<PAGE>
Goldman Sachs Funds
HIGH YIELD FUND Annual Report October 31, 1998
[GRAPHIC] A high level of current income
through a diversified portfolio
of high yield securities.
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Fund Basics
as of October 31, 1998
Assets Under Management
-----------------------
$537.4 Million
-----------------------
Number of Holdings
-----------------------
192
-----------------------
NASDAQ Symbols
Class A Shares
-----------------------
GSHAX
-----------------------
Class B Shares
-----------------------
GSHBX
-----------------------
Class C Shares
-----------------------
GSHCX
-----------------------
Institutional Shares
-----------------------
GSHIX
-----------------------
Service Shares
-----------------------
GSHSX
-----------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
October 31, 1997- Fund Total Return 30-Day Lehman High
October 31, 1998 (based on NAV)/1/ SEC Yield/2/ Yield Index/3/
- --------------------------------------------------------------------------------
Class A -0.70% 10.11% -0.49%
Class B -1.43% 9.88% -0.49%
Class C -1.43% 9.88% -0.49%
Institutional -0.32% N/A -0.49%
Service -0.79% N/A -0.49%
- --------------------------------------------------------------------------------
/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 High Yield Bond Index figures do 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/ -4.29% -5.54% -1.57% 0.54% 0.17%
Since Inception/4/ -2.13% -2.34% 1.21% 2.17% 1.78%
(8/1/97) (8/1/97) (8/15/97) (8/1/97) (8/1/97)
- ----------------------------------------------------------------------------------------------
</TABLE>
/4/ The SEC Average Annualized Total Return is determined by computing the
percentage change in the value of $1,000 invested at the maximum public
offering price for specified periods, assuming reinvestment of all
distributions at NAV. The total return calculation reflects a maximum
initial sales charge of 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 $9.78 and represents the NAV plus the maximum sales charge of
4.5%.
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS AS OF 10/31/98/5/
- --------------------------------------------------------------------------------
Company Line of Business % of Portfolio
- --------------------------------------------------------------------------------
Telewest PLC Media/Cable TV 2.5%
CSC Holdings, Inc. Media/Cable TV 1.9%
Nextel Communications, Inc. Telecommunications 1.9%
Colt Telecom Group PLC Telecommunications 1.7%
Viasystems, Inc. Technology 1.6%
Intertek Finance PLC Industrial Services 1.5%
United Rentals, Inc. Industrial Services 1.4%
Geberit International S.A. Building Products 1.4%
Packard Bioscience, Inc. Capital Goods 1.4%
Intermedia Communications, Inc. Media/Cable TV 1.4%
- --------------------------------------------------------------------------------
Credit Allocation: AAA 4.7% A 0.5% BBB 0.5% BB 8.1% B 81.8% CCC/NR 4.4%
- --------------------------------------------------------------------------------
/5/ 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.
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
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.
. 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.
. 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.
. 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.
. 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
1
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs High Yield Fund
for the 12-month period ended October 31, 1998.
Performance Review
Over the 12-month period ended October 31, 1998, the Fund performed generally in
line with the -0.49% return of its benchmark, the Lehman High Yield Bond Index.
During the same period, the Fund performed well versus its peers. The Fund's
Class A and Institutional shares placed in the top 25% of all Funds in the
Lipper High Yield Fund category, ranking 59 and 51, respectively, out of 235
funds. The Fund's Class B, C and Service shares ranked within the top 32% of all
funds within the same category, ranking 74, 73 and 64 respectively, out of 235
funds. Please note that Lipper rankings do not take sales charges into account
and that past performance is not a guarantee of future results.
The performance of the high yield market -- and that of the Fund -- was
adversely affected by market events in the final three months of the period
under review. In late August, on the heels of Russia's de facto default, the
market was caught up in the dramatic sell-off that occurred in the U.S. equity
market. Then, in September, fears of a credit crunch and a global recession --
driven by the near-collapse of Long Term Capital, a hedge fund --drove high
yield spreads to their widest levels since the early 1990s. Early October saw a
further four-point drop, but a surprise rate cut by the Federal Reserve caused a
sharp reversal in the downward direction of the market.
Investment Objective
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation. The Fund invests primarily in fixed income
securities rated below investment grade.
Portfolio Composition
As of October 31, 1998, the Fund was diversified among 163 companies. Holdings
in the top 10 companies represented 16.7% of the portfolio.
We have used the market volatility to invest cash balances, consolidating our
holdings in core positions such as Nextel Communications, a cellular operator,
and Telewest, a cable operator, through the new issue and secondary markets. The
secondary market is currently very polarized between widely traded and less
well-known names: the former have recovered by as much as five points; the
latter languish in a trough established in mid-October. We have selectively
added to positions in less well-known names where we are comfortable with the
credit fundamentals; these bonds can offer good value although supply is scarce.
2
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
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.
Portfolio Highlights
. Graphic Controls and Greyhound -- The Fund benefited when both Graphic
Controls' and Greyhound's bonds rallied sharply on the news of takeovers.
Graphic Controls, a maker of disposable medical products, was purchased by
Tyco, an A-rated manufacturing conglomerate, for $460 million. Laidlaw,
North America's largest provider of ambulances, school buses and municipal
transit services, made a bid for Greyhound, the bus company. Both of these
acquisitions are examples of positive event risk: companies with capital
taking advantage of reduced equity values in order to conduct
acquisitions.
. United Rentals -- United Rentals is a leading consolidator in the
equipment rental industry. The industry is rapidly evolving, which
presents an opportunity for the company to expand its penetration in the
U.S. market. Following United Rentals recent stock merger with U.S.
Rentals, Standard & Poor's upgraded United Rentals' subordinated bonds to
a BB-rating.
. Wesco -- Wesco, an electrical goods distributor, has reported consistently
strong earnings over the last several years, as the company's disciplined
acquisition strategy has enabled it to gain market share and improve
performance despite stagnant market conditions. The company believes it is
well on track with its expected initial public offering, presently
scheduled to take place in either late 1999 or early 2000.
. Telewest -- Telewest, the second largest cable television company in the
UK, recently raised $315 million in 10-year bonds to finance its
acquisition of Birmingham Cable. The purchase has further positioned
Telewest to reap the benefits of economies of scale as the cable
television market gains wider acceptance in the UK after a sluggish start.
