<PAGE>
Goldman Sachs Funds
TAXABLE INVESTMENT GRADE FUNDS Annual Report October 31, 1998
[GRAPHIC] Current income potential from
portfolios that invest in a
variety of fixed income
securities.
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
MARKET OVERVIEW
Dear Shareholder,
Investors' renewed interest in fixed income securities during the review period
was further fueled by a worldwide flight to quality in the wake of increased
levels of global market turmoil.
- --------------------------------------------------------------------------------
Mutual funds, annuities, and other investment products:
o are not FDIC insured;
o are not deposits or obligations of, or guaranteed by, any financial
institution;
o are subject to investment risks, including possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------
o The Dollar Bloc -- For most of the review period, markets vacillated in
response to investor optimism that the Asian ordeal was well in hand and
investor fears that global market turmoil was threatening. The result was
a 12-month period punctuated by market sell-offs and rallies. At period
end, this touch-and-go global anxiety culminated in a powerful Treasury
rally. The catalyst for the rally included investors' wholesale preference
for Treasuries -- exacerbated by the ruble devaluation and Russia's de
facto default -- and technical imbalances (forced liquidations by highly
leveraged players combined with seasonal supply pressures).
Elsewhere in the dollar bloc, Canada, Australia and New Zealand
generated mixed performance during the period under review. All three
countries, however, ended the period on a positive note. Monetary
conditions eased in both Canada and New Zealand, and the Bank of Canada
cut rates. Likewise, Australian bonds performed well as the market started
to discount an expected near-term easing by the Reserve Bank.
o Europe -- Early in the period, Europe's bond markets rallied following an
announcement by German officials that European Monetary Union (EMU)
short-term interest rates would converge at the lower level of the core
markets. The rallies continued into the new year, reinforced in part by
"softer" retail sales data and lower than expected gross domestic product
data. The onset of economic and political turmoil in Russia further helped
European bond market performance. However, by period end, muted
expectations of rate cuts in core European countries, combined with a
changing political landscape in Germany, helped to limit the extent of
Europe's bond rally.
o Japan -- Continued troubles within the banking sector were a significant
factor behind Japan's poor bond market performance early in the period.
After a brief journey into positive territory in December, the market
would continue its poor showing in the wake of the resignation of the
Minister of Finance and amid assumptions that measures of fiscal stimulus
were in the offing. When the long-awaited stimulus package was finally
released, significant doubt remained as to whether it could lead to
Japan's long-term recovery. Throughout the remainder of the period, this
poorly received rescue package, combined with extremely weak gross
domestic product, consumer spending and capital expenditure data, helped
drive Japanese bond yields to record low levels.
o Outlook -- Environment for Bonds Is Positive -- We believe the current
positive global environment for bonds will continue for some time. We
continue to favor Europe, and in particular the UK, where inflationary
pressures are very low or in decline. In Japan, if global bond yields
continue to decline, we expect that Japanese bonds will continue to
underperform.
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 /s/ Sharmin Mossavar-Rahmani
David B. Ford John P. McNulty Sharmin Mossavar-Rahmani
Co-Head, Goldman Sachs Co-Head, Goldman Sachs CIO Fixed Income Investments,
Asset Management Asset Management Goldman Sachs Asset
Management
November 30, 1998
<PAGE>
FUND BASICS
Adjustable Rate Government Fund
as of October 31, 1998
Assets Under Management
-----------------------
$508.8 Million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSAMX
-----------------------
Institutional Shares
-----------------------
GSARX
-----------------------
Administration Shares
-----------------------
GSRAX
-----------------------
Service Shares
-----------------------
GSASX
-----------------------
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1997- Fund Total Return 30-Day SEC 6-Month 1-Year
October 31, 1998 (based on NAV)/1/ Yield/2/ U.S. Treasury/3/ U.S. Treasury/3/
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 3.71% 5.05% 5.72% 6.32%
Institutional 4.09% 5.59% 5.72% 6.32%
Administration 3.83% 5.33% 5.72% 6.32%
Service 3.57% 5.06% 5.72% 6.32%
- -----------------------------------------------------------------------------------------
</TABLE>
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
/2/ 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.
/3/ The 6-Month and 1-Year U.S. Treasury securities reported by Merrill Lynch do
not reflect any fees or expenses.
- --------------------------------------------------------------------------------
SEC RETURNS
- --------------------------------------------------------------------------------
For the period ending 9/30/98 Class A Institutional Administration Service
- --------------------------------------------------------------------------------
One Year/4/ 2.93% 4.75% 4.49% 4.34%
Five Years/4/ N/A 5.30% 5.04% N/A
Since Inception/4/ 5.37% 5.42% 4.95% 5.09%
(5/15/95) (7/17/91) (4/15/93) (3/27/97)
- --------------------------------------------------------------------------------
/4/ 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 1.5% for Class A shares. The public offering price
of the Class A shares on 9/30/98 was $9.91 and represents the NAV plus the
maximum sales charge of 1.5%.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF 10/31/98/5/
- --------------------------------------------------------------------------------
Sector Allocation
- --------------------------------------------------------------------------------
Adjustable Rate Mortgage Securities 62.3%
Collateralized Mortgage Obligations 12.2%
Fixed Rate Pass-Throughs 11.5%
Cash Equivalents 8.6%
Agency Debentures 3.2%
- --------------------------------------------------------------------------------
/5/ Figures represent a percentage of net assets and may not sum to 100%. The
Fund is actively managed and, as such, its composition may differ over time.
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 and expense limitations in effect. In their absence,
performance would be reduced.
1
<PAGE>
PERFORMANCE OVERVIEW
Adjustable Rate Government Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Adjustable Rate
Government Fund for the 12-month period ended October 31, 1998.
Performance Review
Over the 12-month period ended October 31, 1998, the Fund underperformed its
benchmarks, the six-month U.S. Treasury bill and the one-year U.S. Treasury
bill, which returned 5.72% and 6.32%, respectively. The Fund's underperformance
during the first half of the year was driven by weakening fundamentals; that is,
declining interest rates and a flattening yield curve. Underperformance during
the latter six months was driven by investors' preference for the safety and
liquidity of Treasuries.
Investment Objective
The Fund seeks a high level of current income consistent with low volatility of
principal, primarily through investments in adjustable rate mortgage securities
that are issued by the U.S. government, its agencies, instrumentalities or
sponsored enterprises.
Portfolio Composition
Our strategy is to focus on securities that we believe will perform well
relative to the overall market, regardless of the direction of interest rates.
Throughout the period, we managed the Fund's duration (0.75 years as of October
31, 1998) within a tight range of that of a nine-month U.S. Treasury security,
and employed Goldman, Sachs & Co.'s extensive research capabilities to identify
attractively valued securities offering incremental yield relative to
Treasuries.
Portfolio Highlights
o Adjustable Rate Mortgages (ARMs) (84.2% on October 31, 1997 to 62.3% on
October 31, 1998) -- The Fund's allocation to ARMs declined during the
period as cash inflows were invested in alternative sectors with higher
expected rates of return (for example, pass-throughs and CMOs).
o Collateralized Mortgage Obligations (CMOs) (5.4% on October 31, 1997 to
12.2% on October 31, 1998) -- Early in the period, we modestly increased
the Fund's position in CMOs as we identified securities that possessed
attractive yields and good cash flow stability. We maintained this
position throughout the remaining months of the period under review.
2
<PAGE>
PERFORMANCE OVERVIEW
FIXED INCOME
INVESTMENT PROCESS OVERVIEW
-----------
1
Sector
Allocation
-----------
Our sector specialists work together to assess relative value among sectors and
create investment strategies to meet each fund's objectives.
-----------
2
Security
Selection
-----------
In selecting securities for each portfolio, our fixed income teams have access
to the vast resources of Goldman Sachs.
-----------
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.
o Fixed Rate Pass-Throughs (1.0% on October 31, 1997 to 11.5% on October 31,
1998) -- The dramatic cheapening of mortgage pass-through securities
(beyond that warranted by the fundamental environment) led us to
substantially increase our allocation to the sector in the latter months
of the period.
o Cash (2.3% on October 31, 1997 to 8.6% on October 31, 1998) -- The Fund's
cash position increased as we waited for opportunities to invest in
attractively priced instruments.
Portfolio Outlook
Our outlook for the ARM sector has become cautiously optimistic as both
fundamental and technical influences have turned more positive. From a
fundamental standpoint, long-term interest rates have risen and the yield curve
has steepened. As a result, ARM-to-fixed rate refinancing incentives are now
less compelling. From a technical standpoint, the overall tone of the market has
firmed as well; hedge fund selling has abated, while supply pressures from new
mortgage origination activity have been concentrated primarily in fixed rate
versus adjustable rate collateral.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs U.S. Fixed Income Investment Management Team
November 30, 1998
3
<PAGE>
FUND BASICS
Short Duration Government Fund
as of October 31, 1998
Assets Under Management
-----------------------
$225.4 Million
-----------------------
NASDAQ Symbols
Class A Shares
-----------------------
GSSDX
-----------------------
Class B Shares
-----------------------
GSDGX
-----------------------
Class C Shares
-----------------------
GSDCX
-----------------------
Institutional Shares
-----------------------
GSTGX
-----------------------
Administration Shares
-----------------------
GSDAX
-----------------------
Service Shares
-----------------------
GSDSX
-----------------------
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
October 31, 1997- Fund Total Return 30-Day SEC 2-Year U.S.
October 31, 1998 (based on NAV)/1/ Yield/2/ Treasury Security/3/
- --------------------------------------------------------------------------------
Class A 6.36% 4.61% 7.65%
Class B 5.62% 4.11% 7.65%
Class C 5.46% N/A 7.65%
Institutional 6.75% 5.12% 7.65%
Administration 6.27% 4.87% 7.65%
Service 6.12% 4.61% 7.65%
- --------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
/2/ 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.
/3/ The 2-Year U.S. Treasury security does not reflect any fees or expenses.
- --------------------------------------------------------------------------------
SEC RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period ending 9/30/98 Class A Class B Class C Institutional Administration Service
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Year/4/ 4.91% 4.39% 5.18% 7.41% 7.14% 6.88%
Five Years/4/ N/A N/A N/A 6.05% N/A N/A
Ten Years/4/ N/A N/A N/A 7.16% N/A N/A
Since Inception/4/ 5.97% 6.19% 6.25% 7.24% 6.70% 6.95%
(5/1/97) (5/1/97) (8/15/97) (8/15/88) (2/28/96) (4/10/96)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
/4/ 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 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
9/30/98 was $10.16 and represents the NAV plus the maximum sales charge of
2%.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF 10/31/98/5/
- --------------------------------------------------------------------------------
Sector Allocation
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 39.8%
U.S. Treasuries 19.6%
Fixed Rate Pass-Throughs 17.6%
Adjustable Rate Mortgage Securities 12.4%
Agency Debentures 7.6%
Cash Equivalents 2.9%
- --------------------------------------------------------------------------------
/5/ Figures represent a percentage of net assets and may not sum to 100%. The
Fund is actively managed and, as such, its composition may differ over time.
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 and expense limitations in effect. In their absence,
performance would be reduced.
4
<PAGE>
PERFORMANCE OVERVIEW
Short Duration Government Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Short Duration
Government Fund for the 12-month period ended October 31, 1998.
Performance Review
Over the 12-month period ended October 31, 1998, the Fund underperformed the
7.65% return of its benchmark, the two-year U.S. Treasury note, as
mortgage-backed security spreads widened -- first, in response to falling
interest rates (and accompanying prepayment concerns) and later, in response to
global financial anxiety.
Investment Objective
The Fund seeks a high level of current income and, secondarily, in seeking
current income, it may also consider the potential for capital appreciation,
primarily through securities that are issued or guaranteed by the U.S.
government, its agencies, instrumentalities or sponsored enterprises.
Portfolio Composition
We maintained our strategy of focusing on securities that we believe will
perform well relative to the overall market, regardless of the direction of
interest rates. Our investment strategy is to closely manage the Fund's duration
(2.2 years as of October 31, 1998) within a tight range of that of its
benchmark, and to employ Goldman, Sachs & Co.'s extensive research capabilities
to identify attractively valued securities within the mortgage and agency
sectors.
Portfolio Highlights
o Collateralized Mortgage Obligations (CMOs) (57.2% on October 31, 1997 to
39.8% on October 31, 1998) -- The Fund's allocation to CMOs declined over
the period as cash inflows were invested in alternative sectors -- for
example, pass-throughs and agency debentures -- with more enhanced return
opportunities.
o Fixed Rate Pass-Throughs (5.6% on October 31, 1997 to 17.6% on October 31,
1998) -- The Fund's position in fixed rate pass-through securities
increased significantly over the 12-month period. Although we were
initially cautious on pass-throughs given their tight spreads and
vulnerability to prepayment risk, we increased the Fund's exposure to the
sector after spreads widened following the global flight to Treasuries.
5
<PAGE>
PERFORMANCE OVERVIEW
FIXED INCOME
INVESTMENT
PROCESS OVERVIEW
-----------
1
Sector
Allocation
-----------
Our sector specialists work together to assess relative value among sectors and
create investment strategies to meet each fund's objectives.
-----------
2
Security
Selection
-----------
In selecting securities for each portfolio, our fixed income teams have access
to the vast resources of Goldman Sachs.
-----------
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.
o Adjustable Rate Mortgage Securities (ARMs) (15.5% on October 31, 1997 to
12.4% on October 31, 1998) -- The Fund's allocation to ARMs declined
moderately during the period as cash inflows were invested in alternative
sectors with higher expected rates of return (for example, pass-throughs
and agency debentures).
o U.S. Treasuries (16.3% on October 31, 1997 to 19.6% on October 31, 1998)
and Cash Equivalents (1.4% on October 31, 1997 to 2.9% on October 31,
1998) -- During the period, the Fund's positions in U.S. Treasuries and
cash fluctuated in response to shifts in other sectors.
Portfolio Outlook
Within the pass-through market, the technical environment has become more
favorable, as wider spreads have attracted a variety of investors and originator
selling has diminished. Refinancing is also less of a concern, with interest
rates currently more than 40 basis points off their lows. As a result, we are
optimistic on the sector (particularly over longer investment horizons), as we
believe current spreads should more than compensate for short-term volatility.
CMO spreads have widened in concert with pass-through spreads over the past
several months. Relative value opportunities should improve, however, as spreads
stabilize and liquidity returns to the sector.
Our outlook for the ARM sector has become cautiously optimistic, as both
fundamental and technical influences have turned more positive. From a
fundamental standpoint, long-term interest rates have risen and the yield curve
has steepened; as a result, ARM-to-fixed rate refinancing incentives are now
less compelling. From a technical standpoint, the overall tone of the market has
firmed as well; hedge fund selling has abated, while supply pressures from new
mortgage origination activity have been concentrated primarily in fixed rate
versus adjustable rate collateral.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs U.S. Fixed Income Investment Management Team
November 30, 1998
6
<PAGE>
FUND BASICS
Government Income Fund
as of October 31, 1998
Assets Under Management
-----------------------
$129.4 Million
-----------------------
NASDAQ Symbols
Class A Shares
-----------------------
GSGOX
-----------------------
Class B Shares
-----------------------
GSOBX
-----------------------
Class C Shares
-----------------------
GSOCX
-----------------------
Institutional Shares
-----------------------
GSOIX
-----------------------
Service Shares
-----------------------
GSOSX
-----------------------
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
October 31, 1997- Fund Total Return 30-Day SEC Lehman Govt.
October 31, 1998 (based on NAV)/1/ Yield/2/ Mortgage Index/3/
- --------------------------------------------------------------------------------
Class A 8.98% 4.70% 9.72%
Class B 8.09% 4.21% 9.72%
Class C 8.09% 4.16% 9.72%
Institutional 9.19% N/A 9.72%
Service 8.53% N/A 9.72%
- -----------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
/2/ 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.
/3/ The Lehman Brothers Government/Mortgage Index does not reflect any fees or
expenses.
- --------------------------------------------------------------------------------
SEC RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period ending 9/30/98 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year/4/ 6.25% 5.12% 9.36% 11.53 11.08%
Five Years/4/ 6.12% N/A N/A N/A 7.06%
Since Inception/4/ 46.81% 7.75% 10.42% 11.52% 7.65%
(2/10/93) (5/1/96) (8/15/97) (8/15/97) (2/10/93)5
- --------------------------------------------------------------------------------------
</TABLE>
/4/ 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, the assumed deferred sales
charge for Class B shares (5% maximum declining to 0% after six years), and
the assumed deferred sales charge for Class C shares (1% if redeemed within
12 months of purchase). The public offering price of the Class A shares on
9/30/98 was $15.78 and represents the NAV plus the maximum sales charge of
4.5%.
/5/ Performance data for Service shares prior to 8/15/97 is that of Class A
shares (excluding the impact of front-end sales charges applicable to Class
A shares since Service shares are not subject to any sales charges).
Performance of Class A shares in the Fund reflects the expenses applicable
to the Fund's Class A shares. The fees applicable to Service shares are
different from those applicable to Class A shares which impact performance
ratings and rankings for a class of shares.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF 10/31/98/6/
- --------------------------------------------------------------------------------
Sector Allocation
- --------------------------------------------------------------------------------
Mortgage-Backed Securities 58.1%
U.S. Treasuries 16.1%
Asset-Backed Securities 15.8%
Cash Equivalents 11.3%
Agency Debentures 9.3%
Municipal Bonds 1.8%
- --------------------------------------------------------------------------------
/6/ Figures represent a percentage of net assets and may not sum to 100% . The
Fund is actively managed and, as such, its composition may differ over time.
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 and expense limitations in effect. In their absence,
performance would be reduced.
7
<PAGE>
PERFORMANCE OVERVIEW
Government Income Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Government
Income Fund for the 12-month period ended October 31, 1998.
Performance Review
Over the review period, the Fund generated positive performance. However, it
slightly underperformed the 9.72% return of its benchmark, the Lehman
Government/Mortgage Index, as mortgage-backed security spreads widened -- first,
in response to falling interest rates (and accompanying prepayment concerns) and
later, in response to global financial anxiety.
Investment Objective
The Fund seeks a high level of current income consistent with safety of
principal, primarily through investments that include mortgage-backed securities
issued or guaranteed by the U.S. government, its agencies, instrumentalities or
sponsored enterprises.
Portfolio Composition
During the period, we maintained our strategy of focusing on securities that we
believe will perform well relative to the overall market regardless of the
direction of interest rates. Our investment strategy is to closely manage the
Fund's duration (4.41 years as of October 31, 1998) within a tight range of its
benchmark (4.12 years), and seek excess returns over the benchmark through
sector weightings and specific security selection.
Portfolio Highlights
o Mortgage-Backed Securities (MBS) (48.2% on October 31, 1997 to 58.1% on
October 31, 1998) -- The Fund's position in mortgage-backed securities
increased over the 12-month period, primarily due to an increase in the
pass-through sector. Although we were initially cautious on mortgages
given their tight spreads and vulnerability to prepayment risk, we
increased the Fund's exposure to pass-throughs after the sector cheapened
following the global flight to Treasuries.
o U.S. Treasuries (22.7% on October 31, 1997 to 16.1% on October 31, 1998)
and Cash Equivalents (0.3% on October 31, 1997 to 11.3% on October 31,
1998) -- During the period, the Fund's position in U.S. Treasuries
decreased as we added to the Fund's position in mortgage-backed
securities. The Fund's cash position increased from prior year end.
8
<PAGE>
PERFORMANCE OVERVIEW
FIXED INCOME
INVESTMENT
PROCESS OVERVIEW
-----------
1
Sector
Allocation
-----------
Our sector specialists work together to assess relative value among sectors and
create investment strategies to meet each fund's objectives.
-----------
2
Security
Selection
-----------
In selecting securities for each portfolio, our fixed income teams have access
to the vast resources of Goldman Sachs.
-----------
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.
o Asset-Backed Securities (ABS) (17.9% on October 31, 1997 to 15.8% on
October 31, 1998) -- Early in the period, ABS performed well as investors
demonstrated renewed interest in the sector. However, spreads widened in
concert with other credit sectors during the months following the Russian
ruble devaluation.
o Insured Revenue Bonds (Municipal Bonds) (2.7% on October 31, 1997 to 1.8%
on October 31, 1998) -- We maintained a small position in municipal bonds
in order to take advantage of persistent cheapening in the municipal
sector. We expect to "unwind" this trade when equilibrium is restored.
Portfolio Outlook
In the mortgage-backed security market, supply pressures have abated and
refinancing activity is now less of a concern than previously. As a result, we
believe current spreads, particularly within the pass-through sub-sector, should
more than compensate for short-term volatility. Additionally, relative value
opportunities should improve as spreads stabilize and liquidity returns to the
collateralized mortgage obligations market. Finally, although further spread
volatility is possible going into year-end, the strong fundamental backdrop and
improving technical situation bode well for ABS spreads over the next several
months.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs U.S. Fixed Income Investment Management Team
November 30, 1998
9
<PAGE>
FUND BASICS
Core Fixed Income Fund
as of October 31, 1998
Assets Under Management
-----------------------
$282.8 Million
-----------------------
NASDAQ Symbols
Class A Shares
-----------------------
GCFIX
-----------------------
Class B Shares
-----------------------
GCFBX
-----------------------
Class C Shares
-----------------------
GCFCX
-----------------------
Institutional Shares
-----------------------
GSFIX
-----------------------
Administration Shares
-----------------------
GSFAX
-----------------------
Service Shares
-----------------------
GSCSX
-----------------------
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
October 31, 1997- Fund Total Return 30-Day SEC Lehman Aggregate
October 31, 1998 (based on NAV)/1/ Yield/2/ Bond Index/3/
- --------------------------------------------------------------------------------
Class A 8.76% 4.94% 9.34%
Class B 7.94% 4.43% 9.34%
Class C 7.94% 4.37% 9.34%
Institutional 9.15% 5.57% 9.34%
Administration 8.88% 5.34% 9.34%
Service 8.50% 5.05% 9.34%
- --------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
/2/ 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.
/3/ The Lehman Aggregate Bond Index does not reflect any fees or expenses.
- --------------------------------------------------------------------------------
SEC RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period ending 9/30/98 Class A Class B Class C Institutional Administration Service
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Year/4/ 5.95% 4.91% 9.14% 11.32% 11.05% 10.77%
Since Inception/4/ 8.11% 7.98% 10.32% 7.77% 8.49% 8.93%
(5/1/97) (5/1/97) (8/15/97) (1/5/94) (2/28/96) (3/13/96)
- --------------------------------------------------------------------------------------------------------
</TABLE>
/4/ 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, the assumed deferred sales
charge for Class B shares (5% maximum declining to 0% after six years) and
the assumed deferred sales charge for Class C shares (1% if redeemed within
12 months of purchase). The public offering price of the Class A shares on
9/30/98 was $10.85 and represents the NAV plus the maximum sales charge of
4.5%.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF 10/31/98/5/
- --------------------------------------------------------------------------------
Sector Allocation
- --------------------------------------------------------------------------------
Mortgage-Backed Securities 39.2%
Corporates 28.3%
U.S. Treasuries 17.5%
Asset-Backed Securities 11.9%
Cash Equivalents 7.9%
Emerging Market Debt 1.4%
Agency Debentures 0.9%
- --------------------------------------------------------------------------------
/5/ Figures represent a percentage of net assets and may not sum to 100%. The
Fund is actively managed and, as such, its composition may differ over time.
