<PAGE>
Goldman Sachs Funds
================================================================================
CAPITAL GROWTH FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth
potential from a diversified
portfolio of equity securities.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Fund Basics
as of January 31, 1998
Assets Under Management
---------------------
$1.3 Billion
---------------------
Number of Holdings
---------------------
93
---------------------
NASDAQ SYMBOLS
---------------------
Class A Shares
---------------------
GSCGX
---------------------
Class B Shares
---------------------
GSCBX
---------------------
Class C Shares
---------------------
GSPCX
---------------------
Institutional Shares
---------------------
GSPIX
---------------------
Service Shares
---------------------
GSPSX
---------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return S&P 500
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 29.71% 26.92%
Class B 28.73% 26.92%
Class C (8/15/97-1/31/98) 8.83% 6.78%
Institutional (8/15/97-1/31/98) 9.31% 6.78%
Service (8/15/97-1/31/98) 9.18% 6.78%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The S&P 500 Index (with dividends reinvested) figures do not reflect any
fees or expenses. In addition, investors cannot invest directly in the
Index.
<TABLE>
===================================================================================================
SEC AVERAGE ANNUAL TOTAL RETURN(3)
===================================================================================================
<CAPTION>
For the period Class C Institutional Service
ending 12/31/97 Class A Class B (Cumulative)(4) (Cumulative)(4) (Cumulative)(4)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 Months 27.89% 28.31% N/A N/A N/A
Five Years 17.11% N/A N/A N/A N/A
Since Inception 17.18% 25.02% 5.44% 6.94% 6.87%
(4/20/90) (5/1/96) (8/15/97) (8/15/97) (8/15/97)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(3) The SEC Average Annual Total Return is determined by computing the annual
percentage change in the value of $1,000 invested at the maximum public
offering price for the specified periods, assuming reinvestment of all
distributions at NAV. The total return calculation reflects a maximum
initial sales charge of 5.5% for Class A shares and the assumed deferred
sales charge for Class B shares (5% maximum declining to 0% after six
years). The public offering price of the Class A shares on 1/31/98 was
$19.56 and represents the NAV plus the maximum sales charge of 5.5%.
(4) The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering price
for specified periods, assuming reinvestment of all distributions at NAV.
The total return calculation reflects the assumed deferred sales charge for
Class C shares (1% if redeemed within 12 months of purchase).
================================================================================
TOP 10 HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
Pfizer Inc. 3.5% Pharmaceuticals
Bristol-Myers Squibb Co. 3.3% Pharmaceuticals
General Electric Co. 2.9% Electrical Equipment
American Home Products Corp. 2.8% Pharmaceuticals
Banc One Corp. 2.7% Banking
BankAmerica Corp. 2.6% Banking
Warner Lambert Co. 2.6% Pharmaceuticals
MBNA Corp. 2.4% Credit Card Bank
Microsoft Corp. 2.3% Software
Nationsbank Corp. 2.2% Banking
- --------------------------------------------------------------------------------
</TABLE>
The top 10 holdings may not be representative of the Fund's future
investments.
Total return figures represent past performance and do not indicate future
results, which will vary. The investment return and principal value of an
investment will fluctuate and, therefore, an investor's shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Market Overview
Dear Shareholder,
The U.S. stock market took investors on an unsteady ride during the period under
review -- one that saw the market climb to record highs, and plummet in what
would be the market's largest single-day percentage drop in a decade.
Nonetheless, for the 12 months ended January 31, 1998, the market posted an
approximate 27% return as measured by the S&P 500 stock index -- well above
stocks' historical long-term average return.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -- Market turbulence early in the period was largely fueled
by speculation over Federal Reserve policy. The Fed's decision to
increase the Federal funds rate in March was perceived by investors as
potentially the first in a series of tightenings, and the market,
after a period of buoyancy, sold off sharply. By late April, though,
economic indicators slowed, reassuring the market that further rate
hikes were unlikely. Renewed investor confidence sent the market
soaring. Throughout the remainder of the year, several factors,
including a lack of inflationary pressure, furthered the market's
upward climb. Waxing and waning investor confidence, however, caused a
degree of market volatility. Most notably, in October, investor
uncertainty helped to foster overreaction to falling Asian markets.
The market fell precipitously, posting the largest single-day decline
in nearly a decade. Soon thereafter, the market firmed as investors
accepted the argument that Asian market weakness would have little
impact on U.S. companies.
o The U.S. Economy: Robust Activity, Then Moderation -- Economic
activity gained momentum during the first quarter of 1997, with real
GDP surging at a revised 4.9% annualized rate. Growth moderated
somewhat during the second quarter, a slowdown that continued into the
second half of the year. Signs that the U.S. economy remained strong
were eminently present, though, despite the fact that Asian market
turmoil cast a shadow over sales and trade prospects to that region.
Most notably, U.S. unemployment figures reached a 24-year low during
the fourth quarter, as the proportion of working Americans --
approximately 64% --reached an unprecedented level.
o Outlook: Expect Moderating Economic Growth and Low Inflation -- Going
forward, we believe the inflation and interest rate environments will
likely remain favorable, particularly over the near term. Furthermore,
although we believe the equity market will produce returns closer to
the historic norm, this scenario should also be accompanied by more
normal levels of volatility.
