<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
The U.S. equity market rewarded investors with excellent returns once
again in the 12-month period ended January 31, 1997. Most European markets
achieved significant gains as well, with several outpacing the U.S., while the
performance of Asian markets varied widely. We are pleased to report that most
of the Goldman Sachs equity funds performed very well in this generally
favorable global equity environment.
U.S. Stocks Continued to Climb Amid Heightened Volatility
The U.S. stock market surged to record levels during the period under
review, rising an impressive 26.3% (as measured by the Standard & Poor's 500
stock index). During 1996, the market advanced in a "staircase" pattern, where
notable gains are achieved within a relatively short time and are followed by a
period of choppy trading. For example, after a run-up from January through
mid-February, market volatility notably increased, as investor sentiment
vacillated between two contradictory concerns. With some economic news,
investors feared that the economy was growing too quickly, making higher
inflation a possibility, while other news caused them to worry that the economy
was slowing, putting earnings at risk. In May, investors briefly overcame their
fears and sent the market higher, but their concerns quickly re-emerged and
caused the market to settle into another choppy trading range that culminated in
a sharp sell-off in July.
By August, sentiment significantly improved when data indicated that
earnings growth was more resilient than generally expected and inflation
remained under control. Thus reassured, investors propelled stocks to record
highs during the second half of the period, with the Dow Jones Industrial
Average crossing the 6000 mark for the first time by mid-October. The ascent
continued through the end of the period, with the Dow climbing to 7000 by
mid-February 1997.
Though small-cap stocks led the market during the first half of the
year, the post-July rally was dominated by large-cap, growth companies.
Furthermore, the rally was very narrowly focused, with a handful of large-cap
stocks (primarily in the technology, finance and pharmaceutical sectors)
contributing substantially to the S&P 500 index's performance for the period.
After a Weak Start, Economic Growth Rebounded, Then Moderated
When the period began, lackluster consumer spending and the General
Motors strike restrained economic growth, but the economy still advanced faster
than expected, with first-quarter real GDP growth of 2.0% (annualized). Momentum
accelerated even more dramatically during the second quarter, as industrial
activity, automobile sales and home sales all showed significant improvement. As
a result, second-quarter real GDP rose a robust 4.7% (annualized), its highest
rate in two years.
The economy's torrid growth cooled markedly during the third quarter
with an annualized real GDP growth of 2.1%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. This slowdown proved to be
temporary, however, as the economy strengthened from October through December.
Fourth-quarter real GDP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table of Contents
<S> <C>
Introduction/Market Overview............................................. 1
Goldman Sachs Balanced Fund.............................................. 4
Goldman Sachs Select Equity Fund......................................... 14
Goldman Sachs Growth and Income Fund..................................... 22
Goldman Sachs Capital Growth Fund........................................ 28
Goldman Sachs Small Cap Equity Fund...................................... 34
Goldman Sachs International Equity Fund.................................. 40
Goldman Sachs Asia Growth Fund........................................... 48
Financial Statements..................................................... 56
Notes to Financial Statements............................................ 64
Financial Highlights..................................................... 74
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
growth was revised to 3.9% (annualized), reflecting a narrowing trade deficit,
rising consumer spending and accelerating manufacturing activity. Despite firm
growth, underlying inflation remained surprisingly mild. For all of 1996,
consumer prices rose only 2.9%. In January 1997, most indicators suggested that
the economy would continue to advance.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis
points in January 1996, just prior to the start of the period, in response to
generally poor year-end economic conditions. Though stronger than expected
growth shifted investor expectations from further Federal Reserve interest rate
cuts to potential tightening, the Fed then left rates unchanged. As of January
31, 1997, the Federal funds rate remained at 5.25%.
The Dollar Resumed Its Climb Against the Yen and the Mark Following a Brief July
Slide
During the period under review, the dollar continued to strengthen,
rising to a 47-month high against the yen and a 31-month high against the mark.
Though the dollar declined briefly in July along with the U.S. stock market, it
quickly rebounded in August and continued to rally through the end of the
period. The dollar's climb was reflective of several developments, including the
relative strength of the U.S. economy, reductions in the budget deficit and
controlled inflation. Despite the run-up, Goldman Sachs' economists do not
expect a major impact on U.S. growth in 1997, nor do they anticipate a major
decrease in exports, as the dollar's effect on U.S. trade flows is relatively
small and stretched out over time. Furthermore, domestic demand in Canada and
Mexico, which together accounted for nearly one-third of U.S. exports in 1996,
is expected to rise.
The International Market Environment: European Equities Performed Well, Japan
Declined Sharply and Asian Markets Were Mixed Amid Increased Volatility
During the period under review, most global economies experienced
modest growth, but long-awaited recoveries in Europe and Japan fell short of
expectations. In Europe, several major economies, such as Germany and France,
continued to be plagued by weaker than expected manufacturing activity and
record-high unemployment, while others, such as the U.K., clearly accelerated.
In contrast to the mixed economic conditions, most European equity markets
performed very well, buoyed by healthy corporate profits. Though the Japanese
economy strengthened, equities declined due to concerns regarding the
sustainability of earnings growth as well as fears that the newly elected
government would delay deregulation. In January 1997, the already weak Japanese
market sold off sharply when the government announced an austerity program that
was expected to curb growth. In other Asian countries, key elections heightened
political uncertainty throughout the region and a marked slowdown in economic
growth increased volatility.
Outlook in the U.S.: Economic Growth Is Expected to Continue to Strengthen
Goldman Sachs' economists expect first-quarter real GDP growth to
slow to just under 2.0% (annualized) due to a widening trade deficit. However,
this slowdown should not be interpreted as any change in economic fundamentals,
as underlying demand remains firm and consumer confidence, income and employment
trends continue to support consumer spending. The favorable economic environment
of moderate growth and low inflation appears likely to persist in the near term,
which could translate to a seventh year of profit growth for U.S. corporations
in 1997 and another good year for U.S. equities, though not likely as strong as
last year. As always, equity performance can be affected by changes in the
economic environment, such as higher than expected inflation, which could lead
to a Fed tightening by midyear, or an unforeseen faltering of economic growth.
After the outstanding performance of the past two years, it is
important to maintain realistic expectations from your equity investments. As
increased volatility during 1996 demonstrated, equities can go down as well as
up. Over the long run, however, stocks have historically outperformed other
asset classes, rewarding investors committed to a long-term investment horizon.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
A Major Addition to Our Active Equity Management Team
We are pleased to announce that we have recently acquired Liberty
Investment Management, a Tampa, Florida-based investment advisory firm with an
impressive 16-year track record. Liberty's Chief Investment Officer, Herbert
Ehlers, and his portfolio management team have assumed primary responsibility
for the Goldman Sachs Capital Growth Fund, which they will manage using a
"growth at a reasonable price" investment style. The Liberty group adds both
breadth and depth to the Goldman Sachs U.S. Active Equity team, and we look
forward to working with them.
In conclusion, thank you for making the Goldman Sachs equity funds part of
your long-term financial plan.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
March 3, 1997
- --------------------------------------------------------------------------------
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
45% to 65% in equity securities, with the remainder (at a minimum 25%) in fixed
income securities. 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.
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, we actively manage the
portfolio within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
Performance Review: Equity, Fixed Income and Asset Allocation Contributed to
Strong Results
<TABLE>
<CAPTION>
Fund Total Return
(based on net Benchmark
asset value) Total Return+
------------ -------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 18.59% 15.51%
Class B (5/1/96 - 1/31/97)* 16.22% 14.99%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%).
We are pleased to report that during the period under review, the
fund's Class A and Class B shares outperformed the benchmark. In addition, the
fund's Class A shares ranked within the top 15% of the Lipper balanced fund
category (35th of 281) for the 12-month period ended January 31, 1997, according
to Lipper Analytical Services, Inc. (Please note that Lipper rankings do not
take sales charges into account and that past performance is not a guarantee of
future results. Class B shares were not ranked because they did not exist during
the full year.)
The equity and fixed income portions of the fund both performed
favorably, with equity investments contributing most to fund results. In
addition, our asset allocation decisions also benefited performance. During the
spring of 1996, we reduced the fund's equity weightings in favor of fixed income
investments, which worked in its favor when equities fell sharply in July. In
October, we increased the fund's equity weighting, just prior to a significant
rally in the stock market. As of January 31, 1997, the fund's asset mix based on
net assets was 54% in equities, 42% in fixed income and the remainder in cash
equivalents.
Best Performing Equity Investments Included Technology, Finance and Energy
Stocks
The fund's best performing stocks came from a wide range of
industries, particularly technology, finance and energy. Technology holdings
that performed well included Intel Corp., the dominant microprocessor
manufacturer, which we sold after it climbed sharply due to stronger than
expected personal computer sales and reached our target price, and Avnet, Inc.,
the second largest distributor of semiconductors and other electronic
components. In the financial sector, BankAmerica Corp. increased its focus on
aggressive capital management, and NationsBank Corp. began to realize the
benefits of cost cuts. Top-performing energy-related investments were Tosco
Corp., an oil refiner and distributor, which continued its ambitious acquisition
strategy, and Texaco Inc., which benefited from higher petroleum prices and a
successful restructuring program. Disappointing performers included three
companies that suffered from
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride.
One of the fund's new investments was Unicom Corp., an electric
utility that operates 12 nuclear units at six sites. Unicom generates excess
capital and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects. During
the period, we sold several stocks after they appreciated and reached our price
targets, including Anheuser-Busch Co., Inc., the world's largest brewer, and
Greenpoint Financial Corp., a New York-based thrift.
<TABLE>
<CAPTION>
Top 10 Equity Holdings as of January 31, 1997
Percentage of
Total
Company Line of Business Net Assets
<S> <C> <C>
Aetna Inc. Healthcare 1.9%
Management
Tenet Healthcare Corp. Hospitals 1.9%
Cigna Corp. Insurance 1.7%
Lear Corp. Autoparts/Original 1.7%
Equipment
Brunswick Corp. Pleasure 1.7%
Boats/Marine
Engines
Goodyear Tire & Rubber Co. Tire and Rubber 1.6%
Products
Dean Witter Discover & Co. Financial Services 1.6%
Avnet, Inc. Electronic 1.5%
Components
Distributor
Philip Morris Companies, Tobacco and Food 1.5%
Inc. Products
Owens-Illinois, Inc. Packaging 1.5%
</TABLE>
Corporate and Emerging Market Debt Sectors Led the Fund's Fixed Income
Performance
The fixed income sectors that contributed most to the fund's
performance were its corporate bond holdings and emerging market debt
securities. Corporate bonds benefited when many companies reported positive
earnings growth throughout the period. Emerging market debt was one of the
fund's smaller allocations during the year but performed extremely well due to
positive emerging country credit trends and supportive cash flows resulting from
global investors' persistent search for incremental yield. In addition, the
fund's investments in the mortgage and asset-backed sectors also performed well,
reflecting healthy investor demand.
The fund's largest fixed income allocation was mortgage-backed
securities (MBS), which accounted for a 12.9% position in terms of total net
assets, up from 10.0% a year ago. The MBS sector fared particularly well during
the first half of the period, when interest rates rose and prepayment fears
abated. We gradually trimmed the fund's exposure in the corporate bond sector to
9.8%, down from 13.2% a year ago, as it became more fully valued. The fund's
asset-backed securities (ABS) weighting was 4.8%, and they continued to offer
incremental yield over similar duration Treasuries. U.S. Treasuries, with an
8.5% allocation, were used together with futures to manage the fund's interest
rate risk. Finally, 3.3% of the fund was invested in emerging market debt, where
we stressed higher credit, short-duration bonds, and 0.7% was invested in
government agency securities.
Outlook
We believe that, overall, the stock market is moderately overvalued
and is therefore unlikely to match the strong return it achieved in 1996.
However, it is important to note that even after last year's rally, the fund's
equity holdings continue to be attractively valued. We expect that our emphasis
on using extensive fundamental research to identify stocks selling below their
- --------------------------------------------------------------------------------
5
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
- --------------------------------------------------------------------------------
intrinsic value will continue to serve us well in 1997's potentially more
challenging stock market environment.
We have a relatively cautious view of the fixed income markets in the
coming months due to a possible tightening by the Federal Reserve later in the
year, which would impact the prices of fixed income securities. In the MBS
market, the pace of mortgage prepayments remains stable, and we continue to
identify specific securities that present attractive investment opportunities.
We have a moderately optimistic view for the corporate sector, where we will
continue to emphasize short-duration bonds that offer attractive incremental
yield over Treasuries. Finally, we believe ABS still offer attractive value
relative to other similarly rated securities, and we expect new supply to
continue to be met with enthusiastic demand.
Going forward, we will continue to actively allocate the portfolio's
asset mix between the equity and fixed income sectors to take advantage of
changing market conditions throughout the coming year.
/s/ Ronald E. Gutfleish /s/ Jonathan A. Beinner
Ronald E. Gutfleish Jonathan A. Beinner
Senior Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ G. Lee Anderson /s/ c. Richard Lucy
G. Lee Anderson C. Richard Lucy
Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ Eileen A. Aptman /s/ Richard H. Buckholz
Eileen A. Aptman Richard H. Buckholz
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Fixed Income
March 3, 1997
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 index ("S&P 500") and the Lehman
Brothers Aggregate Bond Index (LBABI)) are shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class A Class A
(w/sales charge) (no sales charge) LBABI S&P 500
---------------- ----------------- ----- -------
<S> <C> <C> <C> <C>
10/12/94 9,450 10,000 10,000 10,000
1/31/95 9,532 10,087 10,233 10,184
1/31/96 12,211 12,922 11,966 14,123
1/31/97 14,488 15,331 12,357 17,842
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class B Class B
(no redemp. charge) (w/redemp. charge) LBABI S&P 500
------------------- ------------------ ----- -------
<S> <C> <C> <C> <C>
5/1/96 10,000 10,000 10,000 10,000
1/31/97 11,622 11,122 10,642 12,218
</TABLE>
---------------------------------------
Average Annual Total Return
---------------------------------------
One Year Since Inception/(a)/
------------------------------- ------------------ -------------------
Class A, no sales charge 18.59% 20.32%
------------------------------- ------------------ -------------------
Class A, w/sales charge 12.07% 17.41%
------------------------------- ------------------ -------------------
Class B, no redemption charge N/A 16.22%/(b)/
------------------------------- ------------------ -------------------
Class B, w/redemption charge N/A 11.22%/(b)/
------------------------------- ------------------ -------------------
/(a)/ Class A and B shares commenced operations October 12, 1994 and May 1,
1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve
months of operations.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--53.0%
Airlines--1.8%
7,700 AMR Corp.* $ 619,850
32,600 Continental Airlines, Inc.* 908,725
- --------------------------------------------------------------------
1,528,575
- --------------------------------------------------------------------
Appliance Manufacturer--0.9%
28,600 Sunbeam Corp. 793,650
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.7%
38,200 Lear Corp.* 1,427,725
- --------------------------------------------------------------------
Auto/Vehicle--1.0%
25,600 Ford Motor Co. 824,400
- --------------------------------------------------------------------
Banks--4.5%
10,300 BankAmerica Corp. 1,149,738
5,300 Chase Manhattan Corp. 490,250
9,400 Fleet Financial Group, Inc. 507,600
9,300 NationsBank Corp. 1,004,400
7,400 Republic Bank of New York Corp. 655,825
- --------------------------------------------------------------------
3,807,813
- --------------------------------------------------------------------
Chemicals-Commodity--1.1%
31,400 Geon Co. 588,750
7,600 Union Carbide Corp. 344,850
- --------------------------------------------------------------------
933,600
- --------------------------------------------------------------------
Defense--2.1%
17,900 McDonnell Douglas Corp. 1,203,775
6,200 Northrop Grumman Corp. 484,375
1,900 Thiokol Corp. 106,400
- --------------------------------------------------------------------
1,794,550
- --------------------------------------------------------------------
Department Stores--0.8%
13,900 Sears Roebuck & Co. 667,200
- --------------------------------------------------------------------
Electric Utilities--2.8%
5,500 CMS Energy Corp. 184,250
43,000 Long Island Lighting Co. 978,250
49,600 Unicom Corp. 1,171,800
- --------------------------------------------------------------------
2,334,300
- --------------------------------------------------------------------
Food--1.5%
40,200 Chiquita Brands International, Inc. 587,925
4,000 Unilever Inc. 658,000
- --------------------------------------------------------------------
1,245,925
- --------------------------------------------------------------------
Forest Products--1.1%
12,400 Georgia Pacific Corp. 912,950
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
23,300 Baxter International, Inc. 1,074,713
- --------------------------------------------------------------------
Healthcare Management--3.8%
20,400 Aetna Inc. 1,611,600
57,800 Tenet Healthcare Corp.* 1,560,600
- --------------------------------------------------------------------
3,172,200
- --------------------------------------------------------------------
Home Builders--1.8%
18,200 Centex Corp. 709,800
28,200 Lennar Corp. 750,825
- --------------------------------------------------------------------
1,460,625
- --------------------------------------------------------------------
Insurance-Life--2.5%
9,500 Cigna Corp. 1,440,438
11,700 Lincoln National Corp. 627,413
- --------------------------------------------------------------------
2,067,851
- --------------------------------------------------------------------
Insurance-Property and Casualty--1.6%
9,200 Allmerica Financial Corp. 336,950
16,100 Partner Re Holding Ltd. 571,550
12,700 Tig Holdings, Inc. 439,738
- --------------------------------------------------------------------
1,348,238
- --------------------------------------------------------------------
Integrated Oil--2.6%
8,100 Atlantic Richfield Co. 1,071,225
10,300 Texaco, Inc. 1,090,513
- --------------------------------------------------------------------
2,161,738
- --------------------------------------------------------------------
Logistics/Rail--1.0%
30,400 Canadian Pacific Ltd. 824,600
- --------------------------------------------------------------------
Logistics/Trucking--1.2%
39,600 Consolidated Freightways, Inc. 1,004,850
- --------------------------------------------------------------------
Oil Refining & Marketing--1.9%
12,800 Ashland Inc. 552,000
11,300 Tosco Corp. 1,000,050
- --------------------------------------------------------------------
1,552,050
- --------------------------------------------------------------------
Packaging--1.5%
52,500 Owens-Illinois Inc.* 1,246,875
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
8
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Recreational Products--1.7%
55,500 Brunswick Corp. $ 1,394,438
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.5%
13,100 Lehman Brothers Holdings, Inc. 414,288
- --------------------------------------------------------------------
Semiconductors & Electronics--1.5%
20,700 Avnet Inc. 1,280,813
- --------------------------------------------------------------------
Software--0.5%
13,800 Autodesk Inc. 436,425
- --------------------------------------------------------------------
Specialty Finance--1.6%
34,200 Dean Witter Discover & Co. 1,303,875
- --------------------------------------------------------------------
Steel--1.0%
20,200 AK Steel Holding Corp. 813,050
- --------------------------------------------------------------------
Supermarkets--2.0%
56,300 Fleming Companies, Inc. 907,838
24,600 Supervalu, Inc. 759,525
- --------------------------------------------------------------------
1,667,363
- --------------------------------------------------------------------
Textiles--1.3%
27,500 Fruit of The Loom, Inc.* 1,103,438
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--1.6%
24,000 Goodyear Tire & Rubber Co. 1,308,000
- --------------------------------------------------------------------
Tobacco--2.8%
4,200 Loews Corp. 415,275
10,700 Philip Morris Companies, Inc. 1,271,963
12,100 RJR Nabisco, Inc. 396,275
8,500 Universal Corp. 263,500
- --------------------------------------------------------------------
2,347,013
- --------------------------------------------------------------------
Total Common Stocks
(Cost $35,773,086) $44,253,131
====================================================================
Preferred Stocks--0.1%
Media Content--0.1%
63 Time Warner, Inc. 10.25% $ 69,064
- --------------------------------------------------------------------
Tobacco--0.0%
3,400 RJR Nabisco, Inc., class C 9.25% 22,525
- --------------------------------------------------------------------
Total Preferred Stocks
(Cost $84,320) $ 91,589
====================================================================
Rights--1.1%
Forest Products--0.7%
42,000 Stone Container Corp. * exp. 08/08/98 $ 567,000
Technology Capital Goods--0.4%
10,800 Teradyne, Inc.* exp. 03/26/00 333,450
- --------------------------------------------------------------------
Total Rights
(Cost $923,718) $ 900,450
====================================================================
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Fixed Income--41.5%
Asset-Backed Securities--4.8%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 102,655
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 249,609
Case Equipment Loan Trust, Series 1995-A, Class A
74,286 7.30 03/15/02 75,124
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/03 139,343
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
74,323 5.80 06/15/02 74,137
Discover Card Master Trust 1994-2, Class A
70,000 5.83 10/16/04 70,613
Discover Card Master Trust 1996-2, Class A
110,000 5.70 07/18/05 110,550
Discover Card Master Trust 1996-4, Class A
740,000 5.86 10/16/13 751,329
Discover Card Master Trust 1996-4, Class B
420,000 6.03 10/16/13 424,460
Fasco Auto Trust, Series 1996-1
266,114 6.65 11/15/01 267,223
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 200,936
Navistar Financial Trust, Series 1995-A, Class A2
134,590 6.55 11/20/01 135,347
Navistar Financial Trust, Series 1995-b, Class A3
120,000 6.05 04/15/02 120,000
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 733,026
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Asset-Backed Securities (continued)
Sears Credit Card Master Trust, Series 1995-3, Class A
$ 70,000 7.00% 10/15/04 $ 71,268
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 117,322
Standard Credit Card Master Trust, Series 1995-1, Class A
360,000 8.25 01/07/07 389,135
- --------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $4,019,726) $ 4,032,077
====================================================================
Corporate Bonds--9.8%
Finance Bonds--3.6%
BankAmerica Corp.
$ 500,000 7.75% 07/15/02 $ 520,600
Capital One Bank
200,000 8.33 02/10/97 200,056
250,000 8.13 02/27/98 254,825
Conseco Finance
120,000 8.70 11/15/26 122,912
Continental Bank
100,000 12.50 04/01/01 120,501
Countrywide Funding Corp.
100,000 6.08 07/14/99 99,368
150,000 8.00 12/15/26 147,029
Edison Mission Energy Funding Corp.
100,000 6.77 09/15/03 99,852
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 248,888
Golden West Financial Corp.
200,000 10.25 12/01/00 223,894
Meditrust, Inc.
120,000 7.82 09/10/26 128,021
Mic Finance Trust
80,000 8.38 02/01/27 80,442
Olympic Financial Ltd.
95,000 13.00 05/01/00 107,350
PXRE Cap Trust
65,000 8.85 02/01/27 65,847
Signet Banking Corp.
$ 500,000 9.63% 06/01/99 $ 531,870
Washington Real Estate
55,000 7.13 08/13/03 54,745
- --------------------------------------------------------------------
Total Finance Bonds
(Cost $3,035,271) $ 3,006,200
====================================================================
Industrial Bonds--5.6%
360 Communications Co.
$ 195,000 7.13% 03/01/03 $ 193,518
Auburn Hills Trust
90,000 12.00 05/01/20 134,352
Blockbuster Entertainment
50,000 6.63 02/15/98 49,995
Chelsea GCA Realty
226,000 7.75 01/26/01 228,362
DVI Equipment Lease Trust
434,745 6.55 07/10/04 434,605
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,038
General Motors Acceptance Corp.
170,000 7.13 05/10/00 173,087
210,000 5.63 02/05/01 202,810
H + T Master Trust, Class A2
220,000 8.18 08/15/02 220,000
K Mart Corp.
40,000 9.55 06/30/98 40,290
40,000 9.60 09/15/98 40,845
Loewen Group International
50,000 7.75 10/15/01 50,000
News America Holdings, Inc.
160,000 7.50 03/01/00 163,784
Northwest Airlines
217,076 8.97 01/02/15 226,558
NWA
68,025 8.26 03/10/06 71,149
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
10
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Corporate Bonds (continued)
Industrial Bonds (continued)
Oryx Energy Co.