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 and expense limitations in effect. In their absence,
performance would be reduced.
10
<PAGE>
PERFORMANCE OVERVIEW
Core Fixed Income Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Core Fixed
Income Fund for the 12-month period ended October 31, 1998.
Performance Review
Over the 12-month period ended October 31, 1998, the Fund generated positive
performance. Nonetheless, it slightly underperformed the 9.34% total return of
its benchmark, the Lehman Brothers Aggregate Bond Index. The Fund's
underperformance relative to its benchmark is primarily attributable to a
widening in mortgage-backed spreads -- first in response to falling interest
rates (and accompanying prepayment concerns) and later, in response to global
financial anxiety.
Investment Objective
The Fund seeks total return consisting of capital appreciation and income that
exceeds that of the Lehman Brothers Aggregate Bond Index, primarily through
fixed income securities, including securities issued or guaranteed by the U.S.
government, its agencies, instrumentalities or sponsored enterprises, corporate
securities, mortgage-backed securities and asset-backed securities.
Portfolio Composition
Our general investment strategy de-emphasizes Treasuries in favor of higher
yielding fixed income alternatives with enhanced total return potential.
Therefore, during the period under review, we underweighted Treasury and agency
securities relative to the benchmark, and overweighted corporate, mortgage,
asset-backed and emerging market debt securities.
Portfolio Highlights
o Mortgage-Backed Securities (MBS) (37.4% on October 31, 1997 to 39.2% on
October 31, 1998) -- Throughout the period, we maintained an overweighted
position in mortgage-backed securities -- including collateralized
mortgage obligations (CMOs) -- versus the benchmark. However, within the
overall sector, we were cautious on pass-through securities given their
tight spreads and vulnerability to prepayment risk until the final months
of the period, when we increased the Fund's exposure to the subsector
after spreads widened in response to the global flight to Treasuries.
o Corporates (28.8% on October 31, 1997 to 28.3% on October 31, 1998) --
Strong cash inflows into the Fund, combined with the fact that several
bonds were called in the first six months of the period, resulted in a
mid-period decrease in this position to 21.2%. In the remaining months of
the period, however, we gradually added corporate exposure, particularly
within the industrial and financial subsectors.
11
<PAGE>
PERFORMANCE OVERVIEW
FIXED INCOME
INVESTMENT
PROCESS OVERVIEW
-----------
1
Sector
Allocation
-----------
Our sector specialists work together to assess relative value among sectors and
create investment strategies to meet each fund's objectives.
-----------
2
Security
Selection
-----------
In selecting securities for each portfolio, our fixed income teams have access
to the vast resources of Goldman Sachs.
-----------
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.
o Asset-Backed Securities (ABS) (13.9% on October 31, 1997 to 11.9% on
October 31, 1998) -- Early in the period, ABS performed well as investors
demonstrated renewed interest in the sector. However, spreads widened in
concert with other credit sectors during the months following the Russian
ruble devaluation.
o U.S. Treasuries (15.7% on October 31, 1997 to 17.5% on October 31, 1998)
and Cash Equivalents (7.9% on October 31, 1998) -- The Fund's positions in
U.S. Treasuries and cash equivalents fluctuated in response to increases
in the Fund's exposure to both the mortgage pass-through and corporate
sectors.
o Emerging Market Debt (EMD) (5.0% on October 31, 1997 to 1.4% on October
31, 1998) -- During the period under review, we reduced the Fund's
position in emerging market debt. The reduction reflected our ongoing
concern regarding the global economic outlook and our anticipation of
continued spread volatility. The remaining exposure is concentrated in
Latin America.
Portfolio Outlook
In the mortgage-backed security market, supply pressures have abated and
refinancing activity is now less of a concern. As a result, we believe current
spreads, particularly within the pass-through subsector, should more than
compensate for short-term volatility. Additionally, relative value opportunities
are likely to improve as spreads stabilize and liquidity returns to the CMO
market. Within the corporate sector, we intend to continue to look for
opportunities to add exposure in order to achieve a neutral position (on a
dollar-duration basis) relative to the corporate sector of the benchmark.
Regarding the ABS sector, although further spread volatility is possible going
into year-end, the strong fundamental backdrop and improving technical situation
should bode well for spreads over the next several months.
Finally, the outlook for EMD has improved recently, as both the U.S. Federal
Reserve and the Brazilian authorities have acted decisively to avoid a deepening
of the global financial crisis. The Fed's surprise easing, coupled with an
announced fiscal adjustment and impending IMF support package for Brazil, has
allayed fears of a global credit crunch and has led to tighter spreads in the
sector. Going forward, we may look to opportunistically add to countries with
low financing requirements.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs U.S. Fixed Income Investment Management Team
November 30, 1998
12
<PAGE>
FUND BASICS
Global Income Fund
as of October 31, 1998
Assets Under Management
-----------------------
$409.2 Million
-----------------------
NASDAQ Symbols
Class A Shares
-----------------------
GSGIX
-----------------------
Class B Shares
-----------------------
GSLBX
-----------------------
Class C Shares
-----------------------
GSLCX
-----------------------
Institutional Shares
-----------------------
GSGLX
-----------------------
Service Shares
-----------------------
GGISX
-----------------------
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
October 31, 1997- Fund Total Return 30-Day SEC JPM Global Govt.
October 31, 1998 (based on NAV)/1/ Yield/2/ Bond Index/3/
- --------------------------------------------------------------------------------
Class A 11.21% 3.42% 12.70%
Class B 10.66% 3.07% 12.70%
Class C 10.65% 3.07% 12.70%
Institutional 11.95% 4.23% 12.70%
Service 11.43% 3.71% 12.70%
- --------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
/2/ 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.
/3/ The composition and characteristics of the securities in the JP Morgan (JPM)
Global Government Bond Index (hedged) are not identical to those of the
Fund. Also, unlike the Fund's return, the Index's return does not reflect
any fees or expenses.
- --------------------------------------------------------------------------------
SEC RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period ending 9/30/98 Class A Class B Class C Institutional Service
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year/4/ 7.73% 6.91% 11.16% 13.61% 13.02%
Five Years/4/ 7.81% N/A N/A N/A 8.84%
Since Inception/4/ 8.22% 9.96% 13.21% 12.43% 8.95%
(8/2/91) (5/1/96) (8/15/97) (8/1/95) (8/2/91)5
- ----------------------------------------------------------------------------------------------------
</TABLE>
/4/ 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, the assumed deferred sales
charge for Class B shares (5% maximum declining to 0% after six years), and
the assumed deferred sales charge for Class C shares (1% if redeemed within
12 months of purchase). The public offering price of the Class A shares on
9/30/98 was $16.59 and represents the NAV plus the maximum sales charge of
4.5%.
/5/ Performance data for Service shares prior to 3/12/97 is that of Class A
shares (excluding the impact of front-end sales charges applicable to Class
A shares since Service shares are not subject to any sales charges).
Performance of Class A shares in the Fund reflects the expenses applicable
to the Fund's Class A shares. The fees applicable to Service shares are
different from those applicable to Class A shares which impact performance
ratings and rankings for a class of shares.
- --------------------------------------------------------------------------------
TOP 10 POSITIONS AS OF 10/31/98/6/
- --------------------------------------------------------------------------------
Bonds Denomination
- --------------------------------------------------------------------------------
1. U.S. Dollar 44.73%
2. British Pound 17.13%
3. German Mark 6.60%
4. Danish Krone 6.41%
5. Italian Lira 6.37%
6. U.S. Dollar Cash Equivalents 5.57%
7. Japanese Yen 5.42%
8. Spanish Peseta 2.34%
9. Canadian Dollar 2.07%
10. French Franc 1.12%
- --------------------------------------------------------------------------------
/6/ Figures represent a percentage of net assets and may not sum to 100%. The
Fund is actively managed and, as such, its composition may differ over time.
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 and expense limitations in effect. In their absence
performance would be reduced.
13
<PAGE>
PERFORMANCE OVERVIEW
Global Income Fund
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Global Income
Fund for the 12-month period ended October 31, 1998.
Performance Review
Over the 12-month period covered by this report, the Fund generated strong
performance. Nonetheless, it slightly underperformed the 12.70% total return of
its benchmark, the JP Morgan Global Government Bond Index (hedged into U.S.
dollars). Over the same period, the Fund outperformed the 4.28% return of its
peers within the Lipper Global Income Funds category, ranking the Fund's Class
A, B, C, Institutional and Service shares 12, 15, 16, 8 and 11, respectively,
out of 148 funds. For the five-year period ended October 31, 1998, the Fund's
Class A shares ranked 3 out of 62 funds. Please note that Lipper rankings do not
take sales charges into account and that past performance is not a guarantee of
future results.
A key factor behind the Fund's slight underperformance relative to its
benchmark was a short yen position, which was held in line with our ongoing view
that the Japanese economy is weak. Because of this position, however, the Fund
did not benefit from a brief rally in Japanese bonds that occurred in October.
Also, the Fund's overweight position in New Zealand bonds during the fourth
quarter of 1997 and the first quarter of 1998 further proved detrimental to
performance.
Investment Objective
The Fund seeks high total return, emphasizing current income and, to a lesser
extent, providing opportunities for capital appreciation primarily through
investments in fixed income securities of U.S. and foreign issuers and foreign
currencies.
Portfolio Positioning
The Fund maintained a neutral position versus the benchmark in Europe at the
beginning of the period, a position that was increased to an overweighting by
period end. The shift occurred as falling inflation, moderate growth and low
levels of unemployment indicated positive future performance for European bonds.
In the U.S. and other dollar bloc countries, a neutral position early in the
period was gradually increased to an overweight position amid signs of a slowing
global economy. Finally, in Japan, we closed the period with an underweight
position consistent with our pessimism regarding the health of Japan's financial
markets.
Portfolio Highlights
o Danish Government Bonds -- The flight to quality through the recent
sell-off in perceived higher risk assets also affected the Danish
government bond market, and we used this as an opportunity to increase our
positions. We expect Denmark to join the euro within the next three years.
Moreover, the Danish Central Bank remains committed to keeping the krone
closely pegged with the deutschemark/euro.
14
<PAGE>
PERFORMANCE OVERVIEW
FIXED INCOME
INVESTMENT
PROCESS OVERVIEW
-----------
1
Sector
Allocation
-----------
Our sector specialists work together to assess relative value among sectors and
create investment strategies to meet each fund's objectives.
-----------
2
Security
Selection
-----------
In selecting securities for each portfolio, our fixed income teams have access
to the vast resources of Goldman Sachs.
-----------
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.
o UK Bonds -- After the extreme weakness in the export and manufacturing
sectors, we have finally begun to see weakness in the consumer sector; for
example, consumer confidence and retail sales have both markedly declined
recently. While the Bank of England has already eased rates, we expect 75
to 100 basis points of further rate cuts through the first half of 1999,
as the consumer sector continues to deteriorate. This presents a favorable
scenario for UK bonds.
o Australian Bonds -- During the period, we held an overweight position in
Australian bonds since, at one stage, the market was discounting a rate
hike as the currency weakened. We viewed this as a temporary phenomenon
prompted by the general weakness in Asian economies, and did not believe
there was sufficient evidence to justify a rate hike. Hence, we purchased
Australian bonds at spreads close to 100 basis points to
equivalent-maturity U.S. bonds. The reduction of risk premia toward the
end of the reporting period also translated into a stronger Australian
dollar and an unwinding of rate hike expectations. This brought the
Australian/U.S. spreads in by over 70 basis points, where we took profits.
Portfolio Outlook
Despite the recent stabilization in emerging markets, the U.S. equity
market and credit conditions, we feel significant risks remain to the
global and the U.S. domestic economy. The global outlook remains hinged on
the success of policy measures in Japan to revive the economy and reform
the banking sector, and on the success of the IMF package to Brazil. In
both cases, we feel significant risks remain. The domestic economy of the
U.S. is also vulnerable to any further deterioration in global growth, and
there are already signs that the economy is slowing. We expect this to
continue into 1999. Although we currently do not expect a full recession
in the U.S. in 1999, we expect growth to slow enough to prompt the Federal
Reserve into easing further, and we expect the bond market to perform
strongly in this environment.
o Euro 11 Markets -- In the Euro-11 markets, we expect the bond market to
continue to strengthen. The inflation outlook for Europe remains very
benign and we expect this to be reinforced by the introduction of EMU and
the transfer of monetary policy to the new European Central Bank. The
growth outlook for Europe is finely balanced and recent data is pointing
to a slowing in the recovery. We expect European growth to be slowed
further by the deteriorating international situation and there is a
growing expectation that the next move in European rates will be a
decline. This environment should be favorable for European bonds.
o Non-Euro 11 Markets -- We expect non-Euro-11 markets to perform well in
the medium-term. We expect the UK economy to slow sharply in 1999,
prompting further cuts in interest rates. There is also an increasing
market expectation that the UK will enter EMU within the next five years
and we expect the UK bond market to converge further with core European
markets. The Danish and Swedish markets are also likely to perform well as
public sentiment in those countries shifts in favor of joining EMU.
o Japan -- Our outlook for the Japanese bond market is negative. We expect
the Japanese government to implement further economic and bank reform
measures; the effects of these measures and the increase in bond supply is
likely to be negative for the bond market.
We thank you for your investment and look forward to your continued
confidence.
Goldman Sachs Global Fixed Income Investment Management Team
November 30, 1998
15
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
By putting securities with different correlations to work in your portfolio, you
can expand your investment opportunities while potentially spreading your risk.
Fixed Income Funds --
An Effective Portfolio Diversifier
Recent global market events -- and resulting price volatility in the stock
market -- have encouraged many investors to seek more stability in their
portfolio through greater diversification. In many cases, investors have
increased their allocation to fixed income securities. What some individuals may
have overlooked is the extent to which they can diversify within the fixed
income arena. Different types of fixed income securities possess varying levels
of market correlation to each other, and therefore should be able to provide an
added measure of protection against market risk.
Differing Correlations May Help Reduce Exposure to Risk
Correlation simply defines how two investments move together. If you own two
highly correlated investments, their returns will tend to move in tandem. If you
own two loosely correlated assets, their returns will tend to move in opposite
directions.
The table below shows the different correlations between fixed income
securities. A high correlation of 0.99, such as that between cash and Treasury
bills, means these two securities tend to react similarly in a given market
environment. A low correlation such as 0.23, such as that between high yield
bonds and intermediate government bonds, means these two securities have a low
correlation -- a difference that could provide an important level of
diversification in a portfolio.
- --------------------------------------------------------------------------------
CORRELATIONS OF FIXED INCOME SECURITIES
- --------------------------------------------------------------------------------
Int. Long Long High
Govt. Govt. Corp. Muni Global Yield
Cash T-Bill Bonds Bonds Bonds Bonds Bonds Bonds
- --------------------------------------------------------------------------------
Cash 1.00
T-Bill 0.99 1.00
Int. Govt. Bonds 0.15 0.12 1.00
Long Govt. Bonds 0.07 0.04 0.91 1.00
Long Corp. Bonds 0.13 0.10 0.98 0.96 1.00
Muni Bonds 0.04 0.03 0.75 0.76 0.78 1.00
Global Bonds 0.00 -0.03 0.73 0.64 0.69 0.54 1.00
High Yield Bonds -0.14 -0.13 0.23 0.26 0.31 0.31 0.09 1.00
- --------------------------------------------------------------------------------
Sources: See back cover.
Past performance is no guarantee of future results.
All of the indices are unmanaged and returns assume the reinvestment of income.
Government bonds and T-bills, unlike Fund shares, are guaranteed as to the
timely payment of principal and interest. The indices do not reflect any fees
and expenses. The information in the chart above is not intended to imply the
future performance of any of the investments mentioned or of any Goldman Sachs
Fund, nor does it reflect any Fund's actual portfolio composition, fees or
expenses.
For More Information
Fixed income mutual funds are a convenient way to acquire a diversified
portfolio of fixed income securities. Goldman Sachs Fixed Income Funds can
provide access to each of the fixed income securities shown above. For
information on how these Funds can potentially help manage risk in your
portfolio, consult your investment professional.
16
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made in Institutional shares on August 1, 1991. For comparative pur-
poses, the performance of the Fund's benchmarks (the Lehman Brothers Mutual
Fund Short (1-2) U.S. Government Index ("Lehman 1-2 Index") and the six-month
and one-year U.S. Treasury Bills ("Six-Month T-Bill/One-Year T-Bill")) are
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, Administration and Service shares will vary from In-
stitutional shares due to differences in fees and loads.
ADJUSTABLE RATE GOVERNMENT FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1991 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Adjustable Rate
Government Fund Lehman 1-2 One-Year Six-Month
(Institutional Shares) Index T-Bill T-Bill
8/1/91 10000 10000 10000 10000
Aug-91 10074 10120 10083 10060
Sep-91 10136 10213 10158 10117
10/91 10208 10316 10236 10174
Nov-91 10277 10415 10314 10234
Dec-91 10333 10554 10407 10300
1/92 10389 10556 10436 10335
Feb-92 10441 10588 10463 10365
Mar-92 10474 10600 10489 10397
4/92 10522 10694 10550 10450
May-92 10588 10777 10592 10489
Jun-92 10661 10870 10648 10531
7/92 10724 10979 10726 10583
Aug-92 10779 11056 10775 10617
Sep-92 10833 11149 10844 10665
10/92 10834 11100 10832 10675
Nov-92 10843 11092 10841 10698
Dec-92 10911 11190 10900 10740
1/93 10947 11288 10957 10780
Feb-93 10996 11361 10995 10808
Mar-93 11020 11393 11027 10841
4/93 11065 11455 11066 10870
May-93 11086 11433 11055 10887
Jun-93 11148 11505 11109 10920
7/93 11188 11533 11137 10949
Aug-93 11238 11610 11187 10984
Sep-93 11264 11647 11219 11015
10/93 11282 11672 11240 11039
Nov-93 11292 11686 11261 11067
Dec-93 11323 11728 11301 11106
1/94 11355 11796 11347 11142
Feb-94 11375 11746 11334 11152
Mar-94 11369 11717 11336 11180
4/94 11352 11688 11326 11197
May-94 11359 11709 11341 11228
Jun-94 11384 11742 11378 11277
7/94 11441 11836 11448 11324
Aug-94 11478 11876 11487 11369
Sep-94 11485 11866 11504 11400
10/94 11494 11900 11549 11452
Nov-94 11492 11861 11543 11486
Dec-94 11543 11891 11582 11536
1/95 11659 12036 11698 11611
Feb-95 11748 12178 11800 11679
Mar-95 11804 12248 11869 11739
4/95 11879 12347 11937 11801
May-95 11991 12518 12044 11872
Jun-95 12006 12585 12113 11935
7/95 12072 12644 12173 11995
Aug-95 12139 12713 12231 12054
Sep-95 12191 12771 12281 12104
10/95 12270 12865 12355 12164
Nov-95 12346 12960 12429 12223
Dec-95 12424 13051 12498 12291
1/96 12515 13154 12578 12352
Feb-96 12549 13125 12593 12396
Mar-96 12600 13133 12627 12438
4/96 12662 13158 12671 12489
May-96 12740 13198 12716 12540
Jun-96 12790 13286 12784 12594
7/96 12855 13338 12832 12649
Aug-96 12920 13393 12893 12705
Sep-96 13023 13500 12980 12771
10/96 13114 13635 13076 12832
Nov-96 13191 13722 13140 12889
Dec-96 13257 13744 13185 12943
1/97 13323 13808 13250 13000
Feb-97 13383 13849 13299 13060
Mar-97 13436 13854 13332 13111
4/97 13545 13958 13410 13173
May-97 13643 14051 13493 13244
Jun-97 13712 14140 13572 13308
7/97 13797 14269 13670 13370
Aug-97 13853 14297 13712 13424
Sep-97 13921 14394 13785 13493
10/97 13992 14489 13861 13554
Nov-97 14032 14529 13901 13602
Dec-97 14087 14621 13966 13665
1/98 14172 14745 14057 13735
Feb-98 14207 14769 14094 13786
Mar-98 14264 14829 14165 13854
4/98 14289 14899 14232 13915
5/98 14346 14975 14442 13976
6/98 14415 15050 14511 14043
7/98 14457 15121 14579 14110
8/98 14530 15277 14697 14183
9/98 14583 15451 14817 14268
10/98 14565 15531 14893 14328
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 15, 1995)
Excluding sales charges 5.63% n/a 3.71%
Including sales charges 5.16% n/a 2.16%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED JULY 17,
1991) 5.34% 5.24% 4.09%
------------------------------------------------------------------------------
ADMINISTRATION CLASS (COMMENCED APRIL
15, 1993) 4.85% 4.98% 3.83%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 27, 1997) 4.63% n/a 3.57%
------------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
17
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - 86.0%
ADJUSTABLE RATE FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)(A) - 20.7%
$ 1,884,454 7.29% 07/01/2018 $ 1,917,809
4,154,158 8.16 11/01/2018 4,272,302
887,658 7.31 12/01/2018 902,908
6,485,132(b) 7.33 05/01/2019 6,574,043
15,255,307(b) 7.53 11/01/2019 15,689,625
8,378,831 7.24 01/01/2020 8,474,852
3,290,423 7.51 05/01/2020 3,366,497
12,052,342(b) 7.45 06/01/2020 12,241,684
24,961,460(b) 7.60 02/01/2022 25,569,522
4,706,626 7.22 06/01/2022 4,774,778
2,829,548 7.30 08/01/2022 2,866,247
3,968,347 7.19 09/01/2022 4,015,967
4,430,804(b) 7.36 09/01/2022 4,494,829
6,487,956(b) 7.52 06/01/2024 6,614,666
2,453,837 7.16 02/01/2028 2,479,284
1,136,617(b) 7.49 07/01/2030 1,157,929
------------
$105,412,942
----------------------------------------------------------------------------------------------
ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)(A) - 38.5%
$ 1,056,694 7.22% 04/01/2003 $ 1,067,599
724,071 7.43 11/01/2014 741,239
466,162 7.21 12/01/2015 470,143
4,126,862 6.56 03/01/2017 4,130,741
2,519,416 7.38 03/01/2017 2,569,679
8,576,471 6.99 04/01/2017 8,675,615
539,836 7.19 11/01/2017 546,250
784,577 7.04 03/01/2018 793,819
2,955,406 6.35 03/01/2018 2,949,909
569,993 7.47 05/01/2018 576,674
288,552 7.15 06/01/2018 292,819
896,436 7.24 06/01/2018 910,366
6,020,013 7.31 06/01/2018 6,147,758
3,554,572 7.30 07/01/2018 3,623,566
4,337,221 7.07 08/01/2018 4,407,484
2,915,222 7.59 08/01/2018 2,991,338
2,147,218 7.30 10/01/2018 2,184,795
1,420,692 7.13 10/01/2018 1,441,946
127,626 7.12 11/01/2018 128,685
4,310,005 7.20 11/01/2018 4,383,404
1,321,719 7.17 12/01/2018 1,341,809
9,776,995(b) 7.62 12/01/2018 10,019,660
2,282,400 7.17 06/01/2019 2,310,839
1,086,940 7.13 07/01/2019 1,104,831
2,958,595 7.18 07/01/2019 3,006,199
1,167,823 7.14 08/01/2019 1,182,467
2,737,317 7.37 09/01/2019 2,791,625
2,071,759 7.57 03/01/2020 2,113,381
6,218,420 7.15 07/01/2020 6,313,127
14,630,896 7.51 01/01/2021 14,977,795
3,360,772 7.44 02/01/2021 3,441,834
3,708,467 7.15 04/01/2021 3,769,879
49,482,409(b) 7.37 09/01/2021 50,572,012
14,695,792(b) 7.45 02/01/2022 15,075,091
1,544,367 7.08 05/20/2022 1,555,749
4,580,430 7.49 06/01/2022 4,699,705
1,346,612 7.39 08/01/2022 1,376,440
4,748,688 7.45 09/01/2022 4,858,002
257,188 6.22 12/01/2023 259,680
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)(A) - (CONTINUED)
$10,797,106 6.94% 06/20/2024 $ 10,959,063
551,303 7.43 09/01/2025 562,390
2,874,064 7.06 08/01/2027 2,911,542
1,767,014 6.97 10/01/2027 1,796,646
------------
$196,033,595
----------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)(A) - 3.0%
$ 1,287,918 6.87% 03/20/2016 $ 1,311,667
3,747,337 6.62 08/20/2018 3,824,045
4,614,191 6.87 02/20/2021 4,687,742
2,273,990 6.87 06/20/2022 2,310,942
3,037,186 6.87 05/20/2023 3,060,876
------------
$ 15,195,272
----------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - 3.2%
$ 5,353,997 7.00% 12/01/1999 $ 5,384,676
1,951,984 6.50 03/01/2013 1,980,054
3,945,910 6.50 04/01/2013 4,002,653
1,634,011 6.50 05/01/2013 1,657,509
3,383,288 6.50 06/01/2013 3,424,371
------------
$ 16,449,263
----------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 3.5%
$ 9,966,054 7.00% 10/01/2002 $ 10,106,206
6,862,306 8.00 11/01/2017 7,123,966
------------
$ 17,230,172
----------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 4.9%
$ 8,209,936 9.00% 12/15/2017 $ 8,789,722
357,801 7.00 01/15/2023 366,299
540,955 7.00 05/15/2023 553,970
516,923 7.00 06/15/2023 529,361
2,435,399 7.00 07/15/2023 2,493,784
415,158 7.00 09/15/2023 425,147
1,237,675 7.00 10/15/2023 1,267,454
4,675,610 7.00 11/15/2023 4,786,572
5,867,550 7.00 12/15/2023 6,006,729
------------
$ 25,219,038
----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 12.2%
ADJUSTABLE RATE CMOS(A) - 1.4%
FNMA Remic Trust 1990-145, Class A
$ 7,235,523 6.40% 12/25/2020 $ 7,199,490
----------------------------------------------------------------------------------------------
INVERSE FLOATER(A) - 1.4%
FNMA Series 1993-189, Class SA
$ 7,088,450 9.75% 10/25/2023 $ 7,091,143
----------------------------------------------------------------------------------------------
IOETTE - 0.1%
FNMA Remic Trust 1990-145, Class B
$ 17,780 11.18%(c) 12/25/2020 $ 324,812
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS - 3.2%
FHLMC Series 2055, Class OD(b)
$10,000,000 6.00% 12/15/2007 $ 10,043,700
FNMA Series X-188B, Class ZA
6,144,677 5.75 09/25/2010 6,175,462
------------
$ 16,219,162
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
REGULAR FLOATER CMOS(A) - 1.3%
FNMA Remic Trust 169B, Class FA
$ 1,823,556 5.68% 09/25/2000 $ 1,835,518
FNMA Remic Trust 1997-43, Class FA
2,794,679 6.24 07/18/2027 2,799,039
FNMA Remic Trust 1997-7, Class FB
2,112,052 6.10 03/18/2027 2,114,122
------------
$ 6,748,679
------------------------------------------------------------------------------------------------
SEQUENTIAL FIXED RATE CMOS - 3.3%
FHLMC Series 2064, Class M(b)
$ 7,300,000 6.00% 06/15/2028 $ 7,437,671
FNMA Series 1998-36, Class J
9,095,000 6.00 07/18/2028 9,284,085
------------
$ 16,721,756
------------------------------------------------------------------------------------------------
SUPPORT - 1.5%
FNMA Series G94 13, Class ZB
$ 7,821,819 7.00% 11/17/2024 $ 7,808,786
------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 62,113,828
------------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $443,002,545) $437,654,110
------------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 3.2%
ADJUSTABLE RATE SMALL BUSINESS ADMINISTRATION (SBA)(A) - 3.2%
$ 865,252 6.37% 09/25/2016 $ 878,967
3,372,894 6.37 07/25/2017 3,424,542
5,530,015 6.37 08/25/2017 5,621,204
2,508,873 6.37 09/25/2017 2,547,683
2,781,031 6.37 10/25/2017 2,825,973
278,585 6.37 02/25/2018 283,279
814,558 6.12 11/25/2018 816,595
------------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES (COST $16,143,349) $ 16,398,243
------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.6%
JOINT REPURCHASE AGREEMENT ACCOUNT(B)
$43,700,000 5.63% 11/02/1998 $ 43,700,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $43,700,000) $ 43,700,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $502,845,894)(D) $497,752,353
------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(E) MONTH GAIN (LOSS)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 560 December 1998 $ 407,104
Euro Dollars 208 March 1999 588,017
Euro Dollars 89 June 1999 91,835
Euro Dollars (19) September 1999 (5,346)
Euro Dollars (20) December 1999 (74,500)
