ 9,450 $10,000 $10,000
1/31/94 $10,686 $11,308 $11,073
1/31/95 $11,110 $11,757 $11,132
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------
One Year Since Inception/(a)/
------------ --------------------
<S> <C> <C>
Growth & Income
excluding sales charge 3.97% 8.48%
GS Growth & Income
including sales charge (1.75%) 5.44%
</TABLE>
(a) Commenced operations February 5, 1993.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--93.0%
AEROSPACE/DEFENSE--5.2%
20,500 Lockheed Corp. $ 1,476,000
133,800 McDonnell Douglas Corp. 6,690,000
48,000 Northrop Grumman Corp. 1,938,000
- ------------------------------------------------------------------------------------
10,104,000
- ------------------------------------------------------------------------------------
AUTO INSURANCE--0.2%
25,900 Integon Corp. 375,550
- ------------------------------------------------------------------------------------
AUTOMOBILE--4.0%
198,400 General Motors Corp. 7,688,000
- ------------------------------------------------------------------------------------
AUTOPARTS--ORIGINAL EQUIPMENT--1.3%
131,900 Lear Seating Corp. * 2,423,663
- ------------------------------------------------------------------------------------
BEVERAGES--ALCOHOLIC--0.9%
32,500 Anheuser Busch Companies, Inc. 1,779,375
- ------------------------------------------------------------------------------------
BROKERAGE FIRMS--2.8%
326,280 Bear Stearns Companies, Inc. 5,424,405
- ------------------------------------------------------------------------------------
CHEMICALS--1.4%
100,500 Geon Co. 2,663,250
- ------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.7%
45,500 Union Bank of San Francisco, California 1,433,250
- ------------------------------------------------------------------------------------
CONTAINERS--METAL & GLASS--0.7%
136,100 Owens-Illinois, Inc. * 1,412,038
- ------------------------------------------------------------------------------------
CONTAINERS--PAPER--3.7%
426,700 Stone Container Corp. * 7,253,900
- ------------------------------------------------------------------------------------
COSMETICS--1.9%
436,800 Playtex Products, Inc. * 3,603,600
- ------------------------------------------------------------------------------------
ELECTRIC COMPANIES--2.2%
125,200 Texas Utilities Co. 4,350,700
- ------------------------------------------------------------------------------------
ELECTRONICS--0.5%
22,300 E-Systems, Inc. 911,513
- ------------------------------------------------------------------------------------
ELECTRONICS--SEMICONDUCTORS--3.2%
122,600 Advanced Micro Devices, Inc. * 3,601,375
36,400 Texas Instruments Inc. 2,511,600
- ------------------------------------------------------------------------------------
6,112,975
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES--5.3%
36,900 Federal National Mortgage Association $ 2,831,400
22,700 Liberty Corp. 561,825
183,100 North American Mortgage Co.** 2,929,600
106,200 Travelers, Inc. 3,916,125
- ----------------------------------------------------------------------------------------
10,238,950
- ----------------------------------------------------------------------------------------
GAMING COMPANIES--0.6%
156,300 Penn National Gaming, Inc. * 1,114,419
- ----------------------------------------------------------------------------------------
GROCERY PRODUCTS--2.7%
410,500 Chiquita Brands International, Inc. 5,285,188
- ----------------------------------------------------------------------------------------
HOMEBUILDERS--0.5%
39,500 Centex Corp. 898,625
- ----------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT--5.1%
225,400 Community Psychiatric Centers 2,761,150
464,000 National Medical Enterprises, Inc. * 6,786,000
149,100 Pharmchem Labs Inc. * 354,112
- ----------------------------------------------------------------------------------------
9,901,262
- ----------------------------------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES--1.7%
82,400 National Presto Industrials, Inc. 3,378,400
- ----------------------------------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--4.1%
74,600 American Premier Underwriters 1,874,325
141,500 Home Holdings, Inc. * 2,104,813
198,100 PartnerRe Holdings, Ltd. 4,036,287
- ----------------------------------------------------------------------------------------
8,015,425
- ----------------------------------------------------------------------------------------
LEISURE TIME--3.6%
189,600 Brunswick Corp. 3,720,900
152,000 Outboard Marine Corp. 3,192,000
- ----------------------------------------------------------------------------------------
6,912,900
- ----------------------------------------------------------------------------------------
LIFE INSURANCE--1.3%
94,700 FHP International Corp. * 2,438,525
- ----------------------------------------------------------------------------------------
METALS--MISCELLANEOUS--1.1%
103,200 Quanex Corp. 2,218,800
- ----------------------------------------------------------------------------------------
MISCELLANEOUS--1.0%
261,800 Figgie International Holdings Inc. * 1,799,875
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MONEY CENTER BANKS--3.0%
119,300 BankAmerica Corp. $ 5,144,813
19,500 Chemical Banking Corp. 758,063
- ---------------------------------------------------------------------------------------
5,902,876
- ---------------------------------------------------------------------------------------
MOTOR VEHICLES AND EQUIPMENT--0.0%
12,574 United Mobile Homes Inc. 95,878
- ---------------------------------------------------------------------------------------
MULTI-LINE INSURANCE--1.8%
52,800 Aetna Life & Casualty Co. 2,613,600
14,000 Cigna Corp. 946,750
- ---------------------------------------------------------------------------------------
3,560,350
- ---------------------------------------------------------------------------------------
NEWSPAPER PUBLICATIONS--0.2%
31,700 American Publishing Co. 380,400
- ---------------------------------------------------------------------------------------
OIL--DOMESTIC INTEGRATED--0.5%
15,400 Amoco Corp. 893,200
- ---------------------------------------------------------------------------------------
OIL--INTERNATIONAL INTEGRATED--0.8%
14,700 Royal Dutch Petroleum Co. 1,644,562
- ---------------------------------------------------------------------------------------
OIL WELL EQUIPMENT & SERVICES--1.1%
106,000 Sonat Offshore Drilling, Inc. 2,146,500
- ---------------------------------------------------------------------------------------
OIL AND GAS--4.2%
16,000 Atlantic Richfield Co. 1,704,000
46,000 Exxon Corp. 2,875,000
27,300 Texaco, Inc. 1,682,362
68,100 Tosco Corp. 1,949,362
- ---------------------------------------------------------------------------------------
8,210,724
- ---------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--3.9%
63,100 Champion International Corp. 2,413,575
72,700 Georgia Pacific Corp. 5,234,400
- ---------------------------------------------------------------------------------------
7,647,975
- ---------------------------------------------------------------------------------------
PUBLISHING--2.4%
304,700 Valassis Communications, Inc. * 4,570,500
- ---------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST--2.6%
52,800 Centerpoint Properties Corp. 1,016,400
171,600 Haagen Alexander Properties, Inc. 2,659,800
107,000 LTC Properties 1,364,250
- ---------------------------------------------------------------------------------------
5,040,450
- ---------------------------------------------------------------------------------------
RETAIL--SPECIALTY APPAREL STORES--1.8%
259,700 TJX Companies, Inc. 3,473,487
- ---------------------------------------------------------------------------------------
SAVINGS AND LOANS--2.3%
207,200 GP Financial Corp. 4,467,750
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
SECURITY AND COMMODITY BROKERS,
DEALERS AND SERVICES--1.2%
135,600 Lehman Brothers Holdings, Inc. $ 2,305,200
- ---------------------------------------------------------------------------------------
TEXTILE--APPAREL MANUFACTURERS--1.2%
212,700 Chic by HIS, Inc. * 2,286,525
- ---------------------------------------------------------------------------------------
TOBACCO--4.0%
64,200 Philip Morris Companies, Inc. 3,827,925
54,300 RJR Nabisco Holdings Corp. 319,012
122,100 UST, Inc. 3,601,950
- ---------------------------------------------------------------------------------------
7,748,887
- ---------------------------------------------------------------------------------------
TRUCKERS--3.7%
339,600 Consolidated Freightways, Inc. 7,089,150
- ---------------------------------------------------------------------------------------
UTILITIES--2.6%
27,800 CMS Energy Corp. 657,359
106,800 DQE, Inc. 3,390,900
25,400 Dominion Reserves, Inc. 968,375
- ---------------------------------------------------------------------------------------
5,016,634
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $180,357,741) $180,219,636
- ---------------------------------------------------------------------------------------
PREFERRED STOCK--1.9%
44,600 Chiquita Brands International, Inc.
Convertible Preferred, 2.875% $ 1,795,150
287,100 RJR Nabisco Holdings,
Convertible Preferred, 6.500% 1,794,375
- ---------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $3,843,416 ) $ 3,589,525
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM OBLIGATIONS--9.0%
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--1.0%
$1,900,000 Federal National Mortgage Association
5.570%, 02/12/95 $ 1,896,472
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
SHORT TERM OBLIGATIONS (CONTINUED)
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--8.0%
$15,588,000 SBC Securities, Inc., dated 01/31/95, 5.800%, due
02/01/95,
repurchase price $15,590,511 (U.S. Treasury
Notes: $16,135,000, 6.125%, 07/31/96) $ 15,588,000
- -------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(Cost $17,484,472) $ 17,484,472
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $201,685,629)*** $201,293,633
- -------------------------------------------------------------------------------
<CAPTION>
Contracts # Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS WRITTEN--(0.0)%
- -------------------------------------------------------------------------------
CALL OPTIONS WRITTEN (Premiums received $76,997)
(200) North American Mortgage Co.
expiring March 1995 @ $30.00 --
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 6,635,471
Gross unrealized loss for investments in which cost exceeds
value (7,207,240)
- -------------------------------------------------------------------------------
Net unrealized loss $ (571,769)
- -------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** A portion of this security is being segregated as collateral on option
contracts.
*** The aggregate cost for federal income tax purposes is $201,865,402.
# One contract relates to 100 shares.
The percentage shown for each investment category reflects the value of invest-
ments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Select Equity Fund seeks to provide investors with a total
return (consisting of capital appreciation and dividend income net of expenses)
that exceeds the total return of the S&P 500 stock index. The fund's mandate is
to remain fully invested with industry diversification closely in line with the
S&P 500. Therefore, the fund's relative performance compared with the index
comes almost exclusively from stock selection within sectors.
Our investment process starts with stocks that the Goldman Sachs Investment
Research Department, one of Wall Street's leading research teams, believes will
outperform the broader market. We then use GSAM's proprietary, multifactor
model to estimate individual stock returns in terms of both company-specific
characteristics and general economic conditions. These include a wide range of
quantitative factors, such as a stock's price valuations, yield, profitability,
growth potential, price momentum, risk and liquidity. The relative weight
assigned to each factor depends on general economic conditions. The highest
rated stocks in each industry sector are included in the fund's portfolio. We
believe that combining the fundamental research of Goldman Sachs analysts with
our disciplined, quantitative approach increases the fund's potential to
deliver superior performance.
PERFORMANCE
For the 12 months ended January 31, 1995, the fund had a total return of -
1.10% based on net asset value compared with a return of 0.53% for the S&P 500
stock index, its benchmark. During the same period, the average growth fund, as
tracked by Lipper Analytical Services, Inc., returned -4.26%, placing the fund
well ahead of its peers.
The fund's underperformance relative to the S&P 500 occurred during the second
half of the year, primarily during the fourth quarter of 1994, amid investor
concern that rapidly increasing short-term interest-rates would lead to slower
economic growth. In general, the market shunned cyclical and interest rate-
sensitive stocks and the fund was modestly overweighted in both automotive and
utility stocks compared with the index. Consequently, the list of stocks that
did well shifted as the market rotated to favor different sectors and styles.
For example, stocks with strong value or momentum characteristics such as
General Motors, Chrysler and the Federal National Mortgage Association were
quite promising during the first half of the year, but faltered during the
fourth quarter along with cyclical stocks in general. Typically, stocks of
companies with increased earnings estimates do well, but this year they did not
as investors discounted the news in anticipation of a possible economic
downturn.
In addition, the fund held a substantial position in Telefonos de Mexico
stock, which suffered a price decline of 22% in December as a consequence of
the devaluation of the peso and the ensuing sharp downturn in the Mexican stock
market. However, in our opinion, the fundamentals of the company remain
attractive. A number of retail stocks, including J.C. Penney, felt the impact
of declining prices in that sector.
PORTFOLIO REVIEW
The fund was invested in a broadly diversified list of securities, with sector
allocations generally within two percentage points of the S&P 500. As of
January 31, the portfolio was slightly overweighted in financial stocks (14.6%
versus 13.3% for the
15
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
index) and slightly underweighted in consumer services (12.0% versus 14.6% for
the index).
As in the past, the fund's quantitative characteristics remain superior to the
S&P 500 stock index. As of January 31, the fund had a lower average
price/earnings (P/E) ratio than the market based on reported earnings for 1994
(14.0x versus 16.1x) and estimated earnings for 1995 (11.4x versus 13.0x), and
also had a lower price to book (P/B) ratio than the broader market (2.3x versus
2.5x). Finally, the fund's long-term expected growth rate is also slightly
ahead of the S&P 500 (12.4% versus 11.9%). Typically, the fund will seek to
maintain equal or slightly lower risk than the S&P 500. All told, we believe
the fund offers investors an attractive combination of value and growth,
without assuming more risk than the broad market as represented by the S&P 500.
TOP 10 PORTFOLIO HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
COMPANY LINE OF BUSINESS PERCENTAGE
<S> <C> <C>
Philip Morris Cos. Inc. Tobacco 3.6%
Schering Plough Corp. Pharmaceuticals 3.3%
General Electric Co. Electrical Equipment 3.2%
AT&T Corp. Telephone 2.7%
American International Multi-line Insurance 2.6%
Group, Inc.
British Petroleum P.L.C. International Oil 2.3%
Rockwell International Corp. Aerospace/Defense 2.3%
PepsiCo Inc. Beverages/Soft Drinks 2.2%
DuPont E.I. DeNemours Diversified Chemicals 2.1%
Dow Chemical Co. Diversified Chemicals 2.1%
</TABLE>
OUTLOOK
During the course of the year, we have continued to research ways to improve
our quantitative model in order to more accurately predict the relative impact
of different economic factors on a stock's performance. Our research shows that
different market and economic conditions favor stocks with different
characteristics. Our model's enhancements, which will go into effect during the
next few months, are intended to help us predict which characteristics the
market is likely to reward in the near future. Currently, we expect stocks with
low P/E multiples, rising earnings estimates and solid growth potential to
outperform the market. Conversely, we expect stocks with strong prior price
momentum to do less well than normal in the near term.
/s/ Robert C. Jones
Robert C. Jones, CFA
Portfolio Manager
16
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended January 31, 1995. The
Goldman Sachs Select Equity Fund's ("GS Select Equity") performance (assuming
both the maximum sales charge of 5.50% and no sales charge) is compared with
its benchmark--the Standard & Poor's 500 Index ("S&P 500"). All performance
data shown represents past performance and should not be considered indicative
of future performance which will fluctuate as market conditions change. The in-
vestment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Select Equity GS Select Equity S&P 500
(w/sales charge) (no sales charge)
---------------- ----------------- -------
<S> <C> <C> <C>
5/24/91 $ 9,450 $10,000 $10,000
1/31/92 $10,112 $10,701 $11,092
1/31/93 $10,548 $11,162 $12,266
1/31/94 $12,144 $12,851 $13,846
1/31/95 $12,009 $12,708 $13,919
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------
One Year Since Inception/(a)/
-------- --------------------
<S> <C> <C>
GS Select Equity
excluding sales charge (1.10%) 6.70%
GS Select Equity (6.54%) 5.08%
including sales charge
</TABLE>
(a) Commenced operations May 24, 1991.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--97.4%
AEROSPACE/DEFENSE--2.2%
55,500 Rockwell International Corp. $ 2,088,187
- ------------------------------------------------------------------------------------------
AUTOMOBILE--2.9%
23,300 Chrysler Corp. 1,048,500
41,300 Ford Motor Co. 1,042,825
17,200 General Motors Corp. 666,500
- ------------------------------------------------------------------------------------------
2,757,825
- ------------------------------------------------------------------------------------------
BEVERAGES--ALCOHOLIC--1.2%
21,100 Anheuser Busch Companies, Inc. 1,155,225
- ------------------------------------------------------------------------------------------
BEVERAGES--SOFT DRINKS--2.2%
55,900 PepsiCo, Inc. 2,061,312
- ------------------------------------------------------------------------------------------
BROADCAST MEDIA--1.5%
17,000 Capital Cities ABC, Inc. 1,411,000
- ------------------------------------------------------------------------------------------
BUILDING MATERIALS--0.7%
14,200 Armstrong World Industries, Inc. 628,350
- ------------------------------------------------------------------------------------------
CHEMICALS--5.2%
16,200 Cytec Industries Inc. * 615,600
30,400 Dow Chemical Co. 1,896,200
22,000 Monsanto Co. 1,617,000
19,700 Norsk Hydro ADR 778,150
- ------------------------------------------------------------------------------------------
4,906,950
- ------------------------------------------------------------------------------------------
CHEMICALS--DIVERSIFIED--2.1%
37,300 Du Pont E.I. De Nemours 1,986,225
- ------------------------------------------------------------------------------------------
COMMERCIAL SERVICES--1.7%
32,800 Omnicom Group, Inc. 1,648,200
- ------------------------------------------------------------------------------------------
COMPUTER SOFTWARE AND SERVICES--0.9%
13,800 Microsoft Corp. * 819,375
- ------------------------------------------------------------------------------------------
COMPUTER SYSTEMS--2.3%
23,100 Gateway 2000 Inc. * 482,213
24,100 International Business Machines 1,738,213
- ------------------------------------------------------------------------------------------
2,220,426
- ------------------------------------------------------------------------------------------
CONTAINERS--METAL & GLASS--0.9%
78,000 Owens-Illinois, Inc. * 809,250
- ------------------------------------------------------------------------------------------
ELECTRIC COMPANIES--2.8%
29,300 Empresa Nacional De Electric ADR 1,193,975
28,500 General Public Utilities Corp. 805,125
25,700 Peco Energy Co. 687,475
- ------------------------------------------------------------------------------------------
2,686,575
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT--3.2%
58,100 General Electric Co. $ 2,992,150
- --------------------------------------------------------------------------------------
ELECTRONICS--INSTRUMENTATION--0.7%
6,800 Hewlett Packard Co. 683,400
- --------------------------------------------------------------------------------------
ELECTRONICS--SEMICONDUCTORS--3.7%
18,800 Intel Corp. 1,304,250
18,200 Motorola Inc. 1,076,075
15,800 Texas Instruments Inc. 1,090,200
- --------------------------------------------------------------------------------------
3,470,525
- --------------------------------------------------------------------------------------
ENTERTAINMENT--1.6%
30,400 Walt Disney Co. 1,546,600
- --------------------------------------------------------------------------------------
FINANCIAL--3.8%
16,700 BankAmerica Corp. 720,188
17,300 Chase Manhattan Corp. 573,063
18,900 Federal National Mortgage Association 1,351,350
27,700 MGIC Investment Corp. 1,004,125
- --------------------------------------------------------------------------------------
3,648,726
- --------------------------------------------------------------------------------------
GROCERY PRODUCTS--1.3%
41,500 IBP, Inc. 1,239,813
- --------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.6%
32,000 Philips NV 1,008,000
9,600 Procter & Gamble Co. 626,400
7,400 Unilever NV 873,200
- --------------------------------------------------------------------------------------
2,507,600
- --------------------------------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.7%
18,100 CMAC Investment Corp. 572,413
26,400 Exel Insurance Ltd. 1,036,200
- --------------------------------------------------------------------------------------
1,608,613
- --------------------------------------------------------------------------------------
IRON/STEEL--0.5%
9,300 Nucor Corp. 474,300
- --------------------------------------------------------------------------------------
MACHINERY AND EQUIPMENT--1.0%
18,600 Caterpillar, Inc. 957,900
- --------------------------------------------------------------------------------------
MAJOR REGIONAL BANKS--3.3%
27,000 Banc One Corp. 796,500
21,200 First Fidelity Bancorp 1,001,700
28,400 NationsBank Corp. 1,320,600
- --------------------------------------------------------------------------------------
3,118,800
- --------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES--1.1%
25,100 Columbia/HCA Healthcare 1,007,138
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MISCELLANEOUS--1.9%
51,800 Allied Signal, Inc. $ 1,851,850
- -----------------------------------------------------------------------------------------
MONEY CENTER BANKS--0.8%
19,500 Citicorp 792,188
- -----------------------------------------------------------------------------------------
MULTI-LINE INSURANCE--2.5%
23,000 American International Group, Inc. 2,394,875
- -----------------------------------------------------------------------------------------
OIL--DOMESTIC INTEGRATED--3.3%
25,300 Amoco Corp. 1,467,400
27,400 Tenneco Inc. 1,205,600
16,700 Teppco Partners L.P. 465,513
- -----------------------------------------------------------------------------------------
3,138,513
- -----------------------------------------------------------------------------------------
OIL--INTERNATIONAL INTEGRATED--5.0%
28,000 British Petroleum PLC ADR 2,173,500
12,900 Mobil Corp. 1,114,237
12,700 Royal Dutch Petroleum Co. 1,420,812
- -----------------------------------------------------------------------------------------
4,708,549
- -----------------------------------------------------------------------------------------
OIL AND GAS--3.1%
27,200 Exxon Corp. 1,700,000
33,300 Panhandle Eastern Corp. 699,300
18,600 Repsol S.A. ADR 520,800
- -----------------------------------------------------------------------------------------
2,920,100
- -----------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--1.5%
36,900 Caraustar Industries, Inc. 779,512
9,600 International Paper Co. 682,800
- -----------------------------------------------------------------------------------------
1,462,312
- -----------------------------------------------------------------------------------------
PERSONAL LOANS--1.2%
28,700 Beneficial Corp. 1,151,588
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS--4.8%
17,700 Abbott Labs 626,137
13,400 Amgen, Inc. * 852,575
39,300 Schering Plough Corp. 3,085,050
- -----------------------------------------------------------------------------------------
4,563,762
- -----------------------------------------------------------------------------------------
RADIO & TELEVISION BROADCASTING--0.4%
15,900 Heritage Media Corp. * 409,425
- -----------------------------------------------------------------------------------------
RETAIL--DEPARTMENT STORES--1.9%
15,000 May Dept. Stores Co. 526,875
28,000 Sears Roebuck & Co. 1,235,500
- -----------------------------------------------------------------------------------------
1,762,375
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL--FOOD CHAINS--1.4%
40,400 Safeway Inc. * $ 1,297,850
- ---------------------------------------------------------------------------------------
RETAIL--GENERAL MERCHANDISE--1.8%
14,500 J.C. Penney, Inc. 601,750
48,700 Wal Mart Stores, Inc. 1,120,100
- ---------------------------------------------------------------------------------------
1,721,850
- ---------------------------------------------------------------------------------------
RETAIL--SPECIALTY APPAREL STORES--1.0%
54,000 The Limited, Inc. 911,250
- ---------------------------------------------------------------------------------------
TELECOMMUNICATIONS-- LONG DISTANCE--2.6%
27,600 Ameritech Corp. 1,210,950
44,500 Sprint Corp. 1,268,250
- ---------------------------------------------------------------------------------------
2,479,200
- ---------------------------------------------------------------------------------------
TELEPHONE--5.2%
50,500 AT&T Corp. 2,518,687
26,400 British Telecommunications PLC ADR 1,659,900
20,900 Telefonos de Mexico S.A. ADR 739,337
- ---------------------------------------------------------------------------------------
4,917,924
- ---------------------------------------------------------------------------------------
TEXTILE--APPAREL MANUFACTURERS--1.3%
26,500 V.F. Corp. 1,275,312
- ---------------------------------------------------------------------------------------
TOBACCO--4.2%
55,300 Philip Morris Companies, Inc. 3,297,262
110,600 RJR Nabisco Holdings Corp. 649,775
- ---------------------------------------------------------------------------------------
3,947,037
- ---------------------------------------------------------------------------------------
TOYS--0.7%
33,406 Mattel, Inc. 689,004
- ---------------------------------------------------------------------------------------
TRANSPORTATION--MISCELLANEOUS--0.7%
11,700 Federal Express Corp. * 710,775
- ---------------------------------------------------------------------------------------
UTILITIES--1.0%
36,800 Unicom Corp. 956,800
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $87,841,086) $92,497,004
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SELECT EQUITY FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
SHORT TERM OBLIGATIONS--2.3%
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--2.3%
$2,144,000 SBC Securities, Inc., dated 01/31/95, 5.800%, due
02/01/95, repurchase price $2,144,345 (U.S. Treasury
Notes: $2,170,000, 7.50%, 11/15/01) $ 2,144,000
- -------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(Cost $2,144,000) $ 2,144,000
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $89,985,086)** $94,641,004
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 8,293,943
Gross unrealized loss for investments in which cost exceeds
value (3,638,025)
- -------------------------------------------------------------------------------
Net unrealized gain $ 4,655,918
- -------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** The amount stated also represents aggregate cost for federal income tax
purposes.
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>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
through investments in a portfolio of medium- and large-capitalization stocks.
The portfolio managers use fundamental research to identify companies whose
business value is, in their opinion, unrecognized or significantly undervalued
in the marketplace, either because the company's business is not well
understood or because it is experiencing what are judged to be temporary
difficulties. Their analysis focuses on such factors as a company's long-term
growth potential, the amount of excess or free cash flow it can be expected to
generate after providing for future growth, its competitive position in its
industry, how the general economic environment might affect its business, and
how committed its management is to producing value for shareholders. Because
this investment approach requires the patience to hold a stock until the market
recognizes its true value, the fund is expected to have a fairly low turnover.
PERFORMANCE
During the period under review, the fund's total return was -4.38% based on
net asset value compared with a total return of 0.53% for the S&P 500 stock
index, an unmanaged index that reflects the performance of 500 large-company
stocks. The fund's results were very close to the Lipper growth fund category
average return of -4.26% for the 12 months ended January 31. In part, the fund
fared less well than the S&P 500 due to our focus on less well-known companies
with medium capitalizations to which the market was particularly unkind during
this period. As is often the case during periods when interest rates rise
sharply and quickly, the market looked for relative stability among larger,
established companies in lieu of smaller companies with greater growth
potential. While we are never happy to report average returns, we will continue
to focus on companies that are temporarily out of favor but, in our opinion,
offer the potential for superior results over the long term.
As mentioned in the introduction to this letter, the Goldman Sachs Capital
Growth Fund will reach a milestone shortly. We are pleased to note that the
fund will celebrate its fifth anniversary on April 20, 1995.
PORTFOLIO REVIEW
In the difficult market environment, retail stocks suffered
disproportionately. The fund's holdings in Musicland Stores (specialty
retailing), Charming Shoppes (a retailer of moderately priced women's apparel)
and Service Merchandise (the nation's largest catalog retailer) felt the impact
of earnings shortfalls resulting in what we believe are exaggerated declines in
share prices. In some cases, we have taken advantage of these lower prices and
purchased additional shares.
Among the stocks in the portfolio that performed particularly well during the
period was one of our largest holdings, McDonnell Douglas. During the period,
higher earnings and cash flow enabled this leading aerospace/defense company to
raise dividends significantly, announce a stock split and institute an
aggressive stock repurchase program. Other strong performers included two
technology companies, Analog Devices Inc., a semiconductor manufacturer, and
AMP Inc., the largest company in the worldwide electronic connector business.
Both benefited from the continuing acceleration of demand that should result in
an extended period of growth and continued price appreciation.
21
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
NEW POSITIONS IN THE PORTFOLIO
During the past 12 months, we established new positions in a number of
companies including Amgen, Consolidated Freightways and Lear Seating. The
selection of Amgen, one of the world's largest biotechnology companies, is a
particularly good example of our investment process working successfully. We
purchased the stock earlier in the period under review when it sold in the low
40s, based on our belief that the company and its key products (Neupogen and
Epogen) had the potential to produce a high level of earnings and cash flow,
despite stagnant earnings estimates at the time. Our analysis proved correct,
causing the market and potential acquirers to take note as the stock rose
significantly during the year.
TOP 10 PORTFOLIO HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
COMPANY LINE OF BUSINESS PERCENTAGE
National Medical Hospital Management 5.0%
Enterprises, Inc.
<S> <C> <C>
McDonnell Douglas Corp. Aerospace/Defense 4.6%
Georgia-Pacific Corp. Paper and Forest Products 4.4%
Snap-On Inc. Machine Tools 3.9%
Valassis Communications, Publishing 3.8%
Inc.
Millipore Corp. Manufacturing-Diversified 3.8%
Industrial
Amgen Inc. Pharmaceuticals/Biotechnology 3.4%
Stone Container Corp. Containers--Paper Products 3.3%
Lear Seating Corp. Autoparts/Original 3.3%
Equipment
Varian Associates, Inc. Electron Technology 3.3%
</TABLE>
OUTLOOK
We believe that as the pace of interest rate increases slows during 1995, the
market will resume its upward movement signaling the next phase of the bull
market. In addition, our analysis indicates that many medium- and smaller cap
stocks are still inexpensive by historical standards. We will therefore use
this period as an opportunity to buy the stocks of well-managed companies at
distressed prices. This strategy calls for extensive research, very careful
stock selection and a commitment to a long-term time horizon -- all hallmarks
of the fund's investment approach.
/s/ James S. McClure
James S. McClure
Portfolio Manager
22
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended January 31, 1995. The
Goldman Sachs Capital Growth Fund's ("GS Cap Growth") performance (assuming
both the maximum sales charge of 5.50% and no sales charge) is compared with
its benchmark--the Standard & Poor's 500 Index ("S&P 500"). All performance
data shown represents past performance and should not be considered indicative
of future performance which will fluctuate as market conditions change. The in-
vestment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Cap Growth GS Cap Growth
(w/sales charge) (no sales charge) S&P 500
---------------- ----------------- --------
<S> <C> <C> <C>
April 20, 1990 $ 9,450 $10,000 $10,000
January 31, 1991 $ 9,529 $10,084 $10,552
January 31, 1992 $12,322 $13,040 $12,946
January 31, 1993 $14,542 $15,388 $14,316
January 31, 1994 $16,998 $17,987 $16,160
January 31, 1995 $16,254 $17,200 $16,246
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
-----------------------------------
One Year Since Inception/(a)/
----------- --------------------
<S> <C> <C>
GS Cap Growth
excluding sales charge (4.38%) 11.99%
GS Cap Growth
including sales charge (9.64%) 10.67%
</TABLE>
(a) Commenced operations April 20, 1990.
