<PAGE>
GOLDMAN SACHS FUNDS
================================================================================
TAX-FREE FUNDS Semiannual Report April 30, 1998
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High current income potential
from portfolios that invest primarily
in municipal securities.
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Goldman
Sachs
<PAGE>
Goldman sachs Tax-Free Funds
Market Overview
Dear Shareholders,
Interest in fixed income securities surged during the period under review.
Investors seeking more stable ground in the wake of Asian market weakness
demonstrated renewed interest in the fixed income arena. The laws of supply and
demand also worked in bonds' favor, as diminishing supply helped drive bond
prices upward. In total, investors placed approximately $38.9 billion into bond
funds over the six-month period ended April 30, 1998 alone -- slightly less than
1.4 times the amount invested in all of 1997.*
o Domestic and International Factors Renewed Interest in Bonds -- In the
immediate aftermath of the Asian financial crisis, bond prices surged
as investors sought a safe haven from global equity markets. Also
contributing to the steady increase in bond prices was the diminishing
supply of both Treasuries and tax-free municipal bonds, in part due to
a paring of the federal budget deficit. The late-year rally capped off
a strong year for the bond market, and by January, the yield on the
30-year Treasury bond had fallen to its lowest level since it was
first issued approximately 20 years ago.
o Bonds Maintained Their Rally into Early 1998, Despite Tapering
Investor Interest -- Factors influencing this rally included investor
satisfaction with the relative stability of the U.S. market and the
belief that Asia would have a cooling effect on the economy. Popular
theory held that these two factors would negate the potential for the
Federal Reserve Board to increase interest rates. However, as the
period under review neared to a close, it became apparent that the
impact from Asia was less severe than originally anticipated. Investor
interest in domestic bonds waned somewhat as volatility in overseas
markets subsided.
o Outlook: Near-Term Prospects for the Bond Markets Are Positive -- Near
term, the outlook for the bond market is dependent on the fortunes of
the Japanese and Asian financial sectors. We expect interest rates to
remain relatively stable, as positive trends counter any Asian
influences. Credit-related fixed income sectors should perform well in
this environment, as low interest rates spur both profit growth and
investor enthusiasm for yield. As is always the case, however, all
fixed income sectors remain susceptible to interest rate surprises,
earnings disappointments and policy shortfalls, despite these
generally positive trends.
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
/s/ Sharmin Mossavar-Rahmani
Sharmin Mossavar-Rahmani
CIO Fixed Income Investments,
Goldman Sachs Asset Management
May 29, 1998
*Source: The Investment Company Institute
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Fixed Income Investment Process
With our fixed income
portfolios, we seek consistent,
strong performance. We actively
manage our funds within
a research-intensive, risk-
controlled framework instead
of attempting to anticipate
interest rate movements.
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Fixed Income Security Selection
================================================================================
1
Security
Selection
- --------------------------------------------------------------------------------
In selecting securities for each portfolio, our fixed income teams have access
to the vast resources of Goldman Sachs.
2
Sector
Allocation
- --------------------------------------------------------------------------------
Our sector specialists work together to assess relative value among sectors and
create investment strategies to meet each fund's objectives.
3
Yield Curve
Strategies
- --------------------------------------------------------------------------------
We adjust the term structure of our portfolios based on our expectations of the
relationship between short- and long-term interest rates, while keeping each
fund's duration close to its benchmark.
1
<PAGE>
FUND BASICS
Short Duration Tax-Free Fund
as of April 30, 1998
Assets Under Management
-----------------------
$47.2 Million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSDTX
-----------------------
Class B Shares
-----------------------
GSDBX
-----------------------
Class C Shares
-----------------------
GSTCX
-----------------------
Institutional Shares
-----------------------
GSDUX
-----------------------
Service Shares
-----------------------
GSTAX
-----------------------
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PERFORMANCE REVIEW
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<TABLE>
<CAPTION>
Fund Total 30-Day Lehman
Return Taxable 30-Day 3-Year
October 31, 1997- based on Equivalent SEC Muni
April 30, 1998 NAV)(1) Yield(2) Yield(3) Index(4)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 1.81% 6.69% 3.96% 1.87%
Class B 1.51% 5.81% 3.44% 1.87%
Class C 1.53% N/A N/A 1.87%
Institutional 2.04% 7.26% 4.30% 1.87%
Administration 1.91% 6.82% 4.04% 1.87%
Service 1.69% 6.42% 3.80% 1.87%
</TABLE>
- -------------------------------------------------------------------------------
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Taxable Equivalent Yield of the Fund is calculated by dividing the
current 30-day SEC yield by 1 minus the highest 1997 federal income tax
rate of 40.8% (adjusted for the 3% phaseout of itemized deductions for
individuals at high income levels).
(3) The 30-Day SEC Yield of the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a 30-day period (ending on the stated
month-end date) by the maximum public offering price per share of the Fund
on the last day of the period. This number is compounded semiannually and
then annualized. This yield does not necessarily reflect income actually
earned and distributed by the Fund and, therefore, may not be correlated
with the dividends or other distributions paid to shareholders.
(4) The Lehman 3-Year Municipal Bond Index does not reflect any fees or
expenses. In addition, investors cannot invest directly in the Index.
================================================================================
SEC RETURNS
================================================================================
<TABLE>
<CAPTION>
For the period
ending 3/31/98 Class A Class B Class C Administration Institutional Service
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Year(5) N/A N/A N/A 5.92% 6.29% 5.55%
Five Years(5) N/A N/A N/A N/A 4.26% N/A
Since Inception 3.48%(6) 0.65%(6) 1.65%(6) 3.96%(5) 4.52%(5) 4.51%(5)
(5/1/97) (5/1/97) (8/15/97) (5/20/93) (10/1/92) (9/20/94)
- -----------------------------------------------------------------------------------
</TABLE>
(5) The SEC Average Annualized 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.
(6) 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 2%
for Class A shares, the assumed deferred sales charge for Class B shares
(2% maximum declining to 0% after three 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 3/31/98 was
$10.34 and represents the NAV plus the maximum sales charge of 2%.
================================================================================
PORTFOLIO COMPOSITION AS OF 4/30/98(7)
================================================================================
<TABLE>
<CAPTION>
Sector Allocation Credit Allocation
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Bonds 36.7% AAA 49.6%
Insured Revenue Bonds 11.7% AA 18.0%
General Obligations 18.1% A 24.2%
Insured General Obligations 11.8% BBB 8.2%
Pre-refunded 20.7%
Variable Rate Demand Notes 1.0%
- --------------------------------------------------------------------------------
</TABLE>
(7) Percentages may not sum to 100% due to rounding. The Fund is actively
managed and, as such, its composition may differ over time. The percentages
shown are of total portfolio investments that have settled and include an
offset to cash equivalents relating to all unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflects portfolio holdings as a percentage of net
assets.
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. Performance
reflects fee waivers in effect. In their absence, performance would be
reduced.
2
<PAGE>
PERFORMANCE OVERVIEW
Short Duration Tax-Free Fund
Dear Shareholders,
We are pleased to report on the performance of the Goldman Sachs Short Duration
Tax-Free Fund for the six-month period ended April 30, 1998.
Performance Review: Good Performance Relative to Benchmark
Over the six-month period ended April 30, 1998, the Fund's
Institutional and Administration shares outperformed the 1.87% return
of the Fund's benchmark, the Lehman 3-Year Municipal Bond Index. The
Fund's Class A, Class B, Class C and Service shares, which have higher
expenses, lagged the benchmark by a small margin.
The Fund's generally positive performance relative to its benchmark
was primarily due to our emphasis on higher yielding revenue bonds, as
well as the successful selection of specific securities and relative
value trades. As always, we did not make any bets on the direction of
interest rates, but rather kept the Fund's duration (2.6 years as of
April 30, 1998) in line with that of the benchmark (2.8 years),
occasionally using Treasury futures to actively manage sector
allocation. Additionally, yield curve strategies, in which we moved
between bulleted and barbelled term structures as the yield curve
flattened and steepened during the quarter, also contributed to
performance. Bulleting entails focusing a fund's yield curve risk
tightly around its benchmark's risk; a barbell strategy enables a fund
to reach its target duration by holding securities with longer and
shorter durations than the target. (It should be noted that since the
yield curve mostly flattened, we spent most of the period bulleted at
our duration target.)
Municipal Market Performance
The municipal market posted strong performance early in the period,
offering relative stability compared with the taxable sector. The
yield curve, however, continued to flatten in the absence of a Federal
Reserve Board move on short-term interest rates. A by-product of the
low-yield environment during this time was an increase in new issue
volume. 1998 year-to-date supply through April 30, 1998 was 66%
greater than the same period in 1997 (Source: The Bond Buyer).
Additionally, at the end of the period covered by this report, the
municipal market was about two weeks away from the largest municipal
bond underwriting in history, the $3 billion Long Island Power
Authority (LIPA) issue. The heavy supply, combined with the
"deer-in-the-headlights" effect of LIPA, adversely affected muni
market performance.
Portfolio Composition
Major changes to the portfolio's allocations during the period
included a substantial decrease in revenue and insured revenue bonds
(from 52.5% and 23.9%, respectively, on October 31, 1997 to 36.7% and
11.7% on April 30, 1998). These positions were replaced by general
obligation bonds, insured general obligation bonds and pre-refunded
bonds, all of which are typically higher quality. The sector shift was
prompted by the dramatic tightening in credit and sector yield spreads
(versus "riskless" generic AAA municipals). Most of the tightening
occurred in the second half of 1997, and as a result, we emphasized
higher quality securities during the last six months.
3
<PAGE>
PERFORMANCE OVERVIEW
The Goldman Sachs
Short Duration Tax-Free Fund
seeks a high level of current
income, consistent with low
volatility of principal, that
is exempt from regular
federal income tax, primarily
through investments in
municipal securities.