5 Year U.S.
Treasury Notes (90) December 1998 (165,368)
10 Year U.S.
Treasury Notes 24 December 1998 (3,902)
20 Year Long
Term Bond 6 December 1998 (30,226)
-------------------------------------------------------------------------------------
$ 807,614
-------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 1,898,864
Gross unrealized loss for investments in which cost ex-
ceeds value (6,992,405)
-------------------------------------------------------------------------------------
Net unrealized loss $(5,093,541)
-------------------------------------------------------------------------------------
</TABLE>
(a) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(b) Portions of these securities are being segregated for open futures
contracts, futures margin requirements and open purchases.
(c) Represents security with notional or nominal principal amount. The actual
effective yield of this security.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
(e) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long
Term Bond contract represents $100,000 in notional par value. The total
notional amount and market value at risk are $908,000,000 and
$227,205,706, respectively. The determination of notional amounts as
presented here are indicative only of volume of activity and not
a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made in Institutional shares on September 1, 1988. For comparative
purposes, the performance of the Fund's benchmarks (the U.S. 2-Year Treasury
Bill ("Two-Year T-Bill") and the Lehman Brothers Mutual Fund Short (1-3) U.S.
Government Index ("Lehman Short (1-3) Gov't Index")) are shown. This perfor-
mance data represents past performance and should not be considered indica-
tive 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 Institutional shares due to differences in fees and loads.
SHORT DURATION GOVERNMENT FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED SEPTEMBER 1, 1988 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Short Duration
Government Fund Lehman Short
(Institutional Shares) (1-3) Gov't Index Two-Year T-Bill
9/1/88 10000 10000 10000
Sep-88 10129 10116 10109
10/88 10257 10218 10211
Nov-88 10221 10193 10169
Dec-88 10226 10215 10367
1/89 10315 10296 10455
Feb-89 10335 10297 10443
Mar-89 10359 10340 10474
4/89 10515 10509 10623
May-89 10673 10657 10786
Jun-89 10887 10855 10992
7/89 11040 11015 11158
Aug-89 10936 10950 11064
Sep-89 11008 11013 11119
10/89 11189 11184 11276
Nov-89 11287 11284 11367
Dec-89 11336 11327 11402
1/90 11323 11340 11391
Feb-90 11386 11400 11432
Mar-90 11445 11434 11464
4/90 11461 11461 11476
May-90 11616 11638 11655
Jun-90 11732 11760 11783
7/90 11864 11902 11929
Aug-90 11896 11945 11964
Sep-90 11993 12040 12052
10/90 12110 12173 12184
Nov-90 12225 12291 12301
Dec-90 12365 12436 12451
1/91 12468 12553 12548
Feb-91 12534 12634 12608
Mar-91 12623 12718 12696
4/91 12743 12840 12806
May-91 12809 12917 12893
Jun-91 12859 12965 12964
7/91 13030 13077 13089
Aug-91 13158 13256 13275
Sep-91 13334 13396 13420
10/91 13433 13541 13556
Nov-91 13592 13681 13694
Dec-91 13588 13889 13912
1/92 13568 13870 13880
Feb-92 13585 13912 13917
Mar-92 13577 13908 13905
4/92 13668 14034 14023
May-92 13820 14164 14165
Jun-92 13984 14307 14336
7/92 14152 14471 14508
Aug-92 14276 14588 14643
Sep-92 14384 14726 14786
10/92 14274 14642 14684
Nov-92 14261 14620 14649
Dec-92 14406 14756 14789
1/93 14569 14911 14959
Feb-93 14698 15030 15090
Mar-93 14707 15076 15132
4/93 14793 15168 15232
May-93 14763 15132 15168
Jun-93 14905 15245 15290
7/93 14937 15279 15319
Aug-93 15087 15406 15458
Sep-93 15082 15455 15510
10/93 15066 15489 15534
Nov-93 15038 15492 15541
Dec-93 15120 15554 15597
1/94 15238 15652 15697
Feb-94 15159 15557 15596
Mar-94 15026 15477 15518
4/94 14962 15419 15447
May-94 14998 15439 15458
Jun-94 15027 15477 15502
7/94 15158 15616 15643
Aug-94 15208 15668 15685
Sep-94 15183 15632 15643
10/94 15216 15668 15681
Nov-94 15156 15602 15616
Dec-94 15189 15632 15637
1/95 15400 15844 15870
Feb-95 15613 16060 16095
Mar-95 15687 16150 16178
4/95 15860 16294 16324
May-95 16142 16572 16629
Jun-95 16206 16662 16717
7/95 16226 16728 16776
Aug-95 16317 16829 16869
Sep-95 16426 16911 16949
10/95 16581 17051 17096
Nov-95 16747 17196 17250
Dec-95 16861 17327 17377
1/96 17058 17474 17525
Feb-96 16976 17406 17434
Mar-96 16963 17392 17411
4/96 16982 17409 17416
May-96 17019 17447 17446
Jun-96 17160 17575 17573
7/96 17214 17643 17635
Aug-96 17322 17708 17691
Sep-96 17502 17870 17856
10/96 17703 18072 18061
Nov-96 17833 18205 18200
Dec-96 17844 18209 18195
1/97 17942 18296 18264
Feb-97 18001 18340 18298
Mar-97 17986 18325 18289
4/97 18176 18475 18440
May-97 18290 18604 18565
Jun-97 18444 18733 18695
7/97 18675 18937 18912
Aug-97 18661 18956 18920
Sep-97 18836 19100 19060
10/97 18954 19241 19210
Nov-97 18974 19289 19233
Dec-97 19091 19419 19368
1/98 19307 19605 19571
Feb-98 19289 19623 19569
Mar-98 19349 19697 19638
4/98 19426 19792 19720
5/98 19547 19898 19820
6/98 19626 20000 19976
7/98 19728 20093 20064
8/98 19992 20356 20338
9/98 20232 20612 20635
10/98 20233 20712 20742
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS TEN YEARS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN
THROUGH OCTOBER 31, 1998
<S> <C> <C> <C> <C>
CLASS A (COMMENCED MAY 1,
1997)
Excluding sales charges 7.04% n/a n/a 6.36%
Including sales charges 5.61% n/a n/a 4.25%
-----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1,
1997)
Excluding sales charges 6.40% n/a n/a 5.62%
Including sales charges 5.70% n/a n/a 3.51%
-----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15,
1997)
Excluding sales charges 5.72% n/a n/a 5.46%
Including sales charges 5.72% n/a n/a 4.41%
-----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COM-
MENCED AUGUST 15, 1988) 7.18% 7.03% 6.07% 6.75%
-----------------------------------------------------------------------------
ADMINISTRATION CLASS (COM-
MENCED FEBRUARY 28, 1996) 6.43% n/a n/a 6.27%
-----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED
APRIL 10, 1996) 6.70% n/a n/a 6.12%
-----------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
20
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - 69.8%
ADJUSTABLE RATE FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)(A) - 6.6%
$ 1,279,253(b) 7.12% 08/01/2017 $ 1,296,241
1,116,932(b) 7.30 05/01/2018 1,123,432
3,627,738(b) 7.55 06/01/2018 3,691,369
1,194,234(b) 7.31 12/01/2018 1,214,751
5,632,799(b) 7.60 02/01/2022 5,770,014
1,800,160 8.10 10/01/2025 1,834,669
------------
$ 14,930,476
--------------------------------------------------------------------------------------------
ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)(A) - 5.8%
$ 1,737,771(b) 7.43% 11/01/2014 $ 1,778,973
3,511,846(b) 7.04 06/01/2018 3,562,768
5,028,835(b) 7.51 01/01/2021 5,148,068
1,346,612 7.39 08/01/2022 1,376,440
1,128,360 7.49 01/01/2031 1,152,338
------------
$ 13,018,587
--------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - 8.6%
$ 977,420 6.50% 04/01/2013 $ 992,081
2,001,140 6.50 05/01/2013 2,029,917
990,168 6.50 06/01/2013 1,005,020
5,004,665 8.00 01/01/2028 5,162,612
1,173,117 7.00 07/01/2028 1,196,204
3,032,566(b) 7.00 08/01/2028 3,092,246
5,786,724(b) 7.00 09/01/2028 5,900,606
------------
$ 19,378,686
--------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 5.3%
$ 7,034,861 7.00%(c) 10/01/2002 $ 7,133,793
1,600,449 8.50 05/01/2010 1,672,966
669,773 6.00 01/01/2014 667,542
2,457,610 6.00 03/01/2014 2,473,738
------------
$ 11,948,039
--------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 3.7%
$ 183,092 9.00% 12/15/2008 $ 192,431
306,512 9.00 01/15/2009 322,950
101,468 9.00 01/15/2010 107,144
718,503 9.00 07/15/2012 756,892
1,824,430 9.00 12/15/2017 1,953,272
4,920,830(b) 7.00 10/15/2023 5,039,225
------------
$ 8,371,914
--------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 39.8%
INVERSE FLOATER(A) - 1.6%
FHLMC Series 1296, Class J
$ 757,688 11.76% 07/15/1999 $ 772,842
FNMA Remic Trust 1990-134, Class S
1,653,536 13.68 11/25/2020 1,910,430
FNMA Remic Trust 1992-62, Class S
837,866 10.29 05/25/1999 851,590
------------
$ 3,534,862
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
INVERSE FLOATING RATE--INTEREST ONLY(A) - 0.1%
FHLMC Series 1684, Class JD
$ 1,658,552 28.11%(d) 08/15/2020 $ 108,867
FNMA Remic Trust 1993-110, Class SC
841,805 3.37(d) 04/25/2019 23,040
------------
$ 131,907
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION--INTEREST ONLY - 0.2%
FHLMC Series 1587, Class HA
$ 4,779,640 6.50%(d) 10/15/2008 $ 460,279
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION--PRINCIPAL ONLY - 0.7%
FNMA Remic Trust 1989-39, Class D
$ 1,839,282 7.32%(d) 05/25/2018 $ 1,690,981
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS - 18.6%
FHLMC Remic Trust 1997-84, Class PA
$ 4,000,000 5.90% 11/25/2021 $ 4,092,920
FHLMC Series 1556, Class G(b)
2,000,000 6.35 10/15/2010 2,040,620
FHLMC Series 1627, Class PZ(b)
2,197,589 5.60 08/15/2017 2,207,192
FHLMC Series 1645, Class ZA(b)
6,909,745 5.50 04/15/2005 6,905,392
FHLMC Series 1985, Class PC(b)
6,000,000 6.35 05/17/2018 6,085,800
FHLMC Series 1987, Class L
4,000,000 6.20 08/25/2022 4,159,815
FHLMC Series 2055, Class OD(b)
3,000,000 6.00 12/15/2007 3,013,110
FNMA Remic Trust 1993-175, Class Z
6,068,469 5.75 10/25/2006 6,079,817
FNMA Remic Trust 1997-70, Class AB
1,250,000 6.50 09/25/2022 1,273,225
FNMA Remic Trust 1991-31, Class PJ(b)
3,000,000 6.55 10/25/2020 3,131,910
FNMA Series 1993-32, Class PH(b)
3,000,000 6.50 11/25/2022 3,061,110
------------
$ 42,050,911
----------------------------------------------------------------------------------------------
PRINCIPAL ONLY - 2.0%
FNMA Remic Trust 1992 G-28, Class A
$ 5,050,865 4.83%(d) 05/25/2007 $ 4,446,529
----------------------------------------------------------------------------------------------
REGULAR FLOATER CMOS(A) - 3.7%
FHLMC Series 1296, Class I
$ 2,121,527 5.30% 07/15/1999 $ 2,108,925
FHLMC Series 1684, Class JC(b)
1,658,552 5.40 08/15/2020 1,633,143
FNMA Remic Trust 1988-12, Class B(b)
2,110,199 4.29 02/25/2018 2,020,160
FNMA Remic Trust 1993-110, Class FC
841,805 5.60 04/25/2019 834,439
FNMA Remic Trust 1997-21, Class FA
1,615,016 6.25 04/18/2027 1,617,600
------------
$ 8,214,267
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
SEQUENTIAL FIXED RATE CMOS - 12.0%
FHLMC Series 1033, Class G(b)
$ 1,949,674 8.00% 01/15/2006 $ 2,038,014
FNMA Remic Trust 1988-12, Class A(b)
2,672,918 10.00 02/25/2018 2,940,483
FNMA Remic Trust 1989-18, Class B
303,659 9.50 01/25/2004 306,410
FNMA Remic Trust 1989-59, Class H
149,564 7.75 10/25/2018 149,049
FNMA Remic Trust 1989-74, Class J(b)
1,099,205 9.80 10/25/2019 1,160,783
FNMA Remic Trust 1990-16, Class E(b)
6,056,201 9.00 03/25/2020 6,337,632
FNMA Remic Trust 1991-133, Class Z(b)
3,926,011 8.00 09/25/2006 4,102,682
FNMA Remic Trust 1992-44, Class CA
1,555,278 12.00 08/25/2020 1,589,883
FNMA Remic Trust 1992-G43, Class D
26,670 7.50 01/25/2003 26,591
FNMA Series 1998-36, Class J(b)
6,000,000 6.00 07/18/2028 6,124,740
GNMA Remic Trust 1995-3, Class DQ(b)
2,274,296 8.05 06/16/2025 2,361,086
------------
$ 27,137,353
----------------------------------------------------------------------------------------------
SUPPORT - 0.9%
FHLMC Series 16, Class M
$ 2,000,000 7.00% 08/25/2023 $ 2,013,840
----------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 89,680,929
----------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $156,747,796) $157,328,631
----------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 7.6%
Federal Home Loan Bank(b)
$ 6,000,000 5.76% 03/23/2001 $ 6,148,140
Small Business Administration
1,460,773 7.20 06/01/2017 1,609,845
2,000,000(b) 6.30 05/01/2018 2,146,694
2,500,000(b) 6.30 06/01/2018 2,677,321
Sri Lanka Aid(a)(b)
4,500,000 4.92 02/21/2016 4,443,750
----------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $16,562,497) $ 17,025,750
----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 19.6%
United States Treasury Notes(b)
$41,700,000 6.63% 07/31/2001 $ 44,143,203
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $43,945,398) $ 44,143,203
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 2.8%
Joint Repurchase Agreement Account(b)
$ 6,400,000 5.63% 11/02/1998 $ 6,400,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $6,400,000) $ 6,400,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $223,655,691)(E) $224,897,584
------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(F) MONTH GAIN (LOSS)
------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 179 December 1998 $ 121,078
Euro Dollars 96 March 1999 262,326
Euro Dollars 87 June 1999 267,801
Euro Dollars 46 September 1999 154,773
Euro Dollars 45 December 1999 162,375
Euro Dollars 45 March 2000 112,964
Euro Dollars 20 June 2000 (2,877)
2 year U.S. Treasury Notes 121 December 1998 179,593
5 Year U.S. Treasury Notes (30) December 1998 (90,191)
10 Year U.S. Treasury Notes (27) December 1998 (41,892)
20 Year Long Term Bond (9) December 1998 (9,337)
------------------------------------------------------------------------
$1,116,613
------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $2,648,156
Gross unrealized loss for investments in which
cost exceeds value (1,406,263)
------------------------------------------------------------------------
Net unrealized gain $1,241,893
------------------------------------------------------------------------
</TABLE>
(a) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(b) Portions of these securities are being segregated for open futures
contracts, futures margin requirements, when-issued securities and open
purchases.
(c) When-issued Security.
(d) Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due
to the amortization of related premiums.
(e) The amount stated also represents aggregate cost for federal income tax
purposes.
(f) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 2-Year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-
Year Long Term Bond contract represents $100,000 in notional par value.
The total notional amount and market value at risk are $548,800,000 and
$157,066,369, respectively. The determination of notional amounts as
presented here are indicative only of volume of activity and not
a measure of market risk.
The percentage shown for each investment category reflects the value of in-
vestments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 4.5%) in Class A shares on
March 1, 1993. For comparative purposes, the performance of the Fund's bench-
marks (the Lehman Brothers Mutual Fund Government/Mortgage Index ("Lehman
Gov't/MBS Index") and the Lehman Brothers Mutual Fund General U.S. Government
Index ("Lehman U.S. Gov't Index")) are shown. This performance data repre-
sents past performance and should not be considered indicative of future per-
formance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to
be worth more or less than their original cost. Performance of Class B, Class
C, Institutional and Service shares will vary from Class A due to differences
in fees and loads.
GOVERNMENT INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MARCH 1, 1993 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Government
Income
Fund Lehman Gov't Lehman U.S.