23
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--93.4%
AEROSPACE/DEFENSE--6.4%
744,000 McDonnell Douglas Corp. $ 37,200,000
448,700 Northrop Grumman Corp. 18,116,262
- -------------------------------------------------------------------------------------
55,316,262
- -------------------------------------------------------------------------------------
AUTOMOBILE--2.9%
644,400 General Motors Corp. 24,970,500
- -------------------------------------------------------------------------------------
AUTOPARTS--ORIGINAL EQUIPMENT--3.1%
1,445,200 Lear Seating Corp. * 26,555,550
- -------------------------------------------------------------------------------------
CHEMICALS, PLASTICS--2.4%
795,900 Geon Co. 21,091,350
- -------------------------------------------------------------------------------------
CONGLOMERATES--2.0%
385,500 Tenneco Inc. 16,962,000
- -------------------------------------------------------------------------------------
CONTAINERS--PAPER--3.1%
1,568,900 Stone Container Corp. * 26,671,300
- -------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--2.7%
326,700 AMP, Inc. 23,195,700
- -------------------------------------------------------------------------------------
ELECTRON TECHNOLOGY--3.0%
718,900 Varian Associates, Inc. 26,509,438
- -------------------------------------------------------------------------------------
ELECTRONICS--SEMICONDUCTORS--4.4%
919,625 Analog Devices, Inc. * 19,771,938
985,200 National Semiconductor Corp. * 17,979,900
- -------------------------------------------------------------------------------------
37,751,838
- -------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT--6.5%
1,316,200 Community Psychiatric Centers 16,123,450
2,739,300 National Medical Enterprises, Inc.* 40,062,263
- -------------------------------------------------------------------------------------
56,185,713
- -------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.4%
607,200 First Brands Corp. 20,417,100
- -------------------------------------------------------------------------------------
INSURANCE--PROPERTY AND CASUALTY--4.2%
1,170,200 Home Holdings, Inc. * 9,800,425
670,150 Integon Corp. 9,717,175
799,800 PartnerRe Holdings, Ltd. 16,295,925
- -------------------------------------------------------------------------------------
35,813,525
- -------------------------------------------------------------------------------------
LIFE INSURANCE--1.2%
724,200 Penncorp Financial Group, Inc. 9,867,225
- -------------------------------------------------------------------------------------
MACHINE TOOLS--3.6%
992,800 Snap-On, Inc. 31,397,300
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------------------
<C> <S> <C>
MACHINES--DIVERSIFIED--0.4%
134,800 Harinschfeger Industries, Inc. $ 3,589,050
- ------------------------------------------------------------------------------------
MANUFACTURING--DIVERSIFIED INDUSTRIAL--3.6%
625,500 Millipore Corp. 30,805,875
- ------------------------------------------------------------------------------------
METALS--MISCELLANEOUS--1.1%
421,500 Quanex Corp. 9,062,250
- ------------------------------------------------------------------------------------
MISCELLANEOUS--2.9%
638,500 Fisher Scientific International, Inc. 16,441,375
482,600 Keystone International, Inc. 8,204,200
- ------------------------------------------------------------------------------------
24,645,575
- ------------------------------------------------------------------------------------
MONEY CENTER BANKS--4.8%
524,100 BankAmerica Corp. 22,601,812
470,700 Citicorp 19,122,187
- ------------------------------------------------------------------------------------
41,723,999
- ------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--6.2%
485,800 Champion International Corp. 18,581,850
487,600 Georgia-Pacific Corp. 35,107,200
- ------------------------------------------------------------------------------------
53,689,050
- ------------------------------------------------------------------------------------
PHARMACEUTICALS/BIOTECHNOLOGY--3.2%
432,100 Amgen, Inc.* 27,492,362
- ------------------------------------------------------------------------------------
PUBLISHING--3.6%
2,059,400 Valassis Communications, Inc. * 30,891,000
- ------------------------------------------------------------------------------------
RAILCARS--2.3%
598,550 Trinity Industries, Inc. 19,752,150
- ------------------------------------------------------------------------------------
RETAIL--DEPARTMENT STORES--4.0%
946,000 Dillard Department Stores, Inc. 24,832,500
2,261,200 Service Merchandise Co. * 9,892,750
- ------------------------------------------------------------------------------------
34,725,250
- ------------------------------------------------------------------------------------
RETAIL--SPECIALTY--1.7%
1,725,800 Musicland Stores Corp. * 14,885,025
- ------------------------------------------------------------------------------------
RETAIL--SPECIALTY APPAREL STORES--5.1%
3,268,100 Charming Shoppes, Inc. 20,834,138
1,715,400 TJX Companies,Inc. 22,943,475
- ------------------------------------------------------------------------------------
43,777,613
- ------------------------------------------------------------------------------------
SAVINGS AND LOANS--0.6%
412,950 Firstfed Financial Corp. * 4,852,162
- ------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SHOES--0.6%
1,143,500 LA Gear, Inc. * $ 5,431,625
- -----------------------------------------------------------------------------
TEXTILES--1.0%
569,200 Warnaco Group, Inc. * 8,822,600
- -----------------------------------------------------------------------------
TOBACCO--2.0%
881,900 Universal Corp. 17,417,525
- -----------------------------------------------------------------------------
TRANSPORTATION--MISCELLANEOUS--1.7%
910,200 Kirby Corp. * 14,676,975
- -----------------------------------------------------------------------------
TRUCKERS--0.7%
300,000 Consolidated Freightways, Inc. 6,262,501
- -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $750,981,831) $805,207,388
- -----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- -----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.9%
CONTAINERS--PAPER--0.9%
$8,000,000 Stone Container Corp.
9.875%, 02/01/01 $ 7,540,000
- -----------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $8,000,000 ) $ 7,540,000
- -----------------------------------------------------------------------------
SHORT TERM OBLIGATIONS--6.0%
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENTS--6.0%
$51,409,000 SBC Securities, Inc., dated 01/31/95, 5.800%, due
02/01/95, repurchase price $51,417,283 (U.S.
Treasury Notes: $54,615,000, 5.875%, 03/31/99) $ 51,409,000
- -----------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(Cost $51,409,000) $ 51,409,000
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $810,390,831)** $864,156,388
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $123,755,372
Gross unrealized loss for investments in
which cost exceeds value (71,160,746)
- ----------------------------
Net unrealized gain $ 52,594,626
- ----------------------------
</TABLE>
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $811,561,762.
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.
25
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Small Cap Equity Fund seeks long-term capital appreciation,
primarily through investments in equity securities of U.S. companies with
market capitalizations of $1 billion or less, with an emphasis on those with
capitalizations of $500 million or less. The fund is managed using a business
value approach to investing, which means we look for attractive companies with
high or improving returns on capital that we believe can achieve solid,
sustainable growth, as well as generate free cash after investing for future
growth. Using our own rigorous fundamental research, meeting with a company's
management, and through interviews with its competitors, customers and
suppliers, we build the fund's portfolio one stock at a time.
PERFORMANCE
During the period under review, the stocks of smaller companies had a
particularly difficult time. After a disappointing first half of 1994, small
stocks enjoyed a brief rally in July and August. Since then, small stocks have
declined more sharply than larger stocks. The market has been particularly
unforgiving to the stocks of small companies that have reported disappointing
earnings, with even modest shortfalls resulting in substantial stock price
declines.
In this environment, the Goldman Sachs Small Cap Equity Fund had a total
return of -17.53% based on net asset value compared with a total return of -
6.01% for the Russell 2000, a small stock index and the fund's benchmark.
PORTFOLIO REVIEW
The fund's underperformance partially reflects its concentration in the retail
sector, which was not favored by the market in 1994, particularly during a very
disappointing fourth quarter. In addition, the fund was underweighted in the
high tech sector, which rallied strongly starting in July.
However, the fund suffered most from specific setbacks for a number of its
holdings that we believe will prove temporary. For example, Musicland Stores'
(retail) stock suffered as a result of the company's new aggressive pricing and
promotional strategy in its mall stores that hurt current profits but that we
believe could pay off in the long term. Other large retail positions, including
Brookstone, Charming Shoppes and Service Merchandise suffered price declines
after reporting disappointing earnings and poor sales in the fourth quarter.
Concerns about near-term profitability hurt the stock prices of Foamex
International (foam products) and J. Baker, (shoe and apparel retailer), but we
used the declines as an opportunity to add to our positions in those stocks at
what we believe were very attractive valuations.
When a company failed to meet our expectations for earnings or cash flow
because of what we viewed as longer term problems, we sold the stock. That was
the case for Central Garden and Pet, Miles Homes and Carr Gottstein, a grocery
store chain based in Alaska.
Several of the fund's investments performed quite well during the year. In
particular, Black Box, a catalog marketer of data communications and networking
products, formerly part of MB Communications, and Plantronics, a producer of
lightweight headsets and communications equipment, both reported higher than
expected earnings and their stock prices responded accordingly. We sold other
holdings that hit or exceeded our target price including APS Holdings,
International Imaging, AnnTaylor Stores and Nu-Kote Holding Materials.
26
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
During the fourth quarter, several new stocks were added to the fund's
portfolio including Levitz Furniture, a leading retailer of moderately priced
furniture, and TJX Companies, the parent company of T. J. Maxx, a discount
retailer.
Finally, to help manage volatility, going forward we intend to reduce the
percentage of a company's outstanding shares we will own. Such limitations will
provide us with more flexibility to add to our position in the event of market
declines and to provide more liquidity should we decide to sell.
TOP 10 PORTFOLIO HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
COMPANY LINE OF BUSINESS PERCENTAGE
<S> <C> <C>
North American Watch Corp. Specialty Retail 4.4%
Black Box Corp. Commercial 4.2%
Services
American Publishing Co. Print & 4.2%
Publishing
American Safety Razor Co. Household 3.9%
Products
ABT Building Products Corp. Building 3.5%
Materials
Sonic Corp. Restaurants 3.5%
Foamex International Inc. Diversified 3.5%
Industrial
Manufacturing
DIMAC Corp. Advertising 3.4%
Morningstar Group, Inc. Grocery Products 3.2%
J. Baker, Inc. Specialty Retail 3.0%
</TABLE>
OUTLOOK
With regard to small-cap stocks in particular, we believe the market has been
experiencing an intracycle correction that will prove temporary. Historically,
small-cap stocks have experienced relatively long, dramatic cycles during which
they outperform larger stocks, followed by periods in which they underperform.
Typically, these cycles last from seven to 10 years, beginning when small-cap
stocks are extremely undervalued and ending when they are extremely overvalued.
During these longer cycles, there are generally several periodic pullbacks or
corrections of 10% to 15%. In our opinion, the latest positive small-cap cycle,
which began in early 1991, still has several years to go.
Our analysis indicates that many small-cap stocks are still attractively
valued relative to larger stocks, as well as to their own earnings and cash
flow potential. We remain committed to our disciplined, stock-by-stock
approach, which we believe will uncover attractive opportunities for investors
over the long term.
/s/ Paul D. Farrell
Paul D. Farrell
Co-Head, U.S. Actively Managed Equity Investments
Portfolio Manager
27
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended January 31, 1995. The
Goldman Sachs Small Cap Equity Fund's ("GS Small Cap") performance (assuming
both the maximum sales charge of 5.50% and no sales charge) is compared with
its benchmarks--the Standard & Poor's 500 Index ("S&P 500") and the Russell
2000 Index ("Russell 2000"). All performance data shown represents past perfor-
mance and should not be considered indicative of future performance which will
fluctuate as market conditions change. The investment return and principal
value of an investment will fluctuate with changes in market conditions so that
an investor's shares, when redeemed, may be worth more or less than their orig-
inal cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap/(a)/ GS Samll Cap
(w/sales charge) (no sales charge) S&P 500 Russell 2000
---------------- ----------------- -------- ------------
<S> <C> <C> <C> <C>
10/22/92 $ 9,450 $10,000 $10,000 $10,000
1/31/93 $11,138 $11,786 $10,655 $11,733
1/31/94 $14,494 $15,337 $12,027 $13,914
1/31/95 $11,953 $12,649 $12,091 $13,078
</TABLE>
<TABLE>
<CAPTION>
Aggregate Annual Total Return
-----------------------------------
One Year Since Inception/(a)/
----------- --------------------
<S> <C> <C>
GS Small Cap
excluding sales charge (17.53%) 10.86%
GS Small Cap
including sales charge (22.06%) 8.14%
</TABLE>
(a) Commenced operations October 22, 1992.
28
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--91.5%
ADVERTISING--3.1%
806,700 Dimac Corp. * $ 9,882,075
- --------------------------------------------------------------------------------
BROADCAST MEDIA--2.3%
621,800 USA Mobile Communications Holdings * 7,461,600
- --------------------------------------------------------------------------------
BUILDING MATERIALS--3.2%
751,500 ABT Building Products Corp. * 10,333,125
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES--8.3%
2,819,268 Automated Security Holdings PLC ADR 6,343,353
904,202 Black Box Corp. * 12,206,727
986,300 International Post, Ltd. * 5,424,650
539,200 Opinion Research Corp. * 2,493,800
- --------------------------------------------------------------------------------
26,468,530
- --------------------------------------------------------------------------------
COMMUNICATION-EQUIPMENT--1.5%
165,800 Plantronics, Inc. * 4,621,675
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE AND SERVICES--0.8%
339,367 Micom Communications * 2,672,515
- --------------------------------------------------------------------------------
COSMETICS--1.3%
483,500 Playtex Products, Inc. * 3,988,875
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--2.4%
432,000 Holophane Corp. * 7,560,000
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--0.2%
208,700 Hamilton Financial Services Corp. * 730,450
- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.3%
189,300 Alpine Lace Brands, Inc. * 804,525
- --------------------------------------------------------------------------------
GROCERY PRODUCTS--2.9%
1,579,800 Morningstar Group, Inc. * 9,281,325
- --------------------------------------------------------------------------------
HEALTH CARE--MISCELLANEOUS--2.9%
233,050 American Healthcorp, Inc. * 1,456,562
503,000 Grancare, Inc. * 7,733,625
- --------------------------------------------------------------------------------
9,190,187
- --------------------------------------------------------------------------------
HOMEBUILDING AND LAND DEVELOPMENT--0.0%
57,000 Miles Homes, Inc. (Warrants expiring 04/01/97) * 28,500
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--3.5%
921,500 American Safety Razor Co. * 11,288,375
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
LIFE INSURANCE--0.3%
50,400 The Paul Revere Corp. $ 856,800
- -------------------------------------------------------------------------------------
MANUFACTURING--DIVERSIFIED INDUSTRIAL--7.6%
564,800 DT Industries, Inc. 5,648,000
1,228,500 Figgie International, Inc Class A * 8,445,937
9,800 Figgie International, Inc Class B * 67,375
1,054,200 Foamex International, Inc. * 10,146,675
- -------------------------------------------------------------------------------------
24,307,987
- -------------------------------------------------------------------------------------
MEDICAL--HOSPITAL MANAGEMENT & SERVICES--2.1%
680,400 Physicians Clinical Laboratory, Inc. * 6,804,000
- -------------------------------------------------------------------------------------
METALS--MISCELLANEOUS--1.3%
455,700 Webco Industries, Inc. * 4,215,225
- -------------------------------------------------------------------------------------
MISCELLANEOUS--2.8%
376,100 Childrens' Discovery Centers * 4,889,300
91,600 Fisher Scientific International, Inc. 2,358,700
248,500 Oroamerica, Inc. * 1,739,500
- -------------------------------------------------------------------------------------
8,987,500
- -------------------------------------------------------------------------------------
MULTI-LINE INSURANCE--0.7%
172,800 Penncorp Financial Group, Inc. 2,354,400
- -------------------------------------------------------------------------------------
OIL AND GAS--2.0%
556,600 Total Petroleum of North America Ltd. 6,261,750
- -------------------------------------------------------------------------------------
PACKAGING AND CONTAINER--0.6%
175,500 Concordia Paper Holdings Ltd. ADR * 2,018,250
- -------------------------------------------------------------------------------------
PRINT & PUBLISHINGS--3.8%
1,015,900 American Publishing Co. 12,190,800
- -------------------------------------------------------------------------------------
RESTAURANTS--3.3%
17,600 IHOP Corp. * 484,000
463,600 Sonic Corp. * 10,199,200
- -------------------------------------------------------------------------------------
10,683,200
- -------------------------------------------------------------------------------------
RETAIL--FOOD CHAINS--2.5%
738,100 Quantum Restaurant Group, Inc. * 8,026,837
- -------------------------------------------------------------------------------------
RETAIL--SPECIALTY--21.9%
265,800 A Pea in the Pod, Inc. * 1,063,200
1,080,100 Brookstone, Inc. * 5,940,550
375,700 Brothers Gourmet Coffees, Inc. * 3,757,000
938,900 Charming Shoppes, Inc. 5,985,488
454,400 Ernst Home Center, Inc. * 4,089,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RETAIL--SPECIALTY--(CONTINUED)
641,600 J.Baker, Inc. $ 8,902,200
882,100 Levitz Furniture, Inc. * 5,843,913
733,440 Musicland Stores Corp. * 6,325,920
884,200 North American Watch Corp. 12,820,900
677,800 Service Merchandise Co., Inc. * 2,965,375
644,400 Supercuts, Inc. * 6,766,200
398,600 TJX Companies, Inc. 5,331,275
- --------------------------------------------------------------------------------
69,791,621
- --------------------------------------------------------------------------------
SHOES--1.0%
601,700 Shoe Carnival, Inc. * 3,083,713
- --------------------------------------------------------------------------------
TELECOM EQUIPMENT--1.3%
310,800 IPC Information Systems, Inc. * 4,040,400
- --------------------------------------------------------------------------------
TEXTILE--APPAREL MANUFACTURERS--4.3%
515,600 Authentic Fitness Corp. * 6,831,700
135,000 Horace Small Apparel PLC, ADR 810,000
386,000 Norton McNaughton, Inc. * 6,127,750
- --------------------------------------------------------------------------------
13,769,450
- --------------------------------------------------------------------------------
TRUCKERS--1.3%
204,800 Consolidated Freightways, Inc. 4,275,200
- --------------------------------------------------------------------------------
WHOLESALE--SPECIAL LINE--2.0%
1,023,000 American Recreation Company Holdings, Inc. * 6,393,750
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $338,409,306) $292,372,640
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--4.4%
- --------------------------------------------------------------------------------
$3,500,000 Cole National Group Inc. 11.250%, 10/01/01 $ 3,298,750
4,000,000 Figgie International Inc.
9.875%, 10/01/99 3,460,000
525,000 Integon Corp. 8.000%, 08/15/99 497,102
4,750,000 Miles Homes Services, Inc. 12.000%, 04/01/01 2,850,000
1,000,000 Plantronics, Inc.
10.000%, 01/15/01 990,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------
$ 3,000,000 Stone Container Corp.
9.875%, 02/01/01 $ 2,827,500
- ------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $16,788,774) $ 13,923,352
- ------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS--4.0%
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--4.0%
$12,673,000 SBC Securities, Inc., dated 01/31/95, 5.800%, due
02/01/95, repurchase price $12,675,041 (U.S.
Treasury Notes: $13,640,000, 5.375%, 05/31/98) $ 12,673,000
- ------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(Cost $12,673,000) $ 12,673,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $367,871,080)** $318,968,992
- ------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 19,017,366
Gross unrealized loss for investments in which cost exceeds
value (68,037,616)
- ------------------------------------------------------------------------------
Net unrealized loss $(49,020,250)
- ------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $367,989,242.
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>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to achieve superior returns
over the long term. The fund uses intensive fundamental analysis to select
companies with strong, competitive positions in their respective industries
that, for a variety of reasons, are selling at discounts to what we believe to
be their true value. One criterion we consider particularly important is a
company's ability to generate free cash flow -- excess cash after all working
and fixed capital requirements have been satisfied. While our bottom-up
approach puts primary emphasis on selecting individual companies, we also
closely monitor the fund's regional, country and sector allocations in an
effort to manage risk within the context of the country allocations in the
fund's benchmark. Foreign exchange risk is managed by a separate currency
overlay program.
PERFORMANCE
For the 12 months ended January 31, 1995, the Goldman Sachs International
Equity Fund's total return declined by 16.65% based on net asset value compared
with a total return of -10.21% for its benchmark, the Financial Times-Actuaries
Europe & Pacific Index ("Europac") combined hedged and unhedged. Europac is a
capitalization-weighted composite of approximately 1,500 stocks from 20
companies in Europe and the Asia-Pacific region. Until August 31, 1994, the
fund hedged the majority of its assets into U.S. dollars and hence used the
hedged Europac as its benchmark. Since then, the fund has used the unhedged
index because it more accurately reflects the portfolio managers' efforts to
reduce currency hedging costs.
While many of the fund's holdings in Europe and Asia reported positive sales
and earnings results during the period, those results were over shadowed by
broader market movements and economic events. The portfolio underperformed the
Europac Index primarily as a function of its regional asset allocation rather
than because of its stock selection.
For example, during the first three quarters of 1994, the fund had limited
exposure in Japan while that market experienced positive stock market returns.
In September, a new Tokyo-based portfolio manager joined our team and the
fund's position in Japanese stocks was subsequently increased to approximately
30% by the fourth quarter of 1994, just prior to the downturn in the Japanese
market following the Kobe earthquake.
By contrast, the portfolio's position was over- weighted in Asia compared with
the Europac Index (13% versus 5%), based on our positive view for long-term
prospects in that region. Although the majority of stocks we owned in Asia
substantially outperformed their respective markets, during the period under
review Asian markets declined by 24.3% as measured by the FT World Pacific
Basin Ex-Japan Index. January was a particularly rough month, as many investors
reacted to the devaluation of the Mexican peso by avoiding other emerging
markets. Fortunately, Asian currencies have shown strength and resilience
during this difficult period.
Meanwhile, European stocks, reflecting higher interest rates that accompanied
economic recovery, declined by just over 11% as measured by the FT Europe
Index. While many of the fund's European holdings outperformed the Index,
nonetheless they felt the impact of volatile markets.
31
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
PORTFOLIO REVIEW
During the period under review, several investments did not meet our
expectations. Weru Ag (Germany), a manufacturer of prefabricated polyvinyl
chloride (PVC) windows, was hurt by a combination of its own rapid expansion in
the face of increased competition and sharply higher prices for PVC and glass.
We invested in Huhtamaki I Free (Finland), which manufactures confectionery
products, pharmaceuticals and packaging, based on our expectations that
management would refocus the company on its core businesses and improve
profits. When these efforts fell short of our expectations, we sold our
position at a loss.
However, a number of the companies in the fund's portfolio did well and, in
our opinion, have attractive long-term potential. The portfolio's best
performers included Fresenius Ag, the German producer of kidney dialysis
equipment and disposables; Hoganas Ag, a Swedish manufacturer that dominates
the non-U.S. production of iron and steel powdered metals used mainly in
automotive components, which enjoys excellent profit margins and has shown
extremely high volume growth; and Consolidated Electric Power Asia (CEPA) (Hong
Kong), one of the region's largest independent power producers, which we
believe is well positioned to benefit from the increased use of private power
operators in Asia. After CEPA's stock rose 35% since we bought it in July, we
sold part of the position.
We believe a number of our new Japanese holdings, carefully selected because
they were taking aggressive steps to reduce costs, have the potential to show
improvements in earnings in 1995. One such company is Mirai Industry, which
produces electric cable conduits, wiring boxes and other electrical accessories
for the commercial and residential sectors. The company, which currently holds
over 1,000 patents, has gained market share despite the recession in Japan by
actively investing in new product development and containing costs. Aiwa, one
of our larger positions, has expanded its market share in audio consumer
electronics by capitalizing on its innovative products and cost controls, which
include shifting about half of its production and research and development
facilities to lower cost Asian countries. Another Japanese addition, Hoya
Corp., the world's leading manufacturer of optical glass, has successfully
applied its technology to the development of various electronic products
including photomasks and high-density glass magnetic-memory disks. The company
is actively refocusing its business toward higher margin areas, has cut
employees and has shifted much of its production to Thailand.
TOP 10 PORTFOLIO HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
COMPANY COUNTRY LINE OF BUSINESS PERCENTAGE
<S> <C> <C> <C>
Banco Popular Spain Financial 4.4%
Mitsubishi Japan Aerospace/Defense 4.2%
Heavy Industry
Mitsubishi Electric CP Japan Electrical Equipment 4.0%
Cie Financiere Switzerland Consumer Goods 3.9%
Richemont Ag Luxury Products
Ranstad Holdings Netherlands Commercial Services 3.8%
Hoya Corp. Japan Optical Glass Manufacturer 3.7%
Santen Pharmaceutical Co. Japan Pharmaceutical 3.7%
Fresenius Ag Germany Health Care 3.6%
Hoganas Ag Sweden Metal Powder 3.6%
Aiwa Japan Audiovisual 3.6%
Equipment
</TABLE>
OUTLOOK
We believe that while worldwide markets are likely to continue to experience
significant volatility in the short run, during the medium-term our outlook for
international stocks is positive in 1995. The broader economic picture in
Europe and Japan
32
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
appears to be improving, but stocks are still expensive in many cases,
particularly in France and Germany. During the past few months, bond yields
have stabilized in Europe, which should help stocks. We also expect Asian
markets to be more attractive this year. The key will be to identify
undervalued companies with the ability to withstand competitive pressures and
deliver above-average, long-term potential.
/s/ Jeffrey M. Weingarten
Jeffrey M. Weingarten, Chief Investment Officer
International Equity Funds
London
33
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended January 31, 1995. The
Goldman Sachs International Equity Fund's ("GS Int'l Equity") performance (as-
suming both the maximum sales charge of 5.50% and no sales charge) is compared
with its benchmarks--the Financial Times-Actuaries World Euro-Pacific Index
hedged into U.S. dollars ("FT Euro-Pac (US$ hedged)") and the Financial Times-
Actuaries World Euro-Pacific Index hedged and unhedged into U.S. dollars ("FT
Euro-Pac (Combined)")(b). All performance data shown represents past perfor-
mance and should not be considered indicative of future performance which will
fluctuate as market conditions change. The investment return and principal
value of an investment will fluctuate with changes in market conditions so that
an investor's shares, when redeemed, may be worth more or less than their orig-
inal cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Int'l Equity GS Int'l Equity FT Euro-Pac FT Euro-Pac
(w/sales charge) (no sales charge) (US$ hedged) (combined)/(b)/
---------------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
12/1/92 $ 9,450 $10,000 $10,000 $10,000
1/31/93 $ 9,566 $10,123 $10,063 $10,063
1/31/94 $12,066 $12,768 $13,498 $13,498
1/31/95 $10,058 $10,643 $11,916 $12,119
</TABLE>
<TABLE>
<CAPTION>
Aggregate Annual Total Return
-----------------------------------
One Year Since Inception/(a)/
----------- --------------------
<S> <C> <C>
GS Int'l Equity
excluding sales charge (16.65%) 2.91%
GS Int'l Equity
including sales charge (21.23%) 0.26%
</TABLE>
(a) Commenced operations December 1, 1992.
(b) Beginning on September 1, 1994, the Fund began using the unhedged FT Euro-
Pac as its benchmark (prior thereto, the Fund used the hedged FT Euro-Pac).
The combined FT Euro-Pac represents the hedged FT Euro-Pac performance up
to August 31, 1994 and the unhedged FT Euro-Pac performance from September
1, 1994 through January 31, 1995.
34
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--94.4%
AUSTRIAN SCHILLINGS--2.8%
137,400 Oester Elektrizita
(Electric Utility) $ 7,725,717
- --------------------------------------------------------------------------------
BELGIAN FRANCS--3.2%
39,327 Colruyt SA (Food-Retailer) 8,674,935
- --------------------------------------------------------------------------------
BRITISH POUND STERLING--7.5%
437,411 Boots Co.
(Health Care--Diversified) 3,216,766
1,171,639 British Airport Authority (Transportation--
Miscellaneous) 8,282,819
2,600,000 Rentokil Group
(Commercial Services) 9,128,578
- --------------------------------------------------------------------------------
20,628,163
- --------------------------------------------------------------------------------
DANISH KRONER--3.1%
171,900 TeleDanmark AS (Telecommunications) 8,542,857
- --------------------------------------------------------------------------------
HONG KONG DOLLAR--8.1%
3,890,800 Consolidated Electric Power Asia
(Utility) 7,595,485
395,000 HongKong Electric
(Utility) 1,051,971
10,722,000 National Mutual Asia Ltd.
(Life Insurance) 6,514,984
12,959,680 South China Morning Post (Publishing) 7,246,363
- --------------------------------------------------------------------------------
22,408,803
- --------------------------------------------------------------------------------
INDONESIAN RUPIAH--3.3%
125,000 Indosat (Telecommunications) 397,497
2,605,000 Astra International
(Auto Distribution & Assembly) 4,112,539
144,400 PT Indonesia Satellite ADR (Telecommunications) 4,530,550
- --------------------------------------------------------------------------------
9,040,586
- --------------------------------------------------------------------------------
JAPANESE YEN--30.9%
438,000 Aiwa Co.
(Audio-Visual Equipment
Manufacturer) 9,779,342
439,000 Hoya Corp.
(Optical Glass Manufacturer) 10,199,035
159,000 Inaba Denkisangyo (Retail) 4,317,610
388,000 Max Co.
(Office Equipment Manufacturer) 8,584,934
55,000 Ministop Co. (Retail) 1,493,514
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
JAPANESE YEN (continued)
200,000 Mirai Industry Co. (Miscellaneous Manufacturers) $ 4,706,829
1,799,000 Mitsubishi Electric CP
(Electrical Equipment) 11,054,903
1,700,000 Mitsubishi Heavy Industry (Aerospace/Defense) 11,489,490
374,000 Santen Pharmaceutical Co. (Pharmaceutical) 10,118,274
315,000 Shimachu Co. (Furniture Retail) 8,959,910
184,000 Taikisha Ltd.
(Engineering & Construction) 3,423,514
35,200 Trusco Nakayama (Trading) 817,781
- -------------------------------------------------------------------------------
84,945,136
- -------------------------------------------------------------------------------
MALAYSIAN RINGGIT--1.8%
881,000 Kim Hin Industry (Building Materials) 3,718,898
452,000 Tanjong (Leisure) 1,165,996
- -------------------------------------------------------------------------------
4,884,894
- -------------------------------------------------------------------------------
NETHERLANDS GUILDERS--6.7%
197,815 Ranstad Holdings
(Commercial Services) 10,499,046
107,583 Wolters Kluwer (Publishing) 7,944,862
- -------------------------------------------------------------------------------
18,443,908
- -------------------------------------------------------------------------------
NORWEGIAN KRONE--3.9%
469,580 Helikopter Services (Transportation) 4,499,644
412,890 Unitor A/S
(Ship Maintenance Services) 6,089,185
- -------------------------------------------------------------------------------
10,588,829
- -------------------------------------------------------------------------------
SPANISH PESETAS--6.1%
101,099 Banco Popular (Financial) 12,231,533
48,063 Zardoya Otis (Electrical Equipment) 4,443,728
- -------------------------------------------------------------------------------
16,675,261
- -------------------------------------------------------------------------------
SWEDISH KRONA--13.1%
202,107 Arjo (Health Care--Miscellaneous) 3,558,554
178,380 Gentinge
(Health Care--Miscellaneous) 4,627,901
610,250 Hoganas Ag
(Metal Powder Manufacturer) 9,808,738
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWEDISH KRONA (continued)
365,790 Securitas AB-B-Free (Commercial Services) $ 9,758,434
452,000 Volvo AB
(Car and Truck Manufacturer) 8,410,676
- -------------------------------------------------------------------------------
36,164,303
- -------------------------------------------------------------------------------
SWISS FRANC--3.9%
12,251 Cie Financiere Richemont Ag (Consumer
Goods--Luxury Products) 10,821,764
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $264,192,085) $259,545,156
- -------------------------------------------------------------------------------
PREFERRED STOCK--3.6%
DEUTSCHEMARKS--3.6%
20,631 Fresenius Ag
(Health Care--Diversified) $ 9,963,528
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $6,455,014) $ 9,963,528
- -------------------------------------------------------------------------------
OPTIONS--0.2%
- -------------------------------------------------------------------------------
JPY36,097,529 Nikkei 300 Call @ 328.55 expiring
12/22/95 $ 511,893
JPY2,380,000,000 Nikkei 300 Call @ 284.70 expiring
03/09/95 124,422
- -------------------------------------------------------------------------------
OPTIONS (Cost $8,340,192) $ 636,315
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $278,987,291)* $270,144,999
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $ 16,862,791
Gross unrealized loss for investments in
which cost exceeds value (25,810,034)
- -------------------------------------------------------------------------------
Net unrealized loss $ (8,947,243)
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
COMMON AND PREFERRED STOCK INDUSTRY CONCEN-
TRATIONS
- ----------------------------------------------
Commercial Services 10.7%
Electrical Equipment 5.6%
Publishing 5.5%
Telecommunications 4.8%
Health Care--Diversified 4.8%
Financial 4.4%
Aerospace/Defense 4.2%
Consumer Goods--Luxury Products 3.9%
Optical Glass Manufacturer 3.7%
Pharmaceutical 3.7%
Metal Powder Manufacturer 3.6%
Audio-Visual Equipment Manufacturer 3.6%
Furniture Retail 3.3%
Utility 3.2%
Food-Retailer 3.2%
Office Equipment Manufacturer 3.1%
Car and Truck Manufacturer 3.1%
Transportation--Miscellaneous 3.0%
Health Care--Miscellaneous 3.0%
Electric Utility 2.8%
Life Insurance 2.4%
Ship Maintenance Services 2.2%
Retail 2.1%
Miscellaneous Manufacturers 1.7%
Transportation 1.6%
Auto Distribution & Assembly 1.5%
Building Materials 1.4%
Engineering & Construction 1.2%
Leisure 0.4%
Trading 0.3%
- ----------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 98.0%
- ----------------------------------------------
</TABLE>
* The aggregate cost for federal income tax purposes is $279,092,242.
JPY = Japanese Yen
The percentage shown for each investment category reflects the value of invest-
ments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The fund seeks long-term capital appreciation by investing in a limited number
of carefully selected companies located in the 12 Asian markets that make up
the fund's investment mandate, to the extent permitted by applicable local
laws. Those countries include China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand. In selecting investments for the fund, we use firsthand fundamental
research. Our goal is to find well-managed companies whose prices are, in our
opinion, undervalued in the marketplace. In addition, ideal candidates for the
fund's portfolio share the following characteristics: a strong market position,
high or improving returns on invested capital, above-average growth potential,
strong free cash flow that is wisely allocated and a skilled management team
dedicated to maximizing shareholder returns. Our investment process includes
face-to-face meetings with senior management as well as frequent contact with a
company's customers, suppliers and competitors.
