<PAGE>
THE GOLDMAN SACHS EQUITY PORTFOLIOS
SUPPLEMENT DATED FEBRUARY 1, 1996
TO THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 1, 1995
The class of shares of each Fund offered by the accompanying Prospectus has
been designated as the Class A Shares.
Effective, February 1, 1996, the Investment Advisers and GSAM have
voluntarily agreed to limit their advisory and administration fees to the
following (as a percentage of average daily net assets): Select Equity Fund--
0.44% and 0.15%, International Equity Fund--0.71% and 0.15% and Asia Growth
Fund--0.71% and 0.15%. In addition, the Investment Advisers and GSAM have
voluntarily agreed to reduce or limit certain "Other Expenses" of Select
Equity, Growth and Income, International Equity and Asia Growth Funds to 0.06%,
0.11%, 0.24% and 0.24%, respectively, of such Funds' average daily net assets.
"Other Expenses" do not include transfer agency fees (estimated to be 0.15%,
0.15%, 0.11% and 0.15%, respectively of Select Equity, Growth and Income,
International Equity and Asia Growth Funds' average daily net assets),
advisory, administration, distribution and authorized dealer service fees,
taxes, interest and brokerage and litigation, indemnification and other
extraordinary expenses. The Investment Advisers and GSAM have no current
intention of modifying or discontinuing any of such limitations but may do so
in the future at their discretion. In addition, effective February 1, 1996,
Goldman, Sachs & Co. will no longer waive its entire distribution fee with
respect to the International Equity and Asia Growth Funds. These distribution
fees will be equal to, on an annual basis, 0.21% of Select Equity,
International Equity and Asia Growth Funds average daily net assets.
THE FOLLOWING REPLACES THE FEES AND EXPENSES TABLE AND SUPPLEMENTS THE
INFORMATION UNDER THE "MANAGEMENT" SECTION IN THE ACCOMPANYING PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION EFFECTIVE FEBRUARY 1, 1996:
S-1
<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% 0.59% 0.70% 1.00% 1.00% 0.86% 0.86%
Distribution (Rule
12b-1) Fees/3/ (after
applicable
limitations)......... 0.00% 0.21% 0.00% 0.00% 0.00% 0.21% 0.21%
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/ 0.26%/6/ 0.13% 0.28% 0.35%/6/ 0.39%/6/
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATION).... 1.00%/5/ 1.26%/6/ 1.21%/6/ 1.38%/5/ 1.53%/5/ 1.67%/6/ 1.71%/6/
==== ==== ==== ==== ==== ==== ====
</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>
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Balanced Fund................................... $65 $ 85 $N/A $N/A
Select Equity Fund.............................. 67 93 120 199
Growth and Income Fund.......................... 67 91 118 194
Capital Growth Fund............................. 68 96 126 212
Small Cap Equity Fund........................... 70 101 134 227
International Equity Fund....................... 71 105 141 242
Asia Growth Fund................................ 71 106 143 246
</TABLE>
S-2
<PAGE>
- ---------------------
/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
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 with
respect to the Class A Shares of each 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 the Balanced, Growth and Income, Capital Growth and Small Cap
Equity Funds. In addition, Goldman Sachs voluntarily has agreed to waive a
portion of the distribution fee payable by the Select Equity, International
Equity and Asia Growth Funds. Goldman Sachs has no current intention of
modifying or discontinuing such limitations but may do so in the future at
its discretion. Without this waiver, the distribution fees payable by these
Funds would be 0.25% annually of average daily net assets and the Funds'
Total Operating Expenses would be correspondingly higher. During the fiscal
year ended January 31, 1995, the Authorized Dealer Service Plan was not in
existence and the Distribution (Rule 12b-1) Fees with respect to all the
Funds (including those referred to above) 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%.
Because of the Distribution Plans, long-term Class A shareholders may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.'s rules
regarding investment companies.
/4/ The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Balanced Fund (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. The Investment Adviser to the 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--
0.55% and 1.70%, Capital Growth--0.13% and 1.63% and Small Cap Equity--
0.28% and 1.78%. 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%,
Capital Growth--1.00%, 0.25%, 0.13% and 1.38% and Small Cap Equity--1.00%,
0.25%, 0.28% and 1.53%. See "Management--Investment Advisers, Subadviser
and Administrator" and "Distribution and Authorized Dealer Service Plan."
/6/ Based on estimated amounts effective February 1, 1996. The Investment
Advisers and GSAM have voluntarily agreed to limit their advisory and
administration fees to the following, respectively, (as a percentage of
average daily net assets): Select Equity Fund--0.44% and 0.15%,
International Equity Fund--0.71% and 0.15% and Asia Growth Fund--0.71% and
0.15%. In addition, the Investment Advisers and GSAM have voluntarily
agreed to reduce or limit certain "Other Expenses" of the Select Equity,
Growth and Income, International Equity and Asia Growth Funds (excluding
transfer agency fees estimated to be 0.15%, 0.15%, 0.11% and 0.15%,
respectively, 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%, 0.11%, 0.24% and 0.24%, respectively, of the Select Equity, Growth
and Income, International Equity and Asia Growth Fund's average daily net
assets. The Investment Advisers 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, "Management Fees,"
"Other Expenses" and "Total Operating Expenses," respectively, estimated to
be incurred by each Fund would be as follows: Select Equity--0.75%, 0.38%
and 1.63%, Growth and Income--0.70%, 0.26%and 1.46%, International Equity--
1.00%, 0.45% and 1.95% and Asia Growth--1.00%, 0.50% and 2.00%. The annual
"Management Fees," "Distribution Fees," "Other Expenses" and "Total
Operating Expenses," respectively, incurred by the Select Equity, Growth
and Income, International Equity and Asia Growth Funds during the fiscal
year ended January 31, 1995 (expressed as a percentage of average daily net
assets after fee adjustments) were as follows: Select Equity--0.75%, 0.25%,
0.38% and 1.38%, Growth and Income--0.70%, 0.25%, 0.30% and 1.25%,
International Equity--1.00%, 0.25%, 0.48% and 1.73% and Asia Growth--1.00%,
0.25%, 0.65% and 1.90%.
S-3
<PAGE>
The information with respect to the Funds set forth in the foregoing table
and hypothetical example relates only to Class A Shares (the class offered by
the Prospectus). The Select Equity, Growth and Income, International Equity and
Asia Growth Funds, but not the other Funds, also offer Institutional and
Service Shares, which are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services. Information regarding Institutional and Service Shares
may be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor in Class A Shares
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. 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."
S-4
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OF THE BALANCED, SELECT EQUITY, GROWTH AND
INCOME, CAPITAL GROWTH, SMALL CAP EQUITY, INTERNATIONAL EQUITY AND ASIA GROWTH
FUNDS AND FOR AN INSTITUTIONAL SHARE OF THE SELECT EQUITY FUND OUTSTANDING
THROUGHOUT EACH PERIOD
The following data with respect to a Class A Share of Balanced, Select
Equity, Growth and Income, Capital Growth, Small Cap Equity, International
Equity and Asia Growth Funds 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
the Annual Report to shareholders for the year ended January 31, 1995. The
following data with respect to a Class A Share and Institutional Share of the
Select Equity Fund and a Class A Share of the Balanced, Growth and Income,
Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds
outstanding during the period ended July 31, 1995 has been derived from
unaudited financial statements prepared by the Company. This information
should be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. These
reports also contain performance information and are available upon request
and without charge by writing to one of the addresses on the back cover of
this Prospectus. Prior to the existence of Institutional Shares of a Fund any
outstanding shares are deemed to be Class A Shares for purposes of the
following data. No Service Shares of the Funds were outstanding during the
periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND FOR THE SIX MONTHS FOR THE PERIOD
ENDED ENDED
JULY 31, JANUARY 31,
1995 1995(a)
------------------ --------------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period....... $ 14.22 $14.18
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.22 0.10
Net realized and unrealized gain on in-
vestment transactions.................... 2.18 0.02
------- ------
Total income from investment operations... 2.40 0.12
------- ------
DISTRIBUTIONS TO SHAREHOLDERS:
Total net investment income............... (0.20) (0.08)
------- ------
Total distributions to shareholders....... (0.20) (0.08)
------- ------
Net increase in net asset value............ 2.20 0.04
------- ------
Net asset value, end of period............. $ 16.42 $14.22
======= ======
Total return(b)............................ 16.96%(d) 0.87 %(d)
Ratio of net expenses to average net as-
sets...................................... 1.00%(c) 1.00 %(c)
Ratio of net investment income to average
net assets................................ 3.55%(c) 3.39 %(c)
Portfolio turnover rate.................... 136.11%(d) 14.71 %(d)
Net assets at end of period (in thousands). $30,000 $7,510
RATIOS ASSUMING NO VOLUNTARY WAIVER OF DIS-
TRIBUTION FEES OR EXPENSE LIMITATIONS:
Ratio of expenses to average net assets... 2.72%(c) 8.29 %(c)
Ratio of net investment loss to average
net assets............................... 1.83%(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.
S-5
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECT EQUITY FUND FOR THE PERIODS ENDED FOR THE YEAR ENDED FOR THE
JULY 31, JANUARY 31, PERIOD ENDED
------------------------- --------------------------- JANUARY 31,
1995 1995 1995 1994 1993 1992
CLASS A INSTITUTIONAL CLASS A CLASS A CLASS A CLASS A
SHARES SHARES(e) SHARES SHARES SHARES SHARES(a)
------- ------------- ------- ------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 14.61 $ 16.97 $ 15.93 $ 15.46 $ 15.05 $ 14.17
------- ------- ------- ------- -------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income.. 0.11 0.01 0.20 0.17 0.22 0.11
Net realized and
unrealized gain (loss)
on investments,
options and futures... 3.32 1.08 (0.38) 2.08 0.41 0.88
------- ------- ------- ------- -------- --------
Total income (loss)
from investment
operations............ 3.43 1.09 (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
shareholders.......... -- -- (1.14) (1.78) (0.22) (0.11)
------- ------- ------- ------- -------- --------
Net increase (decrease)
in net asset value..... 3.43 1.09 (1.32) 0.47 0.41 0.88
------- ------- ------- ------- -------- --------
Net asset value, end of
period................. $ 18.04 $ 18.06 $ 14.61 $ 15.93 $ 15.46 $ 15.05
======= ======= ======= ======= ======== ========
Total return(b)......... 23.48%(d) 6.42%(d) (1.10)% 15.12% 4.30% 7.01%(d)
Ratio of net expenses to
average net assets..... 1.28%(c) 0.65%(c) 1.38 % 1.42% 1.28% 1.57%(c)
Ratio of net investment
income to average net
assets................. 1.06%(c) 0.88%(c) 1.33 % 0.92% 1.30% 1.24%(c)
Portfolio turnover rate. 27.65%(d) 27.65%(d) 56.18 % 87.73% 144.93% 135.02%(c)
Net assets at end of
period ($ in
thousands)............. $94,944 $44,157 $94,968 $92,769 $117,757 $151,142
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS:
Ratio of expenses to
average net assets.... 1.56%(c) 0.96%(c) 1.63 % 1.67% 1.53% 1.82%(c)
Ratio of net investment
income to average net
assets................ 0.78%(c) 0.57%(c) 1.08 % 0.67% 1.05% 0.99%(c)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND FOR THE FOR THE FOR THE
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JULY 31, 1995 JANUARY 31, 1995 JANUARY 31, 1994(g)
------------- ---------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value at
beginning of period..... $ 15.80 $ 15.79 $ 14.18
-------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.17 0.20(f) 0.15
Net realized and
unrealized gain on
investments and
options................ 3.13 0.30(f) 1.68
-------- -------- -------
Total income from
investment operations.. 3.30 0.50 1.83
-------- -------- -------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................. (0.13) (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........... (0.13) (0.60) (0.22)
-------- -------- -------
Additional paid-in
capital................. -- 0.11(f) --
Net increase in net asset
value................... 3.17 0.01 1.61
-------- -------- -------
Net asset value, end of
period.................. $ 18.97 $ 15.80 $ 15.79
======== ======== =======
Total return(b).......... 20.91%(d) 3.97% 13.08 %(d)
Ratio of net expenses to
average net assets...... 1.22%(c) 1.25% 1.25 %(c)
Ratio of net investment
income to average net
assets.................. 1.78%(c) 1.28% 1.23 %(c)
Portfolio turnover rate.. 48.69%(d) 71.80% 102.23 %(d)
Net assets at end of
period ($ in thousands). $324,036 $193,772 $41,528
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND
EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets..... 1.47%(c) 1.58% 3.24 %(c)
Ratio of net investment
income (loss) to
average net assets..... 1.53%(c) 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 Growth
and Income Fund, excluding additional paid in capital, would have been
3.34%.
(c) Annualized.
(d) Not annualized.
(e) Institutional shares commenced operations on June 15, 1995.
(f) Calculated based on the average shares outstanding methodology.
(g) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
S-6
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND FOR THE YEAR
FOR THE SIX ENDED FOR THE PERIOD
MONTHS ENDED JANUARY 31, ENDED
JULY 31, ---------------------------------------- JANUARY 31,
1995 1995 1994 1993 1992 1991(a)
------------ -------- -------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period.... $ 13.67 $ 15.96 $ 14.64 $ 13.65 $ 11.10 $ 11.34
---------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income.. 0.04 0.03 0.02 0.06 0.28 0.34
Net realized and
unrealized gain (loss)
on investments,
options and futures... 3.19 (0.69) 2.40 2.28 2.90 (0.27)
---------- -------- -------- -------- -------- --------
Total income (loss)
from investment
operations............ 3.23 (0.66) 2.42 2.34 3.18 0.07
---------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment
income................ -- (0.01) (0.01) (0.07) (0.31) (0.31)
From net realized gain
on investments,
options and futures... -- (1.62) (1.07) (1.28) (0.32) --
In excess of net
investment income..... -- -- (0.02) -- -- --
---------- -------- -------- -------- -------- --------
Total distributions to
shareholders.......... -- (1.63) (1.10) (1.35) (0.63) (0.31)
---------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value..... 3.23 (2.29) 1.32 0.99 2.55 (0.24)
---------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 16.90 $ 13.67 $ 15.96 $ 14.64 $ 13.65 $ 11.10
========== ======== ======== ======== ======== ========
Total return(b)......... 23.63%(d) (4.38)% 16.89 % 18.01% 29.31% 0.84%(d)
Ratio of net expenses to
average net assets..... 1.35%(c) 1.38 % 1.38 % 1.41% 1.53% 1.27%(d)
Ratio of net investment
income to average net
assets................. 0.55%(c) 0.16 % 0.13 % 0.42% 2.09% 3.24%(d)
Portfolio turnover rate. 13.26%(d) 38.36 % 36.12 % 58.93% 48.93% 35.63%(d)
Net assets at end of
period (in thousands).. $1,027,283 $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.... 1.60%(c) 1.63 % 1.63 % 1.66% 1.78% 1.47%(d)
Ratio of net investment
income (loss) to
average net assets.... 0.30%(c) (0.09)% (0.12)% 0.17% 1.84% 3.04%(d)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP EQUITY FUND FOR THE PERIOD
FOR THE SIX ENDED FOR THE PERIOD
MONTHS ENDED JANUARY 31, ENDED
JULY 31, ------------------- JANUARY 31,
1995 1995 1994 1993(e)
------------ -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 16.14 $ 20.67 $ 16.68 $ 14.18
-------- -------- -------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income
(loss)................. (0.06) (0.07) (0.04) 0.03
Net realized and
unrealized gain (loss)
on investments, options
and futures............ 1.62 (3.53) 5.03 2.50
-------- -------- -------- -------
Total income (loss) from
investment operations.. 1.56 (3.60) 4.99 2.53
-------- -------- -------- -------
DISTRIBUTIONS TO SHARE-
HOLDERS:
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
transactions........... -- (0.24) -- --
-------- -------- -------- -------
Total distributions to
shareholders........... -- (0.93) (1.00) (0.03)
-------- -------- -------- -------
Net increase (decrease)
in net asset value...... 1.56 (4.53) 3.99 2.50
-------- -------- -------- -------
Net asset value, end of
period.................. $ 17.70 $ 16.14 $ 20.67 $ 16.68
======== ======== ======== =======
Total return(b).......... 9.67 %(d) (17.53)% 30.13 % 17.86 %(d)
Ratio of net expenses to
average net assets...... 1.40 %(c) 1.53 % 1.60 % 1.65 %(c)
Ratio of net investment
income (loss) to average
net assets.............. (0.45)%(c) (0.53)% (0.45)% 0.62 %(c)
Portfolio turnover rate.. 28.01 %(d) 43.67 % 56.81 % 7.12 %(c)
Net assets at end of
period (in thousands)... $297,453 $319,487 $261,074 $59,339
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES:
Ratio of expenses to
average net assets..... 1.65 %(c) 1.78 % 1.85 % 2.70 %(c)
Ratio of net investment
loss to average net
assets................. (0.70)%(c) (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.
S-7
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND FOR THE YEAR
FOR THE ENDED FOR THE
SIX MONTHS JANUARY 31, PERIOD ENDED
ENDED ------------------- JANUARY 31,
JULY 31, 1995 1995 1994 1993(d)
------------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 14.52 $ 18.10 $ 14.35 $ 14.18
-------- -------- -------- -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)...................... 0.10 0.06 0.05 (0.01)
Net realized and unrealized
gain (loss) on investments,
options and futures......... 1.17 (3.04) 4.08 0.29
Net realized and unrealized
gain (loss) on foreign
currency related
transactions............... 1.27 (0.01) (0.38) (0.11)
-------- -------- -------- -------
Total income (loss) from
investment operations....... 2.54 (2.99) 3.75 0.17
-------- -------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income....... -- -- -- --
Net realized gain on
investment, option and
futures transactions........ -- (0.59) -- --
-------- -------- -------- -------
Total distributions to
shareholders................ -- (0.59) -- --
-------- -------- -------- -------
Net increase (decrease) in
net asset value.............. 2.54 (3.58) 3.75 0.17
-------- -------- -------- -------
Net asset value, end of
period....................... $ 17.06 $ 14.52 $ 18.10 $ 14.35
======== ======== ======== =======
Total return(a).............. 17.49%(b) (16.65)% 26.13% 1.23 %(b)
Ratio of net expenses to
average net assets........... 1.62%(c) 1.73 % 1.76% 1.80 %(c)
Ratio of net investment
income (loss) to average net
assets....................... 0.92%(c) 0.40 % 0.51% (0.42)%(c)
Portfolio turnover rate...... 33.37%(b) 84.54 % 60.04% 0.00 %
Net assets at end of period
($ in thousands)............. $266,123 $275,086 $269,091 $66,063
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF DISTRIBUTION FEES
AND EXPENSE LIMITATIONS:
Ratio of expenses to average
net assets.................. 1.87%(c) 1.98 % 2.01% 2.58 %(c)
Ratio of net investment
income (loss) to average net
assets...................... 0.67%(c) 0.15 % 0.26% (1.20)%(c)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIA GROWTH FUND FOR THE FOR THE
SIX MONTHS PERIOD
ENDED ENDED
JULY 31, 1995 JANUARY 31, 1995(e)
------------- -------------------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period...... $ 13.31 $ 14.18
-------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.14 0.11
Net unrealized gain (loss) on
investments.............................. 2.12 (0.89)
Net realized and unrealized gain on
foreign currency related transactions.... 0.08 0.01
-------- --------
Total gain (loss) from investment
operations............................... 2.34 (0.77)
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................... -- (0.10)
-------- --------
Total distributions to shareholders...... -- (0.10)
-------- --------
Net increase (decrease) in net asset
value..................................... 2.34 (0.87)
-------- --------
Net asset value, end of period............ $ 15.65 $ 13.31
======== ========
Total return(a)........................... 17.58%(b) (5.46)%(b)
Ratio of net expenses to average net
assets.................................... 1.73%(c) 1.90 %(c)
Ratio of net investment income to average
net assets................................ 2.02%(c) 1.83 %(c)
Portfolio turnover rate................... 62.98%(b) 36.08 %(b)
Net assets at end of period ($ in
thousands)................................ $165,789 $124,298
RATIOS ASSUMING NO VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND EXPENSE LIMITATIONS:
Ratio of expenses to average net assets.. 1.98%(c) 2.38 %(c)
Ratio of net investment income to average
net assets............................... 1.77%(c) 1.35 %(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(e) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
S-8
<PAGE>
The Goldman Sachs Small Cap Equity Fund, Goldman Sachs International Equity
Fund and Goldman Sachs Asia Growth Fund have changed their diversification
status under the Investment Company Act of 1940, as amended, from "non-
diversified" to "diversified" Funds.
The following replaces the last full paragraph on page 33 under the section
entitled "Management--Investment Advisers, Subadviser and Administrator."
The Capital Growth Fund's portfolio managers are Mitchell E. Cantor and Paul
D. Farrell. See below for information regarding Mr. Farrell.
The following replaces the second full paragraph on page 36 under the
subsection entitled "Distributor and Transfer Agent."
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, with respect to its Class A Shares, equal to $12,000 per
year plus $7.50 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.
The following replaces the first full paragraph on page 43 under the
subsection entitled "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 attributable to Class A Shares. Currently, Goldman Sachs has
voluntarily agreed to waive the entire amount of such fee for the Balanced,
Growth and Income, Capital Growth and Small Cap Equity Funds and to limit the
amount of such fee to 0.21% for the Select Equity, International Equity and
Asia Growth Funds. Goldman Sachs has no current intention of modifying or
discontinuing such waivers, 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.
The following replaces the last full paragraph on page 43 under the
subsection entitled "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
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.
S-9
<PAGE>
The following paragraph should be added under the heading "Performance
Information" on page 46:
From time to time, advertisements or information may include a discussion of
asset allocation models developed by GSAM and/or its affiliates, certain
attributes or benefits to be derived from asset allocation strategies and the
Goldman Sachs mutual funds that may be offered as investment options for the
strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
The following sentence should be added under the heading "How to Invest--
Offering Price" on page 36:
The entire amount of the sales charge will be reallowed to Authorized Dealers
during the period January 2, 1996 though April 15, 1996 if shares of the Funds
are purchased through any Individual Retirement Account.
The following replaces Appendix B and Appendix C in the Statement of
Additional Information:
The Company may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of these
securities are not identical to, and may be very different from, those of
a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Company may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The following is added to page B-72 of the Statement of Additional
Information:
The table above reflects amounts expended by Goldman Sachs, which amounts are
in excess of the compensation received by Goldman Sachs under the Plans. The
payments under the Plans were used by Goldman Sachs to compensate it for the
expenses shown above on a pro-rata basis.
S-10
<PAGE>
EQSUP4/111K/0296
<PAGE>
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
INSTITUTIONAL SHARES
------------
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs
Growth and Income Fund ("Growth and Income Fund"), Goldman Sachs Mid-Cap
Equity Fund ("Mid-Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth
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 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.
Growth and Income Fund seeks long-term growth of capital and growth of
income through investments in equity securities that the Fund's Investment
Adviser considers to have favorable prospects for capital appreciation and/or
dividend paying ability.
Mid-Cap Equity Fund seeks long-term capital growth primarily through
investments in equity securities of companies with public stock market
capitalizations of between $500 million and $7 billion at the time of
investment.
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 principally traded outside the U.S.
Asia Growth Fund seeks long-term capital appreciation through investments in
equity securities of companies related (in the manner described herein) to
Asian countries.
(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 February 1, 1996
<PAGE>
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 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 Growth and Income, Mid-Cap Equity and International
Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the
Select Equity Fund. 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 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 February 1, 1996, 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 ASSET MANAGEMENT
PORTFOLIOS, INC. INVESTMENT ADVISER TO
ONE NEW YORK PLAZA GROWTH AND INCOME FUND,
NEW YORK, NEW YORK 10004 MID-CAP EQUITY FUND AND
INTERNATIONAL EQUITY FUND
GOLDMAN, SACHS & CO. ONE NEW YORK PLAZA
DISTRIBUTOR NEW YORK, NEW YORK 10004
85 BROAD STREET
NEW YORK, NEW YORK 10004 GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
GOLDMAN, SACHS & CO. INVESTMENT ADVISER TO
TRANSFER AGENT ASIA GROWTH FUND AND
4900 SEARS TOWER SUBADVISER TO THE
CHICAGO, ILLINOIS 60606 INTERNATIONAL EQUITY FUND
140 FLEET STREET
GOLDMAN SACHS FUNDS MANAGEMENT, L.P. LONDON, ENGLAND
INVESTMENT ADVISER TO SELECT EQUITY FUND EC4A 2BJ
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
TOLL FREE (IN U.S.).................. 800-621-2550
2
<PAGE>
SUMMARY
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs Mid-Cap Equity Fund
("Mid-Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth
Fund") (a "Fund," or the "Funds") are part of a family of funds advised by GSAM
or its affiliates, GSFM and GSAMI. The Funds are separate diversified
portfolios of Goldman Sachs Equity Portfolios, Inc. (the "Company"), an open-
end, management investment company.
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.
GOLDMAN SACHS MID-CAP EQUITY FUND
The investment objective of the Fund is long-term capital growth. Dividend
income, if any, is an incidental consideration. The Fund seeks 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, the Fund currently intends to emphasize investments in
companies with public stock market capitalizations of under $5 billion 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 greater
or less than Mid-Cap Companies and fixed income securities.
3
<PAGE>
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."
INVESTMENT ADVISERS AND ADMINISTRATOR
Goldman Sachs Asset Management, a separate operating division of Goldman
Sachs, acts as administrator to each Fund and serves as Investment Adviser to
the Mid-Cap Equity, Growth and Income and International Equity Funds. Goldman
Sachs Funds Management, L.P., an affiliate of Goldman Sachs, serves as
investment adviser to the Select Equity Fund. Goldman Sachs Asset Management
International, an affiliate of Goldman Sachs, serves as investment adviser to
the Asia Growth Fund and subadviser to the International Equity Fund. As of
December 31, 1995, the Investment Advisers, together with their affiliates,
acted as investment adviser, administrator or distributor for assets in excess
of $55 billion.
4
<PAGE>
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 Institutional 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."
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 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 Growth and
Income Fund 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. 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 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 sized market
capitalization companies, a 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
5
<PAGE>
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 be subject to 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 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.
6
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)*
<TABLE>
<CAPTION>
GROWTH
SELECT AND MID-CAP INT'L ASIA
EQUITY INCOME EQUITY EQUITY GROWTH
FUND FUND FUND FUND FUND
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases. None None None None None
Maximum Sales Charge Imposed on Reinvested
Dividends................................ None None None None None
Redemption Fees........................... None None None None None
Exchange Fees............................. 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)**................... 0.59% 0.70% 0.75% 0.86% 0.86%
Distribution (Rule 12b-1) Fees............ None None None None None
Other Expenses (after expense limita-
tion)**.................................. 0.06% 0.15% 0.10% 0.24% 0.24%
---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER
EXPENSE LIMITATION)**................... 0.65% 0.85% 0.85% 1.10% 1.10%
==== ==== ==== ==== ====
</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
Growth and Income Fund........................ $ 9 $27 $47 $105
Mid-Cap Equity Fund........................... $ 9 $27 N/A N/A
International Equity Fund..................... $11 $35 $61 $134
Asia Growth Fund.............................. $11 $35 $61 $134
</TABLE>
- --------------------
* The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Funds. Each Fund also offers
Service Shares and, except for Mid-Cap Equity Fund, Class A Shares, which
are subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services. Information regarding Service and 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. The Investment
Advisers and GSAM have voluntarily agreed to limit their advisory and
administration fees to the following (as a percentage of average daily net
assets): Select Equity Fund--0.44% and 0.15%, International Equity Fund--
7
<PAGE>
0.71% and 0.15% and Asia Growth Fund--0.71% and 0.15%. Without such
limitations, the Funds' advisory and administration fees would be: Select
Equity Fund--0.50% and 0.25%, International Equity Fund--0.75% and 0.25% and
Asia Growth Fund--0.75% and 0.25%. The Investment Advisers 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 and fees under service,
distribution and authorized dealer service plans, taxes, interest and
brokerage and litigation, indemnification and other extraordinary expenses)
to 0.06%, 0.11%, 0.06%, 0.24% and 0.24%, respectively, of the Select Equity,
Growth and Income, Mid-Cap Equity, International Equity and Asia Growth
Funds' average daily net assets. The Investment Advisers and GSAM have no
current intention of modifying or discontinuing such limitations but may do
so in the future at their discretion. With regard to the Select Equity,
International Equity and Asia Growth Funds, Goldman Sachs has voluntarily
agreed to waive the transfer agency fees. If the Investment Advisers,
Goldman Sachs and GSAM did not agree to limit certain "Other Expenses" of
each Fund and to limit the fees of the Select Equity, International Equity
and Asia Growth Funds as described above, the "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Funds would be as
follows: Select Equity Fund--0.27% and 1.02%; Growth and Income Fund--0.15%
and 0.85%; Mid-Cap Equity Fund--0.32% and 1.07%; International Equity Fund--
0.38% and 1.38% and Asia Growth Fund--0.39% and 1.39%, respectively. The
annual "Management Fees," "Other Expenses," and "Total Operating Expenses"
incurred by the Class A Shares of the following Funds during the fiscal year
ended January 31, 1995 (expressed as a percentage of average daily net
assets after fee adjustments) were: Select Equity Fund--0.75%, 0.38% and
1.38%, Growth and Income Fund--0.70%, 0.30%, and 1.25%, International Equity
Fund--1.00%, 0.48%, and 1.73% and Asia Growth Fund--1.00%, 0.65% and 1.90%,
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, Subadviser and Administrator."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OF THE SELECT EQUITY, GROWTH AND INCOME,
INTERNATIONAL EQUITY AND ASIA GROWTH FUNDS AND FOR AN INSTITUTIONAL SHARE OF
THE SELECT EQUITY AND MID-CAP EQUITY FUNDS OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a Class A Share of Select Equity, Growth
and Income, International Equity and Asia Growth Funds 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 the Annual Report to shareholders for the year ended
January 31, 1995. The following data with respect to a Class A Share and
Institutional Share of the Select Equity Fund and a Class A Share of the
Growth and Income, International Equity and Asia Growth Funds outstanding
during the period ended July 31, 1995 has been derived from unaudited
financial statements prepared by the Company. The following data with respect
to an Institutional Share of Mid-Cap Equity Fund outstanding during the period
from August 1, 1995 (commencement of operations) through September 30, 1995
has also been derived from unaudited financial statements prepared by the
Company. This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. These reports also contain performance information and
are available upon request and without charge by writing to one of the
addresses on the inside cover of this Prospectus. Prior to the existence of
Institutional Shares of a Fund any outstanding shares are deemed to be Class A
Shares for purposes of the following data. No Service Shares of the Funds were
outstanding during the periods indicated.
<TABLE>
<CAPTION>
SELECT EQUITY FUND
--------------------------------------------------------------------
FOR THE PERIODS ENDED FOR THE YEAR ENDED FOR THE
JULY 31, JANUARY 31, PERIOD ENDED
------------------------- --------------------------- JANUARY 31,
1995 1995 1995 1994 1993 1992
CLASS A INSTITUTIONAL CLASS A CLASS A CLASS A CLASS A
SHARES SHARES(d) SHARES SHARES SHARES SHARES(e)
------- ------------- ------- ------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 14.61 $ 16.97 $ 15.93 $ 15.46 $ 15.05 $ 14.17
------- ------- ------- ------- -------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income.. 0.11 0.01 0.20 0.17 0.22 0.11
Net realized and
unrealized gain (loss)
on investments, options
and futures............ 3.32 1.08 (0.38) 2.08 0.41 0.88
------- ------- ------- ------- -------- --------
Total income (loss)
from investment
operations............. 3.43 1.09 (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
shareholders........... -- -- (1.14) (1.78) (0.22) (0.11)
------- ------- ------- ------- -------- --------
Net increase (decrease)
in net asset value...... 3.43 1.09 (1.32) 0.47 0.41 0.88
------- ------- ------- ------- -------- --------
Net asset value, end of
period.................. $ 18.04 $ 18.06 $ 14.61 $ 15.93 $ 15.46 $ 15.05
======= ======= ======= ======= ======== ========
Total return(a)......... 23.48%(b) 6.42%(b) (1.10)% 15.12% 4.30% 7.01%(b)
Ratio of net expenses to
average net assets...... 1.28%(c) 0.65%(c) 1.38% 1.42% 1.28% 1.57%(c)
Ratio of net investment
income to average net
assets.................. 1.06%(c) 0.88%(c) 1.33% 0.92% 1.30% 1.24%(c)
Portfolio turnover rate. 27.65%(b) 27.65%(b) 56.18% 87.73% 144.93% 135.02%(c)
Net assets at end of
period ($ in thousands). $94,944 $44,157 $94,968 $92,769 $117,757 $151,142
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets..... 1.56%(c) 0.96%(c) 1.63% 1.67% 1.53% 1.82%(c)
Ratio of net investment
income to average net
assets................. 0.78%(c) 0.57%(c) 1.08% 0.67% 1.05% 0.99%(c)
</TABLE>
- -------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(b) Not annualized.
(c) Annualized.
(d) Institutional shares commenced operations on June 15, 1995.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
9
<PAGE>
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
----------------------------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JULY 31, 1995 JANUARY 31, 1995 JANUARY 31, 1994(e)
CLASS A SHARES CLASS A SHARES CLASS A SHARES
-------------- ---------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value at
beginning of period...... $ 15.80 $ 15.79 $ 14.18
-------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.17 0.20(d) 0.15
Net realized and
unrealized gain on
investments and options. 3.13 0.30(d) 1.68
-------- -------- -------
Total income from
investment operations... 3.30 0.50 1.83
-------- -------- -------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income.................. (0.13) (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............ (0.13) (0.60) (0.22)
-------- -------- -------
Additional paid-in
capital.................. -- 0.11(d) --
Net increase in net asset
value.................... 3.17 0.01 1.61
-------- -------- -------
Net asset value, end of
period................... $ 18.97 $ 15.80 $ 15.79
======== ======== =======
Total return(a).......... 20.91%(b) 3.97% 13.08%(b)
Ratio of net expenses to
average net assets....... 1.22%(c) 1.25% 1.25%(c)
Ratio of net investment
income to average net
assets................... 1.78%(c) 1.28% 1.23%(c)
Portfolio turnover rate.. 48.69%(b) 71.80% 102.23%(b)
Net assets at end of
period ($ in thousands).. $324,036 $193,772 $41,528
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND
EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets...... 1.47%(c) 1.58% 3.24%(c)
Ratio of net investment
income (loss) to average
net assets.............. 1.53%(c) 0.95% (0.76)%(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
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, would have been 3.34%.
(b) Not annualized.
(c) Annualized.
(d) Calculated based on the average shares outstanding methodology.