Portfolio Outlook
The Fed's move in October calmed exaggerated fears of a credit crunch and
a global recession and refocused investors on the absolute value of yields
now available in the high yield market. A rebound in mutual fund inflows
as reported by AMG Data Services -- to $1.25 billion in the last week of
the month --reopened the new issue market after a 10-week drought. First-
time issuers are gradually re-emerging, and the market appears willing to
extend credit to good business plans that are well capitalized, on
appropriate terms. High-yield issuers have generally reported good third
quarter earnings, which has provided further support to the rally.
In view of the fact that investor confidence in the high yield market has
been rapidly restored, we believe technicals will remain favorable.
Therefore, we expect that the current market rally will likely be
sustained through the remainder of the year.
We thank you for your investment and look forward to your continued
confidence.
Goldman Sachs High Yield Investment Management Team
November 30, 1998
3
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Fixed Income Funds --
An Effective Portfolio Diversifier
By putting securities with different correlations to work in your portfolio, you
can expand your investment opportunities while potentially spreading your risk.
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.
4
<PAGE>
GOLDMAN SACHS HIGH YIELD 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% for Class A and redemp-
tion charges of 5.0% for Class B and at NAV for the Institutional and Service
Classes) on August 1, 1997 (commencement of operations). For comparative pur-
poses, the performance of the Fund's benchmark (the Lehman High Yield Bond
Index) is shown. This performance data represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their origi-
nal cost. Performance of Class C shares will vary from Class A due to differ-
ences in fees and loads.
HIGH YIELD FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1997 TO
OCTOBER 31, 1998.
[HIGH YIELD FUND PERFORMANCE CHART APPEARS HERE]
Monthly Rtns
Lehman High
Class A Class B Institutional Service Yield Index
8/1/97 9550 10000 10000 10000 10000
8/97 9560 10004 10013 10009 9977
9/97 9735 10190 10199 10191 10175
10/97 9694 10131 10158 10146 10184
11/97 9768 10203 10238 10222 10281
12/97 9953 10389 10433 10413 10372
1/98 10217 10648 10713 10688 10559
2/98 10289 10727 10800 10761 10621
3/98 10388 10823 10896 10863 10721
4/98 10391 10820 10902 10865 10763
5/98 10447 10871 10974 10932 10800
6/98 10451 10868 10969 10933 10839
7/98 10550 10965 11087 11036 10901
8/98 9815 10194 10317 10265 10299
9/98 9752 10133 10254 10208 10346
10/98 9627 9586 10126 10066 10133
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 1, 1997)
Excluding sales charges 0.63% -0.70%
Including sales charges -2.99% -5.17%
-----------------------------------------------------------------------------
CLASS B (COMMENCED AUGUST 1, 1997)
Excluding sales charges -0.11% -1.43%
Including sales charges -3.32% -6.36%
-----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 0.01% -1.43%
Including sales charges 0.01% -2.42%
-----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 1, 1997) 1.00% -0.32%
-----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 1, 1997) 0.52% -0.79%
-----------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 77.0%
Accuride Corp.(B-/B2)
$ 2,500,000 9.25% 02/01/2008 $ 2,275,000
Advance Holding Corp. (B-/Caa2)(a)(b)
1,500,000 0.00/12.88 04/15/2009 810,000
Advanstar Communication (B-/B2)(a)
2,500,000 9.25 05/01/2008 2,312,500
AEP Industries, Inc. (B/B2)
5,000,000 9.88 11/15/2007 4,650,000
Alaris Medical, Inc. (B-/Caa1)(a)(b)
2,750,000 0.00/11.13 08/01/2008 1,251,250
Allegiance Telecom, Inc. (CCC)(b)
1,500,000 0.00/11.75 02/15/2008 630,000
Alliance Imaging, Inc. (B-/B3)
3,000,000 9.63 12/15/2005 2,790,000
Allied Waste Industries, Inc. (B+/B3)(b)
8,500,000 0.00/11.30 06/01/2007 6,375,000
American Lawyer Media, Inc. (B/B1)
2,750,000 9.75 12/15/2007 2,736,250
Amtrol, Inc. (B-/B3)
3,000,000 10.63 12/31/2006 2,532,360
Anchor Lamina, Inc. (B-/B3)
1,500,000 9.88 02/01/2008 1,200,000
APCOA, Inc. (B-/Caa1)
5,000,000 9.25 03/15/2008 4,450,000
Argo-Tech Corp.(B-/B3)
5,000,000 8.62 10/01/2007 4,650,000
Aurora Foods, Inc. (B+/B1)
3,750,000 9.88 02/15/2007 4,012,500
Axiohm Transaction Solutions (B-/B3)
3,000,000 9.75 10/01/2007 2,610,000
BE Aerospace, Inc. (B/B1)
1,000,000 9.50 11/01/2008 1,020,000
Bell Sports, Inc. (B-/B3)(a)
2,000,000 11.00 08/15/2008 1,920,000
Benton Oil & Gas Co. (B+/B2)
4,000,000 9.38 11/01/2007 2,600,000
Birch Telecom (CCC)(a)
1,000,000 14.00 06/15/2008 880,000
Brunner Mond Group PLC (B-/B3)(a)
2,250,000 11.00 07/15/2008 1,935,000
Burke Industries, Inc. (B+/B2)
2,000,000 10.00 08/15/2007 1,905,000
Cabot Safety Acquisition Corp. (B/B3)
4,000,000 12.50 07/15/2005 4,240,000
Cellnet Data Systems, Inc (CCC)(b)
1,500,000 0.00/14.00 10/01/2007 480,000
Chancellor Media Corp. (B/Ba3)
2,000,000 8.13 12/15/2007 1,880,000
CHS Electronics, Inc. (B-/B2)
3,750,000 9.88 04/15/2005 3,337,500
Colt Telecom Group PLC (B/B2)(b)
5,500,000 0.00/12.00 12/15/2006 4,290,000
Communications Instruments, Inc. (B-/B3)
3,500,000 10.00 09/15/2004 3,115,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Corning Consumer Products (B/B3)