Portfolio Highlight
o Sacramento County Housing Authority, California Multifamily Housing
Revenue Bonds --Given recent Asian market turmoil, buyers have avoided
bonds backed by Japanese letters of credit due to concerns over the
credit quality of Japan's banks. However, analysts in Goldman, Sachs &
Co.'s Credit Department have identified Japanese banks that they
believe possess strong credit quality. Dai-Ichi Kangyo Bank is one
example. A letter of credit from the bank secures Sacramento County,
California Multifamily Housing Revenue bonds, which have a mandatory
put in 2000. We were able to purchase the bonds at an option-adjusted
spread of 85 basis points versus a AAA-rated bond, due to investors'
reluctance to hold bonds backed by Japanese letters of credit.
New Acquisition
o $2 million Kearny New Jersey Tax Anticipation Notes of 1997-98 --The
notes, which mature August 17, 1998, are rated investment grade, but
below the approved level for money market funds (whose managers
typically buy such securities). However, the credit story behind the
notes is strong. In preparing its budget for fiscal 1998, the town of
Kearny did not want to raise taxes, as it anticipated receiving monies
under a lease. However, since the lease was being litigated, payments
were not made -- and the budget was not approved. New Jersey maintains
close oversight of its localities, and at the time of the note sale,
was close to approving a budget for Kearny that included a tax
increase. We believed action would be taken and that there was
significant legal precedence to do so. The tax increase, along with
other monies, would provide sufficient funds to retire the notes as
scheduled. Thus, the notes, in our opinion, had adequate security and
yet yielded a significant premium. Subsequently, the town did approve
a budget containing a tax increase, and the State continues to watch
Kearny closely.
Portfolio Outlook
The flat yield curve and tight spread environment dictate that we
maintain our current strategies of bulleting and de-emphasizing lower
quality sectors and securities. Additionally, as is always the case
when investing in municipals, there are a variety of security-specific
strategies and relative value trades that can be employed. We are
currently overweight municipal price risk and hedged with U.S.
Treasury futures -- essentially a strategy that anticipates the
municipal market will outperform the taxable market in the next
several months. In fact, given the expected principal and coupon cash
flow that will enter the market this summer --estimates are between
$75 to $100 billion --the technical outlook for municipals is
improving.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Benjamin S. Thompson /s/ Elisabeth Schupf Lonsdale
Benjamin S. Thompson Elisabeth Schupf Lonsdale
Portfolio Manager, Goldman Sachs Portfolio Manager, Goldman Sachs
Short Duration Tax-Free Fund Short Duration Tax-Free Fund
May 29, 1998
4
<PAGE>
FUND BASICS
Municipal Income Fund
as of April 30, 1998
Assets Under Management
-----------------------
$83 Million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSMIX
-----------------------
Class B Shares
-----------------------
GSMBX
-----------------------
Class C Shares
-----------------------
GSMUX
-----------------------
Institutional Shares
-----------------------
GSMTX
-----------------------
Service Shares
-----------------------
GSMEX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
Fund Total 30-Day Lehman
Return Taxable 30-Day 3-Year
October 31, 1997- (based on Equivalent SEC Muni
April 30, 1998 NAV)(1) Yield(2) Yield(3) Index(4)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 3.02% 6.96% 4.12% 3.21%
Class B 2.57% 6.01% 3.56% 3.21%
Class C 2.63% 6.01% 3.56% 3.21%
Institutional 3.08% 7.72% 4.57% 3.21%
Service 2.97% N/A N/A 3.21%
</TABLE>
- --------------------------------------------------------------------------------
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The Taxable Equivalent Yield of the Fund is calculated by dividing the
current 30-day SEC yield by 1 minus the highest 1997 federal income tax
rate of 40.8% (adjusted for the 3% phaseout of itemized deductions for
individuals at high income levels).
(3) The 30-Day SEC Yield of the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a 30-day period (ending on the stated
month-end date) by the maximum public offering price per share of the Fund
on the last day of the period. This number is compounded semiannually and
then annualized. This yield does not necessarily reflect income actually
earned and distributed by the Fund and, therefore, may not be correlated
with the dividends or other distributions paid to shareholders.
(4) The Lehman Brothers 15-Year Municipal Bond Index is a total return
performance benchmark for the 15-year maturity, investment-grade tax-exempt
bond market. Returns and attributes for the Index are calculated
semi-monthly using approximately 5,000 municipal bonds, which are priced by
Muller Data Corporation. Please note that the benchmark return reflects
performance data from the Fund's first full month of operation (8/1/93),
which does not directly correlate with the Fund's performance since its
inception. The Index figures do not reflect any fees or expenses. In
addition, investors cannot invest directly in the Index.
================================================================================
SEC RETURNS
================================================================================
<TABLE>
<CAPTION>
For the period
ending 3/31/98 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year(5) 6.30% 5.31% N/A N/A N/A
Since Inception 5.39%(5) 6.39%(5) 4.09%(6) 5.85%(6) 5.61%(6)
(7/20/93) (5/1/96) (8/15/97) (8/15/97) (8/15/97)
</TABLE>
- --------------------------------------------------------------------------------
(5) The SEC Average Annualized 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 a maximum
initial sales charge of 4.5% for Class A shares, and the assumed deferred
sales charge for Class B shares (5% maximum declining to 0% after six
years). The public offering price of the Class A shares on 3/31/98 was
$15.95 and represents the NAV plus the maximum sales charge of 4.5%.
(6) The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering price
for specified periods, assuming reinvestment of all distributions at NAV.
The total return calculation reflects the assumed deferred sales charge for
Class C shares (1% if redeemed within 12 months of purchase).
================================================================================
PORTFOLIO COMPOSITION AS OF 4/30/98(7)
================================================================================
<TABLE>
<CAPTION>
Sector Allocation Credit Allocation
- --------------------------------------------------------------------------------
<S> <C> <S> <C>
Insured Revenue Bonds 38.9% AAA 64.4%
Insured General Obligations 22.9% AA 18.3%
Revenue Bonds 22.0% A 10.6%
General Obligations 14.0% BBB 6.7%
Pre-refunded 1.4%
Variable Rate Demand Notes 0.8%
</TABLE>
- --------------------------------------------------------------------------------
(7) Percentages may not sum to 100% due to rounding. The Fund is actively
managed and, as such, its composition may differ over time. The percentages
shown are of total portfolio investments that have settled and include an
offset to cash equivalents relating to all unsettled trades. These
percentages may differ from those in the accompanying Statement of
Investments, which reflects portfolio holdings as a percentage of net
assets.
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. Performance
reflects fee waivers in effect. In their absence, performance would be
reduced.
5
<PAGE>
PERFORMANCE OVERVIEW
Municipal Income Fund
Dear Shareholders,
We are pleased to report on the performance of the Goldman Sachs Municipal
Income Fund for the six-month period ended April 30, 1998.
Performance Review: Underperformance Relative to Benchmark
Over the six-month period ended April 30, 1998, the Fund's shares
slightly underperformed the 3.21% return of its benchmark, the Lehman
15-Year Municipal Bond Index. The Fund's perfor-mance relative to the
benchmark was primarily attributable to a current trade in the
portfolio that overweights municipal price risk and hedges that price
risk with U.S. Treasury futures contracts. Although period-end was
clearly a low point in relative performance for municipals, we believe
tax-exempts potentially will outperform taxables in the next several
months.
As always, we did not make any bets on the direction of interest rates
during the period, but rather kept the Fund's duration (8.3 years as
of April 30, 1998) in line with that of the Index (8.3 years).
Municipal and Treasury futures contracts were occasionally used to
manage sector allocation and duration.
Municipal Market Performance
The municipal market posted strong performance early in the period,
offering relative stability compared with the taxable sector. The
yield curve, however, continued to flatten in the absence of a Federal
Reserve move on short-term interest rates. A by-product of the
low-yield environment during this time was an increase in new issue
volume. 1998 year-to-date supply through April 30, 1998 was 66%
greater than the same period in 1997 (Source: The Bond Buyer).
Additionally, at the end of the period covered by this report, the
municipal market was about two weeks away from the largest municipal
bond underwriting in history, the $3 billion Long Island Power
Authority (LIPA) issue. The heavy supply, combined with the
"deer-in-the-headlights" effect of LIPA, adversely affected muni
market performance.
Portfolio Composition
Early in the period under review, we placed greater emphasis on higher
quality, increasing the Fund's positions in insured bonds and reducing
the Fund's position in revenue bonds. This position was maintained
throughout the remainder of the period. With regard to specific bonds,
during the latter portion of the period we increased our emphasis on
general obligation bonds -- both insured and uninsured --and decreased
the Fund's position in insured revenue bonds. We did so based on our
belief that the municipal market has stopped pricing downgrade or
default risk appropriately as a result of an ever-improving credit
environment.
Portfolio Highlight
o Nelson, Kentucky Industrial Building Authority for Mabex Universal
Corporation -- Mabex is a Japanese company that manufactures foam
packaging for the electronics, television and agricultural industries.
The Nelson plant, which makes foam, is complete and
6
<PAGE>
PERFORMANCE OVERVIEW
The Goldman Sachs
Municipal Income Fund seeks
a high level of current income
exempt from regular federal
income tax that is consistent
with preservation of capital,
primarily through investments
in municipal securities.
running successfully. Several years ago, Japanese banks were key
providers of letters of credit for municipal transactions. In the wake
of recent Asian market turmoil, buyers have avoided these bonds due to
concerns over the credit quality of Japan's banks. However, analysts
in Goldman, Sachs & Co.'s Credit Department have identified Japanese
banks that they believe possess strong credit quality. The Bank of
Yokahama is one example. The Nelson, Kentucky bonds are secured by
project revenues and, additionally, by a letter of credit from the
Bank of Yokahama. When the Fund purchased the bonds, they generated an
option-adjusted spread of 130 basis points over the AAA curve. The
bonds mature in 2005, which is typically a steep part of the curve, so
the Fund should benefit as the bonds approach maturity.
New Acquisition
o New York City Transitional Finance Authority (TFA) Future Tax Secured
Bonds --During the period, the Fund's portfolio management team
purchased $1.9 million of these bonds. TFA is important for two
reasons: it represents a new major borrower and its legal provisions
are innovative. New York City was severely constrained in its future
general obligation bond issuance and has significant capital needs, so
it created a new issuer and carved out existing revenues. TFA bonds
are secured by personal income and sales taxes to be received by the
City. These taxes are key revenue sources for the city --37% --and
provide high coverage of debt service. Statutorily, TFA is
bankruptcy-remote and has other characteristics similar to
asset-backed securities. The bonds were well-received by the market
since they enable investors to diversify their holdings in a
high-demand State.
