<PAGE>
Goldman Sachs Funds
CAPITAL GROWTH FUND Semi-Annual Report July 31, 1998
[GRAPHIC] Long-term capital growth
potential from a diversified
portfolio of equity securities.
Goldman
Sachs
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Fund Basics
as of July 31, 1998
Assets Under Management
$1.8 Billion
Number of Holdings
91
NASDAQ SYMBOLS
Class A Shares
GSCGX
Class B Shares
GSCBX
Class C Shares
GSPCX
Institutional Shares
GSPIX
Service Shares
GSPSX
Mutual funds, annuities, and other investment products:
. are not FDIC insured;
. are not deposits or obligations of, or guaranteed by, any financial
institution;
. are subject to investment risks, including possible loss of the
principal amount invested.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
January 31, 1998- Fund Total Return
July 31, 1998 (based on NAV)/1/ S&P 500 Index/2/
- --------------------------------------------------------------------------------
Class A 17.91% 15.18%
Class B 17.52% 15.18%
Class C 17.43% 15.18%
Institutional 18.05% 15.18%
Service 17.77% 15.18%
- --------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
The Fund's performance assumes the investment of dividends and other
distributions.
/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.
- --------------------------------------------------------------------------------
SEC TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended
7/31/98 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
Last 6 Months/3/ 11.40% 12.52% 16.43% 18.05% 17.77%
One Year/4/ 17.27% 17.39% N/A N/A 23.96%
Five Years/4/ 20.20% N/A N/A N/A 21.54%
Since Inception 18.52%/4/ 28.75%/4/ 26.63%/3/ 29.04%/3/ 19.31%/4/5
(4/20/90) (5/1/96) (8/15/97) (8/15/97) (4/20/90)
- --------------------------------------------------------------------------------
/3/ 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 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, the assumed deferred sales charge for Class B
shares (5% maximum declining to 0% after six years), and the assumed
deferred sales charge for Class C shares (1% if redeemed within 12 months of
purchase). The public offering price of the Class A shares on 7/31/98 was
$23.06 and represents the NAV plus the maximum sales charge of 5.5%.
/4/ 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 specified periods, assuming reinvestment of all
distributions at NAV. The total return calculation reflects sales charges.
/5/ Performance data for Service shares prior to 8/15/97 is that of Class A
shares (excluding the impact of front-end sales charges applicable to Class
A shares since Service shares are not subject to any sales charges).
Performance of Class A shares of the Capital Growth Fund reflects the
expenses applicable to the Fund's Class A shares.
The fees applicable to Services shares are different from those applicable
to Class A shares which impact perfor-mance ratings and rankings for a class
of shares.
- --------------------------------------------------------------------------------
TOP 10 COMPANY HOLDINGS AS OF 7/31/98
- --------------------------------------------------------------------------------
Company Holding % of Total Net Assets Line of Business
- --------------------------------------------------------------------------------
Warner Lambert Co. 2.80% Pharmaceuticals
Bristol Myers Squibb Co. 2.73% Pharmaceuticals
Microsoft Corporation 2.71% Software
General Electric Co. 2.42% Electrical Equipment
Bankamerica Corp. 2.36% Banks
State Street Corp. 2.32% Banks
Tele-Communications-Liberty 2.23% Telecommunications
Pfizer Inc. 2.20% Pharmaceuticals
American Home Products Corp. 2.17% Pharmaceuticals
Tandy Corp. 2.06% Electrical Equipment
- --------------------------------------------------------------------------------
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,
During the period under review, the bull market that began in 1995 continued its
unprecedented run into positive territory. On July 17, the U.S. stock market, as
measured by the Dow Jones Industrial Average, reached a record level of 9337.97.
Simultaneously, investors found themselves subjected to increasing levels of
market volatility.
. The U.S. Equity Market: Amidst Increasing Volatility, Market Continues Its
Climb -- The U.S. stock market generated strong performance, rising into
record territory during the final month of the period under review.
Throughout, the mantle of market leadership was held by mega-cap stocks, the
largest and most liquid stocks in the Standard & Poor's 500 Index. Several
factors -- including ongoing Asian market turbulence, benign inflation and
concern about the sustainability of the current bull market -- made mega-caps
the investment of choice among U.S. investors.
. The U.S. Economy: A Growth Surge, Followed by a Slowdown -- Early in the
period, a strong economy fueled speculation that the Federal Reserve Board
would choose to increase rates in a preemptive strike against inflation. The
move never came, though, as the release of economic indicators suggesting a
slight slowdown in growth combined with fears that a rate increase could
intensify a worsening situation in Asia. By period end, a need for a Fed
increase was ruled out again as continued Asian market turbulence and a
striking General Motors workforce combined to further curb the U.S. economy's
pace of economic growth.
