This may have been one new product

Goldman Sachs

should have left on the shelf.

Goldman originally intended to start a

Goldman Sachs Real Estate Securities

fund in October 1997. But delays led it to finally launch the fund last July, when the market for real estate investment trusts, or REITs, was in a nose dive. Yet Goldman's hesitation presented it with what seemed like a like a perfect opportunity to bottom-fish.

But the bottom kept dropping, and the new fund returned losses as high as 11.7% for some of its investors last year. The returns were detailed in the fund's first annual report filed last week with the

Securities and Exchange Commission

.

The real estate environment was terrible when the fund was created last summer. But many analysts were predicting a rebound during the year's second half.

"I was looking to buy stuff on the cheap myself at that time," says William Adamski, managing director and head of real estate at

Credit Suisse First Boston

.

Instead, the REIT market's slide accelerated. "By the end of 1998, there was no new issuance. Nothing was happening," says Adamski.

"We admittedly didn't do a good job of timing the market on this," says Andrew Pyne, Goldman's head of marketing for new mutual fund products. But bottom-fishing wasn't the driving force for launching the fund, Pyne says. Goldman wanted to start the fund much earlier but had to wait until it got the staff it needed on board, he adds.

The fund losses may be a bitter pill to swallow at the firm itself. About 42% of the fund is held by Goldman Sachs and four of its growth-and-income funds. In fact, the entire fund was started with seed money from the firm and its portfolio managers, says Pyne. The fund was closed to outside investors until December, when it was opened to the firm's clients. Since that time, the fund's assets have swelled to $140 million with capital spread among stocks of 41 separate REIT and real estate operating companies.

Goldman's funds are usually launched to investors at the same time as they're created, Pyne explains, but the six-month lag in getting investors in was because Goldman was too busy to market the fund. "We wanted to do a roadshow, but our calendar was too full," Pyne notes.

In a letter to shareholders dated Jan. 29 that was included in the annual report, the fund management team admits last summer "was a difficult one for the REIT market." The letter points out that the fund's net asset value (NAV) returns outperformed the fund's benchmark, the

Wilshire Real Estate Securities Index

, which lost 10.4% during the same time period. However, the fund's NAV returns, which reflected losses of about 6.5%, did not include fees.

The size of the investors' losses depend on which category they were in: Retail customers buying the fund's class A shares lost 11.7%, but institutional clients' losses were kept to 6.4%. The difference stems from a 5.5% front-end load fee paid by retail clients.