<PAGE>
Goldman Sachs Funds
BALANCED FUND Annual Report January 31, 1999
Long-term capital growth
[GRAPHIC] opportunities and current income
through a carefully constructed mix of
equity and fixed income securities.
GOLDMAN SACHS
[LOGO]
<PAGE>
Goldman Sachs Balanced Fund
Market Overview
Dear Shareholder,
During the review period,events that began in Asia in 1997 continued to roil
financial markets around the world.
U.S.financial markets were not immune to the turmoil,and they fluctuated along
with investor confidence.
. U.S. Markets Fluctuated Along With Investor Confidence - Early in the
review period, the U.S. stock market generated strong performance, though
not without an increase in overall market volatility. The mantle of market
leadership was assumed by the largest and most liquid stocks in the S&P 500
Index, as several factors, including ongoing Asian market turbulence,
benign inflation and concern in the face of a mature bull market, conspired
to make them the investment of choice among U.S. investors. As the period
progressed, political and economic woes in Indonesia, Russia and Brazil
dampened overall U.S. equity market performance. By period end, however,
stocks rebounded on renewed confidence that concerted action from the G-7
(that is, the seven most industrialized countries in the world, currently
comprising the U.S., Japan, Germany, France, Italy, Great Britain and
Canada), including an easing of rates by the Federal Reserve Board, would
help avert a global financial meltdown.
. Global Market Anxiety Causes Treasury Rally - For most of the period,
market sentiment (and interest rates) vacillated between optimism that the
Asian ordeal was well in hand and fear that global market turmoil would
spread. At period end, this general uncertainty 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 defacto default - and technical imbalances (forced liquidations by
heavily leveraged players combined with seasonal supply pressures).
Treasury yields fell an average of .85% from July 31 through December 31
and spreads across the credit spectrum widened sharply. As a result,
Treasury securities outperformed all other fixed income securities.
. Market Outlook: U.S. Equity Outlook Optimistic; Bond Environment Remains
Challenging - We have a generally positive outlook for U.S. stocks. Over
the last decade, global communication has increased, resulting from
significant technological advances as well as a generally stable world
political environment. We believe that this trend, combined with favorable
demographic trends (such as the aging of the baby boomers), will benefit
U.S. companies over the long term. Looking ahead, the fixed income
environment is likely to remain challenging over the coming months.
Although we believe current spreads reflect attractive fundamental value,
uncertainty regarding the direction of the domestic economy and the
stability of global financial markets may heighten volatility and create
pockets of illiquidity in the interim.
We encourage you to maintain your long-term investment program, and look forward
to serving your investment needs in the years ahead.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Goldman Sachs Asset Co-Head, Goldman Sachs Asset Management
Management
February 26, 1999
NOT FDIC
INSURED
. May Lose Value
. No Bank Guarantee
<PAGE>
GOLDMAN SACHS BALANCED FUND
Fund Basics
as of January 31, 1999
Assets Under Management
$259.2 Million
Number of Equity Holdings
153
NASDAQ SYMBOLS
Class A Shares
GSBFX
Class B Shares
GSBBX
Class C Shares
GSBCX
Institutional Shares
GSBIX
Service Shares
GSBSX
PERFORMANCE REVIEW
January 31,1998- Fund Total Return Combined S&P 500 &
January 31,1999 (without sales charge)(1) Lehman Aggregate Index(2)
- -------------------------------------------------------------------------------
Class A 3.94% 21.50%
Class B 3.15% 21.50%
Class C 3.14% 21.50%
Institutional 4.25% 21.50%
Service 3.80% 21.50%
- -------------------------------------------------------------------------------
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares. The Fund's performance assumes the
investment of dividends and other distributions.
(2) The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%) assuming
reinvestment of all dividends and interest. Figures do not reflect fees or
expenses. Investors cannot invest directly in the Index.
TOTAL RETURN (WITH SALES CHARGE)
<TABLE>
<CAPTION>
For the period
ended 12/31/98 Class A Class B Class C Institutional Service
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 6 months(3) -6.81% -6.72% -2.77% -1.27%(5) -1.47%(5)
One Year(4) -2.10% -2.32% 1.77% 3.90%(5) 3.40%(5)
Since Inception(4) 14.13% 11.77% 3.18% 4.23%(5) 15.59%(5,6)
(10/12/94) (5/1/96) (8/15/97) (8/15/97) (10/12/94)
- -------------------------------------------------------------------------------------
</TABLE>
(3) The Cumulative Total Return (with sales charge) is determined by computing
the percentage change in the value of $1,000 invested at the maximum public
offering price for the specified periods, assuming reinvestment of all
distributions at NAV. The total return calculation reflects a maximum
initial sales charge of 5.5% for Class A shares, the assumed deferred sales
charge for Class B shares (5% maximum declining to 1% in the sixth year),
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 December 31, 1998 was $21.40 and represents the NAV plus the
maximum sales charge of 5.5%.
