<PAGE>
Goldman Sachs Funds
================================================================================
MID CAP EQUITY FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth
potential through a diversified
portfolio of equity securities.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS MID CAP EQUITY FUND
Fund Basics
as of January 31, 1998
Assets Under Management
--------------------
$362.2 Million
--------------------
Number of Holdings
--------------------
49
--------------------
NASDAQ SYMBOLS
Class A Shares
--------------------
GCMAX
--------------------
Class B Shares
--------------------
GCMBX
--------------------
Class C Shares
--------------------
GCMCX
--------------------
Institutional Shares
--------------------
GSMCX
--------------------
Service Shares
--------------------
GSMSX
--------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return Russell MidCap
January 31, 1998 (based on NAV)(1) Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A (8/15/97-1/31/98) 3.42% N/A
Class B (8/15/97-1/31/98) 3.17% N/A
Class C (8/15/97-1/31/98) 3.27% N/A
Institutional 30.86% 22.01%
Service (7/18/97-1/31/98) 6.30% N/A
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Russell MidCap Index (with dividends reinvested) figures do not reflect
any fees or expenses. In addition, investors cannot invest directly in the
Index.
================================================================================
SEC CUMULATIVE TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period Institutional
ending 12/31/97 Class A Class B Class C (Average Annual)(4) Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 months N/A N/A N/A 36.04% N/A
Since Inception -3.69% -3.30% 0.82% 25.49% 4.83%
(8/15/97) (8/15/97) (8/15/97) (8/1/95) (7/18/97)
- --------------------------------------------------------------------------------
</TABLE>
(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 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 1/31/98
was $22.87 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 the specified periods, assuming reinvestment of all
distributions at NAV.
================================================================================
TOP TEN HOLDINGS AS OF 1/31/98
================================================================================
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
Quantum Corp. 4.3% Tape and Disk Drive Products
Lear Corp. 3.5% Auto Supplies
Central Maine Power Co. 3.1% Electric Utilities
Tenet Healthcare Corp. 3.0% Health Management
Republic N.Y. Corp. 2.9% Banking
Aetna Inc. 2.9% Healthcare Management
Tosco Corp. 2.9% Oil Refining and Marketing
Unicom Corp. 2.9% Electric Utilities
Fruit of the Loom, Inc. 2.7% Clothing Manufacturer
Quest Diagnostics, Inc. 2.6% Clinical Laboratories
- --------------------------------------------------------------------------------
</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 MID CAP EQUITY 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. Small- and
mid-cap stocks lagged their large-cap brethren through most of the year,
emerging briefly in mid-summer as market leaders.
o The U.S. Equity Market: An Upward Climb Marked by Periods of
Volatility -Early in the fiscal year, the Federal Reserve's
decision to increase the Federal funds rate was perceived by
investors as potentially the first in a series of tightenings,
and the market 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 likely have little impact on U.S.
companies. Late-year strength in the market favored large, liquid
names, while small- and mid-caps, despite their attractive
relative valuations, struggled to regain the momentum they had
achieved mid-summer.
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, we believe the equity market will produce
returns closer to the historic norm, a scenario that should be
accompanied by more normal levels of volatility. The performance
of small- and mid-caps, to a significant extent, will depend upon
whether or not investors broaden their focus from the largest,
most liquid stocks to smaller, less widely followed issues.
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 MID CAP EQUITY FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Mid Cap Equity
Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's Institutional share class outperformed nearly all of its peers
for the one-year period ended January 31, 1998, according to Lipper
Analytical Services, Inc. The total return of the Fund's Institutional
share class ranked in the top 2% of all funds in the Lipper Mid Cap Fund
category (number 3 out of 258 funds. Class A shares, Class B shares, Class
C 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
As bottom-up stock pickers, we do not focus on sectors as guidelines to
value. However, in general, throughout the fiscal year, the Fund
maintained overweighted positions in the consumer durables and
transportation sectors, and an underweighted position in the capital
goods/basic industry sector.