$ 7,500,000 9.63% 05/01/2008 $ 5,775,000
Cross Timbers Oil Co. (B/B2)
2,750,000 8.75 11/01/2009 2,447,500
Crown Castle International Corp. (B+/B3)(b)
7,500,000 0.00/10.63 11/15/2007 4,462,500
Day International Group, Inc. (B-/B3)
3,250,000 9.50 03/15/2008 2,981,875
Decisionone Holdings Corp. (B-/B3)
1,845,000 9.75 08/01/2007 1,014,750
Del Monte Foods Co. (B-/Caa2)(b)
4,250,000 0.00/12.50 12/15/2007 2,380,000
Delta Mills, Inc. (B+/B3)
3,000,000 9.63 09/01/2007 2,760,000
Derby Cycle Corp. (B/B3)(a)
2,500,000 10.00 05/15/2008 2,200,000
Details, Inc. (B-)
4,250,000 10.00 11/15/2005 3,952,500
DTI Holdings, Inc. (CCC)(a)(b)
750,000 0.00/12.50 03/01/2008 225,000
Eagle Family Foods Inc. (B-/B3)
4,500,000 8.75 01/15/2008 4,005,000
Eagle-Picher Industries, Inc. (B-/B3)
6,000,000 9.38 03/01/2008 5,325,000
Echostar Communications Co. (B-/B2)(b)
3,000,000 0.00/12.88 06/01/2004 2,910,000
Econophone, Inc. (CCC)(a)
2,000,000 13.50 07/15/2007 2,009,040
500,000 0.00/11.00(b) 02/15/2008 238,750
Exodus Communication, Inc. (CCC)(a)
1,000,000 11.25 07/01/2008 890,000
Facilicom International, Inc. (CCC)
2,250,000 10.50 01/15/2008 1,687,500
Fisher Scientific International, Inc. (B-/B3)
6,000,000 9.00 02/01/2008 5,760,000
Frontiervision Holdings LP (B/Caa1)(b)
2,750,000 0.00/11.88 09/15/2007 2,213,750
Galey & Lord, Inc. (B/B3)(a)
2,000,000 9.13 03/01/2008 1,780,000
Generac Portable Products LLC (B-/B3)(a)
1,000,000 11.25 07/01/2006 970,000
Global Crossing Holdings Ltd.(a)
3,750,000 9.63 05/15/2008 3,618,750
Global Telesystems Group (B-/Caa2)
3,000,000 9.88 02/15/2005 2,400,000
Globe Manufacturing Corp. (B-/B2)(a)
3,000,000 10.00 08/01/2008 2,460,000
Graham Packaging Co. (B-/B3)
3,500,000 8.75 01/15/2008 3,325,000
1,000,000 0.00/10.75(b) 01/15/2009 620,000
Graphic Controls Corp. (B-/B3)
3,520,000 12.00 09/15/2005 4,083,200
Greyhound Lines, Inc. (B-/B3)
2,000,000 11.50 04/15/2007 2,260,000
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
GST Equipment Funding, Inc. (CCC)
$ 2,000,000 13.25% 05/01/2007 $ 2,000,000
GST Telecommunications, Inc. (CCC)
1,000,000 12.75 11/15/2007 823,790
Hawk Corp. (B+/Ba3)
2,600,000 10.25 12/01/2003 2,704,000
Hayes Wheels International, Inc. (B/B3)
2,000,000 9.13 07/15/2007 2,020,000
1,500,000 9.13 07/15/2007 1,515,000
Hermes Europe Railtel B.V. (B/B3)
2,000,000 11.50 08/15/2007 2,065,000
HMV Media Group PLC (B/B3)(a)
1,250,000 10.25 05/15/2008 1,062,500
Hudson Respiratory Care, Inc. (B-/B3)
2,000,000 9.13 04/15/2008 1,330,000
ICN Pharmaceutical, Inc. (BB/Ba3)
2,000,000 9.25 08/15/2005 1,960,000
Imperial Home Decor Group (B-/B3)
2,000,000 11.00 03/15/2008 1,760,000
Integrated Health Services, Inc. (B-/B2)
7,000,000 9.25 01/15/2008 6,422,500
Intermedia Communications, Inc. (B/B2)
5,750,000 0.00/11.25(b) 07/15/2007 3,823,750
2,250,000 8.88 11/01/2007 2,148,750
International Home Foods, Inc. (B-/B2)
1,500,000 10.38 11/01/2006 1,586,430
International Wire Group (B-/B3)
5,000,000 11.75 06/01/2005 5,087,500
Intertek Finance PLC (B/B2)
8,500,000 10.25 11/01/2006 7,820,000
Iowa Select Farm LP (B-/B3)(a)
2,000,000 10.75 12/01/2005 1,770,000
Jitney-Jungle Stores of America, Inc. (B+/B2)
3,000,000 12.00 03/01/2006 3,240,000
Johnstown American Industries, Inc. (B)
2,000,000 11.75 08/15/2005 2,072,500
Jorgensen Earle Co. (B-/B3)
3,000,000 9.50 04/01/2005 2,610,000
K&F Industries, Inc. (B-/B3)
4,000,000 9.25 10/15/2007 3,800,000
Kabelmedia Holdings (B-/B3)(b)
5,500,000 0.00/13.63 08/01/2006 4,125,000
Kinetic Concepts, Inc. (B-/B3)
4,250,000 9.63 11/01/2007 3,878,125
Knology Holdings, Inc. (CCC)(b)
1,750,000 0.00/11.88 10/15/2007 805,000
Level 3 Communications, Inc. (B/B3)
3,000,000 9.13 05/01/2008 2,790,000
Lifestyle Furnishings International (B/B1)
1,500,000 10.88 08/01/2006 1,507,500
McLeod USA, Inc. (B+/B2)
2,000,000 9.50 11/01/2008 2,040,000
MCMS, Inc. (B-/B3)
2,000,000 9.75 03/01/2008 1,200,000
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Metronet Communications Co. (B/B3)(b)
$ 5,000,000 0.00/9.95% 06/15/2008 $ 2,700,000
Millicom International Cellular (B-/Caa1)(b)
5,000,000 13.50 06/01/2006 2,950,000
MSX International, Inc. (B-/Caa1)
1,000,000 11.38 01/15/2008 905,000
Multicare Companies, Inc. (B-/B3)
2,000,000 9.00 08/01/2007 1,745,000
Musicland Group, Inc. (CCC+/Caa1)
1,000,000 9.00 06/15/2003 925,000
National Equipment Services, Inc. (B-/B3)
3,000,000 10.00 11/30/2004 2,760,000
Newport News Shipbuilding, Inc. (B+/B1)
4,000,000 9.25 12/01/2006 4,220,000
Nextel Communications, Inc. (CCC+/B2)(b)
8,500,000 0.00/9.75 08/15/2004 7,777,500
1,000,000 0.00/10.65 09/15/2007 590,000
3,500,000 0.00/9.95 02/15/2008 1,907,500
Nextlink Communications, Inc. (B/B3)
2,250,000 9.00 03/15/2008 2,047,500
2,000,000 9.63 10/01/2007 1,860,000
Nortek, Inc. (B+/B1)
2,000,000 9.13 09/01/2007 1,970,000
2,000,000 8.88(a) 08/01/2008 1,930,000
Nortek, Inc. (B-/B3)
2,000,000 9.88 03/01/2004 1,980,000
Octel Developments PLC (B+/B2)(a)
500,000 10.00 05/01/2006 503,750
Orange PLC (B+/Ba3)
1,000,000 8.00 08/01/2008 970,000
P&L Coal Holdings Corp. (B/B2)(a)
3,750,000 9.63 05/15/2008 3,712,500
Packard Bioscience, Inc. (B-/B3)
8,250,000 9.38 03/01/2007 7,466,250
Pathmark Stores, Inc. (CCC+/Caa1)
3,000,000 9.63 05/01/2003 2,940,000
Pathnet, Inc. (CCC)
1,500,000 12.25 04/15/2008 1,072,500