(4) The Average Annual Total Return (with sales charge) is determined by
computing the annual percentage change in the value of $1,000 invested at
the maximum public offering price for specified periods, assuming
reinvestment of all distributions at NAV. The total return calculation
reflects sales charges. (5)Cumulative or Average Annual Total Returns as of
12/31/98. (6)Performance data for Service shares prior to 8/15/97 is that
of the Class A shares (excluding the impact of the front-end sales charge
applicable to Class A shares since Service shares are not subject to any
sales charges). Performance of Class A shares of the Balanced 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 HOLDINGS AS OF 1/31/99
% of Total
Company Holding Net Assets Line of Business
- -------------------------------------------------------------------------------
BankAmerica Corp. 1.3% Banks
Microsoft Corp. 1.2% Software & Services
Bank One Corp. 1.2% Banks
Aetna, Inc. 1.2% Healthcare Management
Philip Morris Companies Inc. 1.1% Tobacco
American Home Products Corp. 1.0% Pharmaceuticals
First Union Corp. 0.9% Banks
Tele-Communications Inc.-Liberty 0.9% Media & Communications
International Business Machines, Inc. 0.8% Enterprise Systems
Tele-Communications Inc. 0.8% Media & Communications
(Liberty Media Group)
- -------------------------------------------------------------------------------
The top 5 holdings may not be representative of the Fund's future
investments.
Total return figures represent past performance and do not indicate future
results, which will vary. The investment return and principal value of an
investment will fluctuate and, therefore, an investor's shares, when redeemed,
may be worth more or less than their original cost. Performance reflects fee
waivers and expense limitations in effect. In their absence, performance would
be reduced.
1
<PAGE>
GOLDMAN SACHS BALANCED FUND
Performance Overview
Dear Shareholder,
The following is a report on the performance of the Goldman Sachs Balanced Fund
for the 12-month period ended January 31, 1999.
Performance Review
Over the 12-month period ended January 31, 1999, the Fund's Class A, B, C,
Institutional and Service shares generated annual total returns, without sales
charges, of 3.94%, 3.15%, 3.14%, 4.25% and 3.80%, respectively. These figures
underperformed the 21.50% annualized return of the Fund's benchmark, the
combined S&P 500 and Lehman Aggregate Index.
What Hurt Fund Performance
. The Leadership of Growth Stocks - For most of the review period, the equity
portion of the Goldman Sachs Balanced Fund invested in stocks of companies
that, in our view, were inexpensively priced relative to their estimated
future earnings ("value stocks"). We believe that a value investment style
provides excellent opportunities to capitalize on market inefficiencies and
the tendency for investors to shy away from unrecognized or misunderstood
companies. For most of the fiscal year, however, market conditions were
particularly unfavorable for value stocks. One reason is that the S&P 500
Stock Index demonstrated an atypically high level of volatility due to
global economic uncertainties. As a result, investors sought security and
quality - often in the form of Treasuries - and sold uncertainty - often in
the form of stocks. Individuals who invested in stocks in this risk-averse
environment favored the quality and perceived lower volatility of blue-
chip, large cap, growth-oriented industry leaders (generally characterized
as "growth stocks"). Thus, over the 12 months ended January 31, 1999, on an
annualized basis, value stocks generated a total return of 18.4% (as
measured by the S&P 500/BARRA Value Index), significantly underperforming
the 45.9% return of growth stocks (as measured by the S&P 500/BARRA Growth
Index). It is important to note that, despite the disappointing short-term
performance of value stocks, both growth and value stocks have, over the
long term, produced strong annual returns. Since December 31, 1974, when
the S&P 500/BARRA indices were initiated, through January 31, 1999, on an
annualized basis, the Growth Index returned 16.53%, while the Value Index
returned 17.54%. For comparison purposes, the S&P 500 Index returned 17.24%
over the same time period.
. Narrow Market Leadership - In 1998, the largest 50 stocks generated
approximately 70% of the S&P 500's total return. For the most part, stocks
that posted strong gains were large capitalization growth stocks or high
price/earnings and high price/book value technology stocks. Specifically,
we lost ground relative to the Index based on the enormous gains of blue-
chip computer software companies, multinational consumer product companies,
mega cap pharmaceutical companies and electronic media stocks. While we
recognize the solid growth prospects and quality of many of these
businesses, we believe that the market has already rewarded them valuation
premiums that place them out of range of our valuation-based investment
universe. As value investors, we seek companies that sell at a discount to
their long-term value based on near-term uncertainty. By performing
research to uncover that real long-term value, we believe that we have the
potential to provide solid returns to our investors over a business cycle.
In an
2
<PAGE>
GOLDMAN SACHS BALANCED FUND
extreme year such as 1998, when only a few of the largest, fastest growing
companies lead the broader market by a wide margin, our value strategy is
unlikely to keep pace with the market.
. An Early-Period Mid Cap Bias - During the first half of the fiscal year
under review, the Fund's bias toward mid cap stocks detracted from
performance. Over the year ended January 31, 1999, large cap value stocks,
as measured by the Russell 1000 Value Index, posted an 18.23% advance, far
outstripping mid cap value stocks, which gained 4.67% as measured by the
Russell Midcap Value Index. And while the summer's market turbulence
afforded us the opportunity to build positions in many larger companies, we
lagged behind the market rebound late in the year versus other value
managers.
. Spread Widening in the Latter Half of the Year - In the latter half of the
fiscal year, spreads widened dramatically across all non-Treasury sectors
following the Russian ruble devaluation in mid-August. With regard to the
fixed income portion of the Fund, overweight positions in corporate, asset-
backed, mortgage and emerging market debt securities suffered throughout
the course of this liquidity crisis.
Enhancements to the Equity Portion of the Fund Implemented
In the final months of the review period, a decision was made to implement a
transition to a 50/50 growth/value blend in the equity portion of the Fund. We
expect that this change has the potential to reduce the equity portfolio's
volatility relative to the S&P 500, eliminate style bias, moderate industry
over-and underweights and reduce the risk that short-term returns will be very
different from those of the S&P 500, while preserving value-added through stock
selection.