$ 245,000 9.50% 11/01/99 $ 259,252
RJR Nabisco Inc.
135,000 8.00 07/15/01 136,184
160,000 8.63 12/01/02 164,654
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 119,600
Tele-Communications, Inc.
295,000 6.19 09/15/03 292,956
125,000 9.65 10/01/03 133,951
20,000 6.82 09/15/10 19,899
Tenet Healthcare Corp.
60,000 9.63 09/01/02 65,100
Time Warner, Inc.
375,000 7.45 02/01/98 378,776
125,000 9.63 05/01/02 139,444
250,000 7.98 08/15/04 256,243
Tosco Corp.
110,000 7.00 07/15/00 110,793
U.S. Home Corp.
70,000 7.95 03/01/01 68,250
USI American Holdings Corp.
60,000 7.25 12/01/06 58,540
Viacom International
80,000 9.13 08/15/99 81,800
95,000 10.25 09/15/01 103,550
- --------------------------------------------------------------------
Total Industrial Bonds
(Cost $4,650,412) $ 4,660,385
====================================================================
Utility Bonds--0.6%
Arkla Inc.
$ 250,000 9.20% 12/18/97 $ 255,665
Central Maine Power Co.
100,000 7.38 01/01/99 100,138
160,000 7.45 08/30/99 159,134
- --------------------------------------------------------------------
Total Utility Bonds
(Cost $521,661) $ 514,937
====================================================================
- --------------------------------------------------------------------
====================================================================
Total Corporate Bonds
(Cost $8,207,344) $ 8,181,522
====================================================================
Government Bonds--1.2%
Australia Commonwealth
AUD1,000,000 7.50% 07/15/05 $ 769,138
Province of Quebec
$ 200,000 13.25 09/15/14 238,976
- --------------------------------------------------------------------
Total Government Bonds
(Cost $1,033,387) $ 1,008,114
====================================================================
Emerging Market Debt--3.3%
Argentina Bocan
$ 144,111 5.69% 04/01/01 $ 138,490
Asia Pulp and Paper International Finance Co.
100,000 7.26(a) 04/03/97 98,614
200,000 8.30 06/28/99 198,118
90,000 10.25 10/01/00 90,754
Banco De Commercio Exterior
30,000 8.63 06/02/00 30,979
BCO De Colombia
110,000 8.63 06/02/00 113,590
Bridas Corp.
170,000 12.50 11/15/99 181,433
Bridas Corp. Gtd Euro Medium
60,000 9.50 06/17/99 60,147
Corp. Andina de Fomento
160,000 7.25 04/30/98 161,774
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,440
Empresa Col Petroleos
80,000 7.25 07/08/98 80,566
Financiera Energy Nacional
230,000 5.88 02/17/98 226,062
60,000 8.13 04/09/98 60,347
200,000 8.46 06/19/98 201,876
80,000 9.38 06/15/06 82,847
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Emerging Market Debt (continued)
Grupo Industrial Durango
$ 120,000 12.00% 07/15/01 $ 127,978
Grupo Televisa
20,000 11.38 05/15/03 21,425
Imexsa Export Trust
100,000 10.13 05/31/03 104,190
Inst Fomento Industrial
290,000 8.38 07/29/01 295,707
PT Indah Kiat
50,000 8.88 11/01/00 49,518
Republic of Argentina
89,600 8.63 04/06/98 90,730
150,000 5.63 04/01/00 75,600
Sampoerna International
50,000 8.38 06/15/06 51,208
YPF Sociedad Anonima
111,483 7.50 10/26/02 113,132
- --------------------------------------------------------------------
Total Emerging Market Debt
(Cost $2,710,872) $ 2,766,525
====================================================================
Government Agency Obligations--0.7%
Federal National Mortgage Association
$ 520,000 8.50% 02/01/05 $ 545,917
- --------------------------------------------------------------------
Total Government Agency Obligations
(Cost $566,963) $ 545,917
====================================================================
Mortgage Backed Obligations--12.9%
Federal Home Loan Mortgage Corp.
$ 2,000,000 7.50% TBA-30yr/(b)/ $ 2,003,740
Federal National Mortgage Association
2,000,000 8.00 TBA-30yr/(b)/ 2,042,500
1,000,000 6.50 TBA-15yr/(b)(d)/ 990,930
95,702 8.50 09/01/06/(d)/ 100,068
119,291 8.50 03/01/07/(d)/ 124,733
677,419 8.50 03/01/10/(d)/ 707,985
1,000,000 3.50 05/25/19 869,370
====================================================================
Government National Mortgage Association
$ 1,000,000 7.50% TBA-30yr/(b)/ $ 1,002,180
963,086 7.50 05/15/23 969,404
1,005,709 7.00 07/15/23 990,311
1,000,000 7.00 08/15/23 984,690
- --------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $10,687,107) $10,785,911
====================================================================
Sovereign Credit--0.2%
State of Israel
$ 150,000 6.38% 12/15/05 $ 141,983
- --------------------------------------------------------------------
Total Sovereign Credit
(Cost $139,082) $ 141,983
====================================================================
U.S. Treasury Obligations--8.5%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13/(d)/ $ 666,592
120,000 8.75 05/15/17/(d)/ 144,619
30,000 8.88 08/15/17 36,595
580,000 8.75 05/15/20 704,068
160,000 8.75 08/15/20/(d)/ 194,400
680,000 7.63 02/15/25 743,430
United States Treasury Notes
1,200,000 6.88 08/31/99 1,223,628
1,000,000 6.13 07/31/00 999,220
900,000 7.88 11/15/04 977,202
United States Treasury Principal Only Stripped Securities/(a)/
80,000 6.03/(a)/ 08/15/99 68,774
740,000 6.55/(a)/ 11/15/04/(d)/ 447,552
320,000 6.59/(a)/ 05/15/05 186,781
2,200,000 7.09/(a)/ 02/15/19 473,968
890,000 7.10/(a)/ 05/15/20 175,205
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $7,102,563) $ 7,042,034
====================================================================
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
12
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Yankee Bonds--0.1%
Korea Electric Power
$ 93,927 7.40% 04/01/16 $ 93,712
- --------------------------------------------------------------------
Total Yankee Bonds
(Cost $90,825) $ 93,712
====================================================================
Total Fixed Income
(Cost $34,557,869) $34,597,795
- --------------------------------------------------------------------
Short-Term Obligations--0.2%
Argentina Treasury Bill
$ 40,000 6.00%/(a)/ 02/14/97 $ 39,896
Banco Nacional de Com
50,000 10.63 06/23/97 51,291
Republic of Argentina
90,000 6.29(a) 05/16/97 88,166
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $179,353) $ 179,353
====================================================================
Repurchase Agreement--11.0%
Joint Repurchase Agreement Account
$ 9,200,000 5.63% 02/03/97/(d)/ $ 9,200,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $9,200,000) $ 9,200,000
====================================================================
Total Investments
(Cost $80,718,346)/(c)/ $89,222,318
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 9,461,225
Gross unrealized loss for investments in which
cost exceeds value (981,857)
- --------------------------------------------------------------------
Net unrealized gain $ 8,479,368
====================================================================
<CAPTION>
- --------------------------------------------------------------------
====================================================================
Futures contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain(Loss)
- ------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
2-Year U.S. Treasury Note 5 March 1997 $(3,438)
10-Year U.S. Treasury Bond 15 March 1997 (25,500)
30-Year U.S. Treasury Bond 2 March 1997 (3,969)
S&P 500 Stock Index 4 March 1997 123,100
- -------------------------------------------------------------------
$90,193
- -------------------------------------------------------------------
</TABLE>
* Non-income producing security.
/(a)/ The interest rate disclosed for these securitites represents effective
yields to maturity.
/(b)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally +/-2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(c)/ The aggregate cost for federal income tax purposes is $80,742,950.
/(d)/ Portions of these securities are being segregated as collateral for
futures contracts, TBA (To Be Assigned) securities, covered short sales
and/or mortgage dollar rolls.
/(e)/ Each 2-Year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 10-Year and 30-Year U.S. Treasury Bond contract represents
$100,000 in notional par value. Each S&P 500 Stock Index represents
$50,000 in notional par value. The total net notional amount and market
value at risk are $2,900,000 and $4,463,969, respectively. The
determination of notional amounts does not consider market risk factors
and therefore notional amounts as presented here are indicative only of
volume of activity and not a measure of market risk.
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.
13
<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's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of predominantly large-cap and
blue-chip equity securities representing all major sectors of the U.S. economy.
The fund's mandate is to remain fully invested with industry diversification,
capitalization and risk characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's relative
performance compared with the market 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 the Goldman Sachs Global Investment Research
Department with quantitative analysis generated by the Asset Management
Division's proprietary model. Our quantitative system evaluates each stock using
many different criteria including valuation measures, growth expectations,
earnings momentum and risk. It also objectively analyzes the impact of current
economic conditions on different types of stocks. Those stocks ranked highly by
both our quantitative model and by Goldman Sachs research are selected for the
fund's portfolio.
Performance Review: Quantitative Model Contributed to the Fund's Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 -1/31/97)* 23.75% 26.25%
Class B (5/1/96 -1/31/97)* 18.59% 22.18%
Institutional (1/31/96 -1/31/97)* 24.63% 26.25%
Service (6/7/96 - 1/31/97)* 15.92% 18.36%
</TABLE>
- --------------------------------------------------------------------------------
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B and Service shares is a cumulative total
return (not annualized) from their inception through the end of the period.
During the period, the fund achieved strong absolute returns, with most of
its gains occurring in the second half of the year. When the period began, the
fund performed well primarily due to successful stock selection. The Research
Department's qualitative ratings were particularly helpful early in the period,
when its analysis helped the fund steer clear of underperforming stocks. During
the latter half of the year, most of the fund's positive performance came from
the Asset Management Division's quantitative model.
Of the three themes considered by our quantitative model -- value, growth
and low-risk -- stocks with value-oriented features, such as low price/earnings
ratios, received the highest weighting during most of the period. This emphasis
did not work in the fund's favor during the second and third quarters of 1996,
when stocks with growth characteristics (strong near-term growth expectations
and high price/earnings multiples) outperformed value-oriented stocks. In the
fourth quarter, however, our emphasis on value proved to be extremely
successful, as stocks with value characteristics soared to record highs and
outperformed the other themes by a substantial margin. As a result of this
dramatic rebound, value emerged as the dominant investment style for the year.
Despite the positive results from our quantitative model, the fund
underperformed the index because it was
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
unable to keep pace with the dramatic outperformance of the largest 50 stocks,
which accounted for a significant portion of the market's gains. In addition,
the fund held a slightly higher cash position than usual as the volume of new
assets invested in the fund rapidly increased, particularly during the fourth
quarter, when the top 50 stocks surged. To address this issue, at the end of
1996 the fund instituted new procedures to ensure that cash balances will be
invested more rapidly. Furthermore, we expect that any future market advance
will broaden to include stocks beyond the top 50.
The fund's best performers were large-capitalization stocks from a wide
range of sectors, including banks (BankAmerica Corp. and NationsBank Corp.),
technology companies (Intel Corp., Microsoft Corp. and IBM Corp.), consumer
staples (Procter & Gamble Co.), electrical equipment (General Electric Co.) and
tobacco (Philip Morris Companies, Inc.).
Stocks that fell short of our expectations included some of the fund's
utility, telecommunication and oil investments such as Unicom Corp., Airtouch
Communications, Inc. and Tenneco, Inc.
Portfolio Composition: Model Increasingly Favored Stocks With Defensive
Characteristics
As of January 31, 1997, the fund held 141 stocks. While its sector
exposures were generally in line with the S&P 500 index, the fund was
overweighted in electric/gas (5.8% for the fund versus 3.3% for the S&P 500) and
energy (10.1% versus 8.0%) and underweighted in consumer nondurables (10.2%
versus 12.9%) and telecommunications (3.9% versus 6.3%). These over- and
underweightings, as shown in Table II, were the result of the fund's stock
selection process and were not a reflection of our economic forecast for
specific sectors.
During the first quarter of 1996, the Fund's quantitative model favored
growth characteristics (such as earnings momentum and price momentum) and put a
smaller, but still positive, weight on stocks with value or low-risk
characteristics (e.g., low beta and low "disappointment" risk). As the year
progressed, the fund's strategy became somewhat more defensive as our
quantitative model increased its weighting in value and low-risk themes. This
shift was triggered by a number of indicators that pointed toward emerging
excesses in the equity market: Low cash cushions held by equity mutual funds,
the increasing volatility of equity prices, the record-low dividend yields and
the divergence in returns between stocks and bonds.
As a result of our more defensive posture, over the past year we gradually
increased the fund's weighting in energy-related companies such as Texaco Inc.
and Atlantic Richfield Co., both newcomers to the fund's 10 largest holdings. We
also decreased the fund's exposure to consumer noncyclicals, which includes
food/agriculture companies (e.g., IBP, Inc. and Kellogg Co.).
As of the end of the period, the fund's major valuation characteristics
were more attractive than the benchmark. These included a lower price/earnings
ratio based on 1997 estimated earnings (15.9x versus 17.3x for the S&P 500) as
well as a lower price/book ratio (3.0x versus 3.4x). The fund achieved these
favorable valuation levels while maintaining growth and risk characteristics in
line with those of the S&P 500.
Table I: Top 10 Portfolio Holdings as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
General Electric Co. Electronics 2.9%
Intel Corp. Semiconductors 2.8%
and Electronics
Exxon Corp. Petroleum and 2.2%
Natural Gas
Microsoft Corp. Computer Software 2.1%
Texaco Inc. Petroleum and 2.0%
Natural Gas
Merck & Co., Inc. Pharmaceuticals 1.9%
Atlantic Richfield Co. Petroleum and 1.7%
Natural Gas
Bristol-Myers Squibb Co. Pharmaceuticals 1.7%
Philip Morris Companies, Tobacco and Food 1.7%
Inc. Products
Travelers Group, Inc. Financial Services 1.6%
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
- --------------------------------------------------------------------------------
Table II: Sector Breakout as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Percentage S&P 500
Industry Sectors of Portfolio Index Difference
<S> <C> <C> <C>
Finance 17.8% 16.2% 1.6%
Consumer Nondurables 10.2% 12.9% -2.7%
Energy 10.1% 8.0% 2.1%
Health 9.6% 10.4% -0.8%
Technology 9.3% 10.9% -1.6%
Basic Industry 7.9% 7.1% 0.8%
Capital Spending 6.5% 5.6% 0.9%
Electric/Gas 5.8% 3.3% 2.5%
Miscellaneous 4.4% 5.0% -0.6%
Retail 4.3% 3.6% 0.7%
Telecommunications 3.9% 6.3% -2.4%
Consumer Services 3.8% 4.8% -1.0%
Consumer Durables 2.6% 2.5% 0.1%
Aerospace 1.8% 2.0% -0.2%
Transportation 1.1% 1.4% -0.3%
Cash 1.0% 0.0% 1.0%
</TABLE>
- --------------------------------------------------------------------------------
Outlook
Goldman Sachs expects the U.S. equity market to continue to advance in
1997, although returns will likely be more modest than the unusually strong
results of 1995 and 1996. In addition, we expect equity gains to broaden beyond
the top 50 stocks. In 1997, we will continue to maintain a balanced approach by
considering risk, value and growth simultaneously.
However, the relative importance of avoiding riskier stocks has increased in the
current market environment, which is likely to result in greater emphasis on
defensive stocks with below-average price volatility, attractive valuations and
lower possibility of near-term earnings disappointments.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
March 3, 1997
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class A Class A
(w/sales charge) (no/sales charge) S&P 500
---------------- ---------------- -------
<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
1/31/96 16,654 17,617 19,306
1/31/97 20,613 21,813 24,390
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class B Class B
(no redemption charge) (w/redemption charge) S&P 500
---------------------- --------------------- -------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 11,859 11,359 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Select Eq
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/15/95 10,000 10,000
1/31/96 12,014 12,029
1/31/97 14,983 15,197
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Select Eq
Serv. Class S&P 500
------------ -------
<S> <C> <C>
6/7/96 10,000 10,000
1/31/97 11,592 11,836
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
Average Annual Total Return
------------------------------------------------
One Year Since Inception/(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 23.75% 14.67%
- --------------------------------------------------------------------------------
Class A, w/sales charge 16.98% 13.54%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 18.59% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 13.59% /(b)/
- --------------------------------------------------------------------------------
Institutional Class 24.63% 28.04%
- --------------------------------------------------------------------------------
Service Class N/A 15.92% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
May 24, 1991, May 1, 1996, June 15, 1995 and June 7, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
17
<PAGE>
Statement of Investments
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks--97.3%
Aerospace--0.8%
43,600 United Technologies Corp. $ 3,041,100
- --------------------------------------------------------------------
Agency/Government--0.9%
93,800 Federal National Mortgage Assn. 3,705,100
- --------------------------------------------------------------------
Agriculture/Heavy Equipment--2.5%
25,100 Case Corp. 1,330,300
55,500 Caterpillar, Inc. 4,308,188
44,100 Conagra, Inc. 2,227,050
48,900 Tenneco, Inc. 1,956,000
- --------------------------------------------------------------------
9,821,538
- --------------------------------------------------------------------
Airlines--1.2%
19,700 AMR Corp.* 1,585,850
38,500 Delta Air Lines, Inc. 3,041,500
- --------------------------------------------------------------------
4,627,350
- --------------------------------------------------------------------
Alcohol--0.2%
21,600 Anheuser Busch Companies, Inc. 918,000
- --------------------------------------------------------------------
Appliance Manufacturer--1.0%
38,300 Emerson Electric Co. 3,782,125
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--0.3%
23,100 Cummins Engine, Inc. 1,215,638
- --------------------------------------------------------------------
Auto/Vehicle--1.5%
25,200 Chrysler Corp. 878,850
32,200 Ford Motor Co. 1,034,425
70,700 General Motors Corp. 4,171,300
- --------------------------------------------------------------------
6,084,575
- --------------------------------------------------------------------
Bank Holding Companies--0.4%
26,000 Comerica, Inc. 1,485,250
- --------------------------------------------------------------------
Banks--6.0%
33,550 Banc One Corp. 1,522,331
48,000 Bank of New York, Inc. 1,758,000
46,400 BankAmerica Corp. 5,179,400
12,900 Chase Manhattan Corp. 1,193,250
25,800 Citicorp 3,002,475
28,500 First Bank System, Inc. 2,166,000
34,400 First Chicago Corp. 1,965,100
6,400 First Union Corp. 535,200
48,400 NationsBank Corp. 5,227,200
4,500 Wells Fargo & Company $ 1,371,375
- --------------------------------------------------------------------
23,920,331
- --------------------------------------------------------------------
Beverages--1.6%
41,900 Coca Cola Co. 2,424,963
115,300 Pepsico, Inc. 4,021,088
- --------------------------------------------------------------------
6,446,051
- --------------------------------------------------------------------
Business Services--0.2%
19,100 Automatic Data Processing, Inc. 790,263
- --------------------------------------------------------------------
Chemicals-Commodity--2.1%
46,000 Dow Chemicals Co. 3,547,750
20,600 Du Pont EI de Nemours 2,258,275
68,900 Monsanto Co. 2,609,588
- --------------------------------------------------------------------
8,415,613
- --------------------------------------------------------------------
Chemicals-Specialty--1.0%
37,800 Allied Signal, Inc. 2,655,450
27,700 Morton International, Inc. 1,125,313
- --------------------------------------------------------------------
3,780,763
- --------------------------------------------------------------------
Commercial Services--0.3%
32,500 Interim Services, Inc.* 1,178,125
- --------------------------------------------------------------------
Communications Services Companies--1.5%
75,500 Airtouch Communications, Inc.* 1,953,563
96,100 Sprint Corp. 3,916,075
- --------------------------------------------------------------------
5,869,638
- --------------------------------------------------------------------
Communications Technology--0.8%
37,403 Lucent Technologies, Inc. 2,029,113
15,200 Motorola Inc. 1,037,400
- --------------------------------------------------------------------
3,066,513
- --------------------------------------------------------------------
Computers--0.9%
65,200 Hewlett Packard Co. 3,431,150
- --------------------------------------------------------------------
Computers & Peripherals--3.7%
45,400 Cisco Systems, Inc.* 3,166,650
35,000 Compaq Computer Corp.* 3,040,625
20,300 Eastman Kodak Co. 1,761,025
33,400 International Business Machines 5,252,150
51,100 Sun Microsystems, Inc.* 1,622,425
- --------------------------------------------------------------------
14,842,875
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Construction/Environmental Services--0.2%
13,300 Armstrong World Industries, Inc. $ 944,300
- --------------------------------------------------------------------
Consumer Staples--3.4%
51,700 American Home Products Corp. 3,276,488
13,300 Clorox Co. 1,577,713
60,200 Gillette Co. 4,906,300
33,400 Procter & Gamble Co. 3,857,700
- --------------------------------------------------------------------
13,618,201
- --------------------------------------------------------------------
Defense--1.4%
5,400 Boeing Co. 578,475
17,700 McDonnell Douglas Corp. 1,190,325
18,500 Textron, Inc. 1,801,438
36,800 TRW, Inc. 1,867,600
- --------------------------------------------------------------------
5,437,838
- --------------------------------------------------------------------
Department Stores--3.2%
147,400 Dayton Hudson Corp. 5,545,925
38,000 Federated Dept. Stores, Inc.* 1,249,250
18,900 Mercantile Stores Co. 926,100
65,700 Sears Roebuck & Co. 3,153,600
72,100 Walmart Stores, Inc. 1,712,375
- --------------------------------------------------------------------
12,587,250
- --------------------------------------------------------------------
Electric Utilities--4.7%
76,300 Duke Power Co. 3,576,563
128,700 Edison International, Inc. 2,750,963
31,500 Empresa Nacional de Electric ADR 2,071,125
139,600 Niagara Mohawk Power* 1,413,450
57,700 Public Service Company of New Mexico 1,154,000
92,800 Texas Utilities Co. 3,758,400
156,300 Unicom Corp. 3,692,588
- --------------------------------------------------------------------
18,417,089
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--2.9%
112,200 General Electric Co. 11,556,600
- --------------------------------------------------------------------
Financial Services--0.7%
53,300 Providian Corp. 2,871,538
- --------------------------------------------------------------------
Food Producers--0.5%
10,600 CPC International, Inc. 814,875
16,400 Ralston Purina Co. 1,289,450
- --------------------------------------------------------------------
2,104,325
- --------------------------------------------------------------------
Forest Products--2.6%
78,600 Avery Dennison Corp. 2,878,725
32,000 Champion International Corp. 1,340,000
32,600 Georgia Pacific Corp. 2,400,175
26,000 International Paper Co. 1,062,750
19,700 Mead Corp. 1,108,125
30,700 Weyerhaeuser Co. 1,396,850
- --------------------------------------------------------------------
10,186,625
- --------------------------------------------------------------------
Funeral Services--0.2%
29,600 Service Corp. International 858,400
- --------------------------------------------------------------------
Gas Distribution & Pipeline--1.2%
55,600 Columbia Gas Systems, Inc. 3,620,950
22,900 Panenergy Corp. 1,056,263
- --------------------------------------------------------------------
4,677,213
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
73,200 Johnson & Johnson 4,218,150
15,800 Medtronic Inc. 1,082,300
- --------------------------------------------------------------------
5,300,450
- --------------------------------------------------------------------
Healthcare Management--0.8%
55,800 Columbia HCA Healthcare 2,204,100
38,300 Manor Care, Inc. 976,650
- --------------------------------------------------------------------
3,180,750
- --------------------------------------------------------------------
Information Management--0.7%
114,100 Dun & Bradstreet Corp. 2,738,400
- --------------------------------------------------------------------
Insurance Brokers & Other Insurance--0.3%
24,600 Exel Insurance Ltd. 1,042,425
- --------------------------------------------------------------------
Insurance-Life--2.6%
29,100 American General Corp. 1,160,363
18,700 Cigna Corp. 2,835,388
122,933 Travelers Group, Inc. 6,438,616
- --------------------------------------------------------------------
10,434,367
- --------------------------------------------------------------------
</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, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Insurance-Property and Casualty--2.2%
25,956 Allstate Corp. $ 1,706,607
36,850 American International Group, Inc. 4,463,456
68,500 Safeco Corp. 2,603,000
- --------------------------------------------------------------------
8,773,063
- --------------------------------------------------------------------
Integrated Oil--11.1%
22,100 Amoco Corp. 1,922,700
51,800 Atlantic Richfield Co. 6,850,550
84,300 Exxon Corp. 8,735,574
46,800 Kerr McGee Corp. 3,217,500
17,200 Mobil Corp. 2,257,500
52,000 Norsk Hydro ADR 2,925,000
32,000 Phillips Petroleum Co. 1,412,000
26,600 Royal Dutch Petroleum ADR 4,615,100
75,700 Texaco, Inc. 8,014,738
97,300 Unocal Corp. 4,098,763
- --------------------------------------------------------------------
44,049,425
- --------------------------------------------------------------------
Investment Brokers & Managers--2.7%
52,500 Merrill Lynch Co. 4,423,125
38,300 Morgan Stanley Group, Inc. 2,187,888
76,900 Salomon, Inc. 4,248,725
- --------------------------------------------------------------------
10,859,738
- --------------------------------------------------------------------
Local Phone Companies--2.3%
53,600 Ameritech Corp. 3,202,600
67,100 GTE Corp. 3,153,700
104,900 Worldcom, Inc.* 2,635,613
- --------------------------------------------------------------------
8,991,913
- --------------------------------------------------------------------
Machinery and Equipment--0.6%
20,100 Dover Corp. 994,950
29,300 Ingersoll-Rand Co. 1,336,813
- --------------------------------------------------------------------
2,331,763
- --------------------------------------------------------------------
Media/Entertainment--1.4%
41,400 King World Productions, Inc.* 1,619,775
54,942 Walt Disney Co. 4,024,502
- --------------------------------------------------------------------
5,644,277
- --------------------------------------------------------------------
Nonferrous Metals--1.3%
15,900 Phelps Dodge Corp. 1,111,013
72,800 Tyco International Ltd. 4,158,700
- --------------------------------------------------------------------
5,269,713
- --------------------------------------------------------------------
Office & Business Equipment--0.5%
36,400 Xerox Corp. 2,133,950
- --------------------------------------------------------------------
Oil & Gas Exploration--0.4%
31,100 Burlington Resources, Inc. 1,547,225
- --------------------------------------------------------------------
Pharmaceuticals--6.7%
51,100 Abbott Labs 2,778,563
53,100 Bristol Myers Squibb 6,743,700
18,600 Eli Lilly & Co. 1,620,525
82,100 Merck & Co. 7,450,575
23,600 Pfizer, Inc. 2,191,850
31,700 Pharmacia & Upjohn, Inc. 1,180,825
47,600 Schering Plough Corp. 3,599,750
13,800 Warner Lambert Co. 1,110,900
- --------------------------------------------------------------------
26,676,688
- --------------------------------------------------------------------
Recreational Products--0.2%
29,407 Mattel, Inc. 827,072
- --------------------------------------------------------------------
Restaurants & Hotels--1.0%
14,000 HFS, Inc.* 980,000
23,000 ITT Corp.* 1,313,875
40,200 McDonalds Corp. 1,829,100
- --------------------------------------------------------------------
4,122,975
- --------------------------------------------------------------------
Retail--0.7%
34,100 Home Depot, Inc. 1,687,950
29,900 TJX Companies, Inc. 1,188,525
- --------------------------------------------------------------------
2,876,475
- --------------------------------------------------------------------
Retail-Specialty--1.2%
48,200 Gap, Inc. 1,385,750
49,600 Nike, Inc. 3,366,600
- --------------------------------------------------------------------
4,752,350
- --------------------------------------------------------------------
Semiconductors & Electronics--2.8%
67,800 Intel Corp. 11,000,550
- --------------------------------------------------------------------
Software--2.7%
33,350 Computer Associates International,
Inc. 1,513,256
79,900 Microsoft Corp.* 8,149,800
24,600 Oracle Corp.* 956,325
- --------------------------------------------------------------------
10,619,381
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Supermarkets--0.9%
63,300 Great A&P Tea Co., Inc. $ 1,978,125
31,200 Safeway, Inc.* 1,489,800
- --------------------------------------------------------------------
3,467,925
- --------------------------------------------------------------------
Technical Services--0.4%
22,800 3Com Corp.* 1,530,450
- --------------------------------------------------------------------
Technology Capital Goods--0.7%
18,800 Applied Materials, Inc.* 928,250
22,000 Harris Corp. 1,674,750
- --------------------------------------------------------------------
2,603,000
- --------------------------------------------------------------------
Telecommunications--0.2%
17,000 Tellabs, Inc.* 700,188
- --------------------------------------------------------------------
Textiles--1.1%
22,500 Liz Claiborne, Inc. 947,813
33,200 Sara Lee Corp. 1,311,400
30,800 VF Corp. 2,048,200
- --------------------------------------------------------------------
4,307,413
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--0.8%
36,800 BF Goodrich Co. 1,508,800
29,800 Goodyear Tire & Rubber Co. 1,624,100
- --------------------------------------------------------------------
3,132,900
- --------------------------------------------------------------------
Tobacco--1.7%
55,600 Philip Morris Companies, Inc. 6,609,450
- --------------------------------------------------------------------
Total Common Stocks
(Cost $294,916,122) $ 385,205,653
====================================================================
Rights--0.9%
Insurance--0.2%
9,400 MBIA, Inc.,* exp. 12/12/01 $ 903,575
- --------------------------------------------------------------------
Insurance-Life--0.4%
36,400 Protective Life Corp.*, exp. 07/13/97 1,442,350
- --------------------------------------------------------------------
Specialty Finance--0.3%
19,100 Beneficial Corp.,* exp. 11/23/97 1,284,475
- --------------------------------------------------------------------
Total Rights
(Cost $2,826,759) $ 3,630,400
- --------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
U.S. Treasury Obligations--0.2%
$ 841,000 U.S. Treasury Bill
5.08%, 05/29/97/(b)/ $ 827,118
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $827,118) $ 827,118
- --------------------------------------------------------------------
Repurchase Agreement--0.9%
$ 3,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 3,600,000
- --------------------------------------------------------------------
Total Repurchase Agreements
(Cost $3,600,000) $ 3,600,000
- --------------------------------------------------------------------
Total Investments
(Cost $302,169,999)/(a)/ $ 393,263,171
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 94,373,749
Gross unrealized loss for investments in
which cost exceeds value (3,489,045)
- --------------------------------------------------------------------
Net unrealized gain $ 90,884,704
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long/(c)/ Month Gain
- ------------------------- ------------- ------------ ----------------
<S> <C> <C> <C>
S&P 500 Stock Index 7 March 1997 $91,800
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $302,378,467.