(e) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
10
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------------
FOR THE
FOR THE FOR THE YEAR ENDED PERIOD ENDED
SIX MONTHS JANUARY 31, JANUARY 31,
ENDED ----------------------------- 1993(d)
JULY 31, 1995 1995 1994 CLASS A
CLASS A SHARES CLASS A SHARES CLASS A SHARES SHARES
-------------- -------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 14.52 $ 18.10 $ 14.35 $ 14.18
-------- -------- -------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income
(loss)................. 0.10 0.06 0.05 (0.01)
Net realized and
unrealized gain (loss)
on investments, options
and futures............ 1.17 (3.04) 4.08 0.29
Net realized and
unrealized gain (loss)
on foreign currency
related transactions... 1.27 (0.01) (0.38) (0.11)
-------- -------- -------- -------
Total income (loss)
from investment
operations............. 2.54 (2.99) 3.75 0.17
-------- -------- -------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.. -- -- -- --
Net realized gain on
investment, option and
futures transactions... -- (0.59) -- --
-------- -------- -------- -------
Total distributions to
shareholders........... -- (0.59) -- --
-------- -------- -------- -------
Net increase (decrease)
in net asset value...... 2.54 (3.58) 3.75 0.17
-------- -------- -------- -------
Net asset value, end of
period.................. $ 17.06 $ 14.52 $ 18.10 $ 14.35
======== ======== ======== =======
Total return(a)......... 17.49%(b) (16.65)% 26.13% 1.23%(b)
Ratio of net expenses to
average net assets...... 1.62%(c) 1.73% 1.76% 1.80%(c)
Ratio of net investment
income (loss) to average
net assets.............. 0.92%(c) 0.40% 0.51% (0.42)%(c)
Portfolio turnover rate. 33.37%(b) 84.54% 60.04 0.00%
Net assets at end of
period ($ in thousands). $266,123 $275,086 $269,091 $66,063
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND
EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets..... 1.87%(c) 1.98% 2.01% 2.58%(c)
Ratio of net investment
income (loss) to
average net assets..... 0.67%(c) 0.15% 0.26% (1.20)%(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if a sales charge were taken into
account.
(b) Not annualized.
(c) Annualized.
(d) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
11
<PAGE>
<TABLE>
<CAPTION>
ASIA GROWTH FUND
-----------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED ENDED
JULY 31, 1995 JANUARY 31, 1995(d)
CLASS A SHARES CLASS A SHARES
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period...... $ 13.31 $ 14.18
-------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.14 0.11
Net unrealized gain (loss) on
investments.............................. 2.12 (0.89)
Net realized and unrealized gain on
foreign currency related transactions.... 0.08 0.01
-------- --------
Total gain (loss) from investment
operations............................... 2.34 (0.77)
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................... -- (0.10)
-------- --------
Total distributions to shareholders...... -- (0.10)
-------- --------
Net increase (decrease) in net asset
value..................................... 2.34 (0.87)
-------- --------
Net asset value, end of period............ $ 15.65 $ 13.31
======== ========
Total return(a)........................... 17.58%(b) (5.46)%(b)
Ratio of net expenses to average net
assets.................................... 1.73%(c) 1.90%(c)
Ratio of net investment income to average
net assets................................ 2.02%(c) 1.83%(c)
Portfolio turnover rate................... 62.98%(b) 36.08%(b)
Net assets at end of period ($ in
thousands)................................ $165,789 $124,298
RATIOS ASSUMING NO VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND EXPENSE LIMITATIONS:
Ratio of expenses to average net assets.. 1.98%(c) 2.38%(c)
Ratio of net investment income to average
net assets............................... 1.77%(c) 1.35%(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if a sales charge were taken into
account.
(b) Not annualized.
(c) Annualized.
(d) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
12
<PAGE>
<TABLE>
<CAPTION>
MID-CAP
EQUITY FUND
-------------
FOR THE
PERIOD ENDED
SEPTEMBER 30,
1995
INSTITUTIONAL
SHARES(a)
-------------
<S> <C>
Net asset value, beginning of period............................ $ 15.00
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................................... 0.04
Net realized and unrealized gain on investments and options.... 0.30
--------
Total income from investment operations........................ 0.34
--------
Net increase in net asset value................................. 0.34
--------
Net asset value, end of period.................................. $ 15.34
========
Total return(b)................................................. 2.27%(d)
Ratio of net expenses to average net assets..................... 0.85%(c)
Ratio of net investment income to average net assets............ 1.75%(c)
Portfolio turnover rate......................................... 37.84%(d)
Net assets at end of period ($ in thousands).................... $130,509
RATIOS ASSUMING NO EXPENSE LIMITATIONS:
Ratio of expenses to average net assets........................ 1.04%(c)
Ratio of net investment income to average net assets........... 1.56%(c)
</TABLE>
- ---------------------
(a) For the period from August 1, 1995 (commencement of operations) to
September 30, 1995.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
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 Advisers utilize 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."
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 those of 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
14
<PAGE>
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 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.
GROWTH AND INCOME FUND
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
15
<PAGE>
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.
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. 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, 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.
INTERNATIONAL EQUITY FUND
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 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
16
<PAGE>
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.
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
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 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.
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
17
<PAGE>
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
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
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
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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 each Fund, other
than Select Equity Fund, may also invest in European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign is-
suers (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 domes-
tic banks. EDRs and GDRs are receipts evidencing an arrangement with a non-
U.S. bank. EDRs
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and GDRs are not necessarily quoted in the same currency as the underlying se-
curity. 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 Re-
ceipts (unsponsored Depository Receipts), there may be an increased possibil-
ity that the Fund would not become aware of and be able to respond to corpo-
rate 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 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 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 Growth and Income
and Mid-Cap Equity Funds may invest up to 25% of their total assets in securi-
ties of issuers in countries with emerging economies or securities markets.
These emerging markets are generally located in the Asia-Pacific region, East-
ern Europe, Latin and South America and Africa. A Fund's purchase and sale of
portfolio securities in certain emerging markets may be constrained by limita-
tions as to daily changes in the prices of listed securities, periodic trading
or settlement volume and/or limitations on aggregate holdings of foreign in-
vestors. Such limitations may be computed based on the aggregate trading vol-
ume by or holdings of the 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.
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
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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 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 in-
vestment 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 for-
eign 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 Eq-
uity 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 In-
ternational Equity or Asia Growth Fund enters 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
21
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different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency con-
trols or political developments in the U.S. or abroad. 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 suscepti-
ble 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, offer
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. Each Fund (other than Select Equity 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 Interna-
tional 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 pat-
tern of correlation between the two currencies. As with other kinds of option
transactions, however, the writing of an option on
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<PAGE>
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 curren-
cies at disadvantageous exchange rates, thereby incurring losses. The purchase
of an option on foreign currency may constitute an effective hedge against ex-
change rate fluctuations; however, in the event of exchange rate movements ad-
verse to a Fund's position, the Fund may forfeit the entire amount of the pre-
mium 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 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 the
Funds may invest are not fixed and may fluctuate based upon changes in market
rates of interest.
RATING CRITERIA. The debt securities in which the Growth and Income, Mid-Cap
Equity, 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 Standard & Poor's
Ratings Group ("Standard & Poor's) or Baa or higher by Moody's Investors
Service, Inc. ("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 Growth
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<PAGE>
and Income Fund may invest up to 10% of its total assets in debt securities
which are unrated or rated in the lowest rating categories by Standard &
Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by
Moody's), including securities rated D by Moody's or Standard & Poor's. Mid-
Cap Equity Fund may invest up to 10% of its total assets in below investment
grade debt securities rated B or higher by Standard & Poor's or B or higher by
Moody's. 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 a 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 or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. 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 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 & 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 & 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 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 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. 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.
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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 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.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the Select Equity Fund) may purchase put and call op-
tions and write (sell) covered 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. A Fund will purchase and write such options that are listed on na-
tional or foreign securities exchanges or traded in the over-the-counter mar-
ket. 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 In-
vestment Adviser's ability 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 de-
termination 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.
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 future 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 en-
gage 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 Growth and Income, Mid-Cap Eq-
uity and Select Equity Funds in futures on foreign currencies) to seek to in-
crease 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 transac-
tions, if immediately thereafter the sum of the amount of initial margin de-
posits and premiums
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<PAGE>
paid on the Fund's outstanding positions in futures and related options en-
tered 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 bro-
kerage costs, require margin deposits and, in the case of contracts and op-
tions 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 Future
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 op-
tions 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 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 con-
tract 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 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
The International Equity and Asia Growth Funds may enter into currency swaps
for both hedging purposes and 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.
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 entire amount of
the payment stream payable by a Fund under a currency swap 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.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party thereto is
considered to be investment grade by the Investment Adviser.
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The use of currency swaps 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 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 Securities and Exchange Commission ("SEC")
currently takes the position that swaps 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,
swaps and currency forward contracts involve certain risks, including a possi-
ble lack of correlation between changes in the value of hedging instruments
and the portfolio assets being hedged, the potential illiquidity of the mar-
kets for derivative instruments, the risks arising from the margin require-
ments and related leverage factors associated with such transactions. The use
of these management techniques to seek to increase total return may be re-
garded as a speculative practice, and involves the risk of loss if the Invest-
ment 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 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 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 securi-
ties 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 commit-
ments 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 Se-
curities Act of 1933, as amended ("1933 Act"), including
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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, swaps, 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, un-
less it is determined, based upon the continuing review of the trading markets
for the specific restricted security, that such restricted security is eligi-
ble for sale under Rule 144A and, therefore, is liquid. The Board of Directors
has adopted guidelines and delegated to the Investment Adviser the daily func-
tion 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 respon-
sible 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 be-
come 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 an Investment Adviser or any of its affiliates serves as in-
vestment 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 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 Ad-
viser.
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. The International Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government securi-
ties. 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 ap-
proved certain sellers whom they believe to be creditworthy and have autho-
rized the Funds to enter into repurchase agreements with such sellers. In ad-
dition, each Fund, together with other registered investment companies
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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 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
Each Fund (other than the Select Equity Fund) may make short sales of secu-
rities 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 securi-
ties convertible into or exchangeable, without payment of any further consid-
eration, for an equal amount of the securities of the same issuer as the secu-
rities 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 posi-
tion 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 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 & 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.
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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 (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. 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 In-
vestment 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 gen-
eral policy and reviewing the actions of the Investment Advisers, subadviser,
administrator, distributor and transfer agent. The officers of the Company
conduct and supervise the Funds' 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. GSAM, a separate operating division of
Goldman Sachs, serves as the investment adviser to the Mid-Cap Equity, Growth
and Income and International Equity Funds. Goldman Sachs registered as an in-
vestment adviser in 1981. GSFM, a Delaware limited partnership which is an af-
filiate of Goldman Sachs, serves as the investment adviser to the Select Eq-
uity Fund. GSFM registered as an investment adviser in 1990. GSAMI, an affili-
ate of Goldman Sachs, serves as the investment adviser to the Asia Growth Fund
and subadviser to the International Equity Fund. GSAMI is regulated by the In-
vestment Management Regulatory Organisation Limited and registered as an in-
vestment adviser in 1991. GSAM serves as administrator to each Fund. As of De-
cember 31, 1995, GSAM, GSFM and GSAMI, together with their affiliates, acted
as investment adviser, administrator or distributor for assets in excess of
$55 billion.
Under an Investment Advisory Agreement with each Fund, the applicable In-
vestment 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
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<PAGE>
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 Asian 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 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 man-
agement services. Prior to joining the Investment Adviser in 1989, Mr. Jones
was the senior quantitative analyst in Goldman Sachs' Investment Research De-
partment and the author of the monthly Stock Selection publication.
The Growth and Income and Mid-Cap Equity Fund's portfolio managers are
Mitchell E. Cantor and Ronald E. Gutfleish. 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.
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)
Ltd. 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 Growth and Income, Mid-Cap Equity and International Equity Funds, computed
daily and payable monthly, at the annual rates of 0.55%, 0.60% and 0.25%,
respectively, of average daily net assets; however, GSAM is currently only
imposing its advisory fee with respect to the International Equity Fund at the
annual rate of 0.23% of
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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, GSFM is entitled to a fee from
the Select Equity Fund, computed daily and payable monthly, at the annual rate
of 0.50% 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
0.44% 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; however, GSAMI is
currently only imposing its advisory and subadvisory fees with respect to the
Asia Growth and International Equity Funds at the annual rate of 0.71% and
0.48%, respectively, of average daily net assets. GSAMI may discontinue or
modify such limitation in the future at its discretion, although it has no
current intention to do so.
For the fiscal period ended January 31, 1995, each Fund (other than the Mid-
Cap Equity Fund), paid fees at the foregoing rates, except that the Select
Equity, International Equity and Asia Growth Funds paid advisory fees equal to
0.50%, 0.25%, and 0.75%, respectively, of their average daily net assets. For
the fiscal period ended January 31, 1995 the International Equity Fund paid
subadvisory fees equal to 0.50%. The advisory fee paid by the 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 Select Equity, Growth
and Income, Mid-Cap Equity, International Equity and Asia Growth Funds has
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding transfer agency fees, advisory and administration fees and fees
under service, 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%, 0.11%, 0.06%, 0.24% and
0.24% 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.
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 the Growth and Income and Mid-Cap Equity Funds,
computed daily and payable monthly, at an annual rate equal to 0.15% of each
Fund's average daily net assets. 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 im-
posing its administration fee with respect to Select Equity, International Eq-
uity and Asia Growth Funds 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
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<PAGE>
period ended January 31, 1995, each Fund (other than Growth and Income Fund,
which paid GSAM an administration fee equal to 0.15% of its average daily net
assets, and Mid-Cap Equity Fund which had not commenced operations) 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 limita-
tions imposed by state securities administrators. See "Management--Expenses"
in the Additional Statement.
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 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, serves as the exclusive
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. Shareholders of rec-
ord 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 each Fund is calculated by the Fund's cus-
todian 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.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Growth and Income Fund may publish its yield for a particular class of its
shares in advertisements and communications to
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<PAGE>
shareholders or prospective investors. Average annual total return is deter-
mined by computing the average annual percentage change in value of $1,000 in-
vested at the maximum public offering price for the relevant class for speci-
fied periods ending with the most recent calendar quarter, assuming reinvest-
ment 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 are
based on the 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 indi-
ces.
The Growth and Income Fund computes its 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 Growth and Income Fund's 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 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 their 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 2,000,000,000 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. The Select Equity,
Growth and Income, International Equity and Asia Growth Funds offer three
classes of shares: Institutional Shares, Service Shares and Class A Shares.
The Mid-Cap Equity Fund offers two classes of shares: Institutional Shares and
Service 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
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.
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<PAGE>
As of January 23, 1996, 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 28% of Select Equity Fund's
outstanding shares.
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
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, 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. Each Fund has
elected or intends to elect to be treated as a regulated investment company
and intends to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, each Fund must satisfy certain
requirements relating to the sources of its income, diversification of its as-
sets and distribution of its income to shareholders. As a regulated 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 requirements 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. 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
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<PAGE>
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 pur-
poses.
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.
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 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 distribution to sharehold-
ers.
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 pos-
sibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from in-
terest 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 re-
quirements are satisfied. For a further discussion of certain tax consequences
of investing in shares of the Funds, see "Taxation" in the Additional State-
ment. Shareholders are urged to consult their own tax advisers regarding spe-
cific questions as to federal, state and local taxes as well as to any foreign
taxes.
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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REPORTS TO INSTITUTIONAL SHAREHOLDERS
Institutional Shareholders will receive an annual report containing audited
financial statements and a semi-annual report. 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 Funds do not generally provide subaccounting services.
DIVIDENDS
Each dividend from net investment income and capital gain 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 gain distributions will be reinvested in Institutional
Shares of 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 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. The Growth
and Income Fund 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 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."
37
<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.--(Name of Fund)" and should be directed to "Goldman
Sachs Equity Portfolios, Inc.--(Name of Fund)", c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711. 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 "Re-
demption 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, charitable trusts, foundations and endowments; (d)
any state, county, city or any instrumentality, department, authority or
agency thereof; (e) corporations and other for-profit business organizations
with assets of at least $100 million or publicly traded securities outstand-
ing; (f) "wrap" accounts for the benefit of clients of broker-dealers, finan-
cial institutions or financial 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 en-
tered into an agreement with GSAM specifying aggregate minimums and certain
operating policies and standards. The minimum investment requirement may be
waived at the discretion of the Company's officers. No minimum amount is re-
quired for subsequent investments.
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.
38
<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.-- [Name of 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, Institutional Shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer identifica-
tion numbers only if the exchange request is in writing and is received in ac-
cordance with the procedures 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
39
<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 may be paid up to three (3) Business 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 redemp-
tion proceeds paid by check, a check for the redemption proceeds will normally
be mailed to the address of record within three (3) Business Days of receipt
of a properly executed redemption request. In order to change the bank desig-
nated on the Account 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 further responsibility for the performance of
40
<PAGE>
intermediaries or the Institutional Shareholder's bank in the transfer proc-
ess. If a problem with such performance 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.
---------------------
41
<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 determining the TIN that certain entities are
required to provide.
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 and writing "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] 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 [_] GOLDMAN SACHS GLOBAL INCOME FUND
Fill in Portfolio(s):_____________ [_] GOLDMAN SACHS SELECT EQUITY FUND
[_] GS -- ADJUSTABLE RATE GOVERNMENT [_] GOLDMAN SACHS GROWTH AND INCOME
AGENCY FUND FUND
[_] GS -- SHORT-TERM GOVERNMENT AGENCY [_] GOLDMAN SACHS MID-CAP EQUITY FUND
FUND
[_] GS -- SHORT DURATION TAX-FREE FUND [_] GOLDMAN SACHS INTERNATIONAL
[_] GS -- CORE FIXED INCOME FUND EQUITY FUND
[_] OTHER [_] GOLDMAN SACHS ASIA GROWTH FUND
Class of Shares:_____________________
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
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 Signature Name (print) and Title (if any)
HERE
------------------------------ -----------------------------------
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 effected 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.,
[_] 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....................................................... 9
Investment Objectives and Policies......................................... 14
Special Investment Methods and Risk Factors................................ 18
Investment Restrictions.................................................... 30
Portfolio Turnover......................................................... 30
Management................................................................. 30
Net Asset Value............................................................ 33
Performance Information.................................................... 33
Shares of the Company...................................................... 34
Taxation................................................................... 35
Additional Information..................................................... 36
Reports to Institutional Shareholders...................................... 37
Dividends.................................................................. 37
Purchase of Institutional Shares........................................... 37
Exchange Privilege......................................................... 39
Redemption of Institutional Shares......................................... 39
Appendix A................................................................. A-1
Account Information Form
</TABLE>
EQ1IS/2K/0296
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
SERVICE SHARES
------------
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs
Growth and Income Fund ("Growth and Income Fund"), Goldman Sachs Mid-Cap
Equity Fund ("Mid-Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth
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 portfolio of Goldman Sachs
Equity Portfolios, Inc. (the "Company"), an open-end, management investment
company.
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.
Growth and Income Fund seeks long-term growth of capital and growth of
income through investments in equity securities that the Fund's Investment
Adviser considers to have favorable prospects for capital appreciation and/or
dividend paying ability.
Mid-Cap Equity Fund seeks long-term capital growth primarily through
investments in equity securities of companies with public stock market
capitalizations of between $500 million and $7 billion at the time of
investment.
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 principally traded outside the U.S.
Asia Growth Fund seeks long-term capital appreciation through investments in
equity securities of companies related (in the manner described herein) to
Asian countries.
(continued on next page)
------------
SERVICE 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 SERVICE 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 February 1, 1996
<PAGE>
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 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 Growth and Income, Mid-Cap Equity and International
Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the
Select Equity Fund. 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 the
Company and the Funds that a prospective investor ought to know before
investing in Service Shares of the Funds, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated February 1, 1996, 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, Service 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 ASSET MANAGEMENT
PORTFOLIOS, INC. INVESTMENT ADVISER TO
ONE NEW YORK PLAZA GROWTH AND INCOME FUND,
NEW YORK, NEW YORK 10004 MID-CAP EQUITY FUND AND
INTERNATIONAL EQUITY FUND
GOLDMAN, SACHS & CO. ONE NEW YORK PLAZA
DISTRIBUTOR NEW YORK, NEW YORK 10004
85 BROAD STREET
NEW YORK, NEW YORK 10004 GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
GOLDMAN, SACHS & CO. INVESTMENT ADVISER TO
TRANSFER AGENT 4900 SEARS TOWER ASIA GROWTH FUND AND
CHICAGO, ILLINOIS 60606 SUBADVISER TO THE
INTERNATIONAL EQUITY FUND
GOLDMAN SACHS FUNDS MANAGEMENT, L.P. 140 FLEET STREET
INVESTMENT ADVISER TO SELECT EQUITY LONDON, ENGLAND
FUND EC4A 2BJ
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
TOLL FREE (IN U.S.).................. 800-621-2550
2
<PAGE>
SUMMARY
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs Mid-Cap Equity Fund
("Mid-Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth
Fund") (a "Fund," or the "Funds") are part of a family of funds advised by GSAM
or its affiliates, GSFM and GSAMI. The Funds are separate diversified
portfolios of Goldman Sachs Equity Portfolios, Inc. (the "Company"), an open-
end, management investment company.
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.
GOLDMAN SACHS MID-CAP EQUITY FUND
The investment objective of the Fund is long-term capital growth. Dividend
income, if any, is an incidental consideration. The Fund seeks 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, the Fund currently intends to emphasize investments in
companies with public stock market capitalizations of under $5 billion 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 greater
or less than Mid-Cap Companies and fixed income securities.
3
<PAGE>
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."
INVESTMENT ADVISERS AND ADMINISTRATOR
Goldman Sachs Asset Management, a separate operating division of Goldman
Sachs, acts as administrator to each Fund and serves as Investment Adviser to
the Mid-Cap Equity, Growth and Income and International Equity Funds. Goldman
Sachs Funds Management, L.P., an affiliate of Goldman Sachs, serves as
investment adviser to the Select Equity Fund. Goldman Sachs Asset Management
International, an affiliate of Goldman Sachs, serves as investment adviser to
the Asia Growth Fund and subadviser to the International Equity Fund. As of
December 31, 1995, the Investment Advisers, together with their affiliates,
acted as investment adviser, administrator or distributor for assets in excess
of $ 55 billion.
4
<PAGE>
PURCHASE AND REDEMPTION OF SERVICE SHARES
It is expected that all purchasers of Service Shares of the Fund will be
Service Organizations or their nominees. Customers of Service Organizations may
invest in Service Shares only through their Service Organizations. Service
Shares of the 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 Funds do not have any minimum purchase or account requirements
with respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. See
"Purchase of Service Shares." The Funds will redeem their Service 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
Service Shares."
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 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 Growth and
Income Fund 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. Shareholders will receive
dividends in additional Service 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 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 sized market
capitalization companies, a 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
5
<PAGE>
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 be subject to 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 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.
ADDITIONAL SERVICES
The Company, on behalf of each Fund, has adopted a Service Plan with respect
to the Service Shares of each Fund which authorizes each Fund to compensate
Service Organizations for providing account administration and shareholder
liaison 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 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of a Fund attributable to or held in the
name of the Service Organization for its customers. See "Additional Services."
6
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)*
<TABLE>
<CAPTION>
GROWTH
SELECT AND MID-CAP INT'L ASIA
EQUITY INCOME EQUITY EQUITY GROWTH
FUND FUND FUND FUND FUND
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases. None None None None None
Maximum Sales Charge Imposed on Reinvested
Dividends................................ None None None None None
Redemption Fees........................... None None None None None
Exchange Fees............................. 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)**................... 0.59% 0.70% 0.75% 0.86% 0.86%
Service Fees***........................... 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after expense limita-
tion)**.................................. 0.06% 0.15% 0.10% 0.24% 0.24%
---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER
EXPENSE LIMITATION)**................... 1.15% 1.35% 1.35% 1.60% 1.60%
==== ==== ==== ==== ====
</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............................ $12 $37 $63 $140
Growth and Income Fund........................ $14 $43 $74 $162
Mid-Cap Equity Fund........................... $14 $43 N/A N/A
International Equity Fund..................... $16 $50 $87 $190
Asia Growth Fund.............................. $16 $50 $87 $190
</TABLE>
- --------------------
* The information set forth in the foregoing table and hypothetical example
relates only to Service Shares of the Funds. Each Fund also offers
Institutional Shares and, except for Mid-Cap Equity Fund, Class A Shares,
which are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are
entitled to different services. Information regarding Institutional and
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. The Investment
Advisers and GSAM have voluntarily agreed to limit their advisory and
administration fees to the following (as a percentage of average daily net
assets): Select Equity Fund--0.44% and 0.15%, International Equity Fund--
7
<PAGE>
0.71% and 0.15% and Asia Growth Fund--0.71% and 0.15%. Without such
limitations, the Funds' advisory and administration fees would be: Select
Equity Fund--0.50% and 0.25%, International Equity Fund--0.75% and 0.25% and
Asia Growth Fund--0.75% and 0.25%. The Investment Advisers 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 and fees under service,
distribution and authorized dealer service plans, taxes, interest and
brokerage and litigation, indemnification and other extraordinary expenses)
to 0.06%, 0.11%, 0.06%, 0.24% and 0.24%, respectively, of the Select Equity,
Growth and Income, Mid-Cap Equity, International Equity and Asia Growth
Funds' average daily net assets. The Investment Advisers and GSAM have no
current intention of modifying or discontinuing such limitations but may do
so in the future at their discretion. With regard to the Select Equity,
International Equity and Asia Growth Funds, Goldman Sachs has voluntarily
agreed to waive the transfer agency fees. If the Investment Advisers,
Goldman Sachs and GSAM did not agree to limit certain "Other Expenses" of
each Fund and to limit the fees of the Select Equity, International Equity
and Asia Growth Funds as described above, the "Other Expenses" and "Total
Operating Expenses" of the Service Shares of the Funds would be as follows:
Select Equity Fund--0.27% and 1.52%; Growth and Income Fund--0.15% and
1.35%; Mid-Cap Equity Fund--0.32% and 1.57%; International Equity Fund--
0.38% and 1.88% and Asia Growth Fund--0.39% and 1.89%, respectively. The
annual "Management Fees," "Other Expenses," and "Total Operating Expenses"
incurred by the Class A Shares of the following Funds during the fiscal year
ended January 31, 1995 (expressed as a percentage of average daily net
assets after fee adjustments) were: Select Equity Fund--0.75%, 0.38% and
1.38%, Growth and Income Fund--0.70%, 0.30%, and 1.25%, International Equity
Fund--1.00%, 0.48%, and 1.73% and Asia Growth Fund--1.00%, 0.65% and 1.90%,
respectively.
*** Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Service Shares in connection
with their customer accounts. Due to the service fees, a long-term
shareholder may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the National Association of Securities
Dealers, Inc.'s rules regarding investment companies. See "Additional
Services."
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, Subadviser and Administrator" and
"Additional Services."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OF THE SELECT EQUITY, GROWTH AND INCOME,
INTERNATIONAL EQUITY AND ASIA GROWTH FUNDS AND FOR AN INSTITUTIONAL SHARE OF
THE SELECT EQUITY AND MID-CAP EQUITY FUNDS OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a Class A Share of Select Equity, Growth
and Income, International Equity and Asia Growth Funds 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 the Annual Report to shareholders for the year ended
January 31, 1995. The following data with respect to a Class A Share and
Institutional Share of the Select Equity Fund and a Class A Share of the
Growth and Income, International Equity and Asia Growth Funds outstanding
during the period ended July 31, 1995 has been derived from unaudited
financial statements prepared by the Company. The following data with respect
to an Institutional Share of Mid-Cap Equity Fund outstanding during the period
from August 1, 1995 (commencement of operations) through September 30, 1995
has also been derived from unaudited financial statements prepared by the
Company. This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. These reports also contain performance information and
are available upon request and without charge by writing to one of the
addresses on the inside cover of this Prospectus. Prior to the existence of
Institutional Shares of a Fund any outstanding shares are deemed to be Class A
Shares for purposes of the following data. No Service Shares of the Funds were
outstanding during the periods indicated.
<TABLE>
<CAPTION>
SELECT EQUITY FUND
--------------------------------------------------------------------
FOR THE PERIODS ENDED FOR THE YEAR ENDED FOR THE
JULY 31, JANUARY 31, PERIOD ENDED
------------------------- --------------------------- JANUARY 31,
1995 1995 1995 1994 1993 1992
CLASS A INSTITUTIONAL CLASS A CLASS A CLASS A CLASS A
SHARES SHARES(d) SHARES SHARES SHARES SHARES(e)
------- ------------- ------- ------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 14.61 $ 16.97 $ 15.93 $ 15.46 $ 15.05 $ 14.17
------- ------- ------- ------- -------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income.. 0.11 0.01 0.20 0.17 0.22 0.11
Net realized and
unrealized gain (loss)
on investments, options
and futures............ 3.32 1.08 (0.38) 2.08 0.41 0.88
------- ------- ------- ------- -------- --------
Total income (loss)
from investment
operations............. 3.43 1.09 (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
shareholders........... -- -- (1.14) (1.78) (0.22) (0.11)
------- ------- ------- ------- -------- --------
Net increase (decrease)
in net asset value...... 3.43 1.09 (1.32) 0.47 0.41 0.88
------- ------- ------- ------- -------- --------
Net asset value, end of
period.................. $ 18.04 $ 18.06 $ 14.61 $ 15.93 $ 15.46 $ 15.05
======= ======= ======= ======= ======== ========
Total return(a)......... 23.48%(b) 6.42%(b) (1.10)% 15.12% 4.30% 7.01%(b)
Ratio of net expenses to
average net assets...... 1.28%(c) 0.65%(c) 1.38% 1.42% 1.28% 1.57%(c)
Ratio of net investment
income to average net
assets.................. 1.06%(c) 0.88%(c) 1.33% 0.92% 1.30% 1.24%(c)
Portfolio turnover rate. 27.65%(b) 27.65%(b) 56.18% 87.73% 144.93% 135.02%(c)
Net assets at end of
period ($ in thousands). $94,944 $44,157 $94,968 $92,769 $117,757 $151,142
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets..... 1.56%(c) 0.96%(c) 1.63% 1.67% 1.53% 1.82%(c)
Ratio of net investment
income to average net
assets................. 0.78%(c) 0.57%(c) 1.08% 0.67% 1.05% 0.99%(c)
</TABLE>
- -------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(b) Not annualized.
(c) Annualized.
(d) Institutional shares commenced operations on June 15, 1995.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
9
<PAGE>
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
----------------------------------------------------
FOR THE FOR THE FOR THE
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JULY 31, 1995 JANUARY 31, 1995 JANUARY 31, 1994(e)
CLASS A SHARES CLASS A SHARES CLASS A SHARES
-------------- ---------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value at
beginning of period...... $ 15.80 $ 15.79 $ 14.18
-------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.17 0.20(d) 0.15
Net realized and
unrealized gain on
investments and options. 3.13 0.30(d) 1.68
-------- -------- -------
Total income from
investment operations... 3.30 0.50 1.83
-------- -------- -------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income.................. (0.13) (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............ (0.13) (0.60) (0.22)
-------- -------- -------
Additional paid-in
capital.................. -- 0.11(d) --
Net increase in net asset
value.................... 3.17 0.01 1.61
-------- -------- -------
Net asset value, end of
period................... $ 18.97 $ 15.80 $ 15.79
======== ======== =======
Total return(a).......... 20.91%(b) 3.97% 13.08%(b)
Ratio of net expenses to
average net assets....... 1.22%(c) 1.25% 1.25%(c)
Ratio of net investment
income to average net
assets................... 1.78%(c) 1.28% 1.23%(c)
Portfolio turnover rate.. 48.69%(b) 71.80% 102.23%(b)
Net assets at end of
period ($ in thousands).. $324,036 $193,772 $41,528
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND
EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets...... 1.47%(c) 1.58% 3.24%(c)
Ratio of net investment
income (loss) to average
net assets.............. 1.53%(c) 0.95% (0.76)%(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
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, would have been 3.34%.
(b) Not annualized.
(c) Annualized.
(d) Calculated based on the average shares outstanding methodology.
(e) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
10
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------------
FOR THE
FOR THE FOR THE YEAR ENDED PERIOD ENDED
SIX MONTHS JANUARY 31, JANUARY 31,
ENDED ----------------------------- 1993(d)
JULY 31, 1995 1995 1994 CLASS A
CLASS A SHARES CLASS A SHARES CLASS A SHARES SHARES
-------------- -------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 14.52 $ 18.10 $ 14.35 $ 14.18
-------- -------- -------- -------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income
(loss)................. 0.10 0.06 0.05 (0.01)
Net realized and
unrealized gain (loss)
on investments, options
and futures............ 1.17 (3.04) 4.08 0.29
Net realized and
unrealized gain (loss)
on foreign currency
related transactions... 1.27 (0.01) (0.38) (0.11)
-------- -------- -------- -------
Total income (loss)
from investment
operations............. 2.54 (2.99) 3.75 0.17
-------- -------- -------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.. -- -- -- --
Net realized gain on
investment, option and
futures transactions... -- (0.59) -- --
-------- -------- -------- -------
Total distributions to
shareholders........... -- (0.59) -- --
-------- -------- -------- -------
Net increase (decrease)
in net asset value...... 2.54 (3.58) 3.75 0.17
-------- -------- -------- -------
Net asset value, end of
period.................. $ 17.06 $ 14.52 $ 18.10 $ 14.35
======== ======== ======== =======
Total return(a)......... 17.49%(b) (16.65)% 26.13% 1.23%(b)
Ratio of net expenses to
average net assets...... 1.62%(c) 1.73% 1.76% 1.80%(c)
Ratio of net investment
income (loss) to average
net assets.............. 0.92%(c) 0.40% 0.51% (0.42)%(c)
Portfolio turnover rate. 33.37%(b) 84.54% 60.04 0.00%
Net assets at end of
period ($ in thousands). $266,123 $275,086 $269,091 $66,063
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND
EXPENSE LIMITATIONS:
Ratio of expenses to
average net assets..... 1.87%(c) 1.98% 2.01% 2.58%(c)
Ratio of net investment
income (loss) to
average net assets..... 0.67%(c) 0.15% 0.26% (1.20)%(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if a sales charge were taken into
account.
(b) Not annualized.
(c) Annualized.
(d) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
11
<PAGE>
<TABLE>
<CAPTION>
ASIA GROWTH FUND
-----------------------------------
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED ENDED
JULY 31, 1995 JANUARY 31, 1995(d)
CLASS A SHARES CLASS A SHARES
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period...... $ 13.31 $ 14.18
-------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.14 0.11
Net unrealized gain (loss) on
investments.............................. 2.12 (0.89)
Net realized and unrealized gain on
foreign currency related transactions.... 0.08 0.01
-------- --------
Total gain (loss) from investment
operations............................... 2.34 (0.77)
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................... -- (0.10)
-------- --------
Total distributions to shareholders...... -- (0.10)
-------- --------
Net increase (decrease) in net asset
value..................................... 2.34 (0.87)
-------- --------
Net asset value, end of period............ $ 15.65 $ 13.31
======== ========
Total return(a)........................... 17.58%(b) (5.46)%(b)
Ratio of net expenses to average net
assets.................................... 1.73%(c) 1.90%(c)
Ratio of net investment income to average
net assets................................ 2.02%(c) 1.83%(c)
Portfolio turnover rate................... 62.98%(b) 36.08%(b)
Net assets at end of period ($ in
thousands)................................ $165,789 $124,298
RATIOS ASSUMING NO VOLUNTARY WAIVER OF
DISTRIBUTION FEES AND EXPENSE LIMITATIONS:
Ratio of expenses to average net assets.. 1.98%(c) 2.38%(c)
Ratio of net investment income to average
net assets............................... 1.77%(c) 1.35%(c)
</TABLE>
- ---------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if a sales charge were taken into
account.
(b) Not annualized.
(c) Annualized.
(d) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
12
<PAGE>
<TABLE>
<CAPTION>
MID-CAP
EQUITY FUND
-------------
FOR THE
PERIOD ENDED
SEPTEMBER 30,
1995
INSTITUTIONAL
SHARES(a)
-------------
<S> <C>
Net asset value, beginning of period............................ $ 15.00
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................................... 0.04
Net realized and unrealized gain on investments and options.... 0.30
--------
Total income from investment operations........................ 0.34
--------
Net increase in net asset value................................. 0.34
--------
Net asset value, end of period.................................. $ 15.34
========
Total return(b)................................................. 2.27%(d)
Ratio of net expenses to average net assets..................... 0.85%(c)
Ratio of net investment income to average net assets............ 1.75%(c)
Portfolio turnover rate......................................... 37.84%(d)
Net assets at end of period ($ in thousands).................... $130,509
RATIOS ASSUMING NO EXPENSE LIMITATIONS:
Ratio of expenses to average net assets........................ 1.04%(c)
Ratio of net investment income to average net assets........... 1.56%(c)
</TABLE>
- ---------------------
(a) For the period from August 1, 1995 (commencement of operations) to
September 30, 1995.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
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 Advisers utilize 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."