Portfolio Outlook
The flat yield curve and tight spread environment dictate that we
maintain our current strategies of focusing our yield curve risk
tightly on our benchmark's risk (referred to as "bulleting") and
de-emphasizing lower quality sectors and securities. Additionally, as
is always the case when investing in municipals, a variety of
security-specific strategies and relative value trades can be
employed. We are currently overweight municipal price risk and hedged
with U.S. Treasury futures -- essentially a strategy that anticipates
that the municipal market will outperform the taxable market in the
next several months. In fact, given the expected principal and coupon
cash flow that will enter the market this summer --estimates are
between $75 to $100 billion --the technical outlook for municipals is
finally improving.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Benjamin S. Thompson /s/ Elisabeth Schupf Lonsdale
Benjamin S. Thompson Elisabeth Schupf Lonsdale
Portfolio Manager, Goldman Sachs Portfolio Manager, Goldman Sachs
Municipal Income Fund Municipal Income Fund
May 29, 1998
7
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Risk Management Through
Fixed Income Investing
TODAY'S BOND ADVANTAGE
The current economic picture
suggests a positive backdrop
against which bonds can thrive.
1
Low inflation rates--
Inflation rates are at historic
lows -- 1.7% at the end of 1997
versus 2.9% at the end of 1991.(2)
2
Moderate economic
growth--Despite historically
low inflation, the U.S. economy
continues to grow at a moderate
pace.
3
A strong dollar--Over
the past year, the U.S. dollar has
gained strength against many
other major currencies.
4
Budget deficit reductions--
Over the past several
years, the federal budget has
been significantly reduced and is
expected to generate a substantial
surplus in fiscal year 1998.
Bonds Can Balance Portfolio Volatility
Given the stock market's record climb over the past several years,
many investors may have substantially increased the percentage of
their assets allocated to equity investments --often at the expense of
their fixed income allocation. While benefiting from the market's
strong showing, these investors may also have increased their
portfolios' vulnerability to intensifying levels of stock market
volatility.
Fixed income investments can diversify risk in an equities-laden
portfolio for two reasons:
1. Stock and Bond Prices Are Not Highly Correlated. Prior to an
expected recession or when the economy is slowing, stock prices
usually fall. Conversely, bond prices rise as interest rates
decline. The tendency of these two investments to react
differently in a given market environment, as illustrated below,
can help offset the effect of equity market fluctuations on a
portfolio.
----------------------------------------------------------------------
S&P 500 Index vs. 10-Year U.S. Treasury Bonds (1977-1997)(1)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATTER]
DATE S & P 500 10-YEAR US TSY. BOND
---- --------- --------------------
12/31/77 -11.50% 11.30%
12/31/78 1.06 17.12
12/31/79 12.31 15.49
12/31/80 25.77 24.21
12/31/81 -9.73 5.80
12/31/82 14.76 -22.34
12/31/83 17.27 11.40
12/31/84 1.40 -2.76
12/31/85 26.33 -19.17
12/31/86 14.62 -23.50
12/31/87 2.03 26.99
12/31/88 12.40 1.11
12/31/89 27.25 -13.90
12/31/90 -6.56 3.52
12/31/91 26.31 -12.41
12/31/92 4.46 -4.57
12/31/93 7.06 -14.84
12/31/94 -1.54 35.40
12/31/95 34.11 -26.78
12/31/96 20.26 9.95
12/31/97 31.01 -7.78
2. Bonds Generate Interest Income. During a stock market downturn,
the compounding effect of bonds' interest income can offset
declines in the equity portion of an overall portfolio.
For More Information
A fixed income mutual fund is a convenient way to access the potential
income and risk management benefits of fixed income investing. Goldman
Sachs Asset Management offers a broad spectrum of fixed income mutual
funds designed to help you meet your long-term investment needs. For
more information on these and other Goldman Sachs Funds, contact your
investment professional.
(1) Source: McGraw Hill Data Resources. Data covers period from December
31, 1977 through December 31, 1997. Please note that U.S. government
bonds are backed by the full faith and credit of the U.S. government,
are less volatile than equity investments and provide a guaranteed
return of principal at maturity. 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 directly in the Index.
(2) Source: The Bureau of Labor Statistics
8
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Performance Summary
April 30, 1998 (Unaudited)
The following graph shows the value as of April 30, 1998, of a $10,000
investment made in the Institutional Shares on October 1, 1992. For
comparative purposes, the performance of the Fund's benchmark (the Lehman
Brothers 3-Year Municipal Bond Index ("Lehman 3-Year Muni Bond 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, Administration and Service shares
will vary from the Institutional Shares due to differences in fees and loads.
SHORT DURATION TAX-FREE FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED OCTOBER 1, 1992 TO
APRIL 30, 1998.
[LINE GRAPH APPEARS HERE]
Short Duration
Tax-Free Fund Lehman 3-Year
Institutional Shares Muni Bond Index
10/1/92 10000 10000
Oct-92 9966 9961
Nov-92 10041 10031
Dec-92 10127 10091
Jan-93 10199 10167
Feb-93 10406 10326
Mar-93 10350 10295
Apr-93 10425 10355
May-93 10427 10383
Jun-93 10512 10449
Jul-93 10504 10455
Aug-93 10590 10552
Sep-93 10656 10598
Oct-93 10667 10620
Nov-93 10643 10607
Dec-93 10755 10718
Jan-94 10841 10805
Feb-94 10703 10704
Mar-94 10562 10575
Apr-94 10627 10637
May-94 10632 10687
Jun-94 10618 10690
Jul-94 10710 10779
Aug-94 10738 10818
Sep-94 10715 10791
Oct-94 10685 10765
Nov-94 10653 10746
Dec-94 10707 10792
Jan-95 10726 10881
Feb-95 10831 10997
Mar-95 10879 11096
Apr-95 10909 11133
May-95 11053 11304
Jun-95 11087 11331
Jul-95 11191 11451
Aug-95 11271 11540
Sep-95 11287 11573
Oct-95 11325 11627
Nov-95 11399 11702
Dec-95 11428 11751
Jan-96 11548 11842
Feb-96 11575 11845
Mar-96 11521 11816
Apr-96 11526 11830
May-96 11532 11841
Jun-96 11597 11912
Jul-96 11650 11978
Aug-96 11681 11996
Sep-96 11758 12069
Oct-96 11836 12153
Nov-96 11949 12266
Dec-96 11967 12272
Jan-97 12007 12326
Feb-97 12062 12387
Mar-97 11995 12322
Apr-97 12062 12375
May-97 12153 12476
Jun-97 12232 12549
Jul-97 12359 12699
Aug-97 12340 12673
Sep-97 12432 12764
Oct-97 12475 12820
Nov-97 12518 12857
Dec-97 12610 12945
Jan-98 12690 13030
Feb-98 12721 13057
Mar-98 12750 13078
Apr-98 12729 13060
<TABLE>
<CAPTION>
SINCE
INCEPTION FIVE YEARS ONE YEAR SIX MONTHS/(a)/
AVERAGE ANNUAL TOTAL RETURN
THROUGH APRIL 30, 1998
<S> <C> <C> <C> <C>
CLASS A (COMMENCED MAY 1, 1997)
Excluding sales charges 5.26% n/a 5.26% 1.81%
Including sales charges 3.19% n/a 3.19% -0.27%
------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1997)
Excluding sales charges 4.62% n/a 4.62% 1.51%
Including sales charges 2.56% n/a 0.49% -0.52%
------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15,
1997)
Excluding sales charges 2.51% n/a n/a 1.53%
Including sales charges 1.49% n/a n/a 0.52%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED
OCTOBER 1, 1992) 4.42% 4.07% 5.53% 2.04%
------------------------------------------------------------------------------
ADMINISTRATION CLASS (COMMENCED
MAY 20, 1993) 3.87% n/a 5.26% 1.91%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED SEPTEM-
BER 20, 1994) 4.34% n/a 4.90% 1.69%
------------------------------------------------------------------------------
</TABLE>
(a) Not annualized.