. Market Outlook: Uncertainty Brings Opportunity -- We believe the recent sharp
declines in the stock market have created opportunities to buy both excellent
companies at discounted valuations and companies experiencing temporary
uncertainties at deeply depressed prices. Longer term, in our opinion, the
outlook for the economy and the stock market is favorable. We believe that the
economy will continue to expand, albeit at a moderate rate, and that inflation
will remain benign, allowing interest rates to hold steady.
We encourage you to maintain your long-term investment program, and look
forward to serving your investment needs in the years ahead.
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Asset Management Goldman Sachs Asset Management
August 31, 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 six-month period
ended July 31, 1998.
Performance Review
Over the period, the combination of favorable returns and the growth style, and
good stock selection, helped drive the Fund's performance beyond the 15.18%
cumulative total return of the Fund's benchmark, the S&P 500 Index. In addition,
these factors also contributed to the Fund's outperformance of the 11.82%
cumulative total return of its peers, as measured by the Lipper Growth Fund peer
group average.
Portfolio Composition
In general, the Fund was overweight in consumer non-durables and health, and
underweight in the capital goods sector. As bottom-up stock-pickers, we focus
on the real worth of the business, and to the extent that we find several
businesses in related industries that have long-term growth potential, we may
develop an overweight in a given sector. Recently, we found several companies
that meet our criteria -- strong franchise, dominant market share, free cash
flow, high return on invested capital and predictable/sustainable growth --
within the health-care and consumer nondurables sectors. Poised to benefit
from favorable demographic trends and the business's own enduring competitive
advantage, these sectors have drawn our attention and investment. Conversely,
the Fund is underweighted in the more cyclical basic industry and consumer
durables sectors relative to the benchmark. It is important to note that the
Fund's sector weightings are the result of our bottom-up stock selection
process rather than sector-based decisions.
Portfolio Highlights
In recent months, investors have been attempting to identify businesses that
can sustain growth in the face of Asia's crisis. As the market has assigned a
premium to consistency and sustainability of above-average earnings growth,
our strategy has reaped some of the benefits of its long-term outlook and
focus on enduring competitive advantage. Listed below are some noteworthy
holdings.
. Tandy -- Tandy owns the popular Radio Shack consumer electronics franchise, a
branch of which is located within five minutes of the homes or offices of 94%
of all Americans. Tandy benefits from the convenience of Radio Shack's
locations, which provide easy access to the store's diverse product line and
technical expertise. Going forward, we believe that growth will result from
three initiatives: an increased focus on Radio Shack, increased marketing to
women customers, and the use of free cash flow to buy back more stock, which
will provide a further boost to earnings per share.
. Home Depot -- Home Depot, the nation's largest seller of do-it-yourself
hardware and building materials, is one the Fund's largest retail positions. A
combination of a knowledgeable staff with product expertise, and low costs to
the customer has placed Home Depot at the forefront of its business niche. The
company is presently increasing its store base by about
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:
. Favorable financial
characteristics
. High returns on
invested capital
. Dominant market shares
for core service or product
. Recurring revenue streams
. Solid brand franchises
. Management committed
to maximizing shareholder
returns
Result
A diversified portfolio of
stocks with strong long-term
growth potential.
20% per year, and has plans to expand its business into home improvement,
building materials and services. Home Depot also intends to develop a more
global business, with Latin America as its current focus.
. Tele-Communications Inc. -- The June 23, 1998 announcement of the acquisition
of TCI by AT&T was a watershed event. The transaction was a reaffirmation of
our long-standing belief in the strategic competitive advantage held by cable
television operators through their broadband network.
. Liberty Media Group -- Liberty (now known as Tele-Communications Inc. Liberty
Media Unit) may be the greatest beneficiary of the proposed AT&T/TCI
transaction. Prior to the AT&T/TCI deal, Liberty merged with its sister
company, TCI Ventures, in a no-premium share swap. This merger consolidated
all non-cable assets of the TCI family of companies. We believe this
transaction greatly enhances the company's already attractive future.
Key New Acquisitions
. Jacor Communications -- Jacor Communications, which owns over 180 radio
stations, is the third largest radio network group in the country. One of the
company's key advantages is its strong free cash flow, which is growing at 25%
annually. Free cash has enabled Jacor to expand its business from major
metropolitan areas to medium-sized cities and smaller suburban areas through a
series of acquisitions. This "hub and spoke" strategy system allows the
company to distribute big-city programming to smaller markets and helps spread
costs.
. Chancellor Media Corp. -- Chancellor Media has been one of the most aggressive
consolidators of large-market radio stations and station groups. The company
is the second largest operator in the Top 25 radio markets, which gives it
significant pricing flexibility. In the first quarter, the company started a
new network to take advantage of its size to sell national advertising over
its stations. The results speak for themselves: the company budgeted $60
million in revenues in 1998 and had already booked $22 million in the first
two months of 1998.