Portfolio Highlights
o Lennar Corp. -- Homebuilding stock Lennar performed well in the
slow-growth, low-inflation economic environment, but company-specific
developments further abetted performance. Primarily, the company
appreciated as the market realized the worth of its different
divisions. Additionally, at the end of October, the company completed
the spin-off of its real estate investment and management business.
o Darden Restaurants Inc. -- The company is the largest full-service
restaurant group in the U.S. and operates the Red Lobster and Olive
Garden restaurant chains. The company continued its positive momentum,
reporting solid gains in sales and earnings. Red Lobster's
profitability improved substantially from year-ago levels in terms of
same-store sales and store traffic, while the Olive Garden posted
earnings growth and an increase in same-store sales. Darden's
aggressive stock buy-back also fueled the company's return this year.
o Continental Airlines -- The airline benefited from its geographic hubs
and from fewer discount offers, cheaper fuel pricing and increased
traffic.
o ShopKo Stores Inc. -- The company generated consistently high
same-store sales and improving margins in discount retailing. The
market recognized ShopKo's strategy and its consistency in a
competitive environment.
o Centex Corp. -- Centex sustained strong mid-year performance (third
quarter of 1997) after announcing better than expected earnings. This
announcement augmented the already positive effects of the market's
recognition of 1) results in the company's cost-cutting efforts in
homebuilding operations and 2) the use of its substantial free cash
flow to reduce debt and grow the business.
2
<PAGE>
GOLDMAN SACHS MID CAP EQUITY FUND
VALUE
INVESTMENT PROCESS
Value stocks represent companies that are currently undervalued in the market,
but whose intrinsic value we believe ultimately will be recognized. Our value
stock selection process emphasizes a bottom-up approach.
1
Search for Value
We search for value from a universe of 1,000 stocks, and then select 200 to 300
of the least expensive.
2
Fundamental Research
We refine our stock list through rigorous analysis of companies' "fundamentals"
and face-to-face meetings with company management, competitors, suppliers and
customers.
3
Risk Management
We maintain ongoing risk management resulting in an intentional and quantifiable
risk/return profile.
o Central Maine Power Co. -- The company continued to benefit from an
ongoing restructuring process. At year-end, Central Maine Power Co.'s
announcement that it had sold its nonnuclear generating assets at a
higher than expected price contributed further to performance.
Key New Acquisition
o Quantum Corp. -- The disk drive and digital linear tape (DLT)
manufacturer performed well, although it suffered a setback toward the
end of the period, when company-specific issues were exacerbated by
industry oversupply. Going forward, we believe the company's DLT
business will be extremely profitable (DLT provides rapid backup for
network servers).
Portfolio Outlook
We are keeping a close eye on the U.S. equity market's current valuation.
In recent memory, inflation has consistently surprised on the downside,
with technology improving overall productivity and the Asian economic
events driving down prices of imported goods. As many investors believe
this low-inflation environment will continue, the market's P/E level has
risen. The current S&P 500 P/E ratio seems unsustainable to us, as the
combination of rising labor costs and Asia-driven pricing pressure could
squeeze U.S. margins. By focusing on reasonably valued and discounted
names, however, we feel comfortable with our domestic portfolio.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/Ronald E. Gutfleish /s/G. Lee Anderson
Ronald E. Gutfleish G. Lee Anderson
Portfolio Manager, Portfolio Manager,
Goldman Sachs Mid Cap Equity Fund Goldman Sachs Mid Cap Equity Fund
/s/Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager,
Goldman Sachs Mid Cap Equity Fund
February 27, 1998
3
<PAGE>
GOLDMAN SACHS MID CAP EQUITY 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 only generated negative returns
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 MID-CAP EQUITY FUND
Performance Summary
January 31, 1998
The following graph shows the value as of January 31, 1998, of a $10,000 in-
vestment made in the Institutional Class of shares on August 1, 1995. For
comparative purposes, the performance of the Fund's benchmark (the Russell
Mid Cap Index) is shown. This performance data represents past performance
and should not be considered 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 A, Class B, Class C and Service
shares will vary from the Institutional Class of shares due to differences in
fees and loads.