We encourage you to maintain your long-term investment program, and
look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
February 27, 1998
1
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Capital Growth
Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's share classes fared well in the peer rankings for the one-year
period ended January 31, 1998, according to Lipper Analytical Services,
Inc. The total return of the Fund's Class A and Class B shares ranked in
the top 10% of all funds in the Lipper Growth Fund category (placing 49 and
69, respectively, out of 846 funds. For the five-year period, Class A
shares ranked 78 out of 322 funds. Class C shares, Institutional shares and
Service shares were not ranked because their performance records are less
than 12 months. Please note that Lipper rankings do not take sales charges
into account and that past performance is not a guarantee of future
results).
Sector Allocations
In general, the Fund was overweighted in the consumer non-durables and
health sectors throughout the year, and underweighted in the capital goods
sector. It is important to note that the Fund's sector weightings are the
result of our "bottom-up," individual stock selection process rather than
sector-based decisions.
Portfolio Highlights
o Valassis Communications -- The company's stock price appreciated
meaningfully as growth in the company's freestanding advertising
inserts business boosted revenue and earnings growth.
o Walgreen Co. -- The once-mature drugstore business has been
re-energized as shifting demographics -- a result of an aging baby
boom generation -- and the growing influence of third-party payers
(such as HMOs) rewrite the way consumers gain access to prescription
drugs.
o Lear Corp. -- Lear, the leading worldwide supplier of automotive
interior systems, has benefited from strategic acquisitions of
third-tier suppliers. A renewed focus on Lear's advantageous position
in the automotive supply industry helped its price rise through the
year.
o Schering Plough Corp. -- The company is a mid-sized pharmaceutical
company with over $6 billion in revenues generated by four main
business segments: prescription drugs, over-the-counter medicines,
consumer health and animal health businesses. The company is
successfully transitioning itself from an organization that was
largely dependent upon the success of an individual product (Claritin)
to one with a diversified product line.
2
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
GROWTH
INVESTMENT PROCESS
The Fund's stock selection process can be characterized as Growth.
Strong Growth Characteristics
Growth companies have earnings expectations that exceed those of the stock
market as a whole. We search for growth companies with:
o Favorable financial characteristics
o High returns on invested capital
o Dominant market shares for core service or product
o Recurring revenue streams
o Solid brand franchises
o Management committed to maximizing shareholder returns
Result
A diversified portfolio of stocks with strong long-term growth potential.
Key New Acquisitions
o Monsanto Co. -- After years of promising research, biotechnology --
including genetic engineering -- is starting to show commercial success in
agricultural weed and pest control. Monsanto is the leading player in this
emerging business.
o RiteAid and CVS -- Like Walgreen, these companies have benefited from the
revitalization of the once-mature drug business.
Portfolio Outlook
The outlook for the economy and the stock market appears favorable, with low
inflation, stable interest rates and modest economic growth expected to help the
Fund's holdings produce favorable earnings gains. We will actively seek
companies that fit our selective growth style and that have, among other
characteristics, strong brand franchises, favorable long-term prospects and free
cash flow and whose stocks are believed to be selling at a discount to the true
value of their business.
We thank you for your investment and look forward to your continued confidence.
Sincerely,
/s/ Herbert E. Ehlers /s/ George D. Adler /s/ Robert G. Collins
Herbert E. Ehlers George D. Adler Robert G. Collins
Portfolio Manager, Portfolio Manager, Portfolio Manager,
Goldman Sachs Goldman Sachs Goldman Sachs
Capital Growth Fund Capital Growth Fund Capital Growth Fund
/s/ Gregory H. Ekizian /s/ Ernest C. Segundo /s/ David G. Shell
Gregory H. Ekizian Ernest C. Segundo David G. Shell
Portfolio Manager, Portfolio Manager, Portfolio Manager,
Goldman Sachs Goldman Sachs Goldman Sachs
Capital Growth Fund Capital Growth Fund Capital Growth Fund
/s/ Scott G. Kolar
Scott G. Kolar
Portfolio Manager,
Goldman Sachs
Capital Growth Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
For Best Results,
It's Time in the Market That Counts
For optimal long-term investment results, time in the market can make the
difference.
After a year of record-breaking returns in the U.S. stock market, forecasts
for 1998 are more subdued. As a result, investors may be tempted to move
out of equities. Doing so, however, could substantially reduce a
portfolio's long-term return potential.
Investors Who Time the Market Get Less on Their Investment
Investors who try to time the market -- that is, those who try to predict
market highs and lows, and invest accordingly -- can do more harm than good
to their portfolio's long-term returns.
The chart below illustrates the effect that missing the "best" days in the
market -- when stocks post their largest gains -- would have had on a
portfolio's returns over the 15-year period from 1982 through 1996.
- --------------------------------------------------------------------------------
The Impact of Missing the "Best" Days in the Market (1982-1996)
(Annual Return Percentage)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Annual Return
Percentage
-------------
<S> <C>
Invested all 5,478 trading days 16.78%
Less 10 best days 13.39%
Less 40 best days 7.53%
Less 70 best days 2.87%
</TABLE>
Based on the daily total returns of the S&P 500 Index. It assumes that all
dividends were reinvested and that there were no investment fees, sales
charges or taxes paid during the period. The returns shown above have been
annualized. The chart is for illustrative purposes only and is not
representative of any Goldman Sachs Fund. Past performance is not
indicative of future results. Investors cannot invest in the Index
directly.