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 those of 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
14
<PAGE>
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 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.
GROWTH AND INCOME FUND
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
15
<PAGE>
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.
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. 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, 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.
INTERNATIONAL EQUITY FUND
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 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
16
<PAGE>
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.
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
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 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.
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
17
<PAGE>
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
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
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
18
<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 each Fund, other
than Select Equity Fund, may also invest in European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign is-
suers (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 domes-
tic banks. EDRs and GDRs are receipts evidencing an arrangement with a non-
U.S. bank. EDRs
19
<PAGE>
and GDRs are not necessarily quoted in the same currency as the underlying se-
curity. 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 Re-
ceipts (unsponsored Depository Receipts), there may be an increased possibil-
ity that the Fund would not become aware of and be able to respond to corpo-
rate 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 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 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 Growth and Income
and Mid-Cap Equity Funds may invest up to 25% of their total assets in securi-
ties of issuers in countries with emerging economies or securities markets.
These emerging markets are generally located in the Asia-Pacific region, East-
ern Europe, Latin and South America and Africa. A Fund's purchase and sale of
portfolio securities in certain emerging markets may be constrained by limita-
tions as to daily changes in the prices of listed securities, periodic trading
or settlement volume and/or limitations on aggregate holdings of foreign in-
vestors. Such limitations may be computed based on the aggregate trading vol-
ume by or holdings of the 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.
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
20
<PAGE>
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 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 in-
vestment 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 for-
eign 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 Eq-
uity 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 In-
ternational Equity or Asia Growth Fund enters 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
21
<PAGE>
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency con-
trols or political developments in the U.S. or abroad. 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 suscepti-
ble 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, offer
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. Each Fund (other than Select Equity 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 Interna-
tional 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 pat-
tern of correlation between the two currencies. As with other kinds of option
transactions, however, the writing of an option on
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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 curren-
cies at disadvantageous exchange rates, thereby incurring losses. The purchase
of an option on foreign currency may constitute an effective hedge against ex-
change rate fluctuations; however, in the event of exchange rate movements ad-
verse to a Fund's position, the Fund may forfeit the entire amount of the pre-
mium 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 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 the
Funds may invest are not fixed and may fluctuate based upon changes in market
rates of interest.
RATING CRITERIA. The debt securities in which the Growth and Income, Mid-Cap
Equity, 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 Standard & Poor's
Ratings Group ("Standard & Poor's) or Baa or higher by Moody's Investors
Service, Inc. ("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 Growth
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and Income Fund may invest up to 10% of its total assets in debt securities
which are unrated or rated in the lowest rating categories by Standard &
Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by
Moody's), including securities rated D by Moody's or Standard & Poor's. Mid-
Cap Equity Fund may invest up to 10% of its total assets in below investment
grade debt securities rated B or higher by Standard & Poor's or B or higher by
Moody's. 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 a 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 or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. 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 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 & 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 & 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 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 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. 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.
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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 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.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the Select Equity Fund) may purchase put and call op-
tions and write (sell) covered 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. A Fund will purchase and write such options that are listed on na-
tional or foreign securities exchanges or traded in the over-the-counter mar-
ket. 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 In-
vestment Adviser's ability 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 de-
termination 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.
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 future 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 en-
gage 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 Growth and Income, Mid-Cap Eq-
uity and Select Equity Funds in futures on foreign currencies) to seek to in-
crease 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 transac-
tions, if immediately thereafter the sum of the amount of initial margin de-
posits and premiums
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<PAGE>
paid on the Fund's outstanding positions in futures and related options en-
tered 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 bro-
kerage costs, require margin deposits and, in the case of contracts and op-
tions 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 Future
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 op-
tions 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 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 con-
tract 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 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
The International Equity and Asia Growth Funds may enter into currency swaps
for both hedging purposes and 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.
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 entire amount of
the payment stream payable by a Fund under a currency swap 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.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party thereto is
considered to be investment grade by the Investment Adviser.
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<PAGE>
The use of currency swaps 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 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 Securities and Exchange Commission ("SEC")
currently takes the position that swaps 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,
swaps and currency forward contracts involve certain risks, including a possi-
ble lack of correlation between changes in the value of hedging instruments
and the portfolio assets being hedged, the potential illiquidity of the mar-
kets for derivative instruments, the risks arising from the margin require-
ments and related leverage factors associated with such transactions. The use
of these management techniques to seek to increase total return may be re-
garded as a speculative practice, and involves the risk of loss if the Invest-
ment 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 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 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 securi-
ties 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 commit-
ments 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 Se-
curities Act of 1933, as amended ("1933 Act"), including
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<PAGE>
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, swaps, 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, un-
less it is determined, based upon the continuing review of the trading markets
for the specific restricted security, that such restricted security is eligi-
ble for sale under Rule 144A and, therefore, is liquid. The Board of Directors
has adopted guidelines and delegated to the Investment Adviser the daily func-
tion 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 respon-
sible 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 be-
come 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 an Investment Adviser or any of its affiliates serves as in-
vestment 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 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 Ad-
viser.
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. The International Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government securi-
ties. 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 ap-
proved certain sellers whom they believe to be creditworthy and have autho-
rized the Funds to enter into repurchase agreements with such sellers. In ad-
dition, each Fund, together with other registered investment companies
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<PAGE>
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 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
Each Fund (other than the Select Equity Fund) may make short sales of secu-
rities 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 securi-
ties convertible into or exchangeable, without payment of any further consid-
eration, for an equal amount of the securities of the same issuer as the secu-
rities 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 posi-
tion 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 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 & 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.
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<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 (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. 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 In-
vestment 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 gen-
eral policy and reviewing the actions of the Investment Advisers, subadviser,
administrator, distributor and transfer agent. The officers of the Company
conduct and supervise the Funds' 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. GSAM, a separate operating division of
Goldman Sachs, serves as the investment adviser to the Mid-Cap Equity, Growth
and Income and International Equity Funds. Goldman Sachs registered as an in-
vestment adviser in 1981. GSFM, a Delaware limited partnership which is an af-
filiate of Goldman Sachs, serves as the investment adviser to the Select Eq-
uity Fund. GSFM registered as an investment adviser in 1990. GSAMI, an affili-
ate of Goldman Sachs, serves as the investment adviser to the Asia Growth Fund
and subadviser to the International Equity Fund. GSAMI is regulated by the In-
vestment Management Regulatory Organisation Limited and registered as an in-
vestment adviser in 1991. GSAM serves as administrator to each Fund. As of De-
cember 31, 1995, GSAM, GSFM and GSAMI, together with their affiliates, acted
as investment adviser, administrator or distributor for assets in excess of
$55 billion.
Under an Investment Advisory Agreement with each Fund, the applicable In-
vestment 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
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<PAGE>
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 Asian 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 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 man-
agement services. Prior to joining the Investment Adviser in 1989, Mr. Jones
was the senior quantitative analyst in Goldman Sachs' Investment Research De-
partment and the author of the monthly Stock Selection publication.
The Growth and Income and Mid-Cap Equity Fund's portfolio managers are
Mitchell E. Cantor and Ronald E. Gutfleish. 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.
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)
Ltd. 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 Growth and Income, Mid-Cap Equity and International Equity Funds, computed
daily and payable monthly, at the annual rates of 0.55%, 0.60% and 0.25%,
respectively, of average daily net assets; however, GSAM is currently only
imposing its advisory fee with respect to the International Equity Fund at the
annual rate of 0.23% of
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<PAGE>
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, GSFM is entitled to a fee from
the Select Equity Fund, computed daily and payable monthly, at the annual rate
of 0.50% 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
0.44% 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; however, GSAMI is
currently only imposing its advisory and subadvisory fees with respect to the
Asia Growth and International Equity Funds at the annual rate of 0.71% and
0.48%, respectively, of average daily net assets. GSAMI may discontinue or
modify such limitation in the future at its discretion, although it has no
current intention to do so.
For the fiscal period ended January 31, 1995, each Fund (other than the Mid-
Cap Equity Fund), paid fees at the foregoing rates, except that the Select
Equity, International Equity and Asia Growth Funds paid advisory fees equal to
0.50%, 0.25%, and 0.75%, respectively, of their average daily net assets. For
the fiscal period ended January 31, 1995 the International Equity Fund paid
subadvisory fees equal to 0.50%. The advisory fee paid by the 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 Select Equity, Growth
and Income, Mid-Cap Equity, International Equity and Asia Growth Funds has
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding transfer agency fees, advisory and administration fees and fees
under service, 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%, 0.11%, 0.06%, 0.24% and
0.24% 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.
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 the Growth and Income and Mid-Cap Equity Funds,
computed daily and payable monthly, at an annual rate equal to 0.15% of each
Fund's average daily net assets. 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 im-
posing its administration fee with respect to Select Equity, International Eq-
uity and Asia Growth Funds 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
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<PAGE>
period ended January 31, 1995, each Fund (other than Growth and Income Fund,
which paid GSAM an administration fee equal to 0.15% of its average daily net
assets, and Mid-Cap Equity Fund which had not commenced operations) 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 limita-
tions imposed by state securities administrators. See "Management--Expenses"
in the Additional Statement.
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 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, serves as the exclusive
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. Shareholders of rec-
ord 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 each Fund is calculated by the Fund's cus-
todian 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.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Growth and Income Fund may publish its yield for a particular class of its
shares in advertisements and communications to
33
<PAGE>
shareholders or prospective investors. Average annual total return is deter-
mined by computing the average annual percentage change in value of $1,000 in-
vested at the maximum public offering price for the relevant class for speci-
fied periods ending with the most recent calendar quarter, assuming reinvest-
ment 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 are
based on the 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 indi-
ces.
The Growth and Income Fund computes its 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 Growth and Income Fund's 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 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 their 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 2,000,000,000 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. The Select Equity,
Growth and Income, International Equity and Asia Growth Funds offer three
classes of shares: Institutional Shares, Service Shares and Class A Shares.
The Mid-Cap Equity Fund offers two classes of shares: Institutional Shares and
Service 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
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.
34
<PAGE>
As of January 23, 1996, 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 28% of Select Equity Fund's
outstanding shares.
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
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, 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. Each Fund has
elected or intends to elect to be treated as a regulated investment company
and intends to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, each Fund must satisfy certain
requirements relating to the sources of its income, diversification of its as-
sets and distribution of its income to shareholders. As a regulated 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 requirements 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. 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
35
<PAGE>
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 pur-
poses.
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.
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 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 distribution to sharehold-
ers.
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 pos-
sibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from in-
terest 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 re-
quirements are satisfied. For a further discussion of certain tax consequences
of investing in shares of the Funds, see "Taxation" in the Additional State-
ment. Shareholders are urged to consult their own tax advisers regarding spe-
cific questions as to federal, state and local taxes as well as to any foreign
taxes.
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.
36
<PAGE>
ADDITIONAL SERVICES
The Company, on behalf of each Fund, has adopted a Service Plan with respect
to the Service Shares which authorizes each Fund to compensate Service Organi-
zations for providing administration services and personal and account mainte-
nance 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 purchase Service Shares on behalf of their customers
("Service Agreements"). The Service Agreements will provide for compensation
to the Service Organizations in an amount up to 0.50% (on an annualized basis)
of the average daily net assets of the Service Shares of a Fund attributable
to or held in the name of the Service Organization for its customers; provid-
ed, however, that the fee paid for personal and account maintenance services
shall not exceed 0.25% of such average daily net assets. 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 Service Shares for cus-
tomers, responding to inquiries from prospective and existing shareholders and
assisting customers with investment procedures.
Holders of Service Shares of a Fund will bear all expenses and fees paid to
Service Organizations for their services with respect to such Shares as well
as any other expenses which are directly attributable to such Shares.
Service Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of Service Shares in connection
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 in-
quiries of beneficial owners of Service Shares should be directed to such own-
ers' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of a Fund will receive an annual report con-
taining audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion 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 gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the elec-
tion of each shareholder, be paid (i) in cash or (ii) in additional Service
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
37
<PAGE>
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 Service Shares of the applicable Fund. If
cash dividends are elected with respect to a Fund's net investment income div-
idends 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 Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service 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. The Growth
and Income Fund 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 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 SERVICE SHARES
It is expected that all direct purchasers of Service Shares of the Funds
will be Service Organizations or their nominees. Customers of Service Organi-
zations may invest in Service Shares only through Service Organizations. Serv-
ice Shares of a Fund may be purchased by a Service Organization 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 the close of regular trading on the New York Stock Exchange (cur-
rently 4:00 p.m. New York time), an order is received 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."
PURCHASE PROCEDURES
Purchases of Service 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
State Street Bank and Trust Company ("State Street") or initiating an ACH
transfer. Purchases may also be made by a Service Organization by check (ex-
cept that a check drawn on a foreign bank will not be accepted) or Federal Re-
serve draft made payable to "Goldman Sachs Equity Portfolios, Inc.--(Name of
Fund)" and should be directed to "Goldman Sachs Equity Portfolios, Inc.--(Name
of Fund)", c/o National Financial Data
38
<PAGE>
Services, Inc. (" NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711. Payment
must be received within three Business Days of receipt of the purchase order
by a 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 "Re-
demption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street or Goldman
Sachs. In order to facilitate timely transmittal, the Service Organizations
have established times by which purchase orders and payments must be received
by them.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum required account balance. 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 reserves the right to redeem Service Shares of any Service Organi-
zation whose account balance is less than $50 as a result of earlier redemp-
tions. Such redemptions will not be implemented if the value of such share-
holder'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 Service Organizations whose Service Shares are being redeemed to allow them
to purchase sufficient additional Service 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 Service Shares by a
particular purchaser or group of related purchasers, for example, when a pat-
tern of frequent purchases and sales or exchanges of Service Shares of a Fund
is evident, or if the purchase and sale or exchange orders are, or a subse-
quent abrupt redemption might be, of a size that would disrupt management of
the Fund.
EXCHANGE PRIVILEGE
Service Shares of each Fund may be exchanged by a Service Organization for
(i) Service 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 determined either by writing to Goldman Sachs, Attention: Goldman
Sachs Equity Portfolios, Inc.-- [Name of 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, policies and applicable
39
<PAGE>
fees before making an exchange. Under the telephone exchange privilege, Serv-
ice 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 "Redemptions of Service 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 Service Shares" to confirm that such in-
structions 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 Service Shares,
or units received in the exchange. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be modified or
withdrawn at any time on sixty (60) days' written notice to Service Sharehold-
ers and is subject to certain limitations. See "Purchase of Service Shares."
REDEMPTION OF SERVICE SHARES
Each Fund will redeem its Service Shares upon request of the recordholder of
such Shares 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 Service 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
Service 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 tele-
phone number set forth on the inside front cover of this Prospectus.
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
genuine. Among other things, any redemption request in excess of a certain
minimum 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
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 implemented,
the Company may be liable 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 telephone.
Each Fund will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares or if the recordholder so
elects in writing, by check. Redemption proceeds paid by wire transfer of
Federal Funds will normally be wired on the next Business Day in
40
<PAGE>
Federal Funds (for a total one-day delay), but may be paid up to three (3)
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 ordinarily be
wired. Once wire transfer instructions have been given by Goldman Sachs,
neither a Fund, the Company nor Goldman Sachs assumes any further
responsibility for the performance of intermediaries 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 proceeds paid by check, a check for
the redemption proceeds will normally be mailed to the address of record
within 3 Business Days of receipt of a properly 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
request 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 Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
Except with respect to Service Organizations whose account balances are less
than $50, Service 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.
---------------------
41
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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>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... 3
Financial Highlights....................................................... 9
Investment Objectives and Policies......................................... 14
Special Investment Methods and Risk Factors................................ 18
Investment Restrictions.................................................... 30
Portfolio Turnover......................................................... 30
Management................................................................. 30
Net Asset Value............................................................ 33
Performance Information.................................................... 33
Shares of the Company...................................................... 34
Taxation................................................................... 35
Additional Information..................................................... 36
Additional Services........................................................ 37
Reports to Shareholders.................................................... 37
Dividends.................................................................. 37
Purchase of Service Shares................................................. 38
Exchange Privilege......................................................... 39
Redemption of Service Shares............................................... 40
</TABLE>
EQ1SS/2K/0296
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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
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<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
INSTITUTIONAL SHARES
(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 Prospectus for the Institutional Shares of Goldman Sachs Select Equity Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid-Cap Equity Fund, Goldman
Sachs International Equity Fund and Goldman Sachs Asia Growth Fund, dated
February 1, 1996, as amended and/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
<S> <C>
Page
======================================
Introduction.......................... B-3
Investment Policies................... B-4
Investment Restrictions............... B-22
Management............................ B-31
Portfolio Transactions and Brokerage.. B-42
Net Asset Value....................... B-45
Performance Information............... B-46
Taxation.............................. B-56
Financial Statements.................. B-62
Shares of the Company................. B-63
Other Information..................... B-64
Appendix A:........................... 1-A
Appendix B:........................... 1-B
Appendix C:........................... 1-C
</TABLE>
The date of this Additional Statement is February 1, 1996.
<PAGE>
GOLDMAN, SACHS & CO. GOLDMAN SACHS FUNDS
Distributor MANAGEMENT, L.P.
85 Broad Street 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
Transfer Agent
4900 Sears Tower GOLDMAN SACHS ASSET MANAGEMENT
Chicago, Illinois 60606 Administrator to all Funds and
Investment Adviser to Goldman
GOLDMAN SACHS ASSET Sachs Growth and Income Fund,
MANAGEMENT INTERNATIONAL Goldman Sachs Mid-Cap Equity Fund,
Investment Adviser to Goldman Sachs and Goldman Sachs International
Asia Growth Fund and Subadviser to Equity Fund
Goldman Sachs International Equity Fund One New York Plaza
140 Fleet Street New York, New York 10004
London, England EC4A 2BJ
TOLL FREE (IN U.S.).......800-621-2550
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
SERVICE SHARES
(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
Prospectus for the Service Shares of Goldman Sachs Select Equity Fund, Goldman
Sachs Growth and Income Fund, Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs
International Equity Fund and Goldman Sachs Asia Growth Fund, dated February 1,
1996, as amended and/or supplemented from time to time (the "Prospectus"), which
may be obtained without charge from institutions ("Service Organizations") that
hold Service Shares for the benefit of their customers, 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-3
Investment Policies................... B-4
Investment Restrictions............... B-22
Management............................ B-31
Portfolio Transactions and Brokerage.. B-42
Net Asset Value....................... B-45
Taxation.............................. B-46
Performance Information............... B-56
Financial Statements.................. B-62
Shares of the Company................. B-63
Other Information..................... B-64
Service Plan.......................... B-66
Appendix A:........................... 1-A
Appendix B:........................... 1-B
Appendix C:........................... 1-C
</TABLE>
The date of this Additional Statement is February 1, 1996.
<PAGE>
GOLDMAN, SACHS & CO. GOLDMAN SACHS FUNDS
Distributor MANAGEMENT, L.P.
85 Broad Street 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
Transfer Agent
4900 Sears Tower GOLDMAN SACHS ASSET MANAGEMENT
Chicago, Illinois 60606 Administrator to all Funds and
Investment Adviser to Goldman
GOLDMAN SACHS ASSET Sachs Growth and Income Fund,
MANAGEMENT INTERNATIONAL Goldman Sachs Mid-Cap Equity Fund,
Investment Adviser to Goldman Sachs and Goldman Sachs International
Asia Growth Fund and Subadviser to Equity Fund
Goldman Sachs International Equity Fund One New York Plaza
140 Fleet Street New York, New York 10004
London, England EC4A 2BJ
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"), Goldman Sachs
Growth and Income Fund ("Growth and Income Fund"), Goldman Sachs Mid-Cap Equity
Fund ("Mid-Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth
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 three
additional series, and additional series may be added in the future from time to
time. Select Equity Fund, Growth and Income Fund, International Fund and Asia
Growth Fund currently offer three classes of shares: Institutional Shares,
Service Shares and Class A Shares. Mid-Cap Equity Fund currently offers two
classes of shares: Institutional Shares and Service 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 Growth and Income Fund, Mid-
Cap Equity 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 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. 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.
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 Objectives 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.
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
B-4
<PAGE>
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. See
"Taxation."
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of 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. 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
B-5
<PAGE>
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.
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 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
B-6
<PAGE>
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 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 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 bonds 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 the Growth and Income and Mid-Cap Equity Funds 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 Advisers 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 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 the Growth and
Income and Mid-Cap Equity Funds may invest, the yields and prices of such
securities may tend to fluctuate more than those for higher rated securities.
In the lower quality segments of the fixed-income securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the fixed-
income securities market resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from
such securities but will be reflected in a Fund's net asset value.
B-7
<PAGE>
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Investment 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 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
- ------------------
Each 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, 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
B-8
<PAGE>
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.
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 upon
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 (except
with respect to transactions by Growth and Income, Mid-Cap Equity and Select
Equity Funds in futures on foreign currencies) 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, through the sale of futures contracts, 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, 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
the Fund has acquired or expects to acquire.
B-9
<PAGE>
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 each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish 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 (with the exception of 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 particular 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 Investment Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Investment Advisers will attempt to estimate the extent of this
volatility difference based on historical patterns and compensate for any such
differential by having a Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting 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 a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract (if the option is exercised), which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, a Fund
becomes obligated to purchase a futures contract (upon exercise of the option)
which may have a value lower than the exercise price. Thus, the loss incurred
by a Fund in writing options on futures is
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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 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
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 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 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.
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Perfect correlation between a Fund's futures positions and portfolio
positions may 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.
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 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 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 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 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.
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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 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 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 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 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
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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 "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 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 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. No 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")
- ---------------------------------------
Growth and Income Fund and 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 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
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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 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 Investment 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 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 are generally 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.
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<PAGE>
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when 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 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 (except for 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. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (other than Select 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 a Fund's investments
in those countries and the availability to such 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 such 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
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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. The Growth and Income and
Mid-Cap Equity Funds 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 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.
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 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 a Fund's portfolio securities quoted or denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
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
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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 or 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 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. Each Fund (other
than Select Equity Fund) may write (sell) 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 such 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 such 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
B-18
<PAGE>
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 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." 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.
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 such 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 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
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.
B-19
<PAGE>
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 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, 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
B-20
<PAGE>
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 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 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 a
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to a Fund together with the repurchase price on repurchase. In
either case, the income to a Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and, generally, for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security.
For other purposes, it is not 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
B-21
<PAGE>
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 Investment
Adviser seeks 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 Investment Advisers or their affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
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 Objectives 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:
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.
B-22
<PAGE>
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 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 SEC 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
B-23
<PAGE>
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.
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 Select Equity 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-backed securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
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.
B-24
<PAGE>
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, 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 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
B-25
<PAGE>
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.
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 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.
B-26
<PAGE>
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, 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.
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.
B-27
<PAGE>
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.
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.
(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).
B-28
<PAGE>
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).
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
B-29
<PAGE>
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 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 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
B-30
<PAGE>
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.
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.
<TABLE>
<CAPTION>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
<C> <S>
Paul C. Nagel, Jr. 73; Chairman; Retired. Director and Chairman of the
19223 Riverside Dr. Finance and Audit Committees, Great Atlantic & Pacific
Tequesta, FL 33469 Tea Co., Inc.: Director, United Conveyor Construction.
Ashok N. Bakhru 53; Director; President, ABN Associates, Inc. since June
1235 Westlakes Drive 1994. Retired, Senior Vice President of Scott Paper
Suite 385 Director of Arkwright Mutual Insurance Company; Trustee of
Berwyn, PA 19312 International House of Philadelphia; Member of Cornell
University Council; Trustee of the Walnut Street Theatre.
*Marcia L. Beck 40; President and Director; Director Mutual Funds Group,
One New York Plaza GSAM (since September 1992); Vice President and Senior
New York, NY 10004 Portfolio Manager, (GSAM from June 1988 to present).
*David B. Ford 50; Director; General Partner, Goldman Sachs, since 1986.
One New Plaza Chairman and Chief Executive Officer of GSAM since
New York, NY 10004 December, 1994.
*Alan A. Shuch 46; Director; Director and Vice President of Goldman Sachs
One New York Plaza Fund Management, Inc. (from April 1990 to November 1994);
New York, NY 1004 President and Chief Operating Officer, GSAM (from September
1988 to November 1994); Limited Partner, Goldman Sachs
(since December 1994).
</TABLE>
B-31
<PAGE>
<TABLE>
<CAPTION>
Name and Age; Positions with Company; Principal
Address Occupation(s) During Past 5 Years
======== ======================================
<C> <S>
Jackson W. Smart 65; Director; Chairman and Chief Executive Officer, MSP
One Northfield Plaza Communications Inc. (a company engaged in radio
Suite #218 broadcasting) (since November 1988); Director, Federal
North Northfield, IL Express Corporation; Director, American Private Equity
60093 Group (a venture capital fund).
William H. Springer 66; Director; Vice Chairman of Ameritech (a
701 Morningside Dr. telecommunications holding company; (February 1987 to
Lake Forest, IL retirement in August 1992); Vice Chairman, Chief
60045 Financial and Administrative Officer, Ameritech (prior
thereto); Director, American Information Technologies
corporation; DirectorWalgreen Co. (a retail drugstore
business); Director of Baker, Fentress & Co. (a closed-
ended, non-diversified management investment company).
Richard P. Strubel 56; Director; Managing Director, Tandem Partners, Inc.
70 West Madison St. (since 1990); President and Chief Executive Officer,
Suite 1400 Microdot, Inc. (a diversified manufacturer of fastening
Chicago, IL 60602 systems and connectors) (January 1984 to October 1994).
*Scott M. Gilman 36; Treasurer; Director, Mutual Funds Administration,
One New York Plaza GSAM (since April 1994); Assistant Treasurer of Goldman
New York, NY 10004 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 49; Vice President; Vice President of Goldman Sachs
4900 Sears Tower (since June 1992); Consultant (1989 to June 1992)
Chicago, IL 60606
*John W. Mosior 57; Vice President; Vice President, Goldman Sachs, and
4900 Sears Tower Manager of Shareholder Services for GSAM Funds Group.
Chicago, IL 60606
*Nancy L. Mucker 46; Vice President; Vice President, Goldman Sachs, and
4900 Sears Tower Manager of Shareholder Services for GSAM Funds Group.
Chicago, IL 60606
*Michael J. Richman 35; Secretary; Vice President and Assistant General
85 Broad Street Counsel of Goldman Sachs (since June 1992); Associate
New York, NY 10004 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).
</TABLE>
B-32
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================
<C> <S>
*Howard B. Surloff 30; Assistant Secretary; Counsel and Vice President,
85 Broad Street Goldman Sachs (since November 1993 and May 1994,
New York, NY 10004 respectively); Counsel to the Funds Group of GSAM (since
November 1993); Associate of Shereff Friedman, Hoffman
& Goodman (prior thereto).
*Steven E. Hartstein 32; Assistant Secretary; Legal Products Analyst, Goldman
85 Broad Street Sachs (June 1993 to present); Funds Compliance Officer,
New York, NY 10004 Citibank Global Asset Management (August 1991 to June
1993); Legal Assistant, Brown & Wood (prior thereto).
*Deborah A. Robinson 24; Assistant Secretary; Administrative Assistant, Goldman
85 Broad Street Sachs since January 1994. Formerly at Cleary, Gottlieb,
New York, NY 10004 Steen & Hamilton.
</TABLE>
_____________
* "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 January 22, 1996, 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 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.
B-33
<PAGE>
INVESTMENT ADVISER, SUBADVISER AND ADMINISTRATOR
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 Select Equity Fund.
GSAM, One New York Plaza, New York, New York, a separate operating division of
Goldman Sachs, serves as investment adviser to Growth and Income, Mid-Cap Equity
and International Funds and GSAMI, 140 Fleet Street, London, England, EC4A 2BJ
acts as the investment adviser and subadviser to Asia Growth Fund and
International Fund, respectively. As a company with unlimited liability under
the laws of England, GSAMI is regulated by the Investment Management Regulatory
Organization Limited, a United Kingdom self-regulatory organization, in the
conduct of its investment advisory business. GSAM serves as administrator to
each Fund pursuant to an administration agreement. See "Management" in the
Funds' Prospectus for a description of the applicable Investment 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 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 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.
B-34
<PAGE>
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, 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 Investment
Adviser and GSAM, respectively, may render similar services to others so long as
the services provided by the Investment Adviser and GSAM thereunder are not
impaired thereby.
The investment advisory agreement with respect to Mid-Cap Equity Fund was
approved and each other 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 (April 27, 1995 in the case of Mid-Cap
Equity Fund). These arrangements were most recently approved by the shareholders
of Select Equity Fund, at a shareholder meeting held on November 27, 1991 and
by the sole initial shareholder of each of International Fund, Growth and Income
Fund, Asia Growth Fund and Mid-Cap Equity Fund on October 23, 1992, January 29,
1993, June 1, 1994 and July 28, 1995, 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 agreement for International Fund, Growth and
Income Fund and Mid-Cap Equity Fund, GSAM is entitled to receive a fee payable
monthly by such Funds equal on an annual basis to 0.25%, 0.55% and 0.60%,
respectively, of such Funds' average daily net assets. GSAM voluntarily has
agreed to limit its advisory fee with respect to International Fund to an annual
rate equal to 0.23% of International 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.
Pursuant to the advisory agreement for Select Equity Fund, GSFM is entitled
to receive a fee payable monthly by such 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 0.44%
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. GSAMI voluntarily has agreed
to limit its subadvisory fee with respect to International Fund
B-35
<PAGE>
to an annual rate equal to 0.48% of International Fund's average daily net
assets. Although it has no current intention to do so, GSAMI may modify or
discontinue such limitation in the future at its discretion. 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. GSAMI voluntarily has agreed to limit its
advisory fee with respect to Asia Growth Fund to an annual rate equal to 0.71%
of Asia Growth Fund's average daily net assets. Although it has no current
intention to do so, GSAMI may modify or discontinue such limitation in the
future at its discretion.
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>
Select Equity Fund/1/ $462,255 $475,941 $662,844
Growth and Income Fund/2/ 621,416 100,926 N/A
International Fund/1/ 796,627 331,134 25,607
Asia Growth Fund/1,3/ 414,813 N/A N/A
- ----------------------------
</TABLE>
1 Does not give effect to the agreement (which was not in effect during such
fiscal years) by the Investment Advisers to limit advisory fees to 0.44%,
0.23% and 0.71% of Select Equity Fund's, International Fund's and Asia
Growth Fund's average daily net assets.
2 Commenced operations on February 5, 1993.
3 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 (does not give effect to the subadvisory
agreement (which was not in effect during such fiscal year) by GSAMI to limit
subadvisory fees to 0.48% of the Fund's daily average net assets).
For the period from August 1, 1995 (commencement of operations) through
September 30, 1995, Mid-Cap Equity Fund paid GSAM advisory fees of $129,320.
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 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.
B-36
<PAGE>
GSAM voluntarily has agreed to limit its administration fee with respect to
Select Equity Fund, International Fund and Asia Growth Fund to an annual rate
equal to 0.15% of each 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>
Select Equity Fund/1/ $231,128 $237,970 $331,422
Growth and Income Fund/2/ 169,477 27,525 N/A
International Fund 796,627 331,134 25,607
Asia Growth Fund/3/ 138,271 N/A N/A
</TABLE>
- -----------------------------
1 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSAM to limit Select Equity Fund's, International Fund's
and Asia Growth Fund's administration fee to 0.15% of the Fund's average
daily net assets.
2 Commenced operations on February 5, 1993.
3 Commenced operations on July 8, 1994.
For the period from August 1, 1995 (commencement of operations) through
September 30, 1995, Mid-Cap Equity Fund paid GSAM administration fees of
$32,330.
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.
B-37
<PAGE>
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 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, J. 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.
In addition, certain principals and certain of the employees of the
Investment Advisers are also principals or employees of Goldman Sachs or their
affiliated entities. As a result, the performance by these principals and
employees of their obligations to such other entities may be a consideration of
which investors in the Funds should be aware.
Each Investment Adviser may enter into transactions and invest in
currencies or 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
B-38
<PAGE>
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 a Fund in order to increase the assets
of such 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 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.
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 Service 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
B-39
<PAGE>
particular class are allocated to the shares of such class. Goldman Sachs
voluntarily has agreed not to impose its transfer agency fee with respect to the
Institutional and Service Shares of the Select Equity, International and Asia
Growth Funds. Although it has no current intention to do so, Goldman Sachs may
modify or discontinue such limitation in the future at its discretion.
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.
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 the Investment Advisers, 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,
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
a Fund's shareholders and regulatory authorities, any expenses assumed by a Fund
pursuant to a distribution, authorized dealer service plan or service plan
compensation and expenses of the Company's "non-interested" Directors and
extraordinary expenses, if any, incurred by the Company. The fees under a Fund's
authorized dealer service, distribution and service plans and transfer agency
fees are allocated to the class to which such expenses relate.
Each Investment Adviser has 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 and fees
under service, distribution and authorized dealer service plans, taxes,
interest, brokerage, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.06%, 0.11%, 0.06%, 0.24% and
0.24% per annum of the average daily net assets, respectively, of the Select
Equity, Growth and Income, Mid-Cap Equity, International and Asia Growth Funds.
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.
B-40
<PAGE>
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>
Growth and Income Fund/1/ 106,725 319,899 N/A
International Fund N/A 0 53,775
Asia Growth Fund/2/ 135,905 N/A N/A
</TABLE>
______________________________
/1/ Commenced operations on February 5, 1993.
/2/ Commenced operations on July 8, 1994.
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 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 and service 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.
B-41
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Advisers are responsible for decisions to buy and sell
securities for the Funds, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a 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 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, Investment Advisers
are 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 Advisers generally seek reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. Within the framework of this policy, the
Investment Advisers will consider research and investment services provided by
brokers or dealers who effect or are parties to portfolio transactions of a
Fund, the Investment Advisers and their affiliates, or their other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Investment Advisers in connection with all of their
investment activities, and some of such services obtained in connection with the
execution of transactions for a Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than those of a Fund, and the services furnished by such brokers may be
used by the Investment Advisers 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 or
subadviser), 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 the applicable Investment 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 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 Investment Advisers may use
Goldman Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for each Fund, the commissions, fees or other
remuneration received by Goldman Sachs must be reasonable and fair
B-42
<PAGE>
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.
B-43
<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
- ----------------
Select Equity Fund $ 119,192 $ 0 (0%)/(1)/ $ 99,616,396(0%)/(2)/ -0-
Growth and Income Fund 637,080 77,404(12%)/(1)/ 468,165,610(7%)/(2)/ -0-
International Fund 1,799,525 0(0%)/(1)/ 546,364,113(0%)/(2)/ -0-
Asia Growth Fund/(3)/ 1,002,148 67,754(7%)/(1)/ 171,880,775(2%)/(2)/ -0-
January 31, 1994
- -----------------------------
Select Equity Fund $ 187,041 $ 3,857(2%)/(1)/ $306,043,566(1%)/(2)/ -0-
Growth and Income Fund/(4)/ 2,974,075 274,704(9%)/(1)/ 74,091,306(27%)/(2)/ -0-
International Fund 765,594 -0-(0%)/(1)/ 202,360,486(0%)/(2)/ -0-
January 31, 1993
- -----------------------------
Select Equity Fund $ 466,732 $99,522(21%)/(1)/ $83,349,921(21%)/(2)/ -0-
International Fund/(5)/ 124,560 0(0%)/(1)/ 0(0%)/(2)/ -0-
==================================================================================================
</TABLE>
(1) Percentage of total commissions paid.