PCI Chemicals Canada, Inc. (B+/B2)
2,000,000 9.25 10/15/2007 1,520,000
Polymer Group, Inc. (B/B2)
1,750,000 9.00 07/01/2007 1,627,500
3,000,000 8.75 03/01/2008 2,820,000
Premier Parks, Inc. (B-/B3)
2,250,000 9.25 04/01/2006 2,250,000
Prestolite Electric, Inc. (B+/B3)
4,000,000 9.63 02/01/2008 3,600,000
Printpack, Inc. (B+/B3)
4,000,000 10.63 08/15/2006 3,960,000
Psinet, Inc. (B-/B3)
3,250,000 10.00 02/15/2005 3,176,875
Purina Mills, Inc. (B/B2)
1,000,000 9.00 03/15/2010 1,015,000
PX Escrow Corp. (B-/B3)(a)(b)
500,000 0.00/9.63 02/01/2006 270,000
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Randalls Food Markets, Inc. (B-/B2)
$ 2,750,000 9.38% 07/01/2007 $ 2,866,875
Red Roof Inns, Inc. (B/B2)
2,000,000 9.63 12/15/2003 2,000,000
Republic Group, Inc. (B/B2)(a)
3,000,000 9.50 07/15/2008 2,790,000
Richmont Marketing Special (CCC+/B3)
3,000,000 10.13 12/15/2007 2,580,000
Riverwood International Corp. (B-/B3)
3,500,000 10.25 04/01/2006 3,228,750
RSL Communications Ltd. (B-/B3)
2,257,000 12.25 11/15/2006 2,257,000
1,000,000 9.13 03/01/2008 850,000
Sealy Mattress Co. (B-/B3)
2,000,000 9.88 12/15/2007 1,800,000
1,500,000 0.00/10.88(b) 12/15/2007 930,000
SFX Entertainment, Inc. (CCC+/B3)
2,000,000 9.13 02/01/2008 1,865,000
Simonds Industries, Inc. (B-/B3)(a)
750,000 10.25 07/01/2008 727,500
Southern Foods Group LP (B/B2)
5,000,000 9.88 09/01/2007 5,125,000
Sovereign Specialty Chemicals (B-/B3)
5,500,000 9.50 08/01/2007 5,225,000
Sparkling Spring Water Group (B-/Caa1)
1,500,000 11.50 11/15/2007 1,500,000
Stanadyne Automotive Corp. (B/Caa1)
2,250,000 10.25 12/15/2007 2,115,000
Sun World International, Inc. (B/B2)
2,000,000 11.25 04/15/2004 2,050,000
Tekni-Plex, Inc. (B-/B3)
3,000,000 11.25 04/01/2007 3,120,000
2,000,000 9.25 03/01/2008 1,960,000
Telewest PLC (B+/B1)
2,000,000 9.63 10/01/2006 1,950,000
10,000,000 0.00/11.00(b) 10/01/2007 7,850,000
3,500,000 11.25(c) 11/01/2008 3,648,750
Thermadyne Holdings Corp. (CCC+/Caa1)(b)
4,000,000 0.00/12.50 06/01/2008 1,810,000
Thermadyne Manufacturing LLC (CCC+/B3)
4,500,000 9.88 06/01/2008 3,915,000
Transwestern Publishing Co. (B-/B2)
2,000,000 9.63 11/15/2007 2,000,000
Trench Electric S.A. (B3)
5,000,000 10.25 12/15/2007 4,625,000
Trident Automotive PLC (B-/B2)
4,000,000 10.00 12/15/2005 4,000,000
United Rentals, Inc. (BB-/B2)(a)
5,000,000 9.50 06/01/2008 4,875,000
3,000,000 8.80 08/15/2008 2,835,000
Universal Hospital Services (B/B3)
1,000,000 10.25 03/01/2008 800,000
V2 Music Holdings PLC (CCC)(a)(b)
1,750,000 0.00/14.00 04/15/2008 831,250
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Venture Holdings Trust (B+/B2)
$ 4,000,000 9.50% 07/01/2005 $ 3,735,720
Viasystems, Inc (B-/B3)
9,500,000 9.75 06/01/2007 8,312,500
WAM Net, Inc. (CCC)(b)
1,250,000 0.00/13.25 03/01/2005 587,500
Werner Holdings (B-/B2)
7,000,000 10.00 11/15/2007 6,160,000
Wesco Distribution, Inc. (B/B2)
7,500,000 9.13 06/01/2008 7,237,500
Wesco International, Inc. (B/B3)(b)
5,000,000 0.00/11.13 06/01/2008 2,700,000
WHX Corp. (B/B3)
2,500,000 10.50 04/15/2005 2,250,000
Williams Scotsman, Inc. (B-/B3)
3,000,000 9.88 06/01/2007 3,000,000
Young Broadcasting, Inc. (B/B2)
5,000,000 8.75 06/15/2007 4,675,000
-------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $448,760,174) $413,570,040
-------------------------------------------------------------------------------------------
EMERGING MARKET DEBT - 2.5%
Acindar Industries (B+/B2)
$ 670,000 11.66% 11/12/1998 $ 653,026
Banco Nacional de Comercio (BB/Ba2)
500,000 8.00 07/18/2002 465,000
Banco Nacional de Obras (BB/Ba2)
350,000 9.63 11/15/2003 322,000
Financiera Energy Nacional (BBB-)
1,480,000 9.38 06/15/2006 1,110,000
Grupo Industrial Durango (BB-/B1)
880,000 12.63 08/01/2003 686,400
Grupo Televisa (BB/Ba2)
470,000 11.38 05/15/2003 460,600
3,250,000 0.00/13.25(b) 05/15/2008 2,258,750
1,000,000 0.00/13.25(b) 05/15/2008 710,000
Impsa Industrias Metal (BB-/B2)
1,120,000 9.50 05/31/2002 504,000
MRS Logistica S.A. (B)(a)
120,000 10.63 08/15/2005 48,000
National Power (BB+/Ba1)
500,000 7.63 11/15/2000 446,500
Petroleos Mexicanos (BB/Ba2)
70,000 11.14 07/15/2005 63,175
Poland Communications, Inc. (B+/B2)
700,000 9.88 11/01/2003 476,000
Province of Tucuman (B1)
857,143 9.45 08/01/2004 593,837
Republic of Columbia (BBB-/Baa3)
1,860,000 7.25 02/15/2003 1,525,200
Republic of Korea (BB+/Ba1)
3,230,000 8.75 04/15/2003 3,058,936
-------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $16,387,076) $ 13,381,424
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
FOREIGN BONDS(D) - 8.9%
BRITISH POUND STERLING - 1.5%
IPC Magazines (B/B2)(b)
BPS 4,750,000 0.00/10.75% 03/15/2008 $ 4,163,326
Middleweb PLC (B/B2)(a)
3,000,000 10.50 05/30/2008 3,916,456
-----------
8,079,782
------------------------------------------------------------------------------------------
DEUTSCHEMARK - 6.6%
Colt Telecom Group PLC (B/B2)
DEM 5,000,000 8.88 11/30/2007 2,656,203
Derby Cycle Corp. (B/B3)(a)
2,500,000 9.38 05/15/2008 1,177,181
Exide Holdings (A/A1)(a)
5,000,000 9.13 04/15/2004 2,414,730
Fresenius Medical Care Capital Trust III (B+/Ba3)
5,000,000 7.38 02/01/2008 2,837,308
Geberit International S.A. (B+/B2)
11,600,000 10.13 04/15/2007 7,562,934
Impress Metal Pack (B/B2)
10,000,000 9.88 05/29/2007 6,097,193
Ineos PLC (B+/B3)(a)
12,000,000 8.62 04/30/2005 5,759,131