Over the Long Term, a Buy and Hold Strategy Works Best
Over the past 20 years, the market has generated negative returns only
twice. In other words, over the long term, securities prices have
increased. This statistic illustrates a common theory about equity
investing: buying and holding securities is generally a sounder investment
strategy than timing the market.
For More Information
A diversified portfolio of stocks is one of the best ways to reduce the
effects of market fluctuations on a portfolio. For most investors,
diversification is most easily acquired through mutual funds. Goldman Sachs
Asset Management offers a broad spectrum of equity mutual funds that can
help investors weather market ups and downs. For more information on these
and other Goldman Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Performance Summary
January 31, 1998
The following graph shows the value as of January 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5%) in Class A shares on
April 20, 1990. For comparative purposes, the performance of the Fund's
benchmark (the Standard and Poor's 500 Index ("S&P 500 Index")) is shown.
This performance data represents past performance and should not be consid-
ered indicative of future performance which will fluctuate with changes in
market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
Performance of Class B, Class C, Institutional and Service shares will vary
from Class A due to differences in fees and loads.
CAPITAL GROWTH FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED APRIL 20, 1990 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P 500 Index Capitol Growth Fund (Class A)
<S> <C> <C>
Jan-91 10000 9450
9882 9458
10819 9708
10754 9775
10728 9667
9751 9108
Jul-91 9284 8458
9253 8125
9838 8600
10112 8937
10552 9529
11307 10096
Jan-92 11581 10285
11608 10448
12109 10980
11554 10354
12093 10801
12379 10982
Jul-92 12172 10999
12336 11352
11839 10663
13193 11790
12947 12323
13114 12765
Jan-93 12859 12765
13237 12873
13301 13198
13104 12666
13639 12946
13360 12431
Jul-93 13517 12579
13563 13098
14025 14090
14197 14552
14316 14542
14511 14304
Jan-94 14817 14979
14459 14383
14846 14910
14889 15148
14829 15386
15392 15595
Jul-94 15274 15927
15590 15917
15441 15977
15628 16614
16160 16998
15721 17285
Jan-95 15036 16636
15228 16657
15478 16774
15099 16455
15594 16657
16233 17530
Jul-95 15837 17300
16194 16976
15604 16084
15835 16432
16245 16254
16879 17443
Jan-96 17378 17811
17889 18216
18605 18810
19037 19535
19669 20094
19718 20368
Jul-96 20550 20479
20476 19701
21375 20371
21787 20663
22528 21203
22738 21573
Jan-97 22956 21815
23293 22284
23894 22753
23985 22156
22925 21388
23409 22042
Jul-97 24727 23059
25409 23424
27329 24942
26788 25081
28461 26727
28685 26695
Jan-98 27506 25496
29145 27429
30920 28819
32306 30417
34877 32941
32924 30816
34728 32239
33568 31689
35122 33129
35726 33937
36123 34668
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED APRIL 20, 1990)
Excluding sales charges 18.15% 18.97% 29.71%
Including sales charges 17.30% 17.63% 22.61%
----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges 27.73% n/a 28.73%
Including redemption charges 25.22% n/a 22.86%
----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 8.83% n/a n/a
Including redemption charges 7.74% n/a n/a
----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST
15, 1997)(A) 9.31% n/a n/a
----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15,
1997)(A) 9.18% n/a n/a
----------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 97.7%
<C> <S> <C>
ADVERTISING & MARKETING - 1.9%
711,580 Valassis Communications Inc.* $ 24,549,510
----------------------------------------------------------------
AEROSPACE & DEFENSE - 1.1%
294,840 Boeing Co. 14,023,328
----------------------------------------------------------------
ALCOHOLIC BEVERAGES - 0.6%
186,300 Anheuser Busch Companies Inc. 8,371,856
----------------------------------------------------------------
AUTO/VEHICLE - 0.6%
153,700 Lear Corp.* 7,636,969
----------------------------------------------------------------
BANKS - 12.4%
471,200 Bankamerica Corp. 33,484,650
73,900 Citicorp 8,794,100
237,700 First Union Corp. 11,424,456
1,025,887 MBNA Corp. 31,866,615
468,700 Nationsbank Corp. 28,122,000
631,422 Banc One Corp. 35,280,704
232,600 State Street Corp. 13,025,600
----------------------------------------
161,998,125
----------------------------------------------------------------
BUSINESS EQUIPMENT - 0.3%
49,000 Xerox Corp. 3,938,375
----------------------------------------------------------------
BUSINESS SERVICES - 2.2%
213,000 H & R Block Inc. 9,345,375
502,080 Service Corp. International 19,581,120
----------------------------------------
28,926,495
----------------------------------------------------------------
CHEMICAL PRODUCTS - 2.3%
171,700 Betzdearborn Inc. 9,894,213
97,400 Du Pont (EI) De Nemours & Co. 5,515,275
101,200 Minnesota Mining & Manufacturing Co. 8,450,200
146,100 Sigma Aldrich Corp. 5,661,375
----------------------------------------
29,521,063
----------------------------------------------------------------
COMMERCIAL SERVICES - 1.6%
453,000 Ecolab Inc. 12,400,875
270,100 Galileo International Inc. 7,967,950
----------------------------------------
20,368,825
----------------------------------------------------------------
COMPUTER SOFTWARE - 0.6%
153,600 HBO & Co. 8,035,200
----------------------------------------------------------------
COMPUTERS AND BUSINESS EQUIPMENT - 1.9%
651,200 Tandy Corp. 25,234,000
----------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.2%
99,700 Sherwin-Williams Co. 2,841,450
----------------------------------------------------------------
CONSUMER STAPLES - 4.9%
93,800 Amway Asia Pacific Ltd. 1,758,750
186,400 Colgate-Palmolive Co. 13,653,800
88,800 Clorox Co. 6,804,300
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
CONSUMER STAPLES - (CONTINUED)
173,100 Gillette Co. $ 17,093,625
321,880 Procter & Gamble Co. 25,227,345