(2) Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
(3) Asia Growth Fund commenced operations on July 8, 1994.
(4) Growth and Income Fund commenced operations on February 5, 1993.
(5) International Fund commenced operations on December 1, 1992.
B-44
<PAGE>
During the fiscal year ended January 31, 1995, the Company acquired and
sold securities of its regular broker-dealers: Daiwa Securities, Kidder Peabody
& Co., Lehman Brothers, Chemical Securities, United Bank of Switzerland,Sanwa
Securities, Swiss Bank Corp., JP Morgan & Co., Bankers Trust Company and
NationsBank Corp. As of January 31, 1995, the Company held the following
amounts of securities of its regular broker/dealers, as defined in Rule 10b-1
under the Act, or their parents ($ in thousands): 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.
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 of each class of each Fund is calculated by determining the value of the
net assets attributable to each class of that 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 SEC or its staff.
Portfolio securities of a 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 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 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 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.
B-45
<PAGE>
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 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 Funds' 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
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 Fund or series except where allocations of
direct expenses can otherwise be fairly made.
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 returns 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 (net asset value in the
case of Institutional and Service 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
B-46
<PAGE>
offering price (net asset value in the case of Institutional and Service Shares)
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
tables indicate the total return (capital changes plus reinvestment of all
distributions on a hypothetical investment of $1,000 in the Funds) 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 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, (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 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-47
<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)%
5/24/91* ended $1,000
7/31/95
-Assumes 5.5% sales charge $1,483.30 48.33% 9.86%
-Assumes no sales charge $1,569.17 56.92% 11.35%
8/1/94 one year $1,000
ended
7/31/95
-Assumes 5.5% sales charge $1,174.70 17.47% 17.47%
-Assumes no sales charge $1,243.00 24.30% 24.30%
Select Equity Fund-
Institutional Shares 6/15/95 ended $1,000
7/31/95
-Assumes 5.5% sales charge N/A N/A N/A
-Assumes no sales charge $1,064.23 6.42% N/A
</TABLE>
B-48
<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 2/5/93* ended $1,000
Fund Class A Shares 1/31/95
- -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 $1,000
ended
1/31/95
- -Assumes 5.5% sales charge $982.50 (1.75)% (1.75)%
- -Assumes no sales charge $1,039.70 3.97% 3.97%
2/5/93* ended $1,000
7/31/95
- -Assumes 5.5% sales charge $1,343.34 34.34% 12.61%
- -Assumes no sales charge $1,421.53 42.16% 15.21%
8/1/94 one year $1,000
ended
7/31/95
- -Assumes 5.5% sales charge $1,158.97 15.90% 15.90%
- -Assumes no sales charge $1,226.77 22.68% 22.68%
</TABLE>
B-49
<PAGE>
<TABLE>
<CAPTION>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
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
Class A Shares 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)%
12/1/92* ended $1,000
7/31/95
- -Assumes 5.5% sales charge $1,181.70 18.17% 6.46%
- -Assumes no sales charge $1,250.46 25.05% 8.75%
8/1/94 one year $1,000
ended
7/31/95
- -Assumes 5.5% sales charge $1,016.42 1.64% 1.64%
- -Assumes no sales charge $1,075.58 7.56% 7.56%
</TABLE>
B-50
<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
Class A Shares
- -Assumes 5.5% sales charge $893.40 (10.66)% N/A
- -Assumes no sales charge $945.40 (5.46)% N/A
ended
7/8/94* 7/31/95 $1,000
- -Assumes 5.5% sales charge $1,050.45 5.04% 4.74%
- -Assumes no sales charge $1,111.58 11.16% 10.46%
one year
ended
8/1/94 7/31/95 $1,000
- -Assumes 5.5% sales charge $1,008.11 0.81% 0.81%
- -Assumes no sales charge $1,066.81 6.68% 6.68%
Mid-Cap Equity ended
Fund-Institutional 8/1/95* 9/30/95 $1,000
Shares
- -Assumes 5.5% sales charge N/A N/A N/A
- -Assumes no sales charge $1,022.67 2.27% N/A
</TABLE>
B-51
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<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 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)%
5/24/91* ended $1,000
7/31/95
-Assumes 5.5% sales charge $1,466.88 46.69% 9.57%
-Assumes no sales charge $1,552.80 55.28% 11.07%
8/1/94 one year $1,000
ended
7/31/95
-Assumes 5.5% sales charge $1,171.45 17.14% 17.14%
-Assumes no sales charge $1,213.13 21.31% 21.31%
Select Equity Fund- 6/15/95 ended $1,000
Institutional Shares 7/31/95
-Assumes 5.5% sales charge N/A N/A N/A
-Assumes no sales charge $1,063.84 6.38% N/A
</TABLE>
B-52
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<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 2/5/93* ended $1,000
Fund 1/31/95
- -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 $1,000
ended
1/31/95
- -Assumes 5.5% sales charge $ 978.80 (2.12)% (2.12)%
- -Assumes no sales charge $1,035.90 3.59% 3.59%
2/5/93* ended $1,000
7/31/95
- -Assumes 5.5% sales charge $1,303.94 30.39% 11.27%
- -Assumes no sales charge
$1,349.23 34.92% 12.81%
8/1/94 one year $1,000
ended
7/31/95
- -Assumes 5.5% sales charge $1,156.19 15.62% 15.62%
- -Assumes no sales charge $1,223.82 22.38% 22.38%
</TABLE>
B-53
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<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 $1,000.30 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)%
2/1/92* ended $1,000
7/31/95
- -Assumes 5.5% sales charge $1,173.85 17.38% 6.20%
- -Assumes no sales charge $1,242.17 24.22% 8.48%
8/1/94 one year $1,000
ended
7/31/95
- -Assumes 5.5% sales charge $1,013.89 1.39% 1.39%
- -Assumes no sales charge $1,072.85 7.29% 7.29%
</TABLE>
B-54
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<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
ended
7/8/94* 7/31/95 $1,000
- -Assumes 5.5% sales charge $1,037.93 3.79% 3.55%
- -Assumes no sales charge $1,093.34 9.83% 9.20%
8/1/94 one year $1,000
ended
7/31/95
- -Assumes 5.5% sales charge $996.38 (0.36)% (0.36)%
- -Assumes no sales charge $1,054.39 5.44% 5.44%
Mid-Cap Equity ended
Fund-Institutional 8/1/95* 9/30/95 $1,000
Shares
- -Assumes 5.5% sales charge N/A N/A N/A
- -Assumes no sales charge 1,022.34 2.23% N/A
==================================================================================================
</TABLE>
* Commencement of Operations
B-55
<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.
From time to time, advertisements or information may include a discussion
of asset allocation models developed or recommended by GSAM and/or its
affiliates, certain attributes of or potential benefits to be derived from these
asset allocation strategies and the Goldman Sachs mutual funds that may form
part of such an asset allocation strategy. Such advertisements and information
may also include a discussion of GSAM's economic outlook and domestic and
international market views and recommend periodic tactical modifications to
asset allocation strategies. Such advertisements and information may also
highlight or summarize the services that GSAM and/or its affiliates provide in
support of an asset allocation program.
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.
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. 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 intends 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;
B-56
<PAGE>
(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 such Fund's
total (gross) assets is comprised of cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of such Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than 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 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 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 accordance 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) and at least 90% of the excess of its gross tax-exempt
interest income, if any, over certain disallowed deductions, such Fund (but not
its shareholders) will be relieved of federal income tax on any income of the
Fund, including long-term capital gains, distributed to shareholders. However,
if a Fund retains any investment company taxable income or "net capital gain"
(the excess of net long-term capital gain over net short-term capital loss), it
will be subject to a tax at regular corporate rates on the amount retained. If
the Fund retains any net capital gain, the Fund may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-term
capital gain, their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities. For U.S. federal income tax
purposes, the tax basis of shares owned by a shareholder of the Fund will be
increased by an amount equal under current law to 65% of the amount of
undistributed net capital gain included in the shareholder's gross income. Each
Fund intends to distribute 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
B-57
<PAGE>
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.
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. 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. The Funds anticipate that they will generally make
timely distributions of income and capital gains in compliance with these
requirements so that they will generally not be required to pay the excise tax.
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own 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 applicable 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 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, 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 the applicable Fund's
distributions to shareholders.The short-short test described above may limit a
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. 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 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
B-58
<PAGE>
currency forward contracts, and foreign currency-denominated payables and
receivables will generally be treated as ordinary income or loss, although in
some cases elections may be available that would alter this treatment. If a net
foreign exchange loss treated as ordinary loss under Section 988 of the Code
were to exceed a Fund's investment company taxable income (computed without
regard to such loss) for a taxable year, the resulting loss would not be
deductible by the Fund or its shareholders in future years. Net loss, if any,
from certain 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.
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.
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 certain 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 will consist of stock or securities of foreign
corporations, the applicable Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund would be required to (i)
include in income (in addition to taxable dividends actually received) their pro
rata shares of foreign income taxes paid by the Fund that are treated as income
taxes under U.S. tax regulations (which excludes, for example, stamp taxes,
securities transaction taxes, and similar taxes) even though not actually
received, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the Asia Growth and International Funds make this election, which is not
currently anticipated, 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. federal income taxes. Shareholders who do not
itemize deductions for federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign taxes paid by 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 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.
B-59
<PAGE>
Shareholders who are not liable for U.S. income taxes, including tax-exempt
shareholders, will ordinarily not benefit from this election. Each year, if
any, 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, 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.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
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, 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
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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.
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. 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
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 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 backup 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.
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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. person 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. Non-U.S. shareholders of
Asia Growth Fund or International Fund may also be subject to U.S. withholding
tax on deemed income resulting from any election by such a 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 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.
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.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent Public
Accountants, contained in the 1995 Annual Report of Select Equity , Growth and
Income, International and Asia Growth Funds, the unaudited financial statements
prepared by the Company, contained in the 1995 Semi-Annual Report of Select
Equity, Growth and Income, International and Asia Growth Funds and the unaudited
financial statements prepared by the Company for the period August 1, 1995
(commencement of operations) through September 30, 1995 of Mid-Cap Equity Fund
are incorporated herein by reference into this Additional Statement and attached
hereto.
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SHARES OF THE COMPANY
The Funds are a series of the Company, which is a Maryland corporation
authorized to issue 2,000,000,000 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 name of the Funds are GS Select Equity Fund, GS
Growth and Income 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, five 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 January 29, 1996, the
Directors have classified the following shares of the Funds: Select Equity,
Growth and Income, International and Asia Growth Funds into three classes:
Institutional Shares, Service Shares and Class A Shares and Mid-Cap Equity Fund
into two classes: Institutional Shares and Service Shares. As of January 31,
1995, there were no Institutional or Service Shares of any Fund outstanding.
Each other series of the Company only has Class A Shares outstanding.
Each Institutional Share, Service 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 Service Plans are borne exclusively by Service 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 Service 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 and positions of the Internal Revenue Service. Each class of shares
may have different minimum investment requirements and is entitled to different
shareholder services. Currently, shares of a class may be exchanged only 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 may pay a transfer agency fee equal to a percentage of the
average daily net assets of a Fund attributable to such class.
Service Shares may be purchased at net asset value without a sales charge
for accounts held in the name of an institution that, directly or indirectly,
provides certain account administration services to its customers, including
maintenance of account records and processing orders to purchase, redeem and
exchange Service Shares. Service Shares bear the cost of account administration
fees at the annual rate of up to 0.50% of the average daily net assets of the
Fund attributable to Service Shares. Service Shares
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may pay a transfer agency fee equal to a percentage of the average daily net
assets of a Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution (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 the Select Equity,
International and Asia Growth Funds, Goldman Sachs has agreed not to impose any
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 $7.50 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, Service 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.
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 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,
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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 the 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.
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SERVICE PLANS
Each Fund has adopted a service plan (the "Plan") with respect to its Service
Shares which authorizes it to compensate Service Organizations for providing
certain administration services and personal and account maintenance services to
their customers who are or may become beneficial owners of such Shares.
Pursuant to the Plan, each Fund enters into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund. (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from the Fund, working with the Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, each Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization.
Each Fund has adopted its Plan pursuant to Rule 12b-1 under the Act in order to
avoid any possibility that payments to the Service Organizations pursuant to the
Service Agreements might violate the Act. Rule 12b-1, which was adopted by the
SEC under the Act, regulates the circumstances under which an investment company
or series thereof may bear expenses associated with the distribution of its
shares. In particular, such an investment company or series thereof cannot
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of shares issued by the company unless it has
adopted a plan pursuant to, and complies with the other requirements of, such
Rule. The company believes that fees paid for the services provided in the Plan
and described above are not expenses incurred primarily for effecting the
distribution of Service Shares. However, should such payments be deemed by a
court or the SEC to be distribution expenses, such payments would be duly
authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with a Fund, such Service Organizations might be required to alter
materially or discontinue the services performed under their Service Agreements.
If one or more of the Service Organizations were restricted from effecting
purchases or sales of Service Shares automatically pursuant to pre-authorized
instructions, for example, effecting such transactions on a manual basis might
affect the size and/or growth of a Fund. Any such alteration or discontinuance
of services could require the Board of Directors to consider changing a Fund's
method of operations or providing alternative means of offering Service Shares
of the Fund to customers of such Service Organizations, in which case the
operation of such
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Fund, its size and/or its growth might be significantly altered. It is not
anticipated, however, that any alternation of a Fund's operations would have any
effect on the net asset value per share or result in financial losses to any
shareholder.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of a Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal advisers before
investing fiduciary assets in Service Shares of a Fund. In addition, under
some state securities laws, banks and other financial institutions purchasing
Service Shares on behalf of their customers may be required to register as
dealers.
The 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 January 31, 1996.
Each Plan will be approved by the sole shareholder of Service Shares of each
Fund, on January 31, 1996. The Plans and Service Agreements will remain in
effect until June 30, 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 Service 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 Service Shares of the affected Fund. The Service Agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Board of Directors as described above or by a vote of a majority
of the outstanding Service Shares of the affected Fund on not more than sixty
(60) days' written notice to any other party to the Service Agreements. The
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 Service 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.
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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.
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.
- ---------------
/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.
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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 and B1.
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 regarding 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 predominately 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.
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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.
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>
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-B
<PAGE>
Appendix C
The Company may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks,
small company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different
from, those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices
(i.e., Morgan Stanley Capital International EAFE Index, FT-Actuaries
Europe & Pacific Index and the Standard & Poor's Index of 500 Common
Stocks) over varying periods of time;
. total stock market capitalizations of specific countries and
regions on a global basis;
. performance of securities markets of specific countries and
regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Company may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
1-C
<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>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to have the opportunity to review the performance and discuss
the holdings of the Goldman Sachs Equity Portfolios for the six-month period
ended July 31, 1995. There is good news to report as performance of the U.S.
stock market and selected markets elsewhere in the world improved dramatically
over 1994.
U.S. Market Overview:
Relatively Stable Interest Rates, Strong Earnings and Low Inflation Propelled
Stocks Higher
In marked contrast to 1994, thus far in 1995 the U.S. stock market experienced
one of the most vigorous rallies since the bull market began in 1991. Many
investors returned to the stock market, as interest rates stabilized in the U.S.
after the seventh tightening by the U.S. Federal Reserve Board on February 1 and
then declined. The market set new records each month, with enthusiasm sustained
by strong corporate earnings for many large U.S. companies during the first
quarter of 1995, and healthy earnings growth for the second quarter as well.
Meanwhile, inflation, as measured by the Consumer Price Index (CPI), increased a
small amount to an estimated annualized rate of 3.2% from December through June
compared with 2.6% for 1994.
Earnings growth for the second half of the year is expected to be considerably
more subdued as the economy has slowed markedly during the past few months.
Consensus appears to be that the hoped-for "soft landing" (slower growth with
low inflation) will materialize.
During the first few months of the period under review, larger U.S. companies
outperformed smaller companies, with the technology sector leading the way for
most of the period. Financial service companies and companies that realized
substantial revenues from exports also did well. During the second quarter,
smaller stocks caught up. From February 1 through July 31, the S&P 500 stock
index (with income reinvested), often used as a broad indicator of large U.S.
stocks, rose 21.1%. The Russell 2000 (with income reinvested), a leading
benchmark consisting of smaller U.S. companies, increased 22.6% for the same
period.
Despite Generally Slower Economic Growth, the Fed Remained Neutral Until July
Slower economic growth coupled with relatively contained inflation
characterized the period and fueled a major bond rally that gained momentum in
late April and early May. Key economic indicators showed a relatively sharp
slowdown during much of the period under review, with some signs of growth
emerging in July.
. Real Gross Domestic Product (GDP) increased a relatively modest 2.7% during
the first quarter of 1995 (compared with 5.1% for the fourth quarter of 1994)
and, based on revised estimates, was 1.1% for the second quarter.
. Auto sales were soft, as were orders for durable goods, which fell 4.6% in
April, recovered only 2.7% in May, then declined 2.1% in July.
. Factory output slowed after a significant buildup in inventories and very high
plant capacity utilization during the fourth quarter of 1994.
- --------------------------------------------------------------------------------
Table of Contents
Introduction/Market Overview.............................................. 1
Goldman Sachs Balanced Fund............................................... 4
Goldman Sachs Select Equity Fund.......................................... 10
Goldman Sachs Growth and Income........................................... 15
Goldman Sachs Capital Growth Fund......................................... 19
Goldman Sachs Small Cap Equity Fund....................................... 23
Goldman Sachs International Equity Fund................................... 27
Goldman Sachs Asia Growth Fund............................................ 32
Financial Statements...................................................... 38
Notes to Financial Statements............................................. 46
Financial Highlights...................................................... 53
- --------------------------------------------------------------------------------
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1
<PAGE>
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Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
. Sales and starts of single-family homes declined from January through April,
each reaching its lowest level in two years. Lower interest rates caused the
trend to reverse sharply in May, with sales of new and existing homes rising
approximately 20% and 4.7%, respectively. In July, housing starts rose 6.7%,
their biggest gain in 16 months.
After February 1, the U.S. Federal Reserve remained resolutely neutral until
July 6, when it decreased the Federal Funds rate (the rate banks charge one
another for overnight borrowing) by 25 basis points to 5.75%, in an effort to
stem the economic slowdown. The stock market responded favorably.
Resumption of Growth by Year End Probable
Opinion is divided regarding exactly when the economy will resume its ascent,
with some expecting a turnaround by year end and others believing that some
sectors of the economy have already begun to rebound. The factors that could
contribute to this positive outlook include the recent decrease in short-term
rates by the Fed, the decrease in long-term interest rates that could eventually
strengthen home building and other interest rate-sensitive sectors, the
potential for U.S. export growth to continue and indications that a stimulative
fiscal policy may be adopted based on the continuing discussions in Congress
regarding tax reform.
After Declining to Post-World War II Lows, the Dollar Stabilized
Starting in February 1995, the dollar weakened dramatically, stemming from the
general economic slowdown, the U.S. trade imbalance with Japan and concern
regarding the devaluation of the Mexican peso. From January through April, the
dollar fell approximately 18% against the yen and 12% against the deutsche mark,
hitting postwar lows during that period. In May, the dollar recovered a small
portion of its losses, held its own in June and then rallied 4% against the yen
in July, making the second half of the period under review considerably more
stable than the first. The positive side of the weaker dollar was that it
brought good news for U.S. exports, which were relatively cheap in terms of most
foreign currencies. In mid-August, the central banks of the U.S., Japan and
Germany intervened to support the dollar.
The International Market Environment: A Mixed Picture With a Stronger Finish
for Some Markets
In the first half of 1995, international equity markets started in the
doldrums but, in some cases, ended markedly improved. The Japanese market
declined the most significantly, then rallied briefly in July.
. European stock markets were less volatile during the first half of 1995
compared with a weak ending for 1994. From mid-March forward, a sustained
rally in Europe favored some stock markets more than others. In general, the
European economic recovery has proceeded at a moderate pace, with inflation
low and unemployment remaining high. Political uncertainties, stemming from
such factors as elections in France, the struggle for leadership in Britain
and large budget deficits that spurred fears of inflation in Italy and Sweden,
caused investors to seek what were perceived to be safe havens in deutsche
marks and Swiss francs based on Germany and Switzerland's political and
economic stability.
. In Japan, the economy was hindered by the strong yen that contributed to a
decline in exports. In addition, significant costs and concerns resulting from
the devastating earthquake in Kobe took a heavy toll. Domestic consumption
declined and the trend for Japanese companies to outsource production to less
expensive markets in Southeast Asia increased. During the first half of the
year, the Nikkei 300 declined by approximately 22% amid significant downward
revisions in earnings growth based on the assumption that the yen would remain
strong, then rose 12% in July.
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2
<PAGE>
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. Asian stock markets experienced mixed performance and low volume, despite
stable economic fundamentals in the region. After a violent sell-off in Asia
during January, caused in part by the "spillover" effect of the devaluation of
the Mexican peso and weakness in Latin American markets, February saw most
Asian markets rebound strongly. March and April were mixed followed by another
strong rally in May, which was fueled by foreign capital inflows to the
region. In addition, the positive results of the U.S. equity market encouraged
increased investor interest in the relatively inexpensive markets of Asia.
Profit taking in June affected markets throughout the region, while July
brought lower volatility and positive results.
We are pleased to note that most of The Goldman Sachs Equity Portfolios did
well during this period, due to our emphasis on extensive fundamental research
and successful stock selection by our portfolio managers, as well as the
favorable environment for equities. As in the past, we remind you to take a
long-term point of view with regard to your investments in The Goldman Sachs
Equity Portfolios. While our goal is to deliver consistent performance over
time, equity markets can be volatile and it is unlikely that the second half of
1995 will match the powerful stock market rally that marked the first half of
the year. As always, we appreciate your support and will continue to do our best
to serve your investment needs.
Sincerely,
/s/ David B. Ford
David B. Ford
Chairman, Chief Executive Officer
Goldman Sachs Asset Management
August 31, 1995
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3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
- --------------------------------------------------------------------------------
Objective 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 fixed income securities.
Currently, the fund's "neutral" weighting is expected to be approximately 55%
stocks and 45% bonds. However, the fund'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 and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, our investment approach is to
actively manage the portfolio within a risk-controlled framework. We de-
emphasize interest rate anticipation by monitoring the portfolio's duration to
keep it within a narrow range of a target, and instead focus on seeking to add
value through sector selection, security selection and yield curve strategies.
Performance Review: The Fund's Slight Overweighting in Equities Aids Results
For the six-month period ended July 31, 1995, the Goldman Sachs Balanced Fund
had a total return of 16.96% based on net asset value compared with a return of
16.14% 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 outperformance relative to the benchmark reflects a combination of
its slight overweighting in equities during the period and its successful stock
selection. In the declining interest rate environment, the fixed income portion
of the fund's portfolio also contributed to its positive return.
Portfolio Composition: Successful Stock Selection in Diverse Sectors
As of July 31, the fund's asset mix based on net assets was 58% in equities,
34% in fixed income investments and 14% in cash equivalents.
. Equities: The fund's top-performing stocks during the period included
several well-known names in the defense sector: McDonnell Douglas Corp.,
Northrop Grumman Corp. and Lockheed-Martin. Investors are beginning to recognize
the extent to which these companies can generate and benefit from their
significant cash flows. For example, McDonnell Douglas is using some of its
excess cash for a stock repurchase program and Northrop is expected to begin
paying down some of its debt.
The fund also benefited from its investments in paper stocks including Stone
Container Corp., Georgia-Pacific Corp. and Champion International Corp., all of
which reported stronger earnings than expected. Even as the U.S. economy slows,
demand for paper products is expected to continue to grow and worldwide
production capacity is still somewhat muted.
Brunswick Corp. (marine engines and pleasure boats) and Outboard Marine Corp.
experienced slow early spring sales, which led to stock price declines. Since
we believed that the long-term earnings power of both companies was
underappreciated by the market, we used this as an opportunity to add to our
positions. During the summer, sales at both companies have rebounded and so
have the stocks. Another weak performer, Valassis Communications (a publisher of
inserts and coupons for newspapers), was hurt by the company's announcement that
its return to previous levels of profitability would take longer than expected.
However, we believe opportunities exist for Valassis to improve its margins over
time.
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4
<PAGE>
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Top 10 Equity Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage
of Equity
Company Line of Business Holdings
<S> <C> <C>
McDonnell Douglas Corp. Aerospace/Defense 4.2%
Stone Container Corp. Pulp and Paper Products 4.0%
Ford Motor Co. Automotive Products 3.5%
RJR Nabisco Holdings Corp. Tobacco and Food Products 3.4%
Georgia-Pacific Corp. Paper and Forest Products 3.3%
Chiquita Brands International, Inc. Grocery Products 3.1%
Consolidated Freightways, Inc. Trucking 2.9%
J.C. Penney Co., Inc. Discount Retailing 2.8%
Brunswick Corp. Marine Engines and 2.6%
Pleasure Boats
Philip Morris Cos., Inc. Tobacco and Food Products 2.6%
</TABLE>
. Fixed Income: During the period, the fixed income portion of the portfolio
was gradually diversified. As of July 31, the fund's fixed income investments
included U.S. Treasury securities (27.3%), corporate bonds (20.8%), mortgage-
backed securities (10.7%), asset-backed securities (6.4%), government agency
debt (5.9%) and cash equivalents (28.9%). Despite an increase in prepayment
risk, we like the mortgage sector, which we believe is attractively valued. We
also have a positive view of corporate securities, which we expect to perform
well as the risk of recession declines. We hold asset-backed securities and
government agency debt because they provide attractive yields over Treasuries.
Outlook
If economic growth resumes later in the year and inflation remains low, both
the stock and bond markets should do well. Currently, we favor equities over
bonds and will allocate the portfolio accordingly. However, we will continue to
carefully monitor the fund's asset allocation and make adjustments as economic
and market conditions change. We believe that our extensive 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.
/s/ Mitchell E. Cantor /s/ Ronald E. Gutfleish
Mitchell E. Cantor Ronald E. Gutfleish
Portfolio Managers, Equities
/s/ Jonathan A. Beinner /s/ Theodore T. Sotir
Jonathan A. Beinner Theodore T. Sotir
Portfolio Managers, Fixed Income
August 31, 1995
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5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks--58.0%
Aerospace/Defense--4.4%
3,204 Lockheed Martin Corp. $ 201,452
8,900 McDonnell Douglas Corp. 735,363
5,700 Northrop Grumman Corp. 324,900
1,500 Thiokol Corp. 49,875
- --------------------------------------------------------------------------------
1,311,590
- --------------------------------------------------------------------------------
Auto Parts-Original Equipment--1.4%
5,900 Goodyear Tire & Rubber Co. 255,913
5,800 Lear Seating Corp.* 156,600
- --------------------------------------------------------------------------------
412,513
- --------------------------------------------------------------------------------
Automotive Products--2.6%
20,900 Ford Motor Co. 603,488
3,300 General Motors Corp. 160,875
- --------------------------------------------------------------------------------
764,363
- --------------------------------------------------------------------------------
Bank Holding Companies--1.0%
7,300 Lincoln National Corp. 300,213
- --------------------------------------------------------------------------------
Beverages-Alcoholic--1.3%
7,200 Anheuser Busch Companies, Inc. 400,476
- --------------------------------------------------------------------------------
Building Materials--0.2%
1,000 Armstrong World Industries, Inc. 55,250
- --------------------------------------------------------------------------------
Cable Television Systems--1.2%
13,900 Tele Communications, Inc.* 347,500
- --------------------------------------------------------------------------------
Chemicals-Plastics--1.1%
12,100 Geon Co. 340,313
- --------------------------------------------------------------------------------
Commercial Banks--2.1%
6,100 Nationsbank Corp. 342,363
9,400 Shawmut National Corp. 290,225
- --------------------------------------------------------------------------------
632,588
- --------------------------------------------------------------------------------
Computers--1.9%
6,700 Compaq Computer Corp.* 340,025
3,700 Dell Computer Corp.* 240,500
- --------------------------------------------------------------------------------
580,525
- --------------------------------------------------------------------------------
Containers-Metal and Glass--1.1%
24,500 Owens Illinois Corp.* 339,938
- --------------------------------------------------------------------------------
Discount Retailing--1.6%
10,100 J.C. Penney, Inc.* 488,588
- --------------------------------------------------------------------------------
Electronics--0.9%
5,000 Loral Corp.* 280,000
- --------------------------------------------------------------------------------
Energy--0.9%
11,900 Entergy Corp. 282,625
- --------------------------------------------------------------------------------
Financial Services--0.8%
1,500 North American Mortgage Co. 32,438
5,200 Reliastar Financial Corp. 198,250
- --------------------------------------------------------------------------------
230,688
- --------------------------------------------------------------------------------
Grocery Products--1.8%
37,200 Chiquita Brands International, Inc. 544,050
- --------------------------------------------------------------------------------
Health and Medical Services--2.7%
1,700 U S Healthcare Inc. 53,763
20,400 Tenet Healthcare Corp. 311,100
9,200 Columbia/HCA Healthcare 450,800
- --------------------------------------------------------------------------------
815,663
- --------------------------------------------------------------------------------
Home Builders--1.2%
3,500 Centex Corp. 98,000
13,300 Lennar Corp. 256,025
- --------------------------------------------------------------------------------
354,025
- --------------------------------------------------------------------------------
Insurance--3.9%
13,300 FHP International Corp.* 349,137
12,500 PartnerRe Holdings, Ltd. 315,625
7,400 Travelers Group, Inc. 350,575
3,800 US Life Corp. 158,650
- --------------------------------------------------------------------------------
1,173,987
- --------------------------------------------------------------------------------
Marine and Pleasure Boats--2.4%
22,900 Brunswick Corp. 460,863
12,400 Outboard Marine Corp. 248,000
- --------------------------------------------------------------------------------
708,863
- --------------------------------------------------------------------------------
Miscellaneous--0.7%
7,800 Fleming Companies Inc. 205,725
- --------------------------------------------------------------------------------
Money Center Banks--0.6%
3,100 BankAmerica Corp. 167,400
- --------------------------------------------------------------------------------
</TABLE>
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The accompanying notes are an integral part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks (continued)
Mortgage Banking--0.8%
10,900 Bergen Brunswig Corp. $ 235,713
- --------------------------------------------------------------------------------
Oil & Gas--2.5%
1,600 Chevron Corp.* 79,000
1,400 Texaco, Inc. 93,100
2,000 Atlantic Richfield Co. 230,500
10,700 Tosco Corp. 350,425
- --------------------------------------------------------------------------------
753,025
- --------------------------------------------------------------------------------
Oil & Gas-International--0.3%
1,300 Exxon Corp. 94,250
- --------------------------------------------------------------------------------
Oil-International Integrated--0.8%
1,600 Mobil Corp. 156,400
700 Royal Dutch Petroleum ADR 88,900
- --------------------------------------------------------------------------------
245,300
- --------------------------------------------------------------------------------
Paper and Forest Products--2.9%
5,100 Champion International Corp. 287,513
6,600 Georgia-Pacific Corp. 569,250
- --------------------------------------------------------------------------------
856,763
- --------------------------------------------------------------------------------
Petroleum Refining--0.6%
5,200 Ashland Inc. 178,750
- --------------------------------------------------------------------------------
Publishing--0.6%
12,700 Valassis Communications, Inc. 180,975
- --------------------------------------------------------------------------------
Pulp and Paper Products--2.3%
32,100 Stone Container Corp. 694,163
- --------------------------------------------------------------------------------
Retail--1.1%
9,500 Melville Corp.* 342,000
- --------------------------------------------------------------------------------
Retail-Department Stores--0.3%
2,700 Sears Roebuck & Co. 88,088
- --------------------------------------------------------------------------------
Retail-General Merchandise--0.6%
5,600 Supervalue, Inc. 172,200
- --------------------------------------------------------------------------------
Savings and Loans--1.1%
8,000 GP Financial Corp. 193,000
3,800 Standard Federal Bancorp. 139,175
- --------------------------------------------------------------------------------
332,175
- --------------------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.4%
800 Salomon, Inc.* 29,500
3,800 Lehman Brothers Holdings, Inc. 84,075
- --------------------------------------------------------------------------------
113,575
- --------------------------------------------------------------------------------
Shoes--0.2%
17,900 LA Gear, Inc.* 53,700
- --------------------------------------------------------------------------------
Technology--0.3%
3,700 Storage Technology Corp. 94,813
- --------------------------------------------------------------------------------
Tobacco and Food Products--4.0%
6,300 Philip Morris Companies, Inc. 451,238
7,500 Universal Corp. 161,250
21,700 RJR Nabisco Holdings Corp. 599,463
- --------------------------------------------------------------------------------
1,211,951
- --------------------------------------------------------------------------------
Trucking--1.7%
21,100 Consolidated Freightways, Inc. 503,763
- --------------------------------------------------------------------------------
Utility--1.7%
6,500 CMS Energy Corp. 162,500
21,600 Long Island Lighting Co. 345,600
- --------------------------------------------------------------------------------
508,100
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $15,959,175) $17,396,187
================================================================================
Preferred Stocks--0.1%
Tobacco--0.1%
3,400 RJR Nabisco Holdings Corp.
Convertible Preferred, 6.50% $ 19,975
- --------------------------------------------------------------------------------
Total Preferred Stocks
(Cost $23,870) $ 19,975
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Asset Backed Securities--3.1%
Case Equipment Loan Trust, Series 1995-A, Class A
$162,153 7.30% 03/15/02 $164,141
Ford Credit Grantor Trust, Series 1994-B, Class A
77,714 7.30 10/15/99 78,823
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
================================================================================
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Asset Backed Securities (continued)
General Motors Acceptance Corp. Grantor Trust, Series 1994-A,
Class A
$ 96,973 6.30% 06/15/99 $ 97,099
General Motors Acceptance Corp. Grantor Trust, Series 1995-A,
Class A
187,551 7.15 03/15/00 189,601
Peoples Bank Credit Card Master Trust, Series 1994-1, Class A
140,000 5.10 08/15/97 137,763
Premier Auto Trust, Series 1994-1, Class A3
160,000 4.75 02/02/00 157,429
Standard Credit Card Master Trust, Series 1995-3 Class A
100,000 7.85 02/07/02 104,656
- --------------------------------------------------------------------------------
Total Asset Backed Securities
(Cost $925,049) $ 929,512
================================================================================
Corporate Bonds--10.0%
Finance Bonds--4.7%
Bank America Corp.
$ 200,000 7.75% 07/15/02 $ 207,156
Capital One Bank
200,000 8.13 02/27/98 204,934
Chase Manhattan Corp.
50,000 10.00 06/15/99 55,363
Comdisco Inc.
225,000 9.75 01/15/97 235,523
Continental Bank
100,000 12.50 04/01/01 124,001
Countrywide Funding Corp.
100,000 6.08 07/14/99 97,711
Fleet Mortgage Inc.
175,000 6.50 06/15/00 172,802
Golden West Financial Corp.
200,000 10.25 12/01/00 228,772
Resolution Funding Corp.
280,000 7.33(a) 10/15/20 45,178
300,000 7.32(a) 01/15/21 47,658
- --------------------------------------------------------------------------------
Total Finance Bonds 1,419,098
- --------------------------------------------------------------------------------
Industrial Bonds--5.3%
Auburn Hills Trust
$ 50,000 12.00% 05/01/20 $ 72,519
Blockbuster Entertainment
50,000 6.63 02/15/98 49,558
Cablevision Industries Corp.
