The Foreseeable Future by benbenzhou


									The Foreseeable Future
Envisioning possibilities, creating opportunities
the goldman sachs foundation
2002 annual report

The Goldman Sachs Foundation
letter from the chairman       2
president’s essay              3

A Generation Ahead             8
A Lifetime of Leadership      14
Entrepreneurship Everywhere   22
An Intelligible World         28
Return on Ideas               34

2002 g r a n t s              38
financial statements          44
grant guidelines              52
trustees & staff              53
The future is not so distant. Nor is it
so unpredictable.

In a world of uncertainty, there is
one asset that is indispensable: vision.
At The Goldman Sachs Foundation,
we are using our insight to see a future
filled with possibilities —and applying
our knowledge and capital resources
to make it real.
                            < john c. whitehead, Chairman

letter from the chairman

Dear colleagues and friends:
It is with great pleasure that I write to you in this inaugural annual report
for The Goldman Sachs Foundation. While this publication focuses on
our activities in our most recently completed year of operation, in many
ways it is the culmination of several years of effort, transformation —
and tradition.
The spirit of public leadership and philanthropy embodied by the
Foundation represents a legacy of civic and business involvement that
extends back over decades of Goldman Sachs’ history. The firm’s
longstanding commitment to corporate responsibility was reaffirmed
following its initial public offering, and in 1999 the Foundation was
established and provided with a $200 million endowment.
Today, the Foundation and its capable leadership carry forward this
tradition of philanthropy. The Foundation is focused on promoting
excellence and innovation in education worldwide, applying a unique
brand of venture philanthropy that leverages funding with the skills and
expertise of Goldman Sachs professionals.
In under three years, the Foundation has committed grants totaling more
than $43 million worldwide, and the results of these investments are
significant. This annual report presents the Foundation’s accomplishments
and vision of the potential of education in the lives and livelihoods of young
people —and how our work is bringing that future closer to reality today.
Thank you for your interest and support.


John C. Whitehead, Chairman
             >   stephanie bell-rose, President

president’s essay

The Greatest Value
When does the possible become practical?
In a sense, this is the question that all philanthropic
organizations ask themselves on a daily basis: How do we
address the toughest problems—a societal shortcoming,
a leadership void, a global dilemma—and bring about a
lasting solution?
The Goldman Sachs Foundation was launched more
than three years ago with the goal of addressing this
question within the field of education —encouraging
innovative approaches for the development of the world’s
youth through a combination of nonprofit partnerships,
grants, investments, and public leadership. The answer,
as it turns out, is that there is no single answer.
In our work, fulfilling possibilities is not simply an
exercise in charity, but an alignment of diverse human
and financial resources directed in a way that creates the
greatest social value.

                                       the goldman sachs foundation 2002 annual report   3
president’s essay

2002: opportunity amid uncertainty                    distinctive new grants. Today, as we enter our
In the time since our Foundation’s inception, the     second phase of development, we are broadening
distance between the possible and the practical       the scope of our activities and relationships.
certainly hasn’t narrowed. Like our peers in the      We are leveraging Goldman Sachs; enhancing
philanthropic world, we are seeing the cascading      our international presence; building useful
effects of economic uncertainty, military conflict,   collaborations; ensuring the success of existing
declining trust in institutions, and widening         effective investments in nonprofit relationships;
cultural divisions. While these forces are            and identifying highly promising new initiatives
constraining the resources of nonprofit               within our funding areas where investments of
organizations and philanthropies, they are at the     even modest size can still achieve real impact.
same time making those resources even more
essential to our social fabric.

In the midst of nonprofits’ increasing needs                           3%
                                                           Program-Related    1%
and changing priorities, the Foundation has                                   Other
continued to find willing and worthy partners                                            30%
who are central to our work. In 2002, our                                                Education &
grantmaking reached $13.7 million, slightly                                              Entrepreneurship
ahead of our 2001 total. Since 1999, the num-
ber of our grants has exceeded 60, and our
overall grantmaking commitments have now                     28%
surpassed $43 million. More than one-quarter            Academic
of these grants support international programs        Achievement
and initiatives reaching young people in at least                             38%
                                                                              Developing High-
20 countries.
                                                                              Potential Youth

Our mission remains                                   2002 grants by program category
constant: to promote
                                                      approaches to education
excellence and innovation
                                                      Even as we evolve, our mission remains
in education and to                                   constant: to promote excellence and innovation
improve the academic                                  in education and to improve the academic
                                                      performance and lifelong productivity of young
performance and lifelong                              people worldwide. The reason for this
productivity of young                                 emphasis is simple. There is no investment with
                                                      a greater return than education. It is the engine
people worldwide.                                     behind economic opportunity, social achieve-
                                                      ment, and individual leadership around the
Our progress in 2002 also led to a milestone in       world. The Foundation’s focus on academic
our evolution as an organization. In our initial      achievement among young people is a natural
years, the Foundation’s operational focus             extension of the beliefs of Goldman Sachs as a
was establishing our structure, developing our        firm — an enterprise whose professionals
grant programs and partnerships, and initiating       understand that outstanding educational

                                                                                    president’s essay

opportunities are the bedrock of their own             investments. In addition to grants, we actively
success. In fact, it is a defining characteristic of   consider private sector investments, loans,
the Foundation that our choice of objectives,          and other program-related funding to create
strategies, and investments is influenced by           a diversified revenue stream. Intellectual
access to Goldman Sachs’ expertise. This               capital — knowledge resources such as
balance of private sector and nonprofit sector         leadership development curricula, events, and
strengths is evident in our three strategic            communications —contributes to the strength
approaches to creating the greatest value:             of our partner organizations and to our
                                                       practice of philanthropy.
Venture philanthropy
The Goldman Sachs Foundation’s commitment              new forms of leadership
to venture philanthropy—the practice of high-          By investing in education and the development
engagement grantmaking using the core                  of youth, the Foundation invests equally in a
competencies of Goldman Sachs —maximizes               larger cause: the development of leaders. The
the impact of our philanthropic investments.           economic and social forces described above
Through venture philanthropy, Goldman                  require new models and sources of leadership —
Sachs professionals leverage their knowledge to        and renewed innovation from those in
provide Foundation grantees with professional          positions of influence.
skills and leadership abilities, and they support
nonprofit organizations’ strategic planning,           By investing in education
financial management, and development. At
least one-third of the Foundation’s grantmaking        and the development
involves venture philanthropy, and more than           of youth, the Foundation
175 Goldman Sachs professionals have taken
part in the approach since spring of 2002.             invests equally in
Productive partnerships                                a larger cause: the
The Foundation’s relationships with philan-            development of leaders.
thropic peers are extensive, as are our
associations with institutions and leaders in the      The next generation of leaders in the private,
nonprofit sector and beyond. This network              public, and nonprofit sectors will be called upon
allows us to take collective action and share          to exercise judgment and skills in ways we can
resources when our interests converge —an              only begin to imagine today. Unfortunately,
especially valuable asset in the current               intense competition for well-prepared leaders
economic climate. For example, we have                 with multiple skill sets limits the ability of
structured promising institutional relationships       organizations to hire talented candidates. This
with nonprofits, business schools, social              problem is exacerbated by poor preparation of
enterprise partnerships, individual leaders in         large numbers of underrepresented students.
education, and other grantmaking organiza-
tions sharing our priorities.                          Where will our new leaders come from? It’s a
                                                       problem that resists conventional strategies and
Investment diversity                                   one that can only be answered by departing from
Unlike many other funders, the Foundation              past practices. The Foundation has made it a
seeks to make a broad range of philanthropic           priority to identify and develop students from all

                                                        the goldman sachs foundation 2002 annual report   5
president’s essay

groups who possess the intellectual ability and • A grant to Stanford University’s graduate
character to become outstanding leaders. schools of education and business to
Through this effort, we foresee a growing num- advance academic achievement by enhancing
ber of individuals prepared for the type of the leadership abilities of educators
rigorous education and training required to
                                                • Grant renewals for several major
succeed in demanding leadership roles.
                                                  Signature Initiative programs, including
                                                  The Johns Hopkins University Center for
                                                  Talented Youth (CTY) and Bank Street
                                                  College of Education
    International                  57%             • A grant renewal to the Institute of
                                   National         International Education for the Goldman
                                                    Sachs Global Leaders Program
                                                   • Inception of the Foundation’s Social
                                                    Entrepreneurs Fund, with grants to the
                                                    Global Fund for Children and Bronx
                                                    Charter School for the Arts.