MID-CAP EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1995 TO
JANUARY 31, 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Russell Mid Cap Index Fund
<S> <C> <C>
08/01/1995 10000 10000
10153 10140
10832 10227
10150 9973
10654 10253
10716 10494
Jan-96 10942 10689
11199 10877
11362 10796
11683 10937
11860 11085
11682 10762
Jul-96 10959 10353
11480 10749
12048 11307
12144 11428
12883 12469
12752 12740
Jan-97 13229 13436
13209 13623
12648 13329
12963 14010
13909 15337
14364 15947
Jul-97 15562 16980
15392 17123
16271 17883
15638 17419
16010 17195
16452 17331
Jan-98 16143 17583
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 15, 1997)(A)
Excluding sales charges 3.42% n/a
Including sales charges -2.29% n/a
-------------------------------------------------------------------------
CLASS B (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 3.17% n/a
Including redemption charges -1.99% n/a
-------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges 3.27% n/a
Including redemption charges 2.24% n/a
-------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 1,
1995)(A) 25.25% 30.86%
-------------------------------------------------------------------------
SERVICE CLASS (COMMENCED JULY 18, 1997)(A) 6.30% 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 MID-CAP EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 89.9%
<C> <S> <C>
AIRLINES - 1.7%
132,900 Continental Airlines Inc.* $ 6,163,237
---------------------------------------------------------
APPLIANCES - 2.2%
208,000 Sunbeam Corp. 7,891,000
---------------------------------------------------------
AUTO/VEHICLE - 3.5%
257,000 Lear Corp.* 12,769,687
---------------------------------------------------------
BANKS - 5.3%
549,500 National Bank of Canada, Inc. 8,511,918
97,600 Republic N.Y. Corp. 10,626,200
---------------------------------
19,138,118
---------------------------------------------------------
CHEMICAL PRODUCTS - 4.5%
223,800 IMC Global Inc. 7,217,550
208,600 Union Carbide Corp. 9,139,288
---------------------------------
16,356,838
---------------------------------------------------------
COMPUTER PERIPHERALS - 4.3%
645,300 Quantum Corp.* 15,729,188
---------------------------------------------------------
DATACOM EQUIPMENT - 2.1%
280,200 Bay Networks, Inc.* 7,617,937
---------------------------------------------------------
FOOD & BEVERAGES - 0.9%
125,400 International Multifoods Corp. 3,197,700
---------------------------------------------------------
FOREST PRODUCTS - 5.0%
139,100 Georgia-Pacific Corp. 7,667,888
430,400 Stone Container Corp.* 5,487,600
205,800 Georgia-Pacific Corp.*
(Timber Group) 4,784,850
---------------------------------
17,940,338
---------------------------------------------------------
GAMING - 1.8%
280,700 Circus Circus Enterprises, Inc.* 6,456,100
---------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 1.3%
347,200 Owens & Minor Inc. 4,708,900
---------------------------------------------------------
HEALTHCARE MANAGEMENT - 12.0%
143,700 Aetna Inc. 10,561,950
570,800 Quest Diagnostics Inc.* 9,489,550
284,900 Foundation Health Systems, Inc.* 7,389,594
211,800 Trigon Healthcare, Inc.* 5,268,525
310,400 Tenet Healthcare Corp.* 10,708,800
---------------------------------
43,418,419
---------------------------------------------------------
HOMEBUILDERS - 0.4%
3,100 Centex Corp. 194,525
51,500 Lennar Corp. 1,264,969
---------------------------------
1,459,494
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
HOTELS & RESTAURANTS - 0.4%
113,800 Darden Restaurants Inc. $ 1,436,725
---------------------------------------------------------
INSURANCE - BROKERS - 1.3%
118,500 Old Republic International Corp. 4,643,719
---------------------------------------------------------
INSURANCE - LIFE - 2.7%
68,849 American General Corp. 3,881,362
142,200 Reliastar Financial Corp. 5,901,300
---------------------------------
9,782,662
---------------------------------------------------------
INSURANCE - PROPERTY & CASUALTY - 1.5%
96,800 Allmerica Financial Corp. 5,094,100
3,600 CNA Financial Corp.* 481,050
---------------------------------
5,575,150
---------------------------------------------------------
OIL & GAS - REFINING AND MARKETING - 3.4%
313,900 Tosco Corp. 10,496,031
60,500 Valero Energy Corp. 1,909,531
---------------------------------
12,405,562
---------------------------------------------------------
PHARMACEUTICALS - 2.3%
72,239 Block Drug Co., Inc. 3,124,339
433,900 Perrigo Co.* 5,044,088
---------------------------------
8,168,427
---------------------------------------------------------
REAL ESTATE - 3.0%
433,200 Laser Mortgage Management Inc. 6,552,150
180,700 LNR Property Corp. 4,280,331
---------------------------------
10,832,481
---------------------------------------------------------
RETAIL - 2.5%
353,500 Shopko Stores Inc.* 9,014,250
---------------------------------------------------------
SEMICONDUCTORS - 4.6%
141,200 Avnet Inc. 8,613,200
377,162 Vishay Intertechnology, Inc.* 7,920,402
---------------------------------
16,533,602
---------------------------------------------------------
SPECIALTY FINANCE - 0.4%
50,800 C.I.T. Group Inc.* 1,527,175
---------------------------------------------------------
STEEL - 4.1%
458,400 AK Steel Holding Corp. 8,193,900
306,100 Ispat International NV* 6,619,413
---------------------------------
14,813,313
---------------------------------------------------------
SUPERMARKETS - 3.8%
464,000 Fleming Companies Inc. 6,989,000
158,400 Supervalu Inc. 6,949,800
---------------------------------
13,938,800
---------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
TEXTILES - 2.7%