/(b)/Portion of this security is being segregated as collateral for futures
contracts.
/(c)/Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and net market value at risk are $350,000 and
$2,756,250, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
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.
21
<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 style, which means we focus on companies whose stocks we believe are
inexpensive relative to their expected long-term earnings growth and their
ability to pay dividends. Investments may include well-known companies that are
temporarily out of favor due to cyclical economic conditions or are experiencing
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.
Though we are not sector investors, we closely monitor the fund's sector and
industry exposures compared with the benchmark in an effort to avoid
unintentional over- or underweightings.
Performance Review: The Fund Outperformed the Index...
<TABLE>
<CAPTION>
- ------------------------------------- ----------------- -----------
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 28.42% 26.25%
Class B (5/1/96 - 1/31/97)* 22.23% 22.18%
Institutional (6/3/96 - 1/31/97)* 20.77% 19.11%
Service (3/6/96 - 1/31/97)* 23.87% 22.20%
- ------------------------------------- ----------------- -----------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inceptions through the end
of the period.
The U.S. stock market continued to soar during the period under
review, adding to the impressive performance recorded during the prior year.
Most of the market's gains occurred during the latter half of the period, when
equities rebounded strongly following a sharp correction in July.
We are pleased to report that all of the fund's share classes
outperformed the S&P 500 stock index during the past fiscal year. Most notably,
its Class A shares returned 28.42% (at net asset value) versus 26.25% for the
index. During the period, the fund increased its regular quarterly dividend.
...And Fared Very Well Relative to Its Peers
We are proud to announce that for the three-year period ended January
31, 1997, the fund's Class A shares were rated "five stars" (out of 1,858
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency. The "five star" designation is Morningstar's highest rating for
historical risk-adjusted performance, and is given to mutual funds that
Morningstar determines to be in the top 10% of their category.1
In addition, the fund's Class A shares ranked within the top 10% of
the Lipper growth and income category (53rd of 533) for the 12-month period
ended January 31, 1997, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. Class B, Institutional and
Service shares
- -------------------------
1 Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. For the one-year period, the Class A shares
received four stars and was rated among 2,990 domestic equity funds. The
Morningstar rating applies only to the fund's Class A shares; the fund's Class
B, Institutional and Service shares have not been rated. Class B, Institutional
and Service shares are subject to additional fees and expenses that may have the
effect of lowering performance and may affect any future Morningstar rating.
Morningstar rates funds against peers in the same category. In all, there are
five Morningstar categories (domestic equity, international equity, fixed
income, municipal and hybrid). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
were not ranked because they did not exist during the full year.)
Financial, Technology and Energy Stocks Were Among the Fund's Best Performers
The fund's outperformance came from successful stock selection in a
wide range of industries, led by finance, its largest sector weighting at 18.0%.
Technology and energy investments also did well. In addition, the fund benefited
significantly from our decision to limit its exposure in the media and
communication sector. Our concerns regarding increased competition between the
local exchange and long-distance companies and high valuations in the sector
proved to be on target.
In the financial sector, top performers were BankAmerica Corp. and
NationsBank Corp., the country's third and fourth largest banks, respectively.
BankAmerica Corp. increased its focus on aggressive capital management, which
resulted in its exiting unprofitable businesses and buying back some of its
stock. NationsBank Corp. acquired Bank South Corp. and Boatmen's Bancshares,
Inc., and investors began to realize the benefits of its cost structure due to
its acquisitions over the past few years.
Technology holdings that performed well included Intel Corp., the
dominant microprocessor manufacturer, which was purchased when the sector was
depressed due to concerns that the personal computer upgrade cycle had slowed.
Intel quickly rebounded when investors recognized the advantages of its dominant
market position, and we subsequently sold the stock when it reached our target
price. We saw solid gains from Avnet, Inc., the second largest distributor of
semiconductors and other electronic components, which we viewed as an
inexpensive opportunity to participate in the growth of the technology sector.
The fund was also well served by a number of its energy-related
investments. Tosco Corp., an oil refiner and distributor, more than doubled in
price as it continued to consolidate its market position through an ambitious
acquisition strategy, and Texaco Inc. benefited from higher petroleum prices and
a restructuring program that meaningfully improved profits.
In addition, several holdings appreciated due to special situations.
Our confidence in Long Island Lighting Co., a New York-based utility, which had
been shunned by many other investors, was handsomely rewarded when the stock
soared after Brooklyn Union Gas Co. made an attractive bid for the company in
January. The fund also benefited when McDonnell Douglas Corp., one of our
long-term positions, was acquired by Boeing Co. at a very favorable price.
Sunbeam Corp., a leading consumer products company, met with an enthusiastic
investor response to the aggressive restructuring program initiated by its new
CEO.
Paper and Chemical Stocks Were Weak
Disappointing performers included three companies impacted by
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride. We continue to have confidence in these
companies and expect their prospects to improve over time.
Additional Investments in a Variety of Sectors
During the period, we added a number of new holdings. These included
Dean Witter, Discover & Co., which we viewed as undervalued based on the
potential of its broker-dealer/asset management business and its large Discover
credit card business. In February 1997, Dean Witter, Discover & Co. announced
its intention to merge with investment bank Morgan Stanley. We also invested in
Unicom Corp., an electric utility that operates 12 nuclear units at six sites.
Unicom generates excess capital and, unlike many other electric utilities, has
no utility power purchase problems. We established a position after its stock
price declined due to a mandated increase in spending on operations and
maintenance, an issue that management believes will not impair the company's
long-
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund (continued)
- --------------------------------------------------------------------------------
term prospects. Also notable was our decision to increase the fund's
position in Tenet Healthcare Corp., a long-term holding, based on its prospects
for improved efficiencies resulting from the integration of its acquisition of
OrNda Healthcorp., a for-profit hospital chain.
Sales Included Several Financial and Technology Positions
We sold several stocks after they appreciated and reached our price
targets. These included Anheuser-Busch Co., Inc., the world's largest brewer,
which reported strong earnings; Greenpoint Financial Corp., which benefited from
increased investor appreciation of the value of its
"no-documentation--low-documentation" mortgage franchise; and technology
holdings Compaq Computer Corp. and Intel Corp.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total Net
<S> <C> <C>
Company Line of Business Assets
Aetna Inc. Healthcare Service 3.3%
Provider
Tenet Healthcare Corp. Hospitals 3.3%
Lear Corp. Autoparts/Original 3.0%
Equipment
Cigna Corp. Insurance 2.9%
Brunswick Corp. Pleasure 2.9%
Boats/Marine
Engines
Dean Witter, Discover & Co. Financial Services 2.8%
Goodyear Tire & Rubber Co. Tire and Rubber 2.8%
Products
Philip Morris Companies, Tobacco and Food 2.7%
Inc. Products
Avnet, Inc. Electronic 2.7%
Components
Distributor
BankAmerica Corp. Commercial Bank 2.6%
- --------------------------------------------------------------------
</TABLE>
Outlook
As we enter the seventh year of a bull market for U.S. equities, we
view the market as moderately overvalued and therefore unlikely to match the
strong return it achieved in 1996. In this environment, it is particularly
noteworthy that the fund's holdings continue to be attractively valued even
after last year's rally. Our focus on undervalued stocks and extensive
fundamental research will continue to be extremely important in the more
challenging market we anticipate ahead.
/s/ Ronald E. Gutfleish /s/ G. Lee Anderson
- ------------------------ -------------------------
Ronald E. Gutfleish G. Lee Anderson
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ Eileen A. Aptman
--------------------
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
March 3, 1997
24
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class A Class A
(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
1/31/96 14,716 15,573 15,436
1/31/97 18,911 20,012 19,501
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class B Class B
(no redemp charge) (w/redemp charge) S&P 500
------------------ ----------------- -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 12,223 11,723 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/3/96 $10,000 $10,000
1/31/97 12,077 11,911
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Service Class S&P 500
--------------- -------
<S> <C> <C>
3/6/96 $10,000 $10,000
1/31/97 12,387 12,220
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
Average Annual Total Return
--------------------------------------------
One Year Since Inception /(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 28.42% 18.98%
- --------------------------------------------------------------------------------
Class A, w/sales charge 21.39% 17.31%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 22.23% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 17.23% /(b)/
- --------------------------------------------------------------------------------
Institutional Class N/A 20.77% /(b)/
- --------------------------------------------------------------------------------
Service Class N/A 23.87% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
February 5, 1993, May 1, 1996, June 3, 1996 and March 6, 1996,
respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
25
<PAGE>
Statement of Investments
- -------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
===================================================================
<S> <C> <C>
Common Stocks--93.2%
Airlines--3.2%
96,100 AMR Corp.* $ 7,736,050
463,600 Continental Airlines, Inc.* 12,980,800
- -------------------------------------------------------------------
20,716,850
- -------------------------------------------------------------------
Appliance Manufacturer--1.9%
440,900 Sunbeam Corp. 12,234,975
- -------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.0%
512,800 Lear Corp.* 19,165,900
- -------------------------------------------------------------------
Auto/Vehicle--2.0%
394,800 Ford Motor Co. 12,682,950
- -------------------------------------------------------------------
Banks--8.3%
146,600 BankAmerica Corp. 16,364,225
64,900 Chase Manhattan Corp. 6,003,250
117,800 Fleet Financial Group Inc. 6,361,200
146,900 NationsBank Corp. 15,865,200
96,500 Republic of New York Corp. 8,552,313
- -------------------------------------------------------------------
53,146,188
- -------------------------------------------------------------------
Chemicals-Commodity--2.0%
439,800 Geon Co. 8,246,250
97,400 Union Carbide Corp. 4,419,525
- -------------------------------------------------------------------
12,665,775
- -------------------------------------------------------------------
Defense--3.4%
225,100 McDonnell Douglas Corp. 15,137,975
79,800 Northrop Grumman Corp. 6,234,375
6,300 Thiokol Corp. 352,800
- -------------------------------------------------------------------
21,725,150
- -------------------------------------------------------------------
Department Stores--1.6%
207,700 Sears Roebuck & Co. 9,969,600
- -------------------------------------------------------------------
Electric Utilities--5.1%
95,100 CMS Energy Corp. 3,185,850
641,400 Long Island Lighting Co. 14,591,850
632,300 Unicom Corp. 14,938,088
- -------------------------------------------------------------------
32,715,788
- -------------------------------------------------------------------
Food--2.8%
582,200 Chiquita Brands International, Inc. 8,514,675
58,400 Unilever Inc. 9,606,800
- -------------------------------------------------------------------
18,121,475
- -------------------------------------------------------------------
Forest Products--1.9%
161,500 Georgia Pacific Corp. 11,890,438
- -------------------------------------------------------------------
Health Suppliers/Services--2.0%
280,800 Baxter International, Inc. 12,951,900
- -------------------------------------------------------------------
Healthcare Management--6.6%
266,400 Aetna Inc. 21,045,600
768,500 Tenet Healthcare Corp.* 20,749,500
- -------------------------------------------------------------------
41,795,100
- -------------------------------------------------------------------
Home Builders--3.1%
232,800 Centex Corp. 9,079,200
388,500 Lennar Corp. 10,343,813
- -------------------------------------------------------------------
19,423,013
- -------------------------------------------------------------------
Insurance-Life--4.3%
123,600 Cigna Corp. 18,740,850
166,200 Lincoln National Corp. 8,912,475
- -------------------------------------------------------------------
27,653,325
- -------------------------------------------------------------------
Insurance-Property & Casualty--1.4%
16,100 Integon Corp. 223,388
237,600 Partner Re Holding Ltd. 8,434,800
- -------------------------------------------------------------------
8,658,188
- -------------------------------------------------------------------
Integrated Oil--4.8%
121,400 Atlantic Richfield Co. 16,055,150
138,900 Texaco, Inc. 14,706,038
- -------------------------------------------------------------------
30,761,188
- -------------------------------------------------------------------
Logistics/Rails--1.8%
415,700 Canadian Pacific Ltd. 11,275,863
- -------------------------------------------------------------------
Logistics/Trucking--2.0%
512,100 Consolidated Freightways, Inc. 12,994,538
- -------------------------------------------------------------------
Oil Refining & Marketing--3.6%
187,700 Ashland Inc. 8,094,563
166,800 Tosco Corp. 14,761,800
- -------------------------------------------------------------------
22,856,363
- -------------------------------------------------------------------
Packaging--2.5%
661,600 Owens Illinois Corp.* 15,713,000
- -------------------------------------------------------------------
Recreational Products--2.9%
724,800 Brunswick Corp. 18,210,600
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Security and Commodity Brokers, Dealers and Services--1.0%
195,900 Lehman Brothers Holdings, Inc. $ 6,195,338
- -------------------------------------------------------------------
Semiconductors & Electronics--2.7%
275,100 Avnet, Inc. 17,021,813
- -------------------------------------------------------------------
Software--1.1%
214,300 Autodesk, Inc. 6,777,238
- -------------------------------------------------------------------
Specialty Finance--2.8%
470,200 Dean Witter Discover & Co. 17,926,375
- -------------------------------------------------------------------
Steel--1.6%
251,600 AK Steel Holding Corp. 10,126,900
- -------------------------------------------------------------------
Supermarkets--3.4%
726,500 Fleming Companies, Inc. 11,714,813
316,700 Supervalu, Inc. 9,778,113
- -------------------------------------------------------------------
21,492,926
- -------------------------------------------------------------------
Textiles--2.4%
374,400 Fruit of The Loom, Inc.* 15,022,800
- -------------------------------------------------------------------
Tire & Other Related Rubber Products--2.8%
320,900 Goodyear Tire & Rubber Co. 17,489,050
- -------------------------------------------------------------------
Tobacco--5.2%
63,700 Loews Corp. 6,298,338
144,700 Philip Morris Companies, Inc. 17,201,204
187,480 RJR Nabisco, Inc. 6,139,970
115,600 Universal Corp. 3,583,600
- -------------------------------------------------------------------
33,223,112
- -------------------------------------------------------------------
Total Common Stocks
(Cost $465,569,279) $ 592,603,719
===================================================================
Preferred Stocks--0.6%
Food--0.3%
44,600 Chiquita Brands International, Inc.
Convertible, 5.75% $ 2,073,900
- -------------------------------------------------------------------
Tobacco--0.3%
287,100 RJR Nabisco, Inc., Class C 9.25% 1,902,038
- -------------------------------------------------------------------
Total Preferred Stocks
(Cost $3,843,410) $ 3,975,938
===================================================================
Rights--2.0%
Forest Products--1.2%
579,100 Stone Container Corp.,* exp.
08/08/98 $ 7,817,850
- -------------------------------------------------------------------
Technology Capital Goods--0.8%
166,300 Teradyne, Inc.,* exp. 03/26/00 5,134,513
- -------------------------------------------------------------------
Total Rights
(Cost $13,294,493) $ 12,952,363
===================================================================
Repurchase Agreements--4.2%
- -------------------------------------------------------------------
$ 26,800,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 26,800,000
- -------------------------------------------------------------------
Total Repurchase Agreements
(Cost $26,800,000) $ 26,800,000
===================================================================
<CAPTION>
Contracts Description Value
===================================================================
<C> <S> <C>
Options*--0.4%
1,340 S & P 500 Index Put, Strike 750
exp. 06/97 $ 2,244,500
1,439 S & P 500 Index Put, Strike 700
exp. 03/97 377,738
- -------------------------------------------------------------------
Total Options
(Cost $4,105,525) $ 2,622,238
===================================================================
Total Investments
(Cost $513,612,707)/(a)/ $ 638,954,258
===================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $136,933,045
Gross unrealized loss for investments in which
cost exceeds value (11,607,531)
- -------------------------------------------------------------------
Net unrealized gain $125,325,514
===================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $513,628,744. 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.
27
<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
primarily through investments in a portfolio of large-capitalization stocks. We
use extensive fundamental research to identify companies in a diversified range
of industries that we believe offer attractive growth potential at a reasonable
price.
The fund's investment management team believes that wealth is created
through the long-term ownership of growing businesses. As such, we view each
stock purchase as if we were buying the entire business. To implement this
investment strategy, we focus on growing companies with characteristics such as
strong brand franchises, dominant market share, recurring revenue, product
pricing flexibility, long product life cycles, high returns on invested capital,
high profit margins, strong free cash flow, excellent management and favorable
long-term prospects. Finally, we will buy a stock meeting our rigorous criteria
only if it trades at a reasonable discount to the company's intrinsic value.
Performance Review: Fund Achieved Strong Results
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Fund Total Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 25.97% 26.25%
Class B (5/1/96 - 1/31/97)* 19.39% 22.18%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the 12-month period ended January 31, 1997, the fund's Class A shares
achieved a total return of approximately 26%, in line with the S&P 500 stock
index, reflecting the robust equity market, particularly during the second half
of the period. The fund's Class B shares also achieved strong absolute results;
however, a partial year of only nine months is obviously too short a time frame
to meaningfully measure long-term performance.
We are pleased to report that for the five-year period ended January
31, 1997, the fund's Class A shares were rated "four stars" (out of 1,072
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency./1/ In addition, the fund's Class A shares fared well versus its peers in
the Lipper growth fund category, placing in the top third (187th out of 685) for
the 12-month period and in the top quartile (56th out of 263) for the five-year
period, as of January 31, 1997, according to Lipper Analytical Services, Inc.