2002 paid grants by geography                                  $16M —

In 2002, the Foundation continued to emphasize
                                                               $12M —
three areas of education and youth develop-
ment: Developing High-Potential Youth —our
“Signature Initiative”—forms partnerships with
                                                               $8M —
exceptional academic programs that prepare
young people to attend and succeed at selective
universities and to enter demanding professions.
                                                               $4M —
Our focus on Promoting Entrepreneurship,
Business Education, and Leadership invests in



outstanding programs that offer high-quality


instruction in economics, finance, and entrepre-                 $0 —

neurship, including the growing arena of social
entrepreneurship, and funds successful efforts       total grants paid by year
to prepare the next generation of leaders.
Finally, our work in Advancing Academic
                                                    Detailed information on many of these
Achievement nurtures programs fostering suc-
                                                    programs can be found in the following pages
cessful school, teacher, and student performance
                                                    of this report, but I wanted to focus briefly
in public and alternative school settings.
                                                    here on two organizations, one established and
In pursuit of these priorities, our Foundation’s    one emerging, that we believe have the
trustees approved grants to several innovative      potential to effectively address leadership as a
programs in 2002, including:                        scarce resource.

                                                                                 president’s essay

Our partnership with The Johns Hopkins              sources of strength
University Center for Talented Youth (page 11)      The Foundation has a unique position, with
exemplifies how venture philanthropy can            one foot in the world of philanthropy and the
strengthen the operations and effectiveness of a    other on Wall Street. This vantage point is
well-respected nonprofit through multifaceted       enhanced by the guidance of some of the most
engagement. Each year, CTY’s advanced sum-          respected minds in philanthropy, business, and
mer academic courses prepare thousands of           education. Our trustees’ broad perspective
exceptional U.S. middle and high school stu-        guides our mission and the use of our
dents for achievement in college. To increase       resources. On behalf of the Foundation and its
                                                    partner organizations, I thank them for their
                                                    vision and involvement.
                                 57%                In an initial annual report, it is nearly impossible
                                 to Prior Grantee
                                 Organizations      to convey three years of development and
                                                    progress. Nonetheless, I hope you gain from this
                                                    report a greater understanding of The Goldman
                                                    Sachs Foundation and how we use the resources
                                                    within our reach to address the challenges
                                                    within our vision. I look forward to reporting
to New Grantee                                      further progress to you next year.

2002 percentage of grants by dollar
amount to new vs. prior grantees

CTY’s reach to underrepresented groups, the         Stephanie Bell-Rose, President
Foundation established the Goldman Sachs
Scholars initiative, which has enabled CTY to
recruit 400 qualified inner-city, low-income,
or minority students to its academic program.
The success of these gifted students is
supported by specialized distance-learning
opportunities and online coaching from
Goldman Sachs professionals. The second
program is the Goldman Sachs Global Leaders
Program (page 31), which was established to
identify and support annually 100 outstanding
second-year college students, enhancing their
development as the next generation of leaders.
Now entering its fourth year, the program has
produced scholars whose energy and enthu-
siasm for leadership is being applied throughout
the world.

                                                     the goldman sachs foundation 2002 annual report   7
    A Generation Ahead
>   realizing the promise of high-potential youth

    This much is certain: The future will be more complex,
    more competitive, more challenging. The next genera-
    tion of leaders will enter a world that values the
    broadest possible portfolio of skills and attributes —
    academic achievement, personal integrity, interpersonal
    ability, social and cultural awareness, and financial
    and business knowledge, among many other attributes.
    The Goldman Sachs Foundation is helping students
    prepare for this future. We envision a robust pipeline
    of outstanding young scholars whose minds are capable
    of bridging cultures and serving the world’s needs,
    and we are investing our time and energies where
    education can fulfill our vision —supporting talented
    youth from diverse backgrounds, encouraging school
    innovation, and advancing economic literacy.

The first contingent of Goldman
Sachs Scholars was recently admitted
to college, and will enroll in such
prestigious institutions as Amherst
College, Carnegie Mellon University,
Georgetown University, Massachusetts
Institute of Technology, University of
Pennsylvania, and Wesleyan University.
    Johns Hopkins University
    Center for Talented Youth
    to move a generation forward,                      gifted students from underrepresented
    developing the full potential of exceptional       communities — students of all races and
    students is only half of the equation. Bringing    ethnicities as well as from low-income
    those students to the opportunity is the other.    families —we have helped create a new pipeline
    The Foundation’s partnership with the Center       of future leaders.
    for Talented Youth (CTY) is a promising case
                                                       “We really felt we had to reflect the face of
    in point.
                                                       America,” recalls Lea Ybarra, Executive Director
    CTY has been recognized for nearly 25 years as     of CTY. “Anytime we don’t reach out to a
    one of the United States’ premier academic         really bright child in this country, of any race or
    enrichment programs. It is a magnet for the        background, that’s a resource we’re losing.
    best and brightest, providing a foundation for     This makes a difference in a child’s life and to
    academic achievement and a fast track to a         our society.” In 2002, The Goldman Sachs
    selective college. Middle school students who      Foundation pledged $1.65 million for a
    score in the top 2 percent on standardized tests   program specifically designed to support CTY’s
    are eligible to take the SAT to qualify for a      aggressive recruitment goals. This initiative has
    summer program at one of the 20 CTY sites          established new recruiters at targeted locations
    nationwide and challenging distance-learning       in Philadelphia, New York, San Francisco, and
    opportunities. Yet many students who might         Los Angeles. As a result, CTY is changing the
    qualify aren’t aware of CTY or the value of a      way it changes lives. With the support of the
    supplementary summer academic enrichment           Foundation, more than 400 new scholarships
    experience.                                        have gone to underrepresented students in the
                                                       United States. This successful model is now
    As CTY’s first national funder, the Foundation
                                                       being implemented in the United Kingdom by
    is helping high-potential students from urban
                                                       the National Academy for Gifted and Talented
    areas overcome economic, geographic, and
                                                       Youth at the University of Warwick.
    cultural limitations. By supporting CTY in its
    efforts to recruit an increasing proportion of

>   Goldman Sachs Scholars: The Foundation’s investment in CTY has led to the
    cooperative design of a year-round, high-quality enrichment program
    for 100 recruits to the CTY program. These students, designated as “Goldman
    Sachs Scholars,” are eligible to enroll in intense summer courses on college campuses and have
    access to academic coaching, learning opportunities, and skills workshops. To date, more than
    80 individual mentors, including Goldman Sachs professionals and college and graduate
    students, have provided guidance to these promising students.

                                                       the goldman sachs foundation 2002 annual report   11
Specialist Schools Trust
to change academic performance,                     their rate of academic improvement outpaces
change the school’s performance. This funda-        that of their counterparts. Specialist schools are
mental relationship between school leadership       created with the help of sponsors and the
and student outcomes has led the Foundation to      British government.
seek out and support provocative new ideas for
                                                    As one of the world’s most important financial
systemic change in education, among them the
                                                    centers, London has been the focus of The
United Kingdom’s specialist schools program.
                                                    Goldman Sachs Foundation’s investment in
Specialist schools are one of the most              specialist schools. Since 2000, the Foundation
significant educational reform movements in         has extended $1,650,000 in financial support
that nation’s recent history —an effort to trans-   to the Specialist Schools Trust (SST), the
form low-performing secondary and high              governing body for the program. This
schools into laboratories for specialized           investment supports 15 urban secondary
learning. Specialist schools promote excellence     schools, located in some of London’s most
in education by incorporating innovative            disadvantaged areas, in their bids to become
curricula and technology, and by emphasizing        specialist schools. Achieving this status enables
an academic specialty. These specialties include    schools to improve their facilities and outreach,
languages, technology, the arts, business and       thereby providing transforming opportunities
enterprise, engineering, science, mathematics,      for thousands of young people. Among these
and computing.                                      are intensive academic enrichment programs
                                                    offered through the London School of
The rapid growth of specialist schools is
                                                    Economics and Political Science.
being matched by strong academic performance.
Students who attend specialist schools
outperform their peers at comprehensive
schools on national assessment exams, and

National Council on Economic Education
reading. writing. economics. Each                  The Foundation and NCEE together have
is essential to human understanding, and each is   created the NCEE/Goldman Sachs Foundation
a cornerstone in the development of tomorrow’s     Economics Challenge, a nationwide com-
leaders. Yet, study after study shows that         petition for high school students. The contest
Americans lack a basic understanding of            measures students’ knowledge of micro-
economics —including the stock market, trade,      economics, macroeconomics, and international
or interest rates. With the strong belief that     economics as their teams progress through
economic literacy should begin early, The          local, regional, and national competitions. In
Goldman Sachs Foundation partners with the         2002, nearly 2,000 U.S. students representing
National Council on Economic Education             475 teams, 250 schools, and 28 states joined in
(NCEE) to promote economic education and           the college-bowl-style competition —a strong
engage young people in the subject. NCEE is the    step forward in equipping a new generation
leading source of teacher training and materials   with economic knowledge.
in economic education for grades K-12 and
offers the most broadly available Advanced
Placement (AP) economics course material.
    A Lifetime of
>   empowering students and educators

    Leadership is the human quality that combines vision,
    principle, and pragmatism. To a great extent, our
    future will be shaped by the strengths of our society’s
    leaders over the course of their lifetimes —beginning
    with their education. To ensure that true leadership
    potential is recognized and fully developed by the
    institutions that serve students, The Goldman Sachs
    Foundation invests significantly where academic
    innovation and entrepreneurship can flourish. From
    this perspective, we see future leaders rising to solve
    the most persistent problems of business and society,
    leading well-managed schools, and contributing to
    the development of their nations.