412,700 Fruit of the Loom, Inc.* $ 9,904,800
--------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS - 2.3%
130,800 Goodyear Tire & Rubber Co. 8,191,350
--------------------------------------------------
TOBACCO - 1.1%
112,700 UST Inc. 3,888,150
--------------------------------------------------
TRANSPORTATION & LOGISTICS - 2.0%
157,900 CNF Transportation Inc. 7,214,056
--------------------------------------------------
UTILITIES - ELECTRIC - 6.9%
686,500 Central Maine Power Co. 11,370,156
249,200 Northeast Utilities* 3,052,700
336,700 Unicom Corp. 10,437,700
--------------------------
24,860,556
--------------------------------------------------
TOTAL COMMON STOCKS
(COST $292,399,308) (A) $325,577,734
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
REPURCHASE AGREEMENT - 8.7%
<S> <C> <C>
$31,600,000 Joint Repurchase Agreement
Account 5.64%, 02/02/98 $ 31,600,000
--------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $31,600,000) $ 31,600,000
--------------------------------------------------------
TOTAL INVESTMENTS
(COST $323,999,308) $ 357,177,734
--------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments
in which value exceeds cost $ 44,819,656
Gross unrealized loss for investments
in which cost exceeds value (12,146,808)
--------------------------------------------------------
Net unrealized gain $ 32,672,848
--------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $324,504,886.
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 MID-CAP EQUITY FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$323,999,308) $357,177,734
Cash 11,330
Receivables:
Investment securities sold 1,438,207
Fund shares sold 6,149,243
Dividends and interest 371,586
Deferred organization expenses, net 42,890
Other assets 171,292
-----------------------------------------------------------------------------
TOTAL ASSETS 365,362,282
-----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 2,176,758
Fund shares repurchased 471,061
Amounts owed to affiliates 434,455
Accrued expenses and other liabilities 56,393
-----------------------------------------------------------------------------
TOTAL LIABILITIES 3,138,667
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 314,226,803
Accumulated undistributed net investment income 130,093
Accumulated undistributed net realized gain on investment
transactions 14,688,293
Net unrealized gain on investments 33,466,867
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies (288,441)
-----------------------------------------------------------------------------
NET ASSETS $362,223,615
-----------------------------------------------------------------------------
</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) 4,191,937 1,332,295 298,521
Net asset and Class A redemption value per
share(a) $21.61 $21.57 $21.59
Maximum public offering price per share (Class
A NAV X 1.0582) $22.87 $21.57 $21.59
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (Unlimited shares authorized) 10,921,229 360
Net asset value, offering and redemption price per
share $21.65 $21.62
--------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B and C shares may be subject to a contingent de-
ferred 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 MID-CAP EQUITY FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 2,931,678
Interest 680,409
----------------------------------------------------------------------------
TOTAL INCOME 3,612,087
----------------------------------------------------------------------------
EXPENSES:
Management fees 1,653,946
Distribution fees 125,558
Authorized dealer service fees 86,845
Transfer agent fees 216,874
Custodian fees 59,612
Professional fees 70,239
Registration fees 66,062
Amortization of deferred organization expenses 17,166
Trustee fees 1,882
Other 53,081
----------------------------------------------------------------------------
TOTAL EXPENSES 2,351,265
----------------------------------------------------------------------------
Less -- expenses reimbursed by Goldman Sachs (264,378)
----------------------------------------------------------------------------
NET EXPENSES 2,086,887
----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,525,200
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain from:
Investment transactions 33,414,228
Net change in unrealized gain (loss) on:
Investments 11,551,004
Translation of assets and liabilities denominated in foreign
currencies (288,441)
----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS 44,676,791
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $46,201,991
----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $14,613.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY 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 $ 1,525,200 $ 1,726,659
Net realized gain on investment
transactions 33,414,228 13,627,039
Net realized gain on options written -- 40,466
Net change in unrealized gain on
investments 11,551,004 14,749,074
Net change in unrealized loss on
translation of assets and liabilities
denominated in foreign currencies (288,441) --
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 46,201,991 30,143,238
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (88,869) --
Class B shares -- --
Class C shares -- --
Institutional shares (1,204,893) (1,837,675)
Service shares (15) --
In excess of net investment income
Class A shares (63,822) --
Class B shares (36,518) --
Class C shares (7,184) --
Institutional shares -- (25,142)
Service shares (8) --
From net realized gain on investment and
foreign currency transactions
Class A shares (2,003,140) --
Class B shares (739,050) --
Class C shares (118,344) --
Institutional shares (23,361,534) (6,629,058)