-------------------------------------
64,537,820
-------------------------------------------------------------
DEPARTMENT STORES - 0.4%
135,500 Federated Department Stores, Inc.* 5,741,813
-------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.9%
485,100 General Electric Co. 37,595,250
-------------------------------------------------------------
ENTERPRISE SYSTEMS - 2.1%
301,900 Compaq Computer Corp. 9,075,869
173,450 Cisco Systems Inc.* 10,938,191
216,300 EMC Corp.* 7,043,269
-------------------------------------
27,057,329
-------------------------------------------------------------
ENTERTAINMENT AND LEISURE - 1.1%
130,400 Walt Disney Co. 13,895,750
-------------------------------------------------------------
FOOD & BEVERAGES - 5.2%
234,500 Coca Cola Co. 15,183,875
183,100 Nabisco Holdings Corp. 7,575,763
408,100 Pepsico Inc. 14,717,106
194,900 Ralston--Ralston Purina Group 18,296,238
160,480 Wm Wrigley Jr. Co. 11,865,490
-------------------------------------
67,638,472
-------------------------------------------------------------
FOREST PRODUCTS - 0.4%
97,300 Georgia-Pacific Corp. 5,363,663
-------------------------------------------------------------
HEALTH AND BEAUTY AIDS - 0.9%
194,000 Avon Products Inc. 11,640,000
-------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 1.7%
331,900 Johnson & Johnson 22,216,556
-------------------------------------------------------------
HEALTHCARE MANAGEMENT - 1.1%
197,220 Aetna Inc. 14,495,670
-------------------------------------------------------------
HOTELS & RESTAURANTS - 1.1%
202,220 Marriott International Inc. 13,978,458
-------------------------------------------------------------
INDUSTRIAL PRODUCTS - 0.5%
148,800 American Standard Companies* 5,961,300
-------------------------------------------------------------
INFORMATION MANAGEMENT - 0.6%
207,000 Envoy Corp.* 7,814,250
-------------------------------------------------------------
INSURANCE - LIFE - 2.1%
152,200 Hartford Life Inc. 6,516,063
210,100 Nationwide Financial Services, Inc. 7,708,044
321,150 SunAmerica Inc. 12,906,216
-------------------------------------
27,130,323
-------------------------------------------------------------
INSURANCE - PROPERTY & CASUALTY - 0.8%
90,000 American International Group Inc. 9,928,125
-------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
MEDIA/ENTERTAINMENT - 7.2%
69,000 Cablevision Systems Corp.* $ 6,097,875
213,800 Gannett Co. 12,934,900
530,700 Tele-Communications Liberty Media Group* 19,005,694
223,700 New York Times Co. 14,554,481
180,770 Reuters Holdings PLC ADR 9,693,791
348,802 Tele-Communications Inc.* 9,766,478
114,300 Tribune Co. 6,943,725
237,610 Time Warner Inc. 15,251,592
------------------------------------------
94,248,536
------------------------------------------------------------------
NONFERROUS METALS - 0.4%
75,300 Aluminum Company of America 5,751,038
------------------------------------------------------------------
OIL - INTEGRATED - 0.4%
70,500 Atlantic Richfield Co. 5,243,438
------------------------------------------------------------------
OIL - INTERNATIONAL - 2.6%
142,400 Mobil Corp. 9,701,000
247,100 Texaco Inc. 12,864,644
188,500 Exxon Corp. 11,180,406
------------------------------------------
33,746,050
------------------------------------------------------------------
OIL & GAS - INTEGRATED - 0.4%
143,200 Unocal Corp. 4,922,500
------------------------------------------------------------------
OIL & GAS SERVICES - 1.0%
177,600 Schlumberger Ltd. 13,086,900
------------------------------------------------------------------
PHARMACEUTICALS - 15.1%
377,600 American Home Products Corp. 36,037,200
428,800 Bristol Myers Squibb Co. 42,746,000
217,580 Eli Lilly & Co. 14,686,650
151,900 Monsanto Co. 7,205,756
565,820 Pfizer Inc. 46,361,869
237,800 Schering-Plough Corp. 17,210,775
222,100 Warner Lambert Co. 33,426,050
------------------------------------------
197,674,300
------------------------------------------------------------------
RAILROADS - 0.2%
95,400 Norfolk Southern Corp. 3,011,063
------------------------------------------------------------------
RECREATIONAL PRODUCTS - 0.9%
349,600 Hasbro Inc. 12,061,200
------------------------------------------------------------------
RETAIL - 1.5%
103,500 CVS Corporation 6,785,719
329,500 Wal Mart Stores Inc. 13,138,813
------------------------------------------
19,924,532
------------------------------------------------------------------
SEMICONDUCTORS - 1.2%
197,000 Intel Corp. 15,957,000
------------------------------------------------------------------
SOFTWARE & SERVICES - 4.7%
670,400 First Data Corp. 20,531,000
205,900 Microsoft Corporation* 30,717,706
135,400 Peoplesoft Inc.* 4,739,000
158,100 Sterling Commerce, Inc.* 5,741,006
------------------------------------------
61,728,712
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
SPECIALTY FINANCE - 3.3%
47,300 C.I.T. Group Inc.* $ 1,421,956
345,300 Federal National Mortgage Association 21,322,275
453,000 Federal Home Loan Mortgage Corp. 20,158,500
------------------------------------------------
42,902,731
------------------------------------------------------------------------
SPECIALTY RETAIL - 2.5%
122,200 Home Depot Inc. 7,370,188
131,700 Rite Aid Corp. 8,223,019
518,460 Walgreen Co. 17,173,988
------------------------------------------------
32,767,195
------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.3%
197,160 Lucent Technologies Co. 17,448,660
------------------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 0.4%
86,300 Goodyear Tire & Rubber Co. 5,404,538
------------------------------------------------------------------------
TOBACCO - 2.6%
519,300 Philip Morris Co., Inc. 21,550,950
378,300 UST Inc. 13,051,350
------------------------------------------------
34,602,300
------------------------------------------------------------------------
UTILITIES - ELECTRIC - 0.7%
207,200 AES Corp.* 8,870,750
------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $916,767,127) $1,279,791,418