Sirona Dental Systems (B/B2)
7,000,000 9.13 07/15/2008 3,824,328
Texon International PLC (B/B3)(a)
6,500,000 10.00 02/01/2008 3,060,670
-----------
35,389,678
------------------------------------------------------------------------------------------
FRENCH FRANC - 0.8%
Financiere Neopost(a)(e)
FRF25,000,000 6.13 09/30/2007 4,274,735
------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $51,372,863) $47,744,195
------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.4%
Joint Repurchase Agreement Account(f)
$ 45,200,000 5.63% 11/02/1998 $45,200,000
------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $45,200,000) $45,200,000
------------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND MATURITY
SHARES RATE DATE VALUE
<S> <C> <C> <C>
PREFERRED STOCKS - 2.3%
CSC Holdings, Inc. (BB-)(g)
51,737 11.13% 07/07/2007 $ 5,872,197
CSC Holdings, Inc. (BB-/B2)(g)
40,417 11.75 10/01/2007 4,425,682
Eagle-Picher Holdings, Inc. (B-/Caa)(b)(g)
175 0.00/11.75 03/01/2008 822,500
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND MATURITY
SHARES RATE DATE VALUE
<S> <C> <C> <C>
PREFERRED STOCKS - CONTINUED
Intermedia Communications, Inc. (CCC+/Caa)(g)
1,140 11.75% 06/01/2005 $ 1,285,350
River Holding Corp. (CCC)(g)
3,975 11.50 04/15/2010 174,909
------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $12,136,585) $ 12,580,638
------------------------------------------------------------------------------------------------
WARRANTS(H) - 0.4%
Allegiance Telecom, Inc., expiring February 3, 2008
1,500 $ 2,250
Cellnet Data Systems, Inc., expiring October 1, 2007
3,000 15,000
Colt Telecom Group PLC, expiring December 31, 2006
5,500 1,969,000
Econophone, Inc., expiring July 1, 2007
2,000 10,000
Knology Holdings, Inc., expiring October 15, 2007
1,750 3,500
RSL Communications Ltd., expiring November 15, 2006
725 66,700
------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(COST $36,250) $ 2,066,450
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $573,892,948)(I) $534,542,747
------------------------------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX INFORMATION:
<TABLE>
<S> <C>
Gross unrealized gain for investments in which value exceeds
cost $ 5,176,781
Gross unrealized loss for investments in which cost exceeds
value (44,526,982)
----------------------------------------------------------------------------
Net unrealized loss $(39,350,201)
----------------------------------------------------------------------------
</TABLE>
(a) Securities are 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 Rule 144A securities amounted to $65,458,693 as of
October 31, 1998.
(b) These securities are issued with a zero coupon or dividend rate which
increases to the stated rate at a set date in the future.
(c) When issued-security.
(d) The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
BPS = British Pound Sterling.
DEM = Deutschemark.
FRF = French Franc.
(e) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(f) Portion of this security is segregated for a when-issued security.
(g) Pay-in-kind securities.
(h) Non-income producing security.
(i) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentages shown for each investment category reflect 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.
9
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Assets and Liabilities
October 31, 1998
ASSETS:
<TABLE>
<S> <C>
Investment in securities, at value (cost $573,892,948) $534,542,747
Cash, at value 71,514
Receivables:
Investment securities sold 2,010,342
Interest, at value 12,280,674
Fund shares sold 12,232,332
Forward foreign currency exchange contracts 95,694
Deferred organization expenses, net 24,127
Other assets 176,925
----------------------------------------------------------------------------
TOTAL ASSETS 561,434,355
----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 19,682,768
Income distribution 991,150
Fund shares repurchased 23,389
Amounts owed to affiliates 488,931
Forward foreign currency exchange contracts 2,677,953
Accrued expenses and other liabilities 162,333
----------------------------------------------------------------------------
TOTAL LIABILITIES 24,026,524
----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 582,416,904
Accumulated undistributed net investment income 2,593,628
Accumulated net realized loss on investment transactions and
foreign currency transactions (5,741,879)
Net unrealized loss on investments and translation of assets
and liabilities denominated in foreign currencies (41,860,822)
----------------------------------------------------------------------------
NET ASSETS $537,407,831
----------------------------------------------------------------------------
Net asset value per share:(a)
Class A $9.16
Class B $9.16
Class C $9.16
Institutional $9.17
Service $9.17
----------------------------------------------------------------------------
Shares Outstanding:
Class A 43,833,257
Class B 3,192,424
Class C 931,617
Institutional 10,637,195
Service 48,736
----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 58,643,229
----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $9.59 (NAV
per share plus the maximum sales charge of 4.5%). At redemption, Class B
and Class C shares are 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.