Leaders from education, philanthropy, the nonprofit sector, business, and Goldman Sachs gathered to
take part in the Foundation’s Leadership Forum on the Corporate Role in Advancing Academic
Achievement. Thomas Payzant, Superintendent of Boston Public Schools and a Trustee of The Goldman
Sachs Foundation (top left), and Joel I. Klein, Chancellor of the New York City Department of
Education (top right), discussed their perspectives on corporate initiatives to improve academic outcomes.
Stanford Educational Leadership
Institute/Stanford University
institutional innovation: Among                    Through the Institute, school leaders explore
school leaders, the concepts of entrepre-          innovative models for school change, strengthen
neurship and innovation in education are not       administrative and management skills, evaluate
only applicable, they are indispensable —          cutting-edge research, and share ideas with
central to the future success of their institu-    some of the nation’s leading entrepreneurs in
tions, their teachers, and their students.         education. In the fall of 2002, the Institute was
                                                   launched with a national symposium on
Recognizing that school superintendents,
                                                   educational entrepreneurship co-sponsored by
principals, and teachers need stronger resources
                                                   the Foundation. The Stanford symposium
to guide them toward improved management
                                                   attracted an audience of business leaders as
and successful educational change, the
                                                   well as policymakers in education. Longer
Foundation has partnered with Stanford
                                                   term, the Institute envisions that its executive
University’s Graduate School of Business and
                                                   training programs and thought leadership will
School of Education to establish the Stanford
                                                   be a resource for all schools that aspire to
Educational Leadership Institute, a professional
                                                   achieve better student outcomes.
development program for educational leaders.
Inaugurated with a $1 million grant in 2002,
the Institute helps school leaders acquire and
apply a broader knowledge base in the design
and management of effective schools, with the
goal of enhancing their abilities to produce
long-term excellence in school performance.

Barbara Byrd-Bennett, Chief Executive
Officer of the Cleveland Municipal
School District, returned to her
school system with fresh perspectives
on entrepreneurship and innovation
gained from her participation in
training sessions at the Stanford
Educational Leadership Institute.
A Better Chance
the distance between a childhood of                 students from new regions of the United States
potential and a life of leadership can be vast,     for placement among its network of member
particularly for members of historically            schools. As a result of the Foundation’s involve-
underrepresented minorities. To close this gap,     ment and support, A Better Chance has
the Foundation supports A Better Chance, an         increased its number of student placements by
organization that seeks to substantially increase   20 percent and now receives 250 more student
the number of well-educated minority youth          applications per year. The program has also
capable of assuming positions of responsibility     attracted a growing number of partner schools:
and leadership in American society. More than       25 new prep schools are now participating,
10,000 students have completed the A Better         with seven more to follow shortly.
Chance program, with more than 99 percent
                                                    The Goldman Sachs Institute for Entrepreneurial
continuing in higher education. A vast majority
                                                    Thinking offers students training in leadership
go on to attend the nation’s finest colleges.
                                                    skills and innovative thinking, for both
The Foundation’s partnership with A Better          academic and professional success. “Today,
Chance focuses on the twin goals of increasing      thinking like an entrepreneur is an asset valued
the number of gifted scholars placed in college     across all professions,” says Edith Hunt,
preparatory programs and offering them an           Managing Director, Goldman, Sachs & Co.
expanded array of tools for career success.         and Senior Advisor to the Institute. “The
With the support of a $1.2 million grant from       Institute sharpens A Better Chance scholars’
the Foundation, A Better Chance established         business skills and augments students’
three new field sites for its College Preparatory   academic and leadership development.”
Schools Program and created the Goldman
Sachs Institute for Entrepreneurial Thinking.
The new field locations have enabled the
organization to recruit a larger number of

                                                    the goldman sachs foundation 2002 annual report   19
Indian School of Business
the need to build leadership                       considered among the world’s best. The Indian
skills isn’t unique to the United States. In       School of Business enhances the leadership
view of India’s desire to strengthen its future    potential of India’s top students and prepares
leadership from within, the Foundation is          them fully for successful lives and livelihoods in
supporting the development of the country’s        their native country.
first world-class graduate school of business.
                                                   The Foundation’s investment of $1 million over
Established in 2001, the Indian School of          five years has helped to finance land acquisition
Business was created to provide advanced           and construction costs at the 250-acre site in
learning to the country’s top scholars and         Hyderabad, including the development of
future leaders. The privately funded school is a   academic centers, two student villages, visiting
collaboration of international business execu-     faculty and executive housing, a recreation
tives and top academicians, strengthened by        center, and a boardroom. These facilities have
formal affiliations with three of the world’s      helped the school attract exceptional students.
best-known business schools: The Wharton           In 2002, more than 1,200 applicants competed
School of the University of Pennsylvania,          for 170 admission openings. To date, nearly
Northwestern University’s Kellogg School of        300 students have graduated from the first-of-
Management, and London Business School.            its-kind school —an institution described by the
The school offers state-of-the-art teaching        prime minister of India as rashtra dakshina
facilities and housing for postgraduate students   (“gift to the nation”).
and executive programs, a curriculum that is
contemporary and international, and a faculty
Social Entrepreneurs Fund
The Foundation’s Social Entrepreneurs Fund (SEF) is a specialized resource that supports dynamic
leadership and sustained innovation among young, smaller nonprofits through grants that are
sizeable relative to the budgets of the selected recipients. Led by visionary entrepreneurs, these
dynamic organizations are breaking new ground in education and youth development, and the
Foundation believes the passion and commitment of their leaders have long-term potential to
address societal needs around the world. The 2002 SEF grant recipients include:

• The Bronx Charter School for the Arts
• DonorsChoose
• The Global Fund for Children

                                                  the goldman sachs foundation 2002 annual report   21
>   innovation in unexpected places

    Entrepreneurship knows no boundaries. Economically,
    geographically, and culturally, business innovation is
    a catalyst for development, exploration, and inclu-
    sion. We see a landscape populated by creative thinking
    and courageous invention —a legacy of social impact
    as well as commercial success. To achieve this, the
    Foundation helps nurture entrepreneurship by investing
    broadly and in unexpected ways to reach students;
    link the nonprofit, private, and academic sectors;
    and inspire social entrepreneurs. Taken together, these
    initiatives represent an unprecedented opportunity to
    unleash the power of entrepreneurship to transform
    careers and lives globally.