Portfolio Outlook
We believe the outlook for the economy and the stock market remains favorable,
given our expectations for continued low inflation, stable interest rates and
modest economic growth. In this environment, we will continue to seek
companies that are strategically poised for long-term growth. In the near
term, given high levels of global volatility, we believe that the portfolio
will benefit from the ownership of high quality companies with stable earnings
growth and enduring competitive advantage.
We thank you for your investment, and look forward to your continued
confidence.
Goldman Sachs U.S.Growth Investment Team
August 31, 1998
3
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
An Action Plan for Volatile Markets
When fear and uncertainty temporarily take hold of global markets, you can gain
a greater sense of control over your own investment portfolio by making sound
decisions. Whether you are a seasoned investor or a market neophyte, the
following thoughts are intended to help you maintain some perspective during
these volatile market times.
Remember the factors
you considered when you first
began investing: your long-term
objectives, time horizon, risk
tolerance and financial needs.
Stay on Course
Don't let market directions dictate your investment decisions -- avoid the
common mistake of basing decisions on emotions or uncertainty. Remember the
factors you considered when you first began investing: your long-term
objectives, time horizon, risk tolerance and financial needs.
Stay Diversified
Global diversification is one of the best defenses against uncertain markets.
Because the world's countries have varying economies, growth rates and stages of
development, they tend to offer strong performance at different times.
Diversifying among equity markets enables you to capture a wide range of
opportunities and seek maximum risk-adjusted returns.
Stay Invested
Investors often redeem at market lows because of concern or lack of
information -- and negatively impact their longer-term returns. With stock
investing, the longer your holding period, the greater the likelihood of
positive returns.
Consult Your Financial Advisor
Market declines provide a good opportunity to touch base with your advisor, gain
confirmation that you are properly diversified and assess whether any recent
life events necessitate a change in asset allocation policy.
For More Information
Goldman Sachs Asset Management offers a broad spectrum of equity mutual funds
that can help you weather market ups and downs. For more information on Goldman
Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Performance Summary
July 31, 1998 (Unaudited)
The following graph shows the value as of July 31, 1998, of a $10,000 invest-
ment made (with the maximum sales charge of 5.5%) in Class A shares on April
20, 1990 (commencement of operations). For comparative purposes, the perfor-
mance 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 considered indicative of future performance which will fluctu-
ate 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 Serv-
ice 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
JULY 31, 1998
LOGO
GS-Capital Growth Class A
Inception Date 04/20/90
S&P 500 Fund
------------
APR 20/1990 10,000 9,450
APR 9,882 9,458
MAY 10,819 9,708
JUNE 10,754 9,775
JULY 10,728 9,667
AUG 9,751 9,108
SEPT 9,284 8,458
OCT 9,253 8,125
NOV 9,838 8,600
DEC 10,112 8,937
JAN/91 10,552 9,529
FEB 11,307 10,096
MAR 11,581 10,285
APR 11,608 10,448
MAY 12,109 10,980
JUNE 11,554 10,354
JULY 12,093 10,801
AUG 12,379 10,982
SEPT 12,172 10,999
OCT 12,336 11,352
NOV 11,839 10,663
DEC 13,193 11,790
JAN/92 12,947 12,323
FEB 13,114 12,765
MAR 12,859 12,765
APR 13,237 12,873
MAY 13,301 13,198
JUNE 13,104 12,666
JULY 13,639 12,946
AUG 13,360 12,431
SEPT 13,517 12,579
OCT 13,563 13,098
NOV 14,025 14,090
DEC 14,197 14,552
JAN/93 14,316 14,542
FEB 14,511 14,304
MAR 14,817 14,979
APR 14,459 14,383
MAY 14,846 14,910
JUNE 14,889 15,148
JULY 14,829 15,386
AUG 15,392 15,595
SEPT 15,274 15,927
OCT 15,590 15,917
NOV 15,441 15,977
DEC 15,628 16,614
JAN/94 16,160 16,998
FEB 15,721 17,285
MAR 15,036 16,636
APR 15,228 16,657
MAY 15,478 16,774
JUNE 15,099 16,455
JULY 15,594 16,657
AUG 16,233 17,530
SEPT 15,837 17,300
OCT 16,194 16,976
NOV 15,604 16,084
DEC 15,835 16,432
JAN/95 16,245 16,254
FEB 16,879 17,443
MAR 17,378 17,811
APR 17,889 18,216
MAY 18,605 18,810
JUNE 19,037 19,535
JULY 19,669 20,094
AUG 19,718 20,368
SEPT 20,550 20,479
OCT 20,476 19,701
NOV 21,375 20,371
DEC 21,787 20,663
JAN/96 22,528 21,203
FEB 22,738 21,573
MAR 22,956 21,815
APR 23,293 22,284
MAY 23,894 22,753
JUNE 23,985 22,156
JULY 22,925 21,388
AUG 23,409 22,042
SEP 24,727 23,059
OCT 25,409 23,424
NOV 27,329 24,942
DEC 26,788 25,081
JAN/97 28,461 26,727
FEB 28,685 26,695
MAR 27,506 25,496
APR 29,145 27,429
MAY 30,920 28,819
JUNE 32,306 30,417
JULY 34,877 32,941
AUG 32,924 30,816
SEP 34,728 32,239
OCT 33,568 31,689
NOV 35,122 33,129
DEC 35,726 33,937
JAN '98 36,123 34,668
FEB 38,727 37,482
MAR 40,710 39,471
APR 41,121 40,071
MAY 40,414 39,114