9
++++
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Statement of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - 101.8%
ALABAMA - 2.2%
Montgomery County GO Warrants (AA/Aa3)
$ 1,035,000 5.00% 11/01/2001 $ 1,059,912
-----------------------------------------------------------------------------------------------
ARIZONA - 2.0%
Mesa IDA Health Care Facilities (BIGI) (AAA/Aaa)
$ 890,000 7.50% 01/01/2004 $ 925,680
-----------------------------------------------------------------------------------------------
CALIFORNIA - 4.3%
Abag Finance Authority for Non-Profit Corporations Refunding Bond (BBB)
$ 1,000,000 5.25% 10/01/2007 $ 1,016,770
Sacramento County Housing Authority MF Hsg. RB for Rancho Natomas
Apartments (A1)
1,000,000 4.80 12/15/2007 1,000,000
-----------------------------------------------------------------------------------------------
$ 2,016,770
-----------------------------------------------------------------------------------------------
CONNECTICUT - 2.1%
Connecticut State Housing Mortgage RB for Town Colony Project (Aa3)
$ 990,000 5.00% 04/01/2008 $ 990,188
-----------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 4.6%
District of Columbia RB for Howard University Series A (A+/A3)
$ 2,000,000 7.25% 10/01/2020 $ 2,167,060
-----------------------------------------------------------------------------------------------
GEORGIA - 3.3%
Henry County School District GO Bonds (AAA/Aaa)
$ 1,500,000 5.00% 09/01/2001 $ 1,533,480
-----------------------------------------------------------------------------------------------
ILLINOIS - 6.5%
Illinois Health Facilities Authority Highland Park Hospital, Series A
(AAA/Aaa)
$ 1,000,000 5.20% 10/01/2001 $ 1,023,730
Illinois Housing Development Authority, Series 1991 A (A+/A1)
1,000,000 7.90 07/01/1999 1,038,570
Winnebago and Boone Counties School District No. 205 Tax Anticipation
Warrants (BBB+)
1,000,000 5.10 10/30/1998 1,002,320
-----------------------------------------------------------------------------------------------
$ 3,064,620
-----------------------------------------------------------------------------------------------
KENTUCKY - 4.5%
Kentucky State Property and Building Commission RB (A+/A2)
$ 2,000,000 6.10% 10/01/2001 $ 2,117,360
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - (CONTINUED)
LOUISIANA - 6.7%
Lafayette Parish Public School Board Sales Tax RB (AAA/Aaa)
$ 2,000,000 6.00% 04/01/2004 $ 2,148,240
Louisiana Offshore Deepwater Port Authority Term B RB (A/Baa1)
1,000,000 5.85 09/01/2000 1,032,720
-----------------------------------------------------------------------------------------------
$ 3,180,960
-----------------------------------------------------------------------------------------------
MARYLAND - 14.0%
Maryland Health and Higher Educational Facilities Authority RB (A)
$ 1,000,000 4.75% 07/01/2021 $ 1,007,550
Maryland State Department of Transportation Consolidated Transportation
RB (AA/Aa2)(a)
2,000,000 5.00 09/01/2001 2,045,900
Maryland State Health and Higher Educational Facilities Authority (A-)
1,600,000 5.50 01/01/2021 1,660,912
Montgomery County GO Bonds (AAA/Aaa)
1,700,000 8.60 05/01/2001 1,906,006
-----------------------------------------------------------------------------------------------
$ 6,620,368
-----------------------------------------------------------------------------------------------
MICHIGAN - 5.6%
Detroit Self Insurance Series A (BBB-)
$ 1,000,000 5.60% 05/01/2001 $ 1,025,090
Western Michigan University RB (AAA/Aaa)
1,500,000 6.13 11/15/2022 1,629,780
-----------------------------------------------------------------------------------------------
$ 2,654,870
-----------------------------------------------------------------------------------------------
MISSOURI - 3.6%
St. Louis Municipal Finance Leasehold Series A RB (A-/A1)
$ 1,655,000 5.30% 07/15/2002 $ 1,715,077
-----------------------------------------------------------------------------------------------
NEW JERSEY - 4.3%
Kearny GO TRANS Series A (MIG3)
$ 2,000,000 6.30% 08/17/1998 $ 2,006,860
-----------------------------------------------------------------------------------------------
NEW YORK - 7.2%
Metropolitan Transportation Authority Transit Facilities RB Series J
(AAA/Aaa)
$ 1,650,000 6.38% 07/01/2010 $ 1,803,252
Yonkers GO Series C (FGIC) (AAA/Aaa)
1,500,000 6.00 08/01/2003 1,601,970
-----------------------------------------------------------------------------------------------
$ 3,405,222
-----------------------------------------------------------------------------------------------
OHIO - 2.6%
Big Walnut School District GO Bonds (AAA/Aaa)
$ 1,105,000 6.63% 12/01/2015 $ 1,210,097
-----------------------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - (CONTINUED)
PENNSYLVANIA - 2.3%
Scranton School District GO Bonds (AAA)
$1,055,000 5.00% 04/01/2000 $ 1,073,346
----------------------------------------------------------------------------------------------
RHODE ISLAND - 3.4%
Rhode Island Clean Water Finance Agency (AAA/Aaa)(b)
$1,385,000 9.20% 10/01/2001 $ 1,588,775
----------------------------------------------------------------------------------------------
TENNESSEE - 3.2%
Clarksville Public Building Authority (AA)
$1,500,000 4.75% 02/01/2000 $ 1,519,860
----------------------------------------------------------------------------------------------
TEXAS- 10.1%
Edinburg Consolidated Independent School District Public Facilities
Corp. Lease RB (AAA/Aaa)
$1,810,000 5.00% 08/15/2001 $ 1,846,562
Memorial Villages Water Authority (Aa)
1,110,000 7.00 09/01/2000 1,158,196
Tarrant County Water Control and Improvement District No. 1 RB (AA)
1,685,000 6.00 03/01/2010 1,760,235
----------------------------------------------------------------------------------------------
$ 4,764,993
----------------------------------------------------------------------------------------------
VIRGINIA - 3.8%
Petersburg Hospital Authority RB (A3)
$1,760,000 5.50% 07/01/1999 $ 1,791,012
----------------------------------------------------------------------------------------------
WASHINGTON - 2.2%
Washington State Higher Educational Facilities Authority RB for the
University of Puget Sound Project (A+/A2)
$1,015,000 5.00% 10/01/2002 $ 1,029,301
----------------------------------------------------------------------------------------------
WYOMING - 3.3%
Uinta County School District Series A (FSA) (AA/Aaa)
$1,500,000 6.88% 06/01/2000 $ 1,580,295
----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $47,948,224) $48,016,106
----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 0.8%
GEORGIA - 0.8%
Bartow County Development Authority PCRB For Georgia Power Co. Bowen
Project First Series(c)
$ 400,000 2.90% 05/01/1998 $ 400,000
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $400,000) $ 400,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $48,348,224)(D) $48,416,106
----------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at April 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE SHORT(E) MONTH LOSS
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
10-Year U.S. Treasury Notes (18) June 1998 $(8,981)
--------
$(8,981)
--------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $236,530
Gross unrealized loss for investments in which cost
exceeds value (168,648)
--------------------------------------------------------------------------------------
Net unrealized gain $67,882
--------------------------------------------------------------------------------------
</TABLE>
(a) When-issued security.
(b) Portion of this security is segregated for when-issued security and open
futures contracts.
(c) Securities with "Put' features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
(e) Each 10-Year U.S. Treasury Note represents $100,000 in notional par
value. The total notional amount and market value at risk are $1,800,000
and $2,021,625, respectively. The determination of notional amounts as
presented here are indicative only of volume of activity and not a
measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
<TABLE>
-------------------------------------------------------
<S> <C>
INVESTMENT ABBREVIATIONS:
BIGI --Bond Investors Guaranty Corporation
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Financial Security Assurance Co.
GO --General Obligation
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
TRANS --Tax Revenue Anticipation Notes
-------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 11
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Performance Summary
April 30, 1998 (Unaudited)
The following graph shows the value as of April 30, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 4.5%) in Class A shares on
August 1, 1993. For comparative purposes, the performance of the Fund's
benchmark (the Lehman Brothers 15-Year Municipal Bond Index ("Lehman 15-Year
Muni 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.
MUNICIPAL INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1993 TO
APRIL 30, 1998./(a)/
[LINE GRAPH APPEARS HERE]
Municipal Income Fund Lehman 15-year
Class shares Muni Bond index
------------ ---------------
8/1/93 9550 10000
Aug-93 9786 10237
Sep-93 9926 10374
Oct-93 9983 10389
Nov-93 9891 10293
Dec-93 10082 10538
Jan-94 10202 10677
Feb-94 9933 10355
Mar-94 9459 9863
Apr-94 9514 9974
May-94 9591 10077
Jun-94 9542 10003
Jul-94 9753 10201
Aug-94 9776 10233
Sep-94 9613 10061
Oct-94 9433 9862
Nov-94 9245 9651
Dec-94 9468 9889
Jan-95 9774 10223
Feb-95 9972 10560
Mar-95 10085 10691
Apr-95 10105 10695
May-95 10406 11066
Jun-95 10277 10940
Jul-95 10348 11045
Aug-95 10494 11213
Sep-95 10573 11314
Oct-95 10734 11478
Nov-95 10936 11682
Dec-95 11068 11804
Jan-96 11224 11913
Feb-96 11134 11836
Mar-96 10920 11662
Apr-96 10870 11611
May-96 10851 11601
Jun-96 10981 11733
Jul-96 11071 11857
Aug-96 11074 11855
Sep-96 11235 12009
Oct-96 11394 12169
Nov-96 11621 12422
Dec-96 11570 12353
Jan-97 11608 12398
Feb-97 11741 12526
Mar-97 11584 12349
Apr-97 11687 12471
May-97 11833 12669
Jun-97 11993 12823
Jul-97 12390 13236
Aug-97 12214 13086
Sep-97 12392 13252
Oct-97 12446 13340
Nov-97 12534 13428
Dec-97 12777 13657
Jan-98 12907 13825
Feb-98 12912 13821
Mar-98 12899 13832
Apr-98 12822 13767
<TABLE>
<CAPTION>
SINCE
INCEPTION FIVE YEARS ONE YEAR SIX MONTHS/(b)/
AVERAGE ANNUAL TOTAL RETURN
THROUGH APRIL 30, 1998
<S> <C> <C> <C> <C>
CLASS A (COMMENCED JULY 20,
1993)
Excluding sales charges 6.18% n/a 9.71% 3.02%
Including sales charges 5.16% n/a 4.77% -1.63%
------------------------------------------------------------------------------
CLASS B (COMMENDED MAY 1,
1996)
Excluding sales charges 7.78% n/a 8.89% 2.57%
Including sales charges 5.76% n/a 3.69% -2.53%
------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15,
1997)
Excluding sales charges 4.43% n/a n/a 2.63%
Including sales charges 3.40% n/a n/a 1.61%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED
AUGUST 15, 1997) 5.25% n/a n/a 3.08%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED
AUGUST 15, 1997) 4.96% n/a n/a 2.97%
------------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following the commencement of operations.
(b) Not annualized.