Asset Allocation
. Equities - As of January 31, 1999, the Fund was 54.3% invested in equities,
compared with 53% on January 31, 1998. As a result of our bottom-up
approach to stock selection, the Fund, compared with the S&P 500 Index, was
overweight in the consumer services, financial, energy, consumer cyclical
and commercial services sectors, and underweight in the basic materials,
consumer noncyclicals, industrials, technology and telecommunications
sectors.
. Fixed Income - As of January 31, 1999, the Fund was 40.3% invested in fixed
income securities, compared with 43% on January 31, 1998. In general, the
portfolio was underweight in Treasuries and Agencies (the top-performing
sectors in 1998) and, as already discussed, overweight in corporate, asset-
backed, mortgage and emerging market debt securities. The Fund also
maintained tactical allocations in the municipal and non dollar sectors.
Contributors to performance included the Fund's positions in corporates and
non dollar securities - most notably the Fund's positions in German,
Australian and Canadian bonds.
. Cash - As of January 31, 1999, the Fund was 5.3% invested in cash.
GROWTH
INVESTMENT
PROCESS
50% of the Fund's equity investment process is characterized as Growth.
Strong Growth Characteristics
Growth companies have earnings expectations that exceed those of the stock
market as a whole. We search for growth companies with:
. Favorable financial characteristics
. High returns on invested capital
. Dominant market shares for core service or product
. Recurring revenue streams
. Solid brand franchises
. Management committed to maximizing shareholder returns
Result
A diversified portfolio of stocks with strong long-term growth potential.
3
<PAGE>
GOLDMAN SACHS BALANCED FUND
VALUE INVESTMENT PROCESS
50% of the Fund's equity investment process is characterized as Value.
Value stocks represent companies that are currently undervalued in the market,
but whose intrinsic value we believe ultimately will be recognized. Our value
stock selection process emphasizes a bottom-up approach.
Search for Value
We search for value from a universe of 1,000 stocks, and then select 200 to 300
of the least expensive.
Fundamental Research
We refine our stock list through rigorous analysis of companies' "fundamentals"
and face-to-face meetings with company management, competitors, suppliers and
customers.
Risk Management
We maintain ongoing risk management resulting in an intentional and quantifiable
risk/return profile.
Portfolio Highlights
. Pfizer - Pfizer, along with the Fund's other pharmaceutical holdings, is a
stable, consistent grower that has continued to represent a safe haven in
an uncertain market environment. Moreover, we believe Pfizer possesses
characteristics that form the basis of a long-term strategic advantage by,
for example, enabling it to benefit from the favorable (aging) population
demographics in the U.S. and abroad, as well as the newly reformed FDA
approval process.
. Unicom Corp. - Unicom is an electric utility serving the northern third of
Illinois; it is the largest nuclear utility, operating 12 nuclear units at
six sites. As Unicom and a number of other utility companies undergo
restructuring and consolidation, we believe that unrecognized asset values
should be recognized (which exceed the current earnings-based valuation).
. General Motors Corp. - GM Corp. is the largest automotive manufacturer in
the world. The company also offers financing, insurance and mortgage
banking, and manufactures satellites, locomotives and heavy-duty
transmissions. GM management has recently initiated a restructuring plan
that should unlock the value of its separate divisions, beginning with a
Delphi spin-off ($1.5 billion initial public offering, filed November 16,
1998), a marketing initiative that is projected to save $300 million per
year and that should enable continued share repurchases.
Portfolio Outlook
Within the equity portion of the Fund, we believe that our blend of growth and
value investments should perform more in line with the S&P 500, rather than
being tied to either a growth or value style. Although we typically do not
forecast the direction of the market, we believe that, over the long-term, this
blend of two research-intensive, long-term investment strategies should provide
a diverse exposure to the U.S. equity market, with value added through stock
selection.
Looking ahead, we believe the fixed income environment is likely to remain
challenging. Although we believe current spreads reflect attractive fundamental
value, uncertainty regarding the direction of the domestic economy and the
stability of global financial markets may heighten volatility and create pockets
of illiquidity in selected sectors. Nonetheless, we are optimistic regarding the
prospects for the markets in 1999. As important, our research-driven investment
philosophy and emphasis on sector allocation and security selection strategies
should allow us to generate meaningful incremental return as the market seeks to
reestablish sustainable relative value relationships.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs Value Team, Goldman Sachs Growth Equity Team,
Goldman Sachs Fixed Income Team
New York
February 26, 1999
4
<PAGE>
GOLDMAN SACHS BALANCED FUND
Performance Summary
January 31, 1999
The following graph shows the value, as of January 31, 1999, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5%) in Class A shares on
October 12, 1994 (commencement of operations) of the Goldman Sachs Balanced
Fund. For comparative purposes, the performance of the Fund's benchmarks (the
Standard and Poor's 500 Index ("S&P 500 Index") and the Lehman Brothers Ag-
gregate Bond Index (LBABI)) 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 B, Class C, Institu-
tional and Service shares will vary from Class A due to differences in fees
and loads.