Service shares (307) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (27,623,684) (8,491,875)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 219,499,016 3,933,239
Reinvestment of dividends and
distributions 27,184,097 8,489,760
Cost of shares repurchased (48,291,135) (24,491,993)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 198,391,978 (12,068,994)
------------------------------------------------------------------------------
TOTAL INCREASE 216,970,285 9,582,369
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 145,253,330 135,670,961
------------------------------------------------------------------------------
End of year $362,223,615 $145,253,330
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS
IN EXCESS OF) NET INVESTMENT INCOME $ 130,093 $ (25,142)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY 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 Mid Cap Eq-
uity Fund (the "Fund"). The Trust is registered under the Investment Company
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 MID-CAP EQUITY 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 as well as
timing differences associated with having different book and tax year ends.
G. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
H. 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. Service shares sepa-
rately 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 MID-CAP EQUITY FUND
I. 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.
J. 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 as unrealized gains or losses. When contracts are closed, the
Fund realizes a gain or loss which is reported in the Statement of Opera-
tions.
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 MID-CAP EQUITY 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 Asset Manage-
ment ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser. Under the Agreement, GSAM,
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, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .75%
of the average daily net assets of the Fund.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other Ex-
penses" for the Fund (excluding management, service, distribution and autho-
rized dealer service fees and litigation and indemnification costs, taxes,
interest, brokerage commissions and extraordinary expenses) until further no-
tice to the extent such expenses exceed .10% of the average daily net assets
of the Fund. For the year ended January 31, 1998, Goldman Sachs reimbursed
approximately $264,000. At January 31, 1998, approximately $169,000 is owed
to 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 $704,000 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.
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 $220,000, $98,000, $65,000
and $52,000 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 the year ended January 31,
1998, were $271,272,271 and $97,123,077, respectively.
For the year ended January 31, 1998, Goldman Sachs earned approximately
$91,000 of brokerage commissions from portfolio transactions.
14
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY 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 GSAM 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 $31,600,000 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%, 08/08/07d)
------------------------------------------------------------------------------
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: 7.8%, 08/15/01)
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,744,200,000
------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY 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 year 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 5,841,266 $ 131,260,250 -- $ --
Reinvestments of divi-
dends and distributions 94,688 2,037,019 -- --
Shares repurchased (1,744,017) (40,763,741) -- --
--------------------------------------------------------
4,191,937 92,533,528 -- --
-----------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,399,203 30,963,114 -- --
Reinvestments of divi-
dends and distributions 30,492 662,853 -- --
Shares repurchased (97,400) (2,201,814) -- --
--------------------------------------------------------
1,332,295 29,424,153 -- --
-----------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 324,716 7,154,293 -- --
Reinvestments of divi-
dends and distributions 4,930 106,487 -- --
Shares repurchased (31,125) (693,155) -- --
--------------------------------------------------------
298,521 6,567,625 -- --
-----------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 2,288,783 50,110,458 227,071 3,933,239
Reinvestments of divi-
dends and distributions 1,099,576 24,377,632 483,747 8,489,760
Shares repurchased (222,904) (4,630,323) (1,480,859) (24,491,993)
--------------------------------------------------------
3,165,455 69,857,767 (770,041) (12,068,994)
-----------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 452 10,901 -- --
Reinvestments of divi-
dends and distributions 5 106 -- --
Shares repurchased (97) (2,102) -- --
--------------------------------------------------------
360 8,905 -- --
-----------------------------------------------------------------------------------
NET INCREASE 8,988,568 $198,391,978 (770,041) $ (12,068,994)
-----------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$25,124 from paid-in-capital to accumulated undistributed net investment in-
come and $6,220 from accumulated undistributed net realized gain to accumu-
lated undistributed net investment income. These reclassifications have no
impact on the net asset value of the Fund and is designed to present the
Fund's capital accounts on a tax basis.