12
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Statement of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - 97.3%
ARIZONA - 5.7%
Maricopa County MF Hsg. IDA RB (A)
$1,795,000 5.85% 01/01/2008 $1,974,805
Maricopa County United School District No. 41 RB (FSA) (AAA)
2,500,000 6.25 07/01/2015 2,770,500
--------------------------------------------------------------------------------------------------
$4,745,305
--------------------------------------------------------------------------------------------------
CALIFORNIA - 9.2%
California State GO Bonds (A+/A1)
$3,000,000 5.00% 02/01/2014 $2,944,710
East Bay Regional Park District GO Bonds (AA/Aa2)
2,610,000 5.00 09/01/2012 2,590,712
Orange County Public Finance Authority Waste Management Systems RB (Aaa)
2,110,000 5.25 12/01/2013 2,125,171
--------------------------------------------------------------------------------------------------
$7,660,593
--------------------------------------------------------------------------------------------------
CONNECTICUT - 6.7%
Connecticut State GO Bonds Series A (AA-/Aa3)
$3,265,000 5.25% 03/15/2013 $3,312,604
Mashantucket Western Pequot Tribe Prerefunded RB Series A (AAA)
1,000,000 6.50 09/01/2005 1,113,610
Mashantucket Western Pequot Tribe Unrefunded RB Series A (BBB-/Baa2)
1,000,000 6.50 09/01/2005 1,106,480
--------------------------------------------------------------------------------------------------
$5,532,694
--------------------------------------------------------------------------------------------------
FLORIDA - 5.1%
Escambia County Housing Authority (AMT) (Aaa)
$1,350,000 6.80% 10/01/2015 $1,469,691
Santa Rosa Bay Bridge Authority RB (BBB-)
2,500,000 6.25 07/01/2028 2,730,225
--------------------------------------------------------------------------------------------------
$4,199,916
--------------------------------------------------------------------------------------------------
HAWAII - 2.0%
Hawaii GO Bond Series CA (FGIC) (AAA/Aaa)
$1,500,000 6.00% 01/01/2009 $1,644,165
--------------------------------------------------------------------------------------------------
ILLINOIS - 11.0%
Chicago Midway Airport RB (AAA/Aaa)
$2,500,000 5.50% 01/01/2010 $2,603,175
Lake County Unified School District No. 116 GO (FSA)(AAA)
1,000,000 7.60 02/01/2013 1,261,470
2,000,000 7.60 02/01/2014 2,533,860
Lake, Cook, Kane and McHenry County's Community Unit School District No.
220 GO Bonds (AAA/Aaa)
2,465,000 6.20 12/01/2012 2,765,336
--------------------------------------------------------------------------------------------------
$9,163,841
--------------------------------------------------------------------------------------------------
INDIANA - 5.1%
Indiana Bond Bank for Hendricks County RB (AA-)
$1,420,000 6.00% 02/01/2012 $1,511,874
Indiana Transportation Airport Series A RB (AAA/Aaa)
2,500,000 6.00 11/01/2011 2,752,950
--------------------------------------------------------------------------------------------------
$4,264,824
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - (CONTINUED)
KENTUCKY - 1.3%
Nelson County Industrial Building Mabex Universal Corp. Project (AMT) (A3)
$1,000,000 6.50% 04/01/2005 $1,079,320
--------------------------------------------------------------------------------------------------
LOUISIANA - 2.5%
Orleans Levee District Improvement Bonds (AAA/Aaa)
$1,945,000 5.95% 11/01/2015 $2,089,475
--------------------------------------------------------------------------------------------------
MAINE - 0.8%
Maine Educational Loan Authority RB Series A-1 (AMT)(Aaa)(a)
$ 640,000 6.80% 12/01/2007 $ 694,572
--------------------------------------------------------------------------------------------------
MICHIGAN - 4.3%
Birmingham Michigan City School District GO Bonds (AA+/Aa2)
$3,500,000 5.25% 11/01/2012 $3,537,310
--------------------------------------------------------------------------------------------------
MISSOURI - 2.6%
St. Louis Municipal Finance Leasehold Series A RB (A-/A1)
$2,100,000 5.30% 07/15/2002 $2,176,230
--------------------------------------------------------------------------------------------------
NEVADA - 2.4%
Washoe County GO RB (AAA/Aaa)
$2,000,000 5.00% 06/01/2017 $1,947,020
--------------------------------------------------------------------------------------------------
NEW MEXICO - 4.1%
Santa Fe County Correctional System RB (AAA/Aaa)
$3,000,000 6.00% 02/01/2027 $3,381,150
--------------------------------------------------------------------------------------------------
NEW YORK - 6.0%
New York City Municipal Water Finance Authority Series B (MBIA) (AAA/Aaa)
$3,000,000 5.50% 06/15/2027 $3,054,300
New York City Transitional Finance Authority Future Tax Secured RB Series
A (AA+/Aa3)
1,930,000 5.00 08/15/2013 1,887,077
--------------------------------------------------------------------------------------------------
$4,941,377
--------------------------------------------------------------------------------------------------
NORTH DAKOTA - 2.6%
Mercer County PCRB for Basin Electric & Power 2nd Series (AMBAC) (AAA/Aaa)
$2,000,000 6.05% 01/01/2019 $2,152,040
--------------------------------------------------------------------------------------------------
OHIO - 0.7%
Cuyahoga County for Rock & Roll Hall of Fame RB
$ 600,000 5.45% 12/01/2005 $ 616,842
--------------------------------------------------------------------------------------------------
OKLAHOMA - 1.3%
Tulsa County Public Facilities RB (A-)
$1,000,000 6.60% 11/01/2008 $1,097,900
--------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 13
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Statement of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
DEBT OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
RHODE ISLAND - 3.7%
Rhode Island Clean Water Finance Authority Waste Water Treatment System
Bonds (MBIA) (AAA/Aaa)
$3,000,000 5.80% 09/01/2022 $ 3,091,500
-----------------------------------------------------------------------------------------------
TENNESSEE - 4.0%
Dickson County GO Bonds (Aaa)
$1,840,000 5.00% 04/01/2016 $ 1,790,872
McMinnville Housing Authority RB (A2)
1,465,000 6.00 10/01/2009 1,545,355
-----------------------------------------------------------------------------------------------
$ 3,336,227
-----------------------------------------------------------------------------------------------
TEXAS - 9.7%
East Texas Criminal Justice Facilities Financing Corp. RB (AMBAC)
(AAA/Aaa)
$2,000,000 5.75% 11/01/2009 $ 2,118,400
La Joya Independent School District GO Bonds (AAA/Aaa)
1,620,000 5.50 02/15/2011 1,691,361
Lago Vista Independent School District Refunding Bonds Series 1997 (Aaa)
1,000,000 5.50 08/15/2027 1,006,600
Tarrant County Health Facilities Development Corp. RB (MBIA) (AAA/Aaa)
3,000,000 5.75 02/15/2015 3,203,550
-----------------------------------------------------------------------------------------------
$ 8,019,911
-----------------------------------------------------------------------------------------------
WASHINGTON - 6.5%
Chelan County Public Utility RB (MBIA) (AAA/Aaa)
$2,500,000 6.35% 07/01/2028 $ 2,746,775
Washington State Public Utility Power Supply System Series A RB (AMBAC)
(AAA/Aaa)
2,500,000 5.70 07/01/2011 2,628,600
-----------------------------------------------------------------------------------------------
$ 5,375,375
-----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $78,130,850) $ 80,747,587
-----------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 0.7%
GEORGIA - 0.2%
Burke County IDA PCRB for Georgia Power Co. Fifth Series 1995 (A-
1/VM1G1)(b)
$200,000 4.20% 05/01/1998 $ 200,000
-----------------------------------------------------------------------------------------------
TEXAS - 0.5%
Sabine River Authority PCRB for Texas Utilities Electric Co. Project (A-
1/VM1G1)(b)
$400,000 1.88% 05/01/1998 $ 400,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(COST $600,000) $ 600,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $78,730,850)(C) $ 81,347,587
-----------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at April 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE (SHORT)(D) MONTH GAIN
--------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
U.S. 20-Year Long Term Bond (58) June 1998 $102,944
--------
$102,944
--------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION
Gross unrealized gain for
investments in which
value exceeds cost $2,928,006
Gross unrealized loss for
investments in which
cost exceeds value (311,269)
---------------------------------------------
Net unrealized gain $2,616,737
---------------------------------------------
</TABLE>
(a) Portion of this security is segregated for open futures contracts.
(b) Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
(c) The amount stated also represents aggregate cost for federal income tax
purposes.
(d) Each U.S. 20-Year Long Term Bond represents $100,000 in notional par
value. The total notional amount and market value at risk are $5,800,000
and $6,972,688, respectively. The determination of notional amounts as
presented here are indicative only of volume of activity and not a
measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
<TABLE>
-------------------------------------------------------------
<C> <S>
INVESTMENT ABBREVIATIONS:
AMBAC --Insured by American Municipal Bond Assurance Corp.