    The Yale School of Management –The Goldman Sachs
    Foundation Partnership on Nonprofit Ventures
    traditionally, the success —or survival               Plan Competition for Nonprofit Organizations,
    —of a nonprofit organization was a function of        which rewarded successful business models
    its ability to attract benefactors. The reality for   with seed capital, business consultation, and
    many nonprofits today, however, is that relying       technical assistance. More than 650 submissions
    solely on donations and grants results in an          were received by the program —evidence of the
    inefficient and unreliable stream of revenue,         significant need and appetite for the
    particularly in uncertain economic conditions.        opportunity it affords. “The Partnership
    Increasingly, nonprofit leaders are seeking           recognizes and rewards innovative nonprofit
    nontraditional sources of income.                     business plans in an effort to encourage
                                                          creative entrepreneurial thinking among
    The Foundation recognized the value of
                                                          nonprofits. The competition allows these
    this growing social-enterprise movement,
                                                          innovative social leaders to become more savvy
    and joined a unique partnership to nurture
                                                          financial managers, helping to improve the
    these innovative programs. With the Yale
                                                          efficiency of their respective organizations and
    School of Management and the Pew Charitable
                                                          the health of the sector as a whole,” says
    Trusts, the Foundation created The Yale
                                                          Stephen Daffron, Managing Director, Goldman,
    School of Management –The Goldman Sachs
                                                          Sachs & Co. and a member of the Partnership’s
    Foundation Partnership on Nonprofit
                                                          advisory board.
    Ventures, an initiative that provides human
    capital, strategic planning, management experi-       The Foundation’s partnership with Yale and
    ence, and financial resources to build the            Pew has also created the Nonprofit Ventures
    entrepreneurial capabilities of nonprofits.           Resource Center, an online education tool
                                                          where nonprofits and others learn about
    A key step in supporting these nonprofit
                                                          business venturing and develop the entrepre-
    ventures is identifying and sharing best
                                                          neurial abilities that will enhance the long-term
    practices in this emerging field. To improve the
                                                          sustainability of their organizations.
    quality of business planning among nonprofits,
    the partnership launched the National Business

>   Contributing Perspective: The involvement of Goldman Sachs professionals in
    The Yale School of Management –The Goldman Sachs Foundation Partnership on Nonprofit
    Ventures   has been instrumental in its initial success and ongoing leadership.
    Judging of the National Business Plan Competition for Nonprofit Organizations included
    14 Goldman Sachs professionals who served as evaluators of participating
    nonprofits’ business plans. Two Goldman Sachs managing directors serve on the
    Partnership’s advisory board.

Among the winners in the National
Business Plan Competition for
Nonprofit Organizations were the
Guthrie Theater and the Children’s
Theatre Company of Minneapolis,
which combined inventories to create
a costume-rental service.
National Foundation for Teaching
starting a business requires financial           becomes a lasting influence in their lives.
resources, certainly. It also takes something    Foundation support has enabled NFTE to grow
even more fundamental: the knowledge and         dramatically, increasing the number of young
skills to lead. This is the essence of the       people served to 17,000 annually, an increase of
Foundation’s partnership with the National       140 percent.
Foundation for Teaching Entrepreneurship
                                                 Substantial financial assistance from the
(NFTE) — to inspire promising secondary
                                                 Foundation has helped NFTE to operate year-
school students and provide them with life,
                                                 round programs in nine U.S. cities and prepare
academic, and entrepreneurial skills useful in
                                                 for international expansion. By coupling NFTE’s
any sector or society.
                                                 considerable resources with the support of
As a partner in many of the Foundation’s         Goldman Sachs professionals, the Foundation
initiatives, NFTE offers a comprehensive         has helped established entrepreneurship training
curriculum emphasizing personal and              opportunities in the United States with such
professional entrepreneurship to stimulate       partners as A Better Chance, Bank Street
student performance in and out of school and     College of Education, the Center for Talented
to open the doors to economic prosperity. By     Youth, Prep for Prep, as well as the Specialist
educating students in critical thinking,         Schools Trust in the United Kingdom.
workplace readiness, teamwork, planning and
organization, and decision making, NFTE

Global Fund for Children
it is the nature of social entrepreneurs           The organization’s grants range between $500
to think big and small at the same time. Maya      and $15,000 and focus on training young
Ajmera is one of them. Her idea —funding           people in technology, vocational skills, human
small, community-based organizations through       rights, conflict resolution, and entrepre-
an international network of innovative,            neurship. With support from the Foundation,
indigenous social entrepreneurs —is a modest       the GFC has planned and implemented a
nonprofit model with global reach.                 strategic expansion of its organization and
                                                   technology capabilities, dramatically increasing
As founder and President of the Global Fund
                                                   revenue channeled to its grantees. As a result,
for Children (GFC), Maya has created an
                                                   in one year, the number of GFC partners has
organization that supports basic academic and
                                                   increased from 40 to 75 organizations, and its
life-skill education among children around the
                                                   reach has expanded from 20 to 34 countries,
world who lack access to formal educational
                                                   including Afghanistan, Brazil, Nepal, Vietnam,
systems. The GFC’s assistance supports
                                                   and Zimbabwe. Its services now extend to
grassroots organizations that are too new,
                                                   more than 35,000 students worldwide.
small, or remote to gain the traditional funding
needed to prosper and grow.
    An Intelligible World
>   the value of intercultural understanding

    Today, the nature of leadership is to work effectively
    across different cultures, learn continuously, and
    make sense of vastly different environments. In the
    future, these requirements will demand even more of
    our leaders. As formidable as these challenges are,
    we envision a group of new leaders whose skills and
    courage are just as powerful. The Foundation answers
    the need for diverse, global leadership by supporting
    academic programs, both established and emerging,
    that encourage understanding between cultures
    and nurture the ability to think beyond borders —
    real and imagined.

    Goldman Sachs Global Leaders Program/
    Institute of International Education
    interaction builds dialogue.                         second-year university students selected receive
    Dialogue builds understanding. Understanding         a financial stipend, public recognition, and the
    builds openness. This principle is at the heart of   opportunity to develop lasting personal and
    the Goldman Sachs Global Leaders Program,            professional relationships. This broad exposure
    established in 2000 to create a global forum and     to diverse viewpoints and issues will foster a
    resource for the leaders of tomorrow.                more inclusive grasp of the world as these stu-
                                                         dents continue to mature and achieve as leaders.
    The program prepares talented young students
                                                         “These young people are incredibly gifted and
    from around the world for service to society
                                                         thoughtful,” says Foundation Trustee Philip
    and to their future professions, emphasizing
                                                         Murphy, Managing Director, Goldman, Sachs
    leadership development. The many components
                                                         & Co. “They are brimming with potential and
    of this program culminate in The Global
                                                         ideas and if their promise is realized, they will
    Leadership Institute, a weeklong symposium
                                                         have a positive impact on lives and in societies
    hosted by Goldman Sachs in New York City in
                                                         across the globe.”
    which some of the world’s brightest students
    come together for an intensive curriculum of         Many of the ideas for social entrepreneurship
    leadership presentations and workshops. The          developed by the Global Leaders are worthy of
    collaborative environment of the institute           investment, and the program supports these
    allows scholars to interact with peers selected      innovative initiatives by making available seed
    from more than 70 top colleges and universities      capital from its Social Entrepreneurs Fund.
    on six continents. The institute also introduces     Through this funding, the Global Leaders can
    the group to broader global themes by inviting       make their vision a reality, and gain real-world,
    panelists from academia, politics and diplomacy,     hands-on experience in managing a social
    media, business and civic organizations, as well     enterprise. Because leadership requires ongoing
    as Goldman Sachs professionals.                      experiences and resources, the Foundation
                                                         also provides Global Leaders access to the
    In 2002, the Foundation invested $1.75 million
                                                         Goldman Sachs Foundation Online Leadership
    in the Global Leaders Program, which was cre-
                                                         Curriculum, an innovative learning resource.
    ated in partnership with the Institute of
    International Education (IIE), the organization
    that manages the Fulbright Program. The 100

>   Benchmarks in Global Leadership: The diverse world view of Goldman Sachs Global
    Leaders can be seen in the many projects they have undertaken, including the rescue of women
    sold into slavery in Central Asia, work to diminish the effects of political imbalance among edu-
    cational institutions in the Balkans, tutoring math in one of the worst slums in São Paulo, and
                                                One-quarter of the 2001
    working with victims of child prostitution in Southeast Asia.
    Global Leaders from the United States have gone on to earn Rhodes,
    Marshall, or Truman scholarships.