10. OTHER MATTERS
As of January 31, 1998, Goldman, Sachs & Co. Employees Profit Sharing and Re-
tirement Plan was the beneficial owner of 34% of the outstanding shares of
the Fund.
17
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------- ------------------------------------------------
NET REALIZED
AND UNREALIZED
NET REALIZED LOSS ON
NET ASSET AND UNREALIZED FOREIGN IN EXCESS FROM NET NET INCREASE
VALUE, NET GAIN ON CURRENCY FROM NET OF NET REALIZED GAIN (DECREASE)
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT ON INVESTMENT IN NET ASSET
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares(b) $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02)
1998 - Class B
Shares(b) 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06)
1998 - Class C
Shares(b) 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04)
1998 - Institu-
tional Shares 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92
1998 - Service
Shares(b) 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39)
-----------------------------------------------------------------------------------------------------------------------
1997 - Institu-
tional Shares 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82
FOR THE PERIOD ENDED JANUARY 31,
1996 - Institu-
tional Shares(b) 15.00 0.13 0.90 -- (0.12) -- -- 0.91
-----------------------------------------------------------------------------------------------------------------------
</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 August 15, 1997, August 15, 1997, August 15, 1997,
August 1, 1995 and July 18, 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 MID-CAP EQUITY FUND
<TABLE>
<CAPTION> RATIOS ASSUMING NO EXPENSE LIMITATIONS
RATIO OF ---------------------------------------
NET ASSETS RATIO OF NET INVESTMENT RATIO OF
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO RATIO OF NET INVESTMENT INCOME
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET EXPENSES TO (LOSS) TO AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS ASSETS AVERAGE NET ASSETS ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$21.61 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21% (c)
21.57 3.17 (d) 62.60 0.0540 28,743 1.85 (c) (0.20)(c) 1.97 (c) (0.32)(c)
21.59 3.27 (d) 62.60 0.0540 6,445 1.85 (c) (0.23)(c) 1.97 (c) (0.35)(c)
21.65 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
21.62 6.30 (d) 62.60 0.0540 8 1.35 (c) 0.63 (c) 1.43 (c) 0.51 (c)
- ----------------------------------------------------------------------------------------------------------------------------
18.73 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
- ----------------------------------------------------------------------------------------------------------------------------
15.91 6.89 (d) 58.77 (d) -- 135,671 0.85 (c) 1.67 (c) 0.98 (c) 1.54 (c)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS MID-CAP EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust--Mid-Cap Eq-
uity Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Mid-Cap Equity 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 Mid-Cap Equity 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 Mid Cap Equity Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Mid Cap Equity 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 Mid Cap Equity Fund offers investors access to the benefits
associated with equity investing. The Fund seeks long-term capital
appreciation, primarily through equity securities of companies with public
stock market capitalizations between $500 million and $10 billion at the
time of investment.
Target Your Needs
The Goldman Sachs Mid Cap Equity Fund has a distinct investment objective
and a defined place on the risk/return spectrum. As your investment
objectives or market conditions change, you can exchange shares within
Goldman Sachs Funds without any additional charge. (Please note: in
general, greater returns are associated with greater risk.)
Goldman Sachs Domestic Equity Funds
[THE FOLLOWING TABLE WAS REPRESENTED BY A CHART IN THE PRINTED MATERIAL]
<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 Mid Cap Equity Fund and other Goldman
Sachs Funds, call your investment professional today.
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GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 10004
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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 Fund's foreign investments and 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 MIDCAPAR / 65K / 3-98