------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
REPURCHASE AGREEMENT - 2.1%
<C> <S> <C>
$27,600,000 Joint Repurchase Agreement Account, 5.64%,
02/02/98 $ 27,600,000
------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $27,600,000) $ 27,600,000
------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $944,367,127) (A) $1,307,391,418
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds
cost $ 376,659,097
Gross unrealized loss for investments in which cost exceeds
value (14,080,126)
------------------------------------------------------------------------------
Net unrealized gain $ 362,578,971
------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $944,812,447.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$944,367,127) $1,307,391,418
Cash 97,502
Receivables:
Fund shares sold 5,167,184
Dividends and interest 789,516
Other assets 16,729
------------------------------------------------------------------------------
TOTAL ASSETS 1,313,462,349
------------------------------------------------------------------------------
LIABILITIES:
Payables:
Fund shares repurchased 1,042,270
Amounts owed to affiliates 2,139,330
Accrued expenses and other liabilities 200,056
------------------------------------------------------------------------------
TOTAL LIABILITIES 3,381,656
------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 943,792,262
Accumulated undistributed net realized gain on investment
transactions 3,264,140
Net unrealized gain on investments 363,024,291
------------------------------------------------------------------------------
NET ASSETS $1,310,080,693
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 67,981,133 2,234,279 295,829
Net asset and Class A redemption value per
share(a) $18.48 $18.27 $18.24
Maximum public offering price per share
(Class A NAV X 1.0582) $19.56 $18.27 $18.24
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 393,638 94
Net asset value, offering and redemption price per
share $18.45 $18.46
--------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B and Class C shares may be subject to a contingent
deferred sales charge assessed on the amount equal to the lesser of the
current net asset value or the original purchase price of the shares.
8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 14,709,637
Interest 1,485,991
---------------------------------------------------------------------------
TOTAL INCOME 16,195,628
---------------------------------------------------------------------------
EXPENSES:
Management fees 10,913,224
Distribution fees 2,815,372
Authorized dealer service fees 2,724,037
Transfer agent fees 992,702
Custodian fees 186,487
Professional fees 68,015
Registration fees 107,946
Trustee fees 11,404
Other 308,564
---------------------------------------------------------------------------
TOTAL EXPENSES 18,127,751
---------------------------------------------------------------------------
Less -- fees waived by Goldman Sachs (2,678,370)
---------------------------------------------------------------------------
NET EXPENSES 15,449,381
---------------------------------------------------------------------------
NET INVESTMENT INCOME 746,247
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS:
Net realized gain from investment transactions 171,487,631
Net change in unrealized gain on investments 110,348,766
---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS 281,836,397
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $282,582,644
---------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $68,534.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JANUARY 31, 1998 JANUARY 31, 1997
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 746,247 $ 5,337,292
Net realized gain on investment
transactions 171,487,631 53,687,297
Net change in unrealized gain on
investments 110,348,766 145,350,120
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 282,582,644 204,374,709
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (884,787) (5,948,617)
Class B shares -- --
Class C shares -- --
Institutional shares (3,044) --
Service shares -- --
In excess of net investment income
Class A shares (624,850) (258,749)
Class B shares -- (12,838)
Class C shares (7,981) --
Institutional shares (22,826) --
Service shares (4) --
From net realized gain on investment
transactions
Class A shares (175,320,995) (91,862,169)
Class B shares (1,824,839) (179,327)
Class C shares (91,373) --
Institutional shares (119,185) --
Service shares (61) --
In excess of realized gain on investment
transactions
Class B shares (2,788,015) --
Class C shares (504,407) --
Institutional shares (768,360) --
Service shares (183) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (182,960,910) (98,261,700)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 268,104,441 76,008,897
Reinvestment of dividends and
distributions 169,448,560 90,088,874
Cost of shares repurchased (150,961,069) (229,399,817)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 286,591,932 (63,302,046)
------------------------------------------------------------------------------
TOTAL INCREASE 386,213,666 42,810,963
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 923,867,027 881,056,064
------------------------------------------------------------------------------
End of year $1,310,080,693 $923,867,027
------------------------------------------------------------------------------
ACCUMULATED DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME $ -- $ (275,552)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements
January 31, 1998
1. ORGANIZATION
Effective May 1, 1997, Goldman Sachs Equity Portfolios, Inc. was reorganized
from a Maryland corporation to a Delaware business trust named the Goldman
Sachs Trust (the "Trust"). The Trust includes the Goldman Sachs Capital
Growth Fund (the "Fund"). The Trust is registered under the Investment Com-
pany Act of 1940, as amended, as an open-end, management investment company.