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results. Lipper did not rank
the fund's Class B shares.)
Top Performers Included Financial, Technology and Defense Stocks
The fund's best performers during the period came from a variety of sectors,
particularly financial services (20.4% of the portfolio), technology (9.1%) and
defense/aerospace (3.2%).
. Top performers in the financial sector included MBNA Corp. and First USA
Inc., the nation's third and fourth largest credit card issuers, respectively,
which both reported better than expected earnings and loan growth. In
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund's Class A shares received three stars
for both the three- and one-year periods. The Class A shares were rated among
1,858 and 2,990 domestic equity funds for the three- and one-year periods,
respectively. The Morningstar rating applies only to the fund's Class A shares;
the fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are five Morningstar categories
(domestic equity, international equity, fixed income, municipal and hybrid).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
addition, these companies benefited from continuing industry consolidation,
with First USA performing particularly well after Banc One announced that it was
acquiring the company. Two of the fund's commercial bank holdings, BankAmerica
Corp. and NationsBank Corp., appreciated due to successful cost cutting, strong
earnings growth and aggressive capital management, and PartnerRe Holding Ltd., a
worldwide provider of catastrophe reinsurance, rose on strong earnings.
. Several of our technology holdings also performed well. During the first
half of the period, we increased the fund's positions in Intel Corp., the
dominant microprocessor manufacturer, and Compaq Computer Corp., the world's
largest manufacturer of personal computers, when their prices slumped because of
concerns regarding slowing computer sales. This strategy significantly
contributed to the fund's performance when computer sales were stronger than
expected. We subsequently sold Compaq Computer when it reached our target price
but continue to hold Intel, which more than tripled in price during the period.
. Consolidation in the defense industry helped two of the fund's long-
standing investments in that sector. McDonnell Douglas Corp. climbed over 50%
after the announcement of its proposed merger with Boeing Co., and Northrop
Grumman Corp. was buoyed by its purchase of Westinghouse Electric Corp.'s
defense electronics businesses.
Specific Paper, Airline and Insurance Stocks Lagged
Not all of the fund's holdings fulfilled our expectations. For example,
Georgia-Pacific Corp., a manufacturer of paper products, suffered from an
industry oversupply and a consequent decline in paper and pulp prices; AMR
Corp., the holding company of American Airlines, was impacted by concerns
regarding competition from discount carriers; and Integon Corp., a provider of
automobile insurance, experienced a higher than expected increase in claims and
lower earnings.
New Additions in Consumer Product Companies and Pharmaceuticals
During the period, we initiated several positions that reflect our new
emphasis on large-capitalization stocks with world-class franchises and/or
strong brand names. For example, we added Procter & Gamble Co., one of the
strongest marketers in the U.S. with a stable of brand name products, many of
which hold number one or number two positions in their respective markets. Over
the past decade, the company has achieved steady growth in revenues and
earnings, exactly the type of consistent operating history that we favor.
Another recent investment was Coca-Cola Co., a world-class company with four of
the five leading carbonated soft drinks -- Coca-Cola, Diet Coke, Sprite and
Fanta. With 80% of its business coming from abroad, we expect Coca-Cola's long-
term earnings growth to continue as it further penetrates the emerging markets
of China, India, Latin America, Southeast Asia, Eastern Europe and Russia.
Other new positions included pharmaceutical companies Bristol-Myers
Squibb Co., Johnson & Johnson Co. and Pfizer, Inc., which are attractive because
of their strong new product flow, huge free cash flow, earnings growth and
essentially net debt-free balance sheets. We believe these companies are
positioned to be major beneficiaries as the baby boomers age and require more
health-related products and services over the coming decades.
Sales Included Several Investments in Cyclical Industries
During the period, we sold Kirby Corp. and Trinity Industries after we lost
confidence in their managements' attempts to improve their competitive
positions, and cyclical stocks such as Quanex Corp. and Harnischfeger
Industries, Inc. after they were unable to improve their profitability in
difficult industry conditions. In contrast, we sold the fund's long-held
position in Millipore Corp., an industrial filter producer, after it reached our
target price.
- --------------------------------------------------------------------------------
29
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
<TABLE>
<CAPTION>
Percentage
of Total
Company Line of Business Net Assets
<S> <C> <C>
First USA, Inc. Financial Services 4.5%
Intel Corp. Semiconductors and 4.3%
Electronics
NationsBank Corp. Commercial Bank 3.4%
Aetna Inc. Healthcare 3.4%
Management
Texaco Inc. International 3.3%
Integrated Oil
Company
BankAmerica Corp. Commercial Bank 3.2%
Tenet Healthcare Corp. Hospitals 3.0%
Philip Morris Companies, Tobacco and Food 3.0%
Inc. Products
Baxter International, Inc. Medical Supplies 2.9%
PartnerRe Ltd. Insurance 2.7%
- --------------------------------------------------------------------
</TABLE>
Outlook
We believe that the global political and economic environments will
continue to remain favorable for the financial markets. In our opinion, the
outlook for the U.S. stock market is attractive, as we expect it to continue to
benefit from low inflation, moderate growth and high levels of consumer
confidence. In addition, we anticipate that the equity market will continue to
be buoyed as baby boomers increase their savings and 401(k) investment plans
grow. To enhance the fund's ability to benefit from the positive investing
climate, we expect to continue to diversify the portfolio among industry sectors
and increase its holdings of large-cap stocks, with the intention of both
providing favorable long-term returns and reducing portfolio risk.
We want to emphasize that investing is a marathon, not a sprint.
Notwithstanding the excellent performance the fund has recently experienced, we
have a long-term investment horizon. In a nutshell, we hope to be able to
purchase great companies with attractive business characteristics and favorable
long-term outlooks, and then patiently hold them for an extended period of time
so that their growth compounds.
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
- --------------------------------------------------------------------------------
30
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class A Class A
(w/sales charge) (no sales charge) S&P 500
----------------- ----------------- -------
<S> <C> <C> <C>
4/20/90 9,450 10,000 10,000
1/31/91 9,529 10,084 10,552
1/31/92 12,322 13,040 12,946
1/31/93 14,542 15,388 14,316
1/31/94 16,998 17,987 16,160
1/31/95 16,254 17,200 16,246
1/31/96 21,203 22,437 22,528
1/31/97 26,726 28,282 28,460
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class B Class B
(no redemp. charge) (w/redemp. charge) S&P 500
------------------- ------------------ -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 11,939 11,439 12,218
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
Average Annual Total Return
----------------------------------------------
One Year Five Year Since Inception/(a)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A, no sales charge 25.97% 16.73% 16.54%
- ------------------------------------------------------------------------------
Class A, w/sales charge 19.04% 15.42% 15.57%
- ------------------------------------------------------------------------------
Class B, no redemption charge N/A N/A 19.39%/(b)/
- ------------------------------------------------------------------------------
Class B, w/redemption charge N/A N/A 14.39%/(b)/
- ------------------------------------------------------------------------------
</TABLE>
/(a)/Class A and Class B shares commenced operations on April 20, 1990 and
May 1, 1996, respectively.
/(b)/An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve months
of operations.
- --------------------------------------------------------------------------------
31
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--98.9%
Advertising & Marketing--1.8%
888,900 Valassis Communications, Inc.* $ 16,333,538
- --------------------------------------------------------------------
Airlines--1.5%
176,500 AMR Corp.* 14,208,250
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.6%
391,900 Lear Corp.* 14,647,262
- --------------------------------------------------------------------
Banks--6.6%
263,700 BankAmerica Corp. 29,435,512
291,500 NationsBank Corp. 31,482,000
- --------------------------------------------------------------------
60,917,512
- --------------------------------------------------------------------
Beverages--2.1%
155,100 Coca Cola Co. 8,976,413
293,800 Pepsico, Inc. 10,246,275
- --------------------------------------------------------------------
19,222,688
- --------------------------------------------------------------------
Commercial Services--0.9%
226,500 Ecolab Inc. 8,380,500
- --------------------------------------------------------------------
Communications Technology--1.7%
290,860 Lucent Technologies, Inc. 15,779,155
- --------------------------------------------------------------------
Construction/Environmental Services--2.0%
497,500 WMX Technologies, Inc. 18,220,938
- --------------------------------------------------------------------
Consumer Staples--4.0%
150,800 Avon Products Inc. 9,462,700
109,000 Gillette Co. 8,883,500
160,940 Procter & Gamble Co. 18,588,570
- --------------------------------------------------------------------
36,934,770
- --------------------------------------------------------------------
Defense--3.2%
226,800 McDonnell Douglas Corp. 15,252,300
187,500 Northrop Grumman Corp. 14,648,438
- --------------------------------------------------------------------
29,900,738
- --------------------------------------------------------------------
Electric Utilities--1.6%
669,400 Long Island Lighting Co. 15,228,850
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--1.0%
89,400 General Electric Co. 9,208,200
- --------------------------------------------------------------------
Electronics & Semiconductors--1.5%
219,700 Avnet Inc. 13,593,937
- --------------------------------------------------------------------
Food--1.8%
186,500 Nabisco Holdings Corp. 7,133,625
160,480 William Wrigley Jr. Co. 9,327,900
- --------------------------------------------------------------------
16,461,525
- --------------------------------------------------------------------
Forest Products--2.2%
273,500 Georgia Pacific Corp. 20,136,437
- --------------------------------------------------------------------
Health Suppliers/Services--8.4%
589,600 Baxter International, Inc. 27,195,300
477,500 Fisher Scientific International, Inc. 20,950,312
176,400 Johnson & Johnson 10,165,050
277,600 Perkin-Elmer Corp. 19,397,300
- --------------------------------------------------------------------
77,707,962
- --------------------------------------------------------------------
Healthcare Management--8.5%
395,760 Aetna Inc. 31,265,040
487,650 Columbia HCA Healthcare 19,262,175
1,021,400 Tenet Healthcare Corp.* 27,577,800
- --------------------------------------------------------------------
78,105,015
- --------------------------------------------------------------------
Hotels & Restaurants--1.0%
169,720 Marriott International, Inc. 9,016,375
- --------------------------------------------------------------------
Information Management--1.9%
241,000 First Data Corp. 8,676,000
135,670 Reuters Holdings Corp. ADR 8,665,921
- --------------------------------------------------------------------
17,341,921
- --------------------------------------------------------------------
Insurance-Property and Casualty--3.2%
356,650 Integon Corp. 4,948,519
703,800 PartnerRe Holding Ltd. 24,984,900
- --------------------------------------------------------------------
29,933,419
- --------------------------------------------------------------------
Integrated Oil--6.7%
68,700 Amoco Corp. 5,976,900
52,700 Atlantic Richfield Co. 6,969,575
90,900 Mobil Corp. 11,930,625
41,200 Royal Dutch Petroleum ADR 7,148,200
284,800 Texaco, Inc. 30,153,200
- --------------------------------------------------------------------
62,178,500
- --------------------------------------------------------------------
Logistics/Rails--1.6%
556,900 Canadian Pacific Ltd. 15,105,912
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Media Content--4.6%
166,200 Gaylord Entertainment Co. $ 4,258,875
261,800 Knight Ridder, Inc. 10,046,575
530,700 Telecommunication Liberty
Media Group* 10,083,300
237,610 Time Warner Inc. 9,147,985
130,400 Walt Disney Co. 9,551,800
- --------------------------------------------------------------------
43,088,535
- --------------------------------------------------------------------
Packaging--1.6%
614,000 Owens Illinois Corp.* 14,582,500
- --------------------------------------------------------------------
Pharmaceuticals--2.3%
90,500 Bristol Myers Squibb 11,493,500
104,300 Pfizer, Inc. 9,686,863
- --------------------------------------------------------------------
21,180,363
- --------------------------------------------------------------------
Retail Trade--1.0%
222,600 Walgreen Co. 9,154,425
- --------------------------------------------------------------------
Retail-Department Stores--2.1%
658,400 Dillard Department Stores, Inc. 19,669,700
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--2.0%
571,000 Lehman Brothers Holdings, Inc. 18,057,875
- --------------------------------------------------------------------
Semiconductors & Electronics--4.3%
247,000 Intel Corp. 40,075,750
- --------------------------------------------------------------------
Specialty Finance & Agency--8.6%
345,300 Federal National Mortgage Assn. 13,639,350
828,200 First USA, Inc. 41,927,625
683,925 MBNA Corp. 23,595,413
- --------------------------------------------------------------------
79,162,388
- --------------------------------------------------------------------
Specialty Retail--1.0%
311,900 Service Corp. International 9,045,100
- --------------------------------------------------------------------
Technology Capital Goods--1.5%
286,400 Applied Materials Inc.* 14,141,000
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--2.1%
362,400 Goodyear Tire & Rubber Co. 19,750,800
- --------------------------------------------------------------------
Tobacco--3.0%
229,400 Philip Morris Companies, Inc. 27,269,925
- --------------------------------------------------------------------
Total Common Stocks
(Cost $661,066,240) $ 913,741,765
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Repurchase Agreement--2.0%
$18,300,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 18,300,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $18,300,000) $ 18,300,000
- --------------------------------------------------------------------
Total Investments
(Cost $679,366,240)(a) $ 932,041,765
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 255,377,138
Gross unrealized loss for investments in
which cost exceeds value (3,163,091)
- --------------------------------------------------------------------
Net unrealized gain $ 252,214,047
====================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $679,827,718.
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.
33
<PAGE>
Letter to Shareholders
- ----------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
- ----------------------------------------------------------------------
Objective and Investment Approach
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. This approach differs markedly from many emerging
growth small-cap funds that invest in companies with high price-to-earnings
multiples solely on the basis of rapid, but frequently unsustainable, growth
rates. Using our own rigorous fundamental research, which includes meeting with
a company's management and examining a company's competitors, customers and
suppliers, we build the fund's portfolio one stock at a time.
Performance Review: Class A Shares Outperformed the Benchmark and the S&P 500
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
<S> <C> <C>
Fund Total Return Russell
(based on net 2000 Total
asset value) Return
----------- ------
Class A (1/31/96 - 1/31/97)* 27.28% 18.95%
Class B (5/1/96 - 1/31/97)* 5.39% 7.32%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the period under review, small-cap stocks achieved strong
returns but still underperformed large-cap stocks. Small-caps began the period
on a strong note, outpacing large-caps from February through May, then gave up
their early lead during June and July when the market experienced a sharp
correction. While both large-cap and small-cap stocks sold off, small-caps were
particularly hard hit. During the latter half of the period, the market surged
to record highs, but small-caps trailed their larger peers as investors rushed
to participate in the rising market, but hedged their bets by sticking with the
largest, most liquid stocks.
Despite the small-cap sector's waning momentum, we are pleased to
report that the fund's Class A shares returned 27.28% (at net asset value),
outperforming both its benchmark, the Russell 2000 index (18.95%), and the
large-cap S&P 500 stock index (26.25%). In addition, the fund's Class A shares
placed in the top third of the Lipper small-company growth fund category
(ranking 129th out of 394) for the 12-month period ended January 31, 1997,
according to Lipper Analytical Services, Inc. (Please note that Lipper rankings
do not take sales charges into account and that past performance is not a
guarantee of future results. Lipper did not rank the fund's Class B shares.) The
fund's Class B shares also achieved positive returns, but did not fare as well
because their inception coincided with the start of a more difficult market
environment for small-cap stocks.
The fund's performance was especially strong during the first half of
the period, when a number of its long-held investments performed well. These
positions included some companies that had experienced temporary difficulties
and rebounded on improving fundamentals, as well as companies that had been
relatively undiscovered and garnered increased investor awareness due to
continued strong earnings gains. The fund also performed better than the broader
market during the summer correction, when expensive, momentum-type stocks were
hit harder than those with inexpensive valuations, which the fund typically
emphasizes. In contrast, during the second half of the period, stocks with
momentum characteristics rebounded, while the types of stocks that the fund
stresses did not perform as strongly. In addition, the fund experienced price
corrections in several holdings due to earnings volatility.
The fund's top performers during the period came from a wide variety
of industries, with Black Box Corp. and Morningstar Group, Inc. contributing
significantly to overall results. Black Box Corp., a catalog marketer of
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
communications and networking products, was the fund's largest holding in the
beginning of the period and climbed substantially as it continued to achieve
record revenues and profits due to successful direct marketing efforts and new
product introductions. The position in Black Box was then sold after it reached
our target price. Morningstar Group, Inc., a manufacturer of specialty foods,
was the fund's eighth largest holding at the start of the period and nearly
tripled in price when it consolidated its market position through internal
growth, new product introductions and several attractive acquisitions. The fund
has held Morningstar Group for over four years; it is a good example of our
willingness to hold strong businesses until the market recognizes their true
value.
Other strong performers included American Safety Razor Co., the
leading U.S. manufacturer of private-brand and value-priced shaving blades,
which benefited from internal profit enhancement efforts and particularly strong
sales of its branded and private-label shaving and personal care products;
Movado Group, Inc., the owner of the Movado, Concord and Esquire watch brands,
which rebounded due to significant sales growth, new licensing agreements and
increased analyst coverage; J. Baker, Inc., a diversified retailer of footwear
and apparel, which announced its intention to sell its shoe division in order to
focus its resources on its successful "Casual Male Big & Tall" stores; and
Nimbus CD International, Inc., a CD and CD-ROM manufacturer that we sold after
it rose sharply due to high investor expectations of future DVD (digital video
disk) demand. Finally, several financial holdings performed well, such as Horace
Mann Educators Co., a provider of property, casualty and life insurance for the
educator market, and Terra Nova Bermuda Holdings, a worldwide provider of
property casualty insurance and reinsurance.
Not all of the fund's holdings fulfilled our expectations. Several
stocks were hurt by disappointing earnings, although we continue to believe in
their long-term prospects. For example, Landstar System, Inc. experienced
weakness when the restructuring of its trucking operations from a fixed cost to
a variable cost business took longer than expected. In addition, Central Maine
Power Co. was impacted by uncertainty in the regulatory environment, and Alpine
Lace Brands, Inc., a developer and marketer of cheese products, declined due to
an increase in commodity cheese prices. We took advantage of lower prices and
increased the fund's positions in all three stocks. In contrast, we liquidated
two other underperformers, Musicland Stores Corp. and Levitz Furniture Inc.,
because their fundamental businesses continued to deteriorate.
Recent Additions
During the period, we initiated a number of positions that have
already contributed to performance. These included Linens 'N Things, Inc., a
retailer of home accessories, which was attractively valued versus its key
competitor, Bed, Bath and Beyond, and has significant store expansion and margin
improvement potential, and Sun Healthcare Group, Inc., a well-managed
owner/operator of nursing homes with attractive long-term growth potential.
Though Sun Healthcare Group has been temporarily impacted by a government
investigation of one of its subsidiaries, we believe this issue is fully
reflected in the current stock price. In the technology sector, we added
DecisionOne Holdings Corp., the leading independent provider of computer
hardware and maintenance support services to U.S. companies. We intend to
continue to focus on technology-related service providers and distributors that
we believe are positioned to benefit from the expected long-term growth of the
sector but are not dependent on the success of any single product or service.
Other new investments were APS Holding Corp., a distributor of
automotive parts, which was depressed by industry- and company-specific issues
that we believe to be temporary, and Friedman's, Inc., a retailer of inexpensive
jewelry with significant expansion potential and a very low-cost operating
strategy. We also added two specialty insurance companies, SCPIE Holdings, Inc.
and Symon's International Group, Inc.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund (continued)
- --------------------------------------------------------------------------------
Sales Included Several Financial Holdings
The fund sold several stocks after they appreciated and reached our
target prices. These included a number of financial holdings, such as Greenpoint
Financial Corp., the leading national lender of "no-documentation--low-
documentation" mortgages; Dime Bancorp, Inc., the fifth largest thrift in the
U.S.; and Western National Corporation, a marketer of annuity products.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
Movado Group, Inc. Luxury and 5.6%
Affordable Watch
Distributor
DecisionOne Holdings Corp. Computer Support 4.9%
Provider
Sun Healthcare Group, Inc. Healthcare Services 3.9%
APS Holding Corp. Automotive Parts 3.6%
Distributor
Mariner Health Group, Inc. Healthcare Services 3.6%
Groupe AB Television 3.5%
Programming
Distributor
Friedman's, Inc. Jewelry Retailer 3.5%
J. Baker, Inc. Specialty Apparel 3.5%
Heritage Media Corp. Marketing Services 3.4%
Provider
Linens 'N Things, Inc. Home Products 3.1%
Retailer
- --------------------------------------------------------------------
</TABLE>
Outlook
One of the key factors that will affect equity performance during
1997 will be the continuation of the favorable economic environment of moderate
growth and low inflation, which would ensure that both the corporate earnings
outlook and the interest rate climate remain hospitable. Small-capitalization
stocks as a group currently appear undervalued relative to large-cap stocks and
to their own expected earnings potential. We believe that corporate earnings
growth will slow somewhat in 1997, and to the extent that smaller companies can
achieve better earnings growth than larger companies, they should perform
relatively well. The performance of small-caps will particularly depend on
investors broadening their focus from the largest, most liquid stocks to
smaller, less widely followed issues. We are optimistic regarding the fund's
future performance based on the strong earnings growth and the free cash flow we
expect from many of our top holdings, as well as from new investments.
/s/ Paul D. Farrell
Paul D. Farrell
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ Matthew B. McLennan
Matthew B. McLennan
Assistant Portfolio Manager,
U.S. Active Equity Value
/s/ Timothy G. Ebright
Timothy G. Ebright
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
36
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 Index ("S&P 500") and the Russell 2000)
are shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class A GS Small Cap Class A Russell
(w/sales charge) (no sales charge) S&P 500 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
1/31/96 12,813 13,559 16,768 17,010
1/31/97 16,320 17,270 21,183 20,242
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class B GS Small Cap Class B Russell
(no redemp. charge) (w/redemp. charge) S&P 500 2000
-------------------- -------------------- ------- -------
<S> <C> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000 $10,000
1/31/97 10,539 10,039 12,218 10,732
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
Average Annual Total Return
-----------------------------------------
One Year Since Inception/(a)/
-------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 27.28% 13.61%
-------------------------------------------------------------------------
Class A, w/sales charge 20.27% 12.12%
-------------------------------------------------------------------------
Class B, no redemption charge N/A 5.39%/(b)/
-------------------------------------------------------------------------
Class B, w/redemption charge N/A 0.39%/(b)/
-------------------------------------------------------------------------
</TABLE>
/(a)/ Class A and Class B shares commenced operations on October 22, 1992
and May 1, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an
average annual total return since this class has not completed a full
twelve months of operations.