(Class A) /MBS Index Gov't Index
3/1/93 9550 10000 10000
Mar-93 9565 10043 10033
4/93 9658 10111 10110
May-93 9621 10124 10099
Jun-93 9793 10296 10323
7/93 9856 10351 10386
Aug-93 9995 10518 10618
Sep-93 10009 10547 10658
10/93 10036 10585 10699
Nov-93 9963 10502 10581
Dec-93 10019 10558 10622
1/94 10145 10689 10768
Feb-94 10028 10514 10540
Mar-94 9776 10265 10302
4/94 9695 10186 10221
May-94 9701 10192 10208
Jun-94 9702 10169 10184
7/94 9866 10362 10372
Aug-94 9874 10374 10374
Sep-94 9744 10228 10227
10/94 9737 10221 10219
Nov-94 9717 10197 10201
Dec-94 9813 10267 10263
1/95 9993 10468 10454
Feb-95 10216 10708 10679
Mar-95 10267 10769 10746
4/95 10407 10914 10887
May-95 10786 11321 11326
Jun-95 10852 11401 11413
7/95 10836 11380 11371
Aug-95 10941 11509 11505
Sep-95 11052 11616 11615
10/95 11187 11767 11792
Nov-95 11338 11934 11976
Dec-95 11493 12096 12146
1/96 11568 12176 12221
Feb-96 11373 11979 11972
Mar-96 11307 11898 11872
4/96 11256 11838 11796
May-96 11231 11813 11776
Jun-96 11389 11969 11928
7/96 11419 12003 11958
Aug-96 11418 11987 11932
Sep-96 11602 12187 12130
10/96 11838 12444 12397
Nov-96 12035 12647 12612
Dec-96 11930 12541 12484
1/97 11968 12583 12497
Feb-97 11994 12610 12515
Mar-97 11881 12481 12382
4/97 12054 12668 12560
May-97 12143 12784 12668
Jun-97 12282 12929 12810
7/97 12608 13250 13174
Aug-97 12510 13156 13043
Sep-97 12681 13343 13239
10/97 12870 13543 13468
Nov-97 12907 13602 13536
Dec-97 13042 13737 13678
1/98 13223 13917 13884
Feb-98 13206 13904 13846
Mar-98 13252 13952 13885
4/98 13300 14020 13947
5/98 13422 14281 14091
6/98 13534 14406 14251
7/98 13574 14448 14273
8/98 13846 14729 14644
9/98 14108 15039 15039
10/98 14025 15001 14988
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED FEBRUARY 10, 1993)
Excluding sales charges 7.46% 6.92% 8.98%
Including sales charges 6.60% 5.94% 4.05%
---------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding sales charges 8.39% n/a 8.09%
Including sales charges 7.15% n/a 2.80%
---------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 9.01% n/a 8.09%
Including sales charges 9.01% n/a 7.03%
---------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST
15, 1997) 10.11% n/a 9.19%
---------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15,
1997) 7.37% n/a 8.53%
---------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
23
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - 58.1%
FEDERAL HOME LOAN MORTGAGE CORP. - 20.4%
$ 971,452 6.00% 03/01/2013 $ 975,397
3,525,662 6.00 04/01/2013 3,539,975
185,433 6.00 06/01/2013 186,186
184,371 6.00 08/01/2013 185,119
34,505 7.00 03/01/2024 35,195
97,902 7.00 04/01/2024 99,860
17,515 7.00 08/01/2025 17,865
1,593,381 7.00 04/01/2026 1,625,248
966,972 7.00 05/01/2026 986,311
1,615,368 7.50 09/01/2026 1,655,235
827,655 7.50 11/01/2027 847,825
906,968 7.50 12/01/2027 929,071
709,551 7.00 01/01/2028 723,515
1,700,213 7.50 02/01/2028 1,741,647
666,981 7.00 08/01/2028 680,107
892,901 7.00 09/01/2028 910,473
5,000,000 7.00 TBA-30 Yr(a) 5,098,400
6,000,000 7.50 TBA-30 Yr(a) 6,146,220
------------
$ 26,383,649
---------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 6.7%
$ 245,551 6.50% 09/01/2025 $ 247,545
250,174 6.50 10/01/2025 252,206
335,559 6.50 11/01/2025 338,284
22,494 6.50 05/01/2026 22,677
467,443 6.50 08/01/2025 471,093
432,370 6.50 12/01/2025 435,767
44,820 6.50 03/01/2028 45,170
819,893 6.50 04/01/2028 826,297
1,065,828 6.50 05/01/2028 1,074,152
826,170 6.50 06/01/2028 832,622
989,378 6.50 07/01/2028 997,105
105,368 6.50 08/01/2028 106,190
105,894 6.50 09/01/2028 106,721
3,000,000 6.00 TBA-15 Yr(a) 3,012,188
------------
$ 8,768,017
---------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 13.1%
$ 178,982 9.00% 10/15/2019 $ 191,063
84,707 9.00 12/15/2019 90,425
236,191 7.00 03/15/2023 241,873
216,766 7.50 04/15/2023 223,267
725,346 7.00 05/15/2023 742,797
255,739 7.00 06/15/2023 261,893
1,066,013 7.00 07/15/2023 1,091,661
414,433 7.50 07/15/2023 426,862
496,340 7.00 08/15/2023 508,282
708,575 7.00 09/15/2023 725,623
1,390,624 7.00 10/15/2023 1,423,804
613,810 7.00 11/15/2023 628,578
762,633 7.00 12/15/2023 780,982
402,833 8.00 04/15/2026 417,311
357,949 8.00 05/15/2026 370,814
295,066 8.00 07/15/2026 305,671
138,693 8.00 12/15/2026 143,807
557,604 8.00 06/15/2027 578,163
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - (CONTINUED)
$ 602,695 7.50% 07/15/2027 $ 620,963
146,862 8.00 07/15/2027 152,140
274,549 7.50 09/15/2027 282,698
403,011 8.00 09/15/2027 417,495
246,870 7.50 10/15/2027 254,197
283,471 7.50 11/15/2027 292,063
696,390 7.50 12/15/2027 717,497
1,000,000 6.50 03/15/2028 1,010,930
2,988,014 7.00 08/15/2028 3,058,979
1,000,000 6.50 10/15/2028 1,010,930
------------
$ 16,970,768
----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 17.9%
INTEREST ONLY - 0.1%
FNMA Interest-Only Stripped Security, Series 151, Class 2
$ 407,767(b) 15.47% 07/25/2022 $ 96,335
----------------------------------------------------------------------------------------------
INVERSE FLOATER(C) - 1.0%
FNMA Remic Trust 1992-62, Class S
$ 279,289 10.29% 05/25/1999 $ 283,863
FNMA Series 1993-138, Class SM
921,052 12.09 12/25/2021 1,056,226
------------
$ 1,340,089
----------------------------------------------------------------------------------------------
INVERSE FLOATING RATE--INTEREST ONLY(C) - 0.3%
Salomon Brothers Mortgage Securities VII Series 1996-6E, Class A2
$12,528,238(b) 10.01% 03/30/2005 $ 352,357
----------------------------------------------------------------------------------------------
NON-AGENCY COMMERCIAL MBS - 1.0%
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C1, Class A2
$ 400,000 7.30% 12/18/2006 $ 428,128
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C2, Class A2
800,000 6.60 11/18/2029 818,144
------------
$ 1,246,272
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS - 9.0%
FHLMC Series 1522, Class E
$ 1,000,000 5.00% 10/15/2020 $ 992,180
FHLMC Series 1985, Class PC
1,500,000 6.35 05/17/2018 1,521,450
FHLMC Series 2055, Class OD
4,000,000 6.00 12/15/2007 4,017,480
FNMA REMIC Trust Series 1997-84, Class PB
2,000,000 5.50 01/25/2008 2,016,940
GE Capital Mortgage Services, Inc. 1997-8, Class A13
3,000,000 7.25 10/25/2027 3,048,270
------------
$ 11,596,320
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
PRINCIPAL ONLY - 0.2%
FNMA Remic Trust, Series G-35, Class N
$ 362,999 6.01%(d) 10/25/2021 $ 319,712
--------------------------------------------------------------------------------------------
SEQUENTIAL FIXED RATE CMOS - 2.6%
Citicorp Mortgage Securities, Series 1993-11, Class A6
$ 561,687 6.25% 09/25/2008 $ 558,132
GE Capital Mortgage Services, Inc. Series 1995-1, Class A8
2,785,000 8.40 02/25/2025 2,807,336
------------
$ 3,365,468
--------------------------------------------------------------------------------------------
SUPPORT - 3.7%
FHLMC Series 16, Class M
$1,000,000 7.00% 08/25/2023 $ 1,006,920
GE Capital Mortgage Services, Inc., Series 1994-10, Class A22
996,703 6.50 03/25/2024 967,809
Housing Securities, Inc., Series 1994-1, Class A13
1,455,585 6.50 03/25/2009 1,456,415
Prudential Securities, Series 1995-2, Class A(c)
357,820 6.02 11/15/2015 357,932
Salomon Brothers Mortgage Securities VII Series 1996-6H, Class A1
1,000,000 6.00 09/30/2008 1,008,350
------------
$ 4,797,426
--------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS $ 23,113,979
--------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $74,290,993) $ 75,236,413
--------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 9.3%
Federal Home Loan Bank
$1,700,000 5.76% 03/23/2001 $ 1,741,973
1,000,000 5.68 12/03/2007 1,022,020
Financing Corp. Stripped Security (Principal Only)(d)
2,000,000 5.83 03/07/2013 862,700
Small Business Administration
1,587,284 7.15 03/01/2017 1,764,932
1,307,453 7.50 04/01/2017 1,484,064
767,286 7.30 05/01/2017 856,782
1,000,000 6.30 05/01/2018 1,073,347
1,000,000 6.30 06/01/2018 1,070,929
Sri Lanka Aid(c)
2,250,000 4.92 02/21/2016 2,221,875
--------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $11,434,468) $ 12,098,622
--------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 15.8%
AESOP Funding Series 1998-1, Class A(e)(f)
$2,000,000 6.14% 05/20/2006 $ 2,055,700
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - (CONTINUED)
AFC Series 1997-1, Class A(c)
$ 759,096 5.44% 03/25/2027 $ 751,414
Americredit Automobile Receivables Series 1997-D, Class A3
1,300,000 6.24 09/05/2003 1,337,154
Arcadia Automobile Receivables Series 1998-C, Class A3(f)
2,500,000 5.67 08/15/2006 2,552,033
CPS Auto Grantor Trust
1,881,004 6.30 08/15/2002 1,898,291
Fasco Auto Trust, Series 1996-1
521,356 6.65 11/15/2001 536,596
Fingerhut Master Trust, Series 1996-1, Class A
511,333 6.45 02/20/2002 513,890
First Franklin Mortgage Loan Asset Backed Certificate Series 1997-FF2,
Class A(c)
2,334,214 5.41 11/20/2027 2,324,731
First Merchants Auto Trust Series 1996-B, Class A1(c)
164,130 5.71 03/15/2000 164,138
First USA Credit Card Master Trust Series 1997-6, Class A
1,600,000 6.42 03/17/2005 1,656,000
MBNA Master Credit Card Trust Series 1998-C, Class A(c)
2,000,000 5.49 11/15/2005 1,979,360
Merrill Lynch Mortgage Investments, Inc. Series 1997-FF2, Class A(c)
1,482,209 5.93 08/25/2028 1,476,188
Mid State Trust, Series 4, Class A
864,300 8.33 04/01/2030 946,356
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1(c)
500,000 7.46 05/15/2006 526,455
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
160,643 6.85 06/15/2001 161,793
Sears Credit Account Master Trust, Series 1995-2, Class A
460,000 8.10 06/15/2004 473,943
The Money Store Home Equity Trust Series 1997-C, Class AF7
1,100,000 6.95 01/15/2039 1,097,250
-----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $20,237,191) $ 20,451,292
-----------------------------------------------------------------------------------------------
INSURED REVENUE BONDS - 1.8%
New Jersey Economic Development Authority Series A
$2,000,000 7.43% 02/15/2029 $ 2,278,380
-----------------------------------------------------------------------------------------------
TOTAL INSURED REVENUE BONDS
(COST $2,000,000) $ 2,278,380
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 16.1%
United States Treasury Bonds(f)
$ 1,740,000 8.50% 02/15/2020 $ 2,417,243
1,400,000 8.75 05/15/2020 1,991,934
1,200,000 7.88 02/15/2021 1,581,000
2,460,000 8.13 05/15/2021 3,325,994
650,000 8.13 08/15/2021 879,834
United States Treasury Interest-Only Stripped Securities(d)
4,460,000 5.04 02/15/2009 2,671,629
2,700,000 5.36 05/15/2012 1,318,707
3,600,000 5.54 08/15/2014 1,525,248
United States Treasury Notes
1,700,000(f) 6.63 07/31/2001 1,799,603
1,400,000 5.75 10/31/2002 1,467,922
United States Treasury Principal-Only Stripped Securities(d)
2,400,000 4.55 11/15/2004 1,820,160
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $20,796,641) $ 20,799,274
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 11.3%
Joint Repurchase Agreement Account(f)
$14,600,000 5.63% 11/02/1998 $ 14,600,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $14,600,000) $ 14,600,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $143,359,293)(G) $145,463,981
----------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (H) MONTH GAIN (LOSS)
------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 20 March 1999 $ 10,108
Euro Dollars 19 June 1999 442
Euro Dollars 19 September 1999 1,229
Euro Dollars 10 December 1999 12,062
Euro Dollars 10 March 2000 1,812
2 Year U.S. Treasury Notes 15 December 1998 43,030
5 Year U.S. Treasury Notes 98 December 1998 105,057
10 Year U.S. Treasury Notes 46 December 1998 22,910
------------------------------------------------------------------
$196,650
------------------------------------------------------------------
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments
in which
value exceeds cost $2,448,269
Gross unrealized loss for investments
in which
cost exceeds value (343,581)
-----------------------------------------------------
Net unrealized gain $2,104,688
-----------------------------------------------------
</TABLE>
(a) TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally + /--2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date
will be determined upon settlement when the specific mortgage pools are
assigned.
(b) Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due
to the amortization of related premiums.
(c) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(d) The interest rate disclosed for these securities represents effective
yield to maturity.
(e) Security is exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of the Rule 144A securities amounted to $2,055,700 as of
October 31, 1998.
(f) Portions of these securities are being segregated for open TBA purchases,
forward sale contract, open futures contracts and futures margin
requirements.
(g) The amount stated also represents aggregate cost for federal income tax
purposes.
(h) Each Euro Dollar Contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note contract represents $100,000
in notional par value. Each 2-Year U.S. Treasury Note contract represents
$200,000 in notional par value. The total notional amount and market
value at risk are $95,400,000 and 38,596,038, respectively. The
determination of notional amounts as presented here are indicative only
of volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made in Institutional shares on January 5, 1994 (commencement of
operations). For comparative purposes, the performance of the Fund's bench-
mark (the Lehman Brothers Aggregate Bond Index ("Lehman Aggregate 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 Institutional shares due to differences in fees and loads.
CORE FIXED INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED JANUARY 5, 1994 TO
OCTOBER 31, 1998.
[LINE GRAPH APPEARS HERE]
Core Fixed Income Lehman Aggregate
Fund (Institutional Shares) Index
1/5/94 10000 10000
1/94 10157 10135
Feb-94 9964 9959
Mar-94 9759 9713
4/94 9678 9635
May-94 9672 9634
Jun-94 9644 9613
7/94 9825 9804
Aug-94 9842 9816
Sep-94 9710 9672
10/94 9700 9663
Nov-94 9680 9642
Dec-94 9780 9708
1/95 9957 9900
Feb-95 10186 10136
Mar-95 10248 10198
4/95 10388 10341
May-95 10788 10741
Jun-95 10862 10819
7/95 10843 10795
Aug-95 10979 10926
Sep-95 11080 11032
10/95 11224 11175
Nov-95 11393 11343
Dec-95 11550 11502
1/96 11621 11578
Feb-96 11424 11376
Mar-96 11332 11297
4/96 11276 11233
May-96 11268 11211
Jun-96 11436 11361
7/96 11464 11392
Aug-96 11457 11372
Sep-96 11653 11570
10/96 11898 11827
Nov-96 12120 12029
Dec-96 12016 11918
1/97 12057 11955
Feb-97 12085 11984
Mar-97 11955 11851
4/97 12121 12029
May-97 12225 12143
Jun-97 12380 12288
7/97 12726 12620
Aug-97 12615 12512
Sep-97 12808 12696
10/97 12991 12880
Nov-97 13020 12940
Dec-97 13159 13070
1/98 13332 13238
Feb-98 13320 13227
Mar-98 13374 13273
4/98 13430 13342
5/98 13568 13469
6/98 13692 13583
7/98 13722 13612
8/98 13971 13834
9/98 14258 14157
10/98 14180 14083
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 1, 1997)
Excluding sales charges 10.57% 8.76%
Including sales charges 7.22% 3.91%
---------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1997)
Excluding sales charges 9.80% 7.94%
Including sales charges 7.02% 2.64%
---------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 8.89% 7.94%
Including sales charges 8.89% 6.88%
---------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED JANUARY 5, 1994) 7.51% 9.15%
---------------------------------------------------------------------------------
ADMINISTRATION CLASS (COMMENCED FEBRUARY 28, 1996) 7.98% 8.88%
---------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 13, 1996) 8.38% 8.50%
---------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 28.3%
FINANCE BONDS - 10.3%
American General Finance Corp.
$ 1,110,000 5.84% 01/29/2001 $ 1,138,916
Associates Corp. of North America
2,950,000 5.75 11/01/2003 2,961,594
Bank of New York, Inc.(a)
1,100,000 7.88 11/15/2002 1,188,495
BankAmerica Corp.
300,000 7.75 07/15/2002 319,143
1,400,000 7.50 10/15/2002 1,480,136
730,000 7.88 12/01/2002 782,764
Capital One Bank
600,000 6.66 02/03/2000 604,110
400,000 6.88 04/24/2000 402,844
800,000 6.58 04/17/2001 805,784
650,000 6.15 06/01/2001 647,706
1,000,000 6.40 05/08/2003 992,190
330,000 7.15 09/15/2006 329,825
Capital One Financial Corp.
355,000 7.25 12/01/2003 362,927
Comdisco, Inc.
2,200,000 6.13 01/15/2003 2,227,060
Countrywide Capital Corp.
1,080,000 8.05 06/15/2027 1,165,633
Countrywide Funding Corp.
125,000 6.08 07/14/1999 125,908
250,000 8.43 11/16/1999 258,890
1,000,000 6.97 03/28/2003 1,058,830
Countrywide Home Loans, Inc.
950,000 6.45 02/27/2003 986,594
Developers Diversified Realty
1,400,000 6.84 12/16/2004 1,400,182
ERP Operating LP(b)
550,000 8.50 05/15/1999 559,614
Ford Capital Corp.
300,000 9.50 07/01/2001 331,011
Ford Motor Credit Co.
900,000 6.00 01/14/2003 917,514
General Motors Acceptance Corp.
375,000 9.63 12/15/2001 418,298
Homeside Lending, Inc.
400,000 6.75 08/01/2004 416,528
Long Island Savings Bank(a)
2,650,000 6.20 04/02/2001 2,642,368
Meditrust, Inc.
750,000 7.38 07/15/2000 730,095
390,000 7.82 09/10/2026 375,890
MIC Finance Trust(b)
360,000 8.38 02/01/2027 365,081
PXRE Capital Trust I
165,000 8.85 02/01/2027 164,639
Security Pacific Corp.
995,000 11.50 11/15/2000 1,106,818
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
FINANCE BONDS - (CONTINUED)
Signet Banking Corp.
$ 240,000 9.63% 06/01/1999 $ 245,292
Simon Property Group, Inc.(b)
345,000 6.63 06/15/2003 337,447
The Money Store, Inc.
630,000 7.30 12/01/2002 668,569
World Financial Properties(b)
489,851 6.91 09/01/2013 517,337
-----------
$29,036,032
-----------------------------------------------------------------------------------------------
INDUSTRIAL BONDS - 14.4%
360 Communications Co.
$ 1,015,000 7.12% 03/01/2003 $ 1,082,193
Ametek, Inc.
600,000 7.20 07/15/2008 607,614
Comcast Cable Communications
455,000 8.13 05/01/2004 502,984
Continental Airlines, Inc.
331,876 7.75 07/02/2014 378,587
540,781 8.56 07/02/2014 646,618
Hertz Corp.
1,200,000 6.00 01/15/2003 1,206,108
500,000 7.00 07/15/2003 523,270
Highwoods/Forsyth LP
835,000 6.75 12/01/2003 813,156
Liberty Property LP
115,000 7.10 08/15/2004 109,768
Nabsico, Inc.
1,650,000 6.00 02/15/2011 1,639,358
News America Holdings, Inc.
400,000 8.00 10/17/2016 419,324
1,100,000 7.12 04/08/2028 1,072,478
Northwest Airlines Corp.
148,555 8.26 03/10/2006 155,818
559,274 8.97 01/02/2015 645,732
Oryx Energy Co.
800,000 10.00 06/15/1999 824,376
Owens Corning
745,000 7.50 05/01/2005 762,560
Panamsat Corp.
2,650,000 6.13 01/15/2005 2,670,220
Pep Boys - Manny, Moe & Jack
550,000 6.75 03/10/2004 570,361
100,000 7.00 06/01/2005 106,264
Philip Morris Companies, Inc.
2,250,000 7.12 08/15/2002 2,357,460
R & B Falcon Corp.
215,000 6.50 04/15/2003 213,933
960,000 6.75 04/15/2005 986,448
RJR Nabisco, Inc.
600,000 7.63 09/01/2000 597,954
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
INDUSTRIAL BONDS - (CONTINUED)
RJR Nabisco, Inc. -- (continued)
$ 375,000 8.00% 07/15/2001 $ 376,920
Scotia Pacific Co.(b)
1,000,000 6.55 01/20/2007 1,012,190
Sears Roebuck Acceptance Corp.
500,000 6.41 11/19/2002 514,660
TCI Communications, Inc.
1,725,000 8.00 08/01/2005 1,933,311
290,000 8.75 08/01/2015 351,901
Tele-Communications, Inc.
100,000 7.38 02/15/2000 102,467
750,000 8.25 01/15/2003 828,158
Time Warner, Inc.
1,650,000 7.95 02/01/2000 1,695,738
1,350,000 9.63 05/01/2002 1,513,175
400,000 7.98 08/15/2004 441,180
1,000,000 7.75 06/15/2005 1,093,990
TKR Cable Inc.
3,195,000 10.50 10/30/2007 3,509,644
Tyco International Group
460,000 5.88 11/01/2004 458,523
1,150,000 6.38 06/15/2005 1,179,682
U.S. Air, Inc.
534,117 6.76 04/15/2008 567,671
USI American Holdings
150,000 7.25 12/01/2006 156,216
Viacom, Inc.
1,250,000 6.75 01/15/2003 1,288,738
Videotron Group Ltd.
835,000 10.63 02/15/2005 898,669
Williams Communications Solutions, Inc.
2,030,000 6.13 02/15/2002 2,052,208
WMX Technologies, Inc.
1,225,000(a) 6.25 10/15/2000 1,240,594
700,000 6.38 12/01/2003 709,576
-----------
$40,817,795
---------------------------------------------------------------------------------------------
UTILITY BONDS - 3.6%
Cable & Wireless Communications
$ 1,360,000 6.38% 03/06/2003 $ 1,386,438
California Energy, Inc.
735,000 10.25 01/15/2004 774,293
CE Electric UK Funding Co.(b)
1,000,000 6.85 12/30/2004 1,047,318
Central Maine Power Co.
330,000 7.45 08/30/1999 334,976
Edison Mission Energy Funding Corp.
138,284 6.77 09/15/2003 143,242
Niagara Mohawk Power Corp.
650,000 6.88 04/01/2003 676,371
750,000 8.00 06/01/2004 814,103
Salton Sea Funding
233,243 7.02 05/30/2000 235,470
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
UTILITY BONDS - (CONTINUED)
Worldcom, Inc.