ASIAN MARKETS REFLECT NEAR-TERM VOLATILITY AND LONG-TERM POTENTIAL
Since the fund's inception on July 8, 1994 through January 31, 1995, Asian
stock markets have been extremely volatile. Throughout the period, the rate of
new foreign investment in Asian markets slowed considerably from last year.
Despite strong economic fundamentals in the region, September marked the end of
a powerful run-up in the Asian markets that began in July. The fourth quarter
of 1994 saw a significant correction among overvalued Asian stocks, caused
primarily by the specter of additional interest rate increases and a weak bond
market in the U.S. January was a particularly brutal month, as Asian markets
felt the halo effect of investor concern regarding all emerging markets spurred
by the devaluation of the Mexican peso and the worsening trade relations
between the U.S. and China. Other factors that contributed to volatility in the
region included the slowdown in the real estate market in Hong Kong, elections
in India and signs of accelerating inflation in China.
PERFORMANCE REVIEW
During the period from inception on July 8, 1994 through January 31, 1995, the
fund had a total return of -5.46% based on net asset value, significantly
outperforming its benchmark, the Morgan Stanley Capital International Combined
Asia (ex Japan) Index, which returned -9.26% for the same period. While we are
never pleased by any decline, our better relative performance was the result of
a combination of careful stock selection and good timing, which included a move
from cyclical stocks and into growth stocks.
The high-quality companies in which the portfolio is invested have held up
better than their respective markets during the most recent period of market
declines. In addition, we used hedging strategies judiciously, including
futures and puts, in an effort to preserve capital in the declining markets.
During much of the period we maintained a relatively high cash weighting (over
10%) to help achieve greater stability, but took advantage of what we viewed as
an oversold market in January to put much of that cash to work.
PORTFOLIO HIGHLIGHTS
As of January 31, the fund's portfolio was invested 90% in common stocks, 3%
in corporate bonds and 7% in cash or cash equivalents. This reflects a
reduction in the portfolio's cash position, which was as high as 15% earlier in
the period.
37
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
By country, our heaviest concentrations were in Hong Kong (34.4%), Indonesia
(11.0%), Singapore (12.9%), the Philippines (9.7%), Malaysia (9.5%) and India
(7.9%). Compared with the Index, the portfolio was over-weighted in Hong Kong,
Indonesia and the Philippines as we took advantage of good relative values
available in those countries, and significantly underweighted in Malaysia and
Thailand.
The portfolio was invested in a wide range of industries including banking,
life insurance, utilities, telecommunications and beverage.
Three of our largest holdings, Metropolitan Bank & Trust Co. (Metrobank),
Overseas Union Bank Ltd. (OUB) and National Mutual Asia, were among the fund's
best performers. Philippines-based Metrobank, a high-quality service provider,
has benefited from deregulation. OUB, Singapore's fourth largest local bank,
with an established network of branches at home as well as in Malaysia and
other countries, has benefited from capital expansion, strong loan demand and
the acquisition of Chase Manhattan Bank's credit card business in Singapore.
National Mutual Asia, one of Hong Kong's leading local insurance companies, has
a dominant market share of about 35% in individual insurance products, sizable
financial reserves and a high return on capital. The company has plenty of room
for future growth: Approximately 30% of the population in Hong Kong is insured
compared with close to 70% penetration for developed markets.
During the period, our investment in Ranbaxy Laboratories Ltd., an Indian
pharmaceutical company with very competent management, exhibited strong growth
and appears to have excellent long-term potential in the still relatively
unsophisticated Indian economy. In addition, a number of our investments in
Indonesian companies, including PT Indonesia Satellite, a tele- communications
company well positioned to take advantage of deregulation and lack of
competition, contributed to the fund's performance.
We also maintained a sizable investment in Consolidated Electric Power Asia
(CEPA) (Hong Kong), which builds and operates power stations. The company has
established an enviable track record in China and is now aggressively seeking
opportunities to expand in Indonesia, India and Pakistan, where potential
returns are even higher. Though the stock has been extremely volatile in recent
months, we still believe in the company's long-term prospects.
Not all the stocks in our portfolio performed as well as we anticipated. For
example, Straits Steamship Land had a disappointing January, reflecting a
perceived downturn in real estate in Singapore. The market had anticipated
better growth that had already been reflected in the stock's price.
During the past few months, we added a new position in the San Miguel Brewery
Ltd. (Hong Kong), which has done well and declared a special dividend.
TOP 10 PORTFOLIO HOLDINGS AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
COMPANY COUNTRY LINE OF BUSINESS PERCENTAGE
<S> <C> <C> <C>
Henderson Land Development Hong Kong Real Estate 4.9%
Metropolitan Bank & Trust Philippines Banking 4.7%
Overseas Union Bank Ltd. Singapore Banking 4.1%
National Mutual Asia Ltd. Hong Kong Life Insurance 3.9%
Ranbaxy Laboratories Ltd. India Pharmaceuticals 3.6%
HongKong Electric Hong Kong Utility 3.5%
Hong Kong Telecommunications Hong Kong Telecommunications 3.4%
San Miguel Brewery Ltd. Hong Kong Brewery 3.4%
Singapore Press Holdings Singapore Printing & 3.4%
Publishing
Global Mark International Indonesia Foods 3.3%
Indofoods
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND (continued)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
INVESTMENT OUTLOOK
Despite recent volatility, we believe the long-term fundamentals for Asia are
positive. In general,
the region has enjoyed a period of relative political stability. Asian
economies have remained strong while managing to contain inflation (with the
exception of China) and are expected to see an increasing amount of growth from
within as Asian countries invest in their own infrastructure and consumer
spending increases.
Nearer term, events in the U.S. could still have a major impact. As interest
rates stabilize in the U.S., Asian markets should see lower volatility and
generally better returns in 1995. Consequently, we have used the recent sell-
offs in the Asian markets as an opportunity to invest in quality companies at
attractive prices.
In addition, we will continue to look for interesting companies in some of the
region's smaller stock markets, such as India and Indonesia, which we believe
offer good growth potential and attractive valuations.
In general, we expect stocks in the region to benefit over time as investors
in Europe, Japan and the U.S. internationalize their portfolios and increase
their investments in Asian companies. But as the past few months have amply
demonstrated, there will be periods of high volatility along the way.
Therefore, it is particularly important that investors view this fund as a
long-term growth opportunity and be prepared to stay the course.
/s/ Warwick M. Negus
Warwick M. Negus
Portfolio Manager, Hong Kong
39
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the period ended January 31, 1995. The
Goldman Sachs Asia Growth Fund's ("GS Asia Growth") performance (assuming both
the maximum sales charge of 5.50% and no sales charge) is compared with its
benchmark--the Morgan Stanley Capital International Combined Asia (ex Japan)
Index ("MSCI Combined Asia-ex Japan"). All performance data shown represents
past performance and should not be considered indicative of future performance
which will fluctuate as market conditions change. The investment return and
principal value of an investment will fluctuate with changes in market condi-
tions so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
HYPOTHETICAL $10,000 INVESTMENT
(UNAUDITED)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Goldman Sachs Asia Growth Goldman sachs Asia Growth MSCI Combined
(w/sales charge) (no sales charge) Asia--ex Japan
------------------------- ------------------------- --------------
<S> <C> <C> <C>
7/8/94 $9,450 $10,000 $10,000
1/31/95 $8,934 $ 9,454 $ 9,074
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Return/(b)/
---------------------------
Since Inception/(a)/
--------------------
<S> <C>
GS Asia Growth (5.46%)
excluding sales charge
GS Asia Growth (10.66%)
including sales charge
</TABLE>
(a) Commenced operations July 8, 1994.
(b) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Fund has not completed a full twelve months
of operations.
40
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--87.8%
HONG KONG DOLLAR--33.5%
2,305,000 Amoy Properties (Real Estate) $ 2,041,273
2,036,800 Consolidated Electric Power Asia* (Utility) 3,976,171
437,800 Hang Seng Bank (Banking) 2,411,154
1,390,000 Henderson Land Development (Real Estate) 6,127,860
1,614,000 HongKong Electric (Utility) 4,298,436
2,430,000 HongKong Telecommunications Ltd.
(Telecommunications) 4,272,527
6,686,000 JCG Holdings Ltd.
(Financial Services) 3,457,531
7,952,000 National Mutual Asia Ltd.
(Life Insurance) 4,831,855
5,463,200 San Miguel Brewery Ltd. (Brewery) 4,202,462
6,994,000 South China Morning Post (Publishing) 3,910,672
8,123,000 Winton Holdings
(Financial Services) 2,126,577
- --------------------------------------------------------------------------------
41,656,518
- --------------------------------------------------------------------------------
INDIAN RUPEE--7.7%
150,000 Larsen & Toubro Limited--GDR (Engineering) 1,916,250
212,000 Ranbaxy Laboratories Ltd.--GDS (Pharmaceuticals) 4,452,000
175,000 Tata Engineering & Locomotive Company Ltd. GDS
(Engineering) 2,942,625
75,000 Tata Engineering & Locomotive Company Ltd. GDR--
Warrants expiring 03/08/96
(Engineering) 225,000
- --------------------------------------------------------------------------------
9,535,875
- --------------------------------------------------------------------------------
INDONESIAN RUPIAH--10.7%
110,000 PT TRI Polyta Indonesia ADR (Chemicals) 2,406,250
1,950,000 Astra International
(Auto Distribution & Assembly) 3,078,484
108,200 PT Indonesia Satellite ADR (Telecomnmunications) 3,394,775
81,000 PT Indonesia Satellite (Telecommunications) 257,578
1,614,040 Mulia Industrindo
(Manufacturing--Diversified Industrial) 3,276,130
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ----------------------------------------------------------------------------------
<C> <S> <C>
INDONESIAN RUPIAH (continued)
1,291,232 Mulia Industrindo (Rights) (Manufacturing--
Diversified Industrial) $ 873,635
- ----------------------------------------------------------------------------------
13,286,852
- ----------------------------------------------------------------------------------
KOREAN WON--3.7%
4,200 Korea Mobile Telecommunications Corp.
(Telecommunications) 3,230,606
10,200 Samsung Electronics GDR (Electronics) 1,403,631
- ----------------------------------------------------------------------------------
4,634,237
- ----------------------------------------------------------------------------------
MALAYSIAN RINGGIT--9.3%
430,000 Cement Manufacturers of Sarawak
(Building Materials) 1,630,252
1,011,000 Commerce Asset Holdings (Financial Services) 3,477,350
523,000 Kim Hin Industry
(Building Materials) 2,207,702
400,000 Malakoff Berhad (Utility) 820,793
402,000 Oriental Holdings (Conglomerate) 1,728,356
648,000 Tanjong (Leisure) 1,671,604
- ----------------------------------------------------------------------------------
11,536,057
- ----------------------------------------------------------------------------------
PHILIPPINE PESO--9.4%
229,657 Metropolitan Bank & Trust (Banking) 5,846,665
13,000 Philippine Long Distance Telephone
(Telecommunications) 675,153
182,867 Benpres Holding Corp.-- GDS
(Telecommunications) 1,280,069
75,000 Philippine Long Distance Telephone ADR
(Telecommunications) 3,909,375
- ----------------------------------------------------------------------------------
11,711,262
- ----------------------------------------------------------------------------------
PAKISTAN RUPEE--0.4%
4,550 Pakistan Telecommunications GDS
(Electronics) 445,900
- ----------------------------------------------------------------------------------
SINGAPORE DOLLAR--12.5%
441,000 Keppel Corp. (Transportation) 3,305,983
933,500 Overseas Union Bank (Banking) 5,104,075
243,000 Singapore Press Holdings
(Publishing) 4,161,417
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
SINGAPORE DOLLAR (continued)
1,070,000 Straits Steamship Land
(Real Estate) $ 3,031,912
- ------------------------------------------------------------------------------------
15,603,387
- ------------------------------------------------------------------------------------
THAI BAHT--0.6%
662,000 Siam City Bank Ltd.
(Banking) 705,658
- ------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $123,439,833) $109,115,746
- ------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--3.3%
$4,250,000 Global Mark International
Indofoods 3.500%,
04/06/97 (Foods) $ 4,122,500
- ------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $4,711,250) $ 4,122,500
- ------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS--6.4%
- ------------------------------------------------------------------------------------
$5,325,826 Euro-Time Deposit 5.750%, 02/01/95 $ 5,325,826
2,649,399 HongKong Time Deposit 5.000%, 02/03/95* 2,649,399
- ------------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(Cost $7,975,225) $ 7,975,225
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $136,126,308)** $121,213,471
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Contracts # Description Value
- -----------------------------------------------------------------------------
<C> <S> <C>
OPTIONS WRITTEN--(0.1)%
- -----------------------------------------------------------------------------
PUT OPTIONS WRITTEN
(12,700) Consolidated Electric Power Asia, Put Strike HK $16
expiring 04/16/95 $(239,716)
- -----------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(Premiums received $180,767) $(239,716)
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $ 3,087,568
Gross unrealized loss for investments in
which cost exceeds value (15,634,971)
- ---------------------------
Net unrealized loss $(12,547,403)
- ---------------------------
</TABLE>
<TABLE>
<S> <C>
COMMON STOCK INDUSTRY
CONCENTRATIONS
Telecommunications 13.7%
Banking 11.3%
Real Estate 9.0%
Financial Services 7.3%
Utility 7.3%
Publishing 6.5%
Engineering 4.1%
Life Insurance 3.9%
Pharmaceuticals 3.6%
Brewery 3.4%
Manufacturing--Diver-
sified Industrial 3.3%
Building Materials 3.1%
Transportation 2.7%
Auto Distribution &
Assembly 2.5%
Chemicals 1.9%
Electronics 1.5%
Conglomerate 1.4%
Leisure 1.3%
- ---------------------------
Total Common Stock 87.8%
- ---------------------------
</TABLE>
* A portion of this security is being segregated as collateral on options
contracts.
** The aggregate cost for federal income tax purposes is $136,147,016.
# One contract relates to 100 shares.
The percentage shown for each investment category reflects the value of invest-
ments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS EQUITY PORTFOLIO MANAGEMENT TEAM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Portfolio Managers:
Mitchell E. Cantor, Co-Head, U.S. Actively Managed Equity Investments
Paul D. Farrell , Co-Head, U.S. Actively Managed Equity Investments
Ronald E. Gutfleish
James S. McClure
Robert C. Jones, CFA, Quantitative Equity Investments
International Portfolio Managers:
Jeffrey M. Weingarten, CIO, International Equity Funds (London)
Warwick M. Negus (Hong Kong)
Roderick D. Jack (London)
Marcel J. Jongen (London)
Shoga Maeda (Tokyo)
Equity Analysts:
James L. Adler (New York)
G. Lee Anderson (New York)
Eileen A. Aptman (New York)
Kent A. Clark (New York)
Alice Lui (Hong Kong)
Victor H. Pinter (New York)
Ashwin Ranganathan (Hong Kong)
Francesca E. Scarito (New York)
Kirsten Sehnbruch (London)
William A. Strong (New York)
Karma Wilson (Hong Kong)
43
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED GROWTH & INCOME
FUND FUND
------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (identified
cost $7,430,895, $201,685,629, $89,985,086,
$810,390,831, $367,871,080, $278,987,291 and
$136,126,308, respectively) $7,501,006 $201,293,633
Cash 78,743 456
Receivables:
Investment securities sold 48,165 2,643,263
Forward foreign currency exchange contracts -- --
Fund shares sold 268,302 2,257,008
Dividends and interest 61,396 163,759
Deferred organization expenses, net 93,864 57,597
Other assets 78,636 --
- ------------------------------------------------------------------------------
TOTAL ASSETS 8,130,112 206,415,716
- ------------------------------------------------------------------------------
LIABILITIES:
Options written, at value (a) -- --
Payables:
Investment securities purchased 460,235 12,154,854
Cash overdraft -- --
Forward foreign currency exchange contracts -- --
Fund shares repurchased -- 135,926
Investment advisory fees 2,820 88,073
Administration fees 845 24,020
Distribution fees 1,408 40,033
Transfer agent fees 20,000 107,418
Accrued expenses and other liabilities 135,236 93,149
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 620,544 12,643,473
- ------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 7,419,039 193,968,736
Accumulated undistributed (distributions in
excess of) net investment income 20,283 29,482
Accumulated undistributed (distributions in
excess of) net realized gain (loss) on
investment, option and futures transactions 135 89,024
Accumulated net realized foreign currency gain
(loss) -- --
Net unrealized gain (loss) on investments and
options 70,111 (314,999)
Net unrealized gain on translation of assets
and liabilities denominated in foreign
currencies -- --
- ------------------------------------------------------------------------------
NET ASSETS $7,509,568 $193,772,243
- ------------------------------------------------------------------------------
Total shares of beneficial interest outstand-
ing, $.001 par value (100,000,000 shares au-
thorized) 528,104 12,267,186
Net asset value and redemption price per share
(net assets/shares outstanding) $14.22 $15.80
- ------------------------------------------------------------------------------
Maximum public offering price per share (NAV
per share X 1.0582) $15.05 $16.72
- ------------------------------------------------------------------------------
</TABLE>
(a) Premiums received are $76,997 for Growth and Income and $180,767 for Asia
Growth.
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
SELECT EQUITY CAPITAL GROWTH SMALL CAP EQUITY INTERNATIONAL EQUITY ASIA GROWTH
FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$94,641,004 $864,156,388 $318,968,992 $270,144,999 $121,213,471
467 -- -- -- 1,041,875
-- 14,058,080 1,757,767 11,985,640 2,503,849
-- -- -- 1,972,755 --
347,233 1,354,877 808,482 517,847 1,210,235
262,073 1,137,303 665,059 529,386 255,053
40,395 13,155 50,899 49,731 107,204
-- 7,493 14,319 5,057 20,942
- ---------------------------------------------------------------------------------
95,291,172 880,727,296 322,265,518 285,205,415 126,352,629
- ---------------------------------------------------------------------------------
-- -- -- -- 239,716
-- 15,861,011 1,607,623 4,135,244 1,220,910
-- -- -- 278,621 --
-- -- -- 2,381,776 --
76,433 1,382,344 284,076 2,394,503 49,299
39,992 578,407 207,582 185,404 80,366
19,996 192,802 69,194 61,801 26,789
19,996 192,802 69,194 61,801 26,789
63,145 350,585 317,062 275,821 81,071
104,101 64,540 223,577 343,975 329,410
- ---------------------------------------------------------------------------------
323,663 18,622,491 2,778,308 10,118,946 2,054,350
- ---------------------------------------------------------------------------------
89,555,372 803,944,279 372,939,313 282,851,907 141,648,168
148,064 851,025 -- (423,846) 143,969
608,155 3,543,944 (4,550,015) (10,496,419) (2,447,689)
-- -- -- 12,287,074 (72,160)
4,655,918 53,765,557 (48,902,088) (17,580,498) (15,289,160)
-- -- -- 8,448,251 315,151
- ---------------------------------------------------------------------------------
$94,967,509 $862,104,805 $319,487,210 $275,086,469 $124,298,279
- ---------------------------------------------------------------------------------
6,502,206 63,048,601 19,789,421 18,940,127 9,337,994
$14.61 $13.67 $16.14 $14.52 $13.31
- ---------------------------------------------------------------------------------
$15.46 $14.47 $17.08 $15.37 $14.08
- ---------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED GROWTH & INCOME
FUND(B) FUND
------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of $0, $11,195, $39,517, $0,
$4,622, $822,794 and $41,473, respectively,
in foreign withholding taxes) $ 14,705 $ 2,490,782
Interest 45,122 373,745
- ------------------------------------------------------------------------------
TOTAL INCOME 59,827 2,864,527
- ------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 6,814 621,416
Administration fees 2,044 169,477
Distribution fees(a) 3,407 282,462
Custodian fees 8,000 37,529
Transfer agent fees 20,000 262,158
Registration fees 17,241 45,004
Professional fees 32,301 50,831
Amortization of deferred organization expenses 6,136 19,182
Other 13,592 48,046
- ------------------------------------------------------------------------------
TOTAL EXPENSES 109,535 1,536,105
Less--expenses reimbursable by Goldman Sachs 95,906 106,725
- ------------------------------------------------------------------------------
NET EXPENSES 13,629 1,429,380
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 46,198 1,435,147
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVEST-
MENT, OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 2,675 2,870,890
Options transactions -- 299,736
Futures transactions (2,540) --
Foreign currency related transactions -- --
Net change in unrealized gain (loss) on:
Investments 70,111 (2,671,306)
Options -- 76,997
Translation of assets and liabilities denomi-
nated in foreign currencies -- --
- ------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON IN-
VESTMENT, OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS 70,246 576,317
- ------------------------------------------------------------------------------
NET INCREASE(DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $116,444 $ 2,011,464
- ------------------------------------------------------------------------------
</TABLE>
(a) During the year ended January 31, 1995, the distributor waived fees of
$3,407, $282,462, $231,128, $2,181,207, $846,475, $796,627 and $138,271,
respectively.
(b) For the period from October 12, 1994 (commencement of operations) to Janu-
ary 31, 1995.
(c) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
SELECT EQUITY CAPITAL GROWTH SMALL CAP EQUITY INTERNATIONAL EQUITY ASIA GROWTH
FUND FUND FUND FUND FUND(C)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,390,226 $ 10,003,053 $ 338,183 $ 6,099,868 $ 1,590,670
113,765 3,440,974 3,026,561 687,774 476,203
- ---------------------------------------------------------------------------------
2,503,991 13,444,027 3,364,744 6,787,642 2,066,873
- ---------------------------------------------------------------------------------
462,255 6,543,621 2,539,424 2,389,882 414,813
231,128 2,181,207 846,475 796,627 138,271
231,128 2,181,207 846,475 796,627 138,271
49,586 143,270 96,570 816,573 210,487
151,230 694,014 600,618 481,169 120,000
21,084 54,057 111,762 100,691 25,698
73,974 84,989 73,470 69,833 78,396
30,845 61,554 18,689 17,555 17,796
23,742 63,113 34,071 42,814 49,186
- ---------------------------------------------------------------------------------
1,274,972 12,007,032 5,167,554 5,511,771 1,192,918
-- -- -- -- 135,905
- ---------------------------------------------------------------------------------
1,274,972 12,007,032 5,167,554 5,511,771 1,057,013
- ---------------------------------------------------------------------------------
1,229,019 1,436,995 (1,802,810) 1,275,871 1,009,860
- ---------------------------------------------------------------------------------
3,907,236 54,473,913 9,687,581 (128,287) (2,452,351)
-- 2,489,778 362,679 (506,200) --
-- -- -- (152,952) 4,662
-- -- -- (15,347,388) (72,160)
(6,127,762) (98,030,384) (74,050,988) (48,710,436) (15,230,211)
-- (515,843) 37,346 (7,538,057) (58,949)
-- -- -- 15,093,970 315,151
- ---------------------------------------------------------------------------------
(2,220,526) (41,582,536) (63,963,382) (57,289,350) (17,493,858)
- ---------------------------------------------------------------------------------
$ (991,507) $(40,145,541) $(65,766,192) $(56,013,479) $(16,483,998)
- ---------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED GROWTH & INCOME
FUND(A) FUND
--------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 46,198 $ 1,435,147
Net realized gain (loss) on investment, option
and futures transactions 135 3,170,626
Net realized loss on foreign currency related
transactions -- --
Net change in unrealized gain (loss) on invest-
ments, options and futures 70,111 (2,594,309)
Net change in unrealized gain on translation of
assets and liabilities denominated in foreign
currencies -- --
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 116,444 2,011,464
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (31,952) (1,435,147)
In excess of net investment income -- (750,732)
From net realized gain on investment, option and
futures transactions -- (3,710,152)
In excess of net realized gains -- --
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (31,952) (5,896,031)
- -------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
- -------------------------------------------------------------------------------
Net proceeds from sale of shares 7,557,294 179,853,719
Reinvestment of dividends and distributions 29,834 5,475,966
Cost of shares repurchased (162,052) (29,980,986)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 7,425,076 155,348,699
- -------------------------------------------------------------------------------
Additional paid-in-capital -- 779,879
- -------------------------------------------------------------------------------
TOTAL INCREASE 7,509,568 152,244,011
NET ASSETS:
Beginning of year -- 41,528,232
- -------------------------------------------------------------------------------
End of year $7,509,568 $193,772,243
- -------------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income $ 20,283 $ 29,482
- -------------------------------------------------------------------------------
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 537,644 11,178,610
Reinvestment of dividends and distributions 2,141 355,278
Shares repurchased (11,681) (1,896,509)
- -------------------------------------------------------------------------------
Net increase in shares outstanding 528,104 9,637,379
- -------------------------------------------------------------------------------
</TABLE>
(a)For the period from October 12, 1994 (commencement of operations) to January
31, 1995.
(b)For the period from July 8, 1994 (commencement of operations) to January 31,
1995.
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
SELECT EQUITY CAPITAL GROWTH SMALL CAP EQUITY INTERNATIONAL EQUITY ASIA GROWTH
FUND FUND FUND FUND FUND(B)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,229,019 $ 1,436,995 $ (1,802,810) $ 1,275,871 $ 1,009,860
3,907,236 56,963,691 10,050,260 (787,439) (2,447,689)
-- -- -- (15,347,388) (72,160)
(6,127,762) (98,546,227) (74,013,642) (56,248,493) (15,289,160)
-- -- -- 15,093,970 315,151
- ------------------------------------------------------------------------------------
(991,507) (40,145,541) (65,766,192) (56,013,479) (16,483,998)
- ------------------------------------------------------------------------------------
(1,194,733) (647,525) -- -- (883,487)
-- -- -- -- --
(5,666,531) (94,255,733) (13,272,809) (11,299,568) --
-- -- (4,550,015) -- --
- ------------------------------------------------------------------------------------
(6,861,264) (94,903,258) (17,822,824) (11,299,568) (883,487)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
22,943,423 220,153,475 198,396,818 145,195,062 148,278,779
6,328,837 85,073,760 16,371,394 9,972,049 793,314
(19,220,744) (141,755,523) (72,766,153) (81,858,604) (7,406,329)
- ------------------------------------------------------------------------------------
10,051,516 163,471,712 142,002,059 73,308,507 141,665,764
- ------------------------------------------------------------------------------------
-- -- -- -- --
- ------------------------------------------------------------------------------------
2,198,745 28,422,913 58,413,043 5,995,460 124,298,279
92,768,764 833,681,892 261,074,167 269,091,009 --
- ------------------------------------------------------------------------------------
$ 94,967,509 $ 862,104,805 $319,487,210 $275,086,469 $124,298,279
- ------------------------------------------------------------------------------------
$ 148,064 $ 851,025 -- $ (423,846) $ 143,969
- ------------------------------------------------------------------------------------
1,499,807 14,260,854 10,110,654 8,468,691 9,803,931
430,647 5,913,973 971,295 655,625 52,995
(1,250,288) (9,348,284) (3,925,959) (5,047,356) (518,932)
- ------------------------------------------------------------------------------------
680,166 10,826,543 7,155,990 4,076,960 9,337,994
- ------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (continued)
For the Year Ended January 31, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
GROWTH & INCOME SELECT EQUITY
FUND(A) FUND
--------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 225,138 $ 876,850
Net realized gain on investment, option and
futures transactions 756,398 8,416,993
Net realized gain on foreign currency related
transactions -- 3,215,345
Net change in unrealized gain on investments,
options
and futures 2,279,310 --
Net change in unrealized loss on translation of
assets and liabilities denominated in foreign
currencies -- --
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,260,846 12,509,188
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (225,138) (913,042)
From net realized gain on investment, option and
futures transactions (127,848) (8,561,339)
In excess of net investment income (38,700) (5,540)
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (391,686) (9,479,921)
- -------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
- -------------------------------------------------------------------------------
Net proceeds from sale of shares 40,143,536 15,403,693
Reinvestment of dividends and distributions 354,386 8,490,805
Cost of shares repurchased (1,838,850) (51,912,326)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from share transactions 38,659,072 (28,017,828)
- -------------------------------------------------------------------------------
TOTAL INCREASE 41,528,232 (24,988,561)
NET ASSETS:
Beginning of year -- 117,757,325
- -------------------------------------------------------------------------------
End of year $41,528,232 $92,768,764
- -------------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net
investment income $ (18,447) $ 82,933
- -------------------------------------------------------------------------------
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 2,728,965 973,122
Reinvestment of dividends and distributions 24,016 550,298
Shares repurchased (123,174) (3,316,053)
- -------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 2,629,807 (1,792,633)
- -------------------------------------------------------------------------------
(a) For the period from February 5, 1993 (commencement of
operations) to January 31, 1994.
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CAPITAL GROWTH SMALL CAP EQUITY INTERNATIONAL EQUITY
FUND FUND FUND
- -----------------------------------------------------------------------
<S> <C> <C>
$ 945,236 $ (564,337) $ 672,834
81,232,678 14,577,980 3,090,999
-- -- 2,848,300
34,429,838 19,052,562 37,175,602
-- -- (6,641,717)
- -----------------------------------------------------------------------
116,607,752 33,066,205 37,146,018
- -----------------------------------------------------------------------
(574,317) -- --
(52,104,708) (9,241,279) --
(818,686) -- --
- -----------------------------------------------------------------------
(53,497,711) (9,241,279) --
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
184,932,820 187,622,040 174,378,624
48,101,662 8,315,921 --
(128,438,462) (18,027,399) (8,496,836)
- -----------------------------------------------------------------------
104,596,020 177,910,562 165,881,788
- -----------------------------------------------------------------------
167,706,061 201,735,488 203,027,806
665,975,831 59,338,679 66,063,203
- -----------------------------------------------------------------------
$833,681,892 $261,074,167 $269,091,009
- -----------------------------------------------------------------------
-- -- $ (105,294)
- -----------------------------------------------------------------------
12,062,498 9,574,639 10,783,851
3,126,663 420,438 --
(8,442,526) (919,964) (525,536)
- -----------------------------------------------------------------------
6,746,635 9,075,113 10,258,315
- -----------------------------------------------------------------------
</TABLE>
51
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ORGANIZATION
Goldman Sachs Equity Portfolios, Inc. (the "Company") is a Maryland corporation
registered under the Investment Company Act of 1940, as amended, as an open-
end, management investment company. The Company consists of seven funds:
Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth and Income
Fund ("Growth and Income Fund"), Goldman Sachs Select Equity Fund ("Select
Equity Fund"), Goldman Sachs Capital Growth Fund ("Capital Growth Fund"),
Goldman Sachs Small Cap Equity Fund ("Small Cap Equity Fund"), Goldman Sachs
International Equity Fund ("International Equity Fund") and Goldman Sachs Asia
Growth Fund ("Asia Growth Fund"), collectively, "the Funds." Balanced Fund,
Growth and Income Fund, Select Equity Fund and Capital Growth Fund are
diversified portfolios whereas Small Cap Equity Fund, International Equity Fund
and Asia Growth Fund are non-diversified portfolios.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Company which are in conformity with those generally accepted
in the investment company industry:
A. Investment Valuation
Investments in securities traded on a U.S. or foreign securities exchange or
the NASDAQ system are valued at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ, on the valuation day; if
no sale occurs, securities traded on a U.S. exchange or NASDAQ are valued at
the mean between the closing bid and asked price, and securities traded on a
foreign exchange will be valued at the official bid price. Unlisted equity and
debt securities for which market quotations are available are valued at the
mean between the most recent bid and asked prices. Debt securities are valued
at prices supplied by an independent pricing service, which reflect broker/
dealer-supplied valuations and matrix pricing systems. Short-term debt
obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the Board
of Directors of the Company.
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value to the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned. The Balanced Fund does not amortize premiums.
C. Foreign Currency Translations
The books and records of the Company are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
52
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
C. Foreign Currency Translations (continued)
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) 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 and interest recorded and the amounts actually received.
D. Forward Foreign Currency Exchange Contracts
The Funds, with the exception of the Select Equity Fund, are authorized to
enter into forward foreign exchange contracts for the purchase of a specific
foreign currency at a fixed price on a future date as a hedge or cross-hedge
against either specific transactions or portfolio positions. The aggregate
principal amounts of the contracts for which delivery is anticipated are
reflected in the funds' accounts, while the aggregate principal amounts are
reflected net in the accompanying Statements of Assets and Liabilities if the
funds intend to settle the contract prior to delivery. All commitments are
"marked-to-market" daily at the applicable translation rates and any resulting
unrealized gains or losses are recorded in the funds' financial statements. The
funds record realized gains or losses at the time the forward contract is
offset by entry into a closing transaction or extinguished by delivery of the
currency. Risks may arise upon entering these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
E. Federal Taxes
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their 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 reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
F. Deferred Organization Expenses
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
Included in the accompanying Statements of Assets and Liabilities are
approximately $93,000 and $26,000 payable to Goldman Sachs related to the
estimated organization costs for the Balanced Fund and the Asia Growth Fund,
respectively.