- --------------------------------------------------------------------------------
37
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--92.5%
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.6%
777,200 APS Holding Corp.* $ 7,869,150
- --------------------------------------------------------------------
Commercial Products--2.4%
211,000 Figgie International, Inc. Class A* 2,611,125
231,400 Figgie International, Inc. Class B* 2,487,550
- --------------------------------------------------------------------
5,098,675
- --------------------------------------------------------------------
Commercial Services--1.0%
539,200 Opinion Research Corp.* 2,022,000
- --------------------------------------------------------------------
Computers & Peripherals--7.5%
598,700 DecisionOne Holdings Corp.* 10,477,250
467,100 Multiple Zones International, Inc.* 5,605,200
- --------------------------------------------------------------------
16,082,450
- --------------------------------------------------------------------
Consumer Staples--3.8%
270,700 American Safety Razor Co.* 3,958,987
389,400 Spartech Corp. 4,234,725
- --------------------------------------------------------------------
8,193,712
- --------------------------------------------------------------------
Electric Utilities--2.2%
433,900 Central Maine Power Co. 4,827,137
- --------------------------------------------------------------------
Electrical Equipment--2.3%
240,100 Carbide/Graphite Group* 5,012,087
- --------------------------------------------------------------------
Food--2.3%
374,600 Alpine Lace Brands, Inc.* 2,341,250
109,000 Morningstar Group, Inc.* 2,588,750
- --------------------------------------------------------------------
4,930,000
- --------------------------------------------------------------------
Healthcare Management--9.0%
20,100 Health Systems International, Inc.* 520,088
798,000 Mariner Health Group, Inc.* 7,780,500
517,100 Sun Healthcare Group, Inc.* 8,402,875
146,200 Trigon Healthcare, Inc.* 2,595,050
- --------------------------------------------------------------------
19,298,513
- --------------------------------------------------------------------
Home Furnishing & Services--2.9%
221,500 Congoleum Corp.* 3,156,375
160,900 Synthetic Industries, Inc.* 3,036,988
- --------------------------------------------------------------------
6,193,363
- --------------------------------------------------------------------
Insurance Specialty--1.6%
63,100 Old Republic International Corp. 1,695,812
83,900 Scpie Holdings, Inc.* 1,761,900
- --------------------------------------------------------------------
3,457,712
- --------------------------------------------------------------------
Insurance-Life--0.3%
36,000 AmerUs Life Holdings, Inc.* 711,000
- --------------------------------------------------------------------
Insurance-Property and Casualty--6.0%
50,500 Horace Mann Educators Co. 2,158,875
206,500 IPC Holdings Ltd. 4,943,094
92,200 Symons International Group* 1,475,200
215,800 Terra Nova Bermuda Holdings 4,262,050
- --------------------------------------------------------------------
12,839,219
- --------------------------------------------------------------------
Leisure--1.0%
210,700 Trump Hotels & Casino Resorts,
Inc.* 2,212,350
- --------------------------------------------------------------------
Media Content--9.0%
596,300 Groupe AB SA ADR* 7,602,825
609,800 Heritage Media Corp.* 7,393,825
432,300 International Post Ltd.* 1,729,200
324,200 Platinum Entertainment, Inc.* 2,674,650
- --------------------------------------------------------------------
19,400,500
- --------------------------------------------------------------------
Metal Products--0.5%
57,200 Doncasters Plc ADR* 1,122,550
- --------------------------------------------------------------------
Packaging--0.7%
88,100 Shorewood Packaging Corp.* 1,596,813
- --------------------------------------------------------------------
Real Estate--0.7%
73,700 Insignia Financial Group, Inc.* 1,538,487
- --------------------------------------------------------------------
Recreation Products--5.6%
539,200 Movado Group, Inc. 12,064,600
- --------------------------------------------------------------------
Restaurants & Hotels--6.4%
262,400 IHOP Corp.* 6,461,600
399,300 Mortons Restaurant Group, Inc.* 6,438,713
40,000 Sonic Corp.* 815,000
- --------------------------------------------------------------------
13,715,313
- --------------------------------------------------------------------
Retail Hardgoods--4.7%
731,000 Brookstone Inc.* 5,939,375
290,700 Finlay Enterprises, Inc.* 4,287,825
- --------------------------------------------------------------------
10,227,200
- --------------------------------------------------------------------
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Specialty Retail--12.7%
506,200 Friedmans, Inc.* $ 7,593,000
242,000 General Nutrition Companies, Inc.* 4,386,250
1,500 Hibbett Sporting Goods, Inc.* 24,375
1,100,400 J. Baker, Inc. 7,565,250
87,000 Leslies Poolmart, Inc.* 1,141,875
307,200 Linens N'Things, Inc.* 6,758,400
- --------------------------------------------------------------------
27,469,150
- --------------------------------------------------------------------
Telephone Communications--0.3%
15,400 Telephone & Data Systems, Inc. 587,125
- --------------------------------------------------------------------
Textiles--1.6%
87,800 Samsonite Corp.* 3,468,100
- --------------------------------------------------------------------
Trucking--2.3%
207,100 Landstar Systems, Inc.* 4,918,625
- --------------------------------------------------------------------
Voice, Video and Data--2.1%
263,200 Pegasus Communications, Inc.* 3,224,200
142,700 Rural Cellular Corp.* 1,391,325
- --------------------------------------------------------------------
4,615,525
- --------------------------------------------------------------------
Total Common Stocks
(Cost $194,261,908) $199,471,356
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bond--0.2%
- --------------------------------------------------------------------
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 412,500
- --------------------------------------------------------------------
Total Corporate Bond
(Cost $498,387) $ 412,500
====================================================================
Repurchase Agreement--7.7%
- --------------------------------------------------------------------
$16,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 16,600,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $16,600,000) $ 16,600,000
====================================================================
<CAPTION>
Contracts Description Value
====================================================================
<S> <C> <C>
Options*--0.5%
200 S&P 500 Index Put Strike 725
exp. 03/97 $ 95,000
351 S&P 500 Index Put Strike 700
exp. 03/97 92,138
560 S&P 500 Index Put Strike 750
exp. 06/97 938,000
- --------------------------------------------------------------------
Total Options
(Cost $1,643,182) $ 1,125,138
====================================================================
Total Investments
(Cost $213,003,477)/(a)/ $217,608,994
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 31,335,604
Gross unrealized loss for investments in
which cost exceeds value (26,835,810)
- --------------------------------------------------------------------
Net unrealized gain $ 4,499,794
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $213,109,200.
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.
39
<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 appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment opportunities.
While the fund does not allocate assets across specific countries based on
top-down economic or market forecasts, the portfolio managers strive to manage
risk by remaining diversified by country and industry sector and by closely
monitoring economic and political events in countries in which the fund does
invest.
Economic and Market Overview: European Markets Were Strong Despite Weak
Economies; Asia Faltered
Economic growth was slower than expected in many countries during the
period, prompting further monetary easing in much of Europe and continued very
low short-term interest rates in Japan. European equity markets performed very
well despite the growth shortfall, benefiting from an increased focus on
improving shareholder value. The Japanese market declined significantly, while
results in other Asian markets were mixed.
. Europe. The economies of several European markets, such as the U.K., Norway
and Ireland, strengthened during the period, but overall growth remained weak
throughout most of Europe. A number of European countries attempted to stimulate
their economies through monetary easing, but maintained tight fiscal policies in
an effort to reduce their budget deficits enough to qualify for European
Monetary Union. This strategy proved to be only modestly successful, as
unemployment remained at record highs, particularly in Germany. Though the
recovery was somewhat disappointing, European equity markets rose 26.6% during
the period (as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies), fueled by low inflation, low interest rates and relatively strong
bond markets. In addition, corporate profits improved, reflecting increased
emphasis on cost cutting and restructuring. The equity markets of Finland, Spain
and Sweden were among the strongest performers, while British stocks lagged much
of Europe due to a strengthening currency (which made U.K. exports more
expensive) and expectations of increases in short-term interest rates.
. Japan. The Japanese economy strengthened during the period, but earnings
growth fell short of expectations. For the 12-month period ended January 31,
Japanese stocks (as measured by the TOPIX index in yen) declined 14.9%, with
approximately half of the loss occurring in January 1997 alone. During the first
half of the period, the Japanese market was bolstered by heavy demand from
Europe and the U.S., but foreign investors subsequently became net sellers when
the economic recovery softened and raised uncertainty surrounding the
sustainability of corporate profits. The weaker corporate earnings outlook
resulted in a conspicuous divergence between the performance of the largest
international blue-chip stocks and the rest of the market, particularly in the
third quarter. Lackluster investor sentiment was further exacerbated at the end
of the year due to increased pessimism that the Liberal Democratic Party (LDP)
government's higher taxes and scant spending on public works would dampen the
economy.
. Asia (ex-Japan). Asian stock markets rose 2.4% during the period, as measured
by the MSCI All Country Asia Free (Ex Japan) Index (in terms of local
currencies). Asian markets began the period on a strong note, but several
markets faltered during the spring and summer due to a host of issues. These
included political uncertainty arising from national elections in several Asian
countries as well as slowing economic growth throughout the region, principally
due to weak electronics exports. From
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
September 1996 through January 1997, the region generally improved due to
stronger corporate earnings and stabilizing exports. The performance of the
individual markets varied widely. Malaysia was one of the region's best
performing markets during the period under review, rising 18.4%; Hong Kong, the
largest market in the region, performed well with a 12.0% return; and Thailand
was by far the weakest market, declining 45.3% (all in local currency terms).
Performance Review: Security Selection, Country Allocations and Industry
Weightings All Contributed to Strong Performance
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Fund Total FT/S&P
Return Actuaries
(based on Europe &
net asset Pacific Index
value) Total Return
------ ------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 13.48% 1.27%
Class B (5/1/96 - 1/31/97)* 2.83% -4.22%
Institutional (2/7/96 - 1/31/97)* 12.53% 0.53%
Service (3/6/96 - 1/31/97)* 10.42% 0.86%
- ------------------------------------------------------------------------------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inception through the end of
the period.
The fund performed extremely well during the period under review,
with all of its share classes outperforming the benchmark, the Financial
Times/S&P Actuaries Europe & Pacific Index ("Europac") unhedged. Europac is a
capitalization-weighted composite of approximately 1,500 stocks from 23
countries in Europe and the Asia-Pacific region and is calculated on a monthly
basis. We are also pleased to note that the fund's Class A shares placed in the
top third of the Lipper international fund category (ranking 93rd out of 342)
for the 12-month period ended January 31, 1997, according to Lipper Analytical
Services, Inc. (Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results. Lipper
did not rank the fund's Class B, Institutional or Service shares.)
The primary driver of the fund's superior performance was successful
stock selection, as we continued to focus on growing companies that actively
increased shareholder value through actions such as cost cutting, share buybacks
or restructuring. In addition, country allocations that worked in the fund's
favor were its overweighting in Sweden, one of the strongest performing markets
during the period, and its underweighting in Japan, one of the weakest, each the
result of our bottom-up approach to stock selection. The fund's industry
allocations also added value. The fund was overweighted in business services and
diversified consumer goods/services, which were among the best performing
sectors, and underweighted in financial services and basic industries, which
performed relatively poorly.
In terms of currency exposure, though the fund's neutral exposure is
unhedged, it was substantially hedged against the yen, which benefited
performance significantly when the yen continued to fall against the dollar. In
addition, the fund was partially hedged against some European currencies, such
as the Deutsche mark and the Swiss franc, which worked in its favor when the
dollar rose against those currencies.
The fund's Class B shares outperformed the benchmark by a wide
margin, but their performance was not as strong as the other share classes
because they began operations in May, after equity prices had already risen
significantly.
Portfolio Composition: A Widely Diversified Portfolio
As of January 31, 1997, the fund held positions in 56 companies based
in 16 countries. In terms of total portfolio assets, the five largest country
exposures were Japan (27.3%), the U.K. (12.6%), Germany (7.1%), Sweden (7.0%)
and Switzerland (6.8%).
Europe. At the end of the period, the portfolio's 53.0% allocation in European
stocks was in line with that of the benchmark (54.1%). In general, growth stocks
led the
- --------------------------------------------------------------------------------
41
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
- --------------------------------------------------------------------------------
market during the period. Many of the fund's European holdings were
growth-oriented stocks that benefited from positive earnings surprises and
successful efforts by senior management to enhance equity returns and
shareholder value. Several of the portfolio's longer term European holdings
were, once again, among its strongest performers. Securitas (Sweden), the
largest security services company in Europe, more than doubled during the
period, boosted by earnings from companies it acquired in Germany, France and
Portugal. Fresenius (Germany), a major producer of medical supplies, rose over
140% as it merged its global kidney dialysis division with W. R. Grace's
National Medical Center healthcare subsidiary and spun off the resulting
business, Fresenius Medical Care. Ericsson (Sweden), one of the world's leading
suppliers of mobile telephones and infrastructure, rebounded from weakness early
in the period when it achieved very good earnings, which reassured investors
that it was not suffering from margin pressure or weak mobile telephone orders.
Other strong performers were Randstad Holdings (Netherlands), the leading
temporary help organization in its market, which reported healthy sales and
earnings as its business continued to expand, and Comptoirs Modernes (France), a
supermarket chain operator, which gained market share in France and made
important acquisitions in Spain.
Several of the fund's newer additions also contributed to its
positive results. These included two pharmaceutical companies: Hoechst
(Germany), whose acquisition and restructuring plans indicate a commitment to
improving shareholder value, and Novartis (Switzerland), which was formed
through the merger of Ciba-Geigy and Sandoz and is expected to benefit from
significant cost reductions as well as new product development. Other
significant new positions that performed well were SGS Thomson (France), one of
the 10 largest semiconductor manufacturers in the world, which operates in the
high-value-added, application-specific sector of the market, and Telecom Italia
Mobile (Italy), the leading mobile telephone operator in Italy, which generates
strong cash flow and is extremely profitable.
Japan. Approximately 27% of the fund was invested in Japan, which was
underweighted relative to the benchmark (32.1%). The fund's Japanese stocks
fared better than the market, as we avoided banks and brokerages, two of the
weakest industries. We invested in companies with relatively robust earnings
visibility and good valuations, particularly favoring management that improved
cost competitiveness and strengthened their core business. The fund's best
performing Japanese stocks were TDK Corp., an electronic components manufacturer
that reported better than expected earnings due to strong sales of personal
computer-related components; Hoya Corp., an optical glass manufacturer that
aggressively restructured its operations and successfully diversified its
business so that it now dominates the glass magnetic disc market; and Mirai
Industry, a market leader in electric cables, pipes and other electric wiring
that introduced new products and cut costs. In contrast, Kyocera Corp., an
electronics components manufacturer, reported disappointing results due to
increased competition in the semiconductor and communication equipment
businesses. A new addition was Takeda Chemical Industry, the largest
pharmaceutical company in Japan, where aggressive new management initiatives
rapidly expanded overseas sales and improved the profitability of its
prescription drug business.
Asia-Pacific. Asia, a 13.5% allocation (excluding Japan), was slightly
overweighted compared with the benchmark's 10.7%, with Hong Kong representing
the largest country position at 6.7% of the portfolio. For most of the period,
the fund was overweighted in Malaysia, Hong Kong and Australia, which were three
of the better performing Asian markets. Though the performance of some of the
other markets fell short of expectations, our stock selection within the region
worked in the fund's favor. Several of the fund's top performers were financial
stocks, including Commerce Asset-Holdings, the fifth largest financial group in
Malaysia, which benefited from its merchant banking operations and strong loan
growth, and HSBC Holdings, a Hong Kong-based banking and financial services
organization, which reported strong results due to its dominant market position.
New holdings include Australia & New Zealand Bank Group, a bank that is
positioned to benefit from the potential deregulation in Australia's financial
services sector, and Asia Satellite Telecommunications Holdings Ltd., a
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
leading satellite owner and operator in the Asia-Pacific region that owns prime
orbital slots that are expected to result in high utilization rates and fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total
Company Country Line of Business Net Assets
<S> <C> <C> <C>
HSBC Holdings Hong Kong Banking and 3.0%
Finance
Novartis Switzerland Pharmaceuticals 3.0%
Fresenius Germany Kidney Dialysis 2.4%
Equipment
TDK Corp. Japan Tape and Disc 2.4%
Manufacturer
Telecom Italia Italy Mobile Tele- 2.4%
Mobile communications
Operator
Canon, Inc. Japan Office Equipment 2.4%
Manufacturer
Adecco Switzerland Temporary Help 2.4%
Services
Adidas Germany Sporting Goods 2.4%
Manufacturer
Hoechst Germany Chemical and 2.3%
Drug
Manufacturer
Hoya Corp. Japan Optical Glass 2.3%
Manufacturer
- --------------------------------------------------------------------
</TABLE>
Outlook
In the near term, we expect most international economies to continue
to experience moderate growth and subdued inflation. We are particularly
positive on the prospects for the European markets in 1997, where we expect a
modest acceleration in economic growth and a continuation of healthy corporate
earnings growth helped by cost cutting as well as restructuring initiatives.
We are currently most concerned about Japan. Despite the sharp
correction, we expect to remain underweighted in the Japanese market because of
our negative view of the banking sector and only modest earnings recoveries in
nonmanufacturing sectors. Lack of investor confidence in the government's
commitment to deregulation, as well as simultaneous weakness in the bond and
currency markets, have all impacted market sentiment. In this state of
uncertainty, superior stock selection will be essential, and we intend to
emphasize companies with clear earnings visibility, strong management and
attractive valuations. Despite the generally poor conditions, the earnings for
the fund's Japanese holdings are above expectations and are being upgraded. In
non-Japan Asia, corporate earnings reports have been mixed, but we believe
improved political stability and export growth should help stocks in 1997.
Finally, we are pleased to report that we have expanded our
international equity team in all geographic regions to support our effort to
seek out the most promising companies around the world.
/s/ Roderick D. Jack
Roderick D. Jack
Senior Portfolio Manager, London
/s/ Marcel Jongen
Marcel Jongen
Senior Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Senior Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager, Singapore
March 3, 1997
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and Class B, respectively) on the
inception date of each class. For comparative purposes, the performance of the
Fund's benchmark (the Financial Times-Actuaries World Euro-Pacific Index
Unhedged ("FT Euro-Pac (Unhedged)/(b)/) is shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class A Class A FT Euro-Pac Ft Euro-Pac
(w/sales charge) (no sales charge) (Comb )(b) (Unhedged)
---------------- ----------------- ----------- -----------
<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 10,055
1/31/94 12,066 12,768 13,498 14,399
1/31/95 10,058 10,643 12,119 13,902
1/31/96 12,942 13,695 13,983 16,039
1/31/97 14,961 15,546 14,160 16,243
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class B Class B FT Euro-Pac
(w/sales charge) (no sales charge) (Unhedged)
---------------- ----------------- -----------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 10,283 9,783 9,578
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Institutional Class (Unhedged)
------------------- -----------
<S> <C> <C>
2/7/96 10,000 10,000
1/31/97 11,253 10,053
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Service Class (Unhedged)
-------------- -----------
<S> <C> <C>
3/6/97 10,000 10,000
1/31/97 11,042 10,086
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------- ------------------- --------------------
<S> <C> <C>
Class A, no sales charge 13.48% 11.15%
- -------------------------------------- ------------------- --------------------
Class A, w/sales charge 7.26% 9.66%
- -------------------------------------- ------------------- --------------------
Class B, no redemption charge N/A 2.83% /(c)/
- -------------------------------------- ------------------- --------------------
Class B, w/redemption charge N/A (2.17)%/(c)/
- -------------------------------------- ------------------- --------------------
Institutional Class N/A 12.53% /(c)/
- -------------------------------------- ------------------- --------------------
Service Class N/A 10.42% /(c)/
- -------------------------------------- ------------------- --------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations
on December 1, 1992, May 1, 1996, February 7, 1996 and March 6, 1996,
respectively.
/(b)/ Beginning on September 1, 1994, the Class A shares began using the
unhedged FT Euro-Pac as its benchmark (prior thereto, Class A 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, 1997.
/(c)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
44
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--91.5%
Australian Dollar--3.6%
1,851,658 Australia & New Zealand Bank Group
(Commercial Banks) $ 11,355,706
1,564,955 Woodside Petroleum, Ltd. (Oil &
Gas) 11,053,763
- --------------------------------------------------------------------
22,409,469
- --------------------------------------------------------------------
Austrian Schilling--1.2%
105,400 Oesterreichische Elektrizitats
(Utilities) 7,698,241
- --------------------------------------------------------------------
Belgian Franc--0.2%
14,400 Dexia (Financial Services) 1,372,240
- --------------------------------------------------------------------
British Pound Sterling--12.6%
1,391,569 British Airport Authority
(Transportation) 11,661,442
1,788,649 Electrocomponents (Wholesale
Trade) 12,753,546
1,261,210 Premier Farnell PLC (Electronics) 10,670,067
706,368 Misys PLC (Business Services and
Computer Software) 12,393,414
1,708,700 Rentokil Group (Business Services) 12,553,100
473,916 Siebe (Machinery and Engineering
Services) 7,973,270
873,509 Standard Chartered (Banking) 10,497,224
- --------------------------------------------------------------------
78,502,063
- --------------------------------------------------------------------
Deutsche Mark--4.7%
155,760 Adidas AG (Textiles) 14,749,495
343,320 Hoechst AG (Healthcare) 14,439,672
- --------------------------------------------------------------------
29,189,167
- --------------------------------------------------------------------
French Franc--6.4%
22,531 Comptoirs Modernes (Retail) 11,749,983
40,720 CLF Dexia (Financial Services) 3,649,869
95,602 CLF Dexia - Registered Shares 8,569,124
(Financial Services)
63,189 Seita (Tobacco) 2,400,553
193,600 SGS Thomson Microelectronics
(Electronics) 13,882,408
- --------------------------------------------------------------------
40,251,937
- --------------------------------------------------------------------
Hong Kong Dollar--6.7%
4,148,000 Asia Satellite Tel.
(Telecommunications) 9,233,837
816,800 HSBC Holdings (Commercial Banks) 18,920,583
1,185,000 Sun Hung Kai Properties Co. (Real
Estate) 13,380,759
- --------------------------------------------------------------------
41,535,179
- --------------------------------------------------------------------
Irish Pound--2.3%
1,491,014 Bank of Ireland (Commercial Banks) 14,247,624
- --------------------------------------------------------------------
Italian Lira--2.4%
3,000,500 Telecom Italia Mobile (Utilities) 8,930,448
3,574,000 Telecom Italia Mobile (Di Risp
Shares) (Utilities) 6,095,944
- --------------------------------------------------------------------
15,026,392
- --------------------------------------------------------------------
Japanese Yen--27.3%
206,000 Aderans Company Ltd. (Retail) 4,808,281
702,000 Canon, Inc. (Office Equipment
Manufacturer) 14,880,119
363,000 Hoya Corp. (Electronics and
Instrumentation) 14,520,599
297,400 Inaba Denkisangyo (Industrial) 5,396,346
458,000 Kokuyo Co., Ltd. (Office Equipment
Manufacturer) 9,594,787
149,000 Kyocera Corp. (Electronics) 8,749,887
358,000 Max Co. (Electronics and
Instrumentation) 5,432,966
238,900 Mirai Industry Co. (Electrical
Equipment Manufacturer) 5,852,060
1,927,000 Mitsubishi Heavy Industries Ltd.
(Engineering) 13,874,972
1,530,000 Mitsui Marine & Fire (Insurance) 8,215,019
450,100 Santen Pharmaceutical Co.
(Healthcare) 8,352,716
92,800 Sanyo Shinpan Financial
(Financial) 5,204,668
</TABLE>
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Japanese Yen (continued)
322,000 Shimachu (Retail-Furniture) $ 6,905,027
213,900 SMC Corp. (Machinery) 13,125,622
410,000 Taikisha Ltd. (Machinery) 5,038,558
570,000 Takeda Chemical Industry
(Healthcare) 11,235,927
235,000 TDK Corp. (Consumer Goods) 15,040,620
464,000 Tostem Corp. (Construction) 10,906,842
146,800 York Benimaru (Retail) 3,922,900
- --------------------------------------------------------------------
171,057,916
- --------------------------------------------------------------------
Malaysian Ringgit--1.9%
1,328,000 Commerce Asset Holdings
(Commercial Banks) 10,683,829
581,000 Leader Universal Holdings
(Metals-Diversified) 1,168,544
- --------------------------------------------------------------------
11,852,373
- --------------------------------------------------------------------
Netherlands Guilder--5.0%
146,070 Aegon (Insurance) 8,951,011
136,180 Randstad Holdings (Business
Services) 9,471,458
102,016 Wolters Kluwer (Media) 12,602,793
- --------------------------------------------------------------------
31,025,262
- --------------------------------------------------------------------
Singapore Dollar--1.5%
1,511,000 Singapore Land (Real Estate) 9,123,100
- --------------------------------------------------------------------
Spanish Peseta--1.9%
63,595 Banco Popular (Commercial Banks) 11,571,494
- --------------------------------------------------------------------
Swedish Krona--7.0%
335,300 Ericsson Telecommunications
(Computer - Office) 11,255,719
268,440 Hoganas AB (Metal Products) 8,455,037
405,970 Securitas AB (Business Services) 12,057,737
3,469,100 Swedish Match AB (Tobacco) 11,741,304
- --------------------------------------------------------------------
43,509,797
- --------------------------------------------------------------------
Swiss Franc--6.8%
52,468 Adecco SA (Business Services) 14,753,971
6,726 Cie Financier Richemont AG
(Consumer Goods) 9,231,858
16,335 Novartis AG (Healthcare) 18,730,002
- --------------------------------------------------------------------
42,715,831
- --------------------------------------------------------------------
Total Common Stocks
(Cost $503,926,410) $ 571,088,085
====================================================================
Preferred Stock--2.4%
- --------------------------------------------------------------------
Deutsche Mark--2.4%
74,790 Fresenius AG (Health Care),
Non-voting $ 15,042,126
- --------------------------------------------------------------------
Total Preferred Stock
(Cost $4,437,079) $ 15,042,126
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Short-Term Obligations--6.6%
- --------------------------------------------------------------------
$ 41,394,109 State Street Bank & Trust
Euro-Time Deposit 5.5%, 02/03/97** $ 41,394,109
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $41,394,109) $ 41,394,109
====================================================================
Total Investments
(Cost $549,757,598)/(a)/ $ 627,524,320
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $108,968,495
Gross unrealized loss for investments in
which cost exceeds value (31,533,818)
- --------------------------------------------------------------------
Net unrealized gain $ 77,434,677
====================================================================
</TABLE>
/(a)/ The aggregate cost for federal income tax purposes is $550,089,643.