At January 31, 1998, the Fund offered five classes of shares--Class A, Class
B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded or
NASDAQ. If no sale occurs, securities traded on a U.S. exchange or NASDAQ are
valued at the mean between the closing bid and asked price, and securities
traded on a foreign exchange will be valued at the official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on valuation date, or if no sale occurs, at
the mean between the most recent bid and asked prices. Debt securities are
valued at prices supplied by an independent pricing service, which reflect
broker / dealer-supplied valuations and matrix pricing systems. Short-term
debt obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are recorded on the trade date. Realized gains and losses on sales of invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned.
C. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, other assets and liabilities initially expressed in foreign currencies
are converted each business day into U.S. dollars based on current exchange
rates; (ii) purchases and sales of foreign investments, income and expenses
are converted into U.S. dollars based on currency exchange rates prevailing
on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies and investments; (ii) gains and losses between
trade date and settlement date on investment securities transactions and for-
ward exchange contracts; and (iii) gains and losses from the difference be-
tween amounts of dividends and interest recorded and the amounts actually
received.
11
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Fund is authorized to
enter into forward foreign currency exchange contracts for the purchase of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. All
commitments are "marked-to-market" daily at the applicable translation rates
and any resulting unrealized gains or losses are recorded in the Fund's fi-
nancial statements. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or extin-
guished by delivery of the currency. Risks may arise upon entering these con-
tracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. SHORT SECURITIES POSITIONS -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked
to market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and the cash received is re-
ported as unrealized gain or loss. Gains and losses are realized when a short
position is closed out by delivering securities back to the broker.
F. FEDERAL TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required. The characterization of distributions to shareholders
for financial reporting purposes is determined in accordance with income tax
rules. Therefore, the source of the Fund's distributions may be shown in the
accompanying financial statements as either from or in excess of net invest-
ment income or net realized gain on investment transactions, or from capital,
depending on the type of book / tax differences that may exist.
G. EXPENSES -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are allocated to the funds based on
each Fund's relative net assets.
Class A, Class B and Class C shares bear all expenses and fees relating to
the distribution and authorized dealer service plans as well as other ex-
penses which are directly attributable to such shares. Each class of shares
separately bears their respective class-specific transfer agency fees. Serv-
ice shares separately bear a service class fee payable monthly, at an annual
rate equal to 50% of the average daily net assets of the service class.
12
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
H. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
I. FUTURES CONTRACTS -- The Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices or to seek to increase
total return.
Upon entering into a futures contract, the Fund is required to deposit with
a broker an amount of cash or securities equal to the minimum "initial mar-
gin" requirement of the respective futures exchange. Subsequent payments for
futures contracts ("variation margin") are paid or received by the Fund dai-
ly, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Fund realizes a gain or loss which is reported
in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statement of Assets and Liabilities. Changes in the value of the futures con-
tract may not directly correlate with changes in the value of the underlying
securities. This risk may decrease the effectiveness of the Fund's hedging
strategies and potentially result in a loss.
13
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration Agree-
ments were combined into an Investment Management Agreement (the "Agreement")
encompassing the same services and fee structure. Goldman Sachs Funds Manage-
ment L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"),
acts as investment adviser. Under the Agreement, GSFM, subject to the general
supervision of the Trust's Board of Trustees, manages the Fund's portfolio.
As compensation for the services rendered under the Agreement, the assumption
of the expenses related thereto and administering the Fund's business af-
fairs, including providing facilities, GSFM is entitled to a fee, computed
daily and payable monthly, at an annual rate equal to 1.00% of the average
daily net assets of the Fund.
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $743,000 during the year
ended January 31, 1998.
The Trust has adopted Distribution Plans (the "Distribution Plans") pursu-
ant to Rule 12b-1. Under the Distribution Plans, Goldman Sachs is entitled to
a quarterly fee from the Fund for distribution services equal, on an annual
basis, to .25%, .75% and .75% of the Fund's average daily net assets attrib-
utable to Class A, Class B and Class C shares, respectively. For the year
ended January 31, 1998, the Distributor has voluntarily agreed to waive ap-
proximately $2,678,000 of its distribution fee attributable to the Class A
shares. The Distributor may discontinue or modify this waiver in the future
at its discretion.
The Trust has adopted Authorized Dealer Service Plans (the "Service Plans")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. The Fund pays a fee un-
der its Service Plan equal, on an annual basis, to .25% of its average daily
net assets attributable to Class A, Class B and Class C shares. Goldman Sachs
also serves as the Transfer Agent of the Fund for a fee.
At January 31, 1998, the Fund owed approximately $1,072,000, $68,000,
$754,000 and $245,000 for Management, Distribution, Authorized Dealer Service
and Transfer Agent fees, respectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for year ended January 31, 1998,
were $738,069,080 and $653,855,824, respectively.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$200,000 of brokerage commissions from portfolio transactions.