JUNE 42,055 41,272
JULY 41,605 40,878
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR SIX MONTHS
AVERAGE ANNUAL TOTAL RETURN THROUGH JULY 31, 1998
<S> <C> <C> <C> <C>
CLASS A (COMMENCED APRIL 20,
1990)
Excluding sales charges 19.33% 21.57% 24.09% 17.91%
Including sales charges 18.52% 20.20% 17.27% 11.40%
------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1,
1996)
Excluding redemption charges 30.02% n/a 23.26% 17.52%
Including redemption charges 28.75% n/a 17.39% 12.52%
------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15,
1997)(A)
Excluding redemption charges 27.80% n/a n/a 17.43%
Including redemption charges 26.63% n/a n/a 16.43%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COM-
MENCED AUGUST 15, 1997)(A) 29.04% n/a n/a 18.05%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AU-
GUST 15, 1997)(A) 28.58% n/a n/a 17.77%
------------------------------------------------------------------------------
</TABLE>
(a) Since inception represents cumulative total return since the class has
not been in operation for a full 12 months.
5
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Investments
July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 95.0%
<C> <S> <C>
ADVERTISING & MARKETING - 1.5%
711,580 Valassis Communications Inc.* $ 26,995,566
----------------------------------------------------------------
AEROSPACE/DEFENSE - 0.4%
173,340 Boeing Co. 6,727,759
----------------------------------------------------------------
AUTO SUPPLIERS - 0.5%
155,000 Lear Corp.* 8,224,688
----------------------------------------------------------------
BANKS - 9.8%
700,564 Banc One Corp. 36,210,402
475,300 BankAmerica Corp. 42,658,175
108,600 Citicorp 18,462,000
295,400 First Union Corp. 17,797,850
260,100 NationsBank Corp. 20,742,975
603,900 State Street Corp. 41,857,819
----------------------------------------
177,729,221
----------------------------------------------------------------
BUSINESS SERVICES - 0.5%
214,800 H & R Block, Inc. 9,129,000
----------------------------------------------------------------
CHEMICAL PRODUCTS - 1.2%
98,200 Du Pont (E.I.) de Nemours & Co. 6,088,400
102,100 Minnesota Mining and Manufacturing Co. 7,644,738
153,200 Monsanto Co. 8,674,950
----------------------------------------
22,408,088
----------------------------------------------------------------
COMMERCIAL SERVICES - 1.4%
456,900 Ecolab, Inc. 14,335,238
266,400 Galileo International, Inc. 10,955,700
----------------------------------------
25,290,938
----------------------------------------------------------------
CONSUMER STAPLES - 5.1%
195,700 Avon Products, Inc. 16,928,050
88,800 Clorox Co. 9,102,000
242,900 Colgate Palmolive Co. 22,453,069
349,200 Gillette Co. 18,289,350
324,680 Procter & Gamble Co. 25,771,475
----------------------------------------
92,543,944
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
DEPARTMENT STORES - 1.9%
136,700 Federated Department Stores, Inc.* $ 7,236,556
422,500 Walmart Stores, Inc. 26,670,313
------------------------------------
33,906,869
------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.9%
169,800 American Standard Companies, Inc.* 8,086,725
489,300 General Electric Co. 43,700,606
------------------------------------
51,787,331
------------------------------------------------------------
ENERGY REFINING & MARKETING - 1.5%
587,800 AES Corp.* 26,928,588
------------------------------------------------------------
ENTERPRISE SYSTEMS - 2.5%
224,650 Cisco Systems, Inc.* 21,510,238
382,800 EMC Corp.* 18,757,200
49,400 Xerox Corp. 5,214,788
------------------------------------
45,482,226
------------------------------------------------------------
FOOD & BEVERAGES - 6.2%
414,600 Coca Cola Co. 33,453,038
329,400 Nabisco Holdings Corp. 11,734,875
554,300 Pepsico, Inc. 21,513,769
795,300 Ralston Purina Co. 25,598,719
214,180 William Wrigley Jr. Co. 19,209,269
------------------------------------
111,509,670
------------------------------------------------------------
FUNERAL SERVICES - 1.1%
506,480 Service Corp International 19,182,930
------------------------------------------------------------
</TABLE>
6
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
HEALTH SUPPLIERS/SERVICES - 1.8%
413,300 Johnson & Johnson $ 31,927,425
-------------------------------------------------------------
HEALTHCARE MANAGEMENT - 1.0%
261,320 Aetna, Inc. 18,112,743
-------------------------------------------------------------
HOME FURNISHING & SERVICES - 0.4%
248,100 Sherwin Williams Co. 7,908,188
-------------------------------------------------------------
HOTELS & RESTAURANTS - 1.0%
585,240 Marriott International, Inc. 19,020,300
-------------------------------------------------------------
INFORMATION MANAGEMENT - 0.4%
208,800 Envoy Corp.* 7,830,000
-------------------------------------------------------------
INSURANCE BROKERS & OTHER INSURANCE - 0.5%
149,900 AMBAC, Inc. 8,731,675
-------------------------------------------------------------
INSURANCE-LIFE - 2.2%
153,500 Hartford Life, Inc. 8,883,813
211,900 Nationwide Financial Services, Inc. 11,535,306