60,000 10.75 01/30/02 65,400
Chrysler Financial Corp.
125,000 6.43 07/31/97 125,000
Coastal Corp.
100,000 9.75 08/01/03 113,226
Ford Capital Corp.
175,000 9.38 01/01/98 186,198
General Motors Acceptance Corp.
170,000 7.13 05/10/00 171,851
News America Holdings
150,000 9.13 10/15/99 161,298
Oryx Energy Co.
125,000 9.30 05/01/96 126,551
RJR Nabisco Inc.
50,000 8.63 12/01/02 50,539
35,000 8.00 07/15/01 34,835
Tenneco Inc.
110,000 10.00 08/01/98 119,815
Time Warner Inc.
200,000 7.45 02/01/98 201,178
TKR Cable Inc.
50,000 10.50 10/30/07 56,239
Tosco Corp.
60,000 7.00 07/15/00 59,400
- --------------------------------------------------------------------------------
Total Industrial Bonds 1,593,607
- --------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $3,038,995) $3,012,705
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
===============================================================================
Principal Interest Maturity
Amount Rate Date Value
===============================================================================
<S> <C> <C> <C>
Government Agency Obligations--1.1%
Federal Home Loan Bank
$ 50,000 8.59% 01/11/00 $ 50,261
Federal Home Loan Mortgage Corp.
20,000 8.20 01/16/98 20,521
Federal National Mortgage Association
40,000 5.40 12/30/98 38,684
30,000 5.62 02/23/98 29,442
Government Backed Trust (Turkey)
199,752 9.40 11/15/96 203,685
- -------------------------------------------------------------------------------
Total Government Agency Obligations
(Cost $346,034) $ 342,593
===============================================================================
Mortgage Backed Obligations--6.9%
Federal Home Loan Mortgage Corp.
$ 350,000 7.00% TBA-30 year(b) $ 341,018
500,000 8.00 TBA-30 year(b) 507,618
Government National Mortgage Association
1,000,000 8.00 TBA-30 year(b) 1,021,875
199,278 7.00 09/15/23 194,732
- -------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $2,076,307) $2,065,243
===============================================================================
U.S. Treasury Obligations--13.2%
United States Treasury Bonds
$ 30,000 8.00% 11/15/21 $ 33,802
United States Treasury Interest-Only Stripped Securities
140,000 7.22(a) 05/15/20 24,130
United States Treasury Notes
1,326,000 6.25 02/15/03 1,313,562
510,000 6.50 05/15/97 515,340
60,000 5.88 05/31/96 60,056
900,000 7.50 10/31/99 943,596
280,000 7.38 11/15/97 288,224
United States Treasury Principal-Only Stripped Securities
830,000 6.48(a) 11/15/04 452,466
1,950,000 7.19(a) 08/15/20 332,183
- -------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $3,945,747) $3,963,359
===============================================================================
Repurchase Agreements--14.0%
Joint Repurchase Agreement Account(d)
$4,200,000 5.86% 08/01/95(c) $4,200,000
- -------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $4,200,000) $4,200,000
===============================================================================
Total Investments
(Cost $30,515,177)(e) $31,929,574
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 1,601,876
Gross unrealized loss for investments in which
cost exceeds value (187,752)
- -------------------------------------------------------------------------------
Net unrealized gain $1,414,124
===============================================================================
</TABLE>
* Non-income producing security.
(a) The interest rate disclosed for these securities represents effective
yields to maturity.
(b) TBA (To Be Assigned) securities are purchased on a forward basis with an
approximate (generally +/-2.5%) principal amount and no definite maturity
date. The actual principal amount and maturity date will be determined upon
settlement when the specific mortgage pools are assigned.
(c) Portions of these securities are being segregated for open TBA purchases.
(d) Portions of these securities are being segregated for mortgage dollar
rolls.
(e) The aggregate cost for federal income tax purposes is $30,515,450.
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.
9
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Select Equity Fund is designed to provide investors with a
broadly diversified portfolio that can be used as a core holding on which to
build an investment program. The fund seeks to provide investors with a total
return (consisting of capital appreciation and dividend income) that, net of
expenses, exceeds the total return of the S&P 500 stock index. The fund's
mandate is to remain fully invested with industry diversification,
capitalization and risk characteristics similar to the S&P 500. Therefore, the
fund's relative performance compared with the index comes almost exclusively
from stock selection within sectors. We believe the fund offers investors an
attractive combination of value and growth, without assuming more risk than the
broad market.
The fund employs a disciplined approach that combines fundamental investment
research provided by Goldman, Sachs & Co.'s Investment Research Department with
quantitative analysis generated by our own proprietary model and other
techniques. Our model forecasts a stock's return using many different criteria
including valuation measures, growth expectations, earnings momentum and risk.
It also analyzes the impact of current economic conditions on different types of
stocks. Those stocks ranked highly by both our quantitative model and the
Goldman Sachs Investment Research Department are selected for the fund's
portfolio.
Performance Review: Successful Stock Selection and Superior Valuation
Characteristics
For the six-month period ended July 31, 1995, the Goldman Sachs Select Equity
Fund Class A shares had a total return of 23.48% based on net asset value
compared with a total return of 21.07% for the S&P 500 stock index, its
benchmark. The fund's outperformance of the S&P 500 during the period can be
primarily attributed to successful stock selection, with a lesser portion from
our strategic focus on stocks with lower price/earnings ratios, lower yields and
significant sales from outside the U.S.
The best performing stocks during the period under review had, on average, low
ratios of price to earnings and book value, positive earnings momentum, positive
earnings estimate revisions, large capitalizations and above-average volatility.
In general, the fund's holdings have, on average, a better outlook for growth
and profitability than the broad market, but they sell at cheaper valuation
multiples. For example, as of July 31, the fund had both a lower average
price/earnings ratio and a lower price to book ratio than the index. In
addition, the fund's long-term expected growth rate (based on consensus
estimates for five-year growth) was also slightly ahead of the S&P 500 as was
its average return on equity.
During the period, the fund benefited from several enhancements to our
multifactor model, which now provides more dynamic information regarding the
impact of changes in general economic and market conditions on various factors
measured by the model. This "fine-tuning" is expected to continue to add value
to the fund's stock selection by providing better, more timely return
predictions.
Portfolio Composition:
Broad Diversification Is the Hallmark
The fund was invested in a broadly diversified list of securities, with sector
allocations and style characteristics generally similar to the S&P 500 stock
index.
The fund's top performers included several technology stocks like Texas
Instruments, Intel and IBM, each of which contributed significantly to the
fund's total return, as well as market leaders in other diverse industries such
as Philip Morris, Schering Plough, PepsiCo, DuPont and Citicorp. The fund's
holdings in Capital Cities/ABC stock also rose strongly, benefiting from the
friendly takeover by the Walt Disney Company announced on July 31.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage Percentage
of Total of S&P 500
Company Line of Business Net Assets Index
<S> <C> <C> <C>
International Business Machines Computers 3.3% 1.5%
Philip Morris Cos., Inc. Tobacco and Food Products 2.9% 1.5%
AT&T Corp. Telephone 2.5% 2.0%
Schering Plough Corp. Pharmaceuticals 2.4% 0.4%
DuPont E.I. De Nemours Diversified Chemicals 2.3% 0.9%
Dow Chemical Co. Diversified Chemicals 2.0% 0.5%
Royal Dutch Petroleum Co. Oil 1.8% 1.6%
American International Group Inc. Insurance 1.8% 0.9%
Intel Corp. Electronics/Semiconductors 1.8% 1.3%
Ameritech Corp. Telephone 1.7% 0.7%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Sector Breakout as of July 31, 1995
Percentage Percentage
of of S&P
Industry Sectors Portfolio Index
<S> <C> <C>
Consumer Nondurables 17.4% 18.5%
Capital Spending 16.8% 17.3%
Finance 15.3% 12.7%
Basic Industry 11.9% 8.0%
Utility 10.9% 12.0%
Consumer Services 9.7% 13.9%
Energy 7.5% 8.4%
Consumer Durables 2.8% 3.3%
Transportation 1.6% 1.6%
Miscellaneous 3.3% 4.3%
Cash 2.8% 0
</TABLE>
- --------------------------------------------------------------------------------
Outlook
The market is currently characterized by a low dividend yield and strong price
appreciation, which, when coupled with the fact that many equity mutual funds
have most of their assets invested, are indications of modest overvaluation.
However, valuation alone rarely ends a bull market. Our expectations for
continued but lower profit growth, low inflation and stable interest rates cause
us to remain modestly bullish on stocks for the remainder of the year. As we
design the fund's stock selection strategy going forward, our analysis shows
that current market conditions favor stocks with low price/earnings ratios,
higher earnings estimates revisions and high sustainable growth rates. Given the
increased risk of somewhat slower economic growth in the near term, we have de-
emphasized cyclical securities, which could be the most vulnerable.
/s/ Robert C. Jones
Robert C. Jones
Portfolio Manager
August 31, 1995
- --------------------------------------------------------------------------------
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks--97.3%
Aerospace/Defense--2.4%
6,700 McDonnell Douglas Corp. $ 553,588
41,900 Rockwell International Corp. 1,911,688
10,300 United Technologies Corp. 865,200
- --------------------------------------------------------------------------------
3,330,476
- --------------------------------------------------------------------------------
Automotive Products--0.8%
24,100 General Motors Corp. 1,174,875
- --------------------------------------------------------------------------------
Auto Parts-Original Equipment--0.8%
31,100 Masland Corp. 427,625
14,200 Varity Corp.* 665,625
- --------------------------------------------------------------------------------
1,093,250
- --------------------------------------------------------------------------------
Basic Materials and Natural Resources--0.8%
13,600 Alco Standard Corp. 1,106,700
- --------------------------------------------------------------------------------
Beverages-Alcoholic--0.8%
19,700 Anheuser Busch Companies, Inc. 1,095,813
- --------------------------------------------------------------------------------
Beverages-Soft Drinks--1.7%
50,200 PepsiCo, Inc. 2,353,125
- --------------------------------------------------------------------------------
Biotechnology--0.3%
5,300 Amgen, Inc.* 451,163
- --------------------------------------------------------------------------------
Broadcast Media--1.6%
19,100 Capital Cities/ABC Inc. 2,229,925
- --------------------------------------------------------------------------------
Building Materials--0.6%
14,200 Armstrong World Industries, Inc. 784,550
- --------------------------------------------------------------------------------
Chemicals--2.9%
5,100 First Mississippi Corp. 174,038
22,000 Monsanto Co. 2,048,750
11,600 Morton International, Inc. 348,000
33,600 Norsk Hydro ADR 1,478,400
- --------------------------------------------------------------------------------
4,049,188
- --------------------------------------------------------------------------------
Chemicals-Diversified--4.3%
38,200 Dow Chemicals Co. 2,831,575
47,900 Du Pont E I De Nemours 3,209,300
- --------------------------------------------------------------------------------
6,040,875
- --------------------------------------------------------------------------------
Commercial Banks--3.4%
44,200 Corestates Financial Corp. 1,613,300
8,500 First Fidelity Bancorp. 535,500
9,700 First Interstate Bancorp. 835,413
3,800 MBNA Corp. 136,325
28,400 Nationsbank Corp. 1,593,950
- --------------------------------------------------------------------------------
4,714,488
- --------------------------------------------------------------------------------
Commercial Services--1.3%
25,800 Interim Services Inc. 632,100
19,500 Omnicom Group, Inc. 1,177,313
- --------------------------------------------------------------------------------
1,809,413
- --------------------------------------------------------------------------------
Communications--1.2%
54,300 Airtouch Communications/r/ 1,710,438
- --------------------------------------------------------------------------------
Computer Software and Services--1.6%
21,600 Microsoft Corp.* 1,954,800
5,400 Silicon Graphics Inc.* 226,800
- --------------------------------------------------------------------------------
2,181,600
- --------------------------------------------------------------------------------
Computers--3.3%
41,700 International Business Machines 4,540,089
- --------------------------------------------------------------------------------
Containers-Metal and Glass--0.5%
49,300 Owens Illinois Corp.* 684,038
- --------------------------------------------------------------------------------
Electrical Equipment--1.3%
30,600 General Electric Co. 1,805,400
- --------------------------------------------------------------------------------
Electronics--0.3%
11,700 Boston Scientific Corp.* 427,050
- --------------------------------------------------------------------------------
Electronics-Instrumentation--1.3%
23,600 Hewlett Packard Co. 1,837,850
- --------------------------------------------------------------------------------
Electronics-Semiconductors--4.4%
37,600 Intel Corp. 2,444,000
8,900 Micron Technology Inc. 556,250
12,300 Motorola Inc. 942,488
13,700 Texas Instruments Inc. 2,140,625
- --------------------------------------------------------------------------------
6,083,363
- --------------------------------------------------------------------------------
Entertainment--2.3%
9,200 Loews Corp. 1,107,450
30,600 The Walt Disney Co. 1,793,925
5,000 Viacom Inc.* 253,750
- --------------------------------------------------------------------------------
3,155,125
- --------------------------------------------------------------------------------
Environmental Control--0.7%
25,700 Browning Ferris Industries, Inc. 992,663
- --------------------------------------------------------------------------------
Financial--0.6%
16,400 MGIC Investment Corp. 832,300
- --------------------------------------------------------------------------------
Financial Services--1.0%
10,800 Federal National Mortgage Association 1,011,150
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks (continued)
Financial Services (continued)
8,600 Household International, Inc. $ 451,500
- --------------------------------------------------------------------------------
1,462,650
- --------------------------------------------------------------------------------
Food Processing--0.5%
10,800 CPC International, Inc. 666,900
- --------------------------------------------------------------------------------
Food Products--0.1%
3,800 Conagra Inc. 143,450
- --------------------------------------------------------------------------------
Grocery Products--1.6%
29,500 IBP, Inc. 1,379,125
11,500 Kellogg Co. 826,563
- --------------------------------------------------------------------------------
2,205,688
- --------------------------------------------------------------------------------
Health and Medical Services--1.1%
25,100 Columbia/HCA Healthcare 1,229,900
6,000 St. Jude Medical, Inc.* 328,500
- --------------------------------------------------------------------------------
1,558,400
- --------------------------------------------------------------------------------
Household Products--2.4%
32,200 Philips NV 1,585,850
25,900 Procter & Gamble Co. 1,783,863
- --------------------------------------------------------------------------------
3,369,713
- --------------------------------------------------------------------------------
Insurance--5.7%
25,957 Allstate Corp. 811,156
29,100 American General Corp. 1,058,513
32,850 American International Group, Inc. 2,463,750
18,100 CMAC Investment Corp. 889,163
26,400 Exel Insurance Ltd. 1,382,700
43,300 Protective Life Corp. 1,255,700
- --------------------------------------------------------------------------------
7,860,982
- --------------------------------------------------------------------------------
Machine Tools--0.6%
13,800 Black & Decker Corp. 436,425
23,600 Giddings & Lewis, Inc. 392,350
- --------------------------------------------------------------------------------
828,775
- --------------------------------------------------------------------------------
Machine-Diversified--0.9%
15,200 Dover Corp. 1,204,600
- --------------------------------------------------------------------------------
Machinery and Equipment--0.9%
18,600 Caterpillar, Inc. 1,308,975
- --------------------------------------------------------------------------------
Medical/Biotechnology--0.5%
7,900 Medtronic Inc. 647,800
- --------------------------------------------------------------------------------
Metals-Diversified--0.3%
11,700 Asarco Inc. 371,475
- --------------------------------------------------------------------------------
Miscellaneous Manufacturer--2.0%
37,800 Allied Signal, Inc. 1,767,150
6,700 Eastman Kodak Co. 386,088
3,600 Minnesota Mining & Manufacturing Co. 203,850
7,600 Nacco Industries, Inc. 465,500
- --------------------------------------------------------------------------------
2,822,588
- --------------------------------------------------------------------------------
Money Center Banks--2.2%
26,500 BankAmerica Corp. 1,431,000
8,000 Chemical Banking Corp. 413,000
19,500 Citicorp 1,216,313
- --------------------------------------------------------------------------------
3,060,313
- --------------------------------------------------------------------------------
Oil & Gas Exploration--0.9%
20,000 Repsol S.A. ADR 667,500
30,200 Union Texas Petroleum Holdings, Inc. 611,550
- --------------------------------------------------------------------------------
1,279,050
- --------------------------------------------------------------------------------
Oil & Gas-Domestic--0.3%
10,100 Enron Corp. 350,975
- --------------------------------------------------------------------------------
Oil & Gas-International--5.8%
22,300 Amoco Corp. 1,499,675
32,400 Exxon Corp. 2,349,000
17,700 Mobil Corp. 1,730,175
19,900 Royal Dutch Petroleum ADR 2,527,300
- --------------------------------------------------------------------------------
8,106,150
- --------------------------------------------------------------------------------
Oil-Domestic Integrated--1.8%
8,800 Coastal Corp. 273,900
8,400 Kerr McGee Corp. 477,750
13,700 Tenneco, Inc. 678,150
30,000 Williams Companies, Inc. 1,110,000
- --------------------------------------------------------------------------------
2,539,800
- --------------------------------------------------------------------------------
Packaging & Container--1.9%
38,600 Avery Dennison Corp. 1,548,825
28,600 Ball Corp. 1,058,200
- --------------------------------------------------------------------------------
2,607,025
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Shares Description Value
===============================================================================
<S> <C> <C>
Common Stocks (continued)
Paper and Forest Products--1.9%
13,600 Caraustar Industries, Inc. $ 263,500
6,100 Champion International Corp. 343,888
24,200 International Paper Co. 2,044,900
- -------------------------------------------------------------------------------
2,652,288
- -------------------------------------------------------------------------------
Personal Loans--0.7%
20,700 Beneficial Corp. 980,663
- -------------------------------------------------------------------------------
Pharmaceuticals--5.5%
17,700 Abbott Labs 708,000
9,300 Eli Lilly & Co. 727,725
12,000 Johnson & Johnson 861,000
16,700 Merck & Co. 862,138
23,600 Pfizer, Inc. 1,191,800
72,500 Schering Plough Corp. 3,371,251
- -------------------------------------------------------------------------------
7,721,914
- -------------------------------------------------------------------------------
Pulp & Paper Products--0.3%
20,000 Stone Container Corp. 432,500
- -------------------------------------------------------------------------------
Retail-Department Stores--2.1%
15,800 Harcourt General, Inc. 711,000
28,000 Sears Roebuck & Co. 913,500
48,900 Wal Mart Stores, Inc. 1,301,963
- -------------------------------------------------------------------------------
2,926,463
- -------------------------------------------------------------------------------
Retail-Food Chains--1.0%
35,300 Safeway, Inc.* 1,350,225
- -------------------------------------------------------------------------------
Retail-Specialty Apparel Stores--0.3%
22,600 The Limited, Inc. 463,300
- -------------------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.8%
21,000 Dean Witter Discover Co. 1,060,500
- -------------------------------------------------------------------------------
Shoes--0.5%
8,400 Nike Inc. Class B 759,150
- -------------------------------------------------------------------------------
Steel--0.1%
6,000 Inland Steel Industries Inc. 172,500
- -------------------------------------------------------------------------------
Telecommunications-Long Distance--1.2%
11,900 MCI Communications Corp. 285,600
40,600 Sprint Corp. 1,390,550
- -------------------------------------------------------------------------------
1,676,150
- -------------------------------------------------------------------------------
Telephone--4.2%
48,900 Ameritech Corp. 2,365,538
65,200 AT&T Corp. 3,439,301
- -------------------------------------------------------------------------------
5,804,839
- -------------------------------------------------------------------------------
Tobacco and Food Products--3.0%
55,600 Philip Morris Companies, Inc. 3,982,351
5,920 RJR Nabisco Holdings Corp. 163,540
- -------------------------------------------------------------------------------
4,145,891
- -------------------------------------------------------------------------------
Toys--0.7%
33,606 Mattel, Inc. 949,370
- -------------------------------------------------------------------------------
Transportation--1.6%
26,100 Federal Express Corp. 1,761,750
7,600 Union Pacific Corp. 494,950
- -------------------------------------------------------------------------------
2,256,700
- -------------------------------------------------------------------------------
Utility--3.7%
33,700 Empresa Nacional De Electric ADR 1,777,675
24,400 General Public Utilities Corp. 704,550
76,400 Public Service Company of New Mexico* 1,098,246
56,100 Unicom Corp. 1,556,775
- -------------------------------------------------------------------------------
5,137,246
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost $109,791,835) $135,368,765
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Description Value
===============================================================================
<S> <C> <C>
Repurchase Agreement--2.6%
$3,600,000 Joint Repurchase Agreement Account
5.86%, 08/01/95 $ 3,600,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $3,600,000) $ 3,600,000
===============================================================================
Total Investments
(Cost $113,391,835)(a) $138,968,765
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 26,173,740
Gross unrealized loss for investments in
which cost exceeds value (598,030)
- -------------------------------------------------------------------------------
Net unrealized gain $ 25,575,710
===============================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $113,393,055.
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.
14
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Growth and Income Fund seeks long-term capital appreciation
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
style, which means we focus on companies whose stocks are inexpensive relative
to their expected earnings and ability to pay dividends. Investments may include
well-known companies that are temporarily out of favor due to cyclical economic
conditions or near-term difficulties the portfolio managers judge to be
temporary in nature. In-depth fundamental research of a company's financial
structure, its competitive position in the market and its management's
commitment to increasing shareholder value are all critical parts of the fund's
investment approach.
Performance Review: A Positive Period
For the six months ended July 31, 1995, the Goldman Sachs Growth and Income
Fund had a total return based on net asset value of 20.91% compared with a total
return of 21.07% for the S&P 500 stock index, the fund's benchmark. The fund has
increased its regular quarterly dividend twice during the period to 6.5 cents
per share.
Portfolio Composition: Good Results in Defense, Technology and Cyclicals
As of July 31, 92% of the fund's net assets were invested in common stocks, 1%
in convertible preferred stock and 8% in cash or cash equivalents.
During the period, the fund's largest investment, McDonnell Douglas Corp. and
other defense holdings, including Northrop Grumman Corp. and Lockheed-Martin
Corp., performed particularly well as the market recognized the potential that
we saw in these companies early on.
Although only 4% of the fund was invested in technology stocks, the best
performing sector of the market during the period under review, those technology
investments the fund held during the period proved to be quite successful.
During the first quarter of 1995, we became attracted to two computer stocks,
Compaq Computer and Dell Computer, as investor anxiety regarding product
transitions at both companies created attractive buying opportunities. Since we
purchased the stocks, both have appreciated more than 40%. Despite the run-up
in their prices, we believe both companies are well positioned to succeed in all
aspects of client-server computing in the corporate market over the longer term.
Earlier in the year, the fund's position in Advanced Micro Devices, a
semiconductor manufacturer, was sold after the stock hit our target price for
fair valuation.
Philip Morris Cos., Inc., which reported greater than expected earnings in the
first and second quarters, benefited from a perceived easing on the litigation
front and strong gains in its overseas tobacco revenues. Entergy Corp., a
utility holding company that provides gas and electric services to customers in
Arkansas, Louisiana, and parts of Mississippi and East Texas, also performed
well as investors came to believe that most of the company's earnings problems
were behind it.
Although the fund's holdings in General Motors Corp. stock did well during the
period, we gradually trimmed the fund's holdings of GM stock in favor of Ford
Motor Co., which we believe is more competitively positioned to gain market
share (mostly at the expense of imports) over the long term. Ford, which has
proven itself to be a very efficient producer, has done a significant amount of
investment spending in order to reduce its manufacturing costs.
Not all of the fund's holdings fulfilled our expectations. For example, we
sold the fund's investments in Playtex and Texas Utilities. Other disappointing
performers included Home State Holdings, Inc., an insurance company that
suffered from weak second-quarter earnings, and Valassis Communications, (a
publisher of inserts and coupons for newspapers), which was hurt by rising paper
costs. However, the long-term prospects of both companies appear to be positive
and, therefore, we continued to hold the stocks.
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage
of Total Net
Company Line of Business Assets
<S> <C> <C>
McDonnell Douglas Corp. Aerospace/Defense 3.6%
Ford Motor Co. Automotive Products 3.3%
RJR Nabisco Holdings Corp. Tobacco and Food Products 2.9%
Georgia-Pacific Corp. Paper and Forest Products 2.8%
Brunswick Corp. Pleasure Boats/Marine Engines 2.7%
Consolidated Freightways, Inc. Trucking 2.6%
Stone Container Corp. Pulp and Paper Products 2.5%
Philip Morris Cos., Inc. Tobacco and Food Products 2.5%
Tenet Healthcare Corp. Hospital Management 2.4%
Columbia/HCA Healthcare Health Care 2.3%
</TABLE>
Outlook
We take a long-term view of the market, and therefore the fund's investment
focus will remain the same: on stocks that are judged to be inexpensive
compared with their estimated future earnings and ability to pay dividends.
While over the short term, the market favors different investment styles and
sectors, we remain confident that the fund's emphasis on undervalued, well-
established companies will prove rewarding over the long term.
/s/ Mitchell E. Cantor
Mitchell E. Cantor
Portfolio Manager
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Portfolio Manager
August 31, 1995
- --------------------------------------------------------------------------------
16
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks--91.5%
Aerospace/Defense--6.7%
64,715 Lockheed Martin Corp. $ 4,068,956
138,600 McDonnell Douglas Corp. 11,451,825
106,700 Northrop Grumman Corp. 6,081,900
- --------------------------------------------------------------------------------
21,602,681
- --------------------------------------------------------------------------------
Auto Parts-Original Equipment--2.5%
107,400 Goodyear Tire & Rubber Co. 4,658,475
131,400 Lear Seating Corp. 3,547,800
- --------------------------------------------------------------------------------
8,206,275
- --------------------------------------------------------------------------------
Automotive Products--4.2%
369,500 Ford Motor Co. 10,669,313
60,700 General Motors Corp. 2,959,125
- --------------------------------------------------------------------------------
13,628,438
- --------------------------------------------------------------------------------
Beverages-Alcoholic--1.8%
105,200 Anheuser Busch Companies, Inc. 5,851,750
- --------------------------------------------------------------------------------
Cable Television Systems--2.0%
253,800 Tele-Communications, Inc.* 6,345,000
- --------------------------------------------------------------------------------
Chemicals-Plastics--1.9%
217,800 Geon Co. 6,125,625
- --------------------------------------------------------------------------------
Commercial Banks--2.9%
125,100 Nationsbank Corp. 7,021,238
81,400 Shawmut National Corp. 2,513,225
- --------------------------------------------------------------------------------
9,534,463
- --------------------------------------------------------------------------------
Computers--3.1%
112,600 Compaq Computer Corp.* 5,714,450
67,400 Dell Computer Corp.* 4,381,000
- --------------------------------------------------------------------------------
10,095,450
- --------------------------------------------------------------------------------
Containers-Metal and Glass--1.9%
443,100 Owens Illinois Corp.* 6,148,013
- --------------------------------------------------------------------------------
Discount Retailing--2.2%
147,100 J.C. Penney, Inc 7,115,963
- --------------------------------------------------------------------------------
Electronics--1.5%
84,700 Loral Corp. 4,743,200
- --------------------------------------------------------------------------------
Financial Services--0.2%
36,000 North American Mortgage Co. 778,500
- --------------------------------------------------------------------------------
Food-Wholesale--1.9%
114,600 Fleming Companies Inc. 3,022,575
103,700 Supervalue, Inc. 3,188,775
- --------------------------------------------------------------------------------
6,211,350
- --------------------------------------------------------------------------------
Grocery Products--2.2%
486,600 Chiquita Brands International, Inc. 7,116,525
- --------------------------------------------------------------------------------
Health and Medical Services--2.7%
151,700 Columbia/HCA Healthcare 7,433,300
36,900 U S Healthcare Inc. 1,166,963
- --------------------------------------------------------------------------------
8,600,263
- --------------------------------------------------------------------------------
Home Builders--1.2%
39,500 Centex Corp 1,106,000
147,500 Lennar Corp. 2,839,375
- --------------------------------------------------------------------------------
3,945,375
- --------------------------------------------------------------------------------
Hospital Management--2.4%
503,600 Tenet Healthcare Corp.* 7,679,900
- --------------------------------------------------------------------------------
Household Furnishing and Appliances--1.2%
82,400 National Presto Industrials, Inc. 3,831,600
- --------------------------------------------------------------------------------
Insurance--8.4%
252,600 FHP International Corp. 6,630,750
141,500 Home Holdings, Inc. 1,397,313
25,900 Integon Corp. 437,063
139,900 Lincoln National Corp. 5,753,388
237,200 PartnerRe Holdings, Ltd. 5,989,300
134,900 Travelers Group, Inc. 6,390,888
13,400 US Life Corp. 559,450
- --------------------------------------------------------------------------------
27,158,152
- --------------------------------------------------------------------------------
Marine and Pleasure Boats--4.1%
428,400 Brunswick Corp. 8,621,550
239,400 Outboard Marine Corp. 4,788,000
- --------------------------------------------------------------------------------
13,409,550
- --------------------------------------------------------------------------------
Metals-Miscellaneous--0.8%
103,200 Quanex Corp. 2,541,300
- --------------------------------------------------------------------------------
Money Center Banks--1.6%
94,600 BankAmerica Corp. 5,108,400
- --------------------------------------------------------------------------------
Oil & Gas-Domestic--4.0%
85,900 Ashland Inc. 2,952,813
38,600 Atlantic Richfield Co. 4,448,650
167,900 Tosco Corp. 5,498,725
- --------------------------------------------------------------------------------
12,900,188
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Oil & Gas-International--3.3%
8,100 Chevron Corp. $ 397,580
46,000 Exxon Corp. 3,335,000
28,500 Mobil Corp. 2,785,875
14,700 Royal Dutch Petroleum ADR 1,866,900
33,200 Texaco, Inc. 2,207,800
- --------------------------------------------------------------------------------
10,593,155
- --------------------------------------------------------------------------------
Paper and Forest Products--4.2%
83,000 Champion International Corp. 4,679,125
103,800 Georgia-Pacific Corp. 8,952,750
- --------------------------------------------------------------------------------
13,631,875
- --------------------------------------------------------------------------------
Publishing--1.6%
359,700 Valassis Communications, Inc.* 5,125,725
- --------------------------------------------------------------------------------
Pulp and Paper Products--2.5%
379,500 Stone Container Corp. 8,206,688
- --------------------------------------------------------------------------------
Real Estate Investment Trusts--0.4%
110,600 Haagen Alexander Properties, Inc. 1,354,850
- --------------------------------------------------------------------------------
Retail-Department Stores--2.2%
158,200 Melville Corp. 5,695,200
46,000 Sears Roebuck & Co. 1,500,750
- --------------------------------------------------------------------------------
7,195,950
- --------------------------------------------------------------------------------
Savings and Loans--2.4%
207,200 GP Financial Corp. 4,998,700
76,600 Standard Federal Bancorp. 2,805,475
- --------------------------------------------------------------------------------
7,804,175
- --------------------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.6%
13,700 Salomon, Inc. 505,188
70,200 Lehman Brothers Holdings, Inc. 1,553,175
- --------------------------------------------------------------------------------
2,058,363
- --------------------------------------------------------------------------------
Technology--0.5%
64,300 Storage Technology Corp. 1,647,688
- --------------------------------------------------------------------------------
Tobacco and Food Products--5.4%
113,100 Philip Morris Companies, Inc. 8,100,788
341,180 RJR Nabisco Holdings Corp. 9,425,098
- --------------------------------------------------------------------------------
17,525,886
- --------------------------------------------------------------------------------
Trucking--2.6%
348,000 Consolidated Freightways, Inc. 8,308,500
- --------------------------------------------------------------------------------
Utility--4.4%
60,800 CMS Energy Corp. 1,520,000
275,100 Entergy Corp. 6,533,625
390,900 Long Island Lighting Co. 6,254,400
- --------------------------------------------------------------------------------
14,308,025
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $261,912,557) $296,438,841
================================================================================
Preferred Stocks--1.1%
Grocery Products--0.6%
44,600 Chiquita Brands International, Inc.
2.88% Convertible Preferred $ 2,023,725
- --------------------------------------------------------------------------------
Tobacco--0.5%
287,100 RJR Nabisco Holdings Corp. 6.50% 1,686,713
Convertible Preferred
- --------------------------------------------------------------------------------
Total Preferred Stocks
(Cost $3,843,410) $ 3,710,438
================================================================================
<CAPTION>
Principal
Amount Description Value
===============================================================================
<S> <C> <C>
Repurchase Agreement--7.7%
$24,800,000 Joint Repurchase Agreement Account
5.86%, 08/01/95 $ 24,800,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $24,800,000) $ 24,800,000
===============================================================================
Total Investments
(Cost $290,555,967)(a) $324,949,279
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 37,667,451
Gross unrealized loss for investments in which
cost exceeds value (3,301,561)
- -------------------------------------------------------------------------------
Net unrealized gain $ 34,365,890
===============================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $290,583,389.
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.
18
<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.
We use fundamental research to identify companies whose business value is, in
our 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. Our 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 portfolio turnover.
Performance Review:
Fund Outperforms the Broader Market
During the six months ended July 31, 1995, the Goldman Sachs Capital Growth
Fund had a total return of 23.63% based on net asset value compared with a total
return of 21.07% for the S&P 500 stock index, an unmanaged index that reflects
the performance of 500 large company stocks.
The fund outperformed the S&P 500, despite its overweighting in retail stocks,
as a result of successful stock selection in several industries including
defense, paper and technology.
Portfolio Composition
As of July 31, 87% of the portfolio's net assets was invested in common stocks
and 16% in cash equivalents.
Although the fund was significantly underweighted in technology stocks in
general, the stocks we did own in the sector performed very well during the
period, delivering greater than expected earnings growth. These include two
semiconductor manufacturers, Analog Devices, Inc. and National Semiconductor, as
well as Varian Associates, Inc. (electron devices for the communications,
scientific, medical, industrial and defense markets) and Millipore Corp.
(industrial filters used to analyze and purify fluids). The latter two
companies announced the sale of underperforming divisions and used the proceeds
to fund share repurchase programs.
The fund also benefited from some of our cyclically oriented holdings. For
example, our investments in several paper and forest products companies,
including Georgia-Pacific Corp., Champion International Corp. and Stone
Container Corp., have enjoyed strong demand and a recovery in prices from
depressed levels. After several years of excess capacity and underinvestment in
new plant and equipment, the paper industry is currently operating at very high
levels of capacity utilization. Despite the run-up in prices that these stocks
have already experienced in 1995, this period of robust profitability is
expected to continue, barring a sustained recession.
Although we have trimmed the size of our position, we also continue to own
General Motors Corp. stock, on the expectation that the company's aggressive
cost-cutting initiatives will pay off in higher earnings when automobile sales
rebound. During the period, we added Ford Motor Co. stock to the portfolio
because we believe it is more competitively positioned to increase its market
share (largely at the expense of imports) in the future.
Lear Seating Corp. (automobile seating) was another strong performer, with its
stock rising 18% in July alone based on the news that the company was acquiring
Automotive Industries Holdings, Inc., a manufacturer of moldings and other
materials for car interiors. The acquisition is expected to help Lear increase
its market share despite softness in the auto industry.
McDonnell Douglas Corp., the fund's largest holding, and Northrop Grumman
Corp., two aerospace/defense companies, were among the fund's strongest
performers during the period. Both have experienced rising cash flow that has
been spent on nondefense acquisitions and aggressive share repurchase
- --------------------------------------------------------------------------------
19
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
- --------------------------------------------------------------------------------
programs, which have benefited shareholders.