Balanced Fund's Lifetime Performance
Growth of a $10,000 Investment, Distributions Reinvested October 12, 1994 to
January 31, 1999
Date Class A S&P 500 Lehman Aggregate
---- ------- ------- ----------------
10/12/94 $ 9,450 $ 10,000 $ 10,000
Oct-94 $ 9,413 $ 10,152 $ 9,987
Nov-94 $ 9,247 $ 9,782 $ 9,965
Dec-94 $ 9,351 $ 9,927 $ 10,034
Jan-95 $ 9,532 $ 10,184 $ 10,232
Feb-95 $ 9,948 $ 10,582 $ 10,476
Mar-95 $ 10,143 $ 10,895 $ 10,540
Apr-95 $ 10,379 $ 11,215 $ 10,687
May-95 $ 10,743 $ 11,664 $ 11,101
Jun-95 $ 10,959 $ 11,934 $ 11,182
Jul-95 $ 11,149 $ 12,330 $ 11,157
Aug-95 $ 11,319 $ 12,361 $ 11,292
Sep-95 $ 11,509 $ 12,883 $ 11,402
Oct-95 $ 11,455 $ 12,837 $ 11,550
Nov-95 $ 11,762 $ 13,400 $ 11,724
Dec-95 $ 11,978 $ 13,659 $ 11,888
Jan-96 $ 12,211 $ 14,123 $ 11,966
Feb-96 $ 12,275 $ 14,254 $ 11,758
Mar-96 $ 12,303 $ 14,391 $ 11,676
Apr-96 $ 12,402 $ 14,603 $ 11,610
May-96 $ 12,566 $ 14,980 $ 11,587
Jun-96 $ 12,544 $ 15,037 $ 11,742
Jul-96 $ 12,372 $ 14,372 $ 11,774
Aug-96 $ 12,544 $ 14,675 $ 11,754
Sep-96 $ 12,982 $ 15,501 $ 11,958
Oct-96 $ 13,314 $ 15,929 $ 12,224
Nov-96 $ 14,022 $ 17,133 $ 12,433
Dec-96 $ 14,102 $ 16,794 $ 12,317
Jan-97 $ 14,488 $ 17,843 $ 12,356
Feb-97 $ 14,665 $ 17,983 $ 12,386
Mar-97 $ 14,324 $ 17,244 $ 12,249
Apr-97 $ 14,759 $ 18,272 $ 12,433
May-97 $ 15,388 $ 19,384 $ 12,551
Jun-97 $ 15,745 $ 20,253 $ 12,700
Jul-97 $ 16,723 $ 21,865 $ 13,043
Aug-97 $ 16,566 $ 20,640 $ 12,932
Sep-97 $ 17,019 $ 21,771 $ 13,122
Oct-97 $ 16,720 $ 21,044 $ 13,313
Nov-97 $ 16,760 $ 22,018 $ 13,374
Dec-97 $ 16,870 $ 22,397 $ 13,509
Jan-98 $ 17,030 $ 22,646 $ 13,682
Feb-98 $ 17,852 $ 24,279 $ 13,671
Mar-98 $ 18,087 $ 25,522 $ 13,717
Apr-98 $ 18,172 $ 25,779 $ 13,789
May-98 $ 17,952 $ 25,336 $ 13,920
Jun-98 $ 17,725 $ 26,365 $ 14,038
Jul-98 $ 17,087 $ 26,082 $ 14,067
Aug-98 $ 15,752 $ 22,311 $ 14,297
Sep-98 $ 16,180 $ 23,741 $ 14,631
Oct-98 $ 16,557 $ 25,671 $ 14,554
Nov-98 $ 17,011 $ 27,227 $ 14,637
Dec-98 $ 17,477 $ 28,795 $ 14,681
Jan-99 $ 17,701 $ 29,999 $ 14,785
<TABLE>
<CAPTION>
Average Annual Total Return through January 31, Since Inception One Year
1999
<S> <C> <C>
Class A (commenced October 12, 1994)
Excluding sales charges 15.68% 3.94%
Including sales charges 14.17% -1.77%
---------------------------------------------------------------------------
Class B (commenced May 1, 1996)
Excluding contingent deferred sales charges 12.96% 3.15%
Including contingent deferred sales charges 11.90% -1.97%
---------------------------------------------------------------------------
Class C (commenced August 15, 1997)
Excluding contingent deferred sales charges 3.86% 3.14%
Including contingent deferred sales charges 3.86% 2.12%
---------------------------------------------------------------------------
Institutional Class (commenced August 15, 1997) 4.93% 4.25%
---------------------------------------------------------------------------
Service Class (commenced August 15, 1997) 3.91% 3.80%
---------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments
January 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - 56.6%
<C> <S> <C>
Advertising & Marketing - 0.5%
25,300 Valassis Communications, Inc.* $ 1,293,463
------------------------------------------------------------
Aerospace/Defense - 1.5%
16,200 Northrop Grumman Corp. 923,400
35,300 Lockheed Martin Corp. 1,244,325
28,500 Raytheon Co. Class A* 1,588,875
-----------
3,756,600
------------------------------------------------------------
Auto Suppliers - 0.4%
12,900 Federal-Mogul Corp. 764,325
600 Lear Corp.* 23,625
4,000 Magna International, Inc. 237,500
-----------
1,025,450
------------------------------------------------------------
Autos and Trucks - 1.1%
24,000 General Motors Corp. 2,154,000
22,200 Volvo AB ADR Series B Shares 599,400
-----------
2,753,400
------------------------------------------------------------
Banks - 4.7%
60,800 Bank One Corp.(a) 3,184,400
49,600 BankAmerica Corp.(a) 3,317,000
15,600 Chase Manhattan Corp. 1,200,225
45,600 First Union Corp.(a) 2,399,700
23,600 State Street Corp. 1,687,400
9,900 Wells Fargo & Co. 345,881
-----------
12,134,606
------------------------------------------------------------
Chemical Products - 0.3%
8,800 Du Pont (E.I.) de Nemours & Co. 450,450
5,200 Minnesota Mining and Manufacturing Co. 403,650
-----------
854,100
------------------------------------------------------------
Commercial Services - 0.2%
16,300 Ecolab, Inc. 631,625
------------------------------------------------------------
Consumer Staples - 1.6%
24,200 Avon Products, Inc. 893,888
3,200 Clorox Co. 400,400
17,000 Colgate Palmolive Co. 1,367,438
8,400 Gillette Co. 493,500
11,500 Procter & Gamble Co. 1,045,063
-----------
4,200,289
------------------------------------------------------------
Electronics & Other Electrical Equipment -
0.8%
19,800 General Electric Co. 2,076,525
------------------------------------------------------------
