October 6, 2004

Fund in Focus: Goldman Sachs CORE Tax Managed Equity Fund

Donald Mulvihill, manager since April 2004S&P Rank: 5 StarsA Smoother Ride to Higher After-Tax Returns

Sept. 30, 2004 -- Along with boosting net returns, the management team of Goldman Sachs CORE Tax Managed Equity/A (GCTAX) believes its tax-efficient strategy can lessen the effects of market volatility. The fund's statistics suggest it has met these goals.

Goldman Sachs CORE Tax Managed Equity has never paid a capital gains distribution, and its volatility, as measured by standard deviation, is lower than its peers, 15.49 versus 18.24 for the average large-cap blend fund. Standard & Poor's ranks the fund's three-year risk rank as moderately low compared with the average domestic equity fund.

Donald Mulvihill, the fund's lead manager and head of Goldman Sachs' tax-efficient equity strategies, traces the fund's success to its generally quantitative approach. The fund's team frequently tests and adjusts its quantitative models. The models' criteria include valuations, earnings quality, profitability, management impact, and momentum. Rather than large bets, the fund generally has small overweightings and underweightings relative to its benchmark, the Russell 3000 index.

Mulvihill said the fund's screen for companies buying back company stock has been particularly helpful in uncovering stocks likely to outperform. The fund's screen for analysts' earnings upgrades has also aided returns, he said.

The quantitative approach has been successful. For the one-year period through last month, Goldman Sachs CORE Tax Managed Equity rose 15.7%, compared with an 11.5% gain for the average large-cap blend fund. The fund has also outpaced its peers over the longer term. For the three-year period through August, the fund rose 2.5%, on average, versus a 0.4% decline for its peers. It carries a rank of 5 Stars from Standard & Poor's.

The portfolio is constructed to reflect the investment styles, sectors, and market capitalizations of the Russell 3000 Index. That index was selected as the benchmark since it includes large-, mid-, and small-cap stocks, and has a relatively low turnover. Currently, 76.5% of the fund's holdings are large-cap stocks, and 14.1% are mid-cap and small-cap stocks.

As part of its tax-efficient strategy, the fund seeks to recognize losses and limit the recognition of gains. The fund has a substantial tax loss carryforward.

Keeping turnover down is key to lessening the fund's exposure to taxes and transaction costs, said Mulvihill. The fund's annual turnover is about 73.0%, moderately higher than its peer group average.

Although the portfolio is assembled relative to its benchmark, its holdings may differ based on the results of its quantitative screens. Financials are the fund's largest sector, a modestly lower weighting at 21.4%, versus 22.8% for the benchmark. Of the fund's largest sectors, health care, consumer cyclicals, and consumer staples are overweightings relative to the benchmark. Mulvihill said these weightings don't reflect a top-down view of the prospects of those sectors.

As of June 30, 2004, the fund's largest holdings include Pfizer, Inc. (PFE), Bank of America (BAC), Intel Corp. (INTC), and Procter & Gamble (PG). Based on the fund's screens, Mulvihill said Harman Intl (HAR) has attractive upside potential, and is one of the larger contributors to active risk in the fund.

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.

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