* Non-income producing security.
** A portion of this security has been segregated for extended
settlement securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an intergral part of these financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------
Common and Preferred Stock Industry Concentrations
====================================================================
<S> <C>
Business Services 7.8%
Commercial Banks 12.4%
Computer Software and Services 2.0%
Computer - Office 1.8%
Construction 1.7%
Consumer Goods 3.9%
Electrical Equipment Manufacturer 0.9%
Electronics 5.3%
Electronics and Instrumentation 3.2%
Engineering 2.2%
Financial 0.8%
Financial Services 2.2%
Health Care 10.9%
Industrial 0.9%
Insurance 2.7%
Machinery 2.9%
Machinery and Engineering Services 1.3%
Media 2.0%
Metal Products 1.4%
Metals-Diversified 0.2%
Office Equipment Manufacturer 3.9%
Oil & Gas 1.8%
Real Estate 3.6%
Retail 3.3%
Retail-Furniture 1.1%
Telecommunications 1.5%
Textiles 2.4%
Tobacco 2.3%
Transportation 1.9%
Utilities 3.6%
Wholesale Trade 2.0%
- --------------------------------------------------------------------
Total Common and Preferred Stock 93.9%
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
- --------------------------------------------------------------------
47
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets, including China, Hong Kong, India, Indonesia, Malaysia, Pakistan,
the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its
price-to-book value and the predictability of its earnings stream as among the
best measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers and
competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell a
position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in one country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
Market Overview: Results Were Mixed in Asian Markets
As a group, the Asian stock markets rose 2.37% during the period, as
measured by the MSCI All Country Asia Free (Ex Japan) Index (without dividends
reinvested). The weak performance indicated by the Index masks the wide
divergence of performance among the individual Asian markets, as several
countries rose more than 10% while others fell more than 20%. The period under
review began on a strong note, but the region quickly sold off in mid-February
when investors became unnerved by rising political tension between China and
Taiwan. Though the Asian markets briefly rebounded, investor interest was
dampened again during the spring and summer due to uncertainty surrounding
national elections in several countries, a decline in exports and slowing
economic growth. From October 1996 through January 1997, most Asian markets
recovered due to improving corporate earnings and signs of stabilizing export
growth.
In terms of individual markets, Taiwan, Malaysia and Indonesia were the
strongest performers, rising 56.0%, 21.9% and 17.5%, respectively (in U.S.
dollar terms), with each overcoming brief setbacks such as negative short-term
economic data and political upheaval. Other positive markets were India, which
was the region's strongest performer during the first half of the year and
subsequently gave back some of its gains, and the Philippines, where healthy
economic growth and declining inflation renewed investor interest. Hong Kong,
the most heavily weighted country in the Index, posted lackluster results early
in the period, then rebounded to close the period with a 12.0% gain due to a
favorable interest rate environment and a soaring property market. The weakest
performer was Thailand, which dropped 46.5%. Thailand was impacted by a very
large budget deficit, exacerbated by the slowdown of computer-related exports as
well as a tear in the speculative bubble in the real estate market, as
nonperforming property loans caused problems in the banking sector. South Korea
and Singapore were weak as well, declining approximately 34% and 7%,
respectively. South Korean equities were affected by an ongoing investigation of
government corruption and a weakening economy, and Singapore's market fell due
to soft electronics exports.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Review: Country Allocations Affected the Fund's Performance
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Fund Total MSCI AC
Return Asia Free
(based on net (Ex Japan)
asset value) Index +
------------ -----
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* -1.01% 2.37%
Class B (5/1/96 - 1/31/97)* -6.02% -2.50%
Institutional (2/2/96 - 1/31/97)* -1.09% 2.06%
- -------------------------------------------------------------------
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Class B and Institutional shares is a cumulative total
return (not annualized) from their inception through the end of the period.
+ Represents a price-only index that does not reflect reinvested dividends.
During the period under review, stock selection benefited the fund as a
number of holdings achieved strong returns. The fund's performance was
nonetheless affected by its country over- and underweightings relative to the
Index when individual markets performed better or worse than expected. For
example, Taiwan and Malaysia were two of the region's best performing markets,
but the fund was underweighted in those countries and therefore did not fully
participate in their rallies.
Financial, Property and Infrastructure Stocks Were the Strongest Performers
The fund's best performers during the period were its positions in the
financial, real estate and infrastructure sectors. Top financial stocks included
two of our Hong Kong investments, HSBC Holdings PLC, one of the world's largest
banking and financial services companies, and Wing Hang Bank Ltd., a provider of
banking, foreign exchange and treasury services, which both benefited from
strong growth in mortgage loans resulting from Hong Kong's robust property
market. Metropolitan Bank and Trust, the Philippines' largest bank in terms of
assets, rose substantially due to the growing Philippine economy and aggressive
branch expansion, and Commerce Asset-Holdings, the fifth largest financial group
in Malaysia, benefited from its merchant banking operations and strong loan
growth.
In the real estate sector, Hong Kong's booming property market buoyed
several of the fund's holdings. These included Sun Hung Kai Properties, one of
the largest and best managed property companies in Hong Kong; Henderson Land
Development, a large property development and investment holding company that
concentrates on mass residential developments; and HKR International Ltd., a
real estate developer that primarily focuses on residential development in
Discovery Bay on Lantau Island (a self-contained community that offers a
"quality lifestyle").
Other strong performers were two Malaysian companies that benefited from
the government's commitment to improve the country's infrastructure. Road
Builder Malaysia Holdings, a contractor specializing in civil engineering and
road construction, continued its strategic expansion and diversification, and
United Engineers Malaysia, Malaysia's largest builder and operator of toll
roads, rose due to the opening of several new roads.
Stocks that did not fulfill our expectations included Leader Universal
Holdings, Malaysia's leading manufacturer of power and telecommunication cable,
which reported lower than expected earnings due to very low export margins;
Industrial Finance Corp. of Thailand (IFCT), which declined in sympathy with
Thailand's financial sector; and Tata Engineering and Locomotive Company
(TELCO), India's largest vehicle manufacturer, which slumped on speculation
concerning rising inventories and general market uncertainty. We significantly
reduced the fund's position in Leader Universal Holdings and IFCT, but we
continue to have confidence in TELCO, which has strong fundamentals and fared
well relative to the broader Indian market.
Portfolio Composition
As of January 31, 1997, 97.1% of the fund's total market value was
invested in equities while 2.2% was in cash equivalents, with the remainder in
other securities. The fund's five largest country exposures were Hong Kong
(39.9%), Malaysia (13.5%), Singapore (10.1%), India (9.9%) and Indonesia (5.2%).
At the end of the period, the portfolio was overweighted relative to the Index
in Hong Kong, India and South Korea, slightly underweighted in
- --------------------------------------------------------------------------------
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
- --------------------------------------------------------------------------------
the Philippines, and significantly underweighted in Thailand, Singapore,
Malaysia and Taiwan.
Additions in Real Estate and Security Services, Reductions in Several Existing
Positions
During the period, we added Hysan Development Company, a property
investment company that owns a number of commercial and residential properties
in Hong Kong and should be a beneficiary of rising rental prices, and
Taiwan-Sogo Shinkong, a security services company that controls approximately
38% of the market in Taiwan and is expected to experience growing demand from
residential clients. Other portfolio changes included the trimming of several
positions in Hong Kong after they appreciated significantly and became more
fully valued. These included Sun Hung Kai Properties, Henderson Land Development
and HKR International Ltd.
<TABLE>
<CAPTION>
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
Line of of Total
Company Country Business Net Assets
<S> <C> <C> <C>
HKR International Hong Kong Property 4.4%
Ltd.
Road Builder Malaysia Infrastructure 4.1%
Malaysia Holdings
Swire Pacific Ltd. Hong Kong Conglomerate 4.1%
Metropolitan Bank Philippines Banking and 3.8%
and Trust Finance
Wing Hang Bank Hong Kong Banking and 3.9%
Ltd. Finance
Henderson Land Hong Kong Property 3.7%
Development
HSBC Holdings PLC Hong Kong Banking and 3.5%
Finance
Hutchison Hong Kong Conglomerate 3.5%
Whampoa
Sun Hung Kai Hong Kong Property 3.5%
Properties
Commerce Asset- Malaysia Conglomerate 3.5%
Holdings
</TABLE>
Outlook
In 1997, we expect export growth to strengthen, which should stimulate
economies throughout the region. With most of the region's elections now over,
the region should also benefit from greater political stability in 1997. Though
the recent death of Deng Xiaoping may increase near-term volatility, we remain
optimistic that the handover of Hong Kong to China will proceed smoothly, as it
is in China's best interests to maintain Hong Kong's current economic success.
We intend to increase the fund's weightings in Malaysia, the Philippines and
Indonesia, markets that we expect to benefit from stable currencies and good
economic fundamentals. In September 1996, the benchmark established a new
weighting in Taiwan and doubled its weighting in Korea, and we are actively
seeking investment opportunities in these countries. We continue to have a
favorable view of India but are still cautious regarding Thailand and Singapore,
where real estate overdevelopment may continue to hinder their respective
markets for the near term.
In general, we believe that Asian equities are attractively valued on a
historical basis. We expect that economic growth in the region may slow somewhat
to 5% to 7% annually, still approximately double versus the U.S., one of the
world's most mature economies. Over time, we intend to broaden our emphasis from
companies that tend to do well in the earliest stages of emerging economies to
companies that we believe are poised to benefit most from the region's internal
growth. These include new start-ups, consumer-related products and services, and
infrastructure companies.
On another front, we are pleased to announce that we have recently
expanded our portfolio management team. Our new team members will focus
primarily on real estate companies, conglomerates and cyclical industries, and
they will enhance our ability to seek out companies with above-average growth
potential.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We appreciate your continued support in what has been a challenging period
for the region and the fund. Going forward, we remain confident that the region
continues to offer many attractive investment opportunities for investors with a
long-term view.
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
March 3, 1997
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Morgan Stanley Capital International Combined Asia (ex Japan) Index ("MSCI
Combined Asia-ex Japan")) is shown for the appropriate time periods. All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares, when
redeemed, to be worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class A Class A MSCI
(w/sales charge) (no sales charge) Combined
---------------- ----------------- --------
<S> <C> <C> <C>
7/8/94 $ 9,450 $10,000 $10,000
1/31/95 8,934 9,454 9,074
1/31/96 11,300 11,958 11,129
1/31/97 11,186 11,837 11,393
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class B Class B MSCI
(w/redemp. charge) (no redemp. charge) Combined
------------------- ------------------ --------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 9,398 8,928 9,750
</TABLE>
Institutional
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth MSCI
Institutional Combined
-------------- --------
<S> <C> <C>
2/2/96 $10,000 $10,000
1/31/97 9,891 10,206
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge (1.01)% 6.78%
- -------------------------------------------------------------------------
Class A, w/sales charge (6.44)% (4.46)%
- -------------------------------------------------------------------------
Class B, no redemption charge N/A (6.02)%/(b)/
- -------------------------------------------------------------------------
Class B, w/redemption charge N/A (10.72)%/(b)/
- -------------------------------------------------------------------------
Institutional Class N/A (1.09)%/(b)/
- -------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B and Institutional shares commenced operations July 8,
1994, May 1, 1996 and February 2, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
52
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
Common Stocks--96.0%
<S> <C> <C>
Hong Kong Dollar--39.9%
3,734,000 Asia Satellite Tel.*
(Telecommunications) $ 8,312,234
1,107,000 Henderson Land Development Co.
(Recreational Services) 10,250,000
7,947,440 HKR International Ltd.
(Real Estate) 12,358,582
2,731,000 Hong Kong Electric Holdings
(Utility) 9,709,517
426,000 HSBC Holdings
(Commercial Banks) 9,867,983
1,305,000 Hutchison Whampoa
(Conglomerates) 9,851,916
2,513,000 Hysan Development
(Utility) 9,145,257
9,735,666 JCG Holdings Ltd.
(Financial Services) 8,669,002
2,308,200 San Miguel Brewery Ltd.
(Breweries) 1,049,994
869,000 Sun Hung Kai Properties Co.
(Real Estate) 9,812,556
1,262,000 Swire Pacific Ltd. "A"
(Transportation) 11,603,755
2,316,500 Wing Hang Bank Ltd.
(Financial Services) 11,030,952
- --------------------------------------------------------------------
111,661,748
- --------------------------------------------------------------------
Indian Rupee--9.9%
235,000 Brook Bond Lipton India Ltd.
(Food) 2,438,494
372,900 Colgate Palmolive
(Conglomerates) 2,613,421
259,600 Hindustan Lever Ltd.
(Household Products) 6,423,018
10,000 Larsen & Toubro Ltd.
(Engineering) 65,272
143,500 Larsen & Toubro Ltd. GDR
(Engineering) 1,919,313
214,000 Larsen & Toubro LTD. GDS
(Engineering) 2,862,250
434,250 Mahindra & Mahindra Ltd.
(Autos and Trucks) 4,339,472
165,750 Mahindra & Mahindra GDR
(Autos and Trucks) 1,895,351
4,000 Niit Limited
(Computers) 32,022
80,000 Tata Engineering & Locomotive Ltd.
GDR (Engineering) 786,000
446,600 Tata Engineering & Locomotive Ltd.
GDS (Engineering) 4,387,845
- --------------------------------------------------------------------
27,762,458
- --------------------------------------------------------------------
Indonesian Rupiah--5.2%
2,374,750 Indofoods Sukses Makmur - Foreign
(Food) 5,245,031
2,346,000 PT Bank of Bali - Foreign
(Banking) 5,675,011
2,613,000 PT Jaya Real Property - Foreign
(Real Estate) 3,627,640
- --------------------------------------------------------------------
14,547,682
- --------------------------------------------------------------------
Malaysian Ringgit--13.2%
1,217,000 Commerce Asset Holdings
(Conglomerates) 9,790,829
623,000 Leader Universal Holdings
(Electronics) 1,253,017
1,936,000 Road Builder Malaysia Holdings
(Construction) 11,603,540
941,000 Tenaga National Berhad
(Utility) 4,504,385
1,081,000 United Engineers Malaysia Holdings
(Construction) 9,696,822
- --------------------------------------------------------------------
36,848,593
- --------------------------------------------------------------------
New Taiwan Dollar--2.5%
2,118,000 Taiwan Sogo Shinkong Securities
(Financial Services) 7,103,755
- --------------------------------------------------------------------
Philippine Peso--4.6%
18,189,000 Centennial City Inc.
(Real Estate) 2,208,911
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Philippine Peso (continued)
393,454 Metropolitan Bank and Trust
(Banking) $ 10,750,925
- --------------------------------------------------------------------
12,959,836
- --------------------------------------------------------------------
Singapore Dollar--9.9%
639,000 Overseas Union Bank - Foreign
(Banking) 5,174,457
1,149,000 Singapore Land
(Real Estate) 6,937,420
383,000 Singapore Press Holdings - Foreign
(Printing & Publishing) 7,671,970
2,195,000 Straits Steamship Land
(Conglomerates) 7,795,852
- --------------------------------------------------------------------
27,579,699
- --------------------------------------------------------------------
South Korean Won--3.8%
168,920 Korea Mobile Telecommunications
Corp. ADR* (Telecommunications) 2,512,685
4,759 Korea Mobile Telecommunications
Corp. (Telecommunications) 5,228,904
7,132 Samsung Fire & Marine Insurance
(Insurance) 2,982,743
- --------------------------------------------------------------------
10,724,332
- --------------------------------------------------------------------
Thai Baht--3.9%
723,800 Electricity Generating Public Co.
(Utility) 1,815,785
758,100 Electricity Generating Public Co.
Foreign(Utility) 1,843,315
1,989,000 Industrial Finance Corp - Foreign
(Financial Services) 5,220,069
425,000 Jasmine International Co. - Foreign
(Diversified) 602,808
1,617,500 Thai Telephone & Telecom Corp. -
Foreign (Telecommunications) 1,326,587
- --------------------------------------------------------------------
10,808,564
- --------------------------------------------------------------------
United States Dollar--3.1%
387,000 Korea Electric Power Corp. ADR*
(Utilities) 8,562,375
- --------------------------------------------------------------------
Total Common Stocks
(Cost $237,846,163) $268,559,042
====================================================================
Rights & Warrants*--0.3%
Singapore Dollar--0.2%
356,750 Straits Steamship Land, exp. 12/12/00
(Conglomerate)- warrants 494,149
Thai Baht--0.1%
808,750 Thai Telephone & Telecom Corp., exp.
03/07/97 (Telecommunications)-rights 351,155
- --------------------------------------------------------------------
Total Rights & Warrants
(Cost $287,980) $ 845,304
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bonds--0.3%
Malaysian Ringitt--0.3%
MYR United Engineers Malaysia
1,024,000 (Construction) 4.00%, 05/22/99 $ 848,528
- --------------------------------------------------------------------
Total Corporate Bonds
(Cost $521,580) $ 848,528
====================================================================
Short-Term Obligations--2.2%
$ 6,200,104 State Street Bank & Trust Euro-Time
Deposit, 5.50%, 02/03/97 $ 6,200,104
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $6,200,104) $ 6,200,104
====================================================================
Total Investments
(Cost $244,855,827)/(a)/ $276,452,978
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 45,982,425
Gross unrealized loss for investments in
which cost exceeds value (14,998,273)
====================================================================
Net unrealized gain $ 30,984,152
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $244,890,862.
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.
54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Common Stock, Rights, Warrants, and Corporate Bond Industry
Concentrations
====================================================================
<S> <C>
Autos and Trucks 2.2%
Banking 7.8%
Breweries 0.4%
Commercial Banks 3.5%
Conglomerates 10.9%
Construction 7.9%
Diversified 0.2%
Electronics 0.4%
Engineering 3.6%
Financial Services 11.5%
Food 2.7%
Household Products 2.3%
Insurance 1.1%
Printing & Publishing 2.7%
Real Estate 12.5%
Recreational Services 3.7%
Telecommunications 6.3%
Transportation 4.1%
Utilities 12.8%
- --------------------------------------------------------------------
Total Common Stock, Rights, Warrants, and
Corporate Bonds 96.6%
====================================================================
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities
January 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
Assets:
Investments in securities, at value (identified cost $80,718,346, $302,169,999,
$513,612,707, $679,366,240, $213,003,477, $549,757,598 and $244,855,827,
respectively) $89,222,318 $393,263,171
Cash, at value 13,884 9,802
Receivables:
Investment securities sold 3,947,652 --
Forward foreign currency exchange contracts 6,692 --
Fund shares sold 565,860 3,095,601
Dividends and interest, at value 451,554 387,080
Variation margin 10,928 95,387
Deferred organization expenses, net 36,173 --
Other assets 97,786 8,495
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 94,352,847 396,859,536
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 9,690,219 --
Forward foreign currency exchange contracts -- --
Fund shares repurchased 44,298 548,016
Amounts owed to affiliates 97,949 388,699
Covered securities sold short (cash received, $936,984) 938,808 --
Accrued expenses and other liabilities 61,446 89,126
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,832,720 1,025,841
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 73,750,866 300,246,199
Accumulated undistributed (distributions in excess of) net investment income 180,204 --
(loss)
Accumulated undistributed (distributions in excess of) net realized gain (loss)
on investment, option and futures transactions 977,487 4,402,524
Accumulated net realized foreign currency gain (loss) 12,575 --
Net unrealized gain on investments, options and futures 8,611,563 91,184,972
Net unrealized loss on translation of assets and liabilities denominated in
foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $83,520,127 $395,833,695
===================================================================================================================================
<CAPTION>
Class A Class B Class A Class B
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Total shares of beneficial interest outstanding, $.001 par
value (100,000,000 and 25,000,000 shares authorized for
each Class A and B, respectively) 4,336,101 112,660 9,688,806 744,222
Net asset and Class A redemption value per share (a) $18.78 $18.73 $23.32 $23.18
Maximum public offering price per share (Class A NAV x
1.0582) $19.87 $18.73 $24.68 $23.18
Institutional Service Institutional Service
------------ -------------- ------------- ------------
Total shares of beneficial interest outstanding, $.001 par
value (50,000,000 shares per each class authorized) -- -- 6,351,958 157,464
Net asset value, offering and redemption price per share -- -- $23.44 $23.27
===============================================================================================================================
(a) At redemption, Class B shares are subject to a contingent deferred sales charge assessed on the amount equal to the lesser
of the current net asset value or the original purchase price of the shares.
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap Equity International Equity Asia Growth
Fund Fund Fund Fund Fund
==================================================================================================================================
<S> <C> <C> <C> <C>
$638,954,258 $932,041,765 $217,608,994 $627,524,320 $276,452,978
59,158 94,994 30,728 1,735,366 1,060,177
1,632,491 1,390,277 4,392,159 959,642 3,093,623
-- -- -- 2,684,757 --
4,847,992 1,524,356 820,288 4,794,141 685,136
572,159 706,624 85,173 440,308 262,880
-- -- -- -- --
19,321 -- 13,467 14,573 77,113
14,043 16,281 2,597 10,188 770
- ----------------------------------------------------------------------------------------------------------------------------------
646,099,422 935,774,297 222,953,406 638,163,295 281,632,677
- ----------------------------------------------------------------------------------------------------------------------------------
9,130,091 9,797,231 6,585,828 8,912,558 --
-- -- -- 3,434,535 1,495
414,917 850,523 165,072 198,616 694,794
716,432 1,160,456 345,810 833,473 400,444
-- -- -- -- --
21,990 99,060 121,890 255,084 846,340
- ----------------------------------------------------------------------------------------------------------------------------------
10,283,430 11,907,270 7,218,600 13,634,266 1,943,073
- ----------------------------------------------------------------------------------------------------------------------------------
492,994,560 657,200,330 203,743,684 542,859,953 266,426,371
(193,256) (275,552) -- (25,666) (1,316,323)
17,673,137 14,266,724 7,385,605 2,530,732 (16,027,669)
-- -- -- (917,847) (411,919)
125,341,551 252,675,525 4,605,517 112,491,393 33,014,375
-- -- -- (32,409,536) (1,995,231)
- ----------------------------------------------------------------------------------------------------------------------------------
$635,815,992 $923,867,027 $215,734,806 $624,529,029 $279,689,604
==================================================================================================================================
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
- ------------- ---------- ------------- ---------- ------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26,534,286 751,089 55,021,724 193,240 10,140,493 176,544 27,765,580 997,807 16,122,122 206,387
$23.18 $23.10 $16.73 $16.67 $20.91 $20.80 $19.32 $19.24 $16.31 $16.24
$24.53 $23.10 $17.70 $16.67 $22.13 $20.80 $20.44 $19.24 $17.26 $16.24
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service
- ------------- ---------- ------------- ---------- ------------- ------------ ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8,321 136,977 -- -- -- -- 3,524,169 34,830 815,499 --
$23.19 $23.17 -- -- -- -- $19.40 $19.34 $16.33 --
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
57
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===================================
<S> <C> <C>
Investment income:
Dividends /(a)/ $ 838,092 $ 5,629,026
Interest /(b)/ 2,107,288 541,011
- ----------------------------------------------------------------------------------------------------------------------------------
Total income 2,945,380 6,170,037
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 309,372 1,413,035
Administration fees 92,811 706,517
Distribution fees 157,253 468,965
Authorized dealer service fees 154,686 444,626
Custodian fees 93,352 95,947
Transfer agent fees 148,576 319,246
Professional Fees 71,598 74,319
Amortization of deferred organization expenses 13,468 9,549
Director fees 1,171 2,728
Other 53,077 96,414
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,095,364 3,631,346
Less--expenses reimbursed and fees waived by Goldman Sachs (472,758) (626,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 622,606 3,005,158
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2,322,774 3,164,879
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 3,811,127 14,386,845
Options written (2,680) --
Futures transactions 148,013 645,873
Foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on:
Investments 5,008,557 49,393,370
Futures 14,475 67,175
Translation of assets and liabilities denominated in foreign currencies (12,568) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign currency
transactions 8,979,499 64,493,263
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 11,302,273 $ 67,658,142
==================================================================================================================================
</TABLE>
/(a)/ For the Balanced, Select Equity, Growth and Income, Capital Growth, Small
Cap Equity, International Equity and Asia Growth Funds, taxes withheld on
dividends were $1,496, $42,274, $23,285, $53,869, $4,211, $900,877 and
$372,334, respectively.