G. Expenses
Expenses incurred by the Company which do not specifically relate to an
individual fund of the Company are allocated to the funds based on each fund's
relative average net assets for the period.
H. Option Accounting Principles
When the Funds, with the exception of the Select Equity Fund, 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
53
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
H. Option Accounting Principles (continued)
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 liability 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 originally 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. In
the case of index options, 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,
with the exception of the Select Equity Fund, the premium paid is recorded as
an investment and subsequently marked-to-market 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 enter into a closing sale transaction, the
funds will realize a gain or loss, depending on whether the sale proceeds from
the closing sale transaction are greater or less than the cost of the option.
If the funds exercise a purchased put option, the funds will realize a gain or
loss from the sale of the underlying security, and the proceeds from such sale
will be decreased by the premium originally paid. If the funds exercise a
purchased call option, the cost of the security which the funds purchase upon
exercise will be increased by the premium originally paid.
I. Futures Contracts
The Funds may enter into financial futures contracts for hedging purposes. Upon
entering into a futures contract, the Funds are required to deposit with a
broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Funds each day,
dependent on the daily fluctuations in the value of the underlying index, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Funds. When entering into a closing transaction, for book purposes, the
Funds will realize a gain or loss equal to the difference between the value of
the futures contract to sell and the futures contract to buy. Futures contracts
are valued at the most recent settlement price, unless such price does not
reflect the fair market value of the contract, in which case the position will
be valued using methods approved by the Board of Directors of the Company.
Certain risks may arise upon entering into futures contracts. These risks may
include changes in the value of the futures contract that may not directly
correlate with changes in the value of the underlying securities, or that the
counterparty to a contract may default on its obligations to perform.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser to the
Balanced, Growth and Income, Small Cap Equity and International Equity Funds;
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs,
acts as investment adviser to the Select Equity and Capital Growth Funds; and
Goldman Sachs Asset Management International ("GSAM International") acts as
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. AGREEMENTS (continued)
investment adviser to the Asia Growth Fund. GSAM International also acts as
subadviser to the International Equity Fund. Under the Investment Advisory and
Subadvisory Agreements, GSAM, GSFM and GSAM International, subject to the
general supervision of the Company's Board of Directors, manage the Company's
portfolios. With regard to the Asia Growth Fund, GSAM International relies on
the asset management division of its Hong Kong affiliate, Goldman Sachs (Asia)
Limited, for portfolio decisions and management. As compensation for the
services rendered under the Investment Advisory Agreements and the assumption
of the expenses related thereto, GSAM receives a fee, computed daily and
payable monthly, at an annual rate equal to .50%, .55%, .75% and .25% of the
average daily net assets of the Balanced, Growth and Income, Small Cap Equity
and International Equity Funds, respectively. GSFM receives a fee of .50% and
.75% of the average daily net assets of the Select Equity and Capital Growth
Funds, respectively. GSAM International receives an advisory fee for the Asia
Growth Fund and a subadvisory fee for the International Equity Fund of .75% and
.50% of the average daily net assets for those funds, respectively.
GSAM also acts as the Funds' administrator pursuant to Administration
Agreements. Under these Administration Agreements, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreements, the Funds pay GSAM
a fee of .15% of the average daily net assets of the Balanced and Growth and
Income Funds, and .25% of the average daily net assets of Select Equity,
Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, Growth and Income and Asia Growth Funds (excluding
advisory, administration and distribution fees and litigation, indemnification,
taxes, interest, brokerage commissions and extraordinary expenses) until
further notice to the extent such expenses exceed .10%, .30% and .65% of the
average daily net assets of the Balanced, Growth and Income and Asia Growth
Funds, respectively. The amounts reimbursable to the Balanced and Asia Growth
Funds at January 31, 1995 were approximately $79,000, and $10,000,
respectively, and are reflected in "Other assets" in the accompanying
Statements of Assets and Liabilities. Included in "Accrued expenses and other
liabilities" on the accompanying Statements of Assets and Liabilities of the
Growth and Income Fund is approximately $23,000 related to excess
reimbursements payable to Goldman Sachs.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the sales load
imposed on the sale of fund shares and has advised the Company that it retained
approximately $14,000, $361,000, $58,000, $815,000, $868,000, $660,000 and
$829,000 during the year ended January 31, 1995 for the Balanced, Growth and
Income, Select Equity, Capital Growth, Small Cap Equity, International Equity
and Asia Growth Funds, respectively.
The Funds have adopted Distribution Plans (the "Plans") pursuant to Rule 12b-
1. Under the Plans, Goldman Sachs is entitled to receive a quarterly
distribution fee of .50% of each fund's average daily net assets. Currently,
Goldman Sachs has voluntarily agreed to limit the amount of the distribution
fee to .25% of each fund's average daily net assets. The effect of this
voluntary limitation resulted in $3,407, $282,462, $231,128,
55
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. AGREEMENTS (continued)
$2,181,207, $846,475, $796,627 and $138,271 of waived distribution fees for the
Balanced, Growth and Income, Select Equity, Capital Growth, Small Cap Equity,
International Equity and Asia Growth Funds, respectively, for the year ended
January 31, 1995. Goldman Sachs also serves as the Transfer Agent of the Funds
for a fee.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options written) for the year ended January 31,
1995 were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- ---- ------------ ------------
<S> <C> <C>
Balanced $ 7,372,199 $ 643,979
Growth and Income 225,225,270 76,401,877
Select Equity 55,558,360 50,448,868
Capital Growth 387,007,279 310,683,760
Small Cap Equity 299,077,421 132,670,731
International Equity 317,840,809 250,158,149
Asia Growth 162,870,583 32,157,509
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities (excluding short-term investments and
options) for the Balanced Fund in the amounts of $3,016,323 and $105,586,
respectively.
For the year ended January 31, 1995, written option transactions in the Growth
and Income Fund were as follows:
<TABLE>
<CAPTION>
Call Options Put Options
-------------------- --------------------
Number of Premiums Number of Premiums
Contracts Received Contracts Received
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding,
beginning of year -- $ -- -- $ --
Options written 990 244,577 3,300 283,970
Options expired (480) (106,116) (2,518) (193,628)
Options exercised (310) (61,464) (782) (90,342)
- -----------------------------------------------------------------
Balance outstanding,
end of year 200 $ 76,997 -- $ --
- -----------------------------------------------------------------
</TABLE>
For the year ended January 31, 1995, option transactions in the Capital Growth
Fund were as follows:
<TABLE>
<CAPTION>
Call Options Put Options
--------------------- -------------------
Number of Premiums Number of Premiums
Contracts Received Contracts Received
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding,
beginning of year 3,500 $ 561,621 1,100 $ 80,472
Options written 13,109 2,257,917 6,550 782,334
Options expired (13,129) (2,066,407) (4,250) (423,371)
Options exercised (3,480) (753,131) (3,400) (439,435)
- -----------------------------------------------------------------
Balance outstanding,
end of year -- $ -- -- $ --
- -----------------------------------------------------------------
</TABLE>
For the year ended January 31, 1995, option transactions in the Small Cap
Equity Fund were as follows:
<TABLE>
<CAPTION>
Call Options Put Options
------------------- -------------------
Number of Premiums Number of Premiums
Contracts Received Contracts Received
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding,
beginning of year -- $ -- 1,400 $142,654
Options written 1,621 359,735 200 10,380
Options expired (571) (139,283) (1,500) (151,254)
Options exercised (1,050) (220,452) (100) (1,780)
- ---------------------------------------------------------------
Balance outstanding,
end of year -- $ -- -- $ --
- ---------------------------------------------------------------
</TABLE>
For the year ended January 31, 1995, option transactions in the International
Equity Fund were as follows:
<TABLE>
<CAPTION>
Options Purchased Cost
- ----------------------------------------------------
<S> <C>
Balance outstanding, beginning of year $ 193,500
Options purchased 10,286,982
Options expired (1,284,625)
Options sold (855,665)
- ----------------------------------------------------
Cost at end of year 8,340,192
Unrealized loss (7,703,877)
- ----------------------------------------------------
Value at end of year $ 636,315
- ----------------------------------------------------
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. PORTFOLIO SECURITIES TRANSACTIONS (continued)
For the year ended January 31, 1995, option transactions in the Asia Growth
Fund were as follows:
<TABLE>
<CAPTION>
Put Options
------------------
Number of Premiums
Contracts Received
- ----------------------------------------------------------
<S> <C> <C>
Balance outstanding, beginning of year -- $ --
Options written 12,700 180,767
Options expired -- --
Options exercised -- --
- ----------------------------------------------------------
Balance outstanding, end of year 12,700 $180,767
- ----------------------------------------------------------
</TABLE>
Certain risks arise related to written call or put options from the possible
inability of counterparties to meet terms of their contracts.
At January 31, 1995, the International Equity Fund had outstanding forward
foreign currency exchange contracts, both to purchase and sell foreign
currencies as follows:
<TABLE>
<CAPTION>
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain (Loss)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Danish Krone
expiring 2/2/95 $ 645,045 $ 635,717 $ 9,328
Deutschemark
expiring 3/7/95 36,386,098 37,558,976 (1,172,878)
Finnish Markka
expiring 2/2/95 3,142,888 3,127,105 15,783
Hong Kong Dollar
expiring 4/18/95 18,598,972 18,731,862 (132,890)
Spanish Peseta
expiring 2/2/95 489,182 486,210 2,972
Swedish Krona
expiring 2/2/95 954,411 948,912 5,499
expiring 3/6/95 36,370,601 36,682,431 (311,830)
- ------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $96,587,197 $98,171,213 $(1,584,016)
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Value on Unrealized
Purchase Contracts Settlement Date Current Value Gain (Loss)
- -----------------------------------------------------------------
<S> <C> <C> <C>
Deutschemark
expiring 3/3/95 $ 468,429 $ 476,719 $ 8,290
expiring 3/6/95 36,737,002 37,580,701 843,699
Japanese Yen
expiring 2/2/95 889,915 895,590 5,675
expiring 3/13/95 8,965,298 8,982,265 16,967
Swiss Franc
expiring 4/10/95 29,075,000 29,565,715 490,715
- -----------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $76,135,644 $77,500,990 $1,365,346
- -----------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
At January 31, 1995, the International Equity Fund had sufficient cash and
securities to cover any commitments under these contracts.
The International Equity Fund has recorded a "Receivable for forward foreign
currency exchange contracts" and "Payable for forward foreign currency exchange
contracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $1,972,755 and $2,381,776, respectively, in the
accompanying Statements of Assets and Liabilities. Included in these amounts
are $573,827 and $764,178, respectively, related to forward contracts closed
but not settled as of January 31, 1995.
For the periods ended January 31, 1995, Goldman Sachs earned approximately
$1,500, $37,000, $163,000, $7,700 and $97,000 of brokerage commissions from
portfolio transactions executed on behalf of the Balanced, Growth and Income,
Capital Growth, Small Cap Equity and Asia Growth Funds, respectively.
57
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Balanced, Growth and Income,
Select Equity, Capital Growth, Small Cap Equity, International Equity and Asia
Growth Funds have reclassified $6,037, $798,661, $30,845, $61,555, $18,690,
$17,555 and $17,596, respectively, from paid-in capital to accumulated
undistributed net investment income. Additionally, the Small Cap Equity Fund
has reclassified $1,784,120 from accumulated undistributed net realized gain
(loss) on investment, option and futures transactions to accumulated net
investment loss; and the International Equity Fund has reclassified $22,815,517
from accumulated undistributed net investment income to accumulated net foreign
currency loss, and $1,215,049 from accumulated undistributed net realized gain
on investment, option and futures transactions to accumulated undistributed net
investment income, and $19,988,490 from paid in capital to accumulated
undistributed net investment income. These reclassifications have no impact on
the net asset value of the funds and are designed to present each fund's
capital accounts on a tax basis.
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 in the customer-only account of State Street
Bank & Trust Co., the Company's custodian, or at sub-custodians. Goldman Sachs
monitors the market value of the underlying securities by pricing them daily.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having advisory
agreements with GSAM or GSFM transfer uninvested cash balances into joint
accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury obligations. At January 31, 1995, the Balanced Fund had a
.05% undivided interest in the repurchase agreements in the following joint
account which equaled $700,000 in principal amount. At January 31, 1995, the
repurchase agreements held in this joint account, along with the corresponding
underlying securities (including the type of security, principal amount,
interest rate and maturity date) were as follows ($ in thousands):
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lehman Government Securities, dated 01/31/95,
repurchase price $500,082 (U.S. Treasury Notes:
$506,949, 6.375%-7.750%,
01/15/00-01/31/00)
$500,000 5.90% 02/01/95 $ 500,000
Salomon Brothers, Inc., dated 01/31/95, repurchase
price $921,249 (U.S. Treasury Bills: $908,112,
02/09/95-01/11/96; U.S. Treasury Notes: $57,742,
7.500%, 12/31/96)
921,100 5.84 02/01/95 921,100
- ---------------------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,421,100
- ---------------------------------------------------------------------------------------------------
</TABLE>
8. OTHER MATTERS
During the year ended January 31, 1995, GSAM contributed additional paid-in
capital to the Growth and Income Fund of approximately $780,000 for the purpose
of correcting an administrative error.
During the year ended January 31, 1995, the Capital Growth Fund paid
approximately $12,650,000 of redemption proceeds in kind. The related
securities were contributed by the redeeming shareholders for shares of a fund
advised by GSAM International.
58
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD(A)
BALANCED FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
INCOME FROM INVESTMENT OPERATIONS SHAREHOLDERS
-------------------------------------- ---------------------------
NET REALIZED
NET ASSET AND UNREALIZED TOTAL INCOME FROM NET ASSET
VALUE, NET GAIN ON FROM NET TOTAL NET INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS TO IN NET END OF TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME SHAREHOLDERS ASSET VALUE PERIOD RETURN(B)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED
JANUARY 31,
- --------------------
1995(a)......... $14.18 $0.10 $0.02 $0.12 $(0.08) $(0.08) $0.04 $14.22 0.87%(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES OR
EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET RATIO OF NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES TO INCOME TO EXPENSES TO LOSS
AVERAGE NET AVERAGE NET PORTFOLIO NET ASSETS AT AVERAGE TO AVERAGE
ASSETS ASSETS TURNOVER RATE END OF PERIOD NET ASSETS NET ASSETS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED
JANUARY 31,
- --------------------
1995(a)......... 1.00%(c) 3.39%(c) 14.71% $7,509,568 8.29%(c) (3.90)%(c)
</TABLE>
- ----
(a) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(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 charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not Annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------- ----------------------------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED TOTAL INCOME REALIZED GAIN IN EXCESS
VALUE AT NET GAIN ON FROM FROM NET ON INVESTMENT OF NET TOTAL
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND OPTION INVESTMENT DISTRIBUTIONS TO
OF PERIOD INCOME AND OPTIONS OPERATIONS INCOME TRANSACTIONS INCOME SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $15.79 $0.20(f) $0.30(f) $0.50 $(0.20) $(0.33) $(0.07) $(0.60)
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1994(a)......... 14.18 0.15 1.68 1.83 (0.15) (0.06) (0.01) (0.22)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO OF RATIO OF NET RATIO OF NET
NET ASSET NET INVESTMENT NET RATIO OF INVESTMENT
ADDITIONAL NET INCREASE VALUE AT EXPENSES TO INCOME TO PORTFOLIO ASSETS AT EXPENSES TO INCOME (LOSS)
PAID-IN IN NET END OF TOTAL AVERAGE NET AVERAGE NET TURNOVER END OF AVERAGE TO AVERAGE
CAPITAL(E) ASSET VALUE PERIOD RETURN(B) ASSETS ASSETS RATE PERIOD NET ASSETS NET ASSETS
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $0.11(f) $0.01 $15.80 3.97% 1.25% 1.28% 71.80% $193,772,243 1.58% 0.95%
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1994(a)......... -- 1.61 15.79 13.08(d) 1.25(c) 1.23(c) 102.23(d) 41,528,232 3.24(c) (0.76)(c)
</TABLE>
- ----
(a) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(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 charges. Total return would be reduced if a sales charge were taken
into account. For the year ended January 31, 1995, total return, excluding
additional paid in capital(e), would be 3.34%.
(c) Annualized.
(d) Not annualized.
(e) See Note 8.
(f) Calculated based on the average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SELECT EQUITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
-------------------------------------- ----------------------------------------
NET REALIZED FROM
AND UNREALIZED NET REALIZED
NET ASSET GAIN (LOSS) ON TOTAL INCOME FROM GAIN ON NET INCREASE NET ASSET
VALUE, NET INVESTMENTS, (LOSS) FROM NET INVESTMENT TOTAL (DECREASE) VALUE,
BEGINNING INVESTMENT OPTIONS AND INVESTMENT INVESTMENT AND FUTURES DISTRIBUTIONS TO IN NET END OF
OF PERIOD INCOME FUTURES OPERATIONS INCOME TRANSACTIONS SHAREHOLDERS ASSET VALUE PERIOD
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $15.93 $0.20 $(0.38) $(0.18) $ (0.20) $(0.94) $(1.14) $(1.32) $14.61
1994............ 15.46 0.17 2.08 2.25 (0.17) (1.61) (1.78) 0.47 15.93
1993............ 15.05 0.22 0.41 0.63 (0.22) -- (0.22) 0.41 15.46
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1992(a)......... 14.17 0.11 0.88 0.99 (0.11) -- (0.11) 0.88 15.05
<CAPTION>
RATIOS
ASSUMING NO
VOLUNTARY WAIVER
OF DISTRIBUTION FEES
------------------------
RATIO OF RATIO OF NET RATIO OF NET
NET INVESTMENT NET RATIO OF INVESTMENT
EXPENSES TO INCOME TO PORTFOLIO ASSETS AT EXPENSES TO INCOME
TOTAL AVERAGE NET AVERAGE NET TURNOVER END OF AVERAGE TO AVERAGE
RETURN(B) ASSETS ASSETS RATE PERIOD NET ASSETS NET ASSETS
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ (1.10)% 1.38% 1.33% 56.18% $ 94,967,509 1.63% 1.08%
1994............ 15.12 1.42 0.92 87.73 92,768,764 1.67 0.67
1993............ 4.30 1.28 1.30 144.93 117,757,325 1.53 1.05
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1992(a)......... 7.01(d) 1.57(c) 1.24(c) 135.02(c) 151,141,667 1.82(c) 0.99(c)
</TABLE>
- ----
(a) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(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 charges. Total return would be reduced if sales charges were taken
into account.
(c) Annualized.
(d) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT
OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------ -----------------------------------------------------
NET REALIZED TOTAL
AND UNREALIZED INCOME FROM NET
NET ASSET GAIN (LOSS) ON (LOSS) REALIZED GAIN IN EXCESS NET INCREASE
VALUE AT NET INVESTMENTS, FROM FROM NET ON INVESTMENTS, OF NET TOTAL (DECREASE)
BEGINNING INVESTMENT OPTIONS AND INVESTMENT INVESTMENT OPTIONS INVESTMENT DISTRIBUTIONS IN NET
OF PERIOD INCOME FUTURES OPERATIONS INCOME AND FUTURES INCOME TO SHAREHOLDERS ASSET VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $15.96 $0.03 $(0.69) $(0.66) $(0.01) $(1.62) $ -- $(1.63) $(2.29)
1994............ 14.64 0.02 2.40 2.42 (0.01) (1.07) (0.02) (1.10) 1.32
1993............ 13.65 0.06 2.28 2.34 (0.07) (1.28) -- (1.35) 0.99
1992............ 11.10 0.28 2.90 3.18 (0.31) (0.32) -- (0.63) 2.55
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1991(a)......... 11.34 0.34 (0.27) 0.07 (0.31) -- -- (0.31) (0.24)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES
-------------------------
RATIO OF RATIO OF NET RATIO OF NET
NET ASSET NET INVESTMENT NET RATIO OF INVESTMENT
VALUE, EXPENSES TO INCOME TO PORTFOLIO ASSETS AT EXPENSES TO INCOME (LOSS)
END OF TOTAL AVERAGE NET AVERAGE NET TURNOVER END OF AVERAGE TO AVERAGE
PERIOD RETURN(B) ASSETS ASSETS RATE PERIOD NET ASSETS NET ASSETS
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $13.67 (4.38)% 1.38% 0.16% 38.36% $862,104,805 1.63% (0.09)%
1994............ 15.96 16.89 1.38 0.13 36.12 833,681,892 1.63 (0.12)
1993............ 14.64 18.01 1.41 0.42 58.93 665,975,831 1.66 0.17
1992............ 13.65 29.31 1.53 2.09 48.93 500,306,650 1.78 1.84
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1991(a)......... 11.10 0.84(d) 1.27(d) 3.24(d) 35.63(d) 437,532,964 1.47(d) 3.04(d)
</TABLE>
- ----
(a) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(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 charges. Total return would be reduced if a sales charges were taken
into account.
(c) Annualized.
(d) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SMALL CAP EQUITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT
OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------- ----------------------------------------------------
FROM IN EXCESS OF
NET REALIZED NET REALIZED
AND UNREALIZED REALIZED GAIN GAINS ON NET
NET ASSET NET GAIN (LOSS) ON TOTAL INCOME FROM ON INVESTMENT, INVESTMENT, TOTAL INCREASE
VALUE, INVESTMENT INVESTMENTS, (LOSS) FROM NET OPTION AND OPTION AND DISTRIBUTIONS (DECREASE)
BEGINNING INCOME OPTIONS AND INVESTMENT INVESTMENT FUTURES FUTURES TO IN NET
OF PERIOD (LOSS) FUTURES OPERATIONS INCOME TRANSACTIONS TRANSACTIONS SHAREHOLDERS ASSET VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1995............ $20.67 $(0.07) $(3.53) $(3.60) $-- $(0.69) $(0.24) $(0.93) $(4.53)
1994............ 16.68 (0.04) 5.03 4.99 -- (1.00) -- (1.00) 3.99
For the Period Ended January 31,
1993(a)......... 14.18 0.03 2.50 2.53 (0.03) -- -- (0.03) 2.50
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET RATIO OF
RATIO OF INVESTMENT NET
NET ASSET NET INCOME RATIO OF INVESTMENT
VALUE, EXPENSES TO (LOSS) TO PORTFOLIO NET ASSETS EXPENSES TO LOSS
END OF TOTAL AVERAGE NET AVERAGE TURNOVER AT END AVERAGE TO AVERAGE
PERIOD RETURN(B) ASSETS NET ASSETS RATE OF PERIOD NET ASSETS NET ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1995............ $16.14 (17.53)% 1.53% (0.53)% 43.67% $319,487,210 1.78% (0.78)%
1994............ 20.67 30.13 1.60 (0.45) 56.81 261,074,167 1.85 (0.70)
For the Period Ended January 31,
1993(a)......... 16.68 17.86(d) 1.65(c) 0.62(c) 7.12(c) 59,338,679 2.70(c) (0.43)(c)
</TABLE>
- ----
(a) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(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 charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------- ---------------------------------------
NET NET FROM NET
REALIZED REALIZED REALIZED
AND UNREALIZED AND UNREALIZED TOTAL GAIN ON
NET ASSET GAIN (LOSS) ON LOSS ON FOREIGN INCOME FROM INVESTMENT,
VALUE, NET INVESTMENTS, CURRENCY (LOSS) FROM NET OPTION AND TOTAL
BEGINNING INVESTMENT OPTIONS RELATED INVESTMENT INVESTMENT FUTURES DISTRIBUTIONS
OF PERIOD INCOME (LOSS) AND FUTURES TRANSACTIONS OPERATIONS INCOME TRANSACTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $18.10 $0.06 $(3.04) $(0.01) $(2.99) -- $(0.59) $(0.59)
1994............ 14.35 0.05 4.08 (0.38) 3.75 -- -- --
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1993(a)......... 14.18 (0.01) 0.29 (0.11) 0.17 -- -- --
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET RATIO OF
NET RATIO OF INVESTMENT NET INVESTMENT
INCREASE NET ASSET NET INCOME NET RATIO OF INCOME
(DECREASE) VALUE, EXPENSES TO (LOSS) TO PORTFOLIO ASSETS EXPENSES (LOSS)
IN NET ASSET END OF TOTAL AVERAGE NET AVERAGE NET TURNOVER AT END OF TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(B) ASSETS ASSETS RATE PERIOD NET ASSETS NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY
31,
- --------------------------
1995............ $(3.58) $14.52 (16.65)% 1.73% 0.40% 84.54% $275,086,469 1.98% 0.15%
1994............ 3.75 18.10 26.13 1.76 0.51 60.04 269,091,009 2.01 0.26
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1993(a)......... 0.17 14.35 1.23(d) 1.80(c) (0.42)(c) 0.00% 66,063,203 2.58(c) (1.20)(c)
</TABLE>
- ----
(a) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(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 charges. Total return would be reduced if a sales 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 Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD(A)
ASIA GROWTH FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) DISTRIBUTIONS TO
FROM INVESTMENT OPERATIONS SHAREHOLDERS
----------------------------------- ----------------
NET
REALIZED AND
UNREALIZED
NET GAIN ON TOTAL NET NET
ASSET NET FOREIGN LOSS TOTAL DECREASE ASSET
VALUE, NET UNREALIZED CURRENCY FROM FROM NET DISTRIBUTIONS IN NET VALUE,
BEGINNING INVESTMENT (LOSS) ON RELATED INVESTMENT INVESTMENT TO ASSET END OF TOTAL
OF PERIOD INCOME INVESTMENTS TRANSACTIONS OPERATIONS INCOME SHAREHOLDERS VALUE PERIOD RETURN(B)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1995(a)......... $14.18 $0.11 $(0.89) $0.01 $(0.77) $(0.10) $(0.10) $(0.87) $13.31 (5.46%)(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES OR
EXPENSE LIMITATIONS
--------------------
RATIO RATIO
RATIO OF NET OF NET
OF NET INVESTMENT RATIO OF INVESTMENT
EXPENSES TO INCOME TO NET EXPENSES LOSS TO
AVERAGE AVERAGE PORTFOLIO ASSETS AT TO AVERAGE AVERAGE
NET NET TURNOVER END OF NET NET
ASSETS ASSETS RATE PERIOD ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANU-
ARY 31,
- --------------------------
1995(a)......... 1.90%(c) 1.83%(c) 36.08% $124,298,279 2.38%(c) 1.35%(c)
</TABLE>
- ----
(a) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(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 charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Goldman Sachs Equity Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Equity Portfolios, Inc., (a Maryland Corporation) comprising the
Balanced Fund, Growth and Income Fund, Select Equity Fund, Capital Growth Fund,
Small Cap Equity Fund, International Equity Fund, and Asia Growth Fund
including the statements of investments, as of January 31, 1995, and the
related statements of operations and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and the financial 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
standards. 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 financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1995 by correspondence with the custodian and brokers. An audit
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 referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Goldman Sachs Equity Portfolios,
Inc. as of January 31, 1995, the results of its operations and the changes in
its net assets and the financial highlights for each of the periods presented,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 3, 1995
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Equity Portfolios, Inc. Pro-
spectus which contains facts concerning each Fund's objectives and policies,
management, expenses and other information.
67
<PAGE>
GOLDMAN
SACHS
Goldman Sachs
1 New York Plaza
New York, NY 10004
BOARD OF DIRECTORS
Paul C. Nagel, Jr., Chairman
Ashok N. Bakhru
Marcia L. Beck
David B. Ford
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Marcia L. Beck, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser, Administrator,
Distributor and Transfer Agent
EQANN95
GOLDMAN
SACHS
GOLDMAN SACHS
EQUITY PORTFOLIOS, INC.
Annual Report
January 31, 1995
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- -------------------------------------------------------------------------------*
The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the time of issuance. While
the rating agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the date of the Fund's fiscal
year end.
1-A
<PAGE>
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believe possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
2-A
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
3-A
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties of major risk exposures to adverse conditions.
BB is the highest rating within the speculative grade category.
D: Bonds rated D are in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Unrated: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
4-A
<PAGE>
Appendix B
This Appendix provides certain information concerning the performance of
various types of securities over time. However, the characteristics of these
securities are not identical to, and may be very different from, those of the
Fund's portfolio. Past performance is not an indication of future performance.
(Total Return (Value of $1))
<TABLE>
<CAPTION>
Small L.T.
Common Company Govt. Treasury
Year Stocks Stocks Bonds Bills CPI
<S> <C> <C> <C> <C> <C>
1925 1.00 1.00 1.00 1.00 1.00
1926 1.12 1.00 1.08 1.03 0.99
1927 1.54 1.22 1.17 1.07 0.97
1928 2.20 1.71 1.18 1.10 0.96
1929 2.02 0.83 1.22 1.16 0.96
1930 1.52 0.52 1.27 1.18 0.90
1931 0.86 0.26 1.20 1.20 0.81
1932 0.79 0.25 1.41 1.21 0.73
1933 1.21 0.59 1.41 1.21 0.73
1934 1.20 0.74 1.55 1.21 0.75
1935 1.77 1.04 1.62 1.22 0.77
1936 2.37 1.71 1.75 1.22 0.78
1937 1.54 0.72 1.75 1.22 0.80
1938 2.02 0.95 1.85 1.22 0.78
1939 2.01 0.95 1.96 1.22 0.78
1940 1.81 0.91 2.08 1.22 0.79
1941 1.60 0.82 2.10 1.22 0.86
1942 1.93 1.19 2.16 1.23 0.94
1943 2.43 2.24 2.21 1.23 0.97
1944 2.91 3.45 2.27 1.23 0.99
1945 3.97 5.98 2.51 1.24 1.02
1946 3.65 5.29 2.51 1.24 1.20
1947 3.85 5.34 2.45 1.25 1.31
1948 4.07 5.22 2.53 1.26 1.34
1949 4.83 6.25 2.69 1.27 1.32
1950 6.36 8.68 2.69 1.29 1.40
1951 7.89 9.36 2.59 1.31 1.48
1952 9.34 9.64 2.62 1.33 1.49
1953 9.24 9.01 2.71 1.35 1.50
1954 14.11 14.47 2.91 1.36 1.49
1955 18.56 17.43 2.87 1.39 1.50
1956 19.78 18.18 2.71 1.42 1.54
1957 17.65 15.53 2.91 1.46 1.59
1958 25.30 25.61 2.73 1.49 1.62
</TABLE>
1-B
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1959 28.32 29.80 2.67 1.53 1.64
1960 28.46 28.82 3.04 1.57 1.66
1961 36.11 38.07 3.07 1.60 1.67
1962 32.95 33.54 3.28 1.65 1.70
1963 40.47 41.44 3.32 1.70 1.72
1964 47.14 51.19 3.44 1.76 1.74
1965 53.01 72.57 3.46 1.83 1.78
1966 47.67 67.48 3.59 1.92 1.84
1967 59.10 123.87 3.26 2.00 1.89
1968 65.64 168.43 3.25 2.10 1.98
1969 60.06 126.23 3.09 2.24 2.10
1970 62.47 104.23 3.46 2.39 2.22
1971 71.41 121.42 3.92 2.49 2.29
1972 84.96 126.81 4.14 2.59 2.37
1973 72.50 87.62 4.09 2.76 2.58
1974 53.31 70.14 4.27 2.99 2.89
1975 73.14 107.19 4.67 3.16 3.10
1976 90.58 168.69 5.45 3.32 3.25
1977 84.08 211.50 5.41 3.49 3.47
1978 89.60 261.12 5.35 3.74 3.78
1979 106.11 374.61 5.28 4.13 4.28
1980 140.51 524.00 5.07 4.59 4.81
1981 133.62 596.72 5.17 5.27 5.24
1982 162.22 763.83 7.25 5.82 5.45
1983 198.75 1066.83 7.30 6.34 5.65
1984 211.20 995.68 8.43 6.96 5.88
1985 279.12 1241.23 11.04 7.50 6.10
1986 330.67 1326.28 13.75 7.96 6.17
1987 347.97 1202.97 13.37 8.39 6.44
1988 406.46 1478.14 14.67 8.93 6.72
1989 534.46 1628.59 17.32 9.67 7.03
1990 517.50 1277.45 18.39 10.43 7.46
1991 675.59 1847.63 21.94 11.01 7.69
1992 727.41 2279.04 23.71 11.40 7.92
1993 800.08 2757.15 28.03 11.73 8.13
1994 810.54 2842.77 25.86 12.19 8.35
</TABLE>
Source: Stocks, Bonds, Bills and Inflation 1995 Yearbook, Ibbotson Associates,
Inc. All rights reserved.