                                                         the goldman sachs foundation 2002 annual report   31
International Baccalaureate Organization
intercultural understanding is                       IBO is equally resourceful in its ability to
built upon a foundation of education and             introduce young people in every corner of the
exposure, so the Foundation is investing             globe to skills that effectively cross geographic
substantially to support global initiatives. One     boundaries. Abilities in critical thinking and
of the most promising resources for developing       knowledge generation help future leaders adapt
well-rounded teachers and students is also one       to changing technologies, process complex
of the academic world’s most respected               information, and communicate interculturally.
programs, the International Baccalaureate
                                                     The Foundation has invested $1 million in the
Organization (IBO).
                                                     IBO to extend its global reach through an Online
The IBO’s goals and rigorous approach to             Curriculum Center. The center is an innovation
learning are well known, and its methodology         that broadens access to IBO’s educational
has strengthened the academic quality of schools     resources, and will ultimately benefit more than
in more than 100 countries. The IBO’s                30,000 teachers and 70,000 students worldwide,
challenging Diploma program for high school          particularly where access to a top-tier curriculum
students is a comprehensive two-year inter-          is not currently available.
national curriculum that enables students to
surpass national or state criteria, to earn course
credit toward college requirements, or to
achieve advanced standing.
Tsinghua University School of Economics
and Management
a robust marketplace of ideas is                  campuses, providing firsthand observations
essential to China’s emergence as a dynamic       and analysis of social, cultural, and business
economic market. Through Tsinghua University,     practices in China.
one of China’s most prominent institutions of
                                                  The Tsinghua exchange program brings in
higher learning, the Foundation is helping to
                                                  experts from major international business
educate and nurture the leaders who will direct
                                                  schools —Harvard and MIT’s Sloan School of
the nation’s economic development and deter-
                                                  Management among them — for extended
mine its place in the global economy.
                                                  residencies. Tsinghua has focused on broadening
By investing in a visiting faculty program at     the academic curriculum, improving teaching
Beijing-based Tsinghua’s School of Economics      methods, and facilitating relevant use of
and Management, the Foundation is helping         English. Along with this faculty development
Tsinghua to introduce the school’s 100+           program is an investment in a finance research
instructors and nearly 3,000 students to a        center that complements existing centers in
broader perspective on business and society,      economics, entrepreneurship, and enterprise.
ensuring that the next generation of leaders      The Foundation’s support for this unique
produced by this “MIT of China” have the          program includes a $1.5 million grant.
skills to perform on the world stage. This rare
exchange program also returns knowledge
gained by visiting professors to their own

                                                   the goldman sachs foundation 2002 annual report   33
    Return on Ideas
>   the impact of venture philanthropy

    The principle of venture philanthropy is that personal
    engagement completes the investment. By contributing
    our intellectual capital —knowledge, skill, leadership,
    ideas —we help the organizations the Foundation
    supports become more effective, more strategic,
    and more sustainable. This viewpoint allows us to
    see a future in which social and business leaders join
    forces to create the best possible solutions and imple-
    ment programs with stronger results. Our venture
    philanthropy approach makes this outcome possible —
    maximizing our impact by engaging the resources of
    Goldman Sachs and the skills of its people throughout
    our partner organizations.

During three days of intensive leadership training and interaction, the Goldman Sachs Nonprofit Leadership
Initiative brought together executive directors of participating agencies with Goldman Sachs managing
directors. Participants in this unprecedented initiative included (clockwise from top left): Kevin Kennedy,
Managing Director, Goldman, Sachs & Co.; Joyce Roche, President and Chief Executive Officer, Girls
Incorporated; Chris Norton, Managing Director, Goldman, Sachs & Co.; and Sara Martinez Tucker,
President and Chief Executive Officer, Hispanic Scholarship Fund.
    The Goldman Sachs Nonprofit
    Leadership Initiative
    the quality of any nonprofit organization            “Nonprofit organizations are in need of strong
    is shaped by the quality of its leaders, including   board leadership. Nonprofit boards suffer
    the board of directors. To ensure that               from widespread vacancies, fail to tap all avail-
    nonprofits have the leadership resources             able candidates, and have too few members with
    essential to shape their strategic direction,        extensive corporate leadership and management
    economic health, and overall effectiveness, the      experience. This initiative is timely and much
    Foundation has worked closely with Pine              appreciated by those of us in the nonprofit
    Street, Goldman Sachs’ leadership training           sector,” says program participant Steve
    division, on an initiative to place seasoned         Mariotti, founder and President of the National
    executives on the boards of directors of select      Foundation for Teaching Entrepreneurship.
    grantee organizations.
                                                         The Nonprofit Leadership Initiative was
    Twenty-five Goldman Sachs managing directors         launched at Harvard Business School in
    were matched with nonprofit organizations            cooperation with the school’s Initiative on
    and took part in an extensive board leadership       Social Enterprise. In addition to nurturing the
    training seminar with executive directors of the     development of leadership and management
    participating nonprofits. The three-day session      skills of the board members and nonprofit
    prepared managing directors for their board          executives, the program acts as a catalyst for
    service, but also prepared nonprofit executives      knowledge transfer between the nonprofit and
    to leverage the talents of their new Goldman         private sectors.
    Sachs board members as well as other directors.

>   Venture Philanthropy at Work: Many of the programs the Foundation invests in derive sig-
                                                                  More than 175
    nificant benefits from the involvement of Goldman Sachs professionals.
    of the company’s professionals stepped forward in 2002 to lend their tal-
    ents to our grantee organizations, combining business knowledge, discipline, and
    strategic analysis with the Foundation’s philanthropic investments.

Jide Zeitlin, Managing Director,
Goldman, Sachs & Co., was
the subject of a case study at
the Goldman Sachs Nonprofit
Leadership Initiative, and used
his experience as a director
of a nonprofit organization to
define opportunities for improving
board leadership.
2002 Grants

The summary of the 2002 grants is grouped according to the Foundation’s primary programmatic
goals: developing high-potential youth; promoting entrepreneurship, business education, and
leadership; and advancing academic achievement. This summary includes 19 significant grants
and program-related investments initiated in 2002. In addition to these awards, the Foundation
continued to make payments on a number of multi-year grants awarded prior to 2002.

                                                                   grants awarded grants paid
                                                                      in 2002       in 2002

Developing High-Potential Youth                                      $6,815,000     $5,173,000

a better chance, inc.                                                    —          $400,000
(Boston, MA)
To increase the number of academically gifted youth from
underrepresented groups who are placed in independent college
preparatory schools and to establish the Goldman Sachs Institute
for Entrepreneurial Thinking.

bank street college of education                                     $1,600,000     $800,000
(New York, NY)
To continue the Goldman Sachs Scholars Institute for Leadership,
Excellence, and Academic Development which provides talented
New York City parochial school students with individualized
academic enrichment services through Saturday and summer
programs, exposure to the arts and entrepreneurship, and
standardized test preparation.

institute of international education                                 $1,750,000     $1,750,000
(New York, NY)
To support the Goldman Sachs Global Leaders Program, a
competition held annually at more than 70 college campuses
worldwide to identify 100 accomplished college sophomores
who demonstrate superior character, academic achievement,
and extracurricular accomplishments.

the johns hopkins university/center for                              $1,650,000     $825,000
talented youth
(Baltimore, MD)
To expand the CTY/Goldman Sachs Scholars Program which
provides gifted middle school students from underrepresented
groups with two summers of intensive campus-based academic
enrichment through college-level courses in the arts and
sciences, distance-learning opportunities in math and writing,
entrepreneurship training, and online mentoring.

                                                                                       grants awarded grants paid
                                                                                          in 2002       in 2002

london school of economics and
political science                                                                          $100,000           $100,000
(London, UK)
To continue the Saturday and Winter/Summer School programs
which prepare talented young people from low-income areas in
London for success on their A-Level examinations and for admission
into the UK’s most prestigious universities.

the posse foundation, inc.                                                                     —              $333,000
(New York, NY)
To broaden the reach of its successful program which selects, trains,
and sends groups of public school students from underserved urban
communities to selective colleges by establishing a Los Angeles, CA
office and recruitment effort.

prep for prep                                                                             $1,500,000          $750,000
(New York, NY)
To implement the New York Metro Region Leadership Academy,
which prepares 7th and 8th graders in the suburban tri-state area for
success in the most rigorous academic programs offered by their
public high schools, and to continue the Prep for Prep/Goldman
Sachs Institute for Entrepreneurship which helps students improve
their entrepreneurship, communication, and leadership skills.

regents of the university of michigan/school                                               $215,000           $215,000
of education
(Ann Arbor, MI)
To conduct an ongoing, long-term evaluation designed to assess
the Foundation’s initiative to develop talented youth from
underrepresented groups.