The portfolio is overweighted in retail stocks, which have generally lagged
the market during the first half of 1995, reflecting lackluster consumer
spending. Among the fund's retail holdings that have been particularly
disappointing were Charming Shoppes, Inc. (a specialty retailer of moderately
priced women's apparel) and L.A. Gear Inc. (sneakers and sports apparel).
However, in July, several of the fund's retail holdings saw significant
improvement including TJX Companies (off-price women's apparel and accessories)
and Service Merchandise Co., Inc. (the nation's largest catalog showroom
retailer), whose stock rose 33% after the company reported strong second-quarter
earnings.
Another of the fund's retail investments, Dillard Department Stores Inc.,
operating primarily in the southern and midwestern regions of the U.S., has
already proven to be a notable exception in retailing, surpassing many of its
peers in recent months.
During the period, we sold several holdings when they reached what we viewed
as their fair value. These included Amgen (biotechnology) and AMP Inc. (a
worldwide producer of electrical and electronic connections, programming and
switching devices).
Top 10 Portfolio Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage
of Total Net
Company Line of Business Assets
<S> <C> <C>
McDonnell Douglas Corp. Aerospace/Defense 4.0%
Georgia-Pacific Corp. Paper and Forest Products 4.0%
Lear Seating Corp. Autoparts/Original Equipment 3.6%
Stone Container Corp. Pulp and Paper Products 3.6%
Snap-On Tools Hardware and Tools 3.1%
Tenet Healthcare Corp. Hospital Management 3.0%
General Motors Corp. Automotive 3.0%
Millipore Corp. Commercial Services 3.0%
Varian Associates, Inc. Electron Technology 3.0%
Dillard Department Stores, Inc. Retailing 2.9%
</TABLE>
Outlook
Having experienced four years of economic recovery, the slowdown in the second
quarter was to be expected and may contribute to the durability of the upward
trend over time. We believe stocks will continue to do well for some time to
come, with occasional corrections from time to time. As in the past, the fund
will continue to search for companies that are undervalued but offer outstanding
long-term appreciation potential.
/s/ Mitchell E. Cantor
Mitchell E. Cantor
Portfolio Manager
/s/ Paul D. Farrell
Paul D. Farrell
Portfolio Manager
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Portfolio Manager
August 31, 1995
20
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks--87.2%
Aerospace/Defense--6.5%
502,700 McDonnell Douglas Corp. $ 41,535,585
448,700 Northrop Grumman Corp. 25,575,900
- --------------------------------------------------------------------------------
67,111,485
- --------------------------------------------------------------------------------
Auto Parts-Original Equipment--4.2%
13,500 Goodyear Tire & Rubber Co. 585,563
1,378,900 Lear Seating Corp. 37,230,300
131,400 Stewart & Stevenson Services, Inc.* 5,009,625
- --------------------------------------------------------------------------------
42,825,488
- --------------------------------------------------------------------------------
Automotive Products--3.3%
120,400 Ford Motor Co. 3,494,971
632,400 General Motors Corp. 30,829,500
- --------------------------------------------------------------------------------
34,324,471
- --------------------------------------------------------------------------------
Chemicals-Plastics--2.2%
795,900 Geon Co. 22,384,688
- --------------------------------------------------------------------------------
Commercial Banks--0.0%
11,600 Shawmut National Corp. 353,603
- --------------------------------------------------------------------------------
Commercial Services--3.0%
890,600 Millipore Corp.* 30,725,700
- --------------------------------------------------------------------------------
Containers-Metal and Glass--0.1%
84,300 Owens Illinois Corp.* 1,169,663
- --------------------------------------------------------------------------------
Electron Technology--3.0%
552,800 Varian Associates, Inc.* 30,473,100
- --------------------------------------------------------------------------------
Electronics-Semiconductors--4.9%
655,225 Analog Devices, Inc.* 23,751,902
985,200 National Semiconductor Corp.* 26,600,400
- --------------------------------------------------------------------------------
50,352,302
- --------------------------------------------------------------------------------
Hardware and Tools--3.1%
754,200 Snap-on Tools Corp.* 31,487,850
- --------------------------------------------------------------------------------
Health and Medical Services--0.3%
57,300 Columbia/HCA Healthcare 2,760,313
- --------------------------------------------------------------------------------
Hospital Management--3.0%
2,034,000 Tenet Healthcare Corp.* 31,018,502
- --------------------------------------------------------------------------------
Household Products--2.4%
607,200 First Brands Corp.* 24,288,000
- --------------------------------------------------------------------------------
Insurance--4.7%
670,150 Integon Corp. 11,308,781
63,800 Lincoln National Corp. 2,623,775
799,800 PartnerRe Holdings, Ltd. 20,194,950
724,200 Penncorp Financial Group, Inc.* 14,031,375
- --------------------------------------------------------------------------------
48,158,881
- --------------------------------------------------------------------------------
Manufacturing-Diversified Industrial--2.3%
629,200 Harnischfeger Industries, Inc.* 23,595,000
- --------------------------------------------------------------------------------
Manufacturing-Miscellaneous--3.0%
626,400 Fisher Scientific International, Inc.* 20,592,900
489,300 Keystone International, Inc.* 10,275,300
- --------------------------------------------------------------------------------
30,868,200
- --------------------------------------------------------------------------------
Metal Fabricate/Hardware--0.9%
271,250 Trinity Industries, Inc.* 9,086,875
- --------------------------------------------------------------------------------
Metals-Miscellaneous--1.0%
421,500 Quanex Corp. 10,379,438
- --------------------------------------------------------------------------------
Money Center Banks--2.9%
470,700 Citicorp 29,359,913
- --------------------------------------------------------------------------------
Oil & Gas-International--2.9%
78,100 Amoco Corp. 5,252,225
88,400 Chevron Corp. 4,364,750
72,500 Exxon Corp. 5,256,250
102,900 Mobil Corp. 10,058,475
41,200 Royal Dutch Petroleum ADR 5,232,400
- --------------------------------------------------------------------------------
30,164,100
- --------------------------------------------------------------------------------
Oil-Domestic Integrated--1.9%
385,500 Tenneco, Inc. 19,082,250
- --------------------------------------------------------------------------------
Paper and Forest Products--6.6%
485,800 Champion International Corp. 27,386,975
470,800 Georgia-Pacific Corp. 40,606,500
- --------------------------------------------------------------------------------
67,993,475
- --------------------------------------------------------------------------------
Publishing--2.2%
1,609,700 Valassis Communications, Inc.* 22,938,225
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks (continued)
Pulp and Paper Products--3.6%
1,698,700 Stone Container Corp. $ 36,734,388
- --------------------------------------------------------------------------------
Retail-Department Stores--5.0%
969,400 Dillard Department Stores, Inc.* 30,051,400
156,700 Sears Roebuck & Co. 5,112,338
2,261,200 Service Merchandise Co., Inc.* 15,828,400
- --------------------------------------------------------------------------------
50,992,138
- --------------------------------------------------------------------------------
Retail-Specialty--1.5%
1,580,500 Musicland Stores Corp.* 15,409,875
- --------------------------------------------------------------------------------
Retail-Specialty Apparel Stores--5.0%
317,200 Ann Taylor Stores Corp.* 6,264,700
3,268,100 Charming Shoppes, Inc. 15,931,988
1,970,300 TJX Companies, Inc.* 28,815,638
- --------------------------------------------------------------------------------
51,012,326
- --------------------------------------------------------------------------------
Savings and Loans--0.4%
261,650 Firstfed Financial Corp.* 3,924,750
- --------------------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.2%
44,500 Salomon, Inc. 1,640,938
- --------------------------------------------------------------------------------
Shoes--0.3%
1,143,500 LA Gear, Inc.* 3,430,500
- --------------------------------------------------------------------------------
Textiles--0.3%
145,500 Warnaco Group, Inc.* 3,201,000
- --------------------------------------------------------------------------------
Tobacco and Food Products--3.4%
230,000 Philip Morris Companies, Inc. 16,473,750
881,900 Universal Corp. 18,960,850
- --------------------------------------------------------------------------------
35,434,600
- --------------------------------------------------------------------------------
Transportation-Marine--1.4%
949,700 Kirby Corp.* 14,720,350
- --------------------------------------------------------------------------------
Trucking--1.6%
704,800 Consolidated Freightways, Inc. 16,827,100
- --------------------------------------------------------------------------------
Utility--0.1%
82,600 Long Island Lighting Co. 1,321,600
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $699,520,619) $ 895,551,087
================================================================================
<CAPTION>
Principal
Amount Description Value
================================================================================
<S> <C> <C>
Repurchase Agreement--16.4%
$168,400,000 Joint Repurchase Agreement
Account 5.86%, 08/01/95 $ 168,400,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $168,400,000) $ 168,400,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $867,920,619)/(a)/ $1,063,951,087
================================================================================
<CAPTION>
Contracts # Description Value
===============================================================================
<S> <C> <C>
Options Written--(0.1)%
Put Options Written
(8,850) National Semiconductor, Call
Strike $30 expiring 11/18/95 $ (1,438,125)
- -------------------------------------------------------------------------------
Total Options Written
(Premiums received $1,758,487) $ (1,438,125)
- -------------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 240,185,746
Gross unrealized loss for investments in
which cost exceeds value (45,364,901)
- -------------------------------------------------------------------------------
Net unrealized gain $ 194,820,845
===============================================================================
</TABLE>
* Non-income producing security.
/(a)/ The aggregate cost for federal income tax purposes is $869,130,242.
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.
22
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
- --------------------------------------------------------------------------------
Objective and Strategies
The Goldman Sachs Small Cap Equity Fund's objective is long-term capital
appreciation, primarily through investments in equity securities of U.S.
companies with market capitalizations of $1 billion 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 interviewing a company's competitors,
customers and suppliers, we build the fund's portfolio one stock at a time.
Performance Review:
A Difficult Period Brings Tactical Enhancements
During the period under review, the Goldman Sachs Small Cap Equity Fund had a
total return of 9.67% based on net asset value compared with a total return of
22.56% for the Russell 2000, the fund's benchmark. The fund's underperformance
relative to the benchmark was primarily attributable to the disappointing
results of a number of specific investments. However, its significant
underweighting in the technology sector, which led the market during most of the
period, and its overweighting in retailing stocks, which lagged the market, also
hindered performance during the period.
While the fund will continue to be managed using the same approach to
individual stock selection, we intend to make several adjustments.
. Specifically, we intend to broaden the fund's sector diversification by adding
15 to 20 smaller positions, while continuing to keep the bulk of the fund's
assets relatively focused in 25 to 30 core positions.
. In addition, we intend to emphasize core positions in companies with market
capitalizations of more than $100 million, which tend to be more liquid than
stocks with smaller capitalizations. Currently, the fund's weighted average
market capitalization is approximately $235 million and we expect that to
increase gradually over time.
Portfolio Composition:
A Concentration in Retail and Consumer Stocks With
New Holdings in Varied Sectors
As of July 31, 93% of the portfolio (based on net assets) was invested in
common stocks and 7% in cash equivalents.
Among the portfolio's retail stocks that saw declines were J. Baker, Inc.
(men's apparel and family and women's shoes) and Charming Shoppes, Inc.
(specialty retailer of moderately priced women's apparel). In general, consumer
spending slowed during the period, which impacted these and other retail stocks.
However, in July, several of the fund's retail holdings saw significant
improvement, including TJX Companies (off-price women's apparel and
accessories), Service Merchandise Co., Inc. (the nation's largest catalog
showroom retailer), whose stock rose 33% after the company reported strong
second-quarter earnings and Authentic Fitness Corp. (owner's of Speedo sports
apparel), reflecting an upturn in investor's perceptions of value in the sector.
Another of the fund's holdings, Supercuts (haircut chain emphasizing quick
service), failed to meet our expectations, largely because earnings suffered
when the company's expansion into the greater New York metropolitan area fell
behind schedule. We still believe in the company's potential to increase its
earnings as the expansion is completed.
On the other hand, our patience has begun to pay off as a number of the fund's
longer term holdings saw substantial rebounds during the past few months. These
included ABT Building Products Corp. (specialty building materials), which
rallied significantly despite a sluggish housing market; USA Mobile
Communications (Midwest-based provider of paging products), which we sold after
the stock rose significantly due to a tender offer from Arch Communications;
Sonic Corp. (drive-in restaurants), whose continued strong earnings finally
convinced the market of the value we originally saw in the company; DIMAC Corp.
(direct marketing and database management), which continued to report strong
internal growth and completed several acquisitions; and Figgie
- --------------------------------------------------------------------------------
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
- --------------------------------------------------------------------------------
International (industrial conglomerate), where new management has been selling
less profitable businesses to pay down debt and restructure the company. After
more than a year of disappointing earnings, Figgie has the potential to return
to profitability in the third quarter of 1995.
Another investment with better news to report this period was Musicland Stores
Corp. (discount music retailer). Musicland stock has begun to rebound as
investors gain confidence in the company's growth strategy instituted in the
latter part of 1994 that focuses on using cash generated by its mature stores
located in shopping malls to finance its rapidly growing and much larger
"superstores."
New Additions: From Trucking to Pancakes
During the period under review, we added Landstar Systems (trucking company)
to the portfolio. Unlike most traditional trucking companies, Landstar uses
owner-operated trucks and schedules its routes through independent agents, and
therefore has very low fixed costs. Although Landstar has generated a high
return on capital and has suffered less from the recent economic slowdown and
the decrease in car transports than other truckers, the company has been largely
misunderstood by the market and therefore has suffered undeservedly with the
sector in general. Other new holdings include International House of Pancakes
(IHOP), a company whose well-known name and differentiated niche in the
franchise restaurant business (its restaurants are run by owners who work on the
premises) contribute to its expansion potential, and Horace Mann, which has
grown steadily and generated a strong cash flow by selling life, homeowners and
auto insurance to public school employees through a direct sales force.
Top 10 Portfolio Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage
of Total
Company Line of Business Net Assets
<S> <C> <C>
Black Box Corp. Catalog Marketer 4.2%
of Communications
and Networking Products
Morningstar Group, Inc. Specialty Food Products 4.1%
American Publishing Co. Publishing/Newspapers 3.4%
Landstar Systems Trucking 3.4%
North American Watch Corp. Luxury and Affordable Watches 3.4%
DIMAC Corp. Direct Marketing/Database Management 3.3%
J. Baker, Inc. Specialty Retail/Shoes/Apparel 2.8%
Trump Hotels & Casinos Hotels and Casinos 2.7%
ABT Building Products Corp. Specialty Building Materials 2.6%
Quantum Restaurant Group Restaurants 2.6%
</TABLE>
Outlook
We believe that small-cap stocks are currently undervalued, both compared with
their own earnings potential and compared with larger U.S. stocks, and are
positioned to achieve better returns in both relative and absolute terms going
forward. The fund's investment style emphasizes seeking undiscovered or
undervalued stocks, and therefore we may purchase stocks earlier in the cycle
than some other investors. However, we are patient investors prepared to hold
stocks we consider fundamentally sound as we pursue the fund's objective of
long-term growth. We believe the fund's tactical enhancements will contribute
to the fund over time.
/s/Paul D. Farrell
Paul D. Farrell
Portfolio Manager
August 31, 1995
- --------------------------------------------------------------------------------
24
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--92.9%
Broadcasting--0.8%
160,600 International Family Entertainment, Class B* $ 2,409,000
- --------------------------------------------------------------------------------
Building Materials--3.9%
414,400 ABT Building Products Corp.* 7,770,000
302,700 Congoleum Corp.* 3,783,750
- --------------------------------------------------------------------------------
11,553,750
- --------------------------------------------------------------------------------
Commercial Services--9.5%
2,168,868 Automated Security Holdings PLC ADR* 2,711,085
830,802 Black Box Corp.* 12,565,880
986,300 International Post Ltd.* 4,746,569
539,200 Opinion Research Corp.* 2,763,400
675,100 Supercuts, Inc.* 5,569,575
- --------------------------------------------------------------------------------
28,356,509
- --------------------------------------------------------------------------------
Communication-Equipment--3.1%
310,800 IPC Information Systems, Inc.* 4,817,400
140,400 Plantronics, Inc.* 4,282,200
- --------------------------------------------------------------------------------
9,099,600
- --------------------------------------------------------------------------------
Computer Software and Services--1.0%
339,367 Micom Communications* 2,842,199
- --------------------------------------------------------------------------------
Direct Marketing/Database Management--3.3%
600,400 DIMAC Corp.* 9,681,450
- --------------------------------------------------------------------------------
Electronics--1.8%
93,900 Holophane Corp.* 2,277,075
143,300 Recoton Corp.* 2,973,475
- --------------------------------------------------------------------------------
5,250,550
- --------------------------------------------------------------------------------
Environmental Control--1.1%
163,917 U.S.A. Waste Services, Inc.* 3,114,423
- --------------------------------------------------------------------------------
Financial Services--0.1%
163,700 Hamilton Financial Services Corp.* 388,788
- --------------------------------------------------------------------------------
Food Processing--0.9%
379,900 Brothers Gourmet Coffees, Inc.* 2,801,763
- --------------------------------------------------------------------------------
Food Products--0.5%
168,700 Alpine Lace Brands, Inc. 1,349,600
- --------------------------------------------------------------------------------
Hardware and Tools--0.8%
363,400 Webco Industries, Inc.* $2,362,100
- --------------------------------------------------------------------------------
Health Care-Miscellaneous--1.1%
183,300 Grancare Inc.* 3,184,838
- --------------------------------------------------------------------------------
Hotels and Casinos--2.7%
545,900 Trump Hotels & Casino Resort* 8,120,256
- --------------------------------------------------------------------------------
Household Products--2.6%
777,700 American Safety Razor Co.* 7,679,788
- --------------------------------------------------------------------------------
Insurance--4.3%
267,400 Horace Mann Educators Co. 6,852,125
323,000 The Paul Revere Corp.* 6,056,250
- --------------------------------------------------------------------------------
12,908,375
- --------------------------------------------------------------------------------
Leisure Time--2.3%
537,890 Bell Sports Corp. 6,858,098
- --------------------------------------------------------------------------------
Luxury and Affordable Watches--3.4%
693,400 North American Watch Corp.* 10,227,650
- --------------------------------------------------------------------------------
Manufacturing-Diversified Industrial--5.8%
376,300 DT Industries, Inc.* 4,327,450
653,700 Figgie International, Inc. Class A* 6,618,713
111,200 Figgie International, Inc. Class B* 1,098,100
602,000 Foamex International, Inc.* 5,342,750
- --------------------------------------------------------------------------------
17,387,013
- --------------------------------------------------------------------------------
Medical-Hospital Management & Services--1.0%
680,400 Physicians Clinical Laboratory, Inc.* 3,061,800
- --------------------------------------------------------------------------------
Oil & Gas-Domestic--2.0%
498,000 Total Petroleum of North America Ltd. 5,789,250
- --------------------------------------------------------------------------------
Publishing/Newspapers--3.4%
930,900 American Publishing Co. 10,239,900
- --------------------------------------------------------------------------------
Restaurants--6.1%
251,100 IHOP Corp.* 7,219,125
672,100 Quantum Restaurant Group, Inc.* 7,729,150
106,800 Sonic Corp.* 3,230,700
- --------------------------------------------------------------------------------
18,178,975
- --------------------------------------------------------------------------------
Retail-Department Stores--1.6%
677,800 Service Merchandise Co., Inc.* 4,744,600
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund (continued)
July 31, 1995
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
===============================================================================
<S> <C> <C>
Common Stocks (continued)
Retail-Specialty--12.3%
1,080,100 Brookstone, Inc.* $ 7,695,713
789,900 Ernst Home Center, Inc.* 4,739,400
353,200 Finlay Enterprises* 5,518,750
850,000 J. Baker, Inc.* 8,340,625
632,500 Levitz Furniture, Inc.* 4,032,188
644,940 Musicland Stores Corp.* 6,288,165
- -------------------------------------------------------------------------------
36,614,841
- -------------------------------------------------------------------------------
Retail-Specialty Apparel Stores--4.5%
108,400 Ann Taylor Stores Corp.* 2,140,900
938,900 Charming Shoppes, Inc. 4,577,138
464,800 TJX Companies, Inc.* 6,797,700
- -------------------------------------------------------------------------------
13,515,738
- -------------------------------------------------------------------------------
Savings and Loans--0.1%
8,100 GP Financial Corp. 195,413
- -------------------------------------------------------------------------------
Shoes--1.2%
591,700 Shoe Carnival, Inc.* 3,624,163
- -------------------------------------------------------------------------------
Specialty Food Products--4.1%
1,579,800 Morningstar Group, Inc.* 12,243,450
- -------------------------------------------------------------------------------
Textile-Apparel Manufacturers--2.6%
170,600 Authentic Fitness Corp. 3,348,025
181,400 Haggar Corp. 3,537,300
49,200 Norton McNaughton, Inc.* 885,600
- -------------------------------------------------------------------------------
7,770,925
- -------------------------------------------------------------------------------
Trucking--5.0%
189,100 Consolidated Freightways, Inc. 4,514,763
341,300 Landstar Systems, Inc.* 10,239,000
- -------------------------------------------------------------------------------
14,753,763
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost $302,495,418) $276,308,568
===============================================================================
Warrants--0.0%
Home Builders and Land Development--0.0%
57,000 Miles Homes, Inc.* $ 28,500
- -------------------------------------------------------------------------------
Total Warrants
(Cost $42,750) $ 28,500
===============================================================================
- -------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
===============================================================================
<S> <C> <C>
Corporate Bonds--0.2%
$ 500,000 J. Baker, Inc.
7.5%, 06/01/02 $ 457,500
- -------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $497,813) $ 457,500
===============================================================================
Repurchase Agreement--6.5%
$19,400,000 Joint Repurchase Agreement
Account 5.86%, 08/01/95 $ 19,400,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $19,400,000) $ 19,400,000
===============================================================================
Total Investments
(Cost $322,435,981)(a) $296,194,568
===============================================================================
<CAPTION>
Contracts # Description Value
===============================================================================
<S> <C> <C>
Options Written--(0.0)%
Call Options Written
(900) Grancare Inc., Call Strike $17.50
expiring 9/16/95 $ 0
- -------------------------------------------------------------------------------
Total Options Written
(Premiums received $65,448) $ 0
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 29,561,183
Gross unrealized loss for investments in
which cost exceeds value (55,920,758)
- -------------------------------------------------------------------------------
Net unrealized loss $(26,359,575)
===============================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $322,554,143.
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.
26
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
- --------------------------------------------------------------------------------
Objective and Strategies
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 searches for attractively valued companies with
strong, competitive positions in industries expected to grow. Our bottom-up
approach focuses on individual companies, rather than on making investment
choices based on our view of a particular country or industry sector. Currency
risk, inherent in any international investment, is managed by a separate team of
currency specialists based in London.
Performance Review:
Successful Stock Selection Results in Outperformance
For the six months ended July 31, 1995, the Goldman Sachs International Equity
Fund had a total return of 17.49% based on net asset value compared with a total
return of 12.62% for the fund's benchmark, the Financial Times-Actuaries Europe
& Pacific Index ("Europac") unhedged. Europac is a capitalization-weighted
composite of approximately 1,500 stocks from 20 countries in Europe, Japan and
the Asia-Pacific region and is calculated on a monthly basis. For the 12 months
ended July 31, the fund placed in the top quartile of international equity funds
based on total return, ranking 41 out of 201 international equity funds tracked
by Lipper Analytical Services, Inc. (Lipper rankings do not take sales charges
into account.)
The fund outperformed the Index primarily due to successful stock selection.
The fund also benefited from its overweighting in some of the better performing
European markets, such as the U.K. and Sweden, and its underweighting in Japan
compared with the Index. Finally, the hedging strategies employed during the
period were largely successful as well. While the fund's neutral position is
unhedged, in May we began to partially hedge the fund's exposure in deutsche
marks and yen based on our belief that those currencies had become overvalued
versus the dollar and other European currencies. By July, approximately 35% of
the fund was hedged.
Portfolio Composition: Diversification Among Countries and Industry Sectors
During the period, approximately 94% of the fund's portfolio (based on net
assets) was invested in 40 stocks based in 16 different countries and 2% in cash
equivalents. Its five largest country allocations were Japan (37.2%), the U.K.
(10.0%), Sweden (7.6%), Spain (6.0%) and the Netherlands (4.9%). The fund's
average market capitalization is approximately $4 to $5 billion. We favor highly
focused, efficient companies in well-defined businesses.
. Japan. Stocks suffered during most of the period under review, reflecting
Japan's economic problems, but rebounded sharply during July. During the course
of the period, we increased the fund's holdings in Japan from approximately 30%
to 37% (still well below the Index weighting of 44%), based on our increased
confidence in future improvements in the valuation of the market and of the
specific companies we own. We have concentrated on companies that are taking
aggressive steps to reduce costs and optimize the use of their assets.
. Successful Japanese investments during the period included Hoya Corporation
(the world's leading manufacturer of optical glass) and Mirai (a large producer
of electric cable conduits, wiring boxes and other electrical accessories),
which both outperformed the market. Aiwa (audio/visual equipment manufacturer)
is a good example of one of the fund's newer Japanese holdings. The company's
new management has reduced costs, shifting both research and development and
production from Japan to lower cost manufacturers in Southeast Asia.
. Europe. As of July 31, the fund continued to be slightly overweighted in
Europe. Within Europe, the U.K., Scandinavia and Switzerland performed the best,
- --------------------------------------------------------------------------------
27
<PAGE>
while countries with the strongest currencies, namely Germany and France, were
weakest.
. Several of the fund's holdings in the U.K. did particularly well,
outperforming the market's 15% appreciation during the period. They include
Siebe, one of the world's leading manufacturers of industrial electronic
equipment and control devices; Electrocomponents, the largest catalog provider
of electronic components and other equipment to businesses in the U.K. and
Europe, which has consistently earned a return on capital averaging over 30% for
the past decade; and Rentokil, a large environmental services group involved in
pest control and commercial and security services.
. Other strong performers included Fresenius, a major producer of kidney
dialysis equipment based in Germany; Securitas, the largest security services
company in Europe; and Hoganas, the largest producer of powdered metal for use
in auto components.
. In contrast, our investment in Volvo (Sweden) was disappointing during the
period, hurt by the weakness of the U.S. dollar, which depressed automobile
exports to the U.S., and by general difficulties in the automotive sector.
However, we added to the fund's position in Volvo stock on price weakness
because the company is fundamentally strong and management's plan to restructure
to core businesses is expected to prove successful ultimately.
. Asia-Pacific. The fund was slightly overweighted in the Asia-Pacific region
during the period, although we reduced the fund's exposure in Hong Kong in favor
of greater diversification in Korea, Indonesia and the Philippines, where
valuations were more attractive. The region experienced mixed results during the
period, with sharp rallies in February and May.
. A large portion of the fund's holdings of Hong Kong-based Consolidated
Electric Power of Asia was sold to take profits when the stock hit our target
price, and a significant position in Korea Mobile Telecommunications (KMT) was
added. KMT is the sole provider of cellular telecommunications in Korea and
controls half of the pager market, both of which should see significant growth
potential. Another relatively new holding, Philippine Long Distance Telephone,
did quite well from March through May.
Top 10 Portfolio Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage
of Total
Company Country Line of Business Net Assets
<S> <C> <C> <C>
Fresenius Germany Health Care 3.8%
Santen Japan Pharmaceutical 3.7%
Korea Mobile
Telecommunications (KMT) Korea Telecommunications 3.4%
Mitsubishi Heavy Industry Japan Aerospace/ Defense 3.4%
Mitsubishi Electric Japan Electrical Equipment 3.4%
Hoya Corporation Japan Optical Glass 3.4%
Manufacturing
Volvo Sweden Car and Truck Manufacture 3.4%
Repsol Spain Oil/Gas Production and 3.2%
Distribution
Shimachu Japan Furniture Retailer 3.2%
Mitsui Marine & Fire Japan Insurance 3.2%
</TABLE>
Outlook
Our outlook for most international markets is quite positive. In our opinion,
Europe is likely to see continuing reasonable levels of economic growth with low
inflation. However, unlike the U.S. stock market, which may be reaching a near-
term peak, many European stock markets are still 10% to 20% off their highs,
which were set during 1993, and thus still offer what we believe are attractive
valuations. In addition, many European companies are at an early stage of what
we expect to be a sustained upturn in earnings.
Near term, the Japanese market continues to suffer from a liquidity crisis in
the domestic economy and from the strong yen. However, during the first few
weeks of July, the Nikkei 225 stock index rallied over 12% on news
- --------------------------------------------------------------------------------
28
<PAGE>
that the Bank of Japan cut short-term interest rates -- a sign that many believe
indicates the Japanese government's commitment to provide monetary and fiscal
stimulus to help improve Japan's economy. In addition, the recent decline in the
yen and signs of some resolution in the trade discussions with the U.S. are
encouraging. However, real evidence of economic recovery and strong earnings
growth will be necessary to produce a sustained market upturn.
Finally, we expect Asian stock markets to benefit from a combination of better
liquidity, a stable and strengthening U.S. dollar and the prospect for lower
interest rates worldwide during the second half of 1995.
/s/Roderick D. Jack
Roderick D. Jack
Portfolio Manager, London
/s/Marcel Jongen
Marcel Jongen
Portfolio Manager, London
/s/Shogo Maeda
Shogo Maeda
Portfolio Manager, Tokyo
/s/Warwick M. Negus
Warwick M. Negus
Portfolio Manager, Hong Kong
August 31, 1995
- --------------------------------------------------------------------------------
29
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks--94.4%
Austrian Schilling--2.9%
105,400 Oester Elektrizita (Utility) $ 7,739,464
- --------------------------------------------------------------------------------
Belgian Franc--2.2%
20,342 Colruyt SA (Food-Retailer) 5,723,197
- --------------------------------------------------------------------------------
British Pound Sterling--10.0%
764,039 British Airport Authority (Airport Operator) 6,409,723
682,474 Electrocomponents (Electrical Equipment Distributor) 6,995,958
1,625,700 Rentokil Group (Commercial Services) 7,377,737
537,000 Siebe (Industrial/Electronic Equipment Manufacturer) 5,856,544
- --------------------------------------------------------------------------------
26,639,962
- --------------------------------------------------------------------------------
Danish Krone--3.0%
141,900 TeleDanmark AS (Telecommunications) 7,934,590
- --------------------------------------------------------------------------------
French Franc--2.3%
187,630 Seita (Tobacco) 6,192,241
- --------------------------------------------------------------------------------
Hong Kong Dollar--4.8%
1,843,800 Consolidated Electric Power Asia (Utility) 4,300,985
370,000 HSBC Holdings (Financial) 5,020,742
4,706,000 National Mutual Asia Ltd. (Financial) 3,344,964
- --------------------------------------------------------------------------------
12,666,691
- --------------------------------------------------------------------------------
Irish Pound--2.3%
958,060 Bank of Ireland (Banking) 5,985,725
- --------------------------------------------------------------------------------
Japanese Yen--37.2%
326,000 Aiwa Co. (Audio-Visual Equipment Manufacturer) 8,304,087
87,000 Futaba Corp. (Capital Goods) 4,294,351
301,000 Hoya Corp. (Optical Glass Manufacturing) 8,996,264
196,000 Inaba Denkisangyo (Industrial) 5,014,831
319,000 Max Co. (Office Equipment Manufacturer) 6,717,310
209,000 Mirai Industry Co. (Miscellaneous Manufacturer) 4,732,254
1,228,000 Mitsubishi Electric CP (Electrical Equipment) 9,078,275
1,268,000 Mitsubishi Heavy Industry (Aerospace/Defense) 9,144,300
1,208,000 Mitsui Marine & Fire (Insurance) 8,465,436
363,000 Santen Pharmaceutical Co. (Pharmaceuticals) 9,780,822
14,400 Sanyo Shinpan Financial (Financial) 1,173,780
315,000 Shimachu Co. (Retail-Furniture) 8,487,490
311,000 Taikisha Ltd. (Capital Goods) 4,894,034
54,000 Tostem Corp. (Building Materials) 1,748,443
259,000 Yamatake Honeywell (Industrial/Electronic Equipment
Manufacturer) 3,753,198
115,200 York Benimaru Co. (Food Retailer) 4,460,365
- --------------------------------------------------------------------------------
99,045,240
- --------------------------------------------------------------------------------
Netherlands Guilder--4.9%
98,590 Randstad Holdings (Temporary Help Services) 6,991,748
68,165 Wolters Kluwer (Publishing) 6,174,446
- --------------------------------------------------------------------------------
13,166,194
- --------------------------------------------------------------------------------
Philippine Peso--3.1%
117,000 Philippine Long Distance Telephone Co. ADR
(Telecommunications) 8,116,875
- --------------------------------------------------------------------------------
South Korean Won--3.4%
10,500 Korea Mobile Telecommunications
(Telecommunications) 9,170,596
- --------------------------------------------------------------------------------
Spanish Peseta--6.0%
45,725 Banco Popular (Financial) 7,410,504
253,535 Repsol SA (Oil & Gas-Production and Distribution) 8,562,997
- --------------------------------------------------------------------------------
15,973,501
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks (continued)
Swedish Krona--7.6%
304,340 Hoganas Ag (Metals-Miscellaneous) $ 6,139,014
150,490 Securitas (Commercial Services) 5,176,529
452,000 Volvo (Car and Truck Manufacture) 8,957,590
- --------------------------------------------------------------------------------
20,273,133
- --------------------------------------------------------------------------------
Swiss Franc--2.3%
4,931 Cie Financiere Richemont Ag
(Consumer Goods-Luxury Products) 6,173,933
- --------------------------------------------------------------------------------
Thai Baht--2.4%
572,300 Bangkok Bank (Financial) 6,379,435
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $224,432,664) $251,180,777
================================================================================
Preferred Stock--3.8%
Deutsche Mark--3.8%
13,771 Fresenius Ag (Health Care) $ 10,241,988
- --------------------------------------------------------------------------------
Total Preferred Stock
(Cost $4,266,827) $ 10,241,988
================================================================================
<CAPTION>
Principal
Amount Description Value
================================================================================
<S> <C> <C>
Short-Term Obligation--1.6%
- --------------------------------------------------------------------------------
$4,356,357 State Street Bank & Trust
Euro-Time Deposit
5.75%, 08/01/95 $ 4,356,357
- --------------------------------------------------------------------------------
Total Short-Term Obligation
(Cost $4,356,357) $ 4,356,357
================================================================================
Options--0.0%
JPY36,097,529 Nikkei 300 Call @ 328.55 expiring 12/22/95 $ 8,173
- --------------------------------------------------------------------------------
Total Options (Cost $7,795,054) $ 8,173
================================================================================
Total Investments (Cost $240,850,902)(a) $265,787,295
================================================================================
<CAPTION>
Shares Description Value
===============================================================================
<S> <C> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 37,967,861
Gross unrealized loss for investments in
which cost exceeds value $(13,033,508)
- -------------------------------------------------------------------------------
Net unrealized gain $ 24,934,353
================================================================================
<CAPTION>
Common and Preferred Stock Industry Concentrations
================================================================================
<S> <C>
Telecommunications 9.5%
Financial 8.8%
Capital Goods 6.1%
Commercial Services 4.7%
Utility 4.5%
Health Care 3.8%
Pharmaceuticals 3.7%
Industrial/Electronic Equipment Manufacturer 3.6%
Aerospace/Defense 3.4%
Electrical Equipment 3.4%
Optical Glass Manufacturing 3.4%
Car and Truck Manufacture 3.4%
Oil & Gas-Production and Distribution 3.2%
Retail-Furniture 3.2%
Insurance 3.2%
Audio-Visual Equipment Manufacturer 3.1%
Temporary Help Services 2.6%
Office Equipment Manufacturer 2.5%
Airport Operator 2.4%
Tobacco 2.3%
Publishing 2.3%
Consumer Goods-Luxury Products 2.3%
Metals-Miscellaneous 2.3%
Banking 2.2%
Food-Retailer 2.2%
Industrial 1.9%
Miscellaneous Manufacturer 1.8%
Retail-Convenience 1.7%
Building Materials 0.7%
- --------------------------------------------------------------------------------
Total Common and Preferred Stock 98.2%
================================================================================
</TABLE>
(a) The aggregate cost for federal income tax purposes is $240,852,942.