10
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Operations
For the Year Ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest(a) $41,345,378
---------------------------------------------------------------------------
TOTAL INCOME 41,345,378
---------------------------------------------------------------------------
EXPENSES:
Management fees 3,075,443
Distribution and service fees(b) 2,124,233
Transfer agent fees 298,491
Custodian fees 162,310
Registration fees 138,589
Professional fees 64,600
Trustee fees 7,490
Amortization of deferred organization expenses 6,470
Service share fees 624
Other 113,170
---------------------------------------------------------------------------
TOTAL EXPENSES 5,991,420
---------------------------------------------------------------------------
Less -- expenses reimbursable and waived by Goldman Sachs (1,044,126)
---------------------------------------------------------------------------
NET EXPENSES 4,947,294
---------------------------------------------------------------------------
NET INVESTMENT INCOME 36,398,084
---------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENT AND FOREIGN CUR-
RENCY TRANSACTIONS:
Net realized loss from:
Investment transactions (5,555,641)
Foreign currency related transactions (786,846)
Net change in unrealized loss on:
Investments (38,984,246)
Foreign currency related transactions (1,473,380)
---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT (46,800,113)
---------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(10,402,029)
---------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on interest were $2,652.
(b) Class A, Class B and Class C had distribution and service fees of
$1,844,618, $216,018 and $63,597, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997(A)
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 36,398,084 $ 4,414,904
Net realized gain (loss) from
investment and foreign currency
related transactions (6,342,487) 994,113
Net change in unrealized loss on
investments and translation of assets
and liabilities denominated in
foreign currencies (40,457,626) (1,403,196)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (10,402,029) 4,005,821
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (29,778,924) (4,377,263)
Class B (1,501,311) (85,036)
Class C (441,110) (10,842)
Institutional (2,125,426) (27)
Service (9,368) (26)
In excess of net investment income
Class A -- (126,300)
Class B -- (4,386)
Class C -- (755)
Institutional Class -- (1)
Service Class -- (1)
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (33,856,139) (4,604,637)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 362,403,672 344,880,814
Reinvestment of dividends and
distributions 23,077,475 3,439,274
Cost of shares repurchased (141,829,404) (9,707,016)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 243,651,743 338,613,072
------------------------------------------------------------------------------
TOTAL INCREASE 199,393,575 338,014,256
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 338,014,256 --
------------------------------------------------------------------------------
End of year $537,407,831 $338,014,256
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME $ 2,593,628 $ (131,443)
------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was August 1, 1997 for all classes except
Class C, which commenced operations August 15, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
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 the Goldman Sachs High Yield Fund
(the "Fund"). The Fund is a diversified portfolio offering five classes of
shares -- Class A, Class B, Class C, Institutional and Service.
The Fund invests primarily in non-investment grade fixed-income securities
which are considered predominantly speculative by traditional investment
standards. In some cases, these obligations may be highly speculative and
have poor prospects for reaching investment grade standing. Non-investment
grade fixed-income securities and unrated securities of comparable credit
quality (commonly known as "junk bonds") are subject to the increased risk of
an issuer's inability to meet principal and interest obligations. These secu-
rities, also referred to as high yield securities, may be subject to greater
price volatility due to such factors as specific corporate developments, in-
terest rate sensitivity, negative perceptions of the junk bond markets gener-
ally and less secondary market liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. 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 the trade date. Realized gains and losses on sales of portfolio
securities are calculated using the identified cost basis. Interest income is
recorded on the basis of interest accrued. Market discounts and market premi-
ums on debt securities, other than mortgage backed securities, are amortized
to interest income over the life of the security with a corresponding adjust-
ment in the cost basis of that security.
C. FEDERAL TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of the 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.
The Fund, at its most recent tax year-end of October 31, 1998 had approxi-
mately $5,746,000 capital loss carryforwards expiring in 2006 for U.S. fed-
eral tax purposes. This amount is available to be carried forward to offset
future capital gains to the extent permitted by applicable laws or regula-
tions.
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 Fund bear all expenses and
fees relating to their respective distribution and service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions for their services with respect to such shares. Each class of shares
separately bears its 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.
F. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis (i) investment valua-
tions, 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) gains and losses from the sale and holdings of foreign
currencies and sale of investments; (ii) gains and losses between trade date
and settlement date on
13
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements
October 31, 1998
investment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of interest and foreign
withholding taxes recorded and the amounts actually received.
G. Forward Foreign Currency Exchange Contracts -- The Fund may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. The
Fund may also purchase and sell forward contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable trans-
lation rates and any resulting unrealized gains or losses are recorded in the
Fund's financial statements. The Fund records realized gains or losses at the
time the 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 Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
or to seek to increase total return.
Upon entering into a futures contract, the Fund is required to deposit with
a broker an amount of cash or securities equal to the minimum "initial mar-
gin" requirement of the associated futures exchange. Subsequent payments for
futures contracts ("variation margin") are paid or received by the Fund dai-
ly, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Fund realizes a gain or loss which is reported
in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statement of Assets and Liabilities. Changes in the value of the futures con-
tract may not directly correlate with changes in the value of the underlying
securities. This risk may decrease the effectiveness of the Fund's hedging
strategies and potentially result in a loss.
I. Option Accounting Principles -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Fund's investment ad-
viser pursuant to an Investment Management Agreement (the "Agreement"). Under
the Agreement, GSAM, subject to the general supervision of the Trust's Board
of Trustees, manages the Fund's portfolio. As compensation for the services
rendered pursuant to the Agreement, the assumption of the expenses related
thereto and administering the Fund's business affairs, including providing
facilities, GSAM is entitled to a fee, computed daily and payable monthly at
an annual rate equal to .70% of average daily net assets of the Fund. For the
year ended October 31, 1998, GSAM voluntarily agreed to waive approximately
$70,000 of its management fee. This waiver was discontinued as of March 16,
1998.
GSAM voluntarily agreed to limit "Other Expenses" for the Fund (excluding
management fees, Service share fees, distribution and services fees, taxes,
interest, brokerage, litigation, indemnification costs, transfer agent fees
and other extraordinary expenses) through September 30, 1998 to the extent
such expenses exceeded .09% of the average daily net assets of the Fund. Ef-
fective October 1, 1998, this expense limitation was modified until further
notice to .02% of the average daily net assets of the Fund. For the year
ended October 31, 1998, Goldman Sachs reimbursed approximately $92,000. At
October 31, 1998, approximately $92,000 is owed to the Fund.