AMT --Alternative Minimum Tax
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
</TABLE>
------------------------------------------------------------------------------
14 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Assets and Liabilities
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SHORT DURATION MUNICIPAL
TAX-FREE FUND INCOME FUND
ASSETS:
<S> <C> <C>
Investments in securities, at value (cost
$48,348,224 and $78,730,850) $48,416,106 $81,347,587
Cash 110,197 53,216
Receivables:
Investment securities sold -- 1,602,780
Interest 714,360 1,267,249
Fund shares sold 90,647 574,555
Deferred organization expenses, net -- 3,845
Other assets 51,739 60,427
-----------------------------------------------------------------------------
TOTAL ASSETS 49,383,049 84,909,659
-----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 2,050,111 1,569,855
Income distribution 22,183 88,938
Fund shares repurchased 11,759 17,869
Management fees 15,732 37,230
Authorized dealer service fees 10,241 48,277
Distribution fees 2,836 6,434
Transfer agent fees 38,568 20,946
Variation margin 14,625 88,812
Accrued expenses and other liabilities 27,053 58,352
-----------------------------------------------------------------------------
TOTAL LIABILITIES 2,193,108 1,936,713
-----------------------------------------------------------------------------
NET ASSETS:
Paid in capital 50,717,102 80,098,717
Accumulated undistributed net investment income 112,934 97,789
Accumulated net realized gain (loss) on
investment transactions (3,698,996) 56,759
Net unrealized gain on investments and futures 58,901 2,719,681
-----------------------------------------------------------------------------
NET ASSETS $47,189,941 $82,972,946
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net asset value, offering and redemption price
per share:(a)
Class A $10.07 $15.09
Class B $10.07 $15.09
Class C $10.07 $15.09
Institutional $10.07 $15.09
Administration $10.07 --
Service $10.06 $15.09
-----------------------------------------------------------------------------
Shares Outstanding:
Class A 1,187,054 5,159,224
Class B 29,577 236,788
Class C 144,912 55,838
Institutional 3,128,237 45,848
Administration 8,039 --
Service 188,906 104
-----------------------------------------------------------------------------
Total Shares Outstanding, $.001 Par Value
(Unlimited Number of Shares Authorized) 4,686,725 5,497,802
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $10.28 (NAV
per share X 1.0204) and $15.80 (NAV per share X 1.0471) for Short
Duration Tax-Free and Municipal Income, respectively. 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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 15
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Operations
For the Six-Months Ended April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SHORT DURATION MUNICIPAL
TAX-FREE FUND INCOME FUND
<S> <C> <C>
INVESTMENT INCOME:
Interest $923,602 $1,955,987
-----------------------------------------------------------------------------
TOTAL INCOME 923,602 1,955,987
-----------------------------------------------------------------------------
EXPENSES:
Management fees 81,720 205,458
Authorized dealer service fees 11,455 92,902
Distribution fees 13,792 99,866
Custodian fees 30,087 34,857
Transfer agent fees 64,874 68,948
Professional fees 32,282 27,294
Registration fees 21,354 56,091
Amortization of deferred organization expenses -- 8,700
Trustee fees 185 613
Other 32,570 38,143
-----------------------------------------------------------------------------
TOTAL EXPENSES 288,319 632,872
-----------------------------------------------------------------------------
Less -- expenses reimbursable and fees waived
by Goldman Sachs (172,920) (298,847)
-----------------------------------------------------------------------------
NET EXPENSES 115,399 334,025
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 808,203 1,621,962
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVEST-
MENT AND FUTURES TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 226,112 290,801
Futures transactions -- (210,221)
Net change in unrealized gain on:
Investments (312,157) 200,762
Futures (8,981) 79,319
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT AND FUTURES TRANSACTIONS (95,026) 360,661
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $713,177 $1,982,623
-----------------------------------------------------------------------------
</TABLE>
16 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
SHORT DURATION TAX-FREE FUND MUNICIPAL INCOME FUND
-------------------------------- --------------------------------
FOR THE SIX FOR THE FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997 APRIL 30, 1998 OCTOBER 31, 1997
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 808,203 $ 1,495,109 $ 1,621,962 $ 2,677,281
Net realized gain from
investment and futures
transactions 226,112 214,761 80,580 1,129,596
Net change in unrealized
gain on investments and
futures (321,138) 177,615 280,081 1,448,471
----------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS 713,177 1,887,485 1,982,623 5,255,348
----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income
Class A (150,467) (36,026) (1,536,744) (2,651,661)
Class B (3,692) (864) (41,718) (33,375)
Class C (10,707) (18) (6,689) (172)
Institutional shares (606,595) (1,407,585) (8,868) (56)
Administration shares (1,150) (3,501) -- --
Service shares (33,539) (47,115) (33) (14)
Net realized gain on
investment transactions
Class A -- -- (123,858) --
Class B -- -- (3,541) --
Class C -- -- (467) --
Institutional shares -- -- (658) --
Service shares -- -- (3) --
----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (806,150) (1,495,109) (1,722,579) (2,685,278)
----------------------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales
of shares 23,899,969 28,091,361 20,507,593 21,242,873
Reinvestment of
dividends and
distributions 668,272 1,232,957 1,093,278 1,598,487
Cost of shares
repurchased (12,365,192) (30,193,481) (5,674,320) (11,147,479)
----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 12,203,049 (869,163) 15,926,551 11,693,881
----------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) 12,110,076 (476,787) 16,186,595 14,263,951
----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 35,079,865 35,556,652 66,786,351 52,522,400
----------------------------------------------------------------------------------------------
End of period $ 47,189,941 $ 35,079,865 $82,972,946 $ 66,786,351
----------------------------------------------------------------------------------------------
ACCUMULATED
UNDISTRIBUTED NET
INVESTMENT INCOME $ 112,934 $ 110,811 $ 97,789 $ 69,879
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 17
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements
April 30, 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 Short Duration
Tax-Free Fund (Short Duration Tax-Free) and the Goldman Sachs Municipal In-
come Fund (Municipal Income), collectively, "the Funds" or individually a
"Fund." Short Duration Tax-Free is a diversified portfolio offering six clas-
ses of shares -- Class A, Class B, Class C, Institutional, Administration,
and Service. Municipal Income, also a diversified portfolio, offers five
classes of shares -- Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The Following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices or other
sources, under valuation procedures established by the Trust's Board of
Trustees. Short-term debt obligations maturing in sixty days or less are val-
ued at amortized cost.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
recorded on the trade date. Realized gains and losses on sales of portfolio
securities are calculated on the identified cost basis. Interest income is
recorded on the basis of interest accrued. Market premiums resulting from the
purchase of long-term debt securities are amortized to interest income over
the life of the security with a corresponding decrease in the cost basis of
the security.
C. FUTURES CONTRACTS -- The Funds may enter into futures transactions in or-
der to hedge against changes in interest rates, securities prices or to seek
to increase total return.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the futures exchange on which the contract is traded.
Payments for futures contracts ("variation margin") are paid or received by
the Funds daily, dependent on the daily fluctuations in the value of the con-
tracts, and are recorded for financial reporting purposes as unrealized gains
or losses. When contracts are closed, the Funds realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
value of the futures contract to buy. Gains and losses are reported in the
Statements of Operations.
18
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
hedging strategies and potentially result in a loss.
D. FEDERAL TAXES -- It is each 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 tax-ex-
empt and taxable income to its shareholders. Accordingly, no federal tax pro-
visions are required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of a portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital, de-
pending on the type of book/tax differences that may exist as well as timing
differences associated with having different book and tax year ends.
The Short Duration Tax-Free Fund, at its most recent tax year-end of Decem-
ber 31, 1997 had approximately the following amount of capital loss
carryforwards for U.S. federal tax purposes. This amount is available to be
carried forward to offset future capital gains to the extent permitted by ap-
plicable laws or regulations.
<TABLE>
<CAPTION>
YEAR OF
FUND AMOUNT EXPIRATION
-----------------------------------------------
<S> <C> <C>
Short Duration Tax-Free $3,868,000 2000-2005
-----------------------------------------------
</TABLE>
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years. The Short Dura-
tion Tax-Free Fund's organizational costs are fully amortized.
F. EXPENSES -- Expenses incurred by the Trust that do not specifically relate
to an individual portfolio of the Trust are generally allocated to the port-
folios based on each portfolio's relative average net assets for the period.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective distribution and authorized dealer
service plans. Shareholders of Service and Administration shares bear all ex-
penses and fees paid to service organizations for their services with respect
to such shares.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's investment ad-
viser pursuant to an Investment Management Agreement (the "Agreement"). Under
the Agreement, GSAM, subject to the general supervision of the Trust's Board
of Trustees, manages the Funds' portfolios. As compensation for the services
rendered pursuant to the Agreement and the assumption of the expenses related
thereto and administering the Funds' business affairs, including providing
facilities, GSAM is entitled to a fee, computed daily and payable monthly at
an annual rate equal to .40% and .55% of average daily net assets of Short
Duration Tax-Free and Municipal Income, respectively.
19
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements
April 30, 1998 (Unaudited)
GSAM has voluntarily agreed to limit "Other Expenses" (excluding manage-
ment, distribution and authorized dealer service fees, Administration and
Service share fees, taxes, interest, brokerage, litigation, indemnification
costs and other extraordinary expenses) until further notice to the extent
such expenses exceed .05% of the average daily net assets of each Fund. For
the six months ended April 30, 1998, Goldman Sachs reimbursed approximately
$162,000 and $209,000 to Short Duration Tax-Free and Municipal Income, re-
spectively. At April 30, 1998 approximately $50,000 and $60,000 was owed to
Short Duration Tax-Free and Municipal Income, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds 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 Funds that it retained approximately $1,000 and $36,000 for the
six months ended April 30, 1998 for Short Duration Tax-Free and Municipal In-
come, respectively.
The Trust, on behalf of each Fund, has adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of each Fund's
average daily net assets attributable to Class A, Class B and Class C shares,
respectively. For the six months ended April 30, 1998, the Distributor has
voluntarily agreed to waive approximately $11,000 and $89,000 of its
distribution fee attributable to the Short Duration Tax-Free and Municipal
Income Funds, respectively.
The Trust, on behalf of each 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. Each Fund pays a fee under its Dealer Service Plan equal, on an an-
nual basis, up to .25% of the average daily net assets attributable to the
Class A, Class B and Class C shares. Goldman Sachs also serves as the Trans-
fer Agent of the Funds for a fee.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
six months ended April 30, 1998, were as follows:
<TABLE>
<CAPTION>
SALES OR
FUND PURCHASES MATURITIES
-------------------------------------------------
<S> <C> <C>
Short Duration Tax-Free $37,804,515 $24,958,455
-------------------------------------------------
Municipal Income $44,649,560 $29,378,049
-------------------------------------------------
</TABLE>
For the six months ended April 30, 1998, Short Duration Tax-Free and Munic-
ipal Income incurred commission expense of approximately $300 and $900, re-
spectively, in connection with futures contracts entered into with Goldman
Sachs. At April 30, 1998, Goldman Sachs is owed approximately $15,000 and
$89,000 from Short Duration Tax-Free and Municipal Income, respectively, re-
lated to variation margin on futures contracts.
20
<PAGE>
GOLDMAN SACHS TAX FREE FUNDS
5. SERVICE AND ADMINISTRATION PLANS
The Trust, on behalf of the Funds, has adopted a Service Plan. In addition,
the Trust, on behalf of Short Duration Tax-Free, has adopted an Administra-
tion Plan. These plans allow for Service shares and Administration shares,
respectively, to compensate service organizations for providing varying lev-
els of account administration and shareholder liaison services to their cus-
tomers who are beneficial owners of such shares. The Service and
Administration Plans provide for compensation to the service organizations in
an amount up to .50% and .25% (on an annualized basis), respectively, of the
average daily net asset value of the respective shares.
6. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility to be used solely for temporary or emergency purposes. Un-
der the most restrictive arrangement, each Fund must own securities having a
market value in excess of 300% of the total bank borrowings. The interest
rate on borrowings is based on the federal funds rate. For the six months
ended April 30, 1998, the Funds did not have any borrowings under this facil-
ity.