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.
31
<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. While
we put our primary emphasis on selecting individual investments, we also monitor
the economic and political climate of every country in the region and carefully
manage risk by diversifying the fund's investments across countries and
industries.
We use firsthand fundamental research in our search for well-managed companies
whose stock prices are, in our opinion, undervalued in the marketplace. Other
characteristics we look for in investment candidates include 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 Volatile, Punctuated by Sharp Rallies
During the period under review, Asian stock markets experienced mixed
performance and low volumes, despite stable economic fundamentals in the region:
low core inflation, high productivity and solid growth. The period was
punctuated by two strong rallies, in February and May, fueled in part by foreign
cash that had been sitting on the sidelines. In addition, indications that U.S.
interest rates had stabilized and the strong performance of the U.S. equity
market encouraged increased investor interest in the relatively inexpensive
markets of Asia.
In contrast to some other emerging markets, Asian currencies showed resilience
due to the regions' large foreign exchange reserves and well-regulated
economies. The strength of the yen forced interest rates to rise in some Asian
countries; in others (i.e., the Philippines, Indonesia and Thailand), local
interest rates moved up due to intervention by their central banks. Generally,
the region has been relatively stable politically, with the exceptions of India,
where the Congress Party lost several key state elections, and Thailand, which
experienced a change of government.
Performance Review: Good Stock Performance in Various Markets and Sectors
During the six-month period ended July 31, 1995, the Goldman Sachs Asia Growth
Fund had a total return of 17.58% based on net asset value, slightly
underperforming its benchmark, the Morgan Stanley Capital International Combined
Asia (ex Japan) Index, which returned 17.92% for the same period.
For the 12 months ended July 31, the fund placed in the top 6% of its peers
based on total return, ranking 4th out of 63 Pacific region funds tracked by
Lipper Analytical Services, Inc. (Lipper rankings do not take sales charges into
account.)
Along with the Asian markets in general, the fund started the period with
strong performance in February, then retreated temporarily, rebounded again in
May and outperformed the benchmark in July. Over the course of the period, we
continued to emphasize high-quality companies that we believe have the potential
to realize gains in varied market environments.
. The majority of the fund's positive performance came from successful stock
selection. The top-performing stocks during the period included Hong Kong
Electric, Philippine Long Distance Telephone, Mulia Industrinado (Indonesia)
and Tata Engineering and Locomotive Company (India). Most of these stocks did
well because of market recognition of their value and strong growth (as
measured by Gross Domestic Product) within their own countries.
. In January, we overweighted the portfolio in Hong Kong based on our belief
that the market was oversold and therefore cheap. Our analysis proved
- --------------------------------------------------------------------------------
32
<PAGE>
correct: the Hong Kong market rose approximately 14% in February and the
portfolio benefited.
. In terms of currency, the portfolio was primarily unhedged during the period,
a strategy that worked to our benefit as Asian currencies performed well
against the dollar and continued to appreciate.
. During the period, we used options on several occasions, selling calls on
existing holdings; these strategies were largely successful.
Portfolio Composition: An Emphasis on Companies
Fueled by Domestic Sales
As of July 31, 89% of the fund's net assets were invested in common stocks and
6% was in cash equivalents. By country, our heaviest concentrations were in Hong
Kong (39.0%), Thailand (11.6%), Malaysia (9.8%), Singapore (7.3%) and the
Philippines (5.4%). Compared with the Index, the portfolio was overweighted in
Hong Kong, Indonesia and the Philippines and underweighted in Singapore,
Malaysia and South Korea.
The portfolio was invested in a wide range of industries including banking, a
sector that has provided strong earnings momentum during the period, as well as
telecommunications, food, automotive, manufacturing and utilities.
During the period, our focus was on Asian companies with primary sales from
within their own countries, rather than from sales driven by exports.
Accordingly, we have added several new positions described below.
. Swire Pacific (Hong Kong), a diversified holding company with principal
activities in aviation, property, consumer products, trading, marine services,
insurance and hotels, earns the bulk of its profits from its 51.8% stake in
Cathay Pacific Airways and its property division. Over the next few years, its
consumer properties division is expected to experience rapid growth and to
continue to diversify its range of consumer products manufactured in China.
. HSBC Holdings (Hong Kong), the holding company for the Hong Kong & Shanghai
Banking Corporation, ranks among the top 15 banks in the world in terms of
assets. It is one of the strongest and best capitalized financial and banking
service organizations in the world, with more than 3,000 offices located in 65
countries in Europe, the Asia-Pacific region, the Middle East and the
Americas. The company maintains a dominant position in Hong Kong and in the
profitable Asia-Pacific region.
. Korea Mobile Telecommunications (Korea), the sole provider of cellular
services in Korea, also commands 55% of the Korean paging market. Despite the
possibility of competition, KMT is believed to be well positioned to
experience exponential growth in the years to come. The company is also
developing new cellular technology that should enable it to expand into other
Asian and international markets.
During the period, we sold several stocks that had reached our target prices.
These included a good portion of our holdings in Consolidated Electric Power of
Asia (Hong Kong), which builds and operates power stations, based on our
evaluation that further appreciation was unlikely for several years. Similarly,
we sold Indostat (Indonesia) at a profit on the belief that significant
appreciation would be difficult due to the fact that the major domestic
telephone service provider in Indonesia will be privatizing later this year.
Not all the stocks in our portfolio performed as well as we anticipated. One
notable disappointment was Kim Hin (Malaysia), a leading producer of floor and
tile products in Malaysia, which saw its profits decline as a result of an
overly ambitious expansion plan and a price war from increased competition. As a
result, we have sold the stock. We also liquidated Astra International
(Indonesia), which sells Japanese cars in Indonesia, as it felt the impact of
the appreciation of the Japanese yen relative to the Indonesian rupiah. The
higher cost of imported cars, coupled with an increase in interest rates, is
expected to result in a lower rate of growth.
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
- --------------------------------------------------------------------------------
Top 10 Holdings as of July 31, 1995
<TABLE>
<CAPTION>
Percentage
of Total
Company Country Line of Business Net Assets
<S> <C> <C> <C>
Hutchison Whampoa Hong Kong Conglomerate 5.6%
Swire Pacific Hong Kong Air Transportation 4.8%
HSBC Holdings Hong Kong Banking and Finance 4.4%
Philippine Long Distance Philippines Telecommunications 4.0%
Industrial Finance Corp. Thailand Banking and Finance 4.0%
Sun Hung Kai Hong Kong Property 3.9%
Mulia Industrindo Indonesia Manufacturing 3.9%
Metropolitan Bank & Trust Co. Philippines Banking and Finance 3.6%
Hong Kong Electric Hong Kong Electric Utility 3.5%
Indofood Indonesia Food and Beverage 3.2%
</TABLE>
Outlook: A Stronger Second Half
We believe the Asian markets will do better in the second half of 1995, due to
a number of factors including the expected cyclical recovery in the U.S. dollar
and the prospect of lower interest rates worldwide. We see general earnings
growth in the region reaching approximately 15% by year end, which, though
slightly lower than last year's 17.5% rate, is still quite respectable. Our
efforts will continue to focus on stock selection, with emphasis on attractive
valuations and companies that deliver a high return on capital. Our research
indicates that some interesting opportunities for the balance of the year may be
found in Hong Kong, as well as in some of the smaller Asian markets, namely
Thailand, Indonesia and the Philippines. In India, the cancellation of a major
power project by the newly elected government in the state of Maharashtra has
dampened foreign investment in the Indian market. We will continue to spend time
in India, assessing potential opportunities.
As always, we urge investors to view the fund as a long-term investment
opportunity and to be prepared to withstand periods of volatility. Over time,
we believe the region's potential will be realized as foreign investment
increases and economic growth continues.
/s/Warwick Negus
Warwick M. Negus
Portfolio Manager, Hong Kong
August 31, 1995
- --------------------------------------------------------------------------------
34
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Description Value
================================================================================
<S> <C> <C>
Common Stocks--89.2%
Hong Kong Dollar--39.0%
1,715,800 Consolidated Electric Power Asia (Utility) $ 4,002,402
2,625,600 HKR International Ltd. (Real Estate) 2,001,968
1,614,000 Hong Kong Electric (Utility) 5,850,773
2,657,824 Hong Kong Land Holdings (Real Estate) 5,156,179
1,158,000 Hong Kong Telecommunications Ltd. (Telecommunications) 2,125,073
542,000 HSBC Holdings (Banking) 7,354,709
1,845,000 Hutchison Whampoa (Conglomerate) 9,299,035
6,686,000 JCG Holdings Ltd. (Finance) 5,184,352
4,772,000 National Mutual Asia Ltd. (Life Insurance) 3,391,876
6,169,400 San Miguel Brewery Ltd. (Breweries) 3,946,617
857,000 Sun Hung Kai Properties (Real Estate) 6,451,395
1,017,000 Swire Pacific (Transportation-Air) 7,951,576
8,123,000 Winton Holdings (Financial Services) 1,994,559
- --------------------------------------------------------------------------------
64,710,514
- --------------------------------------------------------------------------------
Indian Rupee--6.2%
132,500 Larsen & Toubro Ltd. GDR (Engineering) 2,865,975
116,600 Ranbaxy Laboratories Ltd. GDS (Pharmaceuticals) 3,338,257
175,000 Tata Engineering & Locomotive Company Ltd. GDR
(Autos and Trucks) 3,829,000
- --------------------------------------------------------------------------------
10,033,232
- --------------------------------------------------------------------------------
Indonesian Rupiah--7.1%
1,183,625 Indofoods Sukses Makmur (Food Processing) 5,298,232
2,905,272 Mulia Industrindo (Manufacturing-Diversified Industrial) 6,502,399
- --------------------------------------------------------------------------------
11,800,631
- --------------------------------------------------------------------------------
Malaysian Ringgit--9.8%
875,000 Commerce Asset Holdings (Financial Services) 5,233,978
364,000 Kim Hin Industry (Building Materials 1,451,556
460,000 Rashid Hussain Berhad (Financial Services) 1,591,048
1,245,000 Road Builder Berhad (Holding Company-Diversified) 4,483,520
496,000 UTD Engineers Berhad (Engineering) 3,552,228
- --------------------------------------------------------------------------------
16,312,330
- --------------------------------------------------------------------------------
Philippine Peso--5.4%
130,000 Advanced Semiconductor GDR (Electronics-Semiconductors) 1,950,000
18,286 Benpres Holdings Corp. GDR (Telecommunications) 137,145
306,588 Metropolitan Bank & Trust (Banking) 5,981,041
13,000 Philippine Long Distance Telephone Co. ADR
(Telecommunications) 905,384
- --------------------------------------------------------------------------------
8,973,570
- --------------------------------------------------------------------------------
Singapore Dollar--7.3%
467,100 Far East Levingston Shipbuilding (Oil & Gas) 2,329,634
823,500 Overseas Union Bank (Banking) 5,200,431
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Shares Description Value
===============================================================================
<S> <C> <C>
Common Stocks (continued)
Singapore Dollar (continued)
800 Singapore Press Holdings (Publishing) $ 11,023
1,415,000 Straits Steamship Land (Real Estate) 4,528,812
- -------------------------------------------------------------------------------
12,069,900
- -------------------------------------------------------------------------------
South Korean Won--2.8%
5,320 Korea Mobile Telecommunications Corp. 4,646,436
(Telecommunications)
263 Samsung Electronics (Electronics) 37,183
- -------------------------------------------------------------------------------
4,683,619
- -------------------------------------------------------------------------------
Thai Baht--11.6%
4,199,300 Bangkok Metropolitan Bank PLC (Banking) 4,873,810
2,421,000 Industrial Finance Corp. (Financial) 6,551,171
804,200 Kiatnakin Finance & Securities PLC (Financial Services) 3,280,460
2,768,000 Siam Panich Leasing (Financial Services) 4,555,574
- -------------------------------------------------------------------------------
19,261,015
- -------------------------------------------------------------------------------
Total Common Stocks (Cost $139,393,384) $147,844,811
===============================================================================
Preferred Stocks--3.5%
Philippine Peso--3.5%
143,400 Philippine Long Distance
Telephone 5.75% Convertible
Preferred (Telecommunications) $ 5,744,604
- -------------------------------------------------------------------------------
Total Preferred Stocks (Cost $6,208,086) $ 5,744,604
===============================================================================
<CAPTION>
Principal
Amount Description Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Warrants--0.3%
Indian Rupee
75,000 Tata Engineering & Locomotive Company Ltd. GDR
(Autos and Trucks) $ 487,500
- -------------------------------------------------------------------------------
Total Warrants (Cost $110,550) $ 487,500
===============================================================================
Corporate Bonds--0.9%
$1,047,000 Kiatnakin Finance & Securities PLC
Convertible 4.00%, 11/30/03 $ 879,480
1,012,000 UTD Engineers Berhad Convertible
4.00%, 05/22/99 621,819
- -------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $1,431,084) $ 1,501,299
===============================================================================
Short-Term Obligations--5.6%
$9,258,045 State Street Bank & Trust
Euro-Time Deposit 5.75%, 08/01/95 $ 9,258,045
- -------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $9,258,045) $ 9,258,045
===============================================================================
Total Investments
(Cost $156,401,149)(a) $164,836,259
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 14,459,128
Gross unrealized loss for investments in
which cost exceeds value (6,185,332)
- -------------------------------------------------------------------------------
Net unrealized gain $ 8,273,796
===============================================================================
</TABLE>
(a) The aggregate cost for federal income tax purposes is $156,498,213.
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.
36
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common and Preferred Stock Industry Concentrations
==================================================
<S> <C>
Banking 14.0%
Real Estate 10.8%
Financial Services 10.1%
Telecommunications 8.2%
Utility 5.9%
Conglomerate 5.6%
Transportation-Air 4.8%
Financial 4.0%
Engineering 3.9%
Manufacturing-Diversified Industrial 3.9%
Food Processing 3.2%
Finance 3.1%
Holding Company-Diversified 2.7%
Autos and Trucks 2.6%
Breweries 2.4%
Life Insurance 2.1%
Pharmaceuticals 2.0%
Oil & Gas 1.4%
Electronics-Semiconductors 1.2%
Building Materials 0.9%
Electronics 0.1%
Publishing 0.1%
- --------------------------------------------------
Total Common and Preferred Stocks 93.0%
==================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Fund Select Equity Fund
==================================
<S> <C> <C>
Assets:
Investments in securities, at value (identified cost $30,515,177, $113,391,835,
$290,555,967, $867,920,619, $322,435,981, $240,850,902 and $156,401,149, respectively) $31,929,574 $138,968,765
Cash 20,494 37,725
Receivables:
Investment securities sold 1,654,917 --
Forward foreign currency exchange contracts -- --
Fund shares sold 788,488 166,677
Dividends and interest 165,589 145,667
Deferred organization expenses, net 56,412 25,099
Other assets 45,295 24,050
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 34,660,769 139,367,983
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Options written, at value (a) -- --
Payables:
Investment securities purchased 4,522,868 --
Forward foreign currency exchange contracts -- --
Fund shares repurchased 2,236 55,146
Investment advisory fees 11,674 46,378
Administration fees 3,502 17,392
Distribution fees -- 25,645
Authorized dealer service fees 5,837 25,645
Transfer agent fees 35,784 56,608
Accrued expenses and other liabilities 78,928 39,828
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,660,829 266,642
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 27,784,489 110,100,345
Accumulated undistributed net investment income (loss) 92,753 728,121
Accumulated undistributed net realized gain (loss) on investment, option and futures
transactions 708,301 2,695,945
Accumulated net realized foreign currency gain -- --
Net unrealized gain (loss) on investments, options and futures 1,414,397 25,576,930
Net unrealized gain on translation of assets and liabilities denominated in foreign currencies -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $29,999,940 $139,101,341
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class A Institutional
-------- -------------
<S> <C> <C> <C>
Total shares of beneficial interest outstanding, $.001 par value (100,000,000 shares
authorized)(b) 1,826,773 5,264,421 2,445,264
Net asset value and redemption price per share (net assets/shares outstanding) $16.42 $18.04 $18.06
===================================================================================================================================
Maximum public offering price per share (NAV x 1.0582)(c) $17.38 $19.09 $18.06
===================================================================================================================================
</TABLE>
(a)Premiums received are $1,758,487 and $65,448 for the Goldman Sachs Capital
Growth Fund and the Goldman Sachs Small Cap Equity Fund, respectively.
(b)The Goldman Sachs Select Equity Fund Institutional share class has authorized
shares of 50,000,000.
(c)The Goldman Sachs Select Equity Fund's Institutional shares maximum public
offering price per share is equivalent to the net asset value per share.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth & Income Fund Capital Growth Fund Small Cap Equity Fund International Equity Fund Asia Growth Fund
===================================================================================================================================
<S> <C> <C> <C> <C>
$324,949,279 $1,063,951,087 $296,194,568 $265,787,295 $ 164,836,259
63,994 68,613 7,860 -- 2,080,351
-- 30,638,738 2,829,293 1,864,765 3,894,404
-- -- -- 488,733 --
3,118,256 2,231,043 531,613 808,145 1,032,897
401,852 571,485 38,897 523,276 152,445
48,120 -- 41,631 41,026 124,506
-- 6,625 12,655 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
328,581,501 1,097,467,591 299,656,517 269,513,240 172,120,862
- -----------------------------------------------------------------------------------------------------------------------------------
-- 1,438,125 -- -- --
3,926,140 54,126,128 1,240,575 -- 5,799,403
-- -- -- 2,429,068 --
242,819 13,249,583 268,396 234,575 55,135
145,443 663,302 188,963 170,505 103,888
39,666 221,101 62,986 56,835 34,630
-- -- -- -- --
66,110 221,101 62,986 56,835 34,630
117,841 243,820 229,781 189,553 79,750
7,213 21,199 149,817 253,259 224,085
- -----------------------------------------------------------------------------------------------------------------------------------
4,545,232 70,184,359 2,203,504 3,390,630 6,331,521
- -----------------------------------------------------------------------------------------------------------------------------------
279,376,544 767,160,205 322,420,302 230,050,883 160,091,510
457,981 3,479,902 (721,126) 823,303 1,609,760
9,808,432 60,292,296 1,929,802 (14,579,950) (4,851,489)
-- -- -- 26,149,475 561,703
34,393,312 196,350,829 (26,175,965) 6,858,344 7,934,180
-- -- -- 16,820,555 443,677
- -----------------------------------------------------------------------------------------------------------------------------------
$324,036,269 $1,027,283,232 $297,453,013 $266,122,610 $ 165,789,341
===================================================================================================================================
17,082,060 60,777,258 16,803,939 15,600,364 10,593,838
$18.97 $16.90 $17.70 $17.06 $15.65
===================================================================================================================================
$20.07 $17.88 $18.73 $18.05 $16.56
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
39
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Operations
For the Six Months Ended July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
=======================================
<S> <C> <C>
Investment income:
Dividends (net of withholding taxes)(a) $ 110,609 $ 1,173,804
Interest 261,291 100,137
- --------------------------------------------------------------------------------------------------------------------
Total income 371,900 1,273,941
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (b) 40,841 253,505
Administration fees (b) 12,252 115,986
Distribution fees (c) 10,103 132,503
Authorized dealer service fees 10,318 48,815
Custodian fees 30,316 27,885
Transfer agent fees 40,882 55,142
Professional fees 35,933 23,426
Amortization of deferred organization expenses 6,660 15,296
Director fees 560 1,624
Other 13,766 43,752
- --------------------------------------------------------------------------------------------------------------------
Total expenses 201,631 717,934
Less--expenses reimbursable by Goldman Sachs (119,948) (24,050)
- --------------------------------------------------------------------------------------------------------------------
Net expenses 81,683 693,884
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 290,217 580,057
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions 708,166 2,087,790
Options transactions -- --
Futures transactions -- --
Foreign currency related transactions -- --
Net change in unrealized gain (loss) on:
Investments 1,344,286 20,921,012
Options -- --
Translation of assets and liabilities denominated in foreign currencies -- --
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investment, option, futures and
foreign currency transactions 2,052,452 23,008,802
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,342,669 $23,588,859
====================================================================================================================
</TABLE>
(a)For the Select Equity, Growth and Income, Small Cap Equity, International
Equity and Asia Growth Funds taxes withheld were $20,635, $6,882, $11,864,
$361,560 and $100,331.
(b)For the Select Equity Fund, the Advisor and Administrator each waived fees of
$21,532.
(c)For the six months ended July 31, 1995, the distributor waived fees of
$20,421, $85,724, $315,413, $1,195,769, $398,222, $340,358 and $181,136 for
the Balanced, Select Equity, Growth and Income, Capital Growth, Small Cap
Equity, International Equity and Asia Growth Funds.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth & Income Capital Growth Small Cap Equity International Equity Asia Growth
Fund Fund Fund Fund Fund
=============================================================================================================
<S> <C> <C> <C> <C>
$3,241,111 $ 5,664,862 $ 431,994 $ 3,374,603 $ 2,262,656
541,958 3,404,604 1,083,414 71,562 453,425
- --------------------------------------------------------------------------------------------------------
3,783,069 9,069,466 1,515,408 3,446,165 2,716,081
- --------------------------------------------------------------------------------------------------------
693,908 3,587,307 1,194,667 1,021,074 543,411
189,248 1,195,769 398,222 340,358 181,137
191,415 770,488 272,353 228,691 114,156
123,998 425,281 125,869 111,667 66,980
29,691 61,210 27,945 345,030 155,921
216,785 251,329 130,246 68,362 100,495
21,601 41,687 30,926 43,758 33,362
9,477 13,155 9,268 8,705 15,682
2,592 14,353 5,375 5,077 1,398
59,019 80,010 41,663 26,294 37,748
- --------------------------------------------------------------------------------------------------------
1,537,734 6,440,589 2,236,534 2,199,016 1,250,290
-- -- -- -- --
- --------------------------------------------------------------------------------------------------------
1,537,734 6,440,589 2,236,534 2,199,016 1,250,290
- --------------------------------------------------------------------------------------------------------
2,245,335 2,628,877 (721,126) 1,247,149 1,465,791
- --------------------------------------------------------------------------------------------------------
9,642,411 56,748,352 6,479,817 (3,538,394) (1,876,183)
76,997 -- -- (545,138) (249,473)
-- -- -- -- (278,144)
-- -- -- 13,862,401 633,863
34,785,308 142,264,910 22,660,675 23,537,040 23,223,340
(76,997) 320,362 65,448 901,802 --
-- -- -- 8,372,305 128,526
- --------------------------------------------------------------------------------------------------------
44,427,719 199,333,624 29,205,940 42,590,016 21,581,929
- --------------------------------------------------------------------------------------------------------
$46,673,054 $201,962,501 $28,484,814 $43,837,165 $23,047,720
========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
41
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Six Months Ended July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
========================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 290,217 $ 580,057
Net realized gain (loss) on investment, option
and futures transactions 708,166 2,087,790
Net realized gain on foreign currency
related transactions -- --
Net change in unrealized gain on
investments, options and futures 1,344,286 20,921,012
Net change in unrealized gain on
translation of assets and liabilities
denominated in foreign currencies -- --
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 2,342,669 23,588,859
- ---------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (217,747) --
- ---------------------------------------------------------------------------------------
Total distributions to shareholders (217,747) --
- ---------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 21,427,970 58,021,459
Reinvestment of dividends and distributions 196,693 --
Cost of shares repurchased (1,259,213) (37,476,486)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from share transactions 20,365,450 20,544,973
- ---------------------------------------------------------------------------------------
Total increase (decrease) 22,490,372 44,133,832
Net assets:
Beginning of period 7,509,568 94,967,509
=======================================================================================
End of period $29,999,940 $139,101,341
=======================================================================================
Accumulated undistributed net investment
income (loss) $ 92,753 $ 728,121
=======================================================================================
Summary of share transactions:
<CAPTION>
Class A Institutional
------------ -------------
<S> <C> <C> <C>
Shares sold 1,366,941 904,181 2,445,264
Reinvestment of dividends and distributions 12,512 -- --
Shares repurchased (80,784) (2,141,966) --
- --------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 1,298,669 (1,237,785) 2,445,264
============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth & Income Capital Growth Small Cap Equity International Equity Asia Growth
Fund Fund Fund Fund Fund
=============================================================================================================
<S> <C> <C> <C> <C>
$ 2,245,335 $ 2,628,877 $ (721,126) $ 1,247,149 $ 1,465,791
9,719,408 56,748,352 6,479,817 (4,083,532) (2,403,800)
-- -- -- 13,862,401 633,863
34,708,311 142,585,272 22,726,123 24,438,842 23,223,340
-- -- -- 8,372,305 128,526
- --------------------------------------------------------------------------------------------------------
46,673,054 201,962,501 28,484,814 43,837,165 23,047,720
- --------------------------------------------------------------------------------------------------------
(1,816,836) -- -- -- --
- --------------------------------------------------------------------------------------------------------
(1,816,836) -- -- -- --
- --------------------------------------------------------------------------------------------------------
102,097,485 76,450,174 32,261,803 19,074,752 46,004,241
1,694,146 -- -- -- --
(18,383,823) (113,234,248) (82,780,814) (71,875,776) (27,560,899)
-------------------------------------------------------------------------------------------------------
85,407,808 (36,784,074) (50,519,011) (52,801,024) 18,443,342
- --------------------------------------------------------------------------------------------------------
130,264,026 165,178,427 (22,034,197) (8,963,859) 41,491,062
193,772,243 862,104,805 319,487,210 275,086,469 124,298,279
========================================================================================================
$324,036,269 $1,027,283,232 $297,453,013 $266,122,610 $165,789,341
========================================================================================================
$ 457,981 $ 3,479,902 $ (721,126) $ 823,303 $ 1,609,760
========================================================================================================
5,756,404 4,956,954 1,901,872 1,195,342 3,067,938
95,503 -- -- -- --
(1,037,033) (7,228,297) (4,887,354) (4,535,105) (1,812,094)
- --------------------------------------------------------------------------------------------------------
4,814,874 (2,271,343) (2,985,482) (3,339,763) 1,255,844
========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
43
<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 Select Equity
Fund(a) Fund (Class A)
===============================
From operations:
<S> <C> <C>
Net investment income (loss) $ 46,198 $ 1,229,019
Net realized gain (loss) on investment,
option and futures transactions 135 3,907,236
Net realized loss on foreign currency related
transactions -- --
Net change in unrealized gain (loss) on
investments, options and futures 70,111 (6,127,762)
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 (991,507)
- --------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (31,952) (1,194,733)
In excess of net investment income -- --
From net realized gain on investment, option and
futures transactions -- (5,666,531)
In excess of net realized gains -- --
- --------------------------------------------------------------------------------
Total distributions to shareholders (31,952) (6,861,264)
- --------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 7,557,294 22,943,423
Reinvestment of dividends and distributions 29,834 6,328,837
Cost of shares repurchased (162,052) (19,220,744)
- --------------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 7,425,076 10,051,516
- --------------------------------------------------------------------------------
Additional paid-in-capital -- --
- --------------------------------------------------------------------------------
Total increase 7,509,568 2,198,745
Net assets:
Beginning of year -- 92,768,764
- --------------------------------------------------------------------------------
End of year $7,509,568 $ 94,967,509
================================================================================
Accumulated undistributed (distributions in excess
of) net investment income $ 20,283 $ 148,064
================================================================================
Summary of share transactions:
Shares sold 537,644 1,499,807
Reinvestment of dividends and distributions 2,141 430,647
Shares repurchased (11,681) (1,250,288)
- --------------------------------------------------------------------------------
Net increase in shares outstanding 528,104 680,166
================================================================================
</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.
44
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth & Income Capital Growth Small Cap International Asia Growth
Fund Fund Equity Fund Equity Fund Fund(b)
================================================================================
<S> <C> <C> <C> <C>
$1,435,147 $ 1,436,995 $ (1,802,810) $ 1,275,871 $ 1,009,860
3,170,626 56,963,691 10,050,260 (787,439) (2,447,689)
-- -- -- (15,347,388) (72,160)
(2,594,309) (98,546,227) (74,013,642) (56,248,493) (15,289,160)
-- -- -- 15,093,970 315,151
- --------------------------------------------------------------------------------
2,011,464 (40,145,541) (65,766,192) (56,013,479) (16,483,998)
- --------------------------------------------------------------------------------
(1,435,147) (647,525) -- -- (883,487)
(750,732) -- -- -- --
(3,710,152) (94,255,733) (13,272,809) (11,299,568) --
-- -- (4,550,015) -- --
- --------------------------------------------------------------------------------
(5,896,031) (94,903,258) (17,822,824) (11,299,568) (883,487)
- --------------------------------------------------------------------------------
179,853,719 220,153,475 198,396,818 145,195,062 148,278,779
5,475,966 85,073,760 16,371,394 9,972,049 793,314
(29,980,986) (141,755,523) (72,766,153) (81,858,604) (7,406,329)
- --------------------------------------------------------------------------------
155,348,699 163,471,712 142,002,059 73,308,507 141,665,764
- --------------------------------------------------------------------------------
779,879 -- -- -- --
- --------------------------------------------------------------------------------
152,244,011 28,422,913 58,413,043 5,995,460 124,298,279
41,528,232 833,681,892 261,074,167 269,091,009 --
- --------------------------------------------------------------------------------
$193,772,243 $ 862,104,805 $319,487,210 $275,086,469 $124,298,279
================================================================================
$ 29,482 $ 851,025 -- $ (423,846) $ 143,969
================================================================================
11,178,610 14,260,854 10,110,654 8,468,691 9,803,931
355,278 5,913,973 971,295 655,625 52,995
(1,896,509) (9,348,284) (3,925,959) (5,047,356) (518,932)
- --------------------------------------------------------------------------------
9,637,379 10,826,543 7,155,990 4,076,960 9,337,994
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
45
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
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 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 Equity Fund"), Goldman Sachs International Equity
Fund ("International Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia
Growth Fund"), collectively, "the Funds." Balanced Fund, Select Equity Fund,
Growth and Income Fund and Capital Growth Fund are diversified portfolios
whereas Small Cap Equity Fund, International Equity Fund and Asia Growth Fund
are non-diversified portfolios. The Select Equity Fund currently offers two
classes of shares - Class A shares and Institutional shares.
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, except that certain
dividends from foreign securities which are not known on the ex-dividend date
are recorded as soon as the Fund is informed of the dividend. 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 of 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. In addition,
net realized capital gains on securities in certain countries gives rise to
capital gains taxes. It is the fund's policy to provide a reserve against net
unrealized gains for capital gains taxes on certain foreign securities held by
the fund. The Asia Growth Fund paid $135,905 of capital gains taxes on gains
realized on the sale of certain foreign securities during the six months ended
July 31, 1995. As of July 31, 1995, a reserve of $64,250 for capital gains
taxes is netted against unrealized gains and included in Accrued expenses-other
of Asia Growth's Statement of Assets and Liabilities.
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 on
current exchange rates; (ii) purchases and sales of foreign investments,
- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
income and expenses are converted into U.S. dollars based on currency exchange
rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and 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
- -----------------------------------------------
Certain of the Funds 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. 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 its investment company taxable income and capital gains to
their 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.
At October 31, 1994 (the Company's tax year end), Asia Growth had
approximately $184,000 of capital loss carryforward expiring in 2002 for federal
tax purposes. This amount is available to be carried forward to offset future
capital gains to the extent permitted by applicable laws or regulations.
F. Deferred Organization Expenses
- ----------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
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.
For the Select Equity Fund, shareholders of Class A shares bear all expenses
and fees relating to the distribution and authorized dealer service plans as
well as other expenses which are directly attributable to such shares. The Class
A and Institutional shareholders separately bear transfer agency fees.
H. Option Accounting Principles
- --------------------------------
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any
- --------------------------------------------------------------------------------
47
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
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 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
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 is entitled to 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 is entitled
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to a fee of .50% and .75% of the average daily net assets of the Select Equity
and Capital Growth Funds, respectively. For the Select Equity Fund, GSFM is
currently imposing its advisory fee at the annual rate of .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. GSAM International is
entitled to 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, GSAM is entitled to
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 the Select Equity,
Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds.
For the Select Equity Fund, GSAM is currently imposing its administration fee at
the annual rate of .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.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, Select Equity, Growth and Income and Asia Growth
Funds (excluding advisory, administration, distribution and authorized dealer
service fees and litigation, indemnification, taxes, interest, brokerage
commissions and extraordinary expenses and with respect to the Select Equity
Fund, transfer agent fees) until further notice to the extent such expenses
exceed .10%, .06%, .30% and .65% of the average daily net assets of the funds,
respectively. The amounts reimbursable to the Balanced and Select Equity Funds
at July 31, 1995 were approximately $45,000 and $24,000, respectively, and are
reflected in "Other Assets" in the accompanying Statements of Assets and
Liabilities.
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 $1,000, $38,000, $438,000, $328,000, $176,000, $108,000 and
$189,000 during the six months ended July 31, 1995 for the Balanced, Select
Equity Class, Growth and Income, Capital Growth, Small Cap Equity, International
Equity and Asia Growth Funds, respectively.
The Company, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% of a Fund's average daily net assets
(or, in the case of Select Equity Fund, the average daily net assets
attributable to Class A shares). Currently, Goldman Sachs has voluntarily
agreed to waive the entire amount of such fee for each Fund (other than the
Select Equity Fund). Effective June 1, 1995, each Fund's Distribution Plan was
amended to reduce the contractual fee from .50% to .25% of average daily net
assets and to eliminate the provision of certain services under the Distribution
Plan which are currently provided under the Authorized Dealer Service Plan.
Effective June 1, 1995, the Company on behalf of each Fund adopted an
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 to an
annual basis of .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).
Goldman Sachs also serves as the Transfer Agent of the Funds for a fee.
- --------------------------------------------------------------------------------
49
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
4. Portfolio Securities Transactions
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options written) for the six months ended July 31,
1995, were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
===== =========== ============
<S> <C> <C>
Balanced $ 39,905,390 $ 21,063,467
Select Equity 49,806,916 29,943,957
Growth and Income 187,823,825 115,911,425
Capital Growth 112,697,257 228,906,816
Small Cap Equity 85,307,105 143,944,537
International Equity 90,232,222 140,974,601
Asia Growth 105,786,918 83,188,307
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities (excluding short-term investment and
options) for the Balanced Fund in the amounts of $19,445,085 and $16,572,696,
respectively.