Energy Refining & Marketing - 0.9%
42,600 AES Corp.* 1,435,088
25,000 Tosco Corp. 543,750
16,300 USX-Marathon Group, Inc. 370,825
-----------
2,349,663
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Enterprise Systems - 2.0%
13,600 EMC Corp.* $ 1,480,700
5,600 Hewlett-Packard Co. 438,900
11,900 International Business Machines, Inc. 2,180,675
9,100 Sun Microsystems, Inc.* 1,016,925
-----------
5,117,200
-----------------------------------------------------------
Environmental Services - 0.8%
35,500 Browning-Ferris Industries, Inc. 976,250
21,400 Waste Management Inc. 1,068,662
-----------
2,044,912
-----------------------------------------------------------
Financial Services - 1.0%
18,000 Citigroup, Inc. 1,009,125
22,200 Federal National Mortgage Association 1,617,825
-----------
2,626,950
-----------------------------------------------------------
Food & Beverages - 2.2%
74,800 Archer Daniels Midland Co. 1,131,350
19,400 Coca-Cola Co. 1,269,488
18,900 Nabisco Holdings Corp. 794,981
26,100 Pepsico, Inc. 1,019,531
29,500 Ralston Purina Co. 807,563
7,900 William Wrigley Jr. Co. 739,638
-----------
5,762,551
-----------------------------------------------------------
Forest Products - 1.2%
17,200 Georgia-Pacific Corp. 1,109,400
42,800 Georgia-Pacific Corp. (Timber Group) 963,000
60,478 Smurfit-Stone Container Corp.* 975,208
-----------
3,047,608
-----------------------------------------------------------
Funeral Services - 0.3%
42,100 Service Corp. International 668,338
-----------------------------------------------------------
Gaming Companies - 0.5%
67,500 Mirage Resorts, Inc.* 966,094
31,200 Park Place Entertainment Corp.* 212,550
-----------
1,178,644
-----------------------------------------------------------
Health Suppliers/Services - 0.5%
5,500 Baxter International, Inc. 390,156
10,700 Johnson & Johnson 909,500
-----------
1,299,656
-----------------------------------------------------------
Healthcare Management - 2.1%
34,500 Aetna, Inc.(a) 3,109,313
28,900 Columbia/HCA Healthcare Corp. 523,813
9,077 McKesson HBOC, Inc. 681,910
58,500 Tenet Healthcare Corp.* 1,213,875
-----------
5,528,911
-----------------------------------------------------------
Hotels & Restaurants - 0.7%
72,200 Hilton Hotels Corp. 1,042,387
20,800 Marriott International, Inc. 730,600
-----------
1,772,987
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Insurance Services - 0.8%
6,300 AMBAC Financial Group, Inc. $ 376,819
18,900 Loews Corp. 1,591,144
-----------
1,967,963
----------------------------------------------------------------------
Insurance-Life - 1.3%
15,600 Cigna Corp. 1,285,050
7,100 Hartford Life, Inc. 400,263
9,600 Nationwide Financial Services, Inc. 460,200
18,300 Provident Companies, Inc. 784,613
11,200 Torchmark Corp. 367,500
-----------
3,297,626
----------------------------------------------------------------------
Insurance-Property and Casualty - 1.5%
36,100 Allstate Corp. 1,356,006
9,832 American International Group, Inc. 1,012,082
30,100 Hartford Financial Services Group, Inc. 1,563,319
-----------
3,931,407
----------------------------------------------------------------------
Integrated Oil - 2.9%
25,400 Atlantic Richfield Co. 1,457,325
15,500 Elf Aquitaine ADR 846,688
24,900 Exxon Corp. 1,753,894
5,100 Mobil Corp. 447,206
35,100 Occidental Petroleum Corp 528,694
33,000 Royal Dutch Petroleum ADR 1,322,063
21,000 Texaco, Inc. 994,875
5,100 Unocal Corp. 145,350
-----------
7,496,095
----------------------------------------------------------------------
Internet Software - 0.3%
4,000 America Online Inc.* 702,750
----------------------------------------------------------------------
Logistics/Rail - 0.2%
17,700 Burlington Northern Santa Fe Corp. 612,863
----------------------------------------------------------------------
Media & Communications - 6.0%
38,400 AH Belo Corp. 722,400
12,900 Cablevision Systems Corp. Class A* 869,138
35,500 CBS, Inc. 1,207,000
16,800 Central Newspapers, Inc. 592,200
21,100 Chancellor Media Corp.* 1,213,250
6,800 Comcast Corp. 462,294
31,900 Dun & Bradstreet Corp. 972,950
10,000 Gannett Co. 658,125
31,200 Infinity Broadcasting Corp.* 863,850
8,600 Jacor Communications, Inc.* 598,775
47,700 New York Times Co. Class A 1,636,706
40,400 Tele-Communications, Inc. (Liberty Media Group)* 2,161,400
32,400 Tele-Communications, Inc. -Liberty* 2,221,425
19,000 Time Warner, Inc. 1,187,500
4,100 Tribune Co. 262,144
-----------
15,629,157
----------------------------------------------------------------------
Oil & Gas Services - 1.1%
49,700 Baker Hughes, Inc. 838,687
23,500 Schlumberger, Ltd. 1,119,188
39,400 Transocean Offshore, Inc. 1,007,163
-----------
2,965,038
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Packaging - 0.3%
25,100 Crown Cork & Seal, Inc. $ 795,356
--------------------------------------------------------
Pharmaceuticals - 3.5%
44,400 American Home Products Corp.(a) 2,605,725