21
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements
April 30, 1998 (Unaudited)
7. SUMMARY OF SHARE TRANSACTIONS
Share activity for the six months ended April 30, 1998 is as follows:
<TABLE>
<CAPTION>
SHORT DURATION TAX-
FREE FUND MUNICIPAL INCOME FUND
-----------------------------------
SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,296,607 $13,123,169 1,128,779 $17,217,930
Reinvestment of dividends and
distributions 14,231 143,961 69,995 1,064,981
Shares repurchased (522,770) (5,288,024) (344,807) (5,245,995)
-----------------------------------
788,068 7,979,106 853,967 13,036,916
------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 33,961 343,858 144,242 2,200,293
Reinvestment of dividends and
distributions 293 3,273 1,419 21,582
Shares repurchased (15,206) (153,891) (25,557) (389,621)
-----------------------------------
19,048 193,240 120,104 1,832,254
------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 158,971 1,612,226 49,259 750,832
Reinvestment of dividends and
distributions 948 9,574 437 6,649
Shares repurchased (15,167) (153,644) (2,539) (38,704)
-----------------------------------
144,752 1,468,156 47,157 718,777
------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 693,724 7,017,044 22,410 338,538
Reinvestment of dividends and
distributions 47,314 478,171 3 31
Shares repurchased (473,757) (4,788,214) -- --
-----------------------------------
267,281 2,707,001 22,413 338,569
------------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 2,435 24,632 -- --
Reinvestment of dividends and
distributions 112 1,136 -- --
Shares repurchased (2,183) (21,945) -- --
-----------------------------------
364 3,823 -- --
------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 176,192 1,779,040 -- --
Reinvestment of dividends and
distributions 3,183 32,157 2 35
Shares repurchased (194,062) (1,959,474) -- --
-----------------------------------
(14,687) (148,277) 2 35
------------------------------------------------------------------------------
NET INCREASE 1,204,826 $12,203,049 1,043,643 $15,926,551
------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
GOLDMAN SACHS TAX FREE FUNDS
Share activity for the year ended October 31, 1997 is as follows:
<TABLE>
<CAPTION>
SHORT DURATION TAX-FREE
FUND MUNICIPAL INCOME FUND
---------------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 492,769 $ 4,950,140 1,303,279 $19,055,213
Reinvestment of dividends
and distributions 3,459 34,811 107,716 1,579,312
Shares repurchased (97,242) (977,758) (743,175) (10,871,802)
---------------------------------
398,986 4,007,193 667,820 9,762,723
----------------------------------------------------------------------------
CLASS B SHARES
Shares sold 11,933 119,768 116,039 1,702,581
Reinvestment of dividends
and distributions 86 861 1,286 18,970
Shares repurchased (1,490) (15,000) (18,419) (273,177)
---------------------------------
10,529 105,629 98,906 1,448,374
----------------------------------------------------------------------------
CLASS C SHARES
Shares sold 2,151 21,604 8,837 132,078
Reinvestment of dividends
and distributions 1 10 12 176
Shares repurchased (1,992) (20,080) (168) (2,500)
---------------------------------
160 1,534 8,681 129,754
----------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,897,550 18,922,030 23,434 351,500
Reinvestment of dividends
and distributions 115,179 1,152,524 1 15
Shares repurchased (2,646,181) (26,425,414) -- --
---------------------------------
(633,452) (6,350,860) 23,435 351,515
----------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 33,608 336,065 -- --
Reinvestment of dividends
and distributions 281 2,813 -- --
Shares repurchased (31,059) (312,126) -- --
---------------------------------
2,830 26,752 -- --
----------------------------------------------------------------------------
SERVICE SHARES
Shares sold 373,847 3,741,754 101 1,501
Reinvestment of dividends
and distributions 4,184 41,937 1 14
Shares repurchased (244,134) (2,443,102) -- --
---------------------------------
133,897 1,340,589 102 1,515
----------------------------------------------------------------------------
NET INCREASE (DECREASE) (87,050) $ (869,163) 798,944 $11,693,881
----------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A)
------------------------------------------------------
NET REALIZED
AND UNREALIZED TOTAL
GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, (LOSS)
VALUE, NET OPTION AND FROM
BEGINNING INVESTMENT FUTURES INVESTMENT
OF PERIOD INCOME(F) TRANSACTIONS(F) OPERATIONS
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 - Class A
Shares $10.08 $ 0.19 $(0.01) $0.18
1998 - Class B
Shares 10.08 0.16 (0.01) 0.15
1998 - Class C
Shares 10.07 0.15 -- 0.15
1998 -
Institutional
Shares 10.07 0.20 -- 0.20
1998 -
Administration
Shares 10.07 0.19 -- 0.19
1998 - Service
Shares 10.07 0.18 (0.01) 0.17
- -----------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------
1997 - Class A
Shares(e) 9.94 0.20 0.14 0.34
1997 - Class B
Shares(e) 9.94 0.16 0.14 0.30
1997 - Class C
Shares(e) 10.04 0.07 0.03 0.10
1997 -
Institutional
Shares 9.96 0.42 0.11 0.53
1997 -
Administration
Shares 9.96 0.39 0.11 0.50
1997 - Service
Shares 9.97 0.37 0.10 0.47
- -----------------------------------------------------------------------------------
1996 -
Institutional
Shares 9.94 0.42 0.02 0.44
1996 -
Administration
Shares 9.94 0.39 0.02 0.41
1996 - Service
Shares 9.95 0.37 0.02 0.39
- -----------------------------------------------------------------------------------
1995 -
Institutional
Shares 9.79 0.42 0.15 0.57
1995 -
Administration
Shares 9.79 0.40 0.15 0.55
1995 - Service
Shares 9.79 0.37 0.16 0.53
- -----------------------------------------------------------------------------------
1994 -
Institutional
Shares 10.23 0.38 (0.36) 0.02
1994 -
Administration
Shares 10.23 0.35 (0.36) (0.01)
1994 - Service
Shares(e) 9.86 0.05 (0.07) (0.02)
- -----------------------------------------------------------------------------------
1993 -
Institutional
Shares 9.93 0.38 0.30 0.68
1993 -
Administration
Shares(e) 10.16 0.16 0.07 0.23
- -----------------------------------------------------------------------------------
FOR THE PERIOD ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------
1992 -
Institutional
Shares(e) 10.00 0.03 (0.07) (0.04)
- -----------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON
ON INVESTMENT, IN EXCESS INVESTMENT, TOTAL
FROM NET OPTION OF NET OPTION AND DISTRIBUTIONS
INVESTMENT AND FUTURES INVESTMENT FUTURES TO
INCOME TRANSACTIONS INCOME TRANSACTIONS SHAREHOLDERS
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 - Class A
Shares $(0.19) $ -- -- -- $(0.19)
1998 - Class B
Shares (0.16) -- -- -- (0.16)
1998 - Class C
Shares (0.15) -- -- -- (0.15)
1998 -
Institutional
Shares (0.20) -- -- -- (0.20)
1998 -
Administration
Shares (0.19) -- -- -- (0.19)
1998 - Service
Shares (0.18) -- -- -- (0.18)
- -----------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------
1997 - Class A
Shares(e) (0.20) -- -- -- (0.20)
1997 - Class B
Shares(e) (0.16) -- -- -- (0.16)
1997 - Class C
Shares(e) (0.07) -- -- -- (0.07)
1997 -
Institutional
Shares (0.42) -- -- -- (0.42)
1997 -
Administration
Shares (0.39) -- -- -- (0.39)
1997 - Service
Shares (0.37) -- -- -- (0.37)
-----------------------------------------------------------------------------------
1996 -
Institutional
Shares (0.42) -- -- -- (0.42)
1996 -
Administration
Shares (0.39) -- -- -- (0.39)
1996 - Service
Shares (0.37) -- -- -- (0.37)
-----------------------------------------------------------------------------------
1995 -
Institutional
Shares (0.42) -- -- -- (0.42)
1995 -
Administration
Shares (0.40) -- -- -- (0.40)
1995 - Service
Shares (0.37) -- -- -- (0.37)
-----------------------------------------------------------------------------------
1994 -
Institutional
Shares (0.38) (0.08) -- -- (0.46)
1994 -
Administration
Shares (0.35) (0.08) -- -- (0.43)
1994 - Service
Shares(e) (0.05) -- -- -- (0.05)
-----------------------------------------------------------------------------------
1993 -
Institutional
Shares (0.38) -- -- -- (0.38)
1993 -
Administration
Shares(e) (0.16) -- -- -- (0.16)
- -----------------------------------------------------------------------------------
FOR THE PERIOD ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------
1992 -
Institutional
Shares(e) (0.03) -- -- -- (0.03)
-----------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Class A, Class B, Class C, Institutional, Administration and Service
share activity commenced on May 1, 1997, May 1, 1997, August 15, 1997,
October 1, 1992, May 20, 1993 and September 20, 1994, respectively.
(f) Calculated based on the average shares outstanding methodology.