/(b)/ For the Balanced Fund, taxes withheld on interest were $969.
/(c)/ Certain expenses reflected in the above statement of operations are
incurred on a class specific basis.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------
Goldman Sachs Goldman Sachs
Growth and Income Capital Growth
Fund Fund
<S> ========================================
Investment income: <C> <C>
Dividends /(a)/ $ 13,008,785 $ 14,748,431
Interest /(b)/ 1,235,823 2,802,840
- ---------------------------------------------------------------------------------------------------------------------------------
Total income 14,244,608 17,551,271
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 2,782,464 6,522,949
Administration fees 758,854 2,174,316
Distribution fees 1,280,332 2,179,405
Authorized dealer service fees 1,261,615 2,174,316
Custodian fees 102,394 129,556
Transfer agent fees 871,030 908,310
Professional Fees 75,891 74,529
Amortization of deferred organization expenses 19,164 --
Director fees 6,744 13,973
Other 144,279 208,397
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,302,767 14,385,751
Less--expenses reimbursed and fees waived by Goldman Sachs (1,113,014) (2,171,272)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 6,189,753 12,213,979
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 8,054,855 5,337,292
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 58,221,421 53,687,297
Options written (37,206) --
Futures transactions 45,994 --
Foreign currency related transactions -- --
Net change in unrealized gain (loss) on:
Investments 67,575,111 145,350,120
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign curren
transactions 125,805,320 199,037,417
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $133,860,175 $204,374,709
====================================================================================================================================
<CAPTION>
-------------------------------------------
Goldman Sachs Goldman Sachs
Small Cap Equity International Equity
Fund Fund
<S> ===========================================
Investment income: <C> <C>
Dividends /(a)/ $ 968,945 $ 5,944,299
Interest /(b)/ 896,528 1,533,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 1,865,473 7,477,338
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,598,027 3,478,689
Administration fees 532,676 1,159,514
Distribution fees 538,657 1,115,919
Authorized dealer service fees 532,676 1,086,488
Custodian fees 63,636 786,004
Transfer agent fees 511,883 586,243
Professional Fees 72,844 84,162
Amortization of deferred organization expenses 18,742 17,603
Director fees 3,842 5,519
Other 73,764 229,722
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,946,747 8,549,863
Less--expenses reimbursed and fees waived by Goldman Sachs (529,684) (829,788)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,417,063 7,720,075
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1,551,590) (242,737)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 29,166,218 16,714,697
Options written (398,365) --
Futures transactions -- --
Foreign currency related transactions -- 146,694
Net change in unrealized gain (loss) on:
Investments 22,913,571 60,236,901
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- (28,245,657)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions 51,681,424 48,852,635
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $50,129,834 $48,609,898
====================================================================================================================================
<CAPTION>
-----------------
Goldman Sachs
Asia Growth
Fund
<S> ==================
Investment income: <C>
Dividends /(a)/ $ 4,216,521
Interest /(b)/ 716,243
- -----------------------------------------------------------------------------------------------------------
Total income 4,932,764
- -----------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,937,658
Administration fees 645,897
Distribution fees 636,953
Authorized dealer service fees 630,134
Custodian fees 499,487
Transfer agent fees 385,114
Professional Fees 84,316
Amortization of deferred organization expenses 31,711
Director fees 3,496
Other 51,032
- -----------------------------------------------------------------------------------------------------------
Total expenses 4,905,798
Less--expenses reimbursed and fees waived by Goldman Sachs (511,880)
- -----------------------------------------------------------------------------------------------------------
Net expenses 4,393,918
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 538,846
- -----------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions (7,294,240)
Options written --
Futures transactions (141,910)
Foreign currency related transactions (1,099,538)
Net change in unrealized gain (loss) on:
Investments 5,823,115
Futures --
Translation of assets and liabilities denominated in foreign currencies (599,549)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions (3,312,122)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,773,276)
===========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
59
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment, option and futures transactions 3,956,460 15,032,718
Net realized gain (loss) on foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 11,302,273 67,658,142
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
-----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 27,303,030 149,961,461
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
Net assets:
Beginning of year 50,928,007 193,874,478
===================================================================================================================================
End of year $ 83,520,127 $ 395,833,695
===================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 180,204 $ --
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Equity Portfolios, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs
Statements of Changes in Net Assets Growth and Income Capital Growth Small Cap
For the Year Ended January 31, 1997 Fund Fund Equity Fund
====================================================
<S> <C> <C> <C>
From operations:
Net investment income (loss) $ 8,054,855 $ 5,337,292 $ (1,551,590
Net realized gain (loss) on investment, option and futures transactions 58,230,209 53,687,297 28,767,853
Net realized gain (loss) on foreign currency related transactions -- -- --
Net change in unrealized gain (loss) on investments, options and futures 67,575,111 145,350,120 22,913,571
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 133,860,175 204,374,709 50,129,834
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (8,111,894) (5,948,617) --
Class B shares (5,818) -- --
Institutional shares (494) -- --
Service shares (11,500) -- --
In excess of net investment income
Class A shares (135,533) (258,749) --
Class B shares (48,273) (12,838) --
Institutional shares (380) --
Service shares (9,070) -- --
From net realized gain on investment, option and futures transactions
Class A shares (46,442,616) (91,862,169) (10,210,264)
Class B shares (754,312) (179,327) (149,626)
Institutional shares (9,971) -- --
Service shares (255,610) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (55,785,471) (98,261,700) (10,359,890)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 140,362,846 76,008,897 56,119,213
Reinvestment of dividends and distributions 53,352,809 90,088,874 9,876,571
Cost of shares repurchased (72,730,939) (229,399,817) (95,024,895)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 120,984,716 (63,302,046) (29,029,111)
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase 199,059,420 42,810,963 10,740,833
Net Asssets:
Beginning of Year 436,756,572 881,056,064 204,993,973
==================================================================================================================================
End of Year $635,815,992 $923,867,027 $ 215,734,806
==================================================================================================================================
Accumulated distributed (distributions in excess investment income) $ (193,256) $ (275,552) $ --
==================================================================================================================================
<CAPTION>
-----------------------------------------------------
Statements of Changes in Net Assets Goldman Sachs Goldman Sachs
For the Year Ended January 31, 1997 International Asia Growth
Equity Fund Fund
====================================================
<S> <C> <C>
From operations:
Net investment income (loss) $ (242,737) $ 538,846
Net realized gain (loss) on investment, option and futures transactions 16,714,697 (7,436,150)
Net realized gain (loss) on foreign currency related transactions 146,694 (1,099,538)
Net change in unrealized gain (loss) on investments, options and futures 60,236,901 5,823,115
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (28,245,657) (599,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 48,609,898 (2,773,276)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares -- (206,784)
Class B shares -- --
Institutional shares (106,712) --
Service shares -- --
In excess of net investment income
Class A shares -- --
Class B shares -- (5,064)
Institutional shares -- (83,075)
Service shares -- --
From net realized gain on investment, option and futures transactions
Class A shares (5,358,559) --
Class B shares (159,717) --
Institutional shares (689,171) --
Service shares (3,947) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,318,106) (294,923)
- ------------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 321,475,961 144,448,826
Reinvestment of dividends and distributions 5,481,492 221,279
Cost of shares repurchased (75,580,037) (67,451,011)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 251,377,416 77,219,094
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase
Net assets: 293,669,208 74,150,895
Beginning of year 330,859,821 205,538,709
===================================================================================================================================
End of year $624,529,029 $279,689,604
====================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ (25,666) $ (1,316,323)
===================================================================================================================================
</TABLE>
61
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sach
Balanced Select Equity
Fund Fund
==============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 1,083,645 $ 1,518,160
Net realized gain (loss) on investment, option and futures transactions 1,715,887 4,687,943
Net realized gain on foreign currency related transactions -- --
Net change in unrealized gain on investments, options and futures 3,518,420 37,068,509
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,317,952 43,274,612
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (991,655) (1,610,216)
In excess of net investment income -- --
From net realized gain on investment, option and futures transactions (962,754) (3,527,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,954,409) (5,137,404)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 41,736,040 102,149,318
Reinvestment of dividends and distributions 1,802,563 4,880,575
Cost of shares repurchased (4,483,707) (46,260,132)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 39,054,896 60,769,761
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 43,418,439 98,906,969
Net assets:
Beginning of year 7,509,568 94,967,509
==================================================================================================================================
End of year $ 50,928,007 $ 193,874,478
==================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 125,304 $ 86,854
==================================================================================================================================
Summary of share transactions:
===================================================================================================================================
<CAPTION>
Class A Class A Institutional
-------------- -------------- --------------
<S> <C> <C> <C>
Shares sold 2,578,356 2,479,285 3,220,915
Reinvestment of dividends and distributions 108,023 161,481 97,993
Shares repurchased (271,753) (2,578,247) (30,492)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 2,414,626 62,519 3,288,416
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap International Asia Growth
Fund Fund Equity Fund Equity Fund Fund
=================================================================================================================================
<S> <C> <C> <C> <C>
$ 5,307,925 $ 6,032,534 $ (1,717,759) $ 725,369 $ 1,643,482
18,815,320 188,790,639 (5,033,599) (8,757,936) (5,766,395)
-- -- -- 21,213,851 416,433
58,081,439 53,559,848 30,594,034 69,834,990 42,480,420
-- -- -- (12,612,130) (1,710,833)
- --------------------------------------------------------------------------------------------------------------------------------
82,204,684 248,383,021 23,842,676 70,404,144 37,063,107
- ---------------------------------------------------------------------------------------------------------------------------------
(5,300,032) (6,289,354) -- (9,491,864) (1,787,451)
-- -- -- -- (1,657,672)
(11,998,907) (139,713,660) (161,357) (14,089,155) --
- ---------------------------------------------------------------------------------------------------------------------------------
(17,298,939) (146,003,014) (161,357) (23,581,019) (3,445,123)
- ---------------------------------------------------------------------------------------------------------------------------------
199,623,973 144,529,476 56,891,181 85,900,104 88,560,430
16,219,024 131,979,456 149,801 21,651,092 2,951,847
(37,764,413) (359,937,680) (195,215,538) (98,600,969) (43,889,831)
- ---------------------------------------------------------------------------------------------------------------------------------
178,078,584 (83,428,748) (138,174,556) 8,950,227 47,622,446
- ---------------------------------------------------------------------------------------------------------------------------------
242,984,329 18,951,259 (114,493,237) 55,773,352 81,240,430
193,772,243 862,104,805 319,487,210 275,086,469 124,298,279
=================================================================================================================================
$436,756,572 $ 881,056,064 $ 204,993,973 $ 330,859,821 $ 205,538,709
=================================================================================================================================
$ 56,087 $ 607,360 $ -- $ 227,683 $ (1,630,536)
=================================================================================================================================
Class A Class A Class A Class A Class A
------------- --------------- --------------- -------------- --------------
10,766,604 9,130,715 3,285,739 5,082,572 5,830,049
848,870 9,145,811 8,585 1,286,112 197,978
(2,027,335) (22,215,374) (11,228,873) (6,067,690) (2,898,305)
- ---------------------------------------------------------------------------------------------------------------------------------
9,588,139 (3,938,848) (7,934,549) 300,994 3,129,722
=================================================================================================================================
- -------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
63
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
January 31, 1997
- --------------------------------------------------------------------------------
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,
diversified management investment company. Included in this report are the
financial statements for the 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." The Select Equity, Growth and Income, International Equity and Asia
Growth Funds offer four classes of shares - Class A, Class B, Institutional and
Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares - Class A and Class B.
2. Significant Accounting Policies
The following is a summary of the significant accounting policies consistently
followed by the Company. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
- ------------------------
Investments in securities traded on a U.S. or foreign securities exchange or the
NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. 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 the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums.
In addition, it is the Funds' policy to accrue for estimated capital gains taxes
on foreign securities held by the Funds subject to such taxes.
C. Mortgage Dollar Rolls
- -------------------------
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities in the current month for delivery and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. For financial reporting and
tax reporting purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale.
D. 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,
- --------------------------------------------------------------------------------
64
<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.
E. Forward Foreign Currency Exchange Contracts
- -----------------------------------------------
Certain of the Funds are authorized to enter into forward foreign currency
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 International Equity and Asia Growth
Funds may enter into such contracts to seek to increase total return. All
commitments are "marked-to-market" daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded in the 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.
F. Short Securities Positions
- ------------------------------
The Funds (other than the Select Equity Fund) may enter into covered short
sales. Short securities positions are accounted for at cost and subsequently
marked to market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the fund's records and
any difference between this market value and cash received is reported as
unrealized gain or loss. Gains and losses are realized when a short
- --------------------------------------------------------------------------------
position is closed out by delivering securities back to the broker.
At January 31, 1997, the Balanced Fund had the following covered short positions
open:
- -------------------------------------------------------------------------------
Short Position
Issuer Par Value Market Value
- --------------------------- --------------- --------------------
FNMA TBA 15-Year $900,000 $938,808
- -------------------------------------------------------------------------------
G. 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 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.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
- ----------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
I. 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
- --------------------------------------------------------------------------------
65
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
average net assets for the period.
Class A and Class B 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. Each class of Shares separately bears
their respective class-specific transfer agency fees. Service Shares separately
bear a service fee.
J. 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 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.
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.
K. Futures Contracts
- ---------------------
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The Select Equity Fund may enter into such transactions
only with respect to the S&P 500 Index. A Fund will engage in futures
transactions only for bona fide hedging purposes as defined in regulations of
the CFTC or to seek to increase total return (except with respect to
transactions by the Balanced, Growth and Income, Select Equity, Capital Growth
and Small Cap Equity Funds, in futures on foreign currencies) to the extent
permitted by such regulations. The use of futures contracts involve, to varying
degrees, elements of market risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities.
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 contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, 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 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. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds'
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
hedging strategies and may also result in a loss to the Funds.
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 and subadviser to the International
Equity Fund. Under the Investment Advisory and Subadvisory Agreements, GSAM,
GSFM and GSAM International (the "Investment Advisors"), subject to the general
supervision of the Company's Board of Directors, manage the Company's
portfolios. 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 to a fee of .50% and .75% of the average daily
net assets of the Select Equity and Capital Growth Funds, respectively. 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.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, Select Equity, Growth and Income, International
Equity and Asia Growth Funds (excluding advisory, administration, service,
distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced Fund, transfer agent fees) until
further notice to the extent such expenses exceed .10%, .06%, .11%, .20% and
.24% of the average daily net assets of the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
salesload and Class B back-end salesload imposed and has advised the Company
that it retained approximately $94,000, $380,000, $555,000, $323,000, $219,000,
$1,563,000 and $1,397,000 during the year ended January 31, 1997 for the
Balanced, Select Equity, 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% and .75% of a Fund's average daily
net assets attributable to Class A and Class B shares, respectively.
The Company, on behalf of each Fund, has 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, on an annual basis, to .25%
of its average daily net assets attributable to Class A and Class B shares.
Goldman Sachs also serves as the Transfer Agent of the funds for a fee.
For the year ended January 31, 1997, the Advisors, Administrator and
Distributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
- --------------------------------------------------------------------------------
67
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Waivers
------- Reimburse-
Admin- Class A Reimburse- ment
Fund Adviser istrator 12b-1 ment Outstanding
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ -- $ -- $ 153 $ 320 $ 88
Select Equity 170 282 69 105 3
Growth and
Income -- -- 1,113 -- --
Capital
Growth -- -- 2,171 -- --
Small Cap
Equity -- -- 530 -- --
International
Equity 50 464 171 145 --
Asia Growth 103 259 100 50 --
</TABLE>
The Investment Advisors, Administrator and Distributor may discontinue or
modify such waivers and limitations in the future at their discretion.
At January 31, 1997, the amounts owed to affiliates were as follows(in
thousands):
<TABLE>
<CAPTION>
Authorized
Admin- Distri- Dealer Transfer
Fund Adviser istrator butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced $ 33 $ 10 $ 2 $ 15 $ 38 $ 98
Select Equity 143 49 56 57 84 389
Growth and
Income 284 78 28 119 207 716
Capital
Growth 568 190 2 190 210 1,160
Small Cap
Equity 134 45 2 45 120 346
International
Equity 391 78 105 116 143 833
Asia Growth 171 36 50 53 90 400
</TABLE>
4. Portfolio Securities Transactions
Purchases and proceeds of sales or maturities of securities (excluding
short-term investments, futures and options) for the year ended January 31,
1997, were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- --------- --------------- -------------
<S> <C> <C>
Balanced $146,297,709 $123,056,708
Select Equity 242,635,637 102,479,847
Growth and Income 330,177,173 256,802,366
Capital Growth 436,178,218 569,122,643
Small Cap Equity 202,036,820 256,627,457
International Equity 400,682,323 166,164,906
Asia Growth 192,125,629 118,802,040
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$99,727,748 and $91,845,598, respectively.
For the year ended January 31, 1997, written put option transactions in the
Balanced Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 32 5,416
Options repurchased (32) (5,416)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
For the year ended January 31, 1997, written call option transactions in the
Growth and Income Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 438 73,608
Options repurchased (438) (73,608)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended January 31, 1997, written put option transactions in the
Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 2,100 575,871
Options expired (9) (2,026)
Options exercised (1,091) (238,096)
Options repurchased (1,000) (335,749)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
Certain risks arise related to call and put options from the possible
inability of counterparties to meet the terms of their contracts.
At January 31, 1997, the Balanced Fund had the following outstanding forward
foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain
- --------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
expiring 3/14/97 $777,277 $770,585 $6,692
- --------------------------------------------------------------------
Total Foreign
Currency Sale
Contracts $777,277 $770,585 $6,692
- --------------------------------------------------------------------
</TABLE>
At January 31, 1997, the International Equity Fund had the following
outstanding forward foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Swiss Franc
expiring 4/28/97 $39,343,000 $39,665,062 $ (322,062)
Deutsche Mark
expiring 2/27/97 22,305,725 22,183,180 122,545
Hong Kong Dollar
expiring 8/8/97 38,565,981 38,530,005 35,976
Japanese Yen
expiring 4/24/97 122,316,352 119,792,909 2,523,443
- --------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $222,531,058 $220,171,156 $2,359,902
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Purchase Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Hong Kong Dollar
expiring 2/3/97 $35,454 $35,454 $--
- --------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $35,454 $35,454 $--
- --------------------------------------------------------------------
</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,
1997, the Balanced and International Equity Fund's had sufficient cash and
securities to cover any commitments under these contracts.
The Balanced and International Equity Funds have 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 $6,692 and $0, and $2,684,757 and
$3,434,535, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$2,793 and $3,112,473, respectively, related to forward contracts closed but not
settled as of January 31, 1997.
For the year ended January 31, 1997, Goldman Sachs earned approximately
$5,000, $78,000, $304,000, $36,000, $11,000 and $66,000 of brokerage commissions
from portfolio transactions executed on behalf of the Balanced, Growth and
Income, Capital Growth, Small Cap Equity, 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 at the Funds' custodian.
- --------------------------------------------------------------------------------
69
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
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 January 31, 1997, the Balanced,
Select Equity, Growth and Income, Capital Growth and Small Cap Equity Funds had
undivided interests in the repurchase agreements in the following joint account
which equaled $9,200,000, $3,600,000, $26,800,000, $18,300,000 and $16,600,000,
respectively, in principal amount. At January 31, 1997, 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
- --------------------------------------------------------------------
Bear Stearns Securities, Inc., dated 01/31/97, repurchase
price $800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26;
FNMA: $720,411,516, 5.50%-8.00%, 02/01/09-09/01/26;
FHLMC: $77,372,676, 6.00%-8.00%, 04/01/98-07/01/26)
<S> <C> <C> <C>
$800,000,000 5.63% 02/03/97 $ 800,000,000
<CAPTION>
Nomura Securities, Inc. dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.50%-10.25%
01/15/20-01/20/27)
<S> <C> <C> <C>
100,000,000 5.65 02/03/97 100,000,000
<CAPTION>
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.38%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535, 05/15/02-11/15/03)
<S> <C> <C> <C>
201,800,000 5.60 02/03/97 201,800,000
</TABLE>
- --------------------------------------------------------------------
Total Joint Repurchase Agreement Account $ 1,101,800,000
- --------------------------------------------------------------------
7. Line of Credit Facility
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line of
credit facility. In addition, the Funds, except the Select Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the year ended January 31, 1997,
the Funds did not have any borrowings under these facilities.
8. Transactions With Affiliated Companies
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the year ended January 31, 1997 which are considered to be
affiliates of Small Cap Equity are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Safety
Razor $ -- $5,751 $ 289 $ -- $ --
- --------------------------------------------------------------------
Alpine Lace
Brands, Inc. 7,790 -- -- -- 2,341
- --------------------------------------------------------------------
APS Holding
Corp. 10,305 654 290 -- 7,869
- --------------------------------------------------------------------
J. Baker, Inc. 1,591 1,349 (1,090) 60 7,565
- --------------------------------------------------------------------
Black Box, Inc. -- 23,013 14,149 -- --
- --------------------------------------------------------------------
Brookstone, Inc. -- 2,722 (758) -- 5,939
- --------------------------------------------------------------------
Congoleum Corp. -- 2,323 (102) -- 3,156
- --------------------------------------------------------------------
Hollinger
International
Corp. -- 10,903 (1,311) 112 --
- --------------------------------------------------------------------
International Post
Ltd. -- 2,215 (3,933) -- 1,729
- --------------------------------------------------------------------
Morningstar
Group Inc. -- 12,216 6,346 -- --
- --------------------------------------------------------------------
Mortons
Restaurant
Group, Inc. -- 4,106 1,625 -- 6,439
- --------------------------------------------------------------------
Opinion Research
Corp. -- -- -- -- 2,022
- --------------------------------------------------------------------
Pegasus
Communications
Corp. 3,697 -- -- -- 3,224
- --------------------------------------------------------------------
Platinum
Entertainment
Corp. 3,354 -- -- -- 2,675
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
70
<PAGE>
9. Other Matters
As of January 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 14% of the
outstanding shares of the Select Equity Fund.