$ 1,700,000 6.13% 08/15/2001 $ 1,731,875
650,000 9.38 01/15/2004 676,280
1,725,000 6.40 08/15/2005 1,795,794
450,000 8.88 01/15/2006 493,146
-----------
$10,109,306
-----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $78,496,873) $79,963,133
-----------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 0.9%
Small Business Administration
$ 2,500,000 6.30% 06/01/2018 $ 2,677,321
-----------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $2,501,936) $ 2,677,321
-----------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 11.9%
Aames Mortgage Trust Series 1998 B(a)
$ 3,500,000 6.46% 09/15/2028 $ 3,644,301
AESOP Funding Series 1998-1, Class A(a)(b)
3,400,000 6.14 05/20/2006 3,494,690
AFC Series 1997-1, Class A(c)
556,671 5.44 03/25/2027 551,037
Americredit Automobile Receivables Trust Series 1998-A, Class A3(a)
2,500,000 5.88 12/05/2003 2,557,225
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
59,883 5.80 06/15/2002 59,938
Discover Card Master Trust Series 1996-4, Class B(c)
850,000 5.96 10/16/2013 826,625
DVI Equipment Lease Trust 1996-1, Class A(b)
614,875 6.55 07/10/2004 628,961
EQCC Home Equity Loan Trust Series 1997-3, Class A(c)
1,108,980 5.58 11/15/2028 1,108,292
Fingerhut Master Trust Series 1998-2, Class A(a)
3,600,000 6.23 02/15/2007 3,717,216
First Franklin Mortgage Loan Asset Backed Certificate Series 1997-FF3,
Class A2(c)
1,459,072 5.41 11/20/2027 1,453,145
General Motors Acceptance Corp. Series 1995, Class A
15,094 7.15 03/15/2000 15,103
Green Tree Financial Corp. Series 1998-6, Class M1(a)
4,250,000 6.63 06/01/2030 4,354,848
H + T Master Trust Series 1996-1, Class A2(b)(c)
550,000 8.18 8/15/2002 550,880
IMC Home Equity Loan Trust Series 1998-3, Class A8(a)
5,200,000 6.34 08/20/2029 5,272,436
Mid State Trust, Series 4, Class A(a)
2,880,999 8.33 04/01/2030 3,154,521
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET BACKED SECURITIES - (CONTINUED)
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
$ 93,578 6.85% 06/15/2001 $ 94,251
Sears Credit Account Master Trust, Series 1995-2, Class A
550,000 8.10 06/15/2004 566,671
Sears Credit Account Master Trust, Series 1996-1, Class A
680,000 6.20 02/16/2006 692,532
Sears Credit Card Master Trust, Series 1995-3, Class A
300,000 7.00 10/15/2004 307,500
Standard Credit Card Master Trust, Series 1994-4, Class A
680,000 8.25 11/07/2003 732,061
-----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $33,194,392) $33,782,233
-----------------------------------------------------------------------------------------------
EMERGING MARKET DEBT - 1.4%
Banco de Colombia
$ 260,000 8.62% 06/02/2000 $ 241,800
Corp. Andina de Fomento
1,500,000 7.38 07/21/2000 1,524,045
Financiera Energy Nacional(b)
600,000 9.38 06/15/2006 450,000
YPF Sociedad Anonima
90,575 7.00 10/26/2002 82,298
485,314 7.50 10/26/2002 467,722
1,141,859 7.50 10/26/2002 1,150,157
-----------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $4,154,927) $ 3,916,022
-----------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS - 39.2%
Asset Securitization Corp.
$ 900,000 7.49% 04/14/2029 $ 975,321
Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2(a)
3,100,000 6.60 11/19/2007 3,223,411
Chase Commercial Mortgage Securities Corp. Series 1998-1, Class A2(a)
3,000,000 6.56 05/18/2030 3,250,418
Collateralized Mortgage Obligation Trust Series 63, Class Z
983,310 9.00 10/20/2020 1,029,093
Commercial Mortgage Acceptance Corp. Series 1998-C1, Class A2
2,200,000 6.49 05/15/2008 2,246,376
DLJ Commercial Mortgage Corp. Series 1998-CG1, Class A(a)
4,902,852 6.11 06/10/2031 5,121,188
Federal Home Loan Mortgage Corp. (FHLMC)
217,814 8.00 08/01/2010 224,863
959,767 6.00 11/01/2012 963,663
4,879,536 6.00 04/01/2013 4,899,346
1,000,000 6.35 03/25/2018 1,020,620
485,550 7.50 09/01/2025 497,534
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
$ 586,618 7.00% 04/01/2026 $ 598,350
595,402 7.50 09/01/2026 610,096
205,586 7.50 10/01/2026 210,660
447,709 7.50 04/01/2027 458,620
842,659 7.50 05/01/2027 863,194
836,598 7.00 10/01/2027 853,330
1,542,087 7.00 12/01/2027 1,572,435
832,632 7.50 01/01/2028 852,923
1,067,982 7.00 02/01/2028 1,089,000
1,700,213 7.50 02/01/2028 1,741,647
685,013 7.50 03/01/2028 701,707
256,171 7.50 03/01/2028 262,496
587,270 7.50 04/01/2028 601,581
1,432,925 7.50 05/01/2028 1,468,028
1,334,585 7.00 06/01/2028 1,360,850
1,999,535 7.00 07/01/2028 2,038,886
517,189 7.00 08/01/2028 527,367
8,000,000 7.00 TBA-30 Yr(d) 8,157,440
9,000,000 7.50 TBA-30 Yr(d) 9,219,330
Federal National Mortgage Association (FNMA)
88,270 6.50 02/01/2026 88,987
225,754 6.50 08/01/2026 227,587
174,984 6.50 09/01/2027 176,351
387,887 6.50 10/01/2027 390,916
2,220,909 6.50 11/01/2027 2,238,255
2,531,772 6.50 12/01/2027 2,551,547
857,192 6.50 02/01/2028 863,887
846,854 6.50 04/01/2028 853,468
364,622 6.50 06/01/2028 367,470
1,197,316 6.50 07/01/2028 1,206,667
184,635 6.50 08/01/2028 186,077
1,069,013 6.00 09/01/2028 1,077,362
5,000,000 6.00 TBA-15 Yr(d) 5,020,313
FHLMC Series 2055, Class OD
2,000,000 6.00 12/15/2007 2,008,740
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C1, Class A2
600,000 7.30 12/18/2006 642,192
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C2, Class A2
1,000,000 6.60 11/18/2029 1,022,680
FNMA Remic Trust 1997-70, Class AB
1,250,000 6.50 09/25/2022 1,273,225
FNMA Remic Trust 31, Class PJ
750,000 6.55 10/25/2020 782,978
Government National Mortgage Association (GNMA)
264,666 8.00 02/15/2017 276,775
24,132 7.00 11/15/2022 24,713
860,816 7.00 12/15/2022 881,527
581,532 7.00 01/15/2023 595,870
158,879 7.00 03/15/2023 162,652
587,392 7.50 03/15/2023 605,008
1,989,300 7.00 05/15/2023 2,037,163
31,272 7.00 06/15/2023 32,024
2,049,546 7.00 07/15/2023 2,098,706
617,324 7.00 08/15/2023 632,177
------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
$ 98,811 7.50% 08/15/2023 $ 101,775
1,677,280 7.00 10/15/2023 1,716,809
33,112 7.00 11/15/2023 33,909
102,521 7.00 12/01/2023 104,987
1,148,813 7.00 12/15/2023 1,175,815
235,803 8.00 11/15/2025 244,497
147,963 7.50 02/15/2026 152,448
440,555 8.00 05/15/2026 456,388
935,156 7.50 08/15/2026 962,911
91,011 8.00 09/15/2026 94,367
425,734 8.00 03/15/2027 441,035
425,395 8.00 04/15/2027 440,684
16,911 8.00 05/15/2027 17,535
242,878 7.50 08/15/2027 250,086
893,368 7.50 11/15/2027 919,883
814,173 7.50 12/15/2027 838,850
747,294 8.00 12/15/2027 774,847
1,000,000 6.50 03/15/2028 1,010,930
278,357 6.50 08/15/2028 281,399
4,993,306 7.00 08/15/2028 5,111,897
2,721,643 6.50 10/15/2028 2,751,391
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2,
Class A2(a)
3,690,000 6.39 02/15/2030 3,949,184
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1
900,000 7.46 05/15/2006 947,619
Prudential Home Mortgage Securities Corp. 1992-39 A8(c)
1,000,000 7.99 12/25/2007 1,049,750
Residental Funding Mortgage Securities I Series 1997-S12, Class A19(a)
2,000,000 6.75 08/25/2027 2,023,531
-----------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $108,991,413) $110,817,617
-----------------------------------------------------------------------------------------------
SOVEREIGN CREDIT - 0.3%
Province of Quebec
$ 520,000 13.25% 09/15/2014 $ 577,288
State of Israel
370,000 6.38 12/15/2005 369,338
-----------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(COST $999,207) $ 946,626
-----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 17.5%
United States Treasury Bonds
$1,000,000 8.75% 05/15/2020 $ 1,422,810
2,300,000 7.88 02/15/2021 3,030,250
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - (CONTINUED)
United States Treasury Interest-Only Stripped Securities(e)
$10,230,000 5.04% 02/15/2009 $ 6,127,975
350,000(b) 5.22 11/15/2010 188,577
15,300,000 5.36 05/15/2012 7,472,673
9,990,000 5.54 08/15/2014 4,232,563
United States Treasury Note
15,000,000 6.63 07/31/2001 15,878,850
United States Treasury Principal-Only Stripped Securities(e)
5,110,000 4.55 11/15/2004 3,875,424
6,000,000 5.66 11/15/2018 1,955,400
16,200,000 5.67 02/15/2019 5,195,988
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $49,229,921) $ 49,380,510
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 7.9%
Joint Repurchase Agreement Account(a)
$22,300,000 5.63% 11/02/1998 $ 22,300,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $22,300,000) $ 22,300,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $299,868,669)(F) $303,783,462
----------------------------------------------------------------------------------------------
Futures contracts open at October 31, 1998 are as follows:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(G) MONTH GAIN (LOSS)
------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 8 December 1998 $ 19,049
Euro Dollars 20 March 1999 35,174
Euro Dollars 15 June 1999 8,030
Euro Dollars 15 September 1999 9,280
Euro Dollars 35 December 1999 49,465
Euro Dollars 25 March 2000 52,091
5 Year U.S. Treasury Notes 70 December 1998 306,352
10 Year U.S. Treasury Notes (15) December 1998 (55,258)
20 Year Long Term Bond 66 December 1998 158,409
------------------------------------------------------------------------
$582,592
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 4,917,833
Gross unrealized loss for investments in which
cost exceeds value (1,003,040)
------------------------------------------------------------
Net unrealized gain $ 3,914,793
------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1998
(a) Portions of these securities are being segregated for open TBA purchases,
open purchases, mortgage dollar rolls, forward sale contract, open
futures contracts and futures margin requirements.
(b) Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of the Rule 144A securities amounted to $8,963,518 as of
October 31, 1998.
(c) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(d) TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally + / -2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date
will be determined upon settlement when the specific mortgage pools are
assigned.
(e) The interest rate disclosed for these securities represents effective
yield to maturity.
(f) The amount stated also represents aggregate cost for federal income tax
purposes.
(g) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long
Term Bond Contract represents $100,000 in notional par value. The total
notional amount and market value at risk are $133,100,000 and
$46,515,044, respectively. The determination of notional amounts as
presented here are indicative only of volume of activity and not a
measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 4.5%) in Class A shares on
September 1, 1991. For comparative purposes, the performance of the Fund's
benchmark (the J.P. Morgan Global Government Bond Index hedged to U.S. Dol-
lars (the "J.P. Morgan GGB Index - $ Hedged")) 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 re-
deemed, to be worth more or less than their original cost. Performance of
Class B, Class C, Institutional and Service shares will vary from Class A due
to differences in fees and loads.
GLOBAL INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED SEPTEMBER 1, 1991 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Global Income Fund J.P. Morgan
(Class A) GGB Index-$ Hedged
9/1/91 9550 10000
9/91 9640 10174
10/91 9686 10263
11/91 9689 10327
12/91 9810 10583
1/92 9857 10546
2/92 9857 10584
3/92 9768 10517
4/92 9827 10578
5/92 9896 10721
6/92 10125 10799
7/92 10357 10918
8/92 10678 10974
9/92 10550 11129
10/92 10536 11156
11/92 10514 11130
12/92 10545 11288
1/93 10623 11457
2/93 10886 11671
3/93 10763 11695
4/93 10849 11745
5/93 10928 11766
6/93 11193 12006
7/93 11338 12103
8/93 11483 12352
9/93 11491 12404
10/93 11668 12509
11/93 11633 12500
12/93 11878 12660
1/94 11957 12702
2/94 11561 12432
3/94 11362 12258
4/94 11298 12167
5/94 11217 12089
6/94 11136 12013
7/94 11250 12145
8/94 11185 12085
9/94 11152 12027
10/94 11144 12050
11/94 11202 12132
12/94 11252 12147
1/95 11369 12314
2/95 11580 12516
3/95 11826 12697
4/95 11963 12880
5/95 12340 13324
6/95 12288 13340
7/95 12297 13430
8/95 12489 13556
9/95 12612 13732
10/95 12824 13901
11/95 13073 14167
12/95 13251 14321
1/96 13471 14465
2/96 13250 14258
3/96 13255 14288
4/96 13383 14365
5/96 13426 14418
6/96 13546 14555
7/96 13609 14636
8/96 13720 14753
9/96 14026 15034
10/96 14246 15303
11/96 14525 15589
12/96 14500 15552
1/97 14569 15684
2/97 14669 15754
3/97 14549 15644
4/97 14704 15835
5/97 14730 15941
6/97 14968 16177
7/97 15258 16522
8/97 15202 16464
9/97 15535 16740
10/97 15622 16925
11/97 15710 17033
12/97 15897 17242
1/98 16068 17487
2/98 16100 17559
3/98 16273 17674
4/98 16354 17760
5/98 16566 18327
6/98 16604 18458
7/98 16719 18576
8/98 17043 19000
9/98 17523 19484
10/98 17374 19440
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 2, 1991)
Excluding sales charges 8.68% 8.28% 11.21%
Including sales charges 7.99% 7.29% 6.22%
------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding sales charges 10.43% n/a 10.66%
Including sales charges 9.23% n/a 5.33%
------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 11.40% n/a 10.65%
Including sales charges 11.40% n/a 9.58%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 1,
1995) 11.81% n/a 11.95%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 12, 1997) 8.71% n/a 11.43%
------------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
33
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
FOREIGN DEBT OBLIGATIONS - 48.5%
<S> <C> <C> <C>
BRITISH POUND STERLING - 17.1%
Abbey National Treasury(b)
BPS 4,000,000 8.00% 04/02/2003 $ 7,202,503
Bank Nederlandse Gemeenten
2,500,000 6.38 03/30/2005 4,304,335
United Kingdom Treasury(b)
14,400,000 9.50 10/25/2004 29,512,506
9,300,000 7.75 09/08/2006 18,182,707
4,700,000 9.00 08/06/2012 10,888,414
-----------------------------------------------------------------
$ 70,090,465
------------------------------------------------------------------------------------------
CANADIAN DOLLAR - 2.1%
Government of Canada(b)
CAD 12,200,000 6.00% 06/01/2008 $ 8,454,608
------------------------------------------------------------------------------------------
DANISH KRONE - 6.5%
Kingdom of Denmark(b)
DKK 95,100,000 8.00% 05/15/2003 $ 17,383,640
47,500,000 8.00 03/15/2006 9,111,123
-----------------------------------------------------------------
$ 26,494,763
------------------------------------------------------------------------------------------
DEUTSCHEMARK - 6.6%
Baden Wuerttemberg Finance
DEM 10,000,000 5.38% 02/05/2010 $ 6,471,476
Federal Republic of Germany(b)
22,500,000 6.25 01/04/2024 15,791,238
Halifax
5,000,000 5.63 07/23/2007 3,235,738
Merrill Lynch and Co., Inc.
2,500,000 5.38 01/04/2009 1,494,114
-----------------------------------------------------------------
$ 26,992,566
------------------------------------------------------------------------------------------
FRENCH FRANC - 1.1%
Government of France(b)
FRF 9,000,000 5.50% 10/25/2007 $ 1,772,141
10,000,000 8.50 04/25/2023 2,634,039
-----------------------------------------------------------------
$ 4,406,180
------------------------------------------------------------------------------------------
ITALIAN LIRA - 6.4%
Republic of Italy
ITL24,000,000,000(b) 8.50% 08/01/2004 $ 17,849,614
9,000,000,000(b) 6.75 07/01/2007 6,360,465
2,000,000,000 9.00 11/01/2023 1,820,944
-----------------------------------------------------------------
$ 26,031,023
------------------------------------------------------------------------------------------
JAPANESE YEN - 5.4%
Asian Development Bank
JPY 650,000,000 5.63% 02/18/2002 $ 6,502,871
Government of Japan
1,170,000,000 0.90 12/22/2008 9,957,746
Republic of Italy
550,000,000 5.13 07/29/2003 5,717,608
-----------------------------------------------------------------
$ 22,178,225
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
FOREIGN DEBT OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
SPANISH PESETA - 2.3%
Government of Spain
ESP1,210,000,000 6.00% 01/31/2008 $ 9,555,615
-------------------------------------------------------------------------------------------
SWEDISH KRONA - 1.0%
Kingdom of Sweden
SEK 24,000,000 9.00% 04/20/2009 $ 4,161,516
-------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $186,733,877) $198,364,961
-------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 3.0%
AESOP Funding Series 1998-1, Class A(c)
USD 1,000,000 6.14% 05/20/2006 $ 1,027,850
AFC Series 1997-1, Class A(d)
759,096 5.44 03/25/2027 751,414
ALAC Automobile Receivable Series 1997-1, Class A(c)
244,819 6.29 12/15/2002 246,572
Americredit Automobile Receivables Series 1997-D, Class A3
450,000 6.24 09/05/2003 462,861
Arcadia Automobile Receivables Series 1997-D, Class A4
950,000 6.35 11/15/2005 1,015,090
Arcadia Automobile Receivables Series 1998-C, Class A3
1,000,000 5.67 08/15/2006 1,020,813
Asset Securitization Corp. Series 1997-D5, Class A1
450,000 6.66 02/14/2041 467,505
CIT RV Trust Series 1995-B, Class A
174,410 6.50 04/15/2011 175,711
Citibank Credit Card Master Trust I Series 1998-3, Class A
1,000,000 5.80 02/07/2005 1,012,500
EQCC Home Equity Loan Trust Series 1997-3, Class A(d)
539,504 5.58 11/15/2028 539,169
Fingerhut Master Trust Series 1998-2, Class A
1,000,000 6.23 02/15/2007 1,032,560
First USA Credit Card Master Trust Series 1997-6, Class A
900,000 6.42 03/17/2005 931,500
General Motors Acceptance Corp. Series 1997-C1, Class A
450,000 6.85 09/15/2006 471,519
Mid State Trust, Series 4, Class A
1,280,450 8.33 04/01/2030 1,402,016
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1
650,000 7.46 05/15/2006 684,392
Nissan Auto Receivables Series 1995-A, Class A
468,872 6.10 08/15/2001 469,604
UCFC Home Equity Loan Trust Series 1997-D, Class A8(d)
743,293 5.63 12/15/2027 741,667
-------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $12,151,871) $ 12,452,743
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATe VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 13.4%
360 Communications Co.
USD 300,000 7.12% 03/01/2003 $ 319,860
Ameritech Capital Funding
4,000,000 5.88 02/19/2003 4,120,000
Ametek, Inc.
130,000 7.20 07/15/2008 131,650
Associates Corp. of North America
750,000 5.75 11/01/2003 752,948
BankAmerica Corp.
900,000 7.75 07/15/2002 957,429
Bayerische Landesbank Girozent
4,500,000 6.63 06/25/2007 4,843,710
Beneficial Corp.
500,000 6.43 04/10/2002 511,015
Cable & Wireless Communications
260,000 6.38 03/06/2003 265,054
Capital One Bank
275,000 6.39 03/05/2001 276,009
400,000 6.40 05/08/2003 396,876
CE Electric UK Funding Co.(c)
180,000 6.85 12/30/2004 188,517
Chelsea GCA Realty
250,000 7.75 01/26/2001 241,160
Comdisco, Inc.
450,000 6.13 01/15/2003 455,535
Continental Airlines, Inc.
315,000 6.54 09/15/2009 307,746
Countrywide Home Loans, Inc.
450,000 6.45 02/27/2003 467,334
200,000 6.84 10/22/2004 212,366
Developers Diversified Realty
125,000 6.84 12/16/2004 125,016
Ford Motor Credit Corp.
5,000,000 6.13 04/28/2003 5,128,250
Hertz Corp.
250,000 6.00 01/15/2003 251,273
Instituto de Credito Oficial
3,000,000 6.00 05/19/2008 3,149,700
International Bank for Reconstruction and
Development
3,000,000 5.75 02/06/2008 3,126,600
KFW International Finance
3,000,000 5.75 01/15/2008 3,109,800
Liberty Property LP
235,000 6.97 12/11/2003 252,465
Long Island Savings Bank
300,000 7.00 06/13/2002 303,450
Merrill Lynch and Co., Inc.
3,400,000 6.00 02/12/2003 3,445,594
Nabisco, Inc.
700,000 6.00 02/15/2011 695,485
Nederlandse Waterschapsbank
5,000,000 6.13 02/13/2008 5,261,055
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
News America Holdings, Inc.
USD 175,000 9.25% 02/01/2013 $ 201,283
65,000 8.00 10/17/2016 68,140
100,000 7.12 04/08/2028 97,498
Niagara Mohawk Power Corp.
250,000 6.88 04/01/2003 260,143
Northwest Airlines Corp.
273,291 7.67 07/02/2016 305,143
Ontario Hydro
3,000,000 6.10 01/30/2008 3,110,880
Oryx Energy Co.
40,000 10.00 06/15/1999 41,219
155,000 9.50 11/01/1999 159,594
Owens Corning
150,000 7.50 05/01/2005 153,536
Panamsat Corp.
515,000 6.13 01/15/2005 518,929
Paramount Communications
300,000 7.50 01/15/2002 313,863
Pep Boys - Manny, Moe & Jack
480,000 6.75 03/10/2004 497,770
Philip Morris Companies, Inc.
180,000 9.00 01/01/2001 193,926
95,000 6.95 06/01/2006 99,476
Prudential Insurance Company of America
3,500,000 6.38 07/23/2006 3,557,050
R & B Falcon Corp.
240,000 6.75 04/15/2005 246,612
RJR Nabisco, Inc.
190,000 8.00 07/15/2001 190,973
Salomon Smith Barney, Inc.
655,000 6.46 08/15/2000 670,563
Salton Sea Funding
295,575 7.02 05/30/2000 298,398
Scotia Pacific Co.(c)
220,000 6.55 01/20/2007 222,682
Sears Roebuck Acceptance Corp.
240,000 6.72 09/17/2003 251,544
Simon Property Group, Inc.(c)
200,000 6.63 06/15/2003 195,621
Tele-Communications, Inc.
850,000 8.25 01/15/2003 938,579
The Money Store, Inc.
225,000 7.30 12/01/2002 238,775
Time Warner, Inc.
450,000 7.95 02/01/2000 462,474
250,000 6.85 01/15/2026 258,968
TKR Cable Inc.
220,000 10.50 10/30/2007 241,666
Tyco International Group
260,000 5.88 11/01/2004 259,165
190,000 6.38 06/15/2005 194,904
------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
35
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Videotron Group Ltd.
USD 165,000 10.63% 02/15/2005 $ 177,581
Williams Communications Solutions, Inc.
390,000 6.13 02/15/2002 394,267
Worldcom, Inc.