14
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Goldman Sachs serves as the Distributor of 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 Fund that it retained approximately $1,419,000 for the year ended
October 31, 1998.
The Trust, on behalf of the Fund, had adopted Distribution Plans (the "Dis-
tribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from the Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of the Fund's av-
erage daily net assets attributable to Class A, Class B and Class C shares,
respectively. For the year ended October 31, 1998, Goldman Sachs had volun-
tarily agreed to waive approximately $882,000 of its distribution fee attrib-
utable to Class A shares.
The Trust, on behalf of the Fund, had also adopted Authorized Dealer Serv-
ice Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and
Authorized Dealers were compensated for providing personal and account main-
tenance services. The Fund paid a fee under its Dealer Service Plans equal,
on an annual basis, up to .25% of the average daily net assets attributable
to the Class A, Class B and Class C shares.
Effective October 1, 1998, the Distribution Plans and Dealer Service Plans
were combined into Distribution and Service Plans. Under the Distribution and
Service Plans, Goldman Sachs and or Authorized Dealers are entitled to a
monthly fee for distribution and shareholder maintenance services equal, on
an annual basis, to .25%, 1.00% and 1.00% of the average daily net assets at-
tributable to Class A, Class B and Class C shares, respectively.
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Ef-
fective October 1, 1998, fees charged for such transfer agency services are
calculated daily and payable monthly at an annual rate as 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 and Service Class shares.
The Trust, on behalf of the Fund, has adopted a Service Plan. This plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
.50% (on a annualized basis), of the average daily net asset value of the
Service shares.
At October 31, 1998, the Fund owed approximately $293,000, $112,000 and
$84,000 for Management, Distribution and Service and Transfer Agent Fees, re-
spectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchase and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1998, were $680,062,284 and $475,784,159, respective-
ly.
At October 31, 1998, the Fund had outstanding forward foreign currency ex-
change contracts, to sell foreign currencies as follows:
<TABLE>
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
SALE CONTRACTS DATE VALUE GAIN/(LOSS)
---------------------------------------------------------------------------
<S> <C> <C> <C>
British Pound Sterling
expiring 11/30/98 $ 5,170,351 $ 5,246,526 $ (76,175)
expiring 9/15/99 3,632,843 3,716,016 (83,173)
Deutsche Mark
expiring 11/2/98 51,161 55,678 (4,517)
expiring 11/16/98 67,114 71,218 (4,104)
expiring 11/30/98 403,839 432,776 (28,937)
expiring 1/15/99 186,775 203,230 (16,455)
expiring 2/1/99 234,387 252,988 (18,601)
expiring 4/15/99 639,791 634,369 5,422
expiring 4/30/99 293,345 314,762 (21,417)
expiring 5/3/99 51,559 56,077 (4,518)
expiring 5/17/99 67,330 71,314 (3,984)
expiring 6/1/99 7,479,649 7,975,918 (496,269)
expiring 7/15/99 179,365 194,695 (15,330)
expiring 8/2/99 6,729,648 7,268,776 (539,128)
expiring 10/15/99 10,596,658 10,506,386 90,272
expiring 11/1/99 7,147,403 7,655,073 (507,670)
expiring 11/15/99 1,513,963 1,601,294 (87,331)
expiring 11/29/99 1,869,812 2,035,029 (165,217)
expiring 1/18/00 4,141,603 4,487,936 (346,333)
French Franc
expiring 11/4/98 4,389,417 4,648,211 (258,794)
---------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CONTRACTS $54,846,013 $57,428,272 $(2,582,259)
---------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
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, the Fund had sufficient cash and/or securities to cover any commitments
under these contracts.
The Fund has recorded a "Receivable for forward foreign currency exchange
contracts" and "Payable for forward foreign currency exchange contracts" re-
sulting from open forward foreign currency exchange contracts of $95,694 and
$2,677,953, respectively, in the accompanying Statement of Assets and Liabil-
ities.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM, transfers uninvested cash into joint accounts, the
daily aggregate balance of which is invested in one or more repurchase agree-
ments. At October 31, 1998, the Fund had an undivided interest in the repur-
chase agreement in the following joint account which equaled $45,200,000 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
AMOUNT RATE DATE COST
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CS FIRST BOSTON CORP. $ 25,000,000 5.50% 11/02/98 $ 25,000,000
----------------------------------------------------------------------
NATIONSBANC MONTGOMERY
SECURITIES LLC 800,000,000 5.65 11/02/98 800,000,000
----------------------------------------------------------------------
CHASE MANHATTAN BANK 600,000,000 5.60 11/02/98 600,000,000
----------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,425,000,000
----------------------------------------------------------------------
</TABLE>
8. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Fund participates in a $50,000,000 com-
mitted, unsecured revolving line of credit facility. Both facilities are to
be used solely for temporary or emergency purposes. Under the most restric-
tive arrangement, the Fund must own securities having a market value in ex-
cess of 300% of the total bank borrowings. The interest rate on 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. For the year ended October 31, 1998, the Fund did not have any
borrowings under these facilities.
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$711,605 from accumulated undistributed net investment income to accumulated
net realized loss. In addition, the Fund has reclassified $152,089 and
$183,126 from accumulated net realized loss to paid-in capital and accumu-
lated undistributed net investment income, respectively. These reclassifica-
tions 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.
16
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1998 and the period ended Octo-
ber 31, 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1998 FOR THE PERIOD ENDED OCTOBER 31, 1997(A)
-------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sales 20,547,277 $ 201,740,256 33,312,862 $ 332,722,875
Reinvestment of
dividends and
distributions 2,130,085 21,255,656 337,850 3,381,418
Shares repurchased (11,530,271) (111,870,637) (964,546) (9,674,791)
-------------------------------------------------------------------------------
11,147,091 111,125,275 32,686,166 326,429,502
----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Sales 2,759,954 27,841,336 1,031,591 10,350,661
Reinvestment of
dividends and
distributions 81,407 806,446 4,944 49,476
Shares repurchased (682,765) (6,734,611) (2,707) (27,285)
-------------------------------------------------------------------------------
2,158,596 21,913,171 1,033,828 10,372,852
----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Sales 1,861,343 18,919,754 179,285 1,804,260
Reinvestment of
dividends and
distributions 29,086 287,624 834 8,342
Shares repurchased (1,138,437) (11,521,691) (494) (4,940)
-------------------------------------------------------------------------------
751,992 7,685,687 179,625 1,807,662
----------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Sales 11,706,944 113,387,326 150 1,501
Reinvestment of
dividends and
distributions 75,487 720,684 3 28
Shares repurchased (1,145,389) (11,673,396) -- --
-------------------------------------------------------------------------------
10,637,042 102,434,614 153 1,529
----------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sales 51,049 515,000 152 1,517
Reinvestment of
dividends and
distributions 743 7,065 1 10
Shares repurchased (3,209) (29,069) -- --
-------------------------------------------------------------------------------
48,583 492,996 153 1,527
----------------------------------------------------------------------------------------------------------
NET INCREASE 24,743,304 $ 243,651,743 33,899,925 $ 338,613,072
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was August 1, 1997 for all classes except
Class C, which commenced operations August 15, 1997.