14,700 Bristol-Myers Squibb Co.(a) 1,884,356
5,300 Merck & Co. 777,775
15,600 Pfizer, Inc. 2,006,550
13,500 Schering-Plough Corp. 735,750
15,500 Warner-Lambert Co. 1,118,906
-----------
9,129,062
--------------------------------------------------------
Recreational Products - 0.8%
55,900 Hasbro, Inc. 2,078,781
--------------------------------------------------------
Restaurants & Hotels - 0.3%
15,300 Tricon Global Restaurants, Inc.* 727,706
--------------------------------------------------------
Retail - 1.3%
16,800 Federated Department Stores, Inc.* 702,450
29,700 Sears Roebuck & Co. 1,191,713
16,100 Wal-Mart Stores, Inc. 1,384,600
-----------
3,278,763
--------------------------------------------------------
Retail-Drug Store - 0.8%
8,400 CVS Corp. 459,900
11,100 Rite Aid Corp. 545,288
18,600 Walgreen Co. 1,162,500
-----------
2,167,688
--------------------------------------------------------
Semiconductors - 0.5%
9,000 Intel Corp. 1,268,438
--------------------------------------------------------
Software & Services - 2.2%
46,500 First Data Corp. 1,781,531
18,200 Microsoft Corp.*(a) 3,185,000
13,000 Sterling Commerce, Inc.* 558,188
2,000 Verisign, Inc.* 190,500
-----------
5,715,219
--------------------------------------------------------
Specialty Finance & Agencies - 1.1%
47,500 C.I.T. Group, Inc.(a) 1,514,063
52,100 MBNA Corp. 1,455,544
-----------
2,969,607
--------------------------------------------------------
Specialty Retail - 0.9%
10,500 Home Depot, Inc. 633,938
19,100 Tandy Corp. 1,031,400
49,900 Toys R US Inc.* 748,500
-----------
2,413,838
--------------------------------------------------------
Telecommunications - 2.3%
16,200 AT&T Corp. 1,470,150
30,100 BCE, Inc. 1,343,212
6,000 Bell Atlantic Corp. 360,000
19,700 GTE Corp. 1,329,750
16,800 MCI Worldcom, Inc.* 1,339,800
-----------
5,842,912
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments (continued)
January 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
Common Stocks - (continued)
<C> <S> <C>
Telecommunications Equipment - 1.7%
15,300 Cisco Systems, Inc.* $ 1,706,906
13,200 Corning, Inc. 643,500
20,100 General Motors Corp. Class H 989,925
9,000 Lucent Technologies, Inc. 1,013,062
------------
4,353,393
--------------------------------------------------------
Tire & Other Related Rubber Prod-
ucts - 0.0%
900 Goodyear Tire & Rubber Co. 44,100
--------------------------------------------------------
Tobacco - 1.6%
60,600 Philip Morris Companies, Inc. 2,848,200
43,700 RJR Nabisco Holdings, Corp. 1,179,900
------------
4,028,100
--------------------------------------------------------
Travel - 0.2%
12,600 Galileo International, Inc. 617,400
--------------------------------------------------------
Utilities - 1.7%
39,700 Entergy Corp. 1,168,669
69,500 Northeast Utilities* 1,064,219
48,800 Pacificorp 1,003,450
32,700 Unicom Corp. 1,164,938
------------
4,401,276
--------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $132,870,928) $146,558,016
--------------------------------------------------------
Preferred Stock - 0.7%
Federal Home Loan Mortgage Perpetual Preferred
28,900 $ 1,791,800
--------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $1,632,920) $ 1,791,800
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Asset-Backed Securities - 3.9%
Americredit Automobile Receivables Trust Series 1998-A, Class A3
$1,100,000 6.24% 09/05/2003 $ 1,117,446
Americredit Automobile Receivables Series 1997-D, Class A3
1,725,000 5.88 12/15/2003 1,745,269
Case Equipment Loan Trust, Series 1995-A, Class A
10,896 7.30 03/15/2002 10,906
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
17,519 5.80 06/15/2002 17,552
DVI Equipment Lease Trust 1996-1, Class A(e)
223,600 6.55 07/10/2004 225,763
EQCC Home Equity Loan Trust Series 1997-3, Class A
427,518 5.83 11/15/2028 425,615
Fasco Auto Trust, Series 1996-1
88,637 6.65 11/15/2001 90,815
Fingerhut Master Trust, Series 1996-1, Class A(e)
133,333 6.45 02/20/2002 133,790
First Sierra Equipment Contract Trust Series 1998 1 A4
1,350,000 5.63 08/12/2004 1,345,760
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Asset-Backed Securities - (continued)
<S> <C> <C> <C>
Green Tree Financial Corp. Series 1998-6, Class M1
$ 2,000,000 6.63% 06/01/2030 $ 1,941,240
H + T Master Trust Series 1996-1, Class A2
220,000 8.18 08/15/2002 220,000
IMC Home Equity Loan Series 1996 3A 7
1,000,000 8.05 08/25/2026 1,057,578
Mid State Trust, Series 4, Class A
659,121 8.33 04/01/2030 722,207
Standard Credit Card Master Trust, Series 1995-9, Class A
360,000 6.55 10/07/2007 375,300
Time Warner, Inc. Pass Thru Asset Trust(e)
575,000 4.90 07/29/1999 573,913
------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $9,957,875) $10,003,154
------------------------------------------------------------------------------------------------
Corporate Bonds - 14.6%
Finance Bonds - 4.2%
BankAmerica Corp.