14
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSFM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more re-
purchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1998, the Fund had
an undivided interest in the repurchase agreements in the following joint ac-
count which equaled $27,600,000 in principal amount. At January 31, 1998, the
repurchase agreements held in this joint account, along with the correspond-
ing underlying securities (including the type of security, market value, in-
terest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC., $600,000,000 5.65% 02/02/98 $ 600,000,000
dated 01/30/98, repurchase price $600,282,500 (total collateral value
$618,151,386 consisting of FNMA: 6.50%-8.50%, 08/01/27-01/01/28; GNMA:
6.50%-8.00%, 05/15/23-11/15/27; FHLMC: 6.50%-7.00%, 06/01/00-10/01/26)
------------------------------------------------------------------------------
LEHMAN BROTHERS INC., 474,200,000 5.65 02/02/98 474,200,000
dated 01/30/98, repurchase price $474,423,269 (total collateral value
$483,683,617 consisting of FGLMC: 5.50%-9.50%, 01/01/99-01/01/28; FHA/VA:
7.50%-14.00%, 01/01/01-09/01/12; FNMA: 5.50%-11.25%, 09/01/00-01/01/28)
------------------------------------------------------------------------------
NOMURA SECURITIES INTERNATION-
AL, 200,000,000 5.64 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,094,000 (total collateral value
$204,002,700 consisting of FHLMC: 6.00%, 10/20/99; FHLB: 5.48%-5.53%,
01/15/03-01/21/03; FNMA: 7.40%, 07/01/04; FMC discount note: 03/06/98)
------------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL, 270,000,000 5.64 02/02/98 270,000,000
dated 01/30/98, repurchase price $270,126,900 (total collateral value
$275,400,571 consisting of FNMA: 5.90%-7.52%, 02/12/98-01/22/08; FHLMC:
6.59%-7.13%, 07/21/99-08/13/07; FHLB: 6.19%-7.00%, 08/26/99-08/21/07; FMC:
03/06/98; FFCB: 6.30%, 08/08/07)
------------------------------------------------------------------------------
SALOMON-SMITH BARNEY, 200,000,000 5.61 02/02/98 200,000,000
dated 01/30/98, repurchase price $200,093,500 (total collateral value
$204,048,538 consisting of U.S. Treasury Stripped Interest Only Security:
02/15/99; U.S. Treasury Stripped Principal Only Security: 7.88%, 08/15/01)
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
January 31, 1998
7. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Fund participates in a $50,000,000 com-
mitted, unsecured revolving line of credit facility. Both facilities are to
be used solely for temporary or emergency purposes. Under the most restric-
tive arrangement, the Fund must own securities having a market value in ex-
cess of 300% of the total bank borrowings. The interest rate on the
borrowings is based on the Federal Funds rate. The committed facility also
requires a fee to be paid based on the amount of the commitment which has not
been utilized. During the year ended January 31, 1998, the Fund did not have
any borrowings under these facilities.
8. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended January 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998 YEAR ENDED JANUARY 31, 1997
----------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 11,682,231 $ 219,227,835 4,677,047 $ 73,029,007
Reinvestments of divi-
dends and distributions 9,276,258 164,296,869 5,870,272 89,898,521
Shares repurchased (7,999,080) (148,461,895) (14,635,348) (229,277,586)
----------------------------------------------------------
12,959,409 235,062,809 (4,088,029) (66,350,058)
-------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,886,965 35,512,523 188,331 2,979,890
Reinvestments of divi-
dends and distributions 248,911 4,352,015 12,408 190,353
Shares repurchased (94,837) (1,799,265) (7,499) (122,231)
----------------------------------------------------------
2,041,039 38,065,273 193,240 3,048,012
-------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 300,430 5,779,471 -- --
Reinvestments of divi-
dends and distributions 31,825 552,643 -- --
Shares repurchased (36,426) (646,150) -- --
----------------------------------------------------------
295,829 5,685,964 -- --
-------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 382,307 7,583,012 -- --
Reinvestments of divi-
dends and distributions 14,102 246,791 -- --
Shares repurchased (2,771) (53,759) -- --
----------------------------------------------------------
393,638 7,776,044 -- --
-------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 80 1,600 -- --
Reinvestments of divi-
dends and distributions 14 242 -- --
Shares repurchased -- -- -- --
----------------------------------------------------------
94 1,842 -- --
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) 15,690,009 $ 286,591,932 (3,894,789) $ (63,302,046)
-------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$1,072,796 from accumulated undistributed net realized gain on investment
transactions to accumulated distributions in excess of net investment income.