The common stock total return index is based on the S&P 500, which is
unmanaged and made up of 500 of the largest stocks in the U.S. The small stock
total return index, which is also unmanaged, is based on the securities in the
bottom 20% of NYSE stocks by market capitalization plus AMEX and OTC stocks in
the same capitalization range. Inflation is measured by the Consumer Price
Index. The information in the chart above reflects the indices and
2-B
<PAGE>
securities described above and does not reflect the fund's actual portfolio
composition or the fees and expenses associated with an investment in the fund.
The group is not intended to imply the future performance of any of these
investments or of the GS Small Cap Equity Fund. Past performance is no guarantee
of future performance.
3-B
<PAGE>
Appendix C
This Appendix C presents the monthly dollar based returns of the Morgan
Stanley Capital International EAFE Index and the Standard & Poor's Index of 500
Common Stocks (the "S&P 500 Index"). The Morgan Stanley Capital International
EAFE Index and the S&P 500 Index are unmanaged indices. The EAFE Index , as of
April 30, 1995, covers 1,112 companies in Europe, Australia, New Zealand and the
Far East. Figures for the EAFE Index are U.S. dollar-adjusted and reflect both
the change in stock prices denominated in local currency and the change in value
of the local currency against the U.S. dollar. The information in this Appendix
C does not reflect the International Fund's actual portfolio composition or the
fees and expenses associated with an investment in the International Fund. The
information in this Appendix C is not intended to imply the future performance
of either index or of the International Fund. Past performance is no guarantee
of future performance.
<TABLE>
<CAPTION>
$EAFE S&P
============== ===========
<S> <C> <C>
1969 D 100.00 100.00
1970 J 98.60 93.24
1970 F 96.10 98.16
1970 M 97.30 98.30
1970 A 89.00 89.41
1970 M 84.30 83.95
1970 J 85.80 79.75
1970 J 89.00 85.60
1970 A 89.10 89.78
1970 S 89.50 92.35
1970 O 88.40 91.30
1970 N 84.40 95.64
1970 D 85.90 101.06
1971 J 89.10 105.15
1971 F 89.60 106.11
1971 M 93.20 110.01
1971 A 96.50 114.01
1971 M 98.00 109.27
1971 J 100.00 109.34
1971 J 104.00 104.83
1971 A 102.20 108.61
1971 S 100.40 107.85
1971 O 96.90 103.35
1971 N 99.80 103.08
1971 D 108.30 111.97
1972 J 114.30 113.99
1972 F 121.40 116.88
1972 M 125.10 117.57
1972 A 127.70 118.09
1972 M 131.50 120.13
1972 J 127.70 117.50
1972 J 134.30 117.78
</TABLE>
1-C
<PAGE>
<TABLE>
<S> <C> <C>
1972 A 135.40 121.84
1972 S 130.70 121.24
1972 O 131.70 122.37
1972 N 140.10 127.96
1972 D 144.40 129.47
1973 J 146.50 127.25
1973 F 158.30 122.48
1973 M 158.90 122.31
1973 A 149.60 117.33
1973 M 152.90 115.10
1973 J 156.30 114.35
1973 J 154.00 118.69
1973 A 145.80 114.33
1973 S 144.40 118.92
1973 O 147.10 118.77
1973 N 125.60 105.24
1973 D 120.10 106.99
1974 J 120.50 105.91
1974 F 124.20 105.53
1974 M 120.60 103.07
1974 A 123.40 99.05
1974 M 118.30 95.72
1974 J 112.50 94.32
1974 J 106.40 86.98
1974 A 95.10 79.13
1974 S 87.80 69.69
1974 O 88.20 81.05
1974 N 90.70 76.74
1974 D 89.30 73.63
1975 J 104.90 84.43
1975 F 118.30 89.48
1975 M 116.60 91.42
1975 A 121.70 95.74
1975 M 120.40 99.97
1975 J 115.30 104.40
1975 J 110.10 97.33
1975 A 109.60 96.22
1975 S 104.20 91.98
1975 O 112.80 97.65
1975 N 115.10 100.07
1975 D 117.20 98.91
1976 J 123.00 110.62
1976 F 121.70 109.36
1976 M 119.30 112.71
1976 A 118.40 111.47
1976 M 114.80 108.95
1976 J 116.40 114.37
1976 J 114.60 113.45
1976 A 114.30 112.86
1976 S 112.00 115.42
1976 O 104.40 112.85
1976 N 105.30 111.98
</TABLE>
2-C
<PAGE>
<TABLE>
<S> <C> <C>
1976 D 116.89 117.85
1977 J 115.70 111.90
1977 F 117.90 109.48
1977 M 117.90 107.94
1977 A 120.90 107.96
1977 M 120.00 105.42
1977 J 122.30 110.20
1977 J 120.10 108.81
1977 A 125.00 106.13
1977 S 128.30 105.87
1977 O 131.00 101.27
1977 N 129.50 104.00
1977 D 133.90 104.30
1978 J 135.10 97.88
1978 F 136.30 95.46
1978 M 145.70 97.84
1978 A 144.20 106.20
1978 M 146.70 106.65
1978 J 152.80 104.77
1978 J 165.60 110.42
1978 A 168.50 113.28
1978 S 173.00 112.46
1978 O 182.40 102.16
1978 N 164.90 103.86
1978 D 172.60 105.41
1979 J 173.10 109.60
1979 F 171.80 105.59
1979 M 175.10 111.42
1979 A 173.90 111.60
1979 M 169.70 108.66
1979 J 172.20 112.86
1979 J 173.60 113.85
1979 A 177.20 119.89
1979 S 184.40 119.89
1979 O 169.10 111.67
1979 N 170.60 116.43
1979 D 175.70 118.27
1980 J 183.60 125.20
1980 F 182.20 124.65
1980 M 162.20 111.97
1980 A 176.80 116.57
1980 M 184.30 122.00
1980 J 195.40 125.29
1980 J 193.70 133.44
1980 A 199.70 134.22
1980 S 205.90 137.60
1980 O 213.80 140.28
1980 N 208.80 154.11
1980 D 209.10 148.89
1981 J 205.60 142.08
1981 F 202.20 143.97
1981 M 208.80 149.16
</TABLE>
3-C
<PAGE>
<TABLE>
<S> <C> <C>
1981 A 213.80 145.66
1981 M 204.10 145.42
1981 J 204.90 143.95
1981 J 196.00 143.58
1981 A 200.10 134.67
1981 S 179.60 127.42
1981 O 181.90 133.68
1981 N 201.50 138.57
1981 D 199.00 134.40
1982 J 197.00 132.05
1982 F 183.90 124.05
1982 M 174.40 122.79
1982 A 185.20 127.70
1982 M 182.20 122.70
1982 J 168.00 120.21
1982 J 165.50 117.45
1982 A 165.00 131.07
1982 S 163.50 132.06
1982 O 163.70 146.64
1982 N 176.20 151.94
1982 D 189.80 154.24
1983 J 187.60 159.36
1983 F 192.30 162.38
1983 M 199.30 167.76
1983 A 210.20 180.32
1983 M 208.70 178.10
1983 J 213.00 184.37
1983 J 213.00 182.76
1983 A 209.10 180.52
1983 S 216.80 182.13
1983 O 216.10 179.37
1983 N 220.80 182.50
1983 D 229.50 180.88
1984 J 239.30 179.22
1984 F 241.00 172.25
1984 M 263.10 174.58
1984 A 258.20 175.95
1984 M 231.50 165.11
1984 J 230.80 168.00
1984 J 215.50 165.23
1984 A 233.40 182.80
1984 S 230.90 182.17
1984 O 236.20 182.16
1984 N 236.70 179.40
1984 D 241.00 182.34
1985 J 246.00 197.01
1985 F 244.10 198.72
1985 M 262.60 198.14
1985 A 261.20 197.23
1985 M 271.80 207.89
1985 J 278.30 210.41
1985 J 292.20 209.39
</TABLE>
4-C
<PAGE>
<TABLE>
<S> <C> <C>
1985 A 301.00 206.88
1985 S 318.10 199.69
1985 O 339.20 208.18
1985 N 352.50 221.73
1985 D 368.60 231.72
1986 J 377.30 232.27
1986 F 418.50 248.67
1986 M 476.70 262.01
1986 A 507.20 258.30
1986 M 484.00 271.28
1986 J 516.20 275.10
1986 J 547.40 258.96
1986 A 600.60 277.40
1986 S 593.70 253.70
1986 O 553.30 267.58
1986 N 584.60 273.33
1986 D 614.90 265.60
1987 J 679.50 300.59
1987 F 699.20 311.69
1987 M 755.80 319.92
1987 A 835.00 316.25
1987 M 834.20 318.16
1987 J 806.90 333.41
1987 J 804.80 349.48
1987 A 864.40 361.69
1987 S 850.00 352.96
1987 O 730.10 276.15
1987 N 736.50 252.58
1987 D 757.50 270.98
1988 J 770.11 281.94
1988 F 820.60 293.73
1988 M 870.20 283.93
1988 A 881.90 286.61
1988 M 852.70 287.52
1988 J 829.30 299.96
1988 J 854.50 298.33
1988 A 798.00 286.82
1988 S 832.00 298.21
1988 O 902.30 305.96
1988 N 955.10 300.18
1988 D 959.40 304.58
1989 J 975.40 326.24
1989 F 979.40 316.80
1989 M 959.20 323.39
1989 A 967.20 339.59
1989 M 913.60 351.52
1989 J 897.30 348.74
1989 J 1009.00 379.56
1989 A 962.70 385.45
1989 S 1005.50 382.92
1989 O 964.10 373.28
1989 N 1011.50 379.46
</TABLE>
5-C
<PAGE>
<TABLE>
<S> <C> <C>
1989 D 1047.90 387.58
1990 J 1007.80 360.90
1990 F 936.40 363.99
1990 M 837.70 372.82
1990 A 830.00 362.80
1990 M 923.60 396.17
1990 J 914.30 392.65
1990 J 926.00 390.60
1990 A 834.80 353.76
1990 S 717.20 335.65
1990 O 827.70 333.41
1990 N 777.60 353.39
1990 D 789.00 362.16
1991 J 813.20 377.09
1991 F 899.10 397.91
1991 M 843.90 411.52
1991 A 851.00 411.64
1991 M 858.70 427.54
1991 J 794.50 407.06
1991 J 832.30 425.32
1991 A 814.20 433.68
1991 S 858.80 425.38
1991 O 869.80 430.41
1991 N 827.90 411.52
1991 D 869.40 457.44
1992 J 849.50 448.33
1992 F 817.90 453.89
1992 M 762.60 442.74
1992 A 764.90 455.09
1992 M 814.90 455.53
1992 J 774.90 447.62
1992 J 753.70 465.24
1992 A 799.60 454.08
1992 S 782.44 453.83
1992 O 740.17 454.79
1992 N 745.94 468.55
1992 D 748.61 473.29
1993 J 747.35 476.62
1993 F 768.77 481.62
1993 M 834.61 490.63
1993 A 912.59 478.16
1993 M 930.65 489.02
1993 J 914.94 489.39
1993 J 945.80 486.78
1993 A 995.68 503.54
1993 S 972.07 498.51
1993 O 1000.85 508.18
1993 N 912.19 501.62
1993 D 976.90 506.68
1994 J 1058.31 523.15
1994 F 2228.76 1339.58
1994 M 2133.24 1281.31
</TABLE>
6-C
<PAGE>
<TABLE>
<S> <C> <C>
1994 A 2224.22 1297.96
1994 M 2211.93 1319.12
1994 J 2243.68 1286.54
1994 J 2265.76 1329.12
1994 A 2319.90 1383.22
1994 S 2247.34 1349.88
1994 O 2322.70 1380.79
1994 N 2211.58 1330.12
1994 D 2225.95 1349.54
</TABLE>
Sources: Morgan Stanley Capital International and Standard & Poor's Rating
Group.
7-C
<PAGE>
Appendix D
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While
recognizing that the old way may still be the best way, we constantly strive to
find a better solution to a client's problems. We pride ourselves on having
pioneered many of the practices and techniques that have become standard in the
industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
1-D
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized
firms, with assets exceeding $54 billion and partners capital and subordinated
liabilities of over $4.5 billion as of November 25, 1994.
. Thirty-one offices worldwide where professionals focus on identifying
financial opportunities (includes a staff of 1,100 in London, 650 in Tokyo, 150
in Hong Kong and 4,000 in 11 offices throughout the U.S.).
. An equity research budget of $120 million for 1995.
. The number one lead manager of U.S. common stock offerings for the
past six years (1989-1994) with 18% of the total dollar volume.*
. Premier lead manager of negotiated municipal bond offerings over the
past five years (1990-1994), aggregating $114 billion.
* Source: Securities Data Corporation. Ranking excludes REITs, Trusts, Rights
====================================
and closed-end Fund offerings
2-D
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (oldest ongoing client)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to
date
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest
equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
3-D
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
INSTITUTIONAL SHARES
(PORTFOLIOS OF GOLDMAN SACHS EQUITY PORTFOLIOS, INC.)
One New York Plaza
New York, New York 10005
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectus for the Institutional Shares of Goldman Sachs Select Equity Fund
and Goldman Sachs Mid-Cap Equity Fund, dated June 1, 1995, as revised
or supplemented from time to time (the "Prospectus"), which may be obtained
without charge from Goldman, Sachs & Co. at the telephone number, or writing
to one of the addresses, listed below.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
====
<S> <C>
Introduction................................................ B-2
Investment Policies......................................... B-4
Investment Restrictions..................................... B-25
Management.................................................. B-31
Portfolio Transactions and Brokerage........................ B-43
Net Asset Value............................................. B-47
Taxation.................................................... B-49
Performance Information..................................... B-57
Financial Statements........................................ B-62
Shares of the Company....................................... B-62
Other Information........................................... B-65
Appendix A:................................................. 1-A
Appendix B:................................................. 1-B
</TABLE>
The date of this Additional Statement is June 1, 1995.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS
PORTFOLIOS, INC. MANAGEMENT, L.P.
One New York Plaza Investment Adviser to
New York, New York 10004 Goldman Sachs Select Equity Fund
One New York Plaza
GOLDMAN, SACHS & CO. New York, New York 10004
Distributor
85 Broad Street GOLDMAN SACHS ASSET
New York, New York 10004 MANAGEMENT
Investment Adviser to
GOLDMAN, SACHS & CO. Goldman Sachs Mid-Cap Equity Fund
Transfer Agent One New York Plaza
4900 Sears Tower New York, New York 10004
Chicago, Illinois 60606
Toll free (in U.S)......800-621-2550
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
ADMINISTRATION SHARES
(PORTFOLIOS OF GOLDMAN SACHS EQUITY PORTFOLIOS, INC.)
One New York Plaza
New York, New York 10005
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read in conjunction with the
Prospectus for the Administration Shares of Goldman Sachs Select Equity Fund and
Goldman Sachs Mid-Cap Equity Fund, dated June 1, 1995, as revised or
supplemented from time to time (the "Prospectus"), which may be obtained without
charge from Goldman, Sachs & Co. at the telephone number, or writing to one of
the addresses, listed below.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
====
<S> <C>
Introduction................................................ B-2
Investment Policies......................................... B-4
Investment Restrictions..................................... B-25
Management.................................................. B-31
Portfolio Transactions and Brokerage........................ B-43
Net Asset Value............................................. B-47
Taxation.................................................... B-49
Performance Information..................................... B-57
Financial Statements........................................ B-62
Shares of the Company....................................... B-62
Other Information........................................... B-65
Administration Plan......................................... B-67
Appendix A:................................................. 1-A
Appendix B:................................................. 1-B
</TABLE>
The date of this Additional Statement is June 1, 1995.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS
PORTFOLIOS, INC. MANAGEMENT, L.P.
One New York Plaza Investment Adviser to
New York, New York 10004 Goldman Sachs Select Equity Fund
One New York Plaza
GOLDMAN, SACHS & CO. New York, New York 10004
Distributor
85 Broad Street GOLDMAN SACHS ASSET
New York, New York 10004 MANAGEMENT
Investment Adviser to
GOLDMAN, SACHS & CO. Goldman Sachs Mid-Cap Equity Fund
Transfer Agent One New York Plaza
4900 Sears Tower New York, New York 10004
Chicago, Illinois 60606
Toll free (in U.S)......800-621-2550
<PAGE>
INTRODUCTION
Goldman Sachs Equity Portfolios, Inc. (the "Company") is an open-end,
management investment company currently offering eight series of shares,
including Goldman Sachs Select Equity Fund ("Select Equity Fund") and
Goldman Sachs Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a
"Fund," or collectively, the "Funds").
The Company was organized under the laws of the State of Maryland on
September 27, 1989. The Company assumed its current name on May 14, 1991. The
Directors of the Company have authority under the Company'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 Directors have created the Funds and six
additional series, and additional series may be added in the future from time to
time. Select Equity Fund currently offers three classes of shares:
Institutional Shares, Administration Shares and Class A Shares. Mid-Cap Equity
currently offers two classes of shares: Institutional Shares and Administration
Shares. See "Shares of the Company."
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as investment adviser to Select Equity
Fund and Goldman Sachs Asset Management ("GSAM"), a separate operating division
of Goldman Sachs, serves as investment adviser to Mid-Cap Equity Fund. GSFM and
GSAM are each sometimes referred to individually as an "Investment Adviser" and
collectively, as the "Investment Advisers." In addition, GSAM serves
as the administrator to each Fund. 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 Prospectus. See the
Prospectus for a fuller description of the Funds' investment objectives and
policies. There is no assurance that each Fund will achieve its objective.
The Goldman Sachs Mutual Funds Group ("MFG") offers banks, corporate
cash managers, investment advisers and other institutional investors a family
of professionally-managed mutual and money market funds, including fixed income
and equity funds, and a range of related services. MFG is part of GSAM, a
separate operating division of Goldman Sachs. All products are designed to
provide clients with the benefit of the expertise of GSAM and its affiliates in
security selection, asset allocation, portfolio construction and day-to-day
management.
The hallmark of MFG is personalized service, which reflects the priority
that Goldman Sachs places on serving client interests.
B-2
<PAGE>
As MFG clients, shareholders will be assigned an Account Administrator ("AA"),
who is ready to help shareholders with questions concerning their accounts.
During business hours, shareholders can call their AA through a toll-free number
to place purchase or redemption orders or obtain portfolio and account
information. The AA can also answer inquiries about rates of return, portfolio
composition and holdings and guide shareholders through operational details. An
MFG client can also utilize SMART/SM/ personal computer software system which
allows holders to purchase and redeem shares and also obtain portfolio and
account information directly.
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.
SELECT EQUITY FUND
==================
Select Equity Fund's investment objective is to provide its
shareholders with a total return consisting of capital appreciation plus
dividend income that, net of Fund expenses, exceeds the total return realized on
the S&P 500 Index. Under normal circumstances, the Fund will invest at least
90% of its total assets in equity securities.
The investment strategy of Select Equity Fund will be implemented to
the extent it is consistent with maintaining the Fund's qualification as a
regulated investment company under the Internal Revenue Code. The Fund's
strategy may be limited, in particular, by the requirement for such
qualification that less than 30% of the Fund's annual gross income be derived
from the sale or other disposition of stocks or securities (including options
and futures contracts) held for less than three months.
Since normal settlement for equity securities is three trading days, the
Fund will need to hold cash balances to satisfy shareholder redemption requests.
Such cash balances will normally range from 2% to 5% of the Fund's net assets.
The Fund may purchase futures contracts on the S&P 500 Index in order to keep
the Fund's effective equity exposure close to 100%. For example, if cash
balances are equal to 10% of the net assets, the Fund may enter into long
futures contracts covering an amount equal to 10% of the Fund's net assets. As
cash balances fluctuate based on new contributions or withdrawals, the Fund may
enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a sophisticated
=====================
computerized rating system for evaluating equity
B-3
<PAGE>
securities according to a variety of investment characteristics (or factors).
The factors used by the Multifactor Model incorporate many variables studied by
traditional fundamental analysts and cover measures of value, yield, growth,
momentum, risk and liquidity (e.g. price/earnings ratio, sustainable growth
rate, earnings momentum and market liquidity). All of these factors have been
shown to significantly impact the performance of equity securities.
Because it includes many disparate factors, the Investment Adviser
believes that the Multifactor Model is broader in scope and provides a more
thorough evaluation than most conventional, value-oriented quantitative models.
As a result, the securities ranked highest by the Multifactor Model do not have
one dominant investment characteristic (such as a low price/earnings ratio);
rather, such securities possess many different investment characteristics. By
using a variety of relevant factors to select securities, the 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 securities.
The Investment Adviser will monitor, and may occasionally suggest and make
changes to, the method by which securities are selected for or weighted in the
Fund. Such changes (which may be the result of changes in the nature of the
Recommended List, the Multifactor Model or the method of applying the
Multifactor Model) may include: (i) evolutionary changes to the structure of the
Multifactor Model (e.g., the addition of new factors or a new means of weighting
the factors); (ii) changes in trading procedures (e.g., trading frequency or the
manner in which the Fund uses futures on the S&P 500 Index); or (iii) changes in
the method by which securities are weighted in the Fund. Any such changes will
preserve the Fund's basic investment philosophy of combining qualitative and
quantitative methods of selecting securities using a disciplined investment
process.
INVESTMENT POLICIES
CORPORATE DEBT OBLIGATIONS
Mid-Cap Equity Fund may invest, under normal market conditions,
in corporate debt obligations, including obligations of industrial,
utility and financial issuers. Corporate debt obligations are subject to the
risk of an issuer's inability to meet principal and interest paymentson
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 bonds to service their debt
B-4
<PAGE>
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
Mid-Cap Equity Fund's net asset value to the extent it invests in such
securities. In addition, Mid-Cap Equity 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 Mid-Cap Equity Fund to dispose of a particular security when
necessary to meet its 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 Adviser
could find it more 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
these circumstances, may be less than the prices used in calculating Mid-Cap
Equity 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 Mid-Cap Equity
Fund 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 perceptions about higher quality issuers, 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 Mid-Cap Equity 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
B-5
<PAGE>
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 diversification of
Mid-Cap Equity Fund's portfolio and by analysis of each issuer and its ability
to make timely payments of income and principal, as well as broad economic
trends in corporate developments.
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 tax and accounting purposes which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
a Fund's distribution obligations. See "Taxation."
CUSTODIAL RECEIPTS
- ------------------
A Fund may acquire up to 5% of its total assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs") and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
- -------------------------------------------
Mortgage-backed securities represent direct or indirect participation in,
or are collateralized by and payable from, mortgage loans secured by real
property. Asset-backed securities represent participation in, or are secured
by and payable from,
B-6
<PAGE>
assets such as motor vehicle installment sales, installment loan contracts,
leases of various types of real and personal property, receivables from
revolving credit (credit card) agreements and other categories of receivables.
Such assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Mortgage-backed and 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 which may
increase the volatility of such investments relative to similarly rated debt
securities. 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 mortgage-backed and 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
U.S. Government securities and other mortgage-backed and 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 owned 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.
B-7
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
Each Fund may purchase and sell futures contracts. Mid-Cap
Equity Fund may also purchase and write options on futures
contracts. Mid-Cap Equity Fund may purchase and sell futures contracts based
upon various securities (such as U.S. Government securities), securities
indices, foreign currencies and other financial instruments and indices. Select
Equity Fund may only purchase and sell futures contracts on the S&P 500
index. Each Fund will engage in futures and, in the case of Mid-Cap Equity Fund,
related options transactions, only for bona fide hedging purposes as defined
below or for purposes of seeking to increase total return to the extent
permitted by regulations of the Commodity Futures Trading Commission ("CFTC").
All futures contracts entered into by a Fund are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the CFTC or on certain
foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund
can seek to offset a decline in the value of its current portfolio securities.
When interest 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, Mid-Cap Equity Fund can sell futures contracts on a
specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Mid-Cap Equity Fund 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 the Fund has acquired or expects to acquire.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While Mid-Cap Equity Fund will usually liquidate
futures contracts on securities or currency in this manner, the 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.
B-8
<PAGE>
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish more certainly than would otherwise be possible the effective
price, rate of return or currency exchange rate on portfolio securities and
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 in
order to hedge against an anticipated rise in interest rates or a decline in
market prices or, in the case of Mid-Cap Equity Fund, foreign currency
rates that would adversely affect the dollar value of such Fund's portfolio
securities. Such futures contracts may, in the case of Mid-Cap Equity
Fund, include contracts for the future delivery of securities held by the Fund
or securities with characteristics similar to those of the Fund's portfolio
securities. Similarly, Mid-Cap Equity Fund may sell futures contracts on a
particular currency 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 its Investment Adviser, there is a sufficient degree of correlation between
price trends for Mid-Cap Equity Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the 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 Adviser will attempt to estimate the extent of this
volatility difference based on historical patterns and compensate for any such
differential by having the Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting such Fund's securities portfolio. When hedging of this character is
successful, any depreciation in the value of portfolio securities will be
substantially offset by appreciation in the value of the futures position. On
the other hand, any unanticipated appreciation in the value of a Fund's
portfolio securities would be substantially offset by a decline in the value of
the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when the 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 Mid-Cap Equity Fund the right (but not the
obligation) for a specified price to sell or to
B-9
<PAGE>
purchase, respectively, the underlying futures contract at any time during the
option period. As the purchaser of an option on a futures contract, Mid-Cap
Equity 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 Mid-Cap Equity Fund's
assets. By writing a call option, Mid-Cap Equity Fund becomes obligated, in
exchange for the premium, to sell a futures contract (upon exercise of the
option), 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 Mid-Cap Equity Fund
intends to purchase. However, Mid-Cap Equity Fund becomes obligated to purchase
a futures contract (upon exercise of the option) which may have a value lower
than the exercise price. Thus, the loss incurred by Mid-Cap Equity Fund in
writing options on futures is potentially unlimited and may exceed the amount of
the premium received. Mid-Cap Equity 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 series.
There is no guarantee that such closing transactions can be effected. Mid-Cap
Equity 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 (and Mid-Cap Equity
Fund will engage in related options transactions) only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are denominated) that the Fund
owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are
denominated) it intends to purchase. As evidence of this hedging intent, each
Fund expects that on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets denominated or quoted in the
related currency) in the cash market at the time when the futures or
options position is closed out. However, in
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particular cases, when it is economically advantageous for a Fund to do so, a
long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits each Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish positions in futures contracts and options on futures to seek to
increase total return will not exceed 5% of the net asset value of the 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. Each Fund will engage in transactions in futures contracts
(and Mid-Cap will engage in related options transactions) only to the extent
such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for federal
income tax purposes. See "Taxation."
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian liquid, high grade debt securities 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 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 may be difficult to achieve because no futures contracts based on
individual equity securities or corporate fixed-income securities are
currently available. The only futures contracts available to hedge a Fund's
portfolio are various futures on U.S. Government securities, securities indices
and foreign currencies. In addition, it is not possible for a Fund to
hedge fully or perfectly against currency fluctuations affecting the value of
securities quoted or denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
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OPTIONS ON SECURITIES AND SECURITIES INDICES
- --------------------------------------------
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options, and purchase call and put options, on any securities in which it may
invest, although Select Equity Fund has no present intention of doing so. A
Fund may write such options on any securities index composed of
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 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 the Fund would have deposited with its
custodian cash or liquid, high grade debt securities with a value at least equal
to the exercise price of the put option. The purpose of writing such options is
to generate additional income for a Fund. However, in return for the option
premium, each Fund accepts the risk that it will be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
In addition, a written call option or put option may be covered by
maintaining cash or liquid, high grade debt securities (either of which may be
quoted or denominated in any currency) in a segregated account, by entering into
an offsetting forward contract and/or by purchasing an offsetting option or any
other option which, by virtue of its exercise price or otherwise, reduces a
Fund's net exposure on its written option position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those
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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 held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio. A Fund may cover call and put
options on a securities index by maintaining cash or liquid, high grade debt
securities with a value equal to the exercise price in a segregated account with
its custodian.
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 counter party 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 based on
securities in which it may invest, although Select Equity Fund has no present
intention of doing so. A Fund will purchase such options on securities that are
listed on domestic or foreign securities exchanges or traded in the over-the-
counter market. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it has
purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise a Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option
period, the value of the underlying securities decreased below the exercise
price sufficiently to more than cover the premium and transaction costs;
otherwise the Fund would realize no gain or a loss on the purchase
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of the put option. Gains and losses on the purchase of protective put options
would tend to be offset by countervailing changes in the value of the underlying
portfolio securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities.
For a description of options on securities indices, see "Writing Covered
Options" above.
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 assets held in a segregated account 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 would 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 an exchange on opening
transactions 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, if any, 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. Until such time as the staff of the Securities and Exchange
Commission (the "Commission") changes its position, each Fund will treat
purchased over-the-counter options and all assets used to cover written over-
the-counter options as illiquid securities, except that with respect to options
written with
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primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
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 liquidations of positions found to be in
excess of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on an Investment Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
WARRANTS AND STOCK PURCHASE RIGHTS
- ----------------------------------
Each Fund may invest up to 5% of its total assets, calculated at the time
of purchase, in warrants or stock purchase rights (other than those acquired in
units or attached to other securities) which entitle the holder to buy equity
securities at a specific price for a specific period of time. A Fund will
invest in warrants and rights only if such equity securities are deemed
appropriate by an Investment Adviser for investment by the Fund. Select Equity
Fund has no present intention of acquiring warrants or rights. Neither Fund
will invest more than 2% of its total assets, calculated at the time of
purchase, in warrants or rights which are not listed on the New York or American
Stock Exchanges. Warrants and rights have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
- ---------------------------------------
Mid-Cap Equity Fund may invest up to 5% of its total assets
(determined at the time of purchase) in shares of REITs that are not self-
administered or self-managed. 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
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their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. 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. Mid-Cap Equity Fund will indirectly bear
its proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by the Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified
(except to the extent the Code requires), and are subject to the risks of
financing projects. REITs are subject to heavy cash flow dependency, default by
borrowers, self-liquidation, and the possibilities of failing to qualify for the
exemption from tax for distributed income under the Code and failing to maintain
their exemptions from the Investment Company Act of 1940, as amended (the
"Act"). REITs (especially mortgage REITs) are also subject to interest rate
risks.
FOREIGN SECURITIES
- ------------------
Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in securities of
U.S. issuers. Foreign issuers may offer better investment
opportunities than investments in domestic securities. Foreign
countries may have economic policies or business cycles different from
those of the United States and securities markets do not necessarily
move in a manner parallel to U.S. markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in securities of U.S. issuers. Investments in foreign
securities may involve currencies of foreign countries and since Mid-Cap Equity
Fund may temporarily hold funds in bank deposits in foreign currencies during
completion of investment programs.
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 for an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign
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governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad.
Since foreign companies 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 Mid-Cap Equity Fund's assets are uninvested and no return
is earned on such assets. The inability of Mid-Cap Equity 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 Mid-Cap
Equity 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 the Fund's investments 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 Mid-Cap Equity Fund may also invest in European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts").
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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. 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. 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.
Mid-Cap Equity Fund may also 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. In addition, unanticipated political or social developments may
affect the values of Mid-Cap Equity Fund's investments in those countries and
the availability to Mid-Cap Equity Fund of additional investments in those
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make Mid-Cap Equity Fund's investments in such countries illiquid
and more volatile than investments in more developed countries, and Mid-Cap
Equity Fund may be required to establish special custodial or other arrangements
before making certain investments in those countries. There may be little
financial or accounting information available with respect to issuers located in
certain of such countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.
Mid-Cap Equity Fund may invest in securities of issuers domiciled in a
country other than the country in whose currency the instrument is denominated
or quoted. Mid-Cap Equity Fund may also invest in securities quoted or
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain of the member
states of the European Community. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of the European Community
from time to time to reflect changes in relative values
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of the underlying currencies. In addition, the Funds may invest in securities
quoted or denominated in other currency "baskets".
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Mid-Cap Equity Fund may enter
into forward foreign currency exchange contracts for hedging purposes. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.
At the maturity of a forward contract, Mid-Cap Equity Fund may either
accept or make delivery of the currency specified in the contract or, at or
prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing transactions with respect
to forward contracts are usually effected with the currency trader who is a
party to the original forward contract.
Mid-Cap Equity Fund may enter into forward foreign currency exchange
contracts in several circumstances. First, when Mid-Cap Equity Fund enters into
a contract for the purchase or sale of a security denominated or quoted in a
foreign currency, or when Mid-Cap Equity 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
maybe. By entering into a forward contract for the purchase or sale, for a fixed
amount of dollars, of the amount of foreign currency involved in the underlying
transactions, the Fund will attempt to protect itself against an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
Additionally, when the 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 Mid-Cap Equity 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
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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 Mid-Cap Equity
Fund's portfolio securities against 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 Mid-Cap Equity 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 Mid-Cap Equity Fund's foreign
assets.