$1,000,000 7.75% 07/15/2002 $ 1,067,940
Beneficial Corp.
1,350,000 6.43 04/10/2002 1,379,038
Capital One Bank
290,000 6.88 04/24/2000 289,954
590,000 7.15 09/15/2006 593,499
200,000 6.40 05/08/2003 195,146
150,000 6.15 06/01/2001 147,876
500,000 6.39 03/05/2001 495,000
Comdisco, Inc.
965,000 6.13 01/15/2003 966,862
700,000 6.29 06/30/2003 704,340
Continental Bank
100,000 12.50 04/01/2001 114,242
Countrywide Capital Corp.
330,000 8.05 06/15/2027 360,142
Countrywide Home Loans, Inc.
700,000 6.84 10/22/2004 724,450
850,000 6.45 02/27/2003 863,660
ERP Operating LP
245,000 8.50 05/15/1999 246,561
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/2000 253,300
Ford Motor Credit Corp.
170,000 6.13 04/28/2003 173,074
40,000 8.38 01/15/2000 41,155
330,000 6.00 01/14/2003 336,752
General Motors Acceptance Corp.
220,000 5.75 11/10/2003 222,310
Golden West Financial Corp.
200,000 10.25 12/01/2000 215,552
Long Island Savings Bank
620,000 6.20 04/02/2001 620,285
Meditrust, Inc.
270,000 7.82 09/10/2026 248,148
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Finance Bonds - (continued)
PXRE Capital Trust I
$ 65,000 8.85% 02/01/2027 $ 66,865
Signet Banking Corp.
500,000 9.63 06/01/1999 506,970
----------------------------------------------------------------------------------------------
TOTAL FINANCE BONDS
(Cost $10,835,680) $10,833,121
----------------------------------------------------------------------------------------------
Industrial Bonds - 9.3%
360 Communications Co.
$ 575,000 7.13% 03/01/2003 $ 607,729
Adelphia Communication
120,000 10.25 07/15/2000 124,800
Allied Waste North America(e)
250,000 7.63 01/01/2006 257,500
Chancellor Media Corp.(e)
250,000 8.00 11/01/2008 271,875
Chelsea GCA Realty
656,000 7.75 01/26/2001 650,908
Chrysler Corp.
60,000 7.45 02/01/2097 69,396
30,000 7.45 03/01/2027 35,174
CMS Energy Corp.
150,000 7.38 11/15/2000 151,554
Conseco Inc.
320,000 7.88 12/15/2000 318,496
Continental Airlines, Inc.
340,714 6.54 09/15/2009 333,268
Domino's, Inc.(e)
250,000 10.38 01/15/2009 258,125
Federal-Mogul Corp.(e)
250,000 7.50 01/15/2009 248,923
Gulf Canada Resources
110,000 9.25 01/15/2004 112,849
Hayes Lemmerz International, Inc.(e)
250,000 8.25 12/15/2008 251,250
Hertz Corp.
1,055,000 6.00 01/15/2003 1,069,095
Intermedia Communications, Inc.
250,000 8.60 06/01/2008 240,000
Joseph E. Seagram & Sons, Inc.
275,000 6.25 12/15/2001 276,298
K Mart Corp.
200,000 8.00 12/13/2001 203,178
Kroger Co.
750,000 12.95 02/01/2009 772,387
Liberty Property LP
205,000 7.10 08/15/2004 197,870
News America Holdings, Inc.
135,000 8.00 10/17/2016 153,328
325,000 9.25 02/01/2013 411,619
500,000 8.50 02/15/2005 568,230
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Industrial Bonds - (continued)
Northwest Airlines Corp.
$ 60,225 8.26% 03/10/2006 $ 62,421
209,401 8.97 01/02/2015 240,208
NWCG Holding Corp.(c)*
600,000 5.60 06/15/1999 583,878
Orange PLC
500,000 8.00 08/01/2008 520,000
Oryx Energy Co.
135,000 9.50 11/01/1999 138,306
Owens Corning
720,000 7.50 05/01/2005 739,289
Panamsat Corp.
1,080,000 6.13 01/15/2005 1,055,398
Paramount Communications
200,000 5.88 07/15/2000 200,326
Pep Boys-Manny, Moe & Jack
200,000 7.00 06/01/2005 197,032
Philip Morris Companies, Inc.
150,000 7.00 07/15/2005 159,213
400,000 9.00 01/01/2001 424,524
195,000 6.95 06/01/2006 208,127
Raytheon Co.
305,000 6.45 08/15/2002 313,607
445,000 6.30 08/15/2000 450,407
Riggs National Corp.
280,000 9.65 06/15/2009 319,519
RJR Nabisco, Inc.
450,000 8.00 07/15/2001 451,022
Rogers Cablesystems, Inc.
115,000 9.63 08/01/2002 124,775
Safeway Inc.
135,000 5.88 11/15/2001 135,878
265,000 6.05 11/15/2003 267,255
Simon DeBartolo Group LP
675,000 6.63 06/15/2003 670,141
TCI Communications, Inc.
300,000 8.65 09/15/2004 345,066
200,000 8.00 08/01/2005 226,590
265,000 8.75 08/01/2015 336,492
Tele-Communications, Inc.