340,000 6.13 08/15/2001 346,375
350,000 9.38 01/15/2004 364,151
120,000 6.40 08/15/2005 124,925
---------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $53,476,453) $ 54,952,570
---------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS - 4.3%
Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2
USD 1,400,000 6.60% 11/19/2007 $ 1,455,734
CMC Securities Corp. IV 1997-2, Class IA13
2,450,000 6.60 11/25/2027 2,458,404
Country Wide Funding Corp. Series 1994-2, Class A
1,000,000 6.50 02/25/2009 1,044,680
Country Wide Funding Corp. Series 1994-I, Class A
2,000,000 6.25 07/25/2009 2,009,360
FHLMC Series 1522, Class E
2,000,000 5.00 10/15/2020 1,984,360
General Electric Capital Mortgage Services Series 1994-2, Class A(d)
564,879 5.46 01/25/2009 544,171
968,367 6.31 01/25/2009 986,214
Government National Mortgage Association (GNMA)
214,244 9.00 03/15/2005 228,470
170,268 9.00 02/15/2006 181,639
548,958 9.00 02/15/2010 571,948
893,160 6.00 01/15/2011 903,762
595,614 7.50 01/15/2023 613,477
120,686 7.50 04/15/2023 124,305
87,543 7.50 05/15/2023 90,168
687,953 7.00 07/15/2023 704,506
670,791 7.00 08/15/2023 686,931
216,126 7.50 08/15/2023 222,608
395,860 7.00 09/15/2023 405,384
499,943 7.00 10/15/2023 511,972
281,844 7.00 11/15/2023 288,625
588,262 7.50 12/15/2023 605,904
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A2
750,000 6.39 02/15/2030 802,671
---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $16,991,790) $ 17,425,293
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 24.0%
United States Treasury Bonds
USD 800,000(b) 8.13% 08/15/2021 $ 1,082,872
7,500,000(b) 6.75 08/15/2026 8,992,950
2,000,000 6.50 11/15/2026 2,327,820
United States Treasury Interest-Only Stripped Securities(e)
200,000 5.05 02/15/2009 119,804
400,000 5.52 08/15/2014 169,472
United States Treasury Notes
7,700,000 6.63 07/31/2001 8,151,143
13,300,000(b) 7.00 07/15/2006 15,315,748
12,800,000(b) 6.50 10/15/2006 14,358,016
4,600,000 6.63 05/15/2007 5,223,162
35,500,000(b) 5.63 05/15/2008 38,267,935
United States Treasury Principal-Only Stripped Securities(e)
1,000,000 5.64 08/15/2017 351,430
5,200,000 5.67 02/15/2019 1,667,848
2,760,000 5.67 05/15/2020 823,612
5,600,000 5.47 08/15/2025 1,317,792
--------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $95,577,505) $ 98,169,604
--------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 5.6%
State Street Bank & Trust Euro-Time Deposit(b)
USD 22,805,457 5.63% 11/02/1998 $ 22,805,457
--------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $22,805,457) $ 22,805,457
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $387,736,953)(F) $404,170,628
--------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(G) MONTH GAIN (LOSS)
------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 6 June 1999 $ 13,575
Euro Dollars 5 September 1999 12,125
Euro Dollars 7 March 2000 (4,112)
Euro Dollars 7 June 2000 1,487
5 Year U.S. Treasury Notes 10 December 1998 (9,532)
10 Year U.S. Treasury Notes (19) December 1998 (58,250)
20 Year Long Term Bond 79 December 1998 225,571
------------------------------------------------------------------------
$180,864
------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
-------------------------------
FEDERAL INCOME
TAX INFORMATION:
Gross unrealized
gain for invest-
ments in which
value exceeds
cost $17,008,304
Gross unrealized
loss for invest-
ments in which
cost exceeds
value (574,629)
-------------------------------
Net unrealized
loss $16,433,675
-------------------------------
(a) The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
BPS = British Pound Sterling ITL = Italian Lira
CAD = Canadian Dollar JPY = Japanese Yen
DKK = Danish Krone ESP = Spanish Peseta
DEM = Deutschemark SEK = Swedish Krona
FRF = French Franc USD = United States Dollar
(b) Portions of these securities are being segregated for open futures
contracts and futures margin requirements.
(c) Security is exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of the Rule 144A securities amounted to $1,881,242 as of
October 31, 1998.
(d) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(e) The interest rate disclosed for these securities represents effective
yield to maturity.
(f) The amount stated also represents the aggregate cost for federal income
tax purposes.
(g) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long
Term Bond contract represents $100,000 in notional par value. The total
notional amount and market value at risk are $35,800,000 and $19,587,951,
respectively. The determination of notional amounts as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
37
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT FUND
ASSETS:
<S> <C>
Investment in securities, at value (identified cost
$502,845,894, $223,655,691, $143,359,293, $299,868,669 and
$387,736,953) $497,752,353
Cash, at value 4,381
Receivables:
Investment securities sold 718,061
Interest, at value 6,268,327
Fund shares sold 16,559,494
Forward foreign currency exchange contracts --
Variation margin --
Deferred organization expenses, net --
Other assets 69,531
-----------------------------------------------------------------------------
TOTAL ASSETS 521,372,147
-----------------------------------------------------------------------------
LIABILITIES:
Due to Bank --
Payables:
Investment securities purchased 10,141,083
Income distribution 1,089,533
Fund shares repurchased 865,411
Amounts owed to affiliates 217,022
Forward foreign currency exchange contracts --
Variation margin 156,937
Forward sale contract, at value --
Accrued expenses and other liabilities 70,950
-----------------------------------------------------------------------------
TOTAL LIABILITIES 12,540,936
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 565,695,928
Accumulated undistributed (distributions in excess of) net
investment income (3,550,919)
Accumulated undistributed net realized gain (loss) on
investment, options, futures and foreign currency related
transactions (49,027,871)
Net unrealized gain (loss) on investments, futures and
translation of assets and liabilities denominated in
foreign currencies (4,285,927)
-----------------------------------------------------------------------------
NET ASSETS $508,831,211
-----------------------------------------------------------------------------
Net asset value per share:(a)
Class A $9.69
Class B --
Class C --
Institutional $9.70
Administration $9.70
Service $9.70
-----------------------------------------------------------------------------
Shares outstanding:
Class A 6,272,861
Class B --
Class C --
Institutional 45,502,280
Administration 618,625
Service 84,772
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited
number of shares authorized) 52,478,538
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $9.84 (NAV
per share plus maximum sales charge of 1.5%), $10.11 (NAV per share plus
maximum sales charge of 2.0%), $15.61 (NAV per share plus maximum sales
charge of 4.5%), $10.73 (NAV per share plus maximum sales charge of 4.5%)
and $16.39 (NAV per share plus maximum sales charge of 4.5%) for
Adjustable Rate Government, Short Duration Government, Government Income,
Core Fixed Income and Global 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.
38
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL
GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
$224,897,584 $145,463,981 $303,783,462 $404,170,628
94,277 19,853 -- 204,705
75,409 7,877,876 12,914,221 9,752,514
2,444,400 895,776 2,729,419 8,208,935
6,006,143 398,856 1,014,701 8,228,277
-- -- -- 1,802,980
-- -- -- 30,022
-- -- 4,362 --
99,962 95,140 161,772 149,840
----------------------------------------------------------------------------------------
233,617,775 154,751,482 320,607,937 432,547,901
----------------------------------------------------------------------------------------
-- -- 444,433 --
7,158,411 21,805,685 33,295,853 17,578,658
302,565 115,033 491,528 11,496
421,340 935,911 142,604 352,593
142,448 143,286 144,749 371,388
-- -- -- 4,943,283
131,406 129,916 127,839 --
-- 2,118,104 3,058,336 --
82,052 80,358 103,824 113,018
----------------------------------------------------------------------------------------
8,238,222 25,328,293 37,809,166 23,370,436
----------------------------------------------------------------------------------------
237,352,470 124,893,318 274,980,654 380,662,043
567,164 (202,850) -- 4,880,723
(14,898,587) 2,431,368 3,320,362 9,205,494
2,358,506 2,301,353 4,497,755 14,429,205
----------------------------------------------------------------------------------------
$225,379,553 $129,423,189 $282,798,771 $409,177,465
----------------------------------------------------------------------------------------
$9.91 $14.91 $10.25 $15.65
$9.88 $14.92 $10.28 $15.63
$9.88 $14.91 $10.28 $15.60
$9.90 $14.90 $10.28 $15.64
$9.91 -- $10.27 --
$9.89 $14.88 $10.28 $15.64
----------------------------------------------------------------------------------------
5,726,272 6,777,371 5,487,732 13,885,248
508,361 1,080,648 701,054 520,616
458,229 646,476 543,267 262,123
14,705,273 177,318 19,045,777 11,411,638
742,127 -- 1,240,570 --
630,425 112 511,939 67,640
----------------------------------------------------------------------------------------
22,770,687 8,681,925 27,530,339 26,147,265
----------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Operations
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest(a) $30,500,158
-----------------------------------------------------------------------------
TOTAL INCOME 30,500,158
-----------------------------------------------------------------------------
EXPENSES:
Management fees 1,980,544
Distribution and service fees(b) 217,577
Transfer agent fees 229,368
Custodian fees 118,369
Registration fees 57,272
Professional fees 58,806
Trustee fees 6,432
Administration share fees 10,895
Service share fees 2,702
Amortization of deferred organization expenses --
Other 191,398
-----------------------------------------------------------------------------
TOTAL EXPENSES 2,873,363
-----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by
Goldman Sachs (124,935)
-----------------------------------------------------------------------------
NET EXPENSES 2,748,428
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 27,751,730
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT, FUTURES AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 103,747
Futures transactions (1,536,545)
Foreign currency related transactions --
Net change in unrealized gain (loss) on:
Investments (8,168,671)
Futures 1,241,567
Translation of assets and liabilities
denominated in foreign currencies --
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS: (8,359,902)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $19,391,828
-----------------------------------------------------------------------------
</TABLE>
(a) Net of $2,706 and $32,585 in foreign withholding tax for the Core Fixed
Income and Global Income Funds, respectively.
(b) Class A, Class B and Class C of the following funds had distribution and
services fees of:
Adjustable Rate Government Fund -- $217,577 for class A only.
Short Duration Government Fund -- $111,382, $23,889 and $18,510,
respectively.
Government Income Fund -- $462,183, $119,856 and $37,728, respectively.
Core Fixed Income Fund -- $152,462, $31,187 and $30,651, respectively.
Global Income Fund -- $902,695, $54,794 and $22,140, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
40
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL
GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
$10,605,385 $7,259,007 $11,986,716 $17,529,866
---------------------------------------------------------------------------------------
10,605,385 7,259,007 11,986,716 17,529,866
---------------------------------------------------------------------------------------
807,888 747,673 750,536 2,613,060
153,781 619,767 214,300 979,629
191,462 189,925 211,200 378,171
90,250 104,410 131,433 214,328
100,705 81,231 109,950 103,600
56,023 52,852 53,898 66,174
5,893 5,915 5,804 5,614
10,828 -- 5,460 --
23,540 -- 39,455 885
-- 5,201 24,495 --
107,890 60,817 73,727 73,521
---------------------------------------------------------------------------------------
1,548,260 1,867,791 1,620,258 4,434,982
---------------------------------------------------------------------------------------
(555,828) (843,878) (555,918) (1,244,867)
---------------------------------------------------------------------------------------
992,432 1,023,913 1,064,340 3,190,115
---------------------------------------------------------------------------------------
9,612,953 6,235,094 10,922,376 14,339,751
---------------------------------------------------------------------------------------
822,488 2,347,325 3,616,346 11,911,240
(1,182,898) 374,866 214,664 468,362
-- -- 57,117 (8,799,445)
55,613 649,663 1,637,958 12,207,707
1,157,810 137,832 489,714 180,864
-- -- 17 2,383,424
---------------------------------------------------------------------------------------
853,013 3,509,686 6,015,816 18,352,152
---------------------------------------------------------------------------------------
$10,465,966 $9,744,780 $16,938,192 $32,691,903
---------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
ADJUSTABLE
RATE
GOVERNMENT
FUND
<S> <C>
FROM OPERATIONS:
Net investment income $ 27,751,730
Net realized gain (loss) on investment, futures and foreign
currency related transactions (1,432,798)
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies (6,927,104)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 19,391,828
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (2,487,566)
Class B shares --
Class C shares --
Institutional shares (25,001,833)
Administration shares (234,475)
Service shares (27,856)
In excess of net investment income
Class A shares (98,798)
Class B shares --
Class C shares --
Institutional shares (992,993)
Administration shares (9,313)
Service shares (1,106)
From net realized gain on investment, futures and foreign
currency transactions
Class A shares --
Class B shares --
Class C shares --
Institutional shares --
Administration shares --
Service shares --
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (28,853,940)
-----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 480,828,950
Reinvestment of dividends and distributions 20,351,273
Cost of shares repurchased (492,929,797)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 8,250,426
-----------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (1,211,686)
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 510,042,897
-----------------------------------------------------------------------------
End of year $ 508,831,211
-----------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME $ (3,550,919)
-----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL
GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
$ 9,612,953 $ 6,235,094 $ 10,922,376 $ 14,339,751
(360,410) 2,722,191 3,888,127 3,580,157
1,213,423 787,495 2,127,689 14,771,995
-----------------------------------------------------------------------------------
10,465,966 9,744,780 16,938,192 32,691,903
-----------------------------------------------------------------------------------
(1,420,203) (5,471,980) (1,853,415) (11,773,305)
(124,011) (589,599) (152,279) (310,470)
(88,564) (181,328) (150,232) (116,153)
(7,578,309) (126,383) (8,016,713) (6,720,480)
(270,953) -- (664,748) --
(265,819) (114) (176,911) (25,498)
-- (316,755) (75,186) --
-- (34,130) (6,177) --
-- (10,497) (6,094) --
-- (7,316) (325,203) --
-- -- (26,966) --
-- (7) (7,176) --
-- (336,409) (84,830) (628,833)
-- (41,187) (8,016) (15,200)
-- (9,732) (4,098) (4,258)
-- (8,246) (459,667) (240,253)
-- -- (51,390) --
-- (7) (10,588) (604)
-----------------------------------------------------------------------------------
(9,747,859) (7,133,690) (12,079,689) (19,835,054)
-----------------------------------------------------------------------------------
301,176,652 174,396,555 274,106,821 254,174,010
6,473,398 5,523,470 8,519,118 13,914,727
(201,542,539) (133,099,760) (102,188,552) (103,905,121)
-----------------------------------------------------------------------------------
106,107,511 46,820,265 180,437,387 164,183,616
-----------------------------------------------------------------------------------
106,825,618 49,431,355 185,295,890 177,040,465
-----------------------------------------------------------------------------------
118,553,935 79,991,834 97,502,881 232,137,000
-----------------------------------------------------------------------------------
$ 225,379,553 $ 129,423,189 $ 282,798,771 $ 409,177,465
-----------------------------------------------------------------------------------
$ 567,164 $ (202,850) $ -- $ 4,880,723
-----------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1997
<TABLE>
<CAPTION>
ADJUSTABLE
RATE
GOVERNMENT
FUND
<S> <C>
FROM OPERATIONS:
Net investment income $ 34,206,530
Net realized gain from investment and foreign currency
related transactions 76,946
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies 3,259,059
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 37,542,535
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (1,858,740)
Class B --
Class C --
Institutional shares (32,067,893)
Administration shares (222,274)
Service shares (3,287)
Net realized gain on investment transactions
Class A --
Class B --
Class C --
Institutional shares --
Administration shares --
Service shares --
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (34,152,194)
-----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 398,400,844
Reinvestment of dividends and distributions 20,070,536
Cost of shares repurchased (539,487,702)
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS (121,016,322)
-----------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (117,625,981)
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 627,668,878
-----------------------------------------------------------------------------
End of period $ 510,042,897
-----------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME $ (3,387,447)
-----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
GLOBAL
SHORT DURATION GOVERNMENT CORE FIXED INCOME
GOVERNMENT FUND INCOME FUND INCOME FUND FUND
<S> <C> <C> <C>
$ 6,770,045 $ 3,409,797 $ 5,427,639 $ 12,745,232
45,514 489,671 732,174 13,556,278
485,006 1,362,656 1,440,455 (3,996,894)
-------------------------------------------------------------------------------------
7,300,565 5,262,124 7,600,268 22,304,616
-------------------------------------------------------------------------------------
(85,889) (3,152,235) (107,876) (9,752,023)
(12,146) (186,284) (7,255) (74,972)
(632) (5,823) (778) (2,823)
(6,559,922) (2,853) (4,853,239) (3,332,259)
(79,521) -- (365,897) --
(145,168) (20) (74,035) (5,785)
-- (157,471) -- --
-- (1,780) -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-------------------------------------------------------------------------------------
(6,883,278) (3,506,466) (5,409,080) (13,167,862)
-------------------------------------------------------------------------------------
61,888,188 69,513,073 38,830,106 56,787,564
4,611,022 2,614,489 4,813,853 9,138,023
(50,380,123) (24,728,808) (21,476,685) (96,100,786)
-------------------------------------------------------------------------------------
16,119,087 47,398,754 22,167,274 (30,175,199)
-------------------------------------------------------------------------------------
16,536,374 49,154,412 24,358,462 (21,038,445)
-------------------------------------------------------------------------------------
102,017,561 30,837,422 73,144,419 253,175,445
-------------------------------------------------------------------------------------
$118,553,935 $ 79,991,834 $ 97,502,881 $232,137,000
-------------------------------------------------------------------------------------
$ 693,874 $ 134,310 $ 91,922 $ 16,021,332
-------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
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 Goldman Sachs Adjustable Rate
Government Fund (Adjustable Rate Government), Goldman Sachs Short Duration
Government Fund (Short Duration Government), Goldman Sachs Government Income
Fund (Government Income), Goldman Sachs Core Fixed Income Fund (Core Fixed
Income) and Goldman Sachs Global Income Fund (Global Income), collectively,
"the Funds" or individually a "Fund." Adjustable Rate Government, Short Dura-
tion Government, Government Income, and Core Fixed Income are diversified
portfolios of the Trust whereas Global Income is a non-diversified portfolio.
Adjustable Rate Government offers four classes of shares -- Class A, Institu-
tional, Administration and Service. Government Income and Global Income offer
five classes of shares -- Class A, Class B, Class C, Institutional and Serv-
ice. Short Duration Government and Core Fixed Income offer six classes of
shares -- Class A, Class B, Class C, Institutional, Administration and Serv-
ice.
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. Certain reclas-
sifications have been made to the prior period's amounts to conform with the
current period presentation. Such reclassifications have no effect on previ-
ously reported net asset values of the Fund.
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 trade date. Realized gains and losses on sales of portfolio secu-
rities are calculated using the identified cost basis. Interest income is re-
corded on the basis of interest accrued. Premiums on interest-only securities
and on collateralized mortgage obligations with nominal principal amounts are
amortized, on an effective yield basis, over the expected lives of the re-
spective securities.
Certain mortgage security paydown gains and losses are taxable as ordinary
income. Such paydown gains and losses increase or decrease taxable ordinary
income available for distribution and are classified as interest income in
the accompanying Statements of Operations. Original issue discounts ("OID")
on debt securities are amortized to interest income over the life of the se-
curity with a corresponding increase in the cost basis of that security. OID
amortization on mortgage backed REMIC securities is initially recorded based
on estimates of principal paydowns using the most recent OID factors avail-
able from the issuer. Recorded amortization amounts are adjusted when actual
OID factors are received. Market discounts and market premiums on debt secu-
rities, other than mortgage backed REMIC securities, are amortized to inter-
est income over the life of the security with a corresponding adjustment in
the cost basis of that security for Core Fixed Income. Global Income amor-
tizes only market discounts on debt securities other than REMIC mortgage
backed securities.
46
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
C. 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 taxable
and tax- exempt income and capital gains to its shareholders. Accordingly, no
federal tax provisions 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.
Adjustable Rate Government and Short Duration Government, at their most re-
cent tax year-ends of December 31, 1997, had approximately the following
amounts of capital loss carryforward for U.S. federal tax purposes. These
amounts are available to be carried forward to offset future capital gains to
the extent permitted by applicable laws or regulations.
<TABLE>
<CAPTION>
YEARS OF
FUND AMOUNT EXPIRATION
-----------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Government $47,859,000 2000-2004
-----------------------------------------------------------------------------------------
Short Duration Government $14,280,000 2002-2005
-----------------------------------------------------------------------------------------
</TABLE>
D. EXPENSES -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the Funds based on the
nature of the expense.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective distribution and service plans. Share-
holders of Service and Administration shares bear all expenses and fees paid
to service organizations for their services with respect to such shares. Ef-
fective October 1, 1998, each class of shares of the Funds now separately
bear their respective class-specific transfer agency fees.
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years. The amortiza-
tion costs of Adjustable Rate Government, Short Duration Government,
Government Income and Global Income are fully amortized.
F. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Funds are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, foreign currency and other assets and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates; (ii) purchases and sales of foreign investments,
income and expenses are converted into U.S. dollars based upon currency ex-
change rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies and sale of investments; (ii) gains and losses be-
tween trade date and settlement date on investment securities transactions
and forward exchange contracts; and (iii) gains and losses from the differ-
ence between amounts of interest recorded and the amounts actually received.
G. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- Core Fixed Income and
Global Income may enter into forward foreign currency exchange contracts for
the purchase or sale of a specific foreign currency at a fixed price on a fu-
ture date as a hedge or cross-hedge against either specific transactions or
portfolio positions. Core Fixed Income and Global Income may also purchase
and sell forward contracts to seek to increase total return. All commitments
are "marked-to-market" daily at
47
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
the applicable translation rates and any resulting unrealized gains or losses
are recorded in the Funds' financial statements. The Funds record realized
gains or losses at the time a forward contract is offset by entry into a
closing transaction or extinguished by delivery of the currency. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
H. FUTURES CONTRACTS -- The Funds may enter into futures transactions to
hedge against changes in interest rates, securities prices, currency exchange
rates (in the case of Core Fixed Income and Global Income) or to seek to in-
crease 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 associated futures exchange. Subsequent payments
for futures contracts ("variation margin") are paid or received by the Funds
daily, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Funds realize a gain or loss which is reported
in the Statements of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
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.
I. OPTION ACCOUNTING PRINCIPLES -- When the Funds write call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Funds enter
into a closing purchase transaction, the Funds realize a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Funds realize a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Funds purchase upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Funds have purchased expires on the stipulated expiration date, the Funds
will realize a loss in the amount of the cost of the option. If the Funds en-
ter into a closing sale transaction, the Funds will realize a gain or loss,
depending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Funds exercise a pur-
chased put option, the Funds will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Funds exercise a purchased call option, the
cost of the security which the Funds purchase upon exercise will be increased
by the premium originally paid.
J. MORTGAGE DOLLAR ROLLS -- The Funds may enter into mortgage "dollar rolls"
in which the Funds sell securities in the current month for delivery and si-
multaneously contract with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. For financial reporting and tax reporting purposes, the Funds treat
mortgage dollar rolls as two separate transactions; one involving the pur-
chase of a security and a separate transaction involving a sale.
48
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
3. AGREEMENTS
Pursuant to the Investment Management Agreements (the "Agreements"), Goldman
Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co.