Promoting Entrepreneurship, Business Education, and Leadership                            $2,613,000        $4,296,333

bronx charter school for the arts*                                                         $200,000           $200,000
(New York, NY)
To provide seed support for implementation of the strategic
business plan of this K-3 charter school scheduled to open in
September 2003.

century foundation                                                                         $100,000           $100,000
(New York, NY)
To support the Century Institute Summer Program, a two-week
fellowship designed to introduce undergraduate students to leaders
and issues related to American public policy.

columbia university/columbia business school                                                   —              $250,000
(New York, NY)
To support the National Social Venture Competition, an MBA
business plan competition and education program to promote
businesses with financial and social return on investment.
*   Grant made as part of the Foundation’s Social Entrepreneurs Fund

                                                                       the goldman sachs foundation 2002 annual report   39
                                                                       grants awarded grants paid
                                                                          in 2002       in 2002

donorschoose*                                                             $100,000      $50,000
(New York, NY)
To enhance and expand efforts to raise funding for innovative
educational projects by public school teachers.

friends of the indian school of
business foundation                                                          —         $200,000
(Hyderabad, India)
To help launch the Indian School of Business, a world-class,
research-oriented business program for India and the Asian
region offering postgraduate, executive, and doctoral programs
in management.

friends of tsinghua university school
of economics and management                                              $1,500,000    $500,000
(Beijing, China)
To support the development of a visiting faculty program and
research center on finance.

global fund for children*                                                 $200,000     $200,000
(Washington, DC)
To support strategic planning for organizational expansion and to
improve the Fund’s technology infrastructure.

institute of international education                                      $90,000       $90,000
(New York, NY)
To support program enhancements for the Goldman Sachs
Global Leaders Program, including the development of the
Social Entrepreneurs Fund and expansion of the program to
additional countries.

junior achievement, inc.                                                     —         $500,000
(Denver, CO)
To develop and implement an in-school financial literacy program
and a complementary Internet-based program, the JA/Goldman
Sachs Foundation Personal Finance Program.

national council on economic education                                    $330,000     $730,000
(New York, NY)
To continue the NCEE/Goldman Sachs Foundation Economics
Challenge, a forum for high school teams from across the nation to
compete in a college-bowl format using their knowledge of economics.

national foundation for teaching                                          $93,000       $93,000
(New York, NY)
To support an entrepreneurship education program for gifted middle
school students in conjunction with the Center for Talented Youth in
New York, Philadelphia, Los Angeles, and San Francisco.

*   Grant made as part of the Foundation’s Social Entrepreneurs Fund

                                                                        grants awarded grants paid
                                                                           in 2002       in 2002

national foundation for teaching                                                —              $212,500
(New York, NY)
To develop and implement a strategic plan that will enable NFTE to
take its programs to scale and to build its organizational capacity.

university of california at berkeley/haas                                       —              $250,000
school of business
(Berkeley, CA)
To support the National Social Venture Competition, an MBA
business plan competition and education program to promote
businesses with financial and social return on investment.

university of pennsylvania/graduate                                             —              $83,333
school of education
(Philadelphia, PA)
To stimulate entrepreneurial initiatives by developing the
Entrepreneurship in Education Program at the University of
Pennsylvania’s Graduate School of Education in conjunction
with The Wharton School.

the urban institute                                                             —              $87,500
(Washington, DC)
To support the evaluation of the Opening Doors to Entrepreneurship
Initiative and prepare an overall assessment of the Foundation’s
strategy for this initiative.

yale university/yale school of management                                       —              $750,000
(New Haven, CT)
To initiate the Yale School of Management/Goldman Sachs
Foundation Partnership on Nonprofit Ventures and National
Business Plan Competition for Nonprofit Organizations
which encourages nonprofit organizations to develop revenue-
generating ventures.

Advancing Academic Achievement                                             $3,065,000         $3,644,500

bank street college of education                                             $65,000           $65,000
(New York, NY)
To provide scholarship support for 16 participants from high-
needs districts to complete a Masters of Education program
and to leverage other funds necessary for successful completion
of the initiative.

facing history and ourselves                                               $1,000,000          $50,000
(Brookline, MA)
To extend Facing History and Ourselves’ professional development
opportunities to teachers around the world, to expand online
capacities, and to infuse global issues more thoroughly into the
organization’s instructional materials.

                                                        the goldman sachs foundation 2002 annual report    41
                                                                         grants awarded grants paid
                                                                            in 2002       in 2002

for inspiration and recognition in science                                     —         $333,000
and technology
(Manchester, NH)
To support the establishment of an annual FIRST! Robotics
Competition in New York City, bringing the energy and excitement
of a major athletic championship to a high school robotics
tournament and stimulating students to pursue further studies and
careers in scientific and technological fields.

international baccalaureate organization                                       —         $333,000
(Geneva, Switzerland)
To enhance and take to scale an Online Curriculum Center that
will improve the quality and accessibility of IBO’s professional
development and teacher training programs across the globe,
with special emphasis on supporting schools in economically
disadvantaged areas.

new american schools                                                           —         $500,000
(Arlington, VA)
To enable New American Schools to provide charter schools across
the country with access to high-quality start-up assistance and
capacity-building skills.

new york university/school of education                                        —         $400,000
(New York, NY)
To expand the pool of well-prepared educators of mathematics and
science in the New York City public schools by establishing a model
fellowship program, and documenting and disseminating its results.

southern regional education board/high                                         —         $333,000
schools that work
(Atlanta, GA)
To support a program for middle school students that will prepare
them for a rigorous high school curriculum and the demands of
higher education by smoothing their critical transition to high school
in Greensboro, NC; Huntsville, AL; Jackson, MS; Little Rock, AR;
and Atlanta, GA.

specialist schools trust                                                       —         $412,500
(London, UK)
To increase the academic performance of students at 15 Specialist
Schools in disadvantaged areas of London through a public/private
sector partnership.

                                                                         grants awarded grants paid
                                                                            in 2002       in 2002

stanford university/stanford                                                $1,000,000          $50,000
educational leadership institute
(Palo Alto, CA)
To forge a unique partnership between the Stanford University
School of Education and the Stanford Graduate School of Business
to help school leaders develop and apply a broader knowledge base
about the design and management of effective schools.

success for all foundation                                                       —              $500,000
(Baltimore, MD)
To develop and disseminate an adaptation of the Success for All
reading program for students with limited proficiency in English
and to provide training, technology supports, and assistance to
enable mainstream teachers to teach heterogeneous classes with
English language learners effectively.

united nations association of                                               $1,000,000          $335,000
the united states of america
(New York, NY)
To scale the Global Classrooms: Model UN program in selected
cities around the world and enable a substantially increased number
of urban and international public high school students to participate
and develop skills and knowledge about the world.

university of california at santa cruz/new                                       —              $333,000
teacher center
(Santa Cruz, CA)
To replicate a high-caliber teacher mentoring program in four
partner school districts leading to significant improvements in
the development and retention of high-quality teachers.

Program-Related Investments                                                  $400,000           $400,000

success for all foundation                                                   $400,000           $400,000
(Baltimore, MD)
To fund the training and implementation costs of the English
as a Second Language adaptation of the Success for All program
and to make the necessary investments in working capital and
infrastructure support to increase the number of schools
employing the program.

Other                                                                        $195,000           $195,000

grants of      $25,000   or less    (15)                                     $195,000           $195,000

Grand Total                                                                 $13,088,000       $13,708,833

                                                         the goldman sachs foundation 2002 annual report   43
Independent Auditors’ Report
To the Board of Trustees of The Goldman Sachs Foundation:

We have audited the accompanying statements of financial position of The
Goldman Sachs Foundation (the “Foundation”) as of November 30, 2002
and 2001, and the related statements of activities and cash flows for the
years then ended. These financial statements are the responsibility of the
Foundation’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting prin-
ciples 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, such financial statements present fairly, in all material respects,
the financial position of the Foundation as of November 30, 2002 and 2001,
and the changes in its net assets and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.

Deloitte & Touche LLP
New York, New York
May 8, 2003

Statements of Financial Position
November 30, 2002 and 2001

                                                                                        2002                2001
Cash                                                                          $      963,827    $     5,803,141
Federal Excise Tax Receivable (Note 7)                                               127,026           104,943
Prepaid Expenses                                                                           —            18,110
Interest and Dividends Receivable                                                    496,014           651,254
Receivables from Sales of Investments                                               5,766,285        14,185,686
Investments —At fair value, net of related liabilities (Note 3)                   170,902,916       191,180,402
Program-Related Investment: Loan (Note 3)                                            400,000                  —
Total Assets                                                                  $178,656,068      $211,943,536

liabilities and net assets
    Accounts payable and accrued expenses                                     $     1,029,518   $      911,453
    Payables for purchases of investments                                           8,365,175        17,829,867
    Grant commitments (Note 5)                                                      8,725,303         9,323,647
    Total liabilities                                                              18,119,996        28,064,967
Net Assets —Unrestricted                                                          160,536,072       183,878,569
Total Liabilities and Net Assets                                              $178,656,068      $211,943,536

See notes to financial statements.