323,950 SunAmerica, Inc. 19,902,678
-------------------------------------
40,321,797
-------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY - 0.8%
90,800 American International Group, Inc. 13,693,775
-------------------------------------------------------------
INTEGRATED OIL - 2.7%
71,100 Atlantic Richfield Co. 4,817,025
190,100 Exxon Corp. 13,330,763
143,600 Mobil Corp. 10,016,100
249,200 Texaco, Inc. 15,154,475
144,400 Unocal Corp. 4,729,100
-------------------------------------
48,047,463
-------------------------------------------------------------
INVESTMENT BROKERS & MANAGERS - 0.4%
369,200 Waddell & Reed Financial, Inc. 8,145,475
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
MEDIA & COMMUNICATIONS - 14.0%
1,080,100 AH Belo Corp. $ 22,682,100
138,000 Cablevision Systems Corp. Class A* 11,816,250
563,900 CBS, Inc. 19,137,356
215,600 Central Newspapers, Inc. 13,933,150
196,000 Chancellor Media Corp.* 9,457,000
305,900 Gannett Co. 19,558,481
651,200 HBO & Co. 19,190,050
303,900 Jacor Communications, Inc.* 17,816,138
451,200 New York Times Co. 13,874,400
351,802 Tele Communications, Inc.* 14,687,734
1,020,750 Tele-Communications Liberty Media Group* 40,255,828
239,710 Time Warner, Inc. 21,588,882
115,300 Tribune Co. 7,753,925
394,500 Walt Disney Co. 13,585,594
564,100 Ziff Davis, Inc.* 7,015,994
--------------------------------------------
252,352,882
--------------------------------------------------------------------
OIL & GAS SERVICES - 1.8%
526,000 Schlumberger, Ltd. 31,855,875
--------------------------------------------------------------------
PHARMACEUTICALS - 11.4%
761,800 American Home Products Corp. 39,232,700
432,500 Bristol-Myers Squibb Co. 49,277,969
360,920 Pfizer, Inc. 39,701,200
239,900 Schering-Plough Corp. 23,210,325
147,400 Sigma Aldrich Corp. 4,256,175
672,000 Warner-Lambert Co. 50,778,000
--------------------------------------------
206,456,369
--------------------------------------------------------------------
</TABLE>
7
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Investments (continued)
July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
RECREATIONAL PRODUCTS - 0.7%
329,400 Hasbro, Inc. $ 11,920,163
-----------------------------------------------------------------
SEMICONDUCTORS - 0.7%
159,200 Intel Corp. 13,442,450
-----------------------------------------------------------------
SOFTWARE & SERVICES - 4.6%
676,200 First Data Corp. 19,567,538
445,900 Microsoft Corp.* 49,104,738
219,000 Peoplesoft, Inc.* 8,253,563
159,500 Sterling Commerce, Inc.* 6,310,219
-----------------------------------------
83,236,058
-----------------------------------------------------------------
SPECIALTY FINANCE & AGENCIES - 4.8%
285,400 C.I.T. Group, Inc. 9,453,875
456,900 Federal Home Loan Mortgage Corp. 21,588,525
348,300 Federal National Mortgage Association 21,594,600
1,034,787 MBNA Corp. 34,665,365
-----------------------------------------
87,302,365
-----------------------------------------------------------------
SPECIALTY RETAIL - 2.6%
246,600 Home Depot, Inc. 10,326,375
656,800 Tandy Corp. 37,314,450
-----------------------------------------
47,640,825
-----------------------------------------------------------------
SUPERMARKETS - 2.4%
237,000 CVS Corp. 9,717,000
265,700 Rite Aid Corp. 10,495,150
522,960 Walgreen Co. 22,585,335
-----------------------------------------
42,797,485
-----------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 2.0%
394,320 Lucent Technologies, Inc. 36,449,955
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
TOBACCO - 2.3%
555,200 Philip Morris Companies, Inc. $ 24,324,700
369,100 RJR Nabisco Holdings, Inc. 9,019,870
334,000 UST, Inc. 9,018,000
-----------------------------------------------
42,362,570
-----------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $1,149,565,100) $1,717,402,656
-----------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
REPURCHASE AGREEMENT - 4.4%
<C> <S> <C>
$78,900,000 Joint Repurchase Agreement Account 5.69%,
08/03/98 $ 78,900,000
-----------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $78,900,000) $ 78,900,000
-----------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $1,228,465,100)(A) $1,796,302,656
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
FEDERAL INCOME TAX INFOR-
MATION:
Gross
unrealized
gain for
investments
in which
value exceeds
cost $595,748,799
Gross
unrealized
loss for
investments
in which
cost exceeds
value (28,356,563)
----------------------------
Net
unrealized
gain $567,392,236
----------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $1,228,910,420.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
8
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Assets and Liabilities
July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$1,228,465,100) $1,796,302,656
Cash 30,184
Receivables:
Investment securities sold 15,839,843
Fund shares sold 10,568,568
Dividends and interest 931,950
Other assets 85,160
---------------------------------------------------------------------------
TOTAL ASSETS 1,823,758,361