("Goldman Sachs"), serves as the investment adviser for Adjustable Rate Gov-
ernment and Short Duration Government. Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as the in-
vestment adviser for Government Income and Core Fixed Income. Goldman Sachs
Asset Management International ("GSAMI"), an affiliate of GSAM, serves as the
investment adviser for Global Income. Under the Agreements, the respective
adviser, subject to the general supervision of the Trust's Board of Trustees,
manages the Funds' portfolios. As compensation for the services rendered pur-
suant to the Agreements, the assumption of the expenses related thereto and
administering the Funds' business affairs, including providing facilities,
the adviser is entitled to a fee, computed daily and payable monthly at an
annual rate equal to .40%, .50%, .65%, .40% and .90% of average daily net as-
sets of Adjustable Rate Government, Short Duration Government, Government In-
come, Core Fixed Income and Global Income, respectively.
Each adviser has voluntarily agreed to limit "Other Expenses", with the ex-
ception of Adjustable Rate Government, (excluding management fees, distribu-
tion and service fees, taxes, interest, brokerage, litigation, Administrative
and Service share fees, indemnification costs and other extraordinary ex-
penses and with respect to Global Income, transfer agent fees) to the extent
that such expenses exceeded .05%, .00%, .05% and .06% of the average daily
net assets of Short Duration Government, Government Income, Core Fixed Income
and Global Income, respectively. Effective September 1, 1998 for Global In-
come and October 1, 1998 for Adjustable Rate Government, Short Duration Gov-
ernment, Government Income and Core Fixed Income, these expense limitations
were modified to .00%, .05%, .00%, .00% and .10% (excluding management fees,
distribution and service fees, transfer agent fees, taxes, interest, broker-
age, litigation, administration and service share fees, indemnification costs
and extraordinary expenses), respectively.
Goldman Sachs serves as Distributor of the shares of the Funds pursuant to
a Distribution Agreement. 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 $28,000, $157,000, $212,000,
$82,000 and $133,000 for the year ended October 31, 1998 for Adjustable Rate
Government, Short Duration Government, Government Income, Core Fixed Income
and Global Income, respectively.
The Trust, on behalf of each Fund, had adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of the average
daily net assets attributable to Class A, Class B and Class C shares, respec-
tively.
The Trust, on behalf of each Fund, had adopted Authorized Dealer Service
Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and Autho-
rized Dealers were compensated for providing personal and account maintenance
services. Each Fund paid a fee under the Dealer Service Plan equal, on an an-
nual basis, up to .25% of its average daily net assets attributable to Class
A, Class B and Class C shares.
Effective September 1, 1998 for Global Income and October 1, 1998 for Ad-
justable Rate Government, Short Duration Government, Government Income and
Core Fixed Income, the Distribution Plans and Dealer Service Plans were com-
bined into Distribution and Service plans. Under the Distribution and Service
Plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee
from each fund for distribution services and shareholder maintenance equal,
on an annual basis, to .50%, 1.00% and 1.00% for Global Income and .25%,
1.00% and 1.00% of each of the other funds' average daily net assets attrib-
utable to Class A, Class B and Class C shares, respectively.
Goldman Sachs also serves as Transfer Agent of the Funds for a fee. Effec-
tive September 1, 1998 for Global Income and October 1, 1998 for Adjustable
Rate Government, Short Duration Government, Government Income and Core Fixed
Income, the fees charged for such transfer agency services are calculated
daily and payable monthly at an annual rate as
49
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
follows: .19% of average daily net assets for Class A, Class B and Class C
shares and .04% of average daily net assets for Institutional, Service and
Administration Shares.
The Trust, on behalf of the Funds, has adopted Service Plans. In addition,
the Trust, on behalf of Adjustable Rate Government, Short Duration Government
and Core Fixed Income, has adopted Administration Plans. These plans allow
for Service shares and Administration shares, respectively, to compensate
service organizations for providing varying levels of account administration
and shareholder liaison services to their customers 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.
For the year ended October 31, 1998, the advisors and distributor have vol-
untarily agreed to waive certain fees and reimburse other expenses as follows
(in thousands):
<TABLE>
<CAPTION>
WAIVERS
------------------------------------
CLASS A CLASS B
DISTRIBUTION DISTRIBUTION REIMBURSEMENT
FUND MANAGEMENT AND SERVICE AND SERVICE REIMBURSEMENT OUTSTANDING
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable
Rate Govern-
ment $ -- $103 $-- $ 22 $ 22
-----------------------------------------------------------------------------------
Short Dura-
tion Govern-
ment 42 50 4 460 99
-----------------------------------------------------------------------------------
Government
Income 152 219 -- 473 78
-----------------------------------------------------------------------------------
Core Fixed
Income -- 70 -- 486 141
-----------------------------------------------------------------------------------
Global In-
come 861 58 -- 326 148
-----------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
DISTRIBUTION TRANSFER
FUND MANAGEMENT AND SERVICE AGENT TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government $177 $12 $28 $217
--------------------------------------------------------------------------------
Short Duration Government 95 20 27 142
--------------------------------------------------------------------------------
Government Income 64 45 34 143
--------------------------------------------------------------------------------
Core Fixed Income 95 22 28 145
--------------------------------------------------------------------------------
Global Income 216 98 57 371
--------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
4. PORTFOLIO SECURITY TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
SALES OR SALES OR MATURITIES
PURCHASES OF PURCHASES MATURITIES OF (EXCLUDING
U.S. GOVERNMENT (EXCLUDING U.S. GOVERNMENT U.S. GOVERNMENT AND
AND AGENCY U.S. GOVERNMENT AND AND AGENCY AGENCY
OBLIGATIONS AGENCY OBLIGATIONS) OBLIGATIONS OBLIGATIONS)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable
Rate Gov-
ernment $175,786,143 $ -- $154,710,424 $ --
-----------------------------------------------------------------------------------
Short Du-
ration Gov-
ernment 305,220,351 -- 188,067,941 --
-----------------------------------------------------------------------------------
Government
Income 380,017,030 23,234,953 343,576,248 5,799,796
-----------------------------------------------------------------------------------
Core Fixed
Income 521,496,377 156,943,148 428,086,652 67,496,063
-----------------------------------------------------------------------------------
Global In-
come 200,935,755 567,499,157 134,428,516 490,054,826
-----------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, Global Income had outstanding forward foreign currency
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
FOREIGN CURRENCY VALUE ON UNREALIZED
PURCHASE CONTRACTS SETTLEMENT DATE CURRENT VALUE GAIN (LOSS)
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
expiring 11/20/98 $ 200,114 $ 202,016 $ 1,902
Deutsche Mark
expiring 11/10/98 159,316 173,595 14,279
expiring 1/29/99 5,731,566 5,700,981 (30,585)
-----------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY PURCHASE
CONTRACTS $ 6,090,996 $ 6,076,592 $ (14,404)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<CAPTION>
FOREIGN CURRENCY VALUE ON UNREALIZED
SALE CONTRACTS SETTLEMENT DATE CURRENT VALUE GAIN (LOSS)
-----------------------------------------------------------------------------
<S> <C> <C> <C>
British Pound
expiring 1/29/99 $ 52,117,193 $ 51,337,748 $ 779,445
expiring 1/29/99 12,806,986 12,824,173 (17,187)
Canadian Dollar
expiring 11/20/98 8,514,767 8,444,199 70,568
Danish Kroner
expiring 1/13/99 28,023,165 27,793,076 230,089
Deutsche Mark
expiring 12/4/98 4,097,113 4,196,298 (99,185)
expiring 1/22/99 2,542,895 2,521,022 21,873
expiring 1/25/99 4,703,312 4,714,684 (11,372)
expiring 1/25/99 5,694,778 5,682,105 12,673
French Franc
expiring 1/14/99 6,595,663 6,512,727 82,936
Italian Lira
expiring 11/13/98 24,352,416 26,131,764 (1,779,348)
Japanese Yen
expiring 12/4/98 686,226 790,350 (104,124)
expiring 2/10/99 25,373,876 25,644,571 (270,695)
Spanish Peseta
expiring 12/10/98 9,333,401 9,743,034 (409,633)
Swedish Krona
expiring 1/22/99 1,743,193 1,743,792 (599)
Swiss Franc
expiring 11/17/98 8,486,072 9,362,582 (876,510)
expiring 11/17/98 151,092 150,086 1,006
-----------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CON-
TRACTS $195,222,148 $197,592,211 $(2,370,063)
-----------------------------------------------------------------------------
</TABLE>
51
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At October 31,
1998, Global Income had sufficient cash and/or securities to cover any com-
mitments under these contracts.
Global Income has recorded a "Receivable for forward foreign currency ex-
change contracts" and "Payable for forward foreign currency exchange con-
tracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $1,802,980 and $4,943,283, respectively, in
the accompanying Statement of Assets and Liabilities. Included in the Global
Income "Receivable and Payable for forward foreign currency exchange con-
tracts" are $588,209 and $1,344,045, respectively, related to forward con-
tracts closed but not settled as of October 31, 1998.
For the year ended October 31, 1998, Adjustable Rate Government, Short Du-
ration Government, Government Income, Core Fixed Income and Global Income in-
curred commission expenses of approximately $54,000, $26,000, $8,000, $9,000
and $8,000, respectively, in connection with futures contracts entered into
with Goldman Sachs. At October 31, 1998, Goldman Sachs was owed approximately
$157,000, $131,000, $130,000 and $128,000 from Adjustable Rate Government,
Short Duration Government, Government Income and Core Fixed Income, respec-
tively, related to variation margin on futures contracts. Goldman Sachs owed
approximately $30,000 to Global Income related to variation margin on futures
contracts.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having manage-
ment agreements with GSFM, GSAMI and GSAM or their affiliates, transfer
uninvested cash into joint accounts, the daily aggregate balance of which is
invested in one or more repurchase agreements.
At October 31, 1998, Adjustable Rate Government, Short Duration Government,
Government Income and Core Fixed Income had undivided interests in the repur-
chase agreements in the following joint account which equaled $43,700,000,
$6,400,000, $14,600,000 and $22,300,000, respectively, in principal amount.
At October 31, 1998, the following repurchase agreements held in this joint
account were fully collateralized by U.S. Treasury and agency obligations.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
REPURCHASE AGREEMENTS AMOUNT RATE DATE COST
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CS FIRST BOSTON CORP. $ 25,000,000 5.50% 11/02/1998 $ 25,000,000
---------------------------------------------------------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC 800,000,000 5.65 11/02/1998 800,000,000
---------------------------------------------------------------------------------------
CHASE MANHATTAN BANK 600,000,000 5.60 11/02/1998 600,000,000
---------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,425,000,000
---------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
7. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, Global Income participates in a $50,000,000
committed, unsecured revolving line of credit facility. Both facilities are
to be used solely for temporary or emergency purposes. Under the most re-
strictive arrangement, each Fund must own securities having a market value in
excess of 300% of the total bank borrowings. The interest rate on the
borrowings is based on the federal funds rate. The committed facility also
requires a fee to be paid by the Fund based on the amount of the commitment
which has not been utilized. During the year ended October 31, 1998, the
Funds did not have any borrowings under these facilities.
8. OTHER MATTERS
As of October 31, 1998, the Goldman, Sachs & Co. Profit Sharing Master Trust
was the beneficial owner of approximately 20% and 15% of the outstanding
shares of Short Duration Government and Global Income, respectively. In addi-
tion, the Goldman Sachs Balanced Strategy Portfolio was the beneficial owner
of approximately 14%, 3% and 1% of the outstanding shares of Short Duration
Government, Global Income and High Yield, respectively. The Goldman Sachs
Growth and Income Strategy Portfolio was the beneficial owner of approxi-
mately 19%, 15% and 5% of the outstanding shares of Core Fixed Income, Global
Income and High Yield, respectively. The Goldman Sachs Growth Strategy Port-
folio was the beneficial owner of approximately 6%, 4% and 2% of Core Fixed
Income, Global Income and High Yield, respectively.
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, Adjustable Rate Government has
reclassified $938,738 and $1,410,151 from paid-in capital to accumulated dis-
tributions in excess of net investment income and accumulated net realized
loss, respectively. Short Duration Government has reclassified $33,684 and
$8,196 to paid-in capital and accumulated undistributed net investment in-
come, respectively, from accumulated net realized loss. Government Income has
reclassified $1,659 from paid-in capital to accumulated distributions in ex-
cess of net investment income and an additional $164,196 and $15,707 from ac-
cumulated net realized gain to accumulated distributions in excess of net
investment income and paid-in capital, respectively. Core Fixed Income has
reclassified $24,095 and $444,061 from paid-in capital and accumulated net
realized gain, respectively, to accumulated distributions in excess of net
investment income. In addition, Core Fixed Income has reclassified $2,294 and
$19,060 from accumulated distributions in excess of net investment income to
paid-in capital and accumulated net realized gain, respectively. Global In-
come has reclassified $6,564,667 from accumulated undistributed net invest-
ment income to accumulated net realized gain and an additional $30,213 and
$726,330 from paid-in capital to accumulated undistributed net investment in-
come and accumulated net realized gain, respectively.
These reclassifications have no impact on the net asset value of the Funds
and are designed to present the Fund's capital accounts on a tax basis.
53
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1998 is as follows:
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT SHORT DURATION GOVERNMENT
------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 19,932,653 $ 194,697,319 16,985,961 $ 167,624,322
Reinvestments of divi-
dends and distributions 604,097 5,945,679 120,111 1,185,808
Shares repurchased (18,654,663) (182,295,231) (12,340,018) (121,740,352)
------------------------------------------------------
1,882,087 18,347,767 4,766,054 47,069,778
-------------------------------------------------------------------------------
CLASS B SHARES
Shares sold -- -- 603,049 5,943,625
Reinvestments of divi-
dends and distributions -- -- 7,568 74,540
Shares repurchased -- -- (177,997) (1,755,511)
------------------------------------------------------
-- -- 432,620 4,262,654
-------------------------------------------------------------------------------
CLASS C SHARES
Shares sold -- -- 2,838,549 27,966,526
Reinvestments of divi-
dends and distributions -- -- 4,686 46,150
Shares repurchased -- -- (2,404,324) (23,689,726)
------------------------------------------------------
-- -- 438,911 4,322,950
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 28,576,509 280,382,576 8,996,219 88,597,711
Reinvestments of divi-
dends and distributions 1,450,779 14,219,494 476,030 4,685,919
Shares repurchased (31,436,222) (308,484,524) (5,282,160) (51,951,739)
------------------------------------------------------
(1,408,934) (13,882,454) 4,190,089 41,331,891
-------------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 526,967 5,168,122 643,992 6,337,403
Reinvestments of divi-
dends and distributions 16,347 159,947 21,813 215,247
Shares repurchased (207,333) (2,030,808) (30,888) (304,789)
------------------------------------------------------
335,981 3,297,261 634,917 6,247,861
-------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 59,251 580,933 478,854 4,707,065
Reinvestments of divi-
dends and distributions 2,671 26,153 26,999 265,734
Shares repurchased (12,170) (119,234) (213,862) (2,100,422)
------------------------------------------------------
49,752 487,852 291,991 2,872,377
-------------------------------------------------------------------------------
NET INCREASE 858,886 $ 8,250,426 10,754,582 $ 106,107,511
-------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
GOVERNMENT INCOME CORE FIXED INCOME GLOBAL INCOME
---------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10,117,601 $ 148,936,815 8,313,076 $ 84,205,066 6,208,388 $ 94,795,767
317,568 4,667,254 192,581 1,951,173 644,423 9,725,285
(8,375,782) (123,588,302) (3,945,813) (40,108,401) (4,034,417) (61,329,954)
---------------------------------------------------------------------------------
2,059,387 30,015,767 4,559,844 46,047,838 2,818,394 43,191,098
---------------------------------------------------------------------------------
988,916 14,582,947 762,323 7,750,260 358,077 5,463,974
36,689 539,851 10,510 106,863 16,608 250,647
(495,310) (7,326,615) (133,282) (1,356,868) (83,968) (1,277,096)
---------------------------------------------------------------------------------
530,295 7,796,183 639,551 6,500,255 290,717 4,437,525
---------------------------------------------------------------------------------
695,338 10,239,137 641,726 6,499,362 284,497 4,320,887
12,307 181,980 10,040 102,303 6,328 95,885
(143,057) (2,112,718) (135,503) (1,377,439) (61,616) (932,193)
---------------------------------------------------------------------------------
564,588 8,308,399 516,263 5,224,226 229,209 3,484,579
---------------------------------------------------------------------------------
43,336 637,656 16,206,866 163,978,142 9,752,852 148,646,615
9,140 134,281 558,960 5,664,936 252,867 3,816,828
(4,930) (72,125) (5,578,137) (56,603,166) (2,632,348) (40,270,900)
---------------------------------------------------------------------------------
47,546 699,812 11,187,689 113,039,912 7,373,371 112,192,543
---------------------------------------------------------------------------------
-- -- 779,791 7,866,673 -- --
-- -- 49,361 499,933 -- --
-- -- (201,424) (2,053,871) -- --
---------------------------------------------------------------------------------
-- -- 627,728 6,312,735 -- --
---------------------------------------------------------------------------------
-- -- 375,085 3,807,318 62,146 946,767
7 104 19,089 193,910 1,707 26,082
-- -- (67,401) (688,807) (6,198) (94,978)
---------------------------------------------------------------------------------
7 104 326,773 3,312,421 57,655 877,871
---------------------------------------------------------------------------------
3,201,823 $ 46,820,265 17,857,848 $180,437,387 10,769,346 $164,183,616
---------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1997 is as follows:
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION
GOVERNMENT GOVERNMENT
------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 7,590,281 $ 74,855,744 1,141,319 $ 11,256,436
Reinvestments of divi-
dends and distributions 194,263 1,918,232 8,343 82,332
Shares repurchased (4,485,105) (44,283,044) (189,444) (1,867,761)
------------------------------------------------------
3,299,439 32,490,932 960,218 9,471,007
------------------------------------------------------------------------------
CLASS B SHARES
Shares sold -- -- 95,322 934,856
Reinvestments of divi-
dends and distributions -- -- 449 4,421
Shares repurchased -- -- (20,030) (196,887)
------------------------------------------------------
-- -- 75,741 742,390
------------------------------------------------------------------------------
CLASS C SHARES
Shares sold -- -- 21,033 207,264
Reinvestments of divi-
dends and distributions -- -- 63 625
Shares repurchased -- -- (1,778) (17,517)
------------------------------------------------------
-- -- 19,318 190,372
------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 32,562,840 321,007,102 4,524,108 44,408,312
Reinvestments of divi-
dends and distributions 1,830,181 18,045,430 440,142 4,313,493
Shares repurchased (49,889,214) (491,883,845) (4,617,947) (45,299,315)
------------------------------------------------------
(15,496,193) (152,831,313) 346,303 3,422,490
------------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 209,261 2,063,528 325,429 3,199,356
Reinvestment of divi-
dends and distributions 10,639 104,909 6,605 64,920
Shares repurchased (322,994) (3,190,328) (250,361) (2,471,239)
------------------------------------------------------
(103,094) (1,021,891) 81,673 793,037
------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 48,034 474,470 191,963 1,881,964
Reinvestment of divi-
dends and distributions 199 1,965 14,820 145,231
Shares repurchased (13,213) (130,485) (53,841) (527,404)
------------------------------------------------------
35,020 345,950 152,942 1,499,791
------------------------------------------------------------------------------
NET INCREASE (DECREASE) (12,264,828) $(121,016,322) 1,636,195 $ 16,119,087
------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
GOVERNMENT INCOME CORE FIXED INCOME GLOBAL INCOME
--------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,037,141 $ 57,488,835 1,104,533 $ 11,020,182 3,015,583 $ 44,585,997
171,093 2,446,417 10,252 102,270 467,859 6,894,169
(1,621,717) (23,201,046) (186,897) (1,876,109) (6,086,858) (89,969,794)
--------------------------------------------------------------------------------
2,586,517 36,734,206 927,888 9,246,343 (2,603,416) (38,489,628)
--------------------------------------------------------------------------------
616,145 8,785,642 71,697 712,089 234,541 3,469,609
11,108 159,730 635 6,353 3,715 55,069
(93,217) (1,338,822) (10,829) (107,884) (25,960) (383,982)
--------------------------------------------------------------------------------
534,036 7,606,550 61,503 610,558 212,296 3,140,696
--------------------------------------------------------------------------------
94,585 1,365,823 28,196 281,946 39,328 589,195
379 5,517 8 78 183 2,750
(13,076) (188,940) (1,200) (12,024) (6,597) (98,680)
--------------------------------------------------------------------------------
81,888 1,182,400 27,004 270,000 32,914 493,265
--------------------------------------------------------------------------------
129,579 1,871,267 1,146,499 11,325,306 520,054 7,743,275
193 2,806 450,657 4,441,709 148,072 2,180,251
-- -- (1,051,390) (10,391,058) (365,110) (5,385,751)
--------------------------------------------------------------------------------
129,772 1,874,073 545,766 5,375,957 303,016 4,537,775
--------------------------------------------------------------------------------
-- -- 1,366,455 13,474,489 -- --
-- -- 19,189 189,462 -- --
-- -- (844,042) (8,441,000) -- --
--------------------------------------------------------------------------------
-- -- 541,602 5,222,951 -- --
--------------------------------------------------------------------------------
104 1,506 204,087 2,016,094 27,005 399,488
1 19 7,480 73,981 390 5,784
-- -- (65,183) (648,610) (17,410) (262,579)
--------------------------------------------------------------------------------
105 1,525 146,384 1,441,465 9,985 142,693
--------------------------------------------------------------------------------
3,332,318 $ 47,398,754 2,250,147 $ 22,167,274 (2,045,205) $(30,175,199)
--------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- ------------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
GAIN (LOSS) REALIZED GAIN INCREASE
NET ASSET ON INVESTMENT, IN EXCESS ON INVESTMENT, (DECREASE)
VALUE AT NET OPTION AND FROM NET OF NET OPTION IN NET
BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT AND FUTURES ASSET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.88 $0.53 $(0.17) $(0.53) $(0.02) $-- $(0.19)
1998 - Institutional
Shares 9.88 0.55 (0.16) (0.55) (0.02) -- (0.18)
1998 - Administration
Shares 9.88 0.53 (0.16) (0.53) (0.02) -- (0.18)
1998 - Service Shares 9.88 0.51 (0.16) (0.51) (0.02) -- (0.18)
----------------------------------------------------------------------------------------------------------
1997 - Class A Shares 9.83 0.57(f) 0.05(f) (0.57) -- -- 0.05
1997 - Institutional
Shares 9.83 0.59(f) 0.05(f) (0.59) -- -- 0.05
1997 - Administration
Shares 9.83 0.57(f) 0.05(f) (0.57) -- -- 0.05
1997 - Service Shares
(commenced March 27) 9.84 0.33(f) 0.04(f) (0.33) -- -- 0.04
----------------------------------------------------------------------------------------------------------
1996 - Class A Shares 9.77 0.55(f) 0.08(f) (0.55) (0.02) -- 0.06
1996 - Institutional
Shares 9.77 0.57(f) 0.08(f) (0.57) (0.02) -- 0.06
1996 - Administration
Shares 9.77 0.55(f) 0.08(f) (0.55) (0.02) -- 0.06
----------------------------------------------------------------------------------------------------------
1995 - Class A Shares
(commenced May 15) 9.79 0.27(f) (0.01)(f) (0.27) (0.01) -- (0.02)
1995 - Institutional
Shares 9.74 0.56(f) 0.07(f) (0.57) (0.03) -- 0.03
1995 - Administration
Shares 9.74 0.54(f) 0.07(f) (0.55) (0.03) -- 0.03
----------------------------------------------------------------------------------------------------------
1994 - Institutional
Shares 10.00 0.43(f) (0.24)(f) (0.45) -- -- (0.26)
1994 - Administration
Shares 10.00 0.42(f) (0.26)(f) (0.42) -- -- (0.26)
----------------------------------------------------------------------------------------------------------
</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 charge for Class A
shares were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
58
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
NET RATIO OF RATIO OF
ASSETS RATIO OF NET NET
NET ASSET AT END NET INVESTMENT RATIO OF INVESTMENT
VALUE, PORTFOLIO OF EXPENSES INCOME EXPENSES INCOME
END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$9.69 3.71% 33.64% $ 60,782 0.80% 5.40% 1.02% 5.18%
9.70 4.09 33.64 441,228 0.53 5.63 0.53 5.63
9.70 3.83 33.64 5,999 0.78 5.33 0.78 5.33
9.70 3.57 33.64 822 1.03 5.09 1.03 5.09
---------------------------------------------------------------------------------------
9.88 6.43 46.58 43,393 0.74 5.60 1.02 5.32
9.88 6.70 46.58 463,511 0.49 5.99 0.52 5.96
9.88 6.43 46.58 2,793 0.74 5.73 0.77 5.70
9.88 3.81(d) 46.58 346 1.05(c) 5.64(c) 1.08(c) 5.61(c)
---------------------------------------------------------------------------------------
9.83 6.60 52.36 10,728 0.70 5.59 1.01 5.28
9.83 6.86 52.36 613,149 0.45 5.85 0.51 5.79
9.83 6.60 52.36 3,792 0.70 5.59 0.76 5.53
---------------------------------------------------------------------------------------
9.77 2.74(d) 24.12 15,203 0.69(c) 5.87(c) 1.01(c) 5.55(c)
9.77 6.75 24.12 657,358 0.46 5.77 0.53 5.70
9.77 6.48 24.12 3,572 0.71 5.50 0.78 5.43
---------------------------------------------------------------------------------------
9.74 1.88 37.81 942,523 0.46 4.38 0.49 4.35
9.74 1.63 37.81 6,960 0.71 4.27 0.74 4.24
---------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------- ------------------------------------
NET REALIZED FROM NET
AND UNREALIZED REALIZED GAIN NET
NET ASSET GAIN (LOSS) ON IN EXCESS ON INVESTMENT, INCREASE
VALUE AT NET INVESTMENT, OPTION FROM NET OF NET OPTION (DECREASE)
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES IN NET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS ASSET VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.88 $0.57 $ 0.04 $(0.58) $-- $ -- $ 0.03
1998 - Class B Shares 9.86 0.51 0.03 (0.52) -- -- 0.02
1998 - Class C Shares 9.86 0.49 0.03 (0.50) -- -- 0.02
1998 - Institutional
Shares 9.86 0.58 0.06 (0.60) -- -- 0.04
1998 - Administration
Shares 9.89 0.55 0.05 (0.58) -- -- 0.02
1998 - Service Shares 9.86 0.55 0.04 (0.56) -- -- 0.03
----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.78 0.31(f) 0.09 (f) (0.30) -- -- 0.10
1997 - Class B Shares
(commenced May 1) 9.75 0.28(f) 0.10 (f) (0.27) -- -- 0.11
1997 - Class C Shares
(commenced May 15) 9.83 0.12(f) 0.02 (f) (0.11) -- -- 0.03
1997 - Institutional
Shares 9.83 0.64(f) 0.03 (f) (0.64) -- -- 0.03
1997 - Administration
Shares 9.85 0.62(f) 0.04 (f) (0.62) -- -- 0.04
1997 - Service Shares 9.82 0.59(f) 0.04 (f) (0.59) -- -- 0.04
----------------------------------------------------------------------------------------------------------------
1996 - Institutional
Shares 9.82 0.63(f) 0.01 (f) (0.63) -- -- 0.01
1996 - Administration
Shares(g) 9.86 0.38(f) -- (f) (0.39) -- -- (0.01)
1996 - Service Shares
(Commenced April 10) 9.72 0.31(f) 0.10 (f) (0.31) -- -- 0.10
----------------------------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.64 0.66(f) 0.17 (f) (0.65) -- -- 0.18
1995 - Administration
Shares(g) 9.64 0.24(f) (0.04)(f) (0.21) -- -- (0.01)
----------------------------------------------------------------------------------------------------------------
1994 - Institutional
Shares 10.14 0.56(f) (0.46)(f) (0.56) -- (0.04) (0.50)
1994 - Administration
Shares 10.14 0.53(f) (0.45)(f) (0.54) -- (0.04) (0.50)
----------------------------------------------------------------------------------------------------------------
</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) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration shares commenced activity
on April 15, 1993, were redeemed in full on February 23, 1995 and re-
commenced on February 28, 1996 at $9.86.