Mid-Cap Equity Fund's custodian will place cash or liquid, high grade debt
securities into a segregated account of such Fund in an amount equal to
the value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts requiring the Fund to purchase foreign
currencies. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of Mid-Cap Equity
Fund's commitments with respect to such contracts. The segregated account will
be marked-to-market on a daily basis. Although the contracts are not presently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
these contracts. In such event, Mid-Cap Equity Fund's ability to utilize
forward foreign currency exchange contracts may be restricted.
While Mid-Cap Equity Fund will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while the Fund may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Fund than if it had not engaged in any such transactions.
Moreover, there may be imperfect correlation between Mid-Cap Equity 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 the Fund to sustain losses which will prevent the Fund from achieving a
complete hedge or expose the Fund to risk of foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Mid-Cap Equity Fund
may write (sell) covered put and call options and
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purchase put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As with other
kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. If and when Mid-Cap Equity 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 Mid-Cap Equity
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.
A call option written by Mid-Cap Equity Fund obligates Mid-Cap Equity Fund
to sell specified currency to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. A put option
written by Mid-Cap Equity Fund would obligate Mid-Cap Equity Fund to purchase
specified currency from the option holder at a specified price if the option is
exercised at any time before the expiration date. The writing of currency
options involves a risk that Mid-Cap Equity 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.
Mid-Cap Equity Fund may terminate its obligations under an exchange traded
call or put option by purchasing an option identical to the one it has written.
Such purchases are referred to as "closing purchase transactions." Mid-Cap
Equity Fund also is able to enter into closing sale transactions in order to
realize gains or minimize losses on options purchased by the Fund.
Mid-Cap Equity 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 Mid-Cap Equity Fund are quoted or
denominated. The purchase of a call option would entitle Mid-Cap Equity Fund,
in return for the premium paid, to purchase specified currency at a specified
price during the option period. Mid-Cap Equity 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.
Mid-Cap Equity Fund would normally purchase put options in
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anticipation of a decline in the dollar value of currency in which securities in
its portfolio are quoted or denominated ("protective puts"). The purchase of a
put option would entitle Mid-Cap Equity 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 Mid-Cap Equity Fund's portfolio securities due to
currency exchange rate fluctuations. Mid-Cap Equity 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 portfolio securities.
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 Mid-Cap Equity 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 Mid-Cap Equity 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
Mid-Cap Equity Fund as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying currency (or security quoted or denominated in that currency)
until the option expires or it delivers the underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities
of the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
Mid-Cap Equity 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 Mid-Cap
Equity Fund.
The amount of the premiums which Mid-Cap Equity Fund may pay
B-22
<PAGE>
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.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund
would be required to have the right to call a loan and obtain the securities
loaned at any time on five days' notice. For the duration of a loan, the 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 the 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 an Investment Adviser to be of good
standing, and when, in the judgment of the Investment Adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If an Investment Adviser determines 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.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis. These transactions
involve a commitment by a Fund to purchase or sell securities at a future date.
The price of the underlying securities (usually expressed in terms of yield)
and the date when the securities will be delivered and paid for (the settlement
date) are fixed at the time the transaction is negotiated. When-issued
purchases and forward commitment transactions are negotiated directly with the
other party, and such commitments are not traded on exchanges. A Fund will
purchase securities on a when-issued basis or purchase or sell securities on a
forward commitment basis only with the intention of completing the transaction
and actually purchasing or selling the securities. If deemed advisable as
a
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<PAGE>
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
average duration, the maturity of when-issued or forward commitment securities
will be calculated from the commitment date. A Fund is required to hold and
maintain in a segregated account with the Fund's custodian until the settlement
date, cash and liquid, high grade debt securities in an amount sufficient to
meet the purchase price. Alternatively, a Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. Securities
purchased or sold on a when-issued or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date.
REPURCHASE AGREEMENTS
- ---------------------
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities is maintained by the Fund's custodian. The repurchase
price may be higher than the purchase price, the difference being income to the
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to the Fund together with the repurchase price on repurchase.
In either case, the income to the Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and for federal tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security.
For other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by the
Fund or as being collateral for a loan by the 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, the Fund may be required
to return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Investment
Adviser seeks to minimize the risk of loss from repurchase agreements by
analyzing the creditworthiness of the
B-24
<PAGE>
obligor, in this case the seller of the security. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the security
subject to the repurchase agreement becomes less than the repurchase price
(including accrued interest), a Fund will direct the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement equals or exceeds the repurchase price. Certain
repurchase agreements which provide for settlement in more than seven days can
be liquidated before the nominal fixed term on seven days or less notice. Such
repurchase agreements will be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Fund's Investment Adviser or the Investment
Adviser's 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.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Company with
respect to each Fund 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 Company not to be fundamental and accordingly may be changed
without shareholder approval. See "Investment Objective and Policies" in the
Prospectus. For purposes of the Act, "majority" means the lesser of (a) 67% or
more of the shares of the Company or a Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Company or a Fund are present
or represented by proxy, or (b) more than 50% of the shares of the Company or a
Fund. For purposes of the following limitations, any limitation which involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Fund. With respect
to each Fund's fundamental investment restriction no. 1, asset coverage of at
least 300% (as defined in the Act), inclusive of any amounts borrowed, must be
maintained.
SELECT EQUITY FUND
Select Equity Fund may not:
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<PAGE>
1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding 10% of the Fund's total
assets; while such borrowings exceed 5% of such Fund's assets, the Fund will
not make any additional investments; and (b) in connection with the redemption
of Fund shares, but only if after each such borrowing there is asset coverage of
at least 300% as defined in the Act. For purposes of this investment
restriction, short sales, the entry into currency transactions, options, futures
contracts, including those relating to indexes, options on futures contracts or
indexes and forward commitment transactions shall not constitute borrowing.
2. Purchase the securities of any one issuer, other than the United
States Government or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of its total assets would be
invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that (a) up to 25% of the
value of the Fund's total assets may be invested without regard to such 5% and
10% limitations and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the United States Government, its
agencies or instrumentalities. (As a matter of non-fundamental policy, under
normal conditions, the securities of any one issuer may not exceed 5% of Select
Equity Fund's net assets at the time of purchase.)
3. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry. This limitation does not apply to investments or
obligations of the U.S. Government or any of its agencies or instrumentalities.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in currencies, options, futures
and options on futures.
6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by
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<PAGE>
the Fund may be deemed to be underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may
purchase and sell securities that are secured by real estate or interests
therein and may purchase mortgage-related securities and may hold and sell real
estate acquired for the Fund as a result of the ownership of
securities.
9. Invest in commodities except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes and currencies underlying
or related to any such future contracts, and purchase and sell currencies (and
options thereon) or securities on a forward commitment or delayed-delivery basis
as described in the Prospectuses.
10. Lend any funds or other assets except through the purchase of all or
a portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend its portfolio securities in an
amount not to exceed 33-1/3% of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established by the
Securities and Exchange Commission and the Company's Board of Directors.
11. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restriction Nos. 1, 4, 5 and 9.
In addition to the investment restrictions mentioned above, the Directors
of the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment policies in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, Select Equity Fund may not:
1. Purchase or retain the securities of any issuers if the officers,
directors or partners of the Company, its advisers or managers owning
beneficially more than one-half of 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
2. Purchase the securities of any issuer if by such purchase the
Fund would own more than 10% of the voting securities of such issuer.
B-27
<PAGE>
3. Write covered calls or put options with respect to more than
25% of the value of its net assets, invest more than 25% of its net assets in
puts, calls, spreads or straddles, other than protective put options. The
aggregate value of premiums paid on all options held by Select Equity Fund at
any time will not exceed 20% of the Fund's total net assets.
4. Invest (a) more than 15% of its net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (the
"1933 Act"); or (b) more than 10% of its net assets in restricted
securities (including those eligible for resale under Rule 144A).
5. Purchase securities of other investment companies except (a)
purchases which are part of a plan of merger, consolidation, reorganization, or
acquisition, and (b) other purchases of the securities of investment companies
only if the purchases are of open-ended, no-load funds, are conditioned on the
waiver of management fees and further, if immediately thereafter (i) not more
than 3% of the total outstanding voting stock of such company is owned by the
Fund, (ii) not more than 5% of the Fund's total assets, taken at market value,
would be invested in such securities, (iii) the Fund, together with other
investment companies having the same investment adviser and companies controlled
by such companies, owns not more than 10% of the total outstanding stock of any
one investment company.
6. Invest in securities of companies having a record together with
predecessors, of less than three years of continuous operation, if more than 5%
of a Fund's total assets would be invested in such securities. This restriction
shall not apply to mortgage-backed securities, asset-backed securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
MID-CAP EQUITY FUND
Mid-Cap Equity Fund may not:
1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding one-third of the value of the
Fund's total assets, including the amount borrowed; (b) in connection with the
redemption of shares of such Fund or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets; and
(c) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (d)
transactions in mortgage dollar rolls which are accounted for as financings, but
only if after each such borrowing there is asset coverage of at
B-28
<PAGE>
least 300% as defined in the Act. For purposes of this investment restriction,
short sales, currency transactions, forward contracts, currency, mortgage, index
and interest rate swaps, interest rate caps, floors and collars, options,
futures contracts, options on futures contracts or indices and forward
commitment transactions shall not constitute borrowing.
2. Purchase the securities of any one issuer, other than the U.S.
Government or any of its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities.
3. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry. This limitation does not apply to investments or
obligations of the U.S. Government or any of its agencies or instrumentalities.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.
6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase
B-29
<PAGE>
mortgage-related securities and may hold and sell real estate acquired for the
Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
10. Lend any funds or other assets except through the purchase of all or
a portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may enter into repurchase agreements and may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets.
11. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in fundamental investment restrictions 1, 4, 5
and 9.
In addition to the investment restrictions mentioned above, the Directors
of the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:
1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.
2. Write covered calls or put options with respect to more than 25% of
the value of its net assets or invest more than 5% of its net assets in puts,
calls, spreads or straddles, other than protective put options. The aggregate
value of premiums paid on all options, other than protective puts, held by the
Fund at any time will not exceed 5% of the Fund's total net assets.
3. Invest (a) more than 15% of its net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (the
"1933 Act"); or (b) more than 10% of its net assets in restricted
securities (including those eligible for resale under Rule 144A).
4. Purchase additional securities if the Fund's borrowings exceed 5% of
its assets.
B-30
<PAGE>
5. Purchase securities of other investment companies except (a)
purchases which are part of a plan of merger, consolidation, reorganization, or
acquisition, and (b) other purchases of the securities of investment companies
only if the purchases are of open-ended, no-load funds, are conditioned on the
waiver of management fees and further, if immediately thereafter (i) not more
than 3% of the total outstanding voting stock of such company is owned by the
Fund, (ii) not more than 5% of the Fund's total assets, taken at market
value, would be invested in such securities, (iii) the Fund, together
with other investment companies having the same investment adviser and companies
controlled by such companies, owns not more than 10% of the total outstanding
stock of any one investment company.
6. Invest in securities of companies having a record together with
predecessors, of less than three years of continuous operation, if more than 5%
of a Fund's total assets would be invested in such securities. This restriction
shall not apply to mortgage-backed securities, asset-backed securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
MANAGEMENT
Information pertaining to the Board of Directors and officers of the
Company is set forth below. Directors and officers deemed to be "interested
persons" of the Company for purposes of the Act are indicated by an asterisk.
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
Paul C. Nagel, Jr. 72; Chairman; Retired. Director and
19223 Riverside Dr. Chairman of the Finance and Audit
Tequesta, FL 33469 Committees, Great Atlantic & Pacific Tea Co., Inc.;
Director, United Conveyor Construction.
Ashok N. Bakhru 52; Director; President, ABN Associates,
1235 Westlakes Inc. since June 1994. Retired, Senior
Drive, Suite 385 Vice President of Scott Paper Company;
Berwyn, PA 19312 Director of Arkwright Mutual Insurance
Company; Trustee of International House of
Philadelphia; Member of Cornell University
Council; Trustee of the Walnut Street Theatre.
*Marcia L. Beck 39; President and Director; Director
B-31
<PAGE>
One New York Plaza Institutional Funds Group, GSAM (since
New York, NY 10004 September 1992); Vice President and Senior Portfolio
Manager, (GSAM from June 1988 to present).
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ======================================
*David B. Ford 49; Director; General Partner, Goldman
One New Plaza Sachs, since 1986. Chairman and Chief
New York, NY 10004 Executive Officer of GSAM since December
1994.
*Alan A. Shuch 45; Director; Director and Vice President
One New York Plaza of Goldman Sachs Fund Management, Inc.
New York, NY 1004 (from April 1990 to November 1994);
President and Chief Operating Officer, GSAM (from
September 1988 to November 1994); Limited Partner,
Goldman Sachs (since December 1994).
Jackson W. Smart 64; Director; Chairman and Chief Executive
One Northfield Plaza Officer, MSP Communications Inc. (a company
#218 engaged in radio broadcasting) (since
Northfield, IL November 1988); Consultant, Thomas
60093 Industries, Inc. (a manufacturer of lighting
fixtures, home decorations and hardware items)
(August 1987 to November 1988); Chairman and
member of Executive Committee, Thomas Industries,
Inc. (October 1983 to August 1987); Director,
Federal Express Corporation; Director, North
American Private Equity Group (a venture capital
fund).
William H. Springer 65; Director; Vice Chairman of Ameritech
701 Morningside Dr. (a telecommunications holding company;
Lake Forest, IL February 1987 to retirement in August
60045 1992); Vice Chairman, Chief Financial and
Administrative Officer, Ameritech (prior
thereto); Director, American Information
Technologies corporation; Director Walgreen Co.
(a retail drugstore business); Director of Baker,
Fentress & Co. (a closed-ended, non-diversified
management investment company).
B-32
<PAGE>
Richard P. Strubel 55; Director; Managing Director, Tandem
70 West Madison St. Partners, Inc. (since 1990); President
Suite 1400 and Chief Executive Officer, Microdot,
Chicago, IL 60602 Inc. (a diversified manufacturer of
fastening systems and connectors)
(January 1984 to October 1994).
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ======================================
*Scott M. Gilman 35; Treasurer; Director, Mutual Funds
One New York Plaza Administration, GSAM (since April 1994);
New York, NY 10004 Assistant Treasurer of Goldman Sachs Funds
Management, Inc. (since March 1993); Vice
President, Goldman Sachs (since March 1990);
Assistant Treasurer of the Company (April 1990 to
October 1991); formerly Manager, Arthur Andersen
LLP (prior to March 1990).
*Pauline Taylor 48; Vice President; Vice President of
4900 Sears Tower Goldman Sachs (since June 1992);
Chicago, IL 60606 Consultant (1989 to June 1992); Senior
Vice President of Fidelity Investments (prior to 1989).
*John W. Mosior 56; Vice President; Vice President, Goldman
4900 Sears Tower Sachs, and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group.
*Nancy L. Mucker 45; Vice President; Vice President, Goldman
4900 Sears Tower Sachs, and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group.
*Michael J. Richman 34; Secretary; Vice President and Assistant
85 Broad Street General Counsel of Goldman Sachs (since
New York, NY 10004 June 1992); Associate General Counsel to
the Funds Group, GSAM (since February 1994); Partner, Hale
and Dorr (September 1991 to June 1992); Attorney-at-law,
Gaston & Snow (September 1985 to September 1991).
*Howard B. Surloff 29; Assistant Secretary; Counsel and Vice
85 Broad Street President, Goldman Sachs (since November
New York, NY 10004 1993 and May 1994, respectively); Counsel to the Funds
Group of GSAM (since November
B-33
<PAGE>
1993); Formerly Associate of Shereff Friedman, Hoffman &
Goodman (prior thereto).
B-34
<PAGE>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
*Steven E. Hartstein 31; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs (June 1993 to
New York, NY 10004 present); Funds Compliance Officer, Citibank Global Asset
Management (August 1991 to June 1993); Legal Assistant,
Brown & Wood (prior thereto).
*Gail M. Shanley 26; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs since June
New York, NY 10004 1994. Formerly Blue Sky Legal Assistant at Smith Barney
Shearson.
_____________
* "Interested person" of the Company for purposes of the Act.
The Company's Directors and officers hold comparable positions with certain
other investment companies of which the Investment Advisers, Goldman Sachs or an
affiliate thereof is the investment adviser, administrator, and/or distributor.
As of April 27, 1995, the Directors and officers of the Company as a
group owned less than 1% of the outstanding shares of common stock of the
Funds.
The following table sets forth certain information with respect to the
compensation of each Director of the Company for the one-year period ended
January 31, 1995:
<TABLE>
<CAPTION>
Total
Pension of Compensation
Retirement from Goldman
Benefits Sachs Mutual
Aggregate Accrued as Funds
Compensation Part of (including
Name of Trustee from the Company Company's Expenses the Company)
=============== ================ ================== ============
<S> <C> <C> <C>
Paul C. Nagel, Jr. $13,065 -0- 101,000
Ashok Bakhru 7,865 -0- 61,000
Marcia L. Beck -0- -0- -0-
David B. Ford -0- -0- -0-
Alan A. Shuch -0- -0- -0-
Jackson W. Smart, Jr. 7,865 -0- 61,000
William H. Springer 7,865 -0- 61,000
Richard D. Strubel -0- -0- 61,000
</TABLE>
B-35
<PAGE>
* The Goldman Sachs Mutual Funds consisted of 32
mutual funds, including the seven series of the
Company, on January 31, 1995.
INVESTMENT ADVISER AND ADMINISTRATOR
As stated in the Prospectus, GSAM, One New York Plaza, New York, New York,
a separate operating division of Goldman Sachs serves as investment adviser to
Mid-Cap Equity Fund and administrator to both Funds. GSFM, One New York Plaza,
New York, New York, a Delaware limited partnership, which is an affiliate of
Goldman Sachs, serves as investment adviser to Select Equity Fund. See
"Management -- Investment Adviser and Administrator" in the Prospectus for a
description of GSAM's duties as Mid-Cap Equity Fund's investment adviser and
GSAM's duties as the Funds' administrator, and GSFM duties as Select Equity
Fund's investment adviser.
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 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, Milan, Montreal,
Osaka, Paris, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto,
Vancouver and Zurich. It has trading professionals throughout the United
States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The 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. With an annual equity research budget approaching
$120 million, Goldman Sachs' Investment Research Department covers
approximately 1,700 companies, including approximately 1000 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
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<PAGE>
among the leading investment firms using quantitative analytics (now used
by a growing number of investors) to structure and evaluate portfolios.
Each Investment Adviser has 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 the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and currency
forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. Economy 1989-1994; International
Economies 1986, 1988-1994; and Currency Movements 1986-1993.
Each Fund's investment advisory agreement and administration agreement
provides that GSAM and GSFM, as the case may be, may render similar services to
others so long as the services provided thereunder are not impaired thereby.
The investment advisory agreement with respect to Mid-Cap Equity Fund was
approved and the investment advisory agreement with respect to Select Equity
Fund was most recently approved (1) by the Directors of the Company, including a
majority of the Directors of the Company who are not parties to the investment
advisory agreements or "interested persons" (as such term is defined in the Act)
of any party thereto (the "non-interested Directors"), on April 26, 1995
(April 27, 1995 in the case of Mid-Cap Equity Fund) and (2) will be approved by
the sole initial shareholder of Mid-Cap Equity Fund on July 28, 1995 and the
shareholders of Select Equity Fund at a shareholder meeting held on November 27,
1991. Each Fund's agreement will remain in effect until June 30, 1996 and 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 Directors of the Company, and (b)
the vote of a majority of the non-interested Directors of the Company, cast in
person at a meeting called for the purpose of voting on such approval. Each
advisory agreement will terminate automatically if assigned (as defined in the
Act) and is terminable at any time without penalty by the Directors of the
Company or by vote of a majority of the outstanding voting securities of each
Fund on 60 days' written notice to the relevant Investment Adviser and by
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<PAGE>
the relevant Investment Adviser on 60 days' written notice to the Company.
Pursuant to Mid-Cap Equity Fund's investment advisory agreement, GSAM is
entitled to receive a fee payable monthly by Mid-Cap Equity Fund equal on an
annual basis to 0.60% of the Fund's average daily net assets. Pursuant
to Select Equity Fund's investment advisory agreement, GSFM is entitled to
receive a fee payable monthly by the Fund equal on an annual basis to 0.50% of
the Fund's average daily net assets. GSFM voluntarily has agreed to limit its
advisory fee with respect to Select Equity Fund to an annual rate equal to 0.40%
of average daily net assets. Although it has no current intention to do so,
GSFM may modify or discontinue each such limitation in the future at its
discretion.
For the fiscal years ending January 31, 1995, 1994 and 1993, the amounts of
the investment advisory fees incurred by Select Equity Fund were
$462,255, $475,941 and $662,844, respectively. The foregoing does not
give effect to the agreement (which was not in effect during such fiscal years)
by GSFM to limit advisory fees to 0.40% of Select Equity Fund's average daily
net assets.
Pursuant to the administration agreements, GSAM's administrative
responsibilities include, subject to the general supervision of the
Directors of the Company, (a) providing supervision of all aspects of the
Company's non-investment operations (the parties giving due recognition to the
fact that certain of such operations are performed by others pursuant to
agreements with each Fund), (b) providing the Company, to the extent
not provided pursuant to its custodian and transfer agency agreements or
agreements with other institutions, with personnel to perform such executive,
administrative and clerical services as are reasonably necessary to provide
effective administration of the Company, (c) arranging, to the extent not
provided pursuant to such agreements, for the preparation, at the Company's
expense, of its tax returns, reports to shareholders, periodic updating of the
Prospectuses and reports filed with the Commission and other regulatory
authorities, (d) providing the Company, to the extent not provided pursuant to
such agreements, with adequate office space and certain related office equipment
and services, and (e) maintaining all of the Company's records other than those
maintained pursuant to such agreements.
For its services under the administration agreement, GSAM is entitled
to receive a fee payable monthly equal on an annual basis to 0.15% and 0.25%,
respectively, of Select Equity Funds' and Mid-Cap Equity Funds' average
daily net assets. GSAM voluntarily has agreed to limit its administration fee
with respect to Select Equity Fund to an annual rate equal to 0.15% of average
daily net assets. Although it has no current intention to do so, GSAM may
modify or discontinue such limitation in the future at its discretion. For the
fiscal years ending January 31, 1995, 1994 and
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<PAGE>
1993, the amounts of the administration fees paid by Select Equity Fund were
$231,128, $237,970 and $331,422, respectively. The foregoing does not give
effect to the agreement (which was not in effect during such fiscal years) by
GSAM to limit its administration fee to 0.15% of Select Equity Fund's average
daily net assets.
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 interests in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Funds or impede the Funds' 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 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 the Funds'
performance. Such transactions, particularly in respect to 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 the good faith discretion of such
entities 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 will not
initiate or recommend certain types of transactions in certain securities or
instruments with respect to which the Investment Advisers and/or
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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 Sachs, Aron and other affiliates. An Investment Adviser
will not be under any obligation, however, to effect transactions on behalf of a
Fund 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 a Fund's investment activities may differ significantly
from the results achieved by an Investment Adviser and its 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 result
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 a
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,
currencies and investments similar to those in which a Fund invests.
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<PAGE>
In addition, certain principals and certain of the employees of the
Investment Advisers are also principals or employees of Goldman Sachs, Aron
and/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 other 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 not have an incentive to assure that a Fund obtains the
best possible prices or terms in connection with the transactions. Goldman
Sachs and its affiliates may also create, write or issue derivative instruments
for customers of Goldman Sachs or its affiliates, the underlying securities,
currencies or instruments of which may be those in which a Fund invests or which
may be based on the performance of the 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. To the extent
that affiliate transactions are permitted, the Funds will deal with Goldman
Sachs and its affiliates on an arm's-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 the Funds in order to increase the
assets of the Funds. 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 Fund shares acquired for its own account.
A large redemption of Fund shares by Goldman Sachs could significantly reduce
the asset size of a 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.
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<PAGE>
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 serves as the exclusive distributor of shares of the
Funds pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Company dated February 1, 1993. 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 serves as the Company's transfer agent. Under its transfer
agency agreement with the Company, Goldman Sachs has undertaken with the Company
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 Company's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Company by Goldman Sachs as transfer agent and the assumption by Goldman Sachs
of the expenses related thereto, Goldman Sachs is entitled to receive a fee with
respect to the Institutional and Administration Shares of each Fund equal to
0.04% of the net assets of a Fund attributable to such classes of shares.
Transfer agency fees paid by a Fund with respect to a particular class are
allocated to the shares of such class.
The Company'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
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are not impaired thereby. Such agreements also provide that the Company will
indemnify Goldman Sachs against certain liabilities.
EXPENSES
Except as set forth in the Prospectus under "Management", the
Company is responsible for the payment of its expenses. The expenses borne by
a Fund include, without limitation, the fees payable to its Investment Adviser,
the fees payable to GSAM, the fees and expenses of the Fund's custodian and
subcustodians, transfer agency fees, brokerage fees and commissions, filing fees
for the registration or qualification of the Company's shares under federal or
state securities laws, expenses of the organization of the Company, the fees
and expenses incurred by the Company 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 Company
for violation of any law, legal, tax and auditing fees and expenses (including
the cost of legal and certain accounting services rendered by employees of
GSAM and Goldman Sachs with respect to the Company), 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 a
Fund's shareholders and regulatory authorities, any expenses assumed by a Fund
pursuant to a distribution, authorized dealer service plan or administration
plan compensation and expenses of the Company's "non-interested" Directors and
extraordinary expenses, if any, incurred by the Company.
Each Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding advisory, transfer agency,
administration and distribution and authorized dealer service fees,
taxes, interest, brokerage, litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.06% per
annum of the average daily net assets of Select Equity Fund and Mid-Cap Equity
Fund. Such limits are calculated monthly and may be discontinued or
modified by the Investment Adviser at 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
the Funds' custodian.
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Each Investment Adviser has voluntarily agreed to reduce the fees
payable to it by a Fund (to the extent of its fees) by an amount (if any) that
the Fund's expenses would exceed the expense limitations applicable to such Fund
imposed by states securities administrators, as such limitations may be lowered
or raised from time to time. These expense limitations apply to the
advisory and administration feespaid by each Fund but do not apply to
taxes, interest, brokeragefees and distribution, authorized dealer service
and adminstration fees and, where permitted, extraordinary expenses such
such as for litigation. The advisers will reduce their respective fees by
the amount of such excess in amounts proportionate to such investment advisory
administration.
Currently, the most restrictive expense limitation of state
securities commissions of which the Company is aware is 2-1/2% of a Fund's
average daily net assets up to $30 million, 2% of the next $70 million of such
assets and 1-1/2% of such assets in excess of $100 million.
CUSTODIAN AND SUB-CUSTODIANS
State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts
02105, is the custodian of the Company's portfolio securities and cash. State
Street also maintains the Company's accounting records. State Street may
appoint sub-custodians from time to time to hold certain securities purchased by
the Company and to hold cash for the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, One International
Place,Boston, Massachusetts 02110, have been selected as auditors of the
Company. In addition to audit services, Arthur Andersen LLP prepares the
Company's federal and state tax returns, and provides consultation and
assistance on accounting, internal control and related matters.
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 negotiated 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
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<PAGE>
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. A Fund will not deal with Goldman Sachs in any transaction in which
Goldman Sachs acts as principal.
In placing orders for portfolio securities of a Fund, an Investment
Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that an Investment
Adviser will seek to execute each transaction at a price and commission, if
any, which provide the most favorable total cost or proceeds reasonably
attainable in the circumstances. While the Investment Adviser generally seeks
reasonably competitive spreads or commissions, a Fund will not necessarily be
paying the lowest spread or commission available. Within the framework of this
policy, an Investment Adviser will consider research and investment services
provided by brokers or dealers who effect or are parties to portfolio
transactions of a Fund, its Investment Adviser and its affiliates, or their
other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by an Investment Adviser in connection with
all of its investment activities, and some of such services obtained in
connection with the execution of transactions for a Fund may be used in managing
other investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by an Investment Adviser in providing investment
advisory services for the Company.
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 or an affiliate acts as investment adviser), the
Investment Adviser, to the extent permitted by applicable laws and regulations,
may aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for such other customers in order to obtain the best net price
and most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by an Investment Adviser in the manner it considers to be most equitable
and consistent with its fiduciary obligations to such Fund and such
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<PAGE>
other customers. In some instances, this procedure may adversely affect the
price and size of the position obtainable for a Fund.
Commission rates 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 Directors
of the Company.
Subject to the above considerations, an Investment Adviser may use Goldman
Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for a 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 Directors of the Company, including a majority of
the Directors who are not "interested" Directors, 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.
In addition, Goldman Sachs, as a member firm of the New York Stock
Exchange, may effect exchange transactions and receive compensation therefor if
expressly so authorized in a written contract with the Company. The Company on
behalf of each Fund has entered into such a contract with Goldman Sachs.
Goldman Sachs will provide the Company at least annually with a statement
setting forth the total amount of all compensation retained by Goldman Sachs in
connection with effecting transactions for the accounts of the Funds. The
Directors of the Company will review and approve all the Fund's portfolio
transactions with Goldman Sachs and the compensation received by Goldman Sachs
in connection therewith. The Company, of course, will effect its portfolio
transactions in a manner consistent with all applicable laws.
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<PAGE>
For the past three fiscal years, Select Equity Fund paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
============= ==================== ======================== ==============
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995 $119,192 $ 0(0%)/(1)/ $99,016,396(0%)/(2)/ -0-
January 31, 1994 187,041 3,857(2%)/(1)/ 306,043,566(1%)/(2)/ -0-
January 31, 1993 466,732 99,522(21%)/(1)/ 83,349,921(21%)/(2)/ -0-
</TABLE>
/(1)/ Percentage of total commissions paid.
/(2)/ Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
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During the fiscal year ended January 31, 1995, the Company
acquired and sold securities of its regular broker-dealers: Daiwa
Securities, Kidder Peabody & Co., Lehman Brothers, Chemical Securities,
United Bank of Switzerland,Sanwa Securities, Swiss Bank Corp., JP Morgan & Co.,
Bankers Trust Company and NationsBank Corp. As of January 31, 1995, Select
Equity Fund held the following amounts of securities of its regular
broker/dealers, as defined in Rule 10b-1 under the Act, or their parents ($
in thousands): Swiss Bank Corp. and NationsBank Corp. in the amounts of $2,144
and $1,321, respectively.
NET ASSET VALUE
Under the Act, the Directors of the Company are responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the Directors of the Company, the net
asset value per share is calculated by determining the net assets attributable
to each class of each Fund (assets, including securities at value, minus
liabilities) divided by the number of shares outstanding of that
class. All securities are valued as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. New York time) on each Business
Day (as defined in the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Directors of the Company 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 Commission or its staff.
Portfolio securities of a Fund are valued as follows: (a) securities
listed on any U.S. or foreign stock exchange or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the
mean between the closing bid and asked prices; and (ii) on a foreign exchange
will be valued at the last sale price (also referred to as the close price).
The last sale price for securities traded principally on a foreign exchange
will be determine as of the close of the London Stock Exchange or, for
securities traded on exchanges located in the Asia Pacific region, noon London
time; (b) 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 mean between
the last bid and asked prices; (c) exchange traded options and futures contracts
will be valued at the last sale price in the market where such contracts
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are principally traded; (d) forward foreign currency exchange contracts will be
valued using a pricing service or at the mean between the last bid and asked
quotations supplied by an independent dealer in such contracts; (e) debt
securities, other than money market instruments, will be valued on the basis of
dealer-supplied quotation or by using a pricing service approved by the Board of
Directors if such prices are believed by the Investment Advisers to accurately
represent market value. Money market instruments, which are defined as those
debt securities with a remaining maturity of 60 days or less, will be valued at
amortized costs; (f) overnight repurchase agreements will be valued at cost and
term repurchase agreements will be valued at the average of bid quotations
obtained daily from at least two recognized dealers; (g) OTC options will be
valued by an independent unaffiliated broker identified by the portfolio
manager/trader and contacted by the custodian bank, and (h) all other
securities, including those for which a pricing service supplies no exchange
quotation or a quotation that is believed by the portfolio manager/trader to be
inaccurate, will be valued at fair value in accordance with procedures
established by the Board of Directors of the Company.
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 Fund's net asset value
is not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in the Fund's
calculation of net asset value unless the Directors deem that the particular
event would materially affect net asset value, in which case an adjustment may
be made.