17
<PAGE>
GOLDMAN SACHS HIGH YIELD 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 ASSET GAIN (LOSS) ON FROM IN EXCESS NET REALIZED NET INCREASE
VALUE, NET INVESTMENT AND NET OF NET GAIN ON (DECREASE)
BEGINNING INVESTMENT FOREIGN CURRENCY INVESTMENT INVESTMENT INVESTMENT IN NET
OF PERIOD INCOME RELATED TRANSACTIONS INCOME INCOME TRANSACTIONS ASSET VALUE
FOR THE YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.97 $0.82 $(0.85) $(0.78) $ -- $-- $(0.81)
1998 - Class B Shares 9.97 0.75 (0.86) (0.70) -- -- (0.81)
1998 - Class C Shares 9.97 0.75 (0.86) (0.70) -- -- (0.81)
1998 - Institutional
Shares 9.97 0.84 (0.83) (0.81) -- -- (0.80)
1998 - Service Shares 9.97 0.80 (0.84) (0.76) -- -- (0.80)
FOR THE PERIOD ENDED OCTOBER 31,
1997 - Class A Shares
(commenced August 1) 10.00 0.17 (0.02) (0.17) (0.01) -- (0.03)
1997 - Class B Shares
(commenced August 1) 10.00 0.15 (0.02) (0.15) (0.01) -- (0.03)
1997 - Class C Shares
(commenced August 15) 9.97 0.14 0.01 (0.14) (0.01) -- --
1997 - Institutional
Shares (commenced
August 1) 10.00 0.18 (0.02) (0.18) (0.01) -- (0.03)
1997 - Service Shares
(commenced August 1) 10.00 0.17 (0.02) (0.17) (0.01) -- (0.03)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales or redemption charge was
taken into account.
(c) Annualized.
(d) Not annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
------------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES TO INCOME
VALUE, END TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE
OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$9.16 (0.70)% 113.44% $401,626 1.09% 8.25% 1.36% 7.98%
9.16 (1.43) 113.44 29,256 1.84 7.61 1.88 7.57
9.16 (1.43) 113.44 8,532 1.84 7.61 1.88 7.57
9.17 (0.32) 113.44 97,547 0.84 9.47 0.88 9.43
9.17 (0.79) 113.44 447 1.34 9.17 1.38 9.13
9.97 1.50(d) 44.80(d) 325,911 0.95(c) 7.06(c) 1.57(c) 6.44(c)
9.97 1.31(d) 44.80(d) 10,308 1.70(c) 6.28(c) 2.07(c) 5.91(c)
9.97 1.46(d) 44.80(d) 1,791 1.70(c) 6.17(c) 2.07(c) 5.80(c)
9.97 1.58(d) 44.80(d) 2 0.70(c) 7.16(c) 1.07(c) 6.79(c)
9.97 1.46(d) 44.80(d) 2 1.20(c) 6.69(c) 1.57(c) 6.32(c)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- High
Yield Fund:
We have audited the accompanying statement of assets and liabilities of the
Goldman Sachs High Yield Fund, one of the portfolios constituting Goldman
Sachs Trust -- Fixed Income Funds (a Delaware Business Trust), including the
statement of investments, as of October 31, 1998, and the related statement
of operations and the statements of changes in net assets and the financial
highlights for the periods presented. These financial statements and the fi-
nancial highlights are the responsibility of the Fund's management. Our re-
sponsibility is to express an opinion on these financial statements and the
financial highlights based on our audit.
We conducted our audit 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 audit provides 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 High Yield Fund as of October 31, 1998, the results of
its operations and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 11, 1998
20
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs High Yield Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs High Yield Fund, 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 High Yield Fund offers investors access to a potentially
attractive risk/reward profile. The Fund seeks a high level of current income
and, secondarily, capital appreciation, primarily through fixed income
securities rated below investment grade.
Target Your Needs
Goldman Sachs High Yield Fund has a distinct investment objective and a defined
place on the risk/return spectrum. As your investment objectives change, you can
exchange shares within Goldman Sachs Funds without any additional charge.*
(Please note: in general, greater returns are associated with greater risk.)
Goldman Sachs Fixed Income Funds
[CHART]
<TABLE>
<CAPTION>
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 the Goldman Sachs High Yield Fund and other Goldman Sachs
Funds, call your investment professional today.
* The exchange privilege is subject to termination and its terms are subject to
change.
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 10004
- --------------------------------------------------------------------------------
TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard 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
Visit our internet address: www.gs.com/funds
Sources (page 4): 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 Fund, is not a bank, and Fund shares
distributed by it are neither bank deposits nor obligations of, nor endorsed,
nor guaranteed by, any bank or other insured depository institution, nor are
they insured by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other government agency. Investment in the Fund involves
risks, including possible loss of the principal amount invested.
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 Government Income Fund's, Goldman Sachs Short Duration Government
Fund's and Goldman Sachs Adjustable Rate Government Fund's net asset values and
yields are not guaranteed by the U.S. government or by its agencies,
instrumentalities or sponsored enterprises.
Goldman Sachs Municipal Income Fund and Goldman Sachs Short Duration Tax-Free
Fund can invest up to 100% and 20% respectively, in private activity bonds, the
interest from which is subject to the federal alternative minimum tax.
Goldman Sachs High Yield Fund's, Goldman Sachs Global Income Fund's and Goldman
Sachs Core Fixed Income Fund's foreign investments and active management
techniques entail risks in addition to those customarily associated with
investing in dollar-denominated securities of U.S. issuers. Compared with U.S.
securities markets, foreign markets may be less liquid, more volatile and less
subject to governmental regulation, and may make available less public
information about issuers. The Funds may incur losses because of changes in
securities prices expressed in local currencies, movements in exchange rates, or
both.
(c) Copyright 1998 Goldman, Sachs & Co.
All rights reserved.
Date of first use: December 30, 1998 FI/HYAR / 17K / 12-98