                                                          the goldman sachs foundation 2002 annual report    45
Statements of Activities
Years ended November 30, 2002 and 2001

                                                                              2002            2001
     Contribution (Note 1)                                          $      125,000     $ 10,000,000
     Donated services (Note 6)                                            1,605,711       1,751,849
     Interest and dividends                                               4,983,057       7,695,227
     Net realized and unrealized loss on investments                    (12,314,113)    (19,351,276)
        Total revenues and support                                       (5,600,345)         95,800

     Program expenses:
        Grants                                                           12,710,489      10,963,926
        Other program related expenses                                    1,022,668        908,527
        Donated services (Note 6)                                         1,137,660       1,329,199
            Total program expenses                                       14,870,817      13,201,652

     Investment management and custodian fees (Notes 4 and 8)             2,124,071       2,063,212
     Federal excise taxes (Note 7)                                          57,180         112,640
     General and administrative expenses (including donated
        services of $468,051 and $422,650, respectively) (Note 6)          690,084         609,275
            Total expenses                                               17,742,152      15,986,779

Change in Net Assets                                                    (23,342,497)    (15,890,979)

Unrestricted Net Assets, Beginning of Year                              183,878,569     199,769,548

Unrestricted Net Assets, End of Year                                $160,536,072       $183,878,569

See notes to financial statements.

Statements of Cash Flows
Years ended November 30, 2002 and 2001

                                                                                        2002               2001
Cash Flows Provided by Operating Activities:
   Change in net assets                                                       $(23,342,497)      $(15,890,979)
   Adjustments to reconcile change in net assets to net cash
       provided by (used in) operating activities:
       Net realized losses on investments                                         25,577,005        9,423,518
       Net unrealized (gains) losses on investments                               (13,262,892)      9,927,758
       Changes in assets and liabilities:
          Decrease in grants receivable                                                    —         600,000
          (Increase) decrease in federal excise tax receivable                        (22,083)        61,140
          Decrease (increase) in prepaid expenses                                     18,110          (18,110)
          Decrease in accrued interest and dividends receivable                      155,240         182,651
          Increase (decrease) in accounts payable and acccrued expenses              118,065         (580,334)
          Decrease in grant commitments                                             (598,344)      (2,716,574)
          Disbursement for program-related investment                               (400,000)                —
              Net cash (used in) provided by operating activities                 (11,757,396)       989,070

Cash Flows from Investing Activities:
   Proceeds from sale of investments                                          545,921,044        756,355,101
   Acquisition of investments                                                 (537,957,671)      (756,109,594)
   Decrease (increase) in receivables for sales of investments                     8,419,401      (10,640,208)
   (Decrease) increase in payables for purchases of investments                    (9,464,692)    14,419,859
       Net cash provided by investing activities                                   6,918,082        4,025,158

(Decrease) Increase in Cash                                                        (4,839,314)      5,014,228

Cash, Beginning of Year                                                            5,803,141         788,913

Cash, End of Year                                                             $      963,827     $ 5,803,141

See notes to financial statements.

                                                         the goldman sachs foundation 2002 annual report    47
Notes to Financial Statements
Years ended November 30, 2002 and 2001

1. organization and purpose
The Goldman Sachs Foundation (the “Foundation”) is a New York not-for-profit corporation. The Goldman
Sachs Group, Inc. (the “Group”) and its affiliated entities are the Foundation’s primary supporters. The
Foundation is a tax-exempt private foundation and conducts charitable activities within the United States and
internationally in such other countries and regions as shall be determined by the Board of Trustees.

The mission of the Foundation is to promote excellence and innovation in education. The Foundation has
made grants in furtherance of its charitable purposes in the following major program areas: 1) Developing
High-Potential Youth; 2) Promoting Social Entrepreneurship and Business Education; and 3) Advancing
Academic Achievement.

2. summary of significant accounting policies
Basis of Accounting —The accompanying financial statements have been prepared on the accrual
basis of accounting.

Accounting Pronouncements —The financial statements of the Foundation have been prepared in accordance
with Statements of Financial Accounting Standards No. 117, Financial Statements of Not-for-Profit
Organizations (“SFAS No. 117”), and No. 116, Accounting for Contributions Received and Contributions
Made (“SFAS No. 116”). Among other things, SFAS No. 117 requires that a not-for-profit organization’s
financial statements report the amounts for, and changes in, each of three classes of net assets —permanently
restricted net assets, temporarily restricted net assets, and unrestricted net assets —based on the existence or
absence of donor-imposed restrictions. The Foundation has elected to present a statement of financial position
(“balance sheet”) that sequences assets and liabilities based on their relative liquidity.

Investments —Investments are recorded at their fair value, which is based on quoted market prices except as
noted in Note 4, and realized and unrealized gains or losses from those investments are included in a statement
of activities, in accordance with Statement of Financial Accounting Standards No. 124, Accounting for Certain
Investments Held by Not-for-Profit Organizations. The investment portfolio includes derivative financial
instruments which are recorded at fair values in accordance with Statement of Financial Accounting Standards
Nos. 133 and 137, Accounting for Derivative Instruments and Hedging Activities.

Contributions —Contributions are recognized as revenue when they are received or unconditionally pledged.
Contributions of assets, other than cash, and in-kind services are recorded at estimated fair value.

Grants —Grants made and unconditional promises to give are recognized as expenses in the period made at
their fair value.

Use of Estimates —The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

3. program-related investment— loan
The Program-Related Investment loan represents a program-related investment as defined by Internal Revenue
Code Section 4944(c). The principal loan amount of $400,000 bears interest of 3% per annum, accumulated
and payable at the time of principal repayments. Repayments are due October 2003 and October 2004. At
November 30, 2002, $10,000 of accrued interest is included in interest and dividends receivable.

4. investments
Investments are valued at fair value, which is the prevailing market value with the resulting change in
unrealized gains or losses included in the statement of activities. At November 30, 2002, the cost of venture
capital partnership investments is reflected at the amount of the Foundation’s capital balances in the

partnerships and the market value of the investments is reflected at the fair value as reported by the
partnerships. At November 30, 2001, the cost and market value of venture capital partnership investments are
reflected at the amount of the funded commitments. Investments at November 30, 2002 and 2001, consist of
the following:

                                                                                November 30, 2002

                                                                                     cost    market value
Cash equivalents                                                            $ 26,472,253      $ 26,472,854
Fixed income securities                                                       41,174,670        42,377,219
Preferred securities                                                           1,330,308         1,162,410
Equity securities                                                             75,074,753        63,434,576
Hedge funds                                                                    6,181,864         5,793,444
Venture capital partnerships                                                  31,500,000        31,113,068
Forward foreign exchange contracts receivable                                           —          822,902
Variation margin futures receivable                                                     —            64,242
Total investment assets                                                      181,733,848       171,240,715

Futures contract payable                                                                —          337,799
Total investment liabilities                                                            —          337,799

Total investment, net of related liabilities                                $181,733,848      $170,902,916

                                                                                November 30, 2001

                                                                                     cost    market value
Cash equivalents                                                            $ 17,992,329      $ 17,992,329
Fixed income securities                                                       51,193,904        50,207,327
Preferred securities                                                           1,060,337         1,061,199
Equity securities                                                            141,887,872       118,806,764
Venture capital partnerships                                                   3,314,281         3,477,123
Forward foreign exchange contracts receivable                                           —          109,520
Total investment assets                                                      215,448,723       191,654,262

Forward foreign exchange contracts payable                                              —          352,143
Futures contract payable                                                                —          121,717
Total investment liabilities                                                            —          473,860

Total investment, net of related liabilities                                $215,448,723      $191,180,402

                                                       the goldman sachs foundation 2002 annual report   49
Notes to Financial Statements                                   (continued)
Years ended November 30, 2002 and 2001

The Foundation is obligated under the venture capital partnership agreements to advance additional funding
up to specified levels. At November 30, 2002 and 2001, the amounts of the unfunded commitments were
$18.1 million and $16.2 million, respectively.

Investment strategies employed by the investment manager, in accordance with the investment policy approved
by the Board of Trustees, incorporate the use of various derivative financial instruments intended to hedge
market risks or to take active trading positions. These derivative financial instruments include financial
futures, forward foreign exchange contracts, and foreign currency options and futures. These instruments are
either traded on organized exchanges or entered into with creditworthy financial institutions by the
Foundation. At November 30, 2002 and 2001, the unrealized gains and losses resulting from open contracts
related to these types of financial instruments were recorded in the statement of activities and in the investment
balance as contract receivables or payables.