The proceeds received by each Fund and each other series of the Company
(as defined herein under "Shares of the Company") established by the Directors
of the Company for each 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 series and
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constitute the underlying assets of that series. The underlying assets of each
series will be segregated on the books of account, and will be charged with the
liabilities in respect of such series and with a share of the general
liabilities of the Company. Expenses of the Company are generally allocated in
proportion to the net asset values of the respective series except where
allocations of direct expenses can otherwise be fairly made.
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. The 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 and has elected or intends
to elect to be treated, and to qualify for each taxable year, as a regulated
investment company under Subchapter M of the Code. Qualification as a regulated
investment company under the Code requires, among other things, that (a) a Fund
derive at least 90% of its annual gross income 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"); (b) such Fund derive
less than 30% of its annual gross income from the sale or other disposition of
any of the following which was held for less than three months: (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies); and (iii) foreign
currencies and foreign currency options, futures and forward contracts that are
not directly related to the Fund's principal business of investing in stock or
securities or options and futures with respect to stocks or securities (the
"short-short test"); and (c) such Fund diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the market value
of its 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
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<PAGE>
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than United States 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. Gains from the sale or
other disposition of foreign currencies (or options, futures or forward
contracts on foreign currencies) 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 will be treated as gains from the sale of
investments held for less than three months under the short-short test (even
though characterized as ordinary income for some purposes) if such currencies or
instruments were held for less than three months. 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 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 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 accordance with the Code's timing requirements, at
least 90% of its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount income, market discount
income, income from securities lending, any net short-term capital gain in
excess of net long-term capital loss and certain net realized foreign exchange
gains 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
B-51
<PAGE>
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 at least annually to its shareholders
all or substantially all of its investment company taxable income and net
capital gain. 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.
Select Equity Fund has received a private letter ruling from the
Internal Revenue Service which confirms that its issuance of multiple classes
of shares will not adversely affect its tax status and the tax treatment of its
distributions.
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss.
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 did not
pay federal income tax. 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, 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 treated as if they were
paid by the Fund and received by such shareholders on December 31 of the year
declared.
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
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<PAGE>
capital gain and losses. Certain futures contracts, forward contracts and
options 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 applicable Fund's taxable year. Any gain or loss recognized on
actual or deemed sales of these futures 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, a Fund
may be required to defer the recognition of losses on futures contracts (and,
for Mid-Cap Equity Fund, options) or underlying securities or foreign currencies
to the extent of any unrecognized gains on related positions held by a Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The short-short test described above may limit Mid-Cap Equity Fund's
ability to use options, futures and forward transactions (and Select Equity
Fund's ability to use futures transactions) as well as its ability to engage in
short sales. The tax provisions described above applicable to options, futures
and forward contracts may affect the amount, timing and character of the
applicable Fund's distributions to shareholders. 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 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. These
rules are less likely to have a significant effect on Select Equity Fund,
because it may engage in fewer of the foregoing investments or investment
techniques than Mid-Cap Equity Fund. 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 foreign 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 the 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.
B-53
<PAGE>
Each Fund may 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. Because more than 50% of a Fund's total assets at the close of any
taxable year will not consist of stock or securities of foreign corporations,
neither Fund will qualify to 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 even though not
actually received, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them. Each Fund will, however, be entitled to deduct such
taxes in computing its investment company taxable income.
If a Fund acquires stock in certain non-U.S. 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 such 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. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the 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.
A Fund's investments in zero coupon securities or other securities bearing
original issue discount or, if the Fund elects to include market discount in
income currently, market discount, will generally cause it to realize income
prior to the receipt of cash payments with respect to these securities. The
mark to market rules applicable to certain options, futures and forward
contracts, as described above, may also require that income or gain be
recognized without a concurrent receipt of cash. In order 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.
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
B-54
<PAGE>
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 eliminate or minimize any
adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income that would be eligible for the dividends received deduction if
such Fund were not a regulated investment company will be eligible, subject to
certain holding period and debt-financing restrictions, for the 70% dividends
received deduction for corporations. 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.
Distributions , if any, that are in excess of a Fund's current and
accumulated earnings and profits, as computed for federal income tax purposes,
will first reduce a shareholder's tax basis in his or her shares and, after such
basis is reduced to zero, will constitute capital gains to a shareholder who
holds his or her shares as capital assets.
All distributions, whether received in shares or in cash, as well as
redemptions and exchanges, must be reported by each shareholder who is required
to file a U.S. federal income tax return.
B-55
<PAGE>
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.
U.S. SHAREHOLDERS - SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of,
the shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or fair
market value of any property, received. Assuming the shareholder holds the
shares as a capital asset at the time of such sale or other disposition, such
gain or loss should be capital in character, and long-term if the shareholder
has a tax holding period for the shares of more than one year, otherwise short-
term. If, however, 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 the sale or redemption, 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 the 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 shares of that Fund or another fund are subsequently
acquired without payment of a sales charge 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.
BACKUP WITHHOLDING
Each Fund will be required to report to the Internal Revenue Service all
distributions, as well as gross proceeds from the redemption or exchange of
Fund shares, except in the case of certain exempt recipients, i.e.,
corporations and certain other investors distributions to which are exempt from
the information reporting provisions of the Code. Under the backup withholding
provisions of the Code Section 3406 and applicable Treasury regulations, all
such reportable distributions and proceeds may be subject to backup
withholding of federal income tax at the rate of 31% in the case of nonexempt
shareholders who fail to furnish the Funds with their correct taxpayer
identification number and
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<PAGE>
with certain required certifications or if the Internal Revenue Service or a
broker notifies the Funds that the number furnished by the shareholder is
incorrect or that the shareholder is subject to back up withholding as a result
of failure to report interest or dividend income. A Fund may refuse to accept an
application that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in 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. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
NON-U.S. SHAREHOLDERS
The foregoing discussion relates solely to U.S. federal income tax law as
it applies to "U.S. persons" (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trust or estates) subject to tax under such law.
Dividends of investment company taxable income distributed by a Fund to a
shareholder who is not a U.S. persons will be subject to U.S. withholding tax at
the rate of 30% (or a lower rate provided by an applicable tax treaty) unless
the dividends are effectively connected with a U.S. trade or business of the
shareholder, in which 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
the Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. income or withholding tax unless the
distributions are 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.
Any gain realized by a shareholder who is not a U.S. person 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 acceptable substitute may be subject to backup withholding at the rate of 31%
on capital gain dividends and the proceeds of redemptions and exchanges.
Investors who are not U.S. persons should consult their tax advisers about the
U.S. and non-U.S. tax consequences of ownership of shares of, and receipt of
distributions from, a Fund.
B-57
<PAGE>
STATE AND LOCAL TAXES
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.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return
information in advertisements, shareholder reports or sales literature. Average
annual total returns are computed pursuant to formulas specified by the
Commission.
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 (net asset value in the
case of Institutional and Administration Shares) 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 (net asset
value in the case of Institutional and Adminstration Shares) with all
distributions reinvestedat the beginning of such period equal to the actual
total value of such investment at the end of such period. The following
table indicates the total return (capital changes plus reinvestment of all
distributions on a hypothetical investment of $1,000 in Select Equity Fund
(class A shares) for the periods indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and
a beta of less than 1.00 indicates volatility less than the market.
B-58
<PAGE>
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 Company 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, Changing Times, Financial World, Forbes, Money,
Personal Investor, Sylvia Porter's Personal Finance and The Wall Street Journal.
The Company may also advertise information which has been provided to the NASD
for publication in regional and local newspapers. In addition, the Company 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 measure the total return in U.S. dollar terms of
government bonds, Eurobonds and foreign bonds of ten countries, with all such
bonds having a minimum maturity of five years); (f) the Lehman Brothers
Aggregate Bond Index or its component indices; (g) the Standard & Poor's Bond
Indices (which measure yield and price of corporate, municipal and U.S.
Government bonds); (h) the J.P. Morgan Global Government Bond Index; (i) other
taxable investments including certificates of deposit (CDs), money market
deposit account (MMDAs), checking accounts, saving 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 Value-
Line Composite-Price Return; (p) the Wilshire 4500 Index; (q) the FT-Actuaries
Europe and Pacific Index, and (r) historical investment data supplied by the
research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley (including EAFE), Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data. The composition
of the
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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.
B-60
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset
Value of
Investment
Investment Investment Amount at
Fund Date Period Invested Period End Cumulative Annualized
==== ========== ========== ======== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C>
Select 5/24/91* ended $1,000
Equity Fund 1/31/95
Class A Shares
-Assumes 5.5% sales charge $1,200.90 20.09% 5.08%
-Assumes no sales charge $1,270.80 27.08% 6.70%
2/1/94 one year $1,000
ended
1/31/95
-Assumes 5.5% sales charge $934.60 (6.54)% (6.54)%
-Assumes no sales charge $989.00 (1.10)% (1.10)%
</TABLE>
B-61
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset
Value of
Investment
Investment Investment Amount at
Fund Date Period Invested Period End Cumulative Annualized
==== ========== ========== ======== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C>
Select 5/24/91* ended $1,000
Equity Fund 1/31/95
-Assumes 5.5% sales charge $1,189.60 18.96% 4.81%
-Assumes no sales charge $1,259,20 25.92% 6.44%
2/1/94 one year $1,000
ended
1/31/95
-Assumes 5.5% sales charge $932.50 (6.75)% (6.75)%
-Assumes no sales charge $986.70 (1.33)% (1.33%)
</TABLE>
* Commencement of Operations.
** Assumes no voluntary waiver of distribution fees and no expense
reimbursements.
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<PAGE>
From time to time, advertisements or information may include a discussion
of certain attributes or benefits to be derived from an investment in a 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 Company 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.
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 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 Company
may also, at its discretion, from time to time make a list of a Fund's holdings
available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return calculations with respect to each class of shares of a Fund for the
same period will differ.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent Public
Accountants, contained in the 1995 Annual Report of Select Equity Fund, are
incorporated herein by reference into this Additional Statement and attached
hereto.
SHARES OF THE COMPANY
The Funds are a series of the Company, which is a Maryland corporation
authorized to issue 1,000,000,000 shares of common stock. The Company assumed
its present name in May 1991. Prior thereto, the name of the Company was
Goldman Sachs Capital Growth Fund, Inc. Each Fund then in existence commenced
"doing business" under the name used herein in February 1994. As specified in
the charter, the name of Select Equity Fund is GS Select Equity Fund. The
Directors of the Company have authority under the Company's charter to create
and classify shares of capital stock in separate series without further action
by shareholders. As of the date of this Additional Statement, the Directors of
the Company have
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<PAGE>
authorized shares of eight series two of which are discussed in
this Additional Statement. Additional series may be added in the future. 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.
The Directors 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 Directors have classified the shares of Select Equity Fund into
three classes: Institutional Shares, Administration Shares and Class A Shares.
As of January 31, 1995, there were no Institutional Shares or Administration
Shares of Select Equity Fund outstanding. As of the date of this Additional
Statement, the Directors have classified the shares of Mid-Cap Equity Fund into
two classes: Institutional Shares and Administration Shares. As of December 31,
1994, there were no Institutional Shares or Administration Shares of Mid-Cap
Equity Fund outstanding. Each other series of the Company has one class of
shares outstanding, which class is equivalent to Class A Shares.
Each Institutional Share, Administration Share and Class A Share of a Fund
represents a proportionate interest in the assets belonging to the Fund. All
expenses of a Fund are borne at the same rate by each class of shares, except
that fees under Administration Plans are borne exclusively by Administration
Shares, fees under Distribution and Authorized Dealer Service Plans are borne
exclusively by Class A Shares and transfer agency fees are borne at different
rates by Class A Shares than Institutional and Administration Shares. The
Directors 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. Each class of shares may have different
minimum investment requirements and are entitled to different shareholder
services. Currently, shares of a class may only be exchanged for shares of the
same or an equivalent class of another fund. See "Exchange Privileges" in the
Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the Institution's customers.
Institutional Shares pay a transfer agency fee equal to 0.04% of the average
daily net assets of a Fund attributable to such class.
Administration 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 services to its customers,
including maintenance of account records and processing orders to purchase,
redeem and exchange Administration Shares. Administration Shares bear the cost
of account administration fees at the annual rate of up to 0.25% of
B-64
<PAGE>
the average daily net assets of the Fund attributable to Administration Shares.
Administration Shares pay transfer agency fees at the rate of 0.04% of the
average daily net assets of the Fund attributable to Administration Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. Except for Select Equity Fund,
Goldman Sachs has voluntarily agreed to waive its entire distribution fee.
Goldman Sachs has no current intention of modifying or discontinuing such
limitation but may do so in the future at its discretion. Class A Shares also
bear the cost of an Authorized Dealer Service Plan at an annual rate of up to
0.25% of the average daily net assets attributable to Class A Shares. Class A
Shares pay a transfer agency fee equal to $12,000 per year plus $3.50 per
account together with out-of-pocket and transaction related expenses.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration and Class A 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.
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 relevant Fund available for distribution to such shareholders. All shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.
As of May 19, 1995, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was record holder of 22% of Select Equity Fund's
outstanding shares.
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act, applicable state law or otherwise to the holders
of the outstanding voting securities of an investment company such as the
Company shall not be deemed to have been effectively acted upon unless approved
by the holders of a
B-65
<PAGE>
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 directors from the separate voting requirements of Rule 18f-2.
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
Commission; or during any emergency, as determined by the Commission, 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 Commission may by order permit for the protection
of shareholders of the Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the Commission
under the 1933 Act with respect to the securities offered by the Prospectus.
Certain portions of the Registration Statement have been omitted from the
Prospectus and this Additional Statement pursuant to the rules and regulations
of the Commission. The Registration Statement including the exhibits filed
therewith may be examined at the office of the Commission in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
B-66
<PAGE>
ADMINISTRATION PLAN
Each Fund has adopted an administration plan (the "Plans") with respect to
its Administration Shares which will authorize it to compensate Service
Organizations for providing certain account administration services to their
customers who are beneficial owners of such Shares. Pursuant to the Plans,
each Fund will enter into agreements with Service Organizations which purchase
Administration Shares 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 as the sole shareholder of record and
nominee for all customers, (b) maintain account records for each customer who
beneficially owns Administration Shares of the Fund, (c) answer questions and
handle correspondence from customers regarding their accounts, (d) process
customer orders to purchase, redeem and exchange Administration Shares of the
Fund and handle the transmission of funds representing the customers' purchase
price or redemption proceeds, and (e) issue confirmations for transactions in
shares by customers. As compensation for such services, each Fund will pay the
Service Organizations an account administration fee in an amount up to 0.25% (on
an annualized basis) of the average daily net asset value of the Administration
Shares of the Fund attributable to or held in the name of such Service
Organization.
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 Administration 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 Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in Administration Shares of a Fund. In
addition, under some state securities laws, banks and other financial
institutions purchasing Administration Shares on behalf of their customers may
be required to register as dealers.
The Board of Directors, including a majority of the Directors who are not
interested persons of the Company and who have no direct or indirect financial
interest in the operation of the Plans or the related Service Agreements, voted
to approve each Plan and related Service Agreements at a meeting called for the
purpose of voting on such Plans and Service Agreements on April 26, 1995
(April 27, 1995 in the case of Mid-Cap Equity Fund). Each Plan will be
approved by the sole shareholder of Administration Shares of each Fund, on
July 28, 1995. The Plans and Service Agreements
B-67
<PAGE>
will remain in effect until June 1, 1996 and will continue in effect
thereafter only if such continuance is specifically approved annually by a vote
of the Board of Directors in the manner described above. The Plans may not be
amended to increase materially the amount to be spent for the services described
therein without approval of the Administration Shareholders of the affected Fund
and all material amendments of the Plan must also be approved by the Board of
Directors in the manner described above. The Plan may be terminated at any time
by a majority of the Board of Directors as described above or by a vote of a
majority of the outstanding Administration 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 Board of Directors as described above or
by a vote of a majority of the outstanding Administration Shares of the affected
Fund on not more than sixty (60) days' written notice to any other party to the
Service Agreements. The Service Agreements will terminate automatically if
assigned. So long as the Plans are in effect, the selection and nomination of
those Directors who are not interested persons will be committed to the
discretion of the Company's Nominating Committee, which consists of all of the
non-interested members of the Board of Directors. The Board of Directors has
determined that, in its judgment, there is a reasonable likelihood that the
Plans will benefit the Funds and the holders of Administration Shares of the
Funds. In the Board of Directors' quarterly review of the Plans and Service
Agreements, the Board will consider their continued appropriateness and the
level of compensation provided therein.
B-68
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS/1/
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- ----------
/1/ The rating systems described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not necessarily
represent ratings which will be given to these securities on the date of the
Fund's fiscal year end.
1-A
<PAGE>
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date
2-A
<PAGE>
data to permit a judgment to be formed; if a bond is called for redemption;
or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believe possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1 and B1.
3-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows
that if we serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these
assets diminish, reputation is the most difficult to restore. We are dedicated
to complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have
an uncompromising determination to achieve excellence in everything we
undertake. Though we may be involved in a wide variety and heavy volume of
activity, we would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While
recognizing that the old way may still be the best way, we constantly strive to
find a better solution to a client's problems. We pride ourselves on having
pioneered many of the practices and techniques that have become standard in the
industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of the
interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the firm and in their personal lives.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized
firms, with assets exceeding $54 billion and partners capital and subordinated
liabilities of over $4.5 billion as of November 25, 1994.
. Thirty-one offices worldwide where professionals focus on identifying
financial opportunities (includes a staff of 1,100 in London, 650 in Tokyo, 150
in Hong Kong and 4,000 in 11 offices throughout the U.S.).
. An equity research budget of $120 million for 1995.
. The number one lead manager of U.S. common stock offerings for the
past six years (1989-1994) with 18% of the total dollar volume.*
. Premier lead manager of negotiated municipal bond offerings over the
past five years (1990-1994), aggregating $114 billion.
* Source: Securities Data Corporation. Ranking excludes REITs, Trusts, Rights
====================================
and closed-end Fund offerings
2-B
<PAGE>
<TABLE>
<CAPTION>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
<C> <S>
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (oldest ongoing client)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest
equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
</TABLE>
3-B
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Included in Goldman Sachs Capital Growth Fund, Goldman Sachs Select
Equity Fund, Goldman Sachs Small Cap Equity Fund, Goldman Sachs International
Equity Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs Balanced Fund, and
Goldman Sachs Growth and Income Fund Prospectus:
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations/1/ through January 31, 1991 and for the
four years ended January 31, 1995 for Goldman Sachs Capital Growth
Fund.
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations/2/ through January 31, 1992 and for the
three years ended January 31, 1995 for Goldman Sachs Select Equity
Fund.
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations/3/ to January 31, 1993 and for the two
years ended January 31, 1995 for Goldman Sachs Small Cap Equity Fund.
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations/4/ to January 31, 1993 and for the two
years ended January 31, 1995 for Goldman Sachs International Equity
Fund.
- -----------------
/1/ Goldman Sachs Capital Growth Fund commenced operations on
April 20, 1990.
/2/ Goldman Sachs Select Equity Fund commenced operations on May
24, 1991.
/3/ Goldman Sachs Small Cap Equity Fund commenced operations on
October 22, 1992.
/4/ Goldman Sachs International Equity Fund commenced operations
on December 1, 1992.
<PAGE>
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations/5/ through January 31, 1994, and for the
one year ended January 31, 1995 for Goldman Sachs Growth and Income
Fund.
Financial Highlights - Selected data for a Share outstanding from
Commencement of Operations/6 /through January 1, 1995 for Goldman
Sachs Asia Growth Fund.
Financial Highlights - Selected data for a Share outstanding from
Commencement of Operations/7 /through January 1, 1995 for Goldman
Sachs Balanced Fund.
Incorporated by Reference into the Additional Statement:
Report of Independent Public Accountants.
Statement of Investments as of January 31, 1995 for Goldman Sachs
Capital Growth Fund, Goldman Sachs Select Equity Fund, Goldman Sachs
Small Cap Equity Fund, Goldman Sachs International Equity Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Asia Growth Fund
and Goldman Sachs Balanced Fund.
Statement of Assets and Liabilities as of January 31, 1995 for Goldman
Sachs Capital Growth Fund, Goldman Sachs Select Equity Fund, Goldman
Sachs Small Cap Equity Fund, Goldman Sachs International Equity Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Asia Growth Fund
and Goldman Sachs Balanced Fund.
Statement of Operations for the year ended January 31, 1995 for
Goldman Sachs Capital Growth Fund, Goldman Sachs Select Equity Fund,
Goldman Sachs Small Cap Equity Fund, Goldman Sachs International
Equity Fund and Goldman Sachs Growth and Income Fund.
/5/ Goldman Sachs Growth and Income Fund commenced operations on
February 5, 1993.
/6/ Goldman Sachs Asia Growth Fund commenced operations on July 8, 1994
/7/ Goldman Sachs Balanced Fund commenced operations on October 12, 1994
C-2
<PAGE>
Statement of Operations from Commencement of Operations/6/ to January
31, 1995 for Goldman Sachs Asia Growth Fund.
Statement of Operations from Commencement of Operations/7/ to January
31, 1995 for Goldman Sachs Balanced Fund.
Statement of Changes in Net Assets for the years ended January 31,
1994 and January 31, 1995 for Goldman Sachs Capital Growth Fund,
Goldman Sachs Select Equity Fund, Goldman Sachs Small Cap Equity Fund
and Goldman Sachs International Equity Fund.
Statement of Changes in Net Assets for the period ended January 31,
1994 and for the year ended January 31, 1995 for Goldman Sachs Growth
and Income.
Statement of Changes in Net Assets for the period ended January 31,
1995 for Goldman Sachs Asia Growth Fund and Goldman Sachs Balanced
Fund.
Financial Highlights for the period from Commencement of Operations/1/
to January 31, 1991 and for the four years ended January 31, 1995 for
Goldman Sachs Capital Growth Fund.
Financial Highlights for the period from Commencement of Operations/2/
to January 31, 1992 and for the three years ended January 31, 1995 for
Goldman Sachs Select Equity Fund.
Financial Highlights for the period from Commencement of Operations/3/
to January 31, 1993 and for the two years ended January 31, 1995 for
Goldman Sachs Small Cap Equity Fund.
- ------------------
/6/ Goldman Sachs Asia Growth Fund commenced operations on July 28, 1994
/7/ Goldman Sachs Balanced Fund commenced operations on October 12, 1994
/1/ Goldman Sachs Capital Growth Fund commenced operations on April 20, 1990
/2/ Goldman Sachs Select Equity Fund commenced operations on May 24, 1991
/3/ Goldman Sachs Small Cap Equity Fund commenced operations on October
22, 1992
C-3
<PAGE>
Financial Highlights for the period from Commencement of Operations/4/
to January 31, 1993 and for the two years ended January 31, 1995 for
Goldman Sachs International Equity Fund.
Financial Highlights for the period from Commencement of Operations/5/
to January 31, 1994 and for the year ended January 31, 1995 for
Goldman Sachs Growth and Income Fund.
Financial Highlights for the period from Commencement of Operations/6/
to January 31, 1995 for Goldman Sachs Asia Growth Fund.
Financial Highlights for the period from Commencement of Operations/7/
to January 31, 1995 for Goldman Sachs Balanced Fund
The Goldman Sachs Mid-Cap Equity Fund, a series of the Registrant, did not
conduct investment operations during the above-stated periods.
(b) Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A as initially filed on October 5, 1989
(Reference A), to Pre-Effective Amendment No. 3 to such Registration
Statement filed on April 6, 1990 (Reference B), to Post-Effective Amendment
No. 1 to such Registration Statement filed on September 28, 1990 (Reference
C), to Post-Effective Amendment No. 4 to such Registration Statement filed
on October 22, 1991 (Reference D), to Post-Effective Amendment No. 7 to
such Registration Statement filed on July 31, 1992 (Reference E), to Post-
Effective Amendment No. 8 to such Registration Statement filed on December
1, 1992 (Reference F), to Post-Effective Amendment No. 9 to such
Registration
- ---------------------------
/4/ Goldman Sachs International Equity Fund commenced operations on December 1,
1992.
/5/ Goldman Sachs Growth and Income Fund commenced operations on February 3,
1993.
/6/ Goldman Sachs Asia Growth Fund commenced operations on July 8, 1995.
/7/ Goldman Sachs Balanced Fund commenced operations on October 12, 1994
C-4
<PAGE>
Statement filed on April 1, 1993 (Reference G), to Post-Effective Amendment No.
10 to such Registration Statement filed on July 30, 1993 (Reference H), to Post-
Effective Amendment No. 11 to such Registration Statement filed on March 31,
1994 (Reference I), to Post-Effective Amendment No. 12 to such Registration
Statement filed on May 26, 1994 (Reference J), to Post-Effective Amendment No.
13 to such Registration Statement filed on August 4, 1994 (Reference K), to
Post-Effective Amendment No. 14 to such Registration Statement filed on November
30, 1995 (Reference L), and Post-Effective Amendment No. 16 to such Registration
Statement filed on March 31, 1995 (Reference M):
1.(a) Articles of Incorporation of the Registrant.
(Reference A)
1.(c) Form of Articles Supplementary. (Reference E)
1.(d) Form of Articles Supplementary. (Reference F)
1.(e) Form of Articles Supplementary for Goldman Sachs.
(Reference I)
1(f). Articles Supplementary for Goldman Sachs
Balanced Fund. (Reference L)
2. Bylaws of the Registrant. (Reference A)
2.(b) Form of Articles of Amendment. (Reference D)
3. Not applicable.
4. Not applicable.
5.(a) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Capital Growth Fund and Goldman Sachs Asset
Management. (Reference C)
5.(b) Administration Agreement between Registrant on behalf of Goldman
Sachs Capital Growth Fund and Goldman Sachs Asset Management.
(Reference C)
5.(c) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Select Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(d) Administration Agreement between Registrant on behalf of Goldman
Sachs Select Equity Fund and Goldman Sachs Asset Management.
(Reference G)
C-5
<PAGE>
5.(e) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(f) Administration Agreement between Registrant on behalf of Goldman
Sachs Small Cap Equity Fund and Goldman Sachs Asset Management.
(Reference G)
5.(g) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs International Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(h) Investment Subadvisory Agreement by and among the Registrant on
behalf of Goldman Sachs International Equity Fund and Goldman
Sachs Asset Management and Goldman Sachs Asset Management
International. (Reference G)
5.(i) Administration Agreement between Registrant on behalf of Goldman
Sachs International Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(j) Form of Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Growth and Income Fund and Goldman Sachs
Asset Management. (Reference F)
5.(k) Form of Administration Agreement between Registrant on behalf of
Goldman Sachs Growth and Income Fund and Goldman Sachs Asset
Management. (Reference F)
5.(l) Form of Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Asia Growth Fund and Goldman Sachs Asset
Management International. (Reference I)
5.(m) Form of Administration Agreement between Registrant on behalf of
Goldman Sachs Asia Growth Fund and Goldman Sachs Asset
Management. (Reference I)
5(n). Investment Advisory Agreement between the Registrant on behalf of
Goldman Sachs Balanced Fund and Goldman Sachs Asset Management.
(Reference L)
C-6
<PAGE>
5(o). Administration Agreement between Registrant on behalf of Goldman
Sachs Balanced Fund and Goldman Sachs Asset Management.
(Reference L)
6.(a) Distribution Agreement between Registrant on behalf of Goldman
Sachs Capital Growth Fund, Goldman Sachs Select Equity Fund,
Goldman Sachs Small Cap Equity Fund, Goldman Sachs International
Equity Fund, Goldman Sachs Growth and Income Fund and Goldman,
Sachs & Co. (Reference G)
6.(b) Form of Dealer Agreement between Goldman, Sachs & Co. and any
Authorized Dealer. (Reference G)
6(c). Amended Distribution Agreement between Registrant and Goldman,
Sachs & Co. (Reference K).
7. Not applicable.
8. Custodian Agreement between Registrant and State Street Bank and
Trust Company. (Reference C)
8.(a) Custodian Fee Schedule between Registrant on behalf of Goldman
Sachs Small Cap Equity Fund and State Street Bank & Trust
Company. (Reference G)
8.(b) Custodian Fee Schedule between Registrant on behalf of Goldman
Sachs International Equity Fund and State Street Bank & Trust
Company. (Reference G)
9. Transfer Agency Agreement between Registrant and Goldman, Sachs &
Co. (Reference C)
10. Not applicable.
12. Not applicable.
13. Form of Subscription Agreement. (Reference B)
14. Not applicable.
15.(a) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Capital
Growth Fund. (Reference C)
15.(b) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Select
Equity Fund. (Reference G)
15.(c) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Small
Cap Equity Fund. (Reference G)
C-7
<PAGE>
15.(d) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
International Equity Fund. (Reference G)
15.(e) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Growth
and Income Fund. (Reference G)
15.(f) Form of Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
Asia Growth Fund. (Reference I)
15(g). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
Balanced Fund. (Reference L)
16. Schedule of Computation of Registrant's performance data.
(Reference L)
18. Form of Plan entered into by Registrant pursuant to Rule 18f-3.
(Reference M)
19. Powers of Attorney from Messrs. Paul C. Nagel, Jr.,Marcia L.
Beck, , Ashok N. Bakhru, David B. Ford, Robert P. Mayo, Alan A.
Shuch, Jackson W. Smart, Jr., William H. Springer, Richard P.
Strubel, Scott M. Gilman and Michael J.Richman. (Reference L)
The following exhibits are filed herewith electronically pursuant to EDGAR
rules:
11(a). Consent and Opinion of Arthur Andersen LLP.
15(h). Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
of the Registrant
15(i). Authorized Dealer Service Plan of the Registrant
15(j). Administration Plan on behalf of Goldman Sachs Mid-Cap Equity
Fund and Goldman Sachs Select Equity Fund
27. Financial Data Schedule
C-8
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF MAY 19, 1995).
----------------------------------------------------
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>
Goldman Sachs Capital Growth Fund Shares 29,578
Goldman Sachs Select Equity Fund Shares 4,452
Goldman Sachs Small Cap Equity Fund Shares 21,206
Goldman Sachs International Equity Fund Shares 14,450
Goldman Sachs Growth and Income Fund Shares 21,407
Goldman Sachs Asia Growth Fund Shares 9,106
Goldman Sachs Balanced Fund Shares 1,076
</TABLE>
ITEM 27. INDEMNIFICATION.
---------------
Article VII of the Registrant's Bylaws provides for indemnification of the
Registrant's directors and officers under certain circumstances.
Section 9 of the Distribution Agreement between the Registrant and Goldman,
Sachs & Co. provides for indemnification of Goldman, Sachs & Co. under certain
circumstances.
Insofar as indemnification by the Registrant for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by final
adjudication of such issue.
C-9
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and general partners who have
direct responsibility for the asset management division of Goldman, Sachs & Co.
are listed on the Uniform Application for Investment Adviser Registration ("Form
ADV") of Goldman, Sachs & Co. (No. 801-16048), Goldman Sachs Funds Management,
L.P. (No. 801-37591), and Goldman Sachs Asset Management International (No. 801-
38157), as applicable. These Form ADV's are currently on file with the
Securities and Exchange Commission, the texts of which are hereby incorporated
by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
(a) Goldman, Sachs & Co., or an affiliate or a division thereof, currently
serves as investment adviser and distributor of the units of Goldman Sachs
Money Market Trust, Trust for Credit Unions and for shares of Paragon
Treasury Money Market Fund, Financial Square Trust, Goldman Sachs Trust and
Goldman Sachs Equity Portfolios, Inc. Goldman Sachs & Co. or an affiliate
or a division thereof, currently serves as investment adviser of the shares
of two portfolios (Pilot Short-Term Tax-Exempt Portfolio and Pilot Short-
Term Tax-Exempt Diversified Portfolio) of Pilot Funds. Goldman, Sachs &
Co., or a division thereof, currently serves as administrator and
distributor of the units of The Benchmark Fund and for shares of Paragon
Portfolio.
(b) Set forth below is certain information pertaining to the general partners
of Goldman, Sachs & Co., Registrant's principal underwriter. Each of the
following persons is a general partner of Goldman, Sachs & Co. and, except
for Messrs. Ford and Shuch, does not hold a position with Registrant.
Messrs. Ford and Shuch are Directors of Registrant.