For the six months ended July 31, 1995, written option transactions in the
Growth and Income Fund were as follows:
<TABLE>
<CAPTION>
Call Options
===========================
Number of Premiums
Options Written Contracts Received
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period 200 $76,997
Options written -- --
Options expired (200) (76,997)
Options exercised -- --
- -------------------------------------------------------------------------------
Balance outstanding,
end of period -- $ --
===============================================================================
</TABLE>
For the six months ended July 31, 1995, written option transactions in the
Capital Growth Fund were as follow:
<TABLE>
<CAPTION>
Call Options
===========================
Number of Premiums
Options Written Contracts Received
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period -- $ --
Options written 8,850 1,758,487
Options expired -- --
Options exercised -- --
- -------------------------------------------------------------------------------
Balance outstanding,
end of period 8,850 $1,758,487
===============================================================================
</TABLE>
For the six months ended July 31, 1995, written option transactions in the
Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Call Options
===========================
Number of Premiums
Options Written Contracts Received
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period -- $ --
Options written 900 65,448
Options expired -- --
Options exercised -- --
- -------------------------------------------------------------------------------
Balance outstanding,
end of period 900 $65,448
===============================================================================
</TABLE>
For the six months ended July 31, 1995, purchased option transactions in the
International Equity Fund were as follows:
<TABLE>
<CAPTION>
Options Purchased Cost
- -------------------------------------------------------------------------------
<S> <C>
Balance outstanding, beginning of period $ 8,340,192
Options purchased --
Options expired (545,138)
Options sold --
- -------------------------------------------------------------------------------
Cost at end of period 7,795,054
Unrealized loss (7,786,881)
- -------------------------------------------------------------------------------
Value at end of period $ 8,173
===============================================================================
</TABLE>
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the six months ended July 31, 1995, written and purchased option
transactions in the Asia Growth Fund were as follows:
<TABLE>
<CAPTION>
Put Options
===========================
Number of Premiums
Options Written Contracts Received
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period 12,700 $ 180,767
Options written -- --
Options expired (12,700) (180,767)
Options exercised -- --
- -------------------------------------------------------------------------------
Balance outstanding,
end of period -- $ --
===============================================================================
<CAPTION>
Options Purchased Cost
- -------------------------------------------------------------------------------
<S> <C>
Balance outstanding, beginning of period $ --
Options purchased 472,040
Options expired --
Options sold (472,040)
- -------------------------------------------------------------------------------
Value at end of period $ --
===============================================================================
</TABLE>
Certain risks arise related to call and put options from the possible
inability of counterparties to meet terms of their contracts.
At July 31, 1995, the International Equity Fund had outstanding forward
foreign currency exchange contracts, both to purchase and sell foreign
currencies.
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 July 31, 1995, the International Equity Fund had sufficient cash and
securities to cover any commitments under these contracts which were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain (Loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Belgian Franc
expiring 9/8/95 $ 5,835,751 $ 5,961,426 $ (125,675)
Deutschemark
expiring 9/18/95 24,177,576 24,100,148 77,428
expiring 9/18/95 13,820,000 14,264,980 (444,980)
expiring 9/18/95 7,129,074 7,254,397 (125,323)
expiring 9/18/95 2,608,320 2,602,091 6,229
French Franc
expiring 9/11/95 5,510,000 5,890,014 (380,014)
Hong Kong Dollar
expiring 10/18/95 12,576,034 12,580,683 (4,649)
expiring 8/1/95 1,034,367 1,034,447 (80)
Japanese Yen
expiring 10/17/95 40,102,758 39,949,301 153,457
Swedish Krona
expiring 11/7/95 14,773,507 15,204,466 (430,959)
- -------------------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $127,567,387 $128,841,953 $(1,274,566)
===============================================================================
<CAPTION>
- -------------------------------------------------------------------------------
Foreign Currency Value on Unrealized
Purchase Contracts Settlement Date Current Value Gain (Loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Deutschemark
expiring 9/8/95 $ 5,836,640 $ 5,970,706 $ 134,066
expiring 11/7/95 14,743,548 14,753,168 9,620
Japanese Yen
expiring 10/27/95 13,450,000 13,311,587 (138,413)
- -------------------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $34,030,188 $34,035,461 $ 5,273
===============================================================================
</TABLE>
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 $488,733 and $2,429,068, respectively, in the
accompanying Statements of Assets and Liabilities. Included in these
- --------------------------------------------------------------------------------
51
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
July 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
amounts are $107,933 and $778,975, respectively, related to forward contracts
closed but not settled as of July 31, 1995.
For the six months ended July 31, 1995, Goldman Sachs earned approximately
$2,000, $56,000, $86,000, $7,000, $12,000 and $18,000 of brokerage commissions
from portfolio transactions executed on behalf of the Balanced, Growth and
Income, Capital Growth, Small Cap, International Equity and Asia Growth Funds,
respectively.
5. 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.
6. 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 and agency obligations. At July 31, 1995, the Balanced,
Select Equity, Growth and Income, Capital Growth and Small Cap Equity Funds had
a .36%, .31%, 2.15%, 14.63% and 1.69%, respectively, undivided interest in the
repurchase agreements in the following joint account which equaled $4,200,000,
$3,600,000, $24,800,000, $168,400,000 and $19,400,000, respectively, in
principal amount. At July 31, 1995, the repurchase agreements held in this
joint account, along with the corresponding underlying securities (including the
type of security, market value, interest rate and maturity date) were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Principal Interest Maturity Amortized
Amount Rate Date Cost
===============================================================================
<S> <C> <C> <C>
Lehman Government Securities, dated 07/31/95,
repurchase price $450,073,438 (U.S. Treasury
Notes: $441,483,578, 4.37%-8.75%,
08/15/96-05/15/02; U.S. Treasury Principal-
Only Strips: $17,361,643, 7.50%-8.00%,
02/15/01-05/15/02)
$450,000,000 5.88% 08/01/95 $ 450,000,000
Nomura Securities International, Inc., dated
07/31/95, repurchase price $400,065,000
(FHLMC Gold, $269,147,917, 7.00%-9.00%,
02/01/02-07/01/25; FNMA, $142,751,971,
6.00%-7.50%, 10/01/08-06/01/09)
400,000,000 5.85% 08/01/95 400,000,000
Salomon Brothers, Inc., dated 07/31/95,
repurchase price $301,048,913 (U.S.
Treasury Interest-Only Strips: $108,618,956,
02/15/98-02/15/99; U.S. Treasury Principal-
Only Strips: $198,627,836, 8.13%-8.88%,
02/15/98-02/15/99)
301,000,000 5.85% 08/01/95 301,000,000
- -------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $1,151,000,000
===============================================================================
</TABLE>
7. 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.
8. Subsequent Events
On August 1, 1995, the Capital Growth Fund, in an interportfolio trade,
transferred securities valued at approximately $105,460,000 to the Goldman Sachs
Mid-Cap Equity Fund related to shareholder exchanges into such fund.
- --------------------------------------------------------------------------------
52
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs Balanced Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to
Income from investment operations shareholders
----------------------------------------- -------------------------
Net realized
Net asset and unrealized Total income From Total Net asset
value, Net gain on from net distributions Net increase value,
beginning investment investment investment investment to in net end of
of period income transactions operations income shareholders asset value period
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
============================================
1995 .................... $14.22 $0.22 $2.18 $2.40 $(0.20) $(0.20) $2.20 $16.42
For the Period Ended January 31,
================================
1995/d/.................. 14.18 0.10 0.02 0.12 (0.08) (0.08) 0.04 14.22
<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 Net assets at expenses to income(loss)
Total average net average net Portfolio end of period average to average
return /a/ assets assets turnover rate (in 000s) net assets net assets
====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
============================================
1995..................... 16.96%/b/ 1.00%/c/ 3.55%/c/ 136.11%/b/ $30,000 2.72%/c/ 1.83%/c/
For the Period Ended January 31,
================================
1995/d/.................. 0.87/b/ 1.00/c/ 3.39/c/ 14.71/b/ 7,510 8.29/c/ (3.90)/c/
- --------------------
</TABLE>
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales charges. Total return would be reduced if a sales
charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs 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 Total Net increase Net asset
value, Net investments, (loss) from net investment distributions (decrease) value,
beginning investment options and investment investment and futures 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 Periods Ended July 31, (unaudited)
==========================================
1995 - Class A shares.. $14.61 $0.11 $ 3.32 $ 3.43 $ -- $ -- $ -- $ 3.43 $18.04
1995 - Institutional
shares/d/............. 16.97 0.01 1.08 1.09 -- -- -- 1.09 18.06
For the Year Ended January 31,
==============================
1995 - Class A shares.. 15.93 0.20 (0.38) (0.18) (0.20) (0.94) (1.14) (1.32) 14.61
1994 - Class A shares.. 15.46 0.17 2.08 2.25 (0.17) (1.61) (1.78) 0.47 15.93
1993 - Class A shares.. 15.05 0.22 0.41 0.63 (0.22) -- (0.22) 0.41 15.46
For the Period Ended January 31,
================================
1992 - Class A shares/e/ 14.17 0.11 0.88 0.99 (0.11) -- (0.11) 0.88 15.05
<CAPTION>
Ratios assuming no
voluntary waiver of
fees or
expense limitations
===========================
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses to income to Portfolio Net assets at expenses to income
Total average net average net turnover end of period average to average
return /a/ assets assets rate (in 000s) net assets net assets
============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
For the Periods Ended July 31, (unaudited)
==========================================
1995 - Class A shares.. 23.48%/b/ 1.28%/c/ 1.06%/c/ 27.65%/b/ $ 94,944 1.56%/c/ 0.78%/c/
1995 - Institutional
shares/d/............. 6.42/b/ 0.65/c/ 0.88/c/ 27.65/b/ 44,157 0.96/c/ 0.57/c/
For the Year Ended January 31,
==============================
1995 - Class A shares.. (1.10) 1.38 1.33 56.18 94,968 1.63 1.08
1994 - Class A shares.. 15.12 1.42 0.92 87.73 92,769 1.67 0.67
1993 - Class A shares.. 4.30 1.28 1.30 144.93 117,757 1.53 1.05
For the Period Ended January 31,
================================
1992 - Class A shares/e/ 7.01/b/ 1.57/c/ 1.24/c/ 135.02/c/ 151,142 1.82/c/ 0.99/c/
- --------------------
</TABLE>
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales charges. Total return would be reduced if a sales
charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ Institutional shares commenced operations on June 15, 1995.
/(e)/ For the period from May 24, 1991 (commencement of operations) to
January 31, 1992.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs Growth and Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment
operations Distributions to shareholders
===================================== =================================================
Net realized Total From net
Net asset and unrealized income realized gain In excess Total
value at Net gain on from From net on investment of net distributions
beginning investment investments investment investment and option investment to
of period income and options operations income transactions income shareholders
===================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995..................... $15.80 $0.17 $3.13 $3.30 $(0.13) $ -- $ -- $(0.13)
For the Year Ended January 31,
==============================
1995..................... 15.79 0.20/d/ 0.30/d/ 0.50 (0.20) (0.33) (0.07) (0.60)
For the Period Ended January 31,
================================
1994/e/.................. 14.18 0.15 1.68 1.83 (0.15) (0.06) (0.01) (0.22)
<CAPTION>
Ratio of
Net asset net
Additional Net increase value at expenses to
paid-in in net end of Total average net
capital asset value period return/a/ assets
=============================================================
<S> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995..................... $ -- $3.17 $18.97 20.91%/b/ 1.22%/c/
For the Year Ended January 31,
==============================
1995..................... 0.11/d/ 0.01 15.80 3.97 1.25
For the Period Ended January 31,
================================
1994/e/.................. -- 1.61 15.79 13.08/b/ 1.25/c/
<CAPTION>
Ratios assuming no
voluntary waiver of
distribution fees
and expense limitations
==========================
Ratio of net Ratio of net
investment Ratio of investment
income to Portfolio Net assets at expenses to income (loss)
average net turnover end of period average to average
assets rate (in 000's) net assets net assets
=====================================================================
<S> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995..................... 1.78%/c/ 48.69%/b/ $324,036 1.47%/c/ 1.53%/c/
For the Year Ended January 31,
==============================
1995..................... 1.28 71.80 193,772 1.58 0.95
For the Period Ended January 31,
================================
1994/e/.................. 1.23/c/ 102.23/b/ 41,528 3.24/c/ (0.76)/c/
</TABLE>
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales 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, would have been 3.34%.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ Calculated based on the average shares outstanding methodology.
/(e)/ For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs 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 Six Months Ended July 31, (unaudited)
=============================================
1995 ......... $13.67 $0.04 $ 3.19 $ 3.23 $ -- $ -- $ -- $ -- $ 3.23
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 January 31,
================================
1991/d/ ....... 11.34 0.34 (0.27) 0.07 (0.31) -- -- (0.31) (0.24)
<CAPTION>
Ratio of Ratio of net
Net asset net investment
value, expenses to income to Portfolio Net assets at
end of Total average net average net turnover end of period
period return/a/ assets assets rate (in 000's)
================================================================================
<S> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995 ...................... $16.90 23.63%/b/ 1.35%/c/ 0.55%/c/ 13.26%/b/ $1,027,283
For the Year Ended January 31,
==============================
1995 ...................... 13.67 (4.38) 1.38 0.16 38.36 862,105
1994 ...................... 15.96 16.89 1.38 0.13 36.12 833,682
1993 ...................... 14.64 18.01 1.41 0.42 58.93 665,976
1992 ...................... 13.65 29.31 1.53 2.09 48.93 500,307
For the Period Ended January 31,
================================
1991/d/ ................... 11.10 0.84/b/ 1.27/b/ 3.24/b/ 35.63/b/ 437,533
<CAPTION>
Ratios assuming no
voluntary waiver of
distribution fees
===========================
Ratio of net
Ratio of investment
expenses to income (loss)
average to average
net assets net assets
============================
<S> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995 ............................... 1.60%/c/ 0.30%/c/
For the Year Ended January 31,
==============================
1995 ............................... 1.63 (0.09)
1994 ............................... 1.63 (0.12)
1993 ............................... 1.66 0.17
1992 ............................... 1.78 1.84
For the Period Ended January 31,
================================
1991/d/ ............................ 1.47/b/ 3.04/b/
</TABLE>
- --------------------
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales charges. Total return would be reduced if a sales
charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from April 20, 1990 (commencement of operations) to
January 31, 1991.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs 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 asset Net gain (loss) on Total income From on investment, investment, Total
value, investment investments, (loss) from net option and option and distributions
beginning income options and investment investment futures futures to
of period (loss) futures operations income transactions transactions shareholders
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995................ $16.14 $(0.06) $ 1.62 $ 1.56 $ -- $ -- $ -- $ --
For the Year Ended January 31,
==============================
1995................ 20.67 (0.07) (3.53) (3.60) -- (0.69) (0.24) (0.93)
1994................ 16.68 (0.04) 5.03 4.99 -- (1.00) -- (1.00)
For the Period Ended January 31,
================================
1993/d/............. 14.18 0.03 2.50 2.53 (0.03) -- -- (0.03)
<CAPTION>
Ratio of
net
Ratio of investment
Net increase Net asset net income
(decrease) value, expenses to (loss) to Portfolio Net assets
in net end of Total average net average turnover at end of period
asset value period return/a/ assets net assets rate (in 000's)
===========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995 ......................... $ 1.56 $17.70 9.67%/b/ 1.40%/c/ (0.45)%/c/ 28.01%/b/ $297,453
For the Year Ended January 31,
==============================
1995 ......................... (4.53) 16.14 (17.53) 1.53 (0.53) 43.67% 319,487
1994 ......................... 3.99 20.67 30.13 1.60 (0.45) 56.81 261,074
For the Period Ended January 31,
================================
1993/d/ ...................... 2.50 16.68 17.86/b/ 1.65/c/ 0.62/c/ 7.12/c/ 59,339
<CAPTION>
Ratios assuming no
voluntary waiver of
distribution fees
============================
Ratio of
net
Ratio of investment
expenses to loss
average to average
net assets net assets
============================
<S> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995 ...................................... 1.65%/c/ (0.70)%/c/
For the Year Ended January 31,
==============================
1995 ...................................... 1.78 (0.78)
1995 ...................................... 1.85 (0.70)
For the Period Ended January 31,
================================
1993/d/ ................................... 2.70/c/ (0.43)/c/
</TABLE>
- --------------------
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales charges. Total return would be reduced if a sales
charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment
operations Distributions to shareholders
======================================================== =========================================
Net realized From
Net realized and unrealized net
and unrealized gain (loss) realized gain
Net asset Net gain (loss) on on foreign Total income From on investment, Total
value, investment investments, currency (loss) from net option and distributions
beginning income options and related investment investment futures to
of period (loss) futures transactions operations income transactions shareholders
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995................. $14.52 $ 0.10 $ 1.17 $ 1.27 $ 2.54 $ -- $ -- $ --
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 January 31,
================================
1993/d/.............. 14.18 (0.01) 0.29 (0.11) 0.17 -- -- --
<CAPTION>
Ratio of net
Net Ratio of investment
increase Net asset net income
(decrease) value, expenses to (loss) to Portfolio Net assets at
in net asset end of Total average net average net turnover end of period
value period return/a/ assets assets rate in (000s)
==========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995................. $ 2.54 $17.06 17.49%/b/ 1.62%/c/ 0.92%/c/ 33.37%/b/ $266,123
For the Year Ended January 31,
==============================
1995................. (3.58) 14.52 (16.65) 1.73 0.40 84.54 275,086
1994................. 3.75 18.10 26.13 1.76 0.51 60.04 269,091
For the Period Ended January 31,
================================
1993/d/.............. 0.17 14.35 1.23/b/ 1.80/c/ (0.42)/c/ 0.00 66,063
<CAPTION>
Ratios assuming no
voluntary waiver of
distribution fees
and expense limitations
---------------------------
Ratio of
net investment
Ratio of income
expenses (loss)
to average to average
net assets net assets
===========================
<S> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995................. 1.87%/c/ 0.67%/c/
For the Year Ended January 31,
==============================
1995................. 1.98 0.15
1994................. 2.01 0.26
For the Period Ended January
============================
1993/d/.............. 2.58/c/ (1.20)/c/
</TABLE>
- -------------------
/(a)/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss)
from investment operations Distributions to shareholders
========================================== =============================
Net realized
and unrealized Net
gain on increase
Net asset Net foreign Total gain Total (decrease)
value, Net unrealized currency (loss) from From net distributions in net
beginning investment gain (loss) on related investment investment to asset
of period income investments transactions operations income shareholders value
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995................. $13.31 $ 0.14 $ 2.12 $ 0.08 $ 2.34 $ -- $ -- $ 2.34
For the Period Ended January 31,
================================
1995/d/.............. 14.18 0.11 (0.89) 0.01 (0.77) (0.10) (0.10) (0.87)
<CAPTION>
Ratios assuming no
voluntary waiver of
distribution fees
and expense limitations
========================
Ratio Ratio
Ratio of net of net
Net of net investment Ratio of investment
asset expenses to income to expenses income to
value, average average Portfolio Net asets at to average average
end of Total net net turnover end of period net net
period Return/a/ assets assets rate (000s) assets assets
===============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Six Months Ended July 31, (unaudited)
=============================================
1995................. $15.65 17.58%/b/ 1.73%/c/ 2.02%/c/ 62.98%/b/ $165,789 1.98%/c/ 1.77/c/
For the Period Ended January 31,
================================
1995/d/.............. 13.31 (5.46)/b/ 1.90/c/ 1.83/c/ 36.08/b/ 124,298 2.38/c/ 1.35%/c/
</TABLE>
- ----------------
/(a)/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ 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.
59
<PAGE>
[This Page Intentionally Left Blank]
- --------------------------------------------------------------------------------
60
<PAGE>
[This Page Intentionally Left Blank]
- --------------------------------------------------------------------------------
61
<PAGE>
[This Page Intentionally Left Blank]
- --------------------------------------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
This Semiannual Report is authorized for distribution to prospective investors
only when preceded or accompanied by a Goldman Sachs Equity Portfolios, Inc.
Prospectus which contains facts concerning the Fund's objectives and policies,
management, expenses and other information.
- --------------------------------------------------------------------------------
63
<PAGE>
Goldman Sachs
One New York Plaza
New York, NY 10004
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
eq3/72k/0795
The Goldman Sachs
Equity Portfolios
- --------------------------------------------------------------------------------
Semiannual Report
July 31, 1995
Goldman Sachs Balanced Fund
Goldman Sachs Select Equity Fund
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
[LOGO OF GOLDMAN SACHS APPEARS HERE]
================================================================================
<PAGE>
GOLDMAN SACHS
MID-CAP EQUITY FUND
Financial Statements
(Unaudited)
September 30, 1995
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- ------------------------------------------------------------------------------
Statement of Investments
September 30, 1995
(Unaudited)
- -------------------------------------------------------------------------------
Shares Description Value
- ------ ----------- -----
COMMON STOCK--93.1%
AEROSPACE/DEFENSE--7.8%
22,900 Lockheed Martin Corp. $ 1,537,162
51,700 McDonnell Douglas Corp. 4,278,175
40,800 Northrop Grumman Corp. 2,483,700
53,300 Thiokol Corp. 1,905,475
-----------
10,204,512
-----------
AUTOMOTIVE PRODUCTS--1.9%
52,400 General Motors Corp. 2,456,250
-----------
AUTO PARTS--ORIGINAL EQUIPMENT--4.5%
65,300 Goodyear Tire & Rubber Co. 2,571,187
110,300 Lear Seating Corp.* 3,240,062
-----------
5,811,249
-----------
CABLE TELEVISION SYSTEMS--1.2%
91,100 Tele-Communications, Inc.* 1,594,250
-----------
CHEMICALS--PLASTICS--1.9%
96,900 Geon Co. 2,470,950
-----------
COMMERCIAL BANKS--2.0%
78,200 Shawmut National Corp. 2,629,475
-----------
CONTAINERS--METAL AND GLASS--1.8%
187,500 Owens Illinois Corp.* 2,367,188
-----------
ELECTRONICS--SEMICONDUCTORS--1.8%
87,100 National Semiconductor Corp.* ## 2,406,137
-----------
FINANCIAL BANKS--2.1%
26,000 Midlantic Corp., Inc. 1,410,500
19,600 Citicorp 1,386,700
-----------
2,797,200
-----------
FOOD--WHOLESALE--3.7%
89,300 Fleming Companies, Inc. 2,143,200
89,100 Supervalue, Inc. 2,617,312
-----------
4,760,512
-----------
GROCERY PRODUCTS--1.6%
119,000 Chiquita Brands International, Inc. 2,037,875
-----------
HARDWARE AND TOOLS--0.8%
28,800 Snap-On Tools Corp. 1,094,400
-----------
HOME BUILDERS--1.7%
103,400 Lennar Corp. 2,248,950
-----------
HOSPITAL MANAGEMENT--3.3%
247,400 Tenet HealthCare Corp.* 4,298,575
-----------
HOUSEHOLD PRODUCTS--0.9%
81,600 Sunbeam Corp., Inc. 1,213,800
-----------
INSURANCE--11.5%
81,680 Integon Corp. 1,439,610
62,600 Lincoln National Corp. 2,950,025
97,400 PartnerRe Holdings Ltd. 2,410,650
68,000 The Paul Revere Corp. 1,283,500
88,300 Penncorp Financial Group, Inc. 2,108,163
33,500 Reliastar Financial Corp. 1,360,938
73,100 Risk Capital Holdings, Inc.* 1,589,925
31,500 Zenith National Insurance Corp. 763,875
71,600 20th Century Industries* 1,100,850
-----------
15,007,536
-----------
MANUFACTURING--DIVERSIFIED INDUSTRIAL--1.3%
50,500 Harnischfeger Industries, Inc. 1,685,436
-----------
MARINE AND PLEASURE BOATS--4.1%
136,300 Brunswick Corp. 2,760,075
119,400 Outboard Marine Corp. 2,567,100
-----------
5,327,175
-----------
METAL FABRICATE/HARDWARE--0.8%
33,250 Trinity Industries, Inc. $ 1,030,750
-----------
METALS--MISCELLANEOUS--0.8%
Quanex Corp. 1,109,363
-----------
OIL AND GAS--DOMESTIC--2.9%
73,700 Ashland Inc. 2,459,738
39,300 Tosco Corp. 1,355,850
-----------
3,815,588
-----------
OIL AND GAS--INTERNATIONAL--1.6%
9,400 Amoco Corp. 602,775
4,000 Exxon Corp. 289,000
12,000 Mobil Corp. 1,195,500
200 Texaco Inc. 12,925
-----------
2,100,200
-----------
PAPER AND FOREST PRODUCTS--5.3%
44,000 Champion Internatonal Corp. 2,370,500
52,100 Georgia-Pacific Corp. 4,558,750
-----------
6,929,250
-----------
PUBLISHING--2.3%
197,200 Valassis Communications, Inc.* 2,958,000
-----------
PULP AND PAPER PRODUCTS--2.9%
195,400 Stone Container Corp. 3,712,600
-----------
RETAIL--DEPARTMENT STORES--1.7%
60,800 Dillard Department Stores, Inc. 1,938,000
7,000 Sears Roebuck & Co. 258,125
-----------
2,196,125
-----------
RETAIL--SPECIALTY APPAREL STORES--1.4%
397,700 Charming Shoppes Inc. 1,789,650
-----------
SAVINGS AND LOANS--0.6%
8,100 GP Financial Corp. 223,763
15,000 Standard Federal Bancorp. 585,000
-----------
808,763
-----------
SHOES--0.1%
48,900 LA Gear, Inc.* 128,363
-----------
TECHNOLOGY--1.0%
50,900 Storage Technology Corp.* 1,247,050
-----------
TEXTILES--0.%
100 Warnaco Group Inc. 2,400
-----------
TOBACCO AND FOOD PRODUCTS--5.7%
8,200 Philip Morris Companies, Inc. 684,700
135,100 RJR Nabisco Holding Corp. 4,373,863
107,400 Universal Corp. 2,416,500
-----------
7,475,063
-----------
TRANSPORTATION--MARINE--1.4%
115,700 Kirby Corp.* 1,793,350
-----------
TRUCKING--1.6%
85,800 Consolidated Freightways, Inc. 2,123,550
-----------
UTILITIES--9.1%
35,500 Boston Edison Co. 976,250
139,200 Central Maine Power Co. 1,827,000
100,800 CMS Energy Corp. 2,646,000
78,900 Entergy Corp. 2,061,263
150,900 Long Island Lighting Co. 2,603,025
37,500 New York State Electric and Gas Corp. 984,375
62,000 Niagara Mohawk Power Corp. 813,750
-----------
11,911,663
-----------
TOTAL COMMON STOCK (Cost $118,935,728) $121,543,198
------------
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- ----------------------------------------------------------------------------
Statement of Investments(continued)
September 30, 1995
(Unaudited)
- ----------------------------------------------------------------------------
Principal
Amount Description Value
- --------- ----------- -----
REPURCHASE AGREEMENT--6.3%
$8,200,000 Joint Repurchase Agreement Account
6.53%, 10/02/95 $ 8,200,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $8,200,000) $ 8,200,000
--------------
TOTAL INVESTMENTS (Cost $127,135,728)** $ 129,743,198
==============
Contracts# Description Value
- ---------- ----------- -----
OPTIONS WRITTEN--(0.1)%
CALL OPTIONS WRITTEN
374 National Semiconductor Corp., Call @
$30.00 expiring November 1995 $ 51,425
--------------
TOTAL OPTIONS WRITTEN
(Premiums received $60,774) $ 51,425
==============
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $ 5,458,076
Gross unrealized loss for investments in
which cost exceeds value (2,854,144)
--------------
Net unrealized gain $ 2,603,932
==============
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $127,139,266.
# One contract relates to 100 shares.
## Portions of these securities are being segregated as collateral on
options contracts.
The percentage shown for each investment category reflects thevalue of
investments in that category as a percentage of total net assets.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in securities, at value
(identified cost $127,135,728) $129,743,198
Cash 17,542
Receivables:
Investment securities sold 2,801,894
Dividends and interest 179,471
Deferred organization expenses, net 83,053
Other assets 46,474
------------
TOTAL ASSETS 132,871,632
------------
LIABILITIES:
Options written, at value /(a)/ 51,425
Payables:
Investment securities purchased 2,086,258
Investment advisory fees 64,770
Administration fees 16,193
Custodian fees 10,354
Transfer agent fees 4,318
Organization cost payable 85,922
Accrued expense and other liabilities 43,432
------------
TOTAL LIABILITIES 2,362,672
------------
NET ASSETS:
Paid-in capital 127,642,203
Accumulated undistributed net investment income 377,092
Accumulated net realized loss on investment
and option transactions (127,154)
Net unrealized gain on investments and options 2,616,819
------------
NET ASSETS $130,508,960
------------
Total shares of beneficial interest outstanding,
$.001 par value (50,000,000 shares authorized) 8,509,169
Net asset value, offering and redemption price
per institutional share (net assets/shares outstanding) $15.34
------------
</TABLE>
/(a)/ Premium received is $60,774.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Statement of Operations
For the Period Ended September 30, 1995 /(a)/
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 479,134
Interest 81,161
----------
TOTAL INCOME 560,295
==========
EXPENSES:
Investment adviser fees 129,320
Administration fees 32,330
Professional fees 17,173
Registration fees 17,159
Custodian fees 10,354
Transfer agent fees 8,621
Printing fees 3,878
Amortization of deferred organization expenses 2,869
Director fees 214
Other 2,394
----------
TOTAL EXPENSES 224,312
Less--Expenses reimbursable by GSAM (41,109)
----------
NET EXPENSES 183,203
----------
NET INVESTMENT INCOME 377,092
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND
OPTION TRANSACTIONS:
Net realized loss on investment and option transactions (127,154)
Net change in unrealized gain on investments and options 2,616,819
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,866,757
==========
</TABLE>
/(a)/ For the period from August 1, 1995 (commencement of operations) to
September 30, 1995.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Statement of Change in Net Assets
For the Period Ended September 30, 1995 /(a)/
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 377,092
Net realized loss on investment and option transactions (127,154)
Net change in unrealized gain on investments and options 2,616,819
------------
Net increase in net assets resulting from operations 2,866,757
------------
FROM INSTITUTIONAL SHARE TRANSACTIONS: SHARES
Proceeds from sales of shares 8,555,611 128,349,674
Cost of shares repurchased (46,442) (707,471)
--------- ------------
Net increase in net assets resulting from share transactions 8,509,169 127,642,203
--------- ------------
Total increase 130,508,960
NET ASSETS:
Beginning of period 0
------------
End of period $130,508,960
============
Accumulated undistributed net investment income $ 377,092
============
</TABLE>
/(a)/ From the period from August 1, 1995 (commencement of operations) to
September 30, 1995.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Financial Highlights
Selected Data for an Institutional Share Outstanding Throughout the Period (a)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Net asset value, beginning of period $15.00
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gain on investments and options 0.30
Total income from investment operations 0.34
Net increase in net asset value 0.34
Net asset value, end of period $15.34
Total return (b) 2.27%
Ratio of net expenses to average net assets 0.85%(c)
Ratio of net investment income to average net assets 1.75%(c)
Portfolio turnover rate 37.84%
Net assets at end of period $130,508,960
Ratios assuming no waiver of fees or expense limitations:
Ratio of expenses to average net assets 1.04%(c)
Ratio of net investment income to average net assets 1.56%(c)
</TABLE>
(a) For the period from August 1, 1995 (commencement of operations) to
September 30, 1995.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements
September 30, 1995
(Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Goldman Sachs Mid-Cap Equity Fund ("the Fund") is a separate diversified
portfolio of Goldman Sachs Equity Portfolios, Inc. (the "Company"). The Company
consists of eight funds and is a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund offers two classes of shares - Institutional
shares and Administration shares. The Administration shares of the Fund have
not commenced operations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Fund 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 of the stock received. Interest income is
determined on a basis of interest accrued, premium amortized and discount
earned.
C. Federal Taxes
-------------
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income and capital gains to
its shareholders. Accordingly, no federal tax provision is required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of a portfolio's 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.
D. Deferred Organization Expenses
------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
E. 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.
F. Option Accounting Principles
----------------------------
When the Fund writes call or puts options, an amount equal to the premium
received is recorded as an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. When a written option expires on its stipulated
expiration date or the Fund enters into a closing purchase transaction, the Fund
realizes a gain or loss without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
When a written call option is exercised, the Fund realizes a gain or loss from
the sale of the underlying security, and the proceeds of the sale are increased
by the premium originally received. When a written put option is exercised, the
amount of the premium originally received will reduce the cost of the
8
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
September 30, 1995
(Unaudited)
- -------------------------------------------------------------------------------
security which the Fund purchases 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 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 Fund has
purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount of the cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gain or loss, depending on whether the
sale proceeds from the closing sale transaction are greater or less than the
cost of the option. If the Fund exercises a purchased put option, the Fund will
realize a gain or loss from the sale of the underlying security, and the
proceeds from such sale will be decreased by the premium originally paid. If
the Fund exercises a purchased call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund's investment adviser
pursuant to an Investment Advisory Agreement. Under the Investment Advisory
Agreement, GSAM, subject to the general supervision of the Company's Board of
Directors, manages the Fund's portfolio. As compensation for the services
rendered under the Advisory Agreement and the assumption of the expenses related
thereto, GSAM is entitled to a fee, computed daily and payable monthly, at an
annual rate equal to .60% of the Fund's average daily net assets.
GSAM also acts as the Fund's administrator pursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administers the Fund's
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreement, the Fund pays GSAM a
fee, computed daily and payable monthly, at an annual rate equal to .15% of the
Fund's average daily net assets.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" (excluding advisory, administration and transfer agent fees and
litigation, indemnification, taxes, interest, brokerage commissions and
extraordinary expenses) until further notice to the extent such expenses exceed
.06% of the average daily net assets of the Fund. The amount reimbursable to
the Fund at September 30, 1995 is approximately $41,000 and is reflected in
"Other Assets" in the accompanying Statement of Assets and Liabilities.
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to
Distribution Agreements. Goldman Sachs also serves as the Transfer Agent of the
Fund for a fee.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and options written) for the period August 1, 1995 to September
30, 1995 were $165,823,352 and $46,863,828, respectively.
For the period August 1, 1995 to September 30, 1995, option transactions in the
Fund were as follows:
Call Options
------------
Number of Premiums
Options Written Contracts Received
- ------------------------------------------------------------------------
Balance outstanding,
beginning of period -- --
Options written 1,100 178,750
Options purchased (726) (117,976)
- -------------------------------------------------------------------------
Balance outstanding,
end of period 374 60,774
- -------------------------------------------------------------------------
Certain risks arise related to written call or put options from the possible
inability of counterparties to meet terms of their contracts.
5. 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 Fund's custodian, or at sub-custodians. GSAM monitors the
market value of the underlying securities by pricing them daily.
9
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
September 30, 1995
(Unaudited)
- -------------------------------------------------------------------------------
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSAM, 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 September 30, 1995, the Mid-Cap Equity Fund had a
1.63% undivided interest in the repurchase agreements in the following joint
account which equaled $8,200,000 in principal amount. At September 30,1995, the
repurchase agreements held in this joint account, along with the corresponding
underlying securities (including the type of security, market value, interest
rate and maturity date) were as follows:
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------
Lehman Government Securities, dated 09/29/95,
repurchase price $410,227,208 (U.S. Treasury
Notes: $418,104,495, 5.50%-8.87%,
03/31/00-02/15/01)
$410,000,000 6.65% 10/02/95 $ 410,000,000
Lehman Government Securities, dated 09/29/95,
repurchase price $94,147,050 (U.S. Treasury
Notes: $95,936,877, 7.50%-8.00%,
02/15/01-11/15/01)
94,100,000 6.00 10/02/95 94,100,000
- ------------------------------------------------------------
Total Joint Repurchase Agreement Account $ 504,100,000
- ------------------------------------------------------------
7. OTHER MATTERS
On August 1, 1995, the Fund, in an interportfolio trade with the Goldman Sachs
Capital Growth Fund, purchased securities valued at approximately $105,460,000
related to shareholder exchanges into the Fund.
10
<PAGE>
- ------------------------------------------------------------------------------
This Report is authorized for distribution to prospective investors only when
preceded or accompanied by a Goldman Sachs Mid-Cap Equity Fund Prospectus which
contains facts concerning the Fund's objectives and policies, management,
expenses and other information.
- -------------------------------------------------------------------------------
11
<PAGE>
Goldman Sachs
One New York Plaza
New York, NY 10004
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 Advisor, Administrator,
Distributor and Transfer Agent
12