24 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
------------------------
NET RATIO OF NET NET RATIO OF NET
INCREASE RATIO OF INVESTMENT ASSETS RATIO OF INVESTMENT
(DECREASE) NET ASSET NET EXPENSES INCOME PORTFOLIO AT END OF EXPENSES INCOME
IN NET VALUE, TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
ASSET VALUE END OF PERIOD RETURN(B) NET ASSETS NET ASSETS RATE (IN 000S) NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (0.01) $10.07 1.81%(d) 0.70%(c) 3.67%(c) 61.51%(d) $11,958 1.75%(c) 2.62%(c)
(0.01) 10.07 1.51(d) 1.30(c) 3.31(c) 61.51(d) 298 2.25(c) 2.36(c)
-- 10.07 1.53(d) 1.45(c) 3.00(c) 61.51(d) 1,459 2.25(c) 2.20(c)
-- 10.07 2.04(d) 0.45(c) 4.09(c) 61.51(d) 31,493 1.25(c) 3.29(c)
-- 10.07 1.91(d) 0.70(c) 3.78(c) 61.51(d) 81 1.50(c) 2.98(c)
(0.01) 10.06 1.69(d) 0.95(c) 3.58(c) 61.51(d) 1,901 1.75(c) 2.78(c)
- --------------------------------------------------------------------------------------------------------------------
0.14 10.08 3.39(d) 0.70(c) 3.81(c) 194.75 4,023 1.73(c) 2.78(c)
0.14 10.08 3.07(d) 1.30(c) 3.31(c) 194.75 106 2.23(c) 2.38(c)
0.03 10.07 0.97(d) 1.45(c) 2.60(c) 194.75 2 2.23(c) 1.82(c)
0.11 10.07 5.40 0.45 4.18 194.75 28,821 1.23 3.40
0.11 10.07 5.14 0.70 3.91 194.75 77 1.48 3.13
0.10 10.07 4.77 0.95 3.66 194.75 2,051 1.73 2.88
- --------------------------------------------------------------------------------------------------------------------
0.02 9.96 4.50 0.45 4.21 231.65 34,814 1.01 3.65
0.02 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
0.02 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
- --------------------------------------------------------------------------------------------------------------------
0.15 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
0.15 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
0.16 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
- --------------------------------------------------------------------------------------------------------------------
(0.44) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
(0.44) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
(0.07) 9.79 (0.32)(d) 0.95(c) 4.30(c) 354.00 440 1.11(c) 4.14(c)
- --------------------------------------------------------------------------------------------------------------------
0.30 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
0.07 10.23 2.28(d) 0.70(c) 3.32(c) 404.60 911 1.07(c) 2.95(c)
- --------------------------------------------------------------------------------------------------------------------
(0.07) 9.93 (0.34)(d) 0.05(c) 4.58(c) 31.19(d) 14,601 2.68(c) 1.95(c)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A)
-----------------------------------------------------
NET REALIZED
AND UNREALIZED TOTAL
GAIN (LOSS) ON INCOME
NET ASSET INVESTMENT, (LOSS)
VALUE, NET OPTION AND FROM
BEGINNING INVESTMENT FUTURES INVESTMENT
OF PERIOD INCOME TRANSACTIONS OPERATIONS
- ----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 - Class A
Shares $14.99 $0.33 $0.12 $0.45
1998 - Class B
Shares 15.00 0.27 0.12 0.39
1998 - Class C
Shares 14.99 0.27 0.12 0.39
1998 -
Institutional
Shares 15.00 0.35 0.11 0.46
1998 - Service
Shares 14.99 0.33 0.12 0.45
- ----------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------
1997 - Class A
Shares 14.37 0.67 0.62 1.29
1997 - Class B
Shares 14.37 0.56 0.63 1.19
1997 - Class C
Shares(e) 14.85 0.12 0.14 0.26
1997 -
Institutional
Shares(e) 14.84 0.15 0.16 0.31
1997 - Service
Shares(e) 14.84 0.14 0.15 0.29
- ----------------------------------------------------------------------------------
1996 - Class A
Shares 14.17 0.65 0.20 0.85
1996 - Class B
Shares(e) 14.03 0.27 0.34 0.61
- ----------------------------------------------------------------------------------
1995 - Class A
Shares 13.08 0.67 1.09 1.76
- ----------------------------------------------------------------------------------
1994 - Class A
Shares 14.64 0.73 (1.51) (0.78)
- ----------------------------------------------------------------------------------
FOR THE PERIOD ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------
1993 - Class A
Shares(e) 14.32 0.22 0.32 0.54
- ----------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------
FROM IN EXCESS OF
NET REALIZED NET REALIZED
GAIN ON GAIN ON
FROM INVESTMENT, IN EXCESS INVESTMENT, TOTAL
NET OPTION AND OF NET OPTION AND DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES TO
INCOME TRANSACTIONS INCOME TRANSACTIONS SHAREHOLDERS
- ----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 - Class A
Shares $(0.32) $(0.03) -- -- $(0.35)
1998 - Class B
Shares (0.27) (0.03) -- -- (0.30)
1998 - Class C
Shares (0.26) (0.03) -- -- (0.29)
1998 -
Institutional
Shares (0.34) (0.03) -- -- (0.37)
1998 - Service
Shares (0.32) (0.03) -- -- (0.35)
- ----------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------
1997 - Class A
Shares (0.67) -- -- -- (0.67)
1997 - Class B
Shares (0.56) -- -- -- (0.56)
1997 - Class C
Shares(e) (0.12) -- -- -- (0.12)
1997 -
Institutional
Shares(e) (0.15) -- -- -- (0.15)
1997 - Service
Shares(e) (0.14) -- -- -- (0.14)
- ----------------------------------------------------------------------------------
1996 - Class A
Shares (0.65) -- -- -- (0.65)
1996 - Class B
Shares(e) (0.27) -- -- -- (0.27)
- ----------------------------------------------------------------------------------
1995 - Class A
Shares (0.67) -- -- -- (0.67)
- ----------------------------------------------------------------------------------
1994 - Class A
Shares (0.73) (0.05) -- -- (0.78)
- ----------------------------------------------------------------------------------
FOR THE PERIOD ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------
1993 - Class A
Shares(e) (0.22) -- -- -- (0.22)
- ----------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Class A, Class B, Class C, Institutional and Service share activity
commenced on July 20, 1993, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, respectively.
26 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
NET RATIO OF NET
INCREASE RATIO OF INVESTMENT NET ASSETS
(DECREASE) NET ASSET NET EXPENSES INCOME PORTFOLIO AT END OF
IN NET VALUE, TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD
ASSET VALUE END OF PERIOD RETURN(B) NET ASSETS NET ASSETS RATE (IN 000S)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.10 $15.09 3.02%(d) 0.85%(c) 4.37%(c) 39.42%(d) $77,862
0.09 15.09 2.57(d) 1.60(c) 3.58(c) 39.42(d) 3,574
0.10 15.09 2.63(d) 1.60(c) 3.53(c) 39.42(d) 843
0.09 15.09 3.08(d) 0.60(c) 4.65(c) 39.42(d) 692
0.10 15.09 2.97(d) 1.10(c) 4.33(c) 39.42(d) 2
- -------------------------------------------------------------------------------------------
0.62 14.99 9.23 0.85 4.60 153.12 64,553
0.63 15.00 8.48 1.60 3.74 153.12 1,750
0.14 14.99 1.75(d) 1.60(c) 3.24(c) 153.12 130
0.16 15.00 2.10(d) 0.60(c) 4.41(c) 153.12 351
0.15 14.99 1.93(d) 1.10(c) 4.24(c) 153.12 2
- -------------------------------------------------------------------------------------------
0.20 14.37 6.13 0.85 4.58 344.13 52,267
0.34 14.37 4.40(d) 1.60(c) 3.55(c) 344.13 255
- -------------------------------------------------------------------------------------------
1.09 14.17 13.79 0.76 4.93 335.55 53,797
- -------------------------------------------------------------------------------------------
(1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373
- -------------------------------------------------------------------------------------------
0.32 14.64 3.73(d) 0.00(c) 5.15(c) 99.99(d) 30,166
- -------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
----------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
----------------------------------------
<S> <C>
1.66%(c) 3.56%(c)
2.16(c) 3.02(c)
2.16(c) 2.97(c)
1.16(c) 4.09(c)
1.66(c) 3.77(c)
----------------------------------------
1.62 3.83
2.12 3.22
2.12(c) 2.72(c)
1.12(c) 3.89(c)
1.62(c) 3.72(c)
----------------------------------------
1.55 3.88
2.05(c) 3.10(c)
----------------------------------------
1.49 4.20
----------------------------------------
1.55 4.18
----------------------------------------
2.42(c) 2.73(c)
----------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs Tax-Free Funds
THE GOLDMAN
SACHS ADVANTAGE
When you invest in Goldman Sachs Tax-Free Funds, you can capitalize on Goldman
Sachs' 129-year history of excellence while benefiting from the firm's
leadership in three areas:
1
Global Resources
With professionals based 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.
In general, tax-free fixed income investments have the potential to
offer more attractive after-tax yields than many taxable fixed income
investments.
Goldman Sachs Tax-Free Funds offer investors access to the benefits
associated with tax-free investing. The Funds seek high levels of
current income exempt from regular federal income tax, primarily
through investments in municipal securities.
Target Your Needs
The Goldman Sachs Tax-Free Funds have distinct investment objectives
and defined positions on the risk/return spectrum. As your investment
objectives 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 Fixed Income Funds
HIGH YIELD
Higher o High Yield Fund
Risk/Return
TAXABLE
o Global Income Fund
o Core Fixed Income Fund
o Government Income Fund
o Short Duration Government Fund
o Adjustable Rate Government Fund
TAX-FREE
Lower o Municipal Income Fund
Risk/Return o Short Duration Tax-Free Fund
For More Information
To learn more about Goldman Sachs Tax-Free Funds 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 P. Strubel
OFFICERS
Douglas C. Grip, President
James A. Fitzpatrick, Vice President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN, SACHS & CO.
Distributor and Transfer Agent
GOLDMAN SACHS ASSET MANAGEMENT
Investment Adviser
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 Funds involves risks,
including possible loss of the principal amount invested.
Goldman Sachs Government Income Fund's, Goldman Sachs Short Duration Government
Fund's and Goldman Sachs Adjustable Rate Government Fund's net asset values and
yields are not guaranteed by the U.S. government or by its agencies,
instrumentalities or sponsored enterprises.
Goldman Sachs Municipal Income Fund and Goldman Sachs Short Duration Tax-Free
Fund can invest up to 100% and 20% respectively, in private activity bonds, the
interest from which is subject to the federal alternative minimum tax.
Goldman Sachs High Yield Fund invests primarily in high yield, fixed income
securities rated below investment grade that are considered speculative and
generally involve greater price volatility and greater risk of loss of principal
and interest than investments in higher rated fixed income securities.
Goldman Sachs High Yield Fund's, Goldman Sachs Global Income Fund's and Goldman
Sachs Core Fixed 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 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. The Fund may incur losses because of changes in
securities prices expressed in local currencies, movements in exchange rates, or
both.
(C)Copyright 1998 Goldman, Sachs & Co. All rights reserved.
Date of first use: June 30, 1998 FI/TFSAR / 34K / 6-98