17
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ------------------------------------------------
IN EXCESS OF
NET ASSET NET NET REALIZED IN EXCESS FROM NET NET REALIZED NET INCREASE
VALUE, INVESTMENT AND UNREALIZED FROM NET OF NET REALIZED GAIN GAIN ON (DECREASE)
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT IN NET ASSET
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $16.73 $0.02 $4.78 $(0.01) $(0.01) $(3.03) $ -- $1.75
1998 - Class B
Shares 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60
1998 - Class C
Shares(b) 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49)
1998 - Institutional
Shares(b) 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43)
1998 - Service
Shares(b) 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42)
------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82
1997 - Class B
Shares(b) 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00
------------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24
------------------------------------------------------------------------------------------------------------------------
1995 - Class A
Shares 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29)
------------------------------------------------------------------------------------------------------------------------
1994 - Class A
Shares 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32
------------------------------------------------------------------------------------------------------------------------
1993 - Class A
Shares 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99
------------------------------------------------------------------------------------------------------------------------
1992 - Class A
Shares 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55
FOR THE PERIOD ENDED JANUARY 31,
1991 - Class A
Shares(b) 11.34 0.34 (0.27) (0.31) -- -- -- (0.24)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of
the period and no sales or redemption charges. Total return would be
reduced if a sales or redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on April 20, 1990, May 1, 1996, August 15, 1997, August
15, 1997 and August 15, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security
transactions on which commissions are charged. This rate may vary
due to various types of transactions and number of security trades
executed.
18 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY
WAIVER OF FEES
----------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS NET ASSETS ASSETS ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$18.48 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
18.27 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
18.24 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
18.45 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18(c) 1.16(c) 0.18(c)
18.46 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
-------------------------------------------------------------------------------------------------------------------
16.73 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
16.67 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
-------------------------------------------------------------------------------------------------------------------
14.91 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
-------------------------------------------------------------------------------------------------------------------
13.67 (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
-------------------------------------------------------------------------------------------------------------------
15.96 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
-------------------------------------------------------------------------------------------------------------------
14.64 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
-------------------------------------------------------------------------------------------------------------------
13.65 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
11.10 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Capital
Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Capital Growth Fund, one of the portfolios constituting Goldman
Sachs Trust--Equity Funds (A Delaware Business Trust), including the state-
ment of investments, as of January 31, 1998, and the related statement of op-
erations and the statement of changes in net assets and the financial
highlights for the periods presented. These financial statements and the fi-
nancial highlights are the responsibility of the Fund's management. Our re-
sponsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of January 31, 1998 by correspondence with the custodian and brokers. An au-
dit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Capital Growth Fund as of January 31, 1998, the results
of its operations, the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 12, 1998
20
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs Capital Growth Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Capital Growth Fund, you can capitalize on
Goldman Sachs' history of excellence while benefiting from the firm's leadership
in three areas:
1
Global Resources
With more than 10,600 professionals based in 35 offices in
19 countries throughout the Americas, Europe and Asia, Goldman Sachs possesses
first-hand knowledge of the world's markets and economies.
2
Fundamental Research
Goldman Sachs is recognized by the managements of corporations worldwide as a
leader in investment research. As a result, we obtain face-to-face meetings with
managers on a timely, regular basis.
3
Risk Management
Goldman, Sachs & Co. excels in understanding, monitoring and managing investment
risk -- a process that is integrated into all Goldman Sachs investment products.
An Investment Idea for the Long Term
Historically, stocks have demonstrated greater potential to build wealth
over the long term than most other types of investments.
Goldman Sachs Capital Growth Fund provides investors access to the benefits
associated with equity investing. The Fund seeks long-term capital growth,
primarily through a diversified portfolio of equity securities with
long-term capital appreciation potential.
Target Your Needs
The Goldman Sachs Capital Growth Fund has a distinct investment objective
and a defined place on the risk/return spectrum. As your investment
objectives change, you can exchange shares within the Goldman Sachs Funds
family without an additional charge. (Please note: in general, greater
returns are associated with greater risk.)
- --------------------------------------------------------------------------------
Goldman Sachs Domestic Equity Funds
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Small Cap Value Fund
Risk/Return CORE Small Cap Equity Fund
Mid Cap Equity Fund
CAPITAL GROWTH FUND
CORE Large Cap Growth Fund
Lower CORE U.S. Equity Fund
Risk/Return Growth and Income Fund
</TABLE>
For More Information
To learn more about the Goldman Sachs Capital Growth Fund and other Goldman
Sachs Funds, call your investment professional today.
<PAGE>
================================================================================
GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 10004
================================================================================
TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard B. Strubel
OFFICERS
Douglas C. Grip, President
James A. Fitzpatrick, Vice President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
This material is not authorized for distribution to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
Goldman, Sachs & Co., distributor of the Fund, is not a bank, and Fund shares
distributed by it are neither bank deposits nor obligations of, nor endorsed,
nor guaranteed by any bank or other insured depository institution, nor are they
insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve
Board or any other government agency. Investment in the Fund involves risks,
including possible loss of the principal amount invested.
The stocks of smaller companies are often associated with higher risks than
stocks of larger companies, including higher volatility.
Funds that invest in foreign securities and utilize
active management techniques are subject to risks in addition to those
customarily associated with investing in dollar-denominated securities of U.S.
issuers. Compared with U.S. securities markets, foreign markets may be less
liquid, more volatile and less subject to governmental regulation, and may make
available less public information about issuers. Funds that invest in foreign
issues may incur losses because of changes in securities prices expressed in
local currencies, movements in exchange rates, or both.
The Lipper rankings shown in this report are based on relative performance
within an individual fund's Lipper category. Please be advised that certain
differences do exist among the funds; for example, there may be differences in
investment policies, risks, fees and expense ratios, and Goldman Sachs strongly
recommends that these factors be taken into consideration before an investment
decision is made.
(C)Copyright 1998 Goldman, Sachs & Co. All rights reserved.
Date of first use: March 31, 1998 CGAR / 144K / 3-98