60
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE LIMITATIONS
-----------------------
RATIO OF NET RATIO OF NET
NET ASSET NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
VALUE, PORTFOLIO AT END OF EXPENSES INCOME EXPENSES INCOME
END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$9.91 6.36% 119.89% $ 56,725 0.81% 5.68% 1.32% 5.17%
9.88 5.62 119.89 5,025 1.41 5.12 1.87 4.66
9.88 5.46 119.89 4,527 1.56 4.64 1.87 4.33
9.90 6.75 119.89 145,514 0.53 6.06 0.84 5.75
9.91 6.27 119.89 7,357 0.78 5.76 1.09 5.45
9.89 6.12 119.89 6,232 1.03 5.56 1.34 5.25
----------------------------------------------------------------------------------------------
9.88 4.14(d) 102.58 9,491 0.70(c) 6.05(c) 1.32(c) 5.43(c)
9.86 3.94(d) 102.58 747 1.30(c) 5.52(c) 1.82(c) 5.00(c)
9.86 1.44(d) 102.58 190 1.45(c) 5.52(c) 1.82(c) 5.15(c)
9.86 7.07 102.58 103,729 0.45 6.43 0.82 6.06
9.89 6.91 102.58 1,060 0.70 6.19 1.07 5.82
9.86 6.63 102.58 3,337 0.95 5.92 1.32 5.55
----------------------------------------------------------------------------------------------
9.83 6.75 115.45 99,944 0.45 6.44 0.71 6.18
9.85 4.00(d) 115.45 252 0.70(c) 5.97(c) 0.96(c) 5.71(c)
9.82 4.35(d) 115.45 1,822 0.95(c) 6.05(c) 1.21(c) 5.79(c)
----------------------------------------------------------------------------------------------
9.82 8.97 292.56 103,760 0.45 6.87 0.72 6.60
9.63 2.10(d) 292.56 -- 0.70(c) 7.91(c) 0.90(c) 7.71(c)
----------------------------------------------------------------------------------------------
9.64 0.99 289.79 193,095 0.45 5.69 0.59 5.55
9.64 0.73 289.79 730 0.70 5.38 0.84 5.24
----------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ----------------------------------------------- -------
NET REALIZED FROM IN EXCESS OF
AND UNREALIZED NET REALIZED NET REALIZED
GAIN (LOSS) ON GAIN ON GAIN ON
NET ASSET INVESTMENT, IN EXCESS INVESTMENT, INVESTMENT,
VALUE, NET OPTION AND FROM NET OF NET OPTION AND OPTION AND
BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT FUTURES FUTURES
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $14.59 $0.81 $0.45 $(0.81) $(0.07) $(0.06) $ --
1998 - Class B Shares 14.61 0.72 0.42 (0.72) (0.05) (0.06) --
1998 - Class C Shares 14.60 0.74 0.40 (0.74) (0.03) (0.06) --
1998 - Institutional
Shares 14.59 0.87 0.42 (0.87) (0.05) (0.06) --
1998 - Service Shares 14.59 0.80 0.40 (0.80) (0.05) (0.06) --
-----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 14.36 0.91 0.29 (0.90) -- (0.07) --
1997 - Class B Shares 14.37 0.80 0.30 (0.79) -- (0.07) --
1997 - Class C Shares
(commenced August 15) 14.38 0.17 0.22 (0.17) -- -- --
1997 - Institutional
Shares (commenced
August 15) 14.37 0.20 0.22 (0.20) -- -- --
1997 - Service Shares
(commenced August 15) 14.37 0.20 0.21 (0.19) -- -- --
-----------------------------------------------------------------------------------------------------------------
1996 - Class A shares 14.47 0.92 (0.11) (0.92) -- -- --
1996 - Class B shares
(commenced May 1) 14.11 0.41 0.26 (0.41) -- -- --
-----------------------------------------------------------------------------------------------------------------
1995 - Class A shares 13.47 0.94 1.00 (0.94) -- -- --
-----------------------------------------------------------------------------------------------------------------
1994 - Class A shares 14.90 0.85 (1.28) (0.85) (0.02) (0.12) (0.01)
-----------------------------------------------------------------------------------------------------------------
</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) Includes the effect of mortgage dollar roll transactions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
62
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
-------------------------------
RATIO OF
NET NET RATIO OF NET
INCREASE NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME
IN NET END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.32 $14.91 8.98% 315.43% $101,015 0.76% 5.53% 1.53% 4.76%
0.31 14.92 8.09 315.43 16,125 1.51 4.76 2.05 4.22
0.31 14.91 8.09 315.43 9,639 1.51 4.59 2.05 4.05
0.31 14.90 9.19 315.43 2,642 0.51 5.82 1.05 5.28
0.29 14.88 8.53 315.43 2 1.01 5.48 1.55 4.94
- -----------------------------------------------------------------------------------------------------------------------
0.23 14.59 8.72 395.75 68,859 0.50 6.38 1.82 5.06
0.24 14.61 7.96 395.75 8,041 1.25 5.59 2.32 4.52
0.22 14.60 2.72(d) 395.75 1,196 1.25(c) 5.45(c) 2.32(c) 4.38(c)
0.22 14.59 2.94(d) 395.75 1,894 0.25(c) 7.03(c) 1.32(c) 5.96(c)
0.22 14.59 2.85(d) 395.75 2 0.75(c) 6.49(c) 1.82(c) 5.42(c)
- -----------------------------------------------------------------------------------------------------------------------
(0.11) 14.36 5.80 485.09 30,603 0.50 6.42 1.89 5.03
0.26 14.37 4.85(d) 485.09 234 1.25(c) 5.65(c) 2.39(c) 4.51(c)
- -----------------------------------------------------------------------------------------------------------------------
1.00 14.47 14.90 449.53 29,503 0.47 6.67 2.34 4.80
- -----------------------------------------------------------------------------------------------------------------------
(1.43) 13.47 (2.98) 654.90 14,452 0.11 6.06 2.86 3.31
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
--------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON FROM NET
INVESTMENT, REALIZED NET
OPTION, GAIN ON INCREASE
NET ASSET FUTURES AND IN EXCESS INVESTMENT, (DECREASE)
VALUE AT NET FOREIGN CURRENCY FROM NET OF NET OPTION AND IN NET
BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT FUTURES ASSET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $10.06 $0.59 $ 0.27 $(0.59) $(0.02) $(0.06) $0.19
1998 - Class B Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19
1998 - Class C Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19
1998 - Institutional
Shares 10.08 0.61 0.29 (0.61) (0.03) (0.06) 0.20
1998 - Administration
Shares 10.07 0.57 0.29 (0.57) (0.03) (0.06) 0.20
1998 - Service Shares 10.09 0.56 0.27 (0.56) (0.02) (0.06) 0.19
------------------------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.70 0.30 0.36 (0.30) -- -- 0.36
1997 - Class B Shares
(commenced May 1) 9.72 0.27 0.37 (0.27) -- -- 0.37
1997 - Class C Shares
(commenced August 15) 9.93 0.11 0.16 (0.11) -- -- 0.16
1997 - Institutional
Shares 9.85 0.64 0.23 (0.64) -- -- 0.23
1997 - Administration
Shares 9.84 0.62 0.23 (0.62) -- -- 0.23
1997 - Service Shares 9.86 0.59 0.23 (0.59) -- -- 0.23
------------------------------------------------------------------------------------------------------------
1996 - Institutional
Shares 10.00 0.64 (0.07) (0.64) -- (0.08) (0.15)
1996 - Administrative
Shares (commenced
February 28) 9.91 0.41 (0.07) (0.41) -- -- (0.07)
1996 - Service Shares
(commenced March 13) 9.77 0.38 0.09 (0.38) -- -- 0.09
------------------------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.24 0.64 0.76 (0.64) -- -- 0.76
FOR THE PERIOD ENDED OCTOBER 31,
1994 - Institutional
Shares (commenced
January 5) 10.00 0.46 (0.76) (0.46) -- -- (0.76)
------------------------------------------------------------------------------------------------------------
</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) Includes the effect of mortgage dollar roll transactions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
64
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE
LIMITATIONS
---------------------
NET RATIO OF RATIO OF
ASSETS RATIO OF NET NET
NET ASSET AT END NET INVESTMENT RATIO OF INVESTMENT
VALUE, PORTFOLIO OF EXPENSES INCOME EXPENSES INCOME
END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$10.25 8.76% 271.50% $56,267 0.74% 5.58% 1.21% 5.11%
10.28 7.94 271.50 7,209 1.49 4.82 1.75 4.56
10.28 7.94 271.50 5,587 1.49 4.81 1.75 4.55
10.28 9.15 271.50 195,730 0.46 5.95 0.72 5.69
10.27 8.88 271.50 12,743 0.71 5.70 0.97 5.44
10.28 8.50 271.50 5,263 0.96 5.44 1.22 5.18
- -----------------------------------------------------------------------------------------
10.06 6.94(d) 361.27 9,336 0.70(c) 6.13(c) 1.33(c) 5.50(c)
10.09 6.63(d) 361.27 621 1.45(c) 5.28(c) 1.83(c) 4.90(c)
10.09 2.74(d) 361.27 272 1.45(c) 4.84(c) 1.83(c) 4.46(c)
10.08 9.19 361.27 79,230 0.45 6.53 0.83 6.15
10.07 8.92 361.27 6,176 0.70 6.27 1.08 5.89
10.09 8.65 361.27 1,868 0.95 6.00 1.33 5.62
- -----------------------------------------------------------------------------------------
9.85 5.98 414.20 72,061 0.45 6.51 0.83 6.13
9.84 3.56(d) 414.20 702 0.70(c) 6.41(c) 1.08(c) 6.03(c)
9.86 4.90(d) 414.20 381 0.95(c) 6.37(c) 1.33(c) 5.99(c)
- -----------------------------------------------------------------------------------------
10.00 15.72 382.26 55,502 0.45 6.56 0.96 6.05
9.24 (3.00)(d) 285.25 24,508 0.45(c) 6.48(c) 1.46(c) 5.47(c)
- -----------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
--------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON FROM
INVESTMENT, NET REALIZED
OPTION, FUTURES GAIN ON NET
NET ASSET AND FOREIGN IN EXCESS INVESTMENT, INCREASE
VALUE, NET CURRENCY FROM NET OF NET OPTION AND FROM (DECREASE)
BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT FUTURES PAID IN IN NET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS CAPITAL ASSET VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $15.10 $0.72(e) $ 0.90(e) $(1.01) $-- $(0.06) $ -- $0.55
1998 - Class B
Shares 15.08 0.63(e) 0.92(e) (0.94) -- (0.06) -- 0.55
1998 - Class C
Shares 15.06 0.63(e) 0.91(e) (0.94) -- (0.06) -- 0.54
1998 -
Institutional
Shares 15.09 0.82(e) 0.90(e) (1.11) -- (0.06) -- 0.55
1998 - Service
Shares 15.09 0.74(e) 0.91(e) (1.04) -- (0.06) -- 0.55
-------------------------------------------------------------------------------------------------------------------------
1997 - Class A
shares 14.53 0.59 0.77 (0.79) -- -- -- 0.57
1997 - Class B
shares 14.53 0.72 0.56 (0.73) -- -- -- 0.55
1997 - Class C
shares
(commenced
August 15) 14.80 0.16 0.29 (0.19) -- -- -- 0.26
1997 -
Institutional
Shares 14.52 0.88 0.56 (0.87) -- -- -- 0.57
1997 - Service
Shares
(commenced March
12) 14.69 0.53 0.39 (0.52) -- -- -- 0.40
-------------------------------------------------------------------------------------------------------------------------
1996 - Class A
shares 14.45 0.71 0.80 (1.43) -- -- -- 0.08
1996 - Class B
shares
(commenced May
1) 14.03 0.34 0.52 (0.36) -- -- -- 0.50
1996 -
Institutional
shares 14.45 1.15 0.42 (1.50) -- -- -- 0.07
-------------------------------------------------------------------------------------------------------------------------
1995 - Class A
shares 13.43 0.89 1.07 (0.94) -- -- -- 1.02
1995 -
Institutional
shares
(commenced
August 1) 14.09 0.22 0.40 (0.26) -- -- -- 0.36
-------------------------------------------------------------------------------------------------------------------------
1994 - Class A
shares 15.07 0.84 (1.49) (0.22) -- (0.16) (0.61) (1.64)
-------------------------------------------------------------------------------------------------------------------------
</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) Calculated based on the average shares outstanding methodology.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
66
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
-
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
--------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME
VALUE, TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
END OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$15.65 11.21% 229.91% $217,362 1.31% 4.71% 1.75% 4.27%
15.63 10.66 229.91 8,135 1.83 4.19 2.24 3.78
15.60 10.65 229.91 4,090 1.83 4.20 2.24 3.79
15.64 11.95 229.91 178,532 0.66 5.40 1.07 4.99
15.64 11.43 229.91 1,058 1.16 4.92 1.57 4.51
- ------------------------------------------------------------------------------------------------------------------
15.10 9.66 383.72 167,096 1.17 5.19 1.60 4.76
15.08 9.04 383.72 3,465 1.71 4.76 2.10 4.37
15.06 3.03(d) 383.72 496 1.71(c) 4.98(c) 2.10(c) 4.59(c)
15.09 10.26 383.72 60,929 0.65 5.72 1.04 5.33
15.09 6.42(d) 383.72 151 1.15(c) 5.33(c) 1.54(c) 4.94(c)
- ------------------------------------------------------------------------------------------------------------------
14.53 11.05 232.15 198,665 1.16 5.81 1.64 5.33
14.53 6.24(d) 232.15 256 1.70(c) 5.16(c) 2.14(c) 4.72(c)
14.52 11.55 232.15 54,254 0.65 6.35 1.11 5.89
- ------------------------------------------------------------------------------------------------------------------
14.45 15.08 265.86 245,835 1.29 6.23 1.58 5.94
14.45 4.42(d) 265.86 31,619 0.65(c) 6.01(c) 1.08(c) 5.58(c)
- ------------------------------------------------------------------------------------------------------------------
13.43 (4.49) 343.74 396,584 1.28 5.73 1.53 5.48
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
GOLDMAN SACHS TRUST TAXABLE INVESTMENT GRADE FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Taxable
Investment Grade Fixed Income Funds:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Adjustable Rate Government Fund, Short Duration Government
Fund, Government Income Fund, Core Fixed Income Fund and Global Income Fund,
five of the portfolios constituting Goldman Sachs Trust -- Fixed Income Funds
(a Delaware Business Trust), including the statements of investments, as of
October 31, 1998, and the related statements of operations and the statements
of changes in net assets and the financial highlights for the periods pre-
sented. These financial statements and the financial highlights are the re-
sponsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of October 31, 1998 by correspondence with the custodian and brokers. An au-
dit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Adjustable Rate Government Fund, Short Duration
Government Fund, Government Income Fund, Core Fixed Income Fund and Global
Income Fund as of October 31, 1998, the results of their operations and the
changes in their net assets and the financial highlights for the periods pre-
sented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 11, 1998
68
<PAGE>
GOLDMAN SACHS FUND PROFILE
THE GOLDMAN
SACHS ADVANTAGE
When you invest in Goldman Sachs Taxable Investment Grade 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.
Goldman Sachs
Taxable Investment Grade Funds
Generally speaking, bond investments may help individuals mitigate overall
portfolio volatility, without sacrificing attractive returns.
Goldman Sachs Taxable Investment Grade Funds offer investors access to the
benefits associated with fixed income investing. The Funds seek current income
from portfolios that invest in a variety of fixed income securities.
Target Your Needs
Goldman Sachs Taxable Investment Grade 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
[GRAPHIC]
<TABLE>
<CAPTION>
[GRAPHIC]
Lower risk/return Higher risk/return
- ------------------------------------------------------------------------------------------------------------------
TAX-FREE TAXABLE HIGH YIELD
<S> <C> <C>
. Municipal Income Fund . Global Income Fund . High Yield Fund
. Short Duration Tax-Free Fund . Core Fixed Income Fund
. Government Income Fund
. Short Duration Government Fund
. Adjustable Rate Government Fund
</TABLE>
For More Information
To learn more about Goldman Sachs Taxable Investment Grade 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
Jesse H. Cole, Vice President
James A. Fitzpatrick, Vice President
Anne E. Marcel, Vice President
John M. Perlowski, Treasurer
Philip V. Giuca, Jr., Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN, SACHS & CO.
Distributor and Transfer Agent
GOLDMAN SACHS ASSET MANAGEMENT
Investment Adviser
GOLDMAN SACHS INTERNATIONAL
133 Peterborough Court
London, England EC4A 2BB
Visit our internet address: www.gs.com/funds
Sources (page 16): Lipper Analytical Services. The correlation measures the
relationship between two data sets that are scaled to be independent of the unit
of measurement. The population correlation calculation is computed as the
covariance of the monthly return series divided by the product of their standard
deviations. Correlations based on monthly returns from 10/31/88 through 10/31/98
of the following: Cash - 1-month Certificate of Deposit (CD). Treasury Bill -
3-month Treasury Bill; CD and Treasury bill indices are derived from secondary
market interest rates as published by the Federal Reserve Bank.
Intermediate-Term Government Bonds - Lehman Intermediate Government Bond Index.
Long Term Government Bonds - Lehman Long Term Government Bond Index; Lehman
Government Bond Indices are made up of agency (all publicly issued debt of U.S.
Government agencies and quasi-federal corporations, and corporate debt
guaranteed by the U.S. Government) and treasury securities (all public
obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted
issues). Corporate Bonds - the Lehman Aggregate Bond Index represents a
diversified portfolio of fixed income securities, including U.S. Treasuries,
investment-grade corporation bonds, and mortgage- and asset-backed securities.
Municipal Bonds - the Lehman Muni 10-Year Index, a broad-based total return
index that is comprised of investment grade, fixed rate, long-term maturities
(ranging from nine to 12 years) and are selected from issues larger than $50
million with dates since January 1984. Global Bonds - the Merrill Lynch Global
Bond Index, a broad-based index consisting of fixed-rate, coupon-bearing bonds
with an outstanding par greater than or equal to $25 million and a maturity
range greater than or equal to one year. High Yield Bonds - Lehman High Yield
Bond Index, includes all fixed income securities having a maximum quality rating
of Ba1 (including defaulted issues), a minimum amount outstanding of $100mm, and
at least one year to maturity; PIKs and Eurodollars are excluded.
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 Funds, 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 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 Global Income Fund's, Goldman Sachs High Yield 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 Funds may incur losses because of changes in
securities prices expressed in local currencies, movements in exchange rates, or
both.
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.
(C) Copyright 1998 Goldman, Sachs & Co.
All rights reserved.
Date of first use: December 30, 1998 FI/INVGRAR / 26K / 12-98