10. Certain Reclassifications
In accordance with Statement of Position 93-2, the Balanced, Select Equity,
Growth and Income, International Equity and Asia Growth Funds have reclassified
$13,068, $9,549, $18,764, $302,042 and $31,712, respectively, from paid-in
capital to accumulated undistributed net investment income. Additionally, the
Small Cap Equity Fund has reclassified $1,532,848 from accumulated net realized
gains on investments to accumulated net investment loss and $18,742 from paid-in
capital to accumulated net investment loss. The Select Equity Fund reclassified
$40,540 from accumulated net realized gains on investments to distributions in
excess of net investment income. The International Equity Fund and the Asia
Growth Fund have reclassified $205,942 and $338,857 from accumulated net
realized foreign currency loss to distributions in excess of net investment
income, respectively. The Asia Growth Fund also reclassified $377,435 from
accumulated net realized gains on investments to distributions in excess of net
investment income. These reclassifications have no impact on the net asset value
of the Funds and are designed to present the Funds' capital accounts on a tax
basis.
71
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
11. Summary of Share Transactions
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 1,529,469 $27,172,279 3,862,697 $81,642,386 5,616,082 $121,074,992
Reinvestment of dividends
and distributions 310,437 5,598,883 370,586 8,175,333 2,390,917 52,287,188
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) (3,328,038) (72,163,062)
-------------------------------------------------------------------------------------
1,393,371 25,237,890 3,124,081 65,994,573 4,678,961 101,199,118
-------------------------------------------------------------------------------------
Class B shares
Shares sold 109,171 2,001,768 733,802 15,946,016 729,877 16,222,639
Reinvestment of dividends
and distributions 5,284 95,768 24,314 535,407 35,976 787,421
Shares repurchased (1,795) (32,396) (13,894) (310,118) (14,764) (340,546)
-------------------------------------------------------------------------------------
112,660 2,065,140 744,222 16,171,305 751,089 16,669,514
-------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,151,881 66,277,175 8,228 186,173
Reinvestment of dividends
and distributions -- -- 275,197 6,102,331 92 2,020
Shares repurchased -- -- (363,536) (7,991,198) -- --
-------------------------------------------------------------------------------------
-- -- 3,063,542 64,388,308 8,321 188,193
-------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 154,590 3,344,141 134,652 2,879,042
Reinvestment of dividends
and distributions -- -- 4,126 91,166 12,587 276,180
Shares repurchased -- -- (1,252) (28,032) (10,262) (227,331)
-------------------------------------------------------------------------------------
-- -- 157,464 3,407,275 136,977 2,927,891
-------------------------------------------------------------------------------------
Net increase (decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 5,575,348 $120,984,716
=====================================================================================
<CAPTION>
Capital Growth Fund
- -------------------------------------------------------
Shares Dollars
--------------------------
<S> <C> <C>
Class A shares
Shares sold 4,677,047 $73,029,007
Reinvestment of dividends
and distributions 5,870,272 89,898,521
Shares repurchased (14,635,348) (229,277,58)
----------------------------
(4,088,029) (66,350,058)
----------------------------
Class B shares
Shares sold 188,331 2,979,890
Reinvestment of dividends
and distributions 12,408 190,353
Shares repurchased (7,499) (122,231)
----------------------------
193,240 3,048,012
----------------------------
Institutional shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
----------------------------
Service shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
-- --
----------------------------
Net increase (decrease) in
shares (3,894,789) $(63,302,046)
============================
</TABLE>
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- ----------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 2,508,268 $52,353,524 12,103,239 $230,847,197 7,588,351 $124,281,405
Reinvestment of dividends
and distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
------------------------------------------------------------------------------------
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
------------------------------------------------------------------------------------
Class B shares
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of dividends
and distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
------------------------------------------------------------------------------------
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of dividends
and distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
------------------------------------------------------------------------------------
-- -- 3,524,169 68,046,277 815,499 13,114,475
------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of dividends
and distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
------------------------------------------------------------------------------------
-- -- 34,830 676,729 -- --
------------------------------------------------------------------------------------
Net increase (decrease) in
shares (1,537,835) $(29,029,111) 13,081,265 $251,377,416 4,676,292 $77,219,094
=====================================================================================
<CAPTION>
Share activity for the year ended January 31, 1996 is as follows:
Select Equity Fund
- -------------------------------------------------------------
Shares Dollars
------------- ---------------
<S> <C> <C>
Class A shares
Shares sold 2,479,285 $44,569,920
Reinvestment of dividends and 161,481
distributions 3,032,597
Shares repurchased (2,578,247) (45,692,944)
------------- ---------------
62,519 1,909,573
------------- ---------------
Institutional shares
Shares sold 3,220,915 57,579,398
Reinvestment of dividends and
distributions 97,993 1,847,978
Shares repurchased (30,492) (567,188)
------------- ----------------
3,288,416 $58,860,188
------------- ----------------
Net increase 3,350,935 $60,769,761
============= ================
</TABLE>
- --------------------------------------------------------------------------------
73
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/h/ shareholders
------------------------------- ------------------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
-----------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $17.31 $0.66 $2.47 $(0.66) $(1.00) --
1997 - Class B Shares/b/............. 17.46 0.42 2.34 (0.42) (1.00) (0.07)
1996 - Class A Shares................ 14.22 0.51 3.43 (0.50) (0.35) --
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 14.18 0.10 0.02 (0.08) -- --
<CAPTION>
Net asset
Net increase value, Portfolio Average
in net end of Total turnover commission
asset value period return/a/ rate rate/g/
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $1.47 $18.78 18.59% 208.11/f/ $.0587
1997 - Class B Shares(b)............. 1.27 18.73 16.22/c/ 208.11/f/ .0587
1996 - Class A Shares................ 3.09 17.31 28.10 197.10/f/ --
For the Period Ended January 31,
- -------------------------------------
1995 - Class A Shares/d/............. 0.04 14.22 0.87/c/ 14.71/c/ --
<CAPTION>
Ratio assuming no
voluntary waiver of fees
or expense limitations
-------------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
end of expenses to income to expenses to income (loss)
period average net average net average to average
(in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $81,410 1.00% 3.76% 1.77% 2.99%
1997 - Class B Shares/b/............. 2,110 1.75/e/ 2.59/e/ 2.27/e/ 2.07/e/
1996 - Class A Shares................ 50,928 1.00 3.65 1.90 2.75
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 7,510 1.00/e/ 3.39/e/ 8.29/e/ (3.90)/e/
</TABLE>
- --------------------------
/a/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/b/ For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/c/ Not annualized.
/d/ For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
/e/ Annualized.
/f/ Includes the effect of mortgage dollar roll transactions.
/g/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/h/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
(The accompanying notes are an integral part of these financial statements.)
74
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/(h)/ shareholders
========================== ====================================
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
============================================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
==============================
1997 - Class A Shares ........................ 19.66 $0.16 $4.46 $(0.16) $(0.80) --
1997 - Class B Shares/(f)/.................... 20.44 0.04 3.70 (0.04) (0.80) (0.16)
1997 - Institutional Shares .................. 19.71 0.30 4.51 (0.28) (0.80) --
1997 - Service Shares/(f)/.................... 21.02 0.13 3.15 (0.13) (0.80) (0.10)
1996 - Class A Shares ........................ 14.61 0.19 5.43 (0.16) (0.41) --
1996 - Institutional Shares/(d)/.............. 16.97 0.16 3.23 (0.24) (0.41) --
1995 - Class A Shares ........................ 15.93 0.20 (0.38) (0.20) (0.94) --
1994 - Class A Shares ........................ 15.46 0.17 2.08 (0.17) (1.61) --
1993 - Class A Shares ........................ 15.05 0.22 0.41 (0.22) -- --
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 14.17 0.11 0.88 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Net Net
increase asset assets
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(g)/ (in 000s)
======================================================================
SELECT EQUITY FUND
- ------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares .............. $3.66 $23.32 23.75% 37.28% $.0417 $225,968
1997 - Class B Shares/(f)/.......... 2.74 23.18 18.59/(b)/ 37.28 .0417 17,258
1997 - Institutional Shares ........ 3.73 23.44 24.63 37.28 .0417 148,942
1997 - Service Shares/(f)/.......... 2.25 23.27 15.92/(b)/ 37.28 .0417 3,666
1996 - Class A Shares .............. 5.05 19.66 38.63 39.35 -- 129,045
1996 - Institutional Shares/(d)/.... 2.74 19.71 20.14/(b)/ 39.35/(b)/ -- 64,829
1995 - Class A Shares .............. (1.32) 14.61 (1.10) 56.18 -- 94,968
1994 - Class A Shares .............. 0.47 15.93 15.12 87.73 -- 92,769
1993 - Class A Shares .............. 0.41 15.46 4.30 144.93 -- 117,757
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/............ 0.88 15.05 7.01/(b)/ 135.02(c) -- 151,142
</TABLE>
<TABLE>
<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 income to expenses to income
to average average net average to average
assets assets net assets net assets
==================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares ........................ 1.29% 0.91% 1.53% 0.67%
1997 - Class B Shares/(f)/.................... 1.83/(c)/ 0.06/(c)/ 2.00/(c)/ (0.11)/(c)/
1997 - Institutional Shares .................. 0.65 1.52 0.85 1.32
1997 - Service Shares/(f)/.................... 1.15/(c)/ 0.69/(c)/ 1.35/(c)/ 0.49/(c)/
1996 - Class A Shares ........................ 1.25 1.01 1.55 0.71
1996 - Institutional Shares/(d)/.............. 0.65/(c)/ 1.49/(c)/ 0.96/(c)/ 1.18/(c)/
1995 - Class A Shares ........................ 1.38 1.33 1.63 1.08
1994 - Class A Shares ........................ 1.42 0.92 1.67 0.67
1993 - Class A Shares ........................ 1.28 1.30 1.53 1.05
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 1.57/(c)/ 1.24/(c)/ 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 or redemption charges. Total return would be reduced if
a sales or redemption charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
/(e)/ For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
/(f)/ For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
/(g)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment
operations/(h)/ Distributions to shareholders
====================== =====================================
Net
realized
and From net
Net unrealized realized
asset gain(loss) gain In Net
value, on on excess Increase
beginning Net investments From net investment of net Additional in net
of investment and investment and option investment paid-in asset
period income options income transactions income capital value
===============================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $19.98 $0.35 $5.18 $(0.35) $(1.97) $ (0.01) $ -- $3.20
1997 - Class B Shares/(f)/ ........ 20.82 0.17 4.31 (0.17) (1.97) (0.06) -- 2.28
1997 - Institutional Shares/(f)/ .. 21.25 0.29 3.96 (0.30) (1.97) (0.04) -- 1.94
1997 - Service Shares/(f)/ ........ 20.71 0.28 4.50 (0.28) (1.97) (0.07) -- 2.46
1996 - Class A Shares ............. 15.80 0.33 4.75 (0.30) (0.60) -- -- 4.18
1995 - Class A Shares ............. 15.79 0.20/(b)/ 0.30/(b)/ (0.20) (0.33) (0.07) 0.11/(b)/ 0.01
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 14.18 0.15 1.68 (0.15) (0.06) (0.01) -- 1.61
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Net net net
Net assets expenses investment
asset at to income to
value Total Portfolio Average end of average average
end of return turnover commission period net net
period /(a)/ rate rate/(g)/ (in 000s) assets assets
===================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60%
1997 - Class B Shares/(f)/ ........ 23.10 22.23/(d)/ 53.03 .0586 17,346 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 23.19 20.77/(d)/ 53.03 .0586 193 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 23.17 23.87/(d)/ 53.03 .0586 3,174 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 19.98 32.45 57.93 -- 436,757 1.20 1.67
1995 - Class A Shares ............. 15.80 3.97 71.80 -- 193,772 1.25 1.28
<CAPTION>
For the Period Ended January 31,
==================================
<S> <C> <C> <C> <C> <C> <C> <C>
1994 - Class A Shares/(c)/......... 15.79 13.08/(d)/102.23/(d)/ -- 41,528 1.25/(e)/ 1.23/(e)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
=================================
Ratio of
Ratio of net investment
expenses income (loss)
to average to average
net assets net assets
=================================
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C>
1997 - Class A Shares ............. 1.43% 1.39%
1997 - Class B Shares/(f/) ........ 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 1.45 1.42
1995 - Class A Shares ............. 1.58 0.95
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 3.24/(e)/ (0.76)/(e)/
</TABLE>
- ----------------------------------
/(a)/Assumes investment at the net asset v alue at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/Calculated based on the average shares outstanding methodology.
/(c)/For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
/(g)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations/(g)/ Distributions to shareholders
=========================== =============================================
Net realized
and unrealized From net
Net asset gain (loss) on realized gain In excess
value, Net investments, From net on investments, of net
beginning investment options and investment options investment
of period income futures income and futures income
=======================================================================================
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $14.91 $0.10 $3.56 $ (0.10) $ (1.72) $(0.02)
1997 - Class B Shares(b)................. 15.67 0.01 2.81 (0.01) (1.72) (0.09)
1996 - Class A Shares.................... 13.67 0.12 3.93 (0.12) (2.69) --
1995 - Class A Shares.................... 15.96 0.03 (0.69) (0.01) (1.62) --
1994 - Class A Shares.................... 14.64 0.02 2.40 (0.01) (1.07) (0.02)
1993 - Class A Shares.................... 13.65 0.06 2.28 (0.07) (1.28) --
1992 - Class A Shares.................... 11.10 0.28 2.90 (0.31) (0.32) --
For the Period Ended January 31,
================================
1991 - Class A Shares/(c)/............... 11.34 0.34 (0.27) (0.31) -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Net increase Net asset assets at
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(f)/ (in 000s)
=======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $1.82 $16.73 25.97% 52.92% $.0563 $920,646
1997 - Class B Shares(b)................. 1.00 16.67 19.39/(d)/ 52.92 .0563 3,221
1996 - Class A Shares.................... 1.24 14.91 30.45 63.90 -- 881,056
1995 - Class A Shares.................... (2.29) 13.67 (4.38) 38.36 -- 862,105
1994 - Class A Shares.................... 1.32 15.96 16.89 36.12 -- 833,682
1993 - Class A Shares.................... 0.99 14.64 18.01 58.93 -- 665,976
1992 - Class A Shares.................... 2.55 13.65 29.31 48.93 -- 500,307
For the Period Ended January 31,
================================
1991 - Class A Shares(c)................. (0.24) 11.10 0.84/(d)/ 35.63/(d)/ -- 437,533
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
=============================
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses to income (loss) to expenses to income (loss)
average net average average to average
assets net assets net assets net assets
====================================================================
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares.................... 1.40% 0.62% 1.65% 0.37%
1997 - Class B Shares/(b)/................. 2.15/(e)/ (0.39)/(e)/ 2.15/(e)/ (0.39)/(e)/
1996 - Class A Shares.................... 1.36 0.65 1.61 0.40
1995 - Class A Shares.................... 1.38 0.16 1.63 (0.09)
1994 - Class A Shares.................... 1.38 0.13 1.63 (0.12)
1993 - Class A Shares.................... 1.41 0.42 1.66 0.17
1992 - Class A Shares.................... 1.53 2.09 1.78 1.84
For the Period Ended January 31,
- --------------------------------
1991 - Class A Shares/(c)/............... 1.27/(d)/ 3.24/(d)/ 1.47/(d)/ 3.04/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to
January 31, 1997.
/(c)/For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations/(g)/ shareholders
=========================== =======================================
From In excess
net of
Net realized realized realized Net
and unrealized gain on gains on increase
Net asset Net gain (loss) on From investment, investment (decrease)
value, investment investments, net option and option and in net
beginning income options and investment futures futures asset
of period (loss) futures income transactions transactions value
==============================================================================================
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $17.29 $(0.21) $4.92 $ - $(1.09) $ - $3.62
1997 - Class B Shares/(b)/......... 20.79 (0.11) 1.21 - (1.09) - 0.01
1996 - Class A Shares ............. 16.14 (0.23) 1.39 - (0.01) - 1.15
1995 - Class A Shares ............. 20.67 (0.07) (3.53) - (0.69) (0.24) (4.53)
1994 - Class A Shares ............. 16.68 (0.04) 5.03 - (1.00) - 3.99
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 14.18 0.03 2.50 (0.03) - - 2.50
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Net asset Net assets
value, Portfolio Average at end of
end of Total turnover commission period
period return/(a)/ rate rate/(f)/ (in 000s)
================================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $20.91 27.28% 99.46% $.0461 $212,061
1997 - Class B Shares/(b)/......... 20.80 5.39/(d)/ 99.46 .0461 3,674
1996 - Class A Shares ............. 17.29 7.20 57.58 - 204,994
1995 - Class A Shares ............. 16.14 (17.53) 43.67 - 319,487
1994 - Class A Shares ............. 20.67 30.13 56.81 - 261,074
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 16.68 17.86/(d)/ 7.12/( e)/ - 59,339
<CAPTION>
- ---------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
Ratio of ===========================
Ratio of net Ratio of
net investment Ratio of net
expenses income expenses investment
to average (loss) to to average loss to
net average net net average net
assets assets assets assets
=======================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C>
1997 - Class A Shares ............. 1.60% (0.72)% 1.85% (0.97)%
1997 - Class B Shares/(b)/......... 2.35/(e)/ (1.63)/(e)/ 2.35/(e)/ (1.63)/(e)/
1996 - Class A Shares ............. 1.41 (0.59) 1.66 (0.84)
1995 - Class A Shares ............. 1.53 (0.53) 1.78 (0.78)
1994 - Class A Shares ............. 1.60 (0.45) 1.85 (0.70)
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 1.65/(e)/ 0.62/(e)/ 2.70/(e)/ (0.43)/(e)/
- ------------------
</TABLE>
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/(c)/For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions
investment operations/(g)/ to shareholders
================================================= ==============================
Net Net realized From net
realized and unrealized realized
and unrealized gain (loss) gain on
Net asset gain (loss) on on foreign From investment,
value, Net investments, currency net option and
beginning investment options related investment futures
of period income (loss) and futures transactions income transactions
============================================================================================
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
=====================================
1997 - Class A Shares............... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21)
1997 - Class B Shares/(e)/.......... 18.91 (0.06) 0.94 (0.34) -- (0.21)
1997 - Institutional Shares/(e)/.... 17.45 0.04 3.39 (1.24) (0.03) (0.21)
1997 - Service Shares/(e)/.......... 17.70 (0.02) 2.95 (1.08) -- (0.21)
1996 - Class A Shares .............. 14.52 0.13 2.58 1.42 (0.58) (0.87)
1995 - Class A Shares............... 18.10 0.06 (3.04) (0.01) -- (0.59)
1994 - Class A Shares............... 14.35 0.05 4.08 (0.38) -- --
For the Period Ended January 31,
=====================================
1993 - Class A Shares/(b)/.......... 14.18 (0.01) 0.29 (0.11) -- --
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net
increase Net asset
(decrease) value, Portfolio Average Net assets at
in net asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (in 000s)
==================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... $ 2.12 $19.32 13.48% 38.01% $.0318 $536,283
1997 - Class B Shares/(e)/.............. 0.33 19.24 2.83/(c)/ 38.01 .0318 19,198
1997 - Institutional Shares/(e)/........ 1.95 19.40 12.53/(c)/ 38.01 .0318 68,374
1997 - Service Shares/(e)/.............. 1.64 19.34 10.42/(c)/ 38.01 .0318 674
1996 - Class A Shares .................. 2.68 17.20 28.68 68.48 -- 330,860
1995 - Class A Shares................... (3.58) 14.52 (16.65) 84.54 -- 275,086
1994 - Class A Shares................... 3.75 18.10 26.13 60.04 -- 269,091
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 0.17 14.35 1.23/(c)/ 0.00 -- 66,063
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees or
expense limitations
===============================
Ratio of net Ratio of
Ratio of investment net investment
net income Ratio of income
expenses to (loss) to expenses (loss)
average net average net to average to average
assets assets net assets net assets
=============================================================
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... 1.69% (0.07)% 1.88% (0.26)%
1997 - Class B Shares/(e)/.............. 2.23/(d)/ (0.97)/(d)/ 2.38/(d)/ (1.12)/(d)/
1997 - Institutional Shares/(e)/........ 1.10/(d)/ 0.43/(d)/ 1.25/(d)/ 0.28/(d)/
1997 - Service Shares/(e)/.............. 1.60/(d)/ (0.40)/(d)/ 1.75/(d)/ (0.55)/(d)/
1996 - Class A Shares .................. 1.52 0.26 1.77 0.01
1995 - Class A Shares................... 1.73 0.40 1.98 0.15
1994 - Class A Shares................... 1.76 0.51 2.01 0.26
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 1.80/(d)/ (0.42)/(d)/ 2.58/(d)/ (1.20)/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
/(c)/Not annualized.
/(d)/Annualized.
/(e)/For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) Distributions to
from investment operations /(g)/ shareholders
--------------------------------------------- ------------------------------
Net
realized and
unrealized
Net Net gain on
asset Net realized and foreign
value, investment unrealized currency From net In excess
beginning income gain(loss) on related investment of net investment
of period (loss) investments transactions income income
----------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ --
1997 - Class B Shares/(e)/................ 17.31 (0.05) (0.48) (0.51) -- (0.03)
1997 - Institutional Shares/(e)/.......... 16.61 0.04 (0.11) (0.11) (0.04) (0.06)
1996 - Class A Shares..................... 13.31 0.17 3.44 (0.12) (0.17) (0.14)
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ 14.18 0.11 (0.89) 0.01 (0.10) --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Net
increase Net
(decrease) asset
in net value, Portfolio Average Net assets at
asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (000s)
------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $(0.18) $16.31 (1.01)% 48.40% $.0151 $263,014
1997 - Class B Shares/(e)/................ (1.07) 16.24 (6.02)/(c)/ 48.40 .0151 3,354
1997 - Institutional Shares/(e)/.......... (0.28) 16.33 (1.09)/(c)/ 48.40 .0151 13,322
1996 - Class A Shares..................... 3.18 16.49 26.49 88.80 -- 205,539
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ (0.87) 13.31 (5.46)/(c)/ 36.08/(c)/ -- 124,298
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio Ratio Ratio
of net of net Ratio of of net
expenses to investment expenses investment
Net assets at average income(loss) to average income(loss)
end of period net to average net to average
(000s) assets net assets assets net assets
-------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................................ $263,014 1.67% 0.20% 1.87% 0.00%
1997 - Class B Shares/(e)/........................... 3,354 2.21/(d)/ (0.56)/(d)/ 2.37/(d)/ (0.72)/(d)/
1997 - Institutional Shares/(e)/..................... 13,322 1.10/(d)/ 0.54/(d)/ 1.26/(d)/ 0.38/(d)/
1996 - Class A Shares................................ 205,539 1.77 1.05 2.02 0.80
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/........................... 124,298 1.90/(d)/ 1.83/(d)/ 2.38/(d)/ 1.35/(d)/
</TABLE>
- --------------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January 31,
1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of operations)
to January 31, 1997 for Institutional and Class B shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate on security transactions on which
commissions are charged. This rate may vary due to various types of
transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Goldman Sachs Equity Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Equity Portfolios, Inc. (a Maryland Corporation), comprising the
Balanced Fund, Select Equity Fund, Growth and Income Fund, Capital Growth Fund,
Small Cap Equity Fund, International Equity Fund and Asia Growth Fund, including
the statements of investments, as of January 31, 1997 and the related statements
of operations, 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 Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
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, 1997 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, 1997 the results of their operations and the
changes in their net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------- ----------------------------------------
[This Page Intentionally Left Blank]
- -------------------------------------- ----------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual 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.
- --------------------------------------------------------------------------------
83
<PAGE>
Goldman Sachs
One New York Plaza
New York, NY 10004
Directors
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
Officers
Douglas C. Grip, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Goldman Sachs
Investment Adviser, Administrator,
Distributor and Transfer Agent
The Goldman Sachs
Equity Portfolios
- -------------------
Annual Report
January 31, 1997
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]