Financial Futures Contracts —The Foundation uses financial futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities or to take active trading positions.
Futures contracts are contracts for the delayed delivery of securities at a specific date and price or yield. Upon
entering into a contract, the Foundation deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the contract, the Foundation is to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract, also
known as the variation margin. The Foundation records the daily variation margin amounts as realized gains
or losses. Futures contracts payable/receivable balance as of November 30th represents the last day’s variation
margin balance and is recorded as unrealized (loss) gain since such payable/receivable balance is closed on
December 1, 2002, as an adjustment to cash. All realized and unrealized gains and losses, including for future
contracts, are combined as a single line item on the Statements of Activities.

Forward Foreign Exchange Contracts —Forward foreign exchange contracts are used as a hedge against
specific transactions or portfolio positions or to take active trading positions. Foreign exchange forwards are
marked to market on the statement of financial position with changes in the fair values of the contracts being
recorded as unrealized gains or losses in the statement of activities.

Foreign Currency Options and Futures —Purchases and sales of listed or over-the-counter foreign currency
options, foreign currency futures, and related options on foreign currency futures are used as short or long
hedges or to take active trading positions against possible variations in foreign exchange rates. Such
transactions may be effected on non-U.S. dollar denominated securities owned by the Foundation, sold by the
Foundation but not yet delivered, or committed or anticipated to be purchased by the Foundation.

Hedge Funds —The investments in hedge funds are carried at fair value as determined by the Foundation’s
attributable share of the net assets of the respective hedge fund. Fair values are determined utilizing
information supplied by each individual hedge fund, net of management and incentive fees charged by the
fund. The underlying investments of each hedge fund are accounted for at fair value.

Short Sales —In a short sale, an amount equal to the proceeds received by the Foundation is reflected as an
asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the
market value of the short sale. The Foundation is exposed to market risk based on the amount, if any, that the
market value of the stock exceeds the market value of the securities in the segregated account.

5. grant commitments
Commitments for grants outstanding at November 30, 2002 and 2001 total $8,725,303 and $9,323,647 and are
due as follows:

                                                                              november 30,       november 30,
                                                                                       2002                2001
2002                                                                             $         —        $6,777,500
2003                                                                              6,581,167          2,444,500
2004                                                                              1,745,000            200,000
2005                                                                                 237,500                  —
2006                                                                                 237,500                  —
Subtotal                                                                          8,801,167          9,422,000
Less amount representing interest at 2.51% and 5%, respectively                      (75,864)          (98,353)
Present value of future payments                                                 $8,725,303         $9,323,647

6. donated services
Donated services were recognized as revenues and expenses on the statement of activities. Donated services
represent the value of the services provided by or paid for by Goldman, Sachs & Co. and include salaries,
occupancy costs, professional fees, meeting costs, publications and mailing costs. Donated services expenses
are allocated to program categories and general and administrative expenses based on an estimate of the time
or effort expended on behalf of the program or administrative activity.

During the fiscal years ended November 30, 2002 and 2001, donated services expenses were allocated as follows:

                                                                              november 30,      november 30,
                                                                                     2002              2001
Program activities                                                               $1,137,660         $1,329,199
General and administrative                                                           468,051           422,650
Total donated services expenses                                                  $1,605,711         $1,751,849

7. federal excise taxes
The Foundation is a private foundation as described in Section 501(c)(3) of the Internal Revenue Code and is
exempt from federal income tax. In accordance with the applicable provisions of the Internal Revenue Code,
a private foundation is subject to an excise tax on net investment income equal to 2%, or 1% if certain criteria
are met.

For the years ended November 30, 2002 and 2001, the Foundation’s excise tax expense is based on 2% of the
net investment income calculated for tax purposes. Deferred tax assets have not been recorded for unrealized
investment losses since they potentially yield no tax benefit.

At November 30, 2002 and 2001, the Foundation had a federal excise tax receivable of $127,026 and $104,943,
respectively, on account of an overpayment of the excise tax for fiscal 2000 and 2002.

8. related party
Goldman Sachs Asset Management (“GSAM”) (a separate unit of the Investment Management Division of
Goldman, Sachs & Co., which is a wholly owned subsidiary of the Group) receives fees for advisory services
and investment management services. Fees paid to GSAM in fiscal 2002 and 2001 were $1,516,775 and
$1,474,155, respectively.

                                                         the goldman sachs foundation 2002 annual report    51
Grant Guidelines
The Goldman Sachs Foundation was funded in 1999 with a $200 million donation from The Goldman
Sachs Group, Inc., a leading global investment banking and securities firm. The Foundation’s mission is
to promote excellence and innovation in education worldwide. The Foundation is an important extension
of the tradition of philanthropy and public leadership at Goldman Sachs. The firm also makes direct
contributions through its Charitable Services department and encourages voluntarism through its
Community TeamWorks program.

our program interests
Funding priorities are determined by a periodic assessment of needs and opportunities in the
field of education. Current priorities are:
• To enhance academic performance and prospects for life achievement of students at the secondary school level
• To develop the abilities of promising high-potential youth worldwide
• To support high-quality education for young people in business and entrepreneurship

candidates for funding
The Foundation makes only a small number of large grants to effective, high-quality organizations that:
• Implement achievement-oriented education programs
• Produce substantial, measurable results
• Possess a well-delineated plan for broad dissemination and outreach
• Demonstrate exceptional promise
• Employ strong leadership
• Command distinguished records of accomplishment
• Evidence a clear capacity to expend sizable grants wisely

The Foundation is able to respond favorably to an extremely small fraction of the requests that it receives.
Rarely will a grant be made in response to an unsolicited proposal.

ineligible parties and projects
The Foundation does not make grants to individuals; fraternal organizations; political causes,
campaigns, or candidates; or fundraising events.

letter of inquiry
Prospective applicants are invited to explain their ideas informally by submitting to the Foundation a short
letter (of about two pages) describing the program or organization for which a grant is sought, its mission,
accomplishments, budget size, and current funding needs. Documentation of results achieved to date is highly
desirable. Submission of published program descriptions or brochures also is encouraged. On the basis of
this information, staff will determine whether additional materials are required and contact prospective
grantees accordingly.

With few exceptions, there are no fixed deadlines. The Foundation makes grants throughout the year.

Grant inquiries should be directed to:
The Goldman Sachs Foundation
375 Park Avenue, Suite 1008
New York, New York 10152

Board of Trustees
John C. Whitehead, Chairman                    Frank H.T. Rhodes
Retired Co-Chairman,                           President Emeritus,
Goldman Sachs                                  Cornell University
and Chairman,
                                               Neil L. Rudenstine
Lower Manhattan
                                               Retired President,
Development Corporation
                                               Harvard University
David A. Dechman
                                               Esta E. Stecher
Retired Managing Director,
                                               General Counsel,
Goldman, Sachs & Co.
                                               The Goldman Sachs
Philip D. Murphy                               Group, Inc.
Managing Director,
                                               John L. Thornton
Goldman, Sachs & Co.
                                               Retired President and
Thomas W. Payzant                              Co-Chief Operating Officer,
Superintendent,                                The Goldman Sachs Group, Inc.
Boston Public Schools

Stephanie Bell-Rose                            Garry W. Jenkins
President                                      Chief Operating Officer
                                               and General Counsel
Renée M. Berman
Program Officer                                Gisela Keller
                                               Program Officer
Alexander C. Evans
Program Assistant                              Susan Smith
                                               Executive Assistant
Charles Foster
Financial Affairs and Operations Manager       Christopher J. Williams
                                               Communications Officer
Joanne H. Heyman
Program Officer

About the Goldman Sachs Foundation
The Goldman Sachs Foundation is a global philanthropic organization funded by The Goldman
Sachs Group, Inc. The Foundation’s mission is to promote excellence and innovation in
education and to improve the academic performance and lifelong productivity of young people
worldwide. It achieves this mission through a combination of strategic partnerships, grants,
loans, private sector investments, and the deployment of professional talent from Goldman
Sachs. Funded in 1999, the Foundation has awarded grants in excess of $43 million since its
inception, providing opportunities for young people in more than 20 countries.
The Goldman Sachs Foundation
375 Park Avenue, Suite 1008
New York, New York 10152

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