---------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 5,787,162
Fund shares repurchased 6,389,855
Amounts owed to affiliates 3,188,803
Accrued expenses and other liabilities 327,753
---------------------------------------------------------------------------
TOTAL LIABILITIES 15,693,573
---------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 1,200,364,042
Accumulated distributions in excess of net investment
income (1,297,973)
Accumulated undistributed net realized gain on
investment transactions 41,161,163
Net unrealized gain on investments 567,837,556
---------------------------------------------------------------------------
NET ASSETS $1,808,064,788
---------------------------------------------------------------------------
</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) 75,217,102 5,826,554 1,278,409
Net asset and Class A redemption value per
share(a) $21.79 $21.47 $21.42
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 699,981 56,220
Net asset value, offering and redemption price per
share $21.78 $21.74
--------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV X 1.0582) for Class A shares
is $23.06. 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.
9
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statement of Operations
For the Six Months Ended July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 8,602,135
Interest 1,456,263
---------------------------------------------------------------------------
TOTAL INCOME 10,058,398
---------------------------------------------------------------------------
EXPENSES:
Management fees 7,953,076
Distribution fees 2,203,512
Authorized dealer service fees 1,974,349
Transfer agent fees 630,399
Registration fees 159,258
Custodian fees 146,044
Professional fees 30,838
Trustee fees 3,992
Other 114,670
---------------------------------------------------------------------------
TOTAL EXPENSES 13,216,138
---------------------------------------------------------------------------
Less -- fees waived by Goldman Sachs (1,859,767)
---------------------------------------------------------------------------
NET EXPENSES 11,356,371
---------------------------------------------------------------------------
NET INVESTMENT LOSS (1,297,973)
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS:
Net realized gain from investment transactions 37,897,023
Net change in unrealized gain on investments 204,813,265
---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS 242,710,288
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $241,412,315
---------------------------------------------------------------------------
</TABLE>
10
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Statements of Changes in Net Assets
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
JULY 31, 1998 YEAR ENDED
(UNAUDITED) JANUARY 31, 1998
<S> <C> <C>
FROM OPERATIONS:
Net investment (loss) income $ (1,297,973) $ 746,247
Net realized gain on investment
transactions 37,897,023 171,487,631
Net change in unrealized gain on
investments 204,813,265 110,348,766
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 241,412,315 282,582,644
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares -- (884,787)
Institutional shares -- (3,044)
In excess of net investment income
Class A shares -- (624,850)
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)
Class B shares -- (1,824,839)
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)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 419,281,091 268,104,441
Reinvestment of dividends and
distributions -- 169,448,560
Cost of shares repurchased (162,709,311) (150,961,069)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 256,571,780 286,591,932
------------------------------------------------------------------------------
TOTAL INCREASE 497,984,095 386,213,666
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,310,080,693 923,867,027
------------------------------------------------------------------------------
End of period $1,808,064,788 $1,310,080,693
------------------------------------------------------------------------------
ACCUMULATED DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME $ (1,297,973) $ --
------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<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 SIX MONTHS ENDED JULY 31, (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $18.48 $(0.01) $3.32 $ -- $ -- $ -- $ -- $3.31
1998 - Class B
Shares 18.27 (0.06) 3.26 -- -- -- -- 3.20
1998 - Class C
Shares 18.24 (0.05) 3.23 -- -- -- -- 3.18
1998 - Institutional
Shares 18.45 0.01 3.32 -- -- -- -- 3.33
1998 - Service
Shares 18.46 (0.02) 3.30 -- -- -- -- 3.28
FOR THE YEARS ENDED JANUARY 31,
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
------------------------------------------------------------------------------------------------------------------------
</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 B, Class C, Institutional and Service share activity commenced
on 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.