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Jon Corzine, Chairman (1)(2) Hideo Ishihara (10)
Roy J. Zuckerberg (2) Oki Matsumoto Inc. (2)
David M. Silfen (2) Richard M. Hayden (2)
Eugene V. Fife (7) Armen A. Avanessians (2)
Robert J. Hurst (2) Howard C. Katz (2)
Paul M. Achleitner (7) Peter K. Barker (9)
Joel S. Beckman (2) David W. Blood (7)
Eric S. Dobkin (2) Henry M. Paulson, Jr.(8)
Willard J. Overlock, Jr. (2) Zachariah Cobrinik (7)
Jonathan L. Cohen (2) Kevin W. Kennedy (2)
C-10
<PAGE>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Frederic B. Garonzik(7) Daniel M. Neidich (2)
William C. Landreth (11) Edward Spiegel (2)
Gary D. Cohn (7) Christopher A. Cole (2)
Fischer Black (5) Henry Cornell (13)
Robert F. Cummings, Jr. (2) Robert V. Delaney (2)
Angelo De Caro (7) Joseph DellaRosa (2)
Steven G. Einhorn (2) David B. Ford (2)
J. Michael Evans (7) Lawton W. Fitt (2)
David M. Leuschen (2) Michael D. McCarthy (2)
Michael R. Lynch (2) Joseph D. Gatto (2)
Donald C. Opatrny, Jr. (7) Thomas E. Tuft (2)
Peter C. Gerhard (2) Michael P. Mortara (2)
Robert J. Katz (1) (2) Lloyd C. Blankfein (2)
Nomi P. Ghez (2) John P. Curtin, Jr. (2)
David T. Hamamoto (2) Dexter D. Earle (2)
Gavyn Davies (7) Christopher Flowers (2)
John Ehara (10) Walter H. Haydock (15)
Gary Gensler (2) Thomas J. Healey (2)
Charles T. Harris, III (2) Robert E. Higgins (2)
Stephen Hendel (2) David L. Henle (2)
Ernest S. Liu (2) Charles B. Mayer, Jr. (2)
Eff W. Martin (11) Mark Schwartz (2)
Michael J. O'Brien (7) Robert K. Steel (7)
Stephen M. Semlitz (2) John A. Thain (2)
Francis J. Ingrassia (2) Scott B. Kapnick (7)
John L. Thornton (7) Joseph R. Zimmel (2)
Bracebridge H. Young, Jr. (10) Gary L. Zwerling (2)
Barry L. Zubrow (2) Andrew M. Alper (2)
Jon R. Aisbitt (7) Frank L. Coulson, Jr. (2)
William J. Buckley (2) Richard A. Friedman (2)
Connie Duckworth (8) John H. Gleberman (2)
Alan R. Gillespie (7) Steven M. Heller (2)
Jacob D. Goldfield (2) Robert S. Kaplan (10)
Ann F. Kaplan (2) Kevin M. Kelly (2)
Peter D. Kiernan, III (2) Gaetano J. Muzio (2)
T. Willem Mesdag (7) Timothy J. O'Neill (2)
Robin Neustein (2) John J. Powers (2)
Scott M. Pinkus (2) Arthur J. Reimers,III (7)
Stephen D. Quinn (2) Richard A. Sapp (7)
James P. Riley, Jr. (2) Donald F. Textor (2)
John C. Keinert (2) Patrick J. Ward (10)
Thomas B. Walker, III (2) Jon Winkelried (2)
Jeffrey M. Weingarten (7) Gregory K. Palm (7)
Richard E. Witten (2) John O. Downing (7)
Carlos A. Cordeiro (7) Michael D. Fascitelli (2)
W. Mark Evans (7) Reuben Jeffrey, III (2)
Sylvain M. Hefes (7) Jun Makihara (9)
Lawrence H. Linden (2) Robert B. Morris,III (11)
Masanori Mochida (10) Suzanne M. Johnson (9)
C-11
<PAGE>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Philip D. Murphy (14) Carl G.E. Palmstierna (7)
Terence M. O'Toole (2) J. David Rogers (10)
Michael G. Rantz (2) Peter Savitz (10)
Joseph Sassoon (7) Ralph F. Severson (11)
Charles B. Seelig, Jr. (2) Gary A. Syman (10)
Gene T. Sykes (9) John L. Townsend, III (2)
Leslie C. Tortora (2) David A. Viniar (2)
Lee G. Vance (7) Peter A. Weinberg (2)
John S. Weinberg (2) George W. Wellde, Jr. (2)
Laurence M. Weiss (2) Sharmin Mossavar-
Jaime E. Yordan (2) Rahmani (5)
Jonathan L. Kolatch (2) Robert Litterman (2)
Peter S. Kraus (2) Thomas J. Macirowski (2)
Jonathan M. Lopatin (2) Oki Matsumoto (10)
Peter G. Mallinson (13) Eric M. Mindich (2)
E. Scott Mead (7) Thomas K. Montag (2)
Steven T. Mnuchin (2) Kipp M. Nelson (7)
Edward A. Mule (2) Robert J. O'Shea (2)
Christopher K. Norton (14) Jack L. Salzman (2)
Wiet H. Pot (7) Michael F. Schwerin (2)
Eric S. Schwartz (2) Richard G. Sherlund (2)
Richard S. Sharp (7) Cody J. Smith (2)
Michael S. Sherwood (7) Esta E. Stecher (2)
Daniel W. Stanton (2) Byron D. Trott (8)
Frederic E. Steck (11) Peter S. Wheeler (13)
Barry S. Volpert (2) Gary W. Williams (2)
Anthony G. Williams (7) Danny O. Yee (13)
Tracy R. Wolstencroft (4) Mark A. Zurack (2)
Michael J. Zamkow (2)
__________
(1) Management Committee
(2) 85 Broad Street, New York, NY 10004
(3) Mellon Bank Center, 1735 Market Street, 26th Floor,
Philadelphia, PA 19103
(4) 100 Crescent Court, Suite 1000, Dallas, TX 75201
(5) One New York Plaza, New York, NY 10004
(6) 1000 Louisiana Street, Suite 550, Houston, TX 77002
(7) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(8) 4900 Sears Tower, Chicago, IL 60606
(9) 333 South Grand Avenue, Suite 1900, Los Angeles, CA 90071
(10) ARK Mori Bldg.,10th Floor, 12-32 Akasaka, 1-chome, Minato-
ku, Tokyo 107, Japan
(11) 555 California Street, 31st Floor, San Francisco, CA 94104
(12) Exchange Place, 53 State Street, 13th Floor, Boston, MA
02109
C-12
<PAGE>
(13) Asia Pacific Finance Tower, 35th Floor, Citibank Plaza, 3
Garden Road, Hong Kong
(14) Finanz GmbH, MesseTurm, 60308 Frankfurt am Main 1, Germany
(15) Munsterhof 4, 8022, Zurich, Switzerland
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Articles of Incorporation, Bylaws and minute book of the Registrant 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 hereunder are in the physical possession of State
Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105,
except transfer agency records which are maintained by Goldman, Sachs & Co.,
4900 Sears Tower, Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES.
--------------------
The Custodian Agreement between State Street Bank and Trust Company and
Registrant provides for State Street Bank and Trust Company to act as custodian
and to maintain certain accounting records for Registrant. Remuneration is
based upon the Fund's average net assets and on the number of portfolio
transactions.
ITEM 32. UNDERTAKINGS.
------------
(a) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended, which relates to the assistance to be
rendered to shareholders by the Directors of the Registrant in calling
a meeting of shareholders for the purpose of voting upon the question
of the removal of a Director.
(b) The Annual Report also contains performance information and is
available to any recipient of the Prospectus upon request and without
charge by writing to Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606.
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Post-Effective Amendment No. 17 pursuant to Rule
485(b)under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 17 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and State of New York on the
31st day of May 1995.
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
Michael J. Richman
------------------------------------
Michael J. Richman, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Name Title Date
- ---- ----- ----
/s/Paul C. Nagel, Jr.* Director May 31, 1995
- --------------------------
Paul C. Nagel, Jr.
/s/Marcia L. Beck* President May 31, 1995
- -------------------------- and Director
Marcia L. Beck of the Company
/s/Scott M. Gilman* Treasurer May 31, 1995
- -------------------------- and Principal
Scott M. Gilman Financial and
Accounting Officer
/s/Ashok N. Bakhru* Director May 31, 1995
- --------------------------
Ashok N. Bakhru
/s/David B. Ford* Director May 31, 1995
- --------------------------
David B. Ford
/s/Alan A. Shuch* Director May 31, 1995
- --------------------------
Alan A. Shuch
<PAGE>
/s/Jackson W. Smart, Jr.* Director May 31, 1995
- --------------------------
Jackson W. Smart, Jr.
/s/William H. Springer* Director May 31, 1995
- --------------------------
William H. Springer
/s/Richard P. Strubel* Director May 31, 1995
- --------------------------
Richard P. Strubel
*By: Michael J. Richman
------------------------
Michael J. Richman
Attorney-in-fact
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Post-Effective Amendment No. 17
to the Registration Statement:
11(a). Consent and Opinion of Arthur Anderson LLP
15(h). Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
of the Registrant
15(i). Authorized Dealer Service Plan of the Registrant
15(j). Administration Plan on behalf of Goldman Sachs Mid-Cap Equity
Fund and Goldman Sachs Select Equity Fund
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. JANUARY 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> GOLDMAN SACHS CAPITAL GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 810,390,831
<INVESTMENTS-AT-VALUE> 864,156,388
<RECEIVABLES> 16,550,260
<ASSETS-OTHER> 20,648
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 880,727,296
<PAYABLE-FOR-SECURITIES> 15,861,011
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,761,480
<TOTAL-LIABILITIES> 18,622,491
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 803,944,279
<SHARES-COMMON-STOCK> 63,048,601
<SHARES-COMMON-PRIOR> 52,222,058
<ACCUMULATED-NII-CURRENT> 851,025
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,543,944
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,765,557
<NET-ASSETS> 862,104,805
<DIVIDEND-INCOME> 10,003,053
<INTEREST-INCOME> 3,440,974
<OTHER-INCOME> 0
<EXPENSES-NET> 12,007,032
<NET-INVESTMENT-INCOME> 1,436,995
<REALIZED-GAINS-CURRENT> 56,963,691
<APPREC-INCREASE-CURRENT> (98,546,227)
<NET-CHANGE-FROM-OPS> (40,145,541)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 647,525
<DISTRIBUTIONS-OF-GAINS> 94,255,733
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,260,854
<NUMBER-OF-SHARES-REDEEMED> 9,348,284
<SHARES-REINVESTED> 5,913,973
<NET-CHANGE-IN-ASSETS> 28,422,913
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 40,835,986
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,543,621
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,188,239
<AVERAGE-NET-ASSETS> 872,482,794
<PER-SHARE-NAV-BEGIN> 15.96
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.69)
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 1.62
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.67
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. ANNUAL REPORT DATED JANUARY 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> GOLDMAN SACHS SELECT EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 89,985,086
<INVESTMENTS-AT-VALUE> 94,641,004
<RECEIVABLES> 609,306
<ASSETS-OTHER> 40,862
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,291,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 323,663
<TOTAL-LIABILITIES> 323,663
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,555,372
<SHARES-COMMON-STOCK> 6,502,206
<SHARES-COMMON-PRIOR> 5,822,040
<ACCUMULATED-NII-CURRENT> 148,064
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 608,155
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,655,918
<NET-ASSETS> 94,967,509
<DIVIDEND-INCOME> 2,390,226
<INTEREST-INCOME> 113,765
<OTHER-INCOME> 0
<EXPENSES-NET> 1,274,972
<NET-INVESTMENT-INCOME> 1,229,019
<REALIZED-GAINS-CURRENT> 3,907,236
<APPREC-INCREASE-CURRENT> (6,127,762)
<NET-CHANGE-FROM-OPS> (991,507)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,194,733
<DISTRIBUTIONS-OF-GAINS> 5,666,531
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,499,807
<NUMBER-OF-SHARES-REDEEMED> 1,250,288
<SHARES-REINVESTED> 430,647
<NET-CHANGE-IN-ASSETS> 2,198,745
<ACCUMULATED-NII-PRIOR> 82,933
<ACCUMULATED-GAINS-PRIOR> 2,367,450
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 462,255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,506,100
<AVERAGE-NET-ASSETS> 92,469,519
<PER-SHARE-NAV-BEGIN> 15.93
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (0.38)
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 0.94
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.61
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. ANNUAL REPORT DATED JANUARY 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> GOLDMAN SACHS SMALL CAP EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 367,871,080
<INVESTMENTS-AT-VALUE> 318,968,992
<RECEIVABLES> 3,231,308
<ASSETS-OTHER> 65,218
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 322,265,518
<PAYABLE-FOR-SECURITIES> 1,607,623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,170,685
<TOTAL-LIABILITIES> 2,778,308
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 372,939,313
<SHARES-COMMON-STOCK> 19,789,421
<SHARES-COMMON-PRIOR> 12,633,431
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,550,015)
<ACCUM-APPREC-OR-DEPREC> (48,902,088)
<NET-ASSETS> 319,487,210
<DIVIDEND-INCOME> 338,183
<INTEREST-INCOME> 3,026,561
<OTHER-INCOME> 0
<EXPENSES-NET> 5,167,554
<NET-INVESTMENT-INCOME> (1,802,810)
<REALIZED-GAINS-CURRENT> 10,050,260
<APPREC-INCREASE-CURRENT> (74,013,642)
<NET-CHANGE-FROM-OPS> (65,766,192)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (13,272,809)
<DISTRIBUTIONS-OTHER> (4,550,015)
<NUMBER-OF-SHARES-SOLD> 10,110,654
<NUMBER-OF-SHARES-REDEEMED> (3,925,959)
<SHARES-REINVESTED> 971,295
<NET-CHANGE-IN-ASSETS> 58,413,043
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,006,669
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,539,424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,014,029
<AVERAGE-NET-ASSETS> 338,564,468
<PER-SHARE-NAV-BEGIN> 20.67
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> (3.53)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.69
<RETURNS-OF-CAPITAL> 0.24
<PER-SHARE-NAV-END> 16.14
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. ANNUAL REPORT DATED JANUARY 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 278,987,291
<INVESTMENTS-AT-VALUE> 270,144,999
<RECEIVABLES> 15,005,628
<ASSETS-OTHER> 54,788
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 285,205,415
<PAYABLE-FOR-SECURITIES> 4,135,244
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,983,702
<TOTAL-LIABILITIES> 10,118,946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 282,851,907
<SHARES-COMMON-STOCK> 18,940,127
<SHARES-COMMON-PRIOR> 14,863,167
<ACCUMULATED-NII-CURRENT> (423,846)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,790,655
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9,132,247)
<NET-ASSETS> 275,086,469
<DIVIDEND-INCOME> 6,099,868
<INTEREST-INCOME> 687,774
<OTHER-INCOME> 0
<EXPENSES-NET> 5,511,771
<NET-INVESTMENT-INCOME> 1,275,871
<REALIZED-GAINS-CURRENT> (16,134,827)
<APPREC-INCREASE-CURRENT> (41,154,523)
<NET-CHANGE-FROM-OPS> (56,013,479)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 11,299,568
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,468,691
<NUMBER-OF-SHARES-REDEEMED> 5,047,356
<SHARES-REINVESTED> 655,625
<NET-CHANGE-IN-ASSETS> 5,995,460
<ACCUMULATED-NII-PRIOR> (105,294)
<ACCUMULATED-GAINS-PRIOR> 7,624,582
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,389,882
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,308,398
<AVERAGE-NET-ASSETS> 318,726,727
<PER-SHARE-NAV-BEGIN> 18.10
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (3.05)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.52
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. ANNUAL REPORT DATED JANUARY 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> GOLDMAN SACHS GROWTH AND INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 201,685,629
<INVESTMENTS-AT-VALUE> 201,293,633
<RECEIVABLES> 5,064,030
<ASSETS-OTHER> 58,053
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 206,415,716
<PAYABLE-FOR-SECURITIES> 12,154,854
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 488,619
<TOTAL-LIABILITIES> 12,643,473
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 193,968,736
<SHARES-COMMON-STOCK> 12,267,186
<SHARES-COMMON-PRIOR> 2,629,807
<ACCUMULATED-NII-CURRENT> 29,482
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 89,024
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (314,999)
<NET-ASSETS> 193,772,243
<DIVIDEND-INCOME> 2,490,782
<INTEREST-INCOME> 373,745
<OTHER-INCOME> 0
<EXPENSES-NET> 1,429,380
<NET-INVESTMENT-INCOME> 1,435,147
<REALIZED-GAINS-CURRENT> 3,170,626
<APPREC-INCREASE-CURRENT> (2,594,309)
<NET-CHANGE-FROM-OPS> 2,011,464
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,435,147
<DISTRIBUTIONS-OF-GAINS> 3,710,152
<DISTRIBUTIONS-OTHER> 750,732
<NUMBER-OF-SHARES-SOLD> 11,178,610
<NUMBER-OF-SHARES-REDEEMED> 1,896,509
<SHARES-REINVESTED> 355,278
<NET-CHANGE-IN-ASSETS> 152,244,011
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 628,550
<OVERDISTRIB-NII-PRIOR> (18,447)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 621,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,818,567
<AVERAGE-NET-ASSETS> 113,023,078
<PER-SHARE-NAV-BEGIN> 15.79
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .41<F1>
<PER-SHARE-DIVIDEND> .20
<PER-SHARE-DISTRIBUTIONS> .33
<RETURNS-OF-CAPITAL> 07
<PER-SHARE-NAV-END> 15.80
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Amount includes .11 of additional paid in capital.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. ANNUAL REPORT DATED JANUARY 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> GOLDMAN SACHS ASIA GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> JUL-08-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 136,126,308
<INVESTMENTS-AT-VALUE> 121,213,471
<RECEIVABLES> 3,969,137
<ASSETS-OTHER> 1,170,021
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 126,352,629
<PAYABLE-FOR-SECURITIES> 1,220,910
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 833,440
<TOTAL-LIABILITIES> 2,054,350
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,648,168
<SHARES-COMMON-STOCK> 9,337,994
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 143,969
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,519,849)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (14,974,009)
<NET-ASSETS> 124,298,279
<DIVIDEND-INCOME> 1,590,670
<INTEREST-INCOME> 476,203
<OTHER-INCOME> 0
<EXPENSES-NET> 1,057,013
<NET-INVESTMENT-INCOME> 1,009,860
<REALIZED-GAINS-CURRENT> (2,519,849)
<APPREC-INCREASE-CURRENT> (14,974,009)
<NET-CHANGE-FROM-OPS> (16,483,998)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 883,487
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,803,931
<NUMBER-OF-SHARES-REDEEMED> 518,932
<SHARES-REINVESTED> 52,995
<NET-CHANGE-IN-ASSETS> 124,298,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 414,813
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,331,189
<AVERAGE-NET-ASSETS> 96,754,779
<PER-SHARE-NAV-BEGIN> 14.18
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> (0.88)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.31
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDMAN
SACHS EQUITY PORTFOLIOS, INC. ANNUAL REPORT DATED JANUARY 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> GOLDMAN SACHS BALANCED FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> OCT-12-1994
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 7,430,895
<INVESTMENTS-AT-VALUE> 7,501,006
<RECEIVABLES> 377,863
<ASSETS-OTHER> 251,243
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,130,112
<PAYABLE-FOR-SECURITIES> 460,235
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160,309
<TOTAL-LIABILITIES> 620,544
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,419,039
<SHARES-COMMON-STOCK> 528,104
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 20,283
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 135
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70,111
<NET-ASSETS> 7,509,568
<DIVIDEND-INCOME> 14,705
<INTEREST-INCOME> 45,122
<OTHER-INCOME> 0
<EXPENSES-NET> 13,629
<NET-INVESTMENT-INCOME> 46,198
<REALIZED-GAINS-CURRENT> 135
<APPREC-INCREASE-CURRENT> 70,111
<NET-CHANGE-FROM-OPS> 116,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,952
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 537,644
<NUMBER-OF-SHARES-REDEEMED> 11,681
<SHARES-REINVESTED> 2,141
<NET-CHANGE-IN-ASSETS> 7,509,568
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,814
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112,942
<AVERAGE-NET-ASSETS> 4,441,443
<PER-SHARE-NAV-BEGIN> 14.18
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.22
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.11
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Goldman Sachs Equity Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of Goldman
Sachs Equity Portfolios, Inc. (a Maryland Corporation), comprising the Balanced
Fund, Growth and Income Fund, Select Equity Fund, Capital Growth Fund, Small Cap
Equity Fund, International Equity Fund and Asia Growth Fund, including the
statements of investments, as of January 31, 1995, and the related statements of
operations and changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial 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
standards. 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 financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1995 by correspondence with the custodian and brokers. An audit
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 referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Goldman Sachs Equity Portfolios,
Inc. as of January 31, 1995, the results of its operations and the changes in
its net assets and the financial highlights for each of the periods presented,
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 3, 1995
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Goldman Sachs Equity Portfolios, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 3, 1995 on
the financial statements and financial highlights of the Goldman Sachs Equity
Portfolios, Inc., comprising the Balanced Fund, Growth and Income Fund, Select
Equity Fund, Capital Growth Fund, Small Cap Equity Fund, International Equity
Fund and Asia Growth Fund, included in or made a part of Post-Effective
Amendment No. 17 and Amendment No. 19 to Registration Statement File Nos.
33-33316 and 811-6036, respectively.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 26, 1995
<PAGE>
EXHIBIT 99.15(h)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
On behalf of each of its series or if a series has more
than one class of shares the Class A Shares thereof
AMENDED AND RESTATED PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1
June 1, 1995
WHEREAS, Goldman Sachs Equity Portfolios, Inc. (the "Company") engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Company's Board of Directors has divided the Company's
shares into series and may create additional series from time to time (each
series a "Fund") ;
WHEREAS, the Company, on behalf of each Fund, desires to adopt a Plan
of Distribution pursuant to Rule 12b-1 under the Act, and the Board of Directors
of the Company has determined that there is a reasonable likelihood that
adoption of this Plan of Distribution will benefit each Fund and its
shareholders; and
WHEREAS, the Company, on behalf of each Fund, employs Goldman, Sachs &
Co. (the "Distributor") as distributor of the shares (or if the Fund has more
than one class of shares, its Class A Shares) of common stock of the Fund (the
"Shares") pursuant to a Distribution Agreement dated February 1, 1993.
NOW, THEREFORE, the Company, on behalf of the Funds, hereby adopts,
and the Distributor hereby agrees to the terms of, this Plan of Distribution
(the "Plan") in accordance with Rule 12b-1 under the Act on the following terms
and conditions:
1. (a) The Company, on behalf of each Fund, is authorized to
compensate the Distributor for distribution services
performed and expenses incurred by the Distributor in
connection with each Fund's Shares. The amount of such
compensation paid during any one year shall not exceed .25%
of the average daily net assets of a Fund attributable to
such Shares. Such compensation shall be calculated and
accrued daily and paid quarterly or at such other intervals
as the Board of Directors may determine.
(b) Distribution services and expenses for which the Distributor
may be compensated pursuant to this Plan include, without
limitation: compensation to and expenses of brokers and
dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD"), other financial services
firms that have entered into an agreement with the
Distributor or their respective officers, sales
representatives and employees; compensation to and expenses
of the Distributor and any of its officers, sales
representatives
<PAGE>
and employees, including allocable overhead, travel and
telephone expenses, who engage in or support distribution of
a Fund's Shares; printing of reports and prospectuses for
other than existing shareholders; and preparation, printing
and distribution of sales literature and advertising
materials.
(c) Appropriate adjustments to payments made pursuant to clause
(a) of this paragraph 1 shall be made whenever necessary to
ensure that no payment is made by the Company on behalf of a
Fund in excess of the applicable maximum cap imposed on asset
based, front-end and deferred sales charges by subsection (d)
of Section 26 of Article III of the Rules of Fair Practice of
the NASD.
2. This Plan shall not take effect with respect to a Fund or class
until it has been approved by a vote of at least a majority (as
defined in the Act) of the outstanding voting securities of such
Fund or class.
3. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of
both (a) the Board of Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the
Company (as defined by the Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreements
related to it (the "Rule 12b-1 Directors") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan
and such related agreement.
4. This Plan shall remain in effect until June 1, 1996 and shall
continue in effect thereafter so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 3 .
5. The Distributor shall provide to the Board of Directors of the
Company and the Board shall review, at least quarterly, a written
report of distribution services, expenses and the purposes for
which such services were performed and expenses were incurred.
6. This Plan may be terminated with respect to a Fund or class at any
time by a vote of a majority of the Rule 12b-1 Directors or by
vote of a majority of the outstanding voting securities of such
Fund or class.
7. This Plan may not be amended with respect to any Fund or class to
increase materially the amount of compensation payable pursuant to
paragraph 1 hereof unless such amendment is approved by a vote of
at least a majority (as defined in the Act) of the outstanding
voting securities of such Fund or class. No material amendment to
the Plan shall be made unless approved in the manner provided in
paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the
Directors who are not interested persons (as defined in the Act)
of the Company shall be committed to the discretion of the
Directors who are not such interested persons.
9. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof,
for a period of not less than six years from the date of the Plan,
any such agreement or any such report, as the case may be, the
first
<PAGE>
two years in an easily accessible place.
10. In the case of a Fund that offers more than one class of Shares,
this Plan only relates to the Class A Shares of such Fund and the
fee determined in accordance with paragraph 1 shall be based upon
the average daily net assets of the Fund attributable to Class A
Shares.
IN WITNESS WHEREOF, the Company (on behalf of each Fund) and the
Distributor have executed this Plan of Distribution as of the day and year first
above written.
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
By:___________________________________
Marcia L. Beck
President of the Company
GOLDMAN, SACHS & CO.
By:___________________________________
General Partner
<PAGE>
EXHIBIT 99.15(i)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
On behalf of each of its series or if a series has more
than one class of shares the Class A Shares thereof
AUTHORIZED DEALER SERVICE PLAN
June 1, 1995
WHEREAS, Goldman Sachs Equity Portfolios, Inc. (the "Company") engages
in business as an open-end management company and is registered as such under
the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Company's Board of Directors has divided the Company's
shares into series and may create additional shares from time to time (each
series a "Fund");
WHEREAS, the Company, on behalf of each Fund, desires to adopt an
Authorized Dealer Service Plan (the "Plan"), and the Board of Directors of the
Company has determined that there is a reasonable likelihood that adoption of
this Plan will benefit each Fund and its shareholders; and
WHEREAS, the Company, on behalf of each Fund, employs Goldman, Sachs &
Co. (the "Distributor") as distributor of the shares (or if the Fund has more
than one class of shares, its Class A Shares) of common stock of the Fund (the
"Shares") pursuant to a Distribution Agreement dated February 1, 1993.
NOW, THEREFORE, the Company, on behalf of each Fund, hereby adopts,
and the Distributor hereby agrees to the terms of, this Plan on the following
terms and conditions:
1. (a) The Company, on behalf of each Fund, is authorized to
compensate the Distributor for personal and account
maintenance services performed and expenses incurred by the
Distributor in connection with each Fund's Shares. The amount
of such compensation paid during any one year shall not
exceed .25% of the average daily net assets of a Fund
attributable to such Shares. Such compensation shall be
calculated and accrued daily and paid quarterly or at such
other intervals as the Board of Directors may determine.
(b) Personal and account maintenance services include, but are
not limited to, payments made to or on account of the
Distributor, other brokers, dealers and financial service
firms that have entered into agreements with the Distributor
or their respective officers, sales representatives and
employees who respond to inquiries of, and furnish assistance
to, shareholders regarding their ownership of Shares or their
accounts or who provide similar services not otherwise
provided by or on behalf of a Fund.
<PAGE>
2. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of
both (a) the Board of Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the
Company (as defined by the Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreements
related to it (the "Independent Directors") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan
and such related Agreement.
3. This Plan shall remain in effect until June 1, 1996 and shall
continue in effect thereafter so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 2 .
4. The Distributor shall provide to the Board of Directors of the
Company and the Board shall review, at least quarterly, a written
report of personal and account maintenance services and expenses.
5. This Plan may be terminated with respect to a Fund or class at any
time by a vote of a majority of the Independent Directors or by
vote of a majority of the outstanding voting securities of such
Fund or class.
6. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof,
for a period of not less than six years from the date of the Plan,
any such agreement or any such report, as the case may be, the
first two years in an easily accessible place.
7. In the case of a Fund that offers more than one Class of Shares,
this Plan only relates to the Class A Shares of such Fund and the
fee determined in accordance with paragraph 1 shall be based upon
the average daily net assets of the Fund attributable to Class A
Shares.
IN WITNESS WHEREOF, the Company (on behalf of each Fund) and the
Distributor have executed this Authorized Dealer Service Plan as of the day and
year first above written.
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
By:
----------------------------------------
Marcia L. Beck
President of the Company
GOLDMAN, SACHS & CO.
By:
----------------------------------------
General Partner
<PAGE>
EXHIBIT 99.15(j)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ADMINISTRATION CLASS)
ADMINISTRATION PLAN
Dated: June 1, 1995
WHEREAS, Goldman Sachs Equity Portfolios, Inc. (the "Company") engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended;
WHEREAS, the Company has nine series or Funds, each of which is a separate
pool of assets with its own investment policies and the shares of common stock
of Goldman Sachs Mid Cap Equity Fund and Goldman Sachs Select Equity Fund may be
divided into three separate classes: Class A, the Institutional Class and the
Administration Class;
WHEREAS, the Company, on behalf of the Administration Class of the Goldman
Sachs Mid Cap Equity Fund and the Goldman Sachs Select Equity Fund (the "Funds")
desires to adopt an Administration Plan and the Board of Directors of the
Company has determined that there is a reasonable likelihood that adoption of
this Administration Plan will benefit each Fund and its shareholders; and
WHEREAS, the Company, on behalf of the Administration Class of the Goldman
Sachs Mid Cap Equity Fund and the Goldman Sachs Select Equity Fund (the "Funds")
employs institutions (the "Service Organizations") to act, or arrange for others
to act, as nominees and record holders of common stock of the Administration
Class ("Administration Shares") for their respective customers who are or may
become beneficial owners of such Administration Shares (the "Customers") and to
perform certain account administration services with respect to the Customers
pursuant to Administration Agreements between the Company, on behalf of the
Administration Class of each Fund, and such Service Organizations (the
"Agreements").
NOW, THEREFORE, the Company, on behalf of the Administration Class of the
Goldman Sachs Mid Cap Equity Fund and the Goldman Sachs Select Equity Fund,
hereby adopts this Administration Plan (the "Plan") on the following terms and
conditions:
1. (a) The Company, on behalf of the Administration Class of each Fund, is
authorized to pay each Service Organization the monthly or quarterly
administration fee specified in the Agreement with such Service Organization,
which shall be equal on an annual basis to not more than .25 of 1% of the
average daily net asset value of the Administration Shares of such Fund which
are owned beneficially by the Customers of such Service Organization during such
period.
(b) The types of administration services and expenses for which a
Service Organization may be compensated under this Plan include, without
limitation: (i) acting, or arranging for another party to act, as record holder
and nominee of all Administration Shares beneficially owned by Customers; (ii)
establishing and maintaining individual accounts and records with respect to the
Administration Shares owned by each Customer; (iii) providing facilities to
answer inquiries and respond to correspondence with Customers about the status
of their accounts or about other aspects of the Company or the applicable Fund;
(iv) processing and issuing confirmations concerning Customer orders to
purchase, redeem and exchange Administration Shares; and (v) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such Administration
<PAGE>
Shares. No Fund may compensate a Service Organization for services provided
with respect to another Fund.
2. This Plan shall not take effect with respect to the Administration
Class of any Fund until it has been approved by a vote of at least a majority of
the outstanding voting securities of the Administration Class of such Fund.
3. This Plan shall not take effect as to any Fund until the Plan, together
with any related agreements, has been approved for such Fund by votes of a
majority of both (a) the Board of Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the Company and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to it (the "non-interested Directors") cast in person at
a meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
4. This Plan shall remain in effect until June 1, 1996, and shall continue
in effect thereafter so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 3.
5. The President, Vice President, Treasurer or any Assistant Treasurer of
the Company shall provide the Board of Directors of the Company and the Board
shall review, at least quarterly, a written report of services performed by and
fees paid to each Service Organization under the Agreements and this Plan.
6. This Plan may be terminated as to the Administration Class of any Fund
at any time by vote of a majority of the non-interested Directors or by vote of
a majority of the outstanding voting securities of the Administration Class of
such Fund.
7. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 2 hereof. No
material amendment to the Plan shall be made unless approved in the manner
provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the non-
interested Directors of the Company shall be committed to the discretion of the
non-interested Directors.
9. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the Company, on behalf of the Administration Class of
each Fund, has executed this Administration Plan as of the day and year first
written above.
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
on behalf of the Administration Class of Goldman
Sachs Mid Cap Equity Fund and Goldman Sachs Select
Equity Fund
By
--------------------------------------
[Authorized Officer]