12
<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 AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
VALUE, END TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE NET
OF PERIOD RETURN(A) RATE (IN 000S) NET ASSETS NET ASSETS ASSETS ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$21.79 17.91%(d) 10.02%(d) $1,639,118 1.39%(c) (0.12)%(c) 1.64%(c) (0.37)%(c)
21.47 17.52(d) 10.02(d) 125,092 2.14(c) (0.92)(c) 2.14(c) (0.92)(c)
21.42 17.43(d) 10.02(d) 27,385 2.14(c) (0.94)(c) 2.14(c) (0.94)(c)
21.78 18.05(d) 10.02(d) 15,248 1.10(c) 0.11(c) 1.10(c) 0.11(c)
21.74 17.77(d) 10.02(d) 1,222 1.60(c) (0.44)(c) 1.60(c) (0.44)(c)
18.48 29.71 61.50 1,256,595 1.40 0.08 1.65 (0.17)
18.27 28.73 61.50 40,827 2.18 (0.77) 2.18 (0.77)
18.24 8.83(d) 61.50 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
18.45 9.31(d) 61.50 7,262 1.16(c) 0.18(c) 1.16(c) 0.18(c)
18.46 9.18(d) 61.50 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
----------------------------------------------------------------------------------------------------------------------------
16.73 25.97 52.92 920,646 1.40 0.62 1.65 0.37
16.67 19.39(d) 52.92 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)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements
July 31, 1998 (Unaudited)
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs Capital Growth
Fund (the "Fund"). At July 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; (ii) gains and losses between trade date and set-
tlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
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.
14
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
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. Each class of shares
separately bears its respective class-specific transfer agency fees. Service
shares separately bear a service class fee payable monthly to service organi-
zations for their services.
15
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
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, currency exchange rates
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.
16
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
3. AGREEMENTS
Goldman Sachs Funds Management L.P. ("GSFM"), an affiliate of Goldman, Sachs
& Co. ("Goldman Sachs"), acts as the Fund's investment adviser pursuant to an
Investment Management Agreement (the "Agreement"). 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 affairs, 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 $931,000 during the six
months ended July 31, 1998.
The Trust, on behalf of the Fund, has adopted Distribution Plans (the "Dis-
tribution Plans") pursuant 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 av-
erage daily net assets attributable to Class A, Class B and Class C shares,
respectively. For the six months ended July 31, 1998, the Distributor has
voluntarily agreed to waive approximately $1,860,000 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, on behalf of the Fund, has adopted Authorized Dealer Service
Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and Autho-
rized Dealers are compensated for providing personal and account maintenance
services. The Fund pays a fee under its Dealer Service Plan equal, on an an-
nual 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. Effective September 1, 1998 fees charged for such
transfer agent services are as follows: 0.19% of average daily net assets for
Class A, Class B and Class C Shares and 0.04% of average daily net assets for
Institutional and Service Class Shares.
The Trust, on behalf of the Fund, has adopted a Service Plan. This plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
.50% (on an annualized basis), of the average daily net asset value of the
Service shares.
At July 31, 1998, the Fund owed approximately $1,556,000, $221,000,
$1,053,000 and $359,000 for Management, Distribution, Authorized Dealer Serv-
ice 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 the six months ended July 31,
1998, were $348,688,025 and $153,780,966, respectively.
17
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
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 Manage-
ment agreements with GSFM or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements. The underlying securities for the repurchase
agreements are U.S. Treasury and agency obligations. At July 31, 1998, the
Fund had an undivided interest in the repurchase agreements in the following
joint account which equaled $78,900,000 in principal amount. At July 31,
1998, the repurchase agreements held in this joint account, along with the
corresponding underlying securities (including the type of security, market
value, interest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEAR STEARNS COMPANIES, INC., $100,000,000 5.70% 08/03/98 $ 100,000,000
dated 07/31/98, repurchase price $100,047,500 (total collateral value
$103,015,560 consisting of GNMA: 6.50%, 08/15/27; FHLMC: 7.00%, 11/01/27;
FNMA: 9.00%, 11/01/25)
-----------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE, 200,000,000 5.68 08/03/98 200,000,000
dated 07/31/98, repurchase price $200,094,667 (total collateral value
$207,985,925 consisting of FNMA: 7.00%, 03/01/28; FHLMC: 5.50%, 05/01/13)
-----------------------------------------------------------------------------
NATIONSBANK, 300,000,000 5.70 08/03/98 300,000,000
dated 07/31/98, repurchase price $300,142,500 (total collateral value
$306,061,477 consisting of FNMA: 6.50%, 11/01/12)
-----------------------------------------------------------------------------
NOMURA SECURITIES, INTERNA-
TIONAL, 450,000,000 5.70 08/03/98 450,000,000
dated 07/31/98, repurchase price $450,213,750 (total collateral value
$459,000,001 consisting of FNMA: 5.50%-9.00%, 07/01/99-08/01/28; FHLMC:
5.00%-8.50%, 12/01/98-07/01/28)
-----------------------------------------------------------------------------
SALOMON-SMITH BARNEY, 404,700,000 5.69 08/03/98 404,700,000
dated 07/31/98, repurchase price $404,891,895 (total collateral value
$413,162,707 consisting of FNMA: 6.50%-8.00%, 08/01/26-07/01/28; FHLMC:
8.00%-8.50%, 05/01/27-11/01/27)
-----------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,454,700,000
-----------------------------------------------------------------------------
</TABLE>
18
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
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 six months ended July 31, 1998, the Fund did not
have any borrowings under these facilities.
19
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
8. SUMMARY OF SHARE TRANSACTIONS
Share activity for the six months ended July 31, 1998 and year ended January
31, 1998 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JULY 31, 1998 YEAR ENDED JANUARY 31, 1998
(UNAUDITED)
------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 14,379,015 $ 303,705,423 11,682,231 $ 219,227,835
Reinvestments of divi-
dends and distributions -- -- 9,276,258 164,296,869
Shares repurchased (7,143,046) (151,082,281) (7,999,080) (148,461,895)
------------------------------------------------------
7,235,969 152,623,142 12,959,409 235,062,809
---------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,710,874 78,000,178 1,886,965 35,512,523
Reinvestments of divi-
dends and distributions -- -- 248,911 4,352,015
Shares repurchased (118,599) (2,462,651) (94,837) (1,799,265)
------------------------------------------------------
3,592,275 75,537,527 2,041,039 38,065,273
---------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,040,192 21,861,748 300,430 5,779,471
Reinvestments of divi-
dends and distributions -- -- 31,825 552,643
Shares repurchased (57,612) (1,188,362) (36,426) (646,150)
------------------------------------------------------
982,580 20,673,386 295,829 5,685,964
---------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 682,259 14,522,036 382,307 7,583,012
Reinvestments of divi-
dends and distributions -- -- 14,102 246,791
Shares repurchased (375,916) (7,975,906) (2,771) (53,759)
------------------------------------------------------
306,343 6,546,130 393,638 7,776,044
---------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 56,131 1,191,706 80 1,600
Reinvestments of divi-
dends and distributions -- -- 14 242
Shares repurchased (5) (111) -- --
------------------------------------------------------
56,126 1,191,595 94 1,842
---------------------------------------------------------------------------------
NET INCREASE 12,173,293 $ 256,571,780 15,690,009 $ 286,591,932
---------------------------------------------------------------------------------
</TABLE>
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 professionals based in offices 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 Funds
ASSET ALLOCATION
Higher Risk/Return Lower Risk/Return
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY DOMESTIC FIXED MONEY
EQUITY INCOME MARKET
For More Information
To learn more about the Goldman Sachs Capital Growth Fund and other Goldman
Sachs Funds, call your investment professional today.
/*/The exchange privilege is subject to termination and its terms are subject to
change.
<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
Jesse Cole, Vice President
James A. Fitzpatrick, Vice President
Anne Marcel, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Philip V. Giuca, Jr., Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Visit our internet address: www.gs.com/funds
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.
Small Cap Value Fund's, Mid Cap Equity Fund's, Capital Growth Fund's, and Growth
and Income Fund's foreign investments and active management
techniques entail risks in addition to those customarily associated with
investing in dollar-denominated securities of U.S issuers. Compared
with domestic securities markets, foreign markets may be less liquid, more
volatile and less subject to government regulation, and may make
available less public information about issuers. The Funds may incur losses
because of changes in securities prices expressed in local currencies,
movements in exchange rates or both.
The stocks of smaller companies are often associated with higher risks,
including greater volatility, than stocks of larger companies.
An investment in a money market fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that any money
market fund will be able to maintain a net asset value of $1.00 per share.
Source: Lipper Analytical Services, Inc. All Rights Reserved. The Lipper Growth
Fund category includes funds that invest in companies whose long-term
earnings are expected to grow significantly faster than the earnings of stocks
represented in the major unmanaged stock indices. Past
Performance is no guarantee of future results.
(C) Copyright 1998 Goldman, Sachs & Co. All rights reserved. Date of first use:
September 30, 1998 CGSAR / 118K / 9-98