125,000 9.65 10/01/2003 137,603
800,000 8.25 01/15/2003 879,720
Tenet Healthcare Corp.
175,000 8.63 12/01/2003 183,510
Time Warner, Inc.
850,000 7.95 02/01/2000 870,817
565,000 7.75 06/15/2005 626,964
250,000 7.98 08/15/2004 278,148
445,000 9.63 05/01/2002 498,591
TKR Cable Inc.
410,000 10.50 10/30/2007 445,621
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments (continued)
January 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Corporate Bonds - (continued)
<S> <C> <C> <C>
Industrial Bonds - (continued)
Triton Energy Corp.
$ 160,000 8.75% 04/15/2002 $ 147,390
Tyco International Group(e)
875,000 5.88 11/01/2004 871,098
U.S. Home Corp.
130,000 7.95 03/01/2001 131,300
United Rentals, Inc.
500,000 8.80 08/15/2008 501,250
US Air, Inc.
315,826 8.93 04/15/2008 346,300
USI American Holdings
60,000 7.25 12/01/2006 59,800
Viacom, Inc.
900,000 6.75 01/15/2003 928,773
Williams Communications Solutions, Inc.
1,125,000 6.13 02/15/2002 1,129,770
WMX Technologies, Inc.
320,000 6.38 12/01/2003 328,182
----------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS
(Cost $23,835,557) $24,118,163
----------------------------------------------------------------------------------------------
Utility Bonds - 1.1%
CE Electric UK Funding Co.(e)
$200,000 6.85% 12/30/2004 $ 208,609
Central Maine Power Co.
160,000 7.45 08/30/1999 161,451
Edison Mission Energy Funding Corp.(e)
76,825 6.77 09/15/2003 78,806
Niagara Mohawk Power Corp.
450,000 6.88 04/01/2003 466,155
Worldcom, Inc.
850,000 6.13 08/15/2001 863,932
945,000 6.40 08/15/2005 986,750
----------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS
(Cost $2,701,877) $ 2,765,703
----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $37,373,114) $37,716,987
----------------------------------------------------------------------------------------------
Emerging Market Debt - 0.7%
Financiera Energy Nacional(e)
$420,000 9.38% 06/15/2006 $ 348,600
Mrs Logistica SA
100,000 10.63 08/15/2005 35,000
National Power
240,000 7.63 11/15/2000 232,800
210,000 7.88 12/15/2006 186,033
Petroleos Mexicanos
550,000 9.57 07/15/2005 479,600
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Emerging Market Debt - (continued)
<S> <C> <C> <C>
Poland Communications, Inc.
$ 90,000 9.88% 11/01/2003 $ 80,100
Province of Tucuman
262,857 9.45 08/01/2004 184,000
Republic of Korea
280,000 8.75 04/15/2003 294,306
--------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(Cost $2,093,786) $ 1,840,439
--------------------------------------------------------------------------------------------
Mortgage Backed Obligations - 18.1%
Asset Securitization Corp.
$ 450,000 7.49% 04/14/2029 $ 490,347
Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2
2,200,000 6.60 11/19/2007(a) 2,286,636
Collateralized Mortgage Obligation Trust Series 64, Class Z
462,050 9.00 11/20/2020 479,492
Federal Home Loan Mortgage Corp.
3,000,000 6.00 TBA-30 yr(b) 2,970,000
2,000,000 6.00 TBA-15 yr(b) 2,010,625
4,000,000 6.50 TBA-15 yr(b) 4,066,240
839,056 6.00 12/01/2013 843,252
1,000,000 6.35 03/25/2018 1,008,430
1,766,351 7.50 08/01/2027 1,818,776
367,535 7.00 02/01/2028 375,573
772,680 7.50 02/01/2028 795,613
2,660,356 7.50 04/01/2028(a) 2,739,315
1,072,044 7.00 06/01/2028 1,095,489
367,483 6.50 08/01/2028 371,158
506,295 7.00 08/01/2028 517,368
944,187 7.00 09/01/2028 964,836
1,626,709 6.50 12/01/2028 1,642,976
1,996,089 7.00 12/01/2028 2,039,743
Federal National Mortgage Association
2,000,000 6.00 TBA-15 yr(b) 2,007,500
932,517 7.00 07/01/2010 954,664
511,439 7.00 01/01/2011 523,422
488,561 7.00 05/01/2011 500,008
1,003,919 7.00 10/01/2011 1,027,441
33,748 7.00 03/01/2012 34,538
33,735 7.00 10/01/2012 34,526
228,087 6.50 09/01/2025 230,224
238,237 6.50 10/01/2025 240,469
311,573 6.50 11/01/2025 314,492
480,220 6.50 09/01/2027 484,571
380,209 6.50 11/01/2027 383,653
386,915 6.50 03/01/2028 390,420
590,031 6.50 04/01/2028 595,377
927,160 6.50 06/01/2028 935,560
176,430 6.50 08/01/2028 178,028
799,908 6.50 09/01/2028 807,156
Federal National Mortgage Association Principal-Only Stripped
Security(c)*
2,100,000 5.78 10/09/2019 645,414
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS BALANCED FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Mortgage Backed Obligations - (continued)
<S> <C> <C> <C>
Federal National Mortgage Association Remic Trust 1991-31, Class PJ
$1,000,000 6.55% 10/25/2020 $ 1,018,320
Federal National Mortgage Association Zero Coupon
1,900,000 5.91 06/01/2017 657,818
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C1, Class A2
300,000 7.30 12/18/2006 325,053
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C2, Class A2
700,000 6.60 11/18/2029 731,423
Government National Mortgage Association
249,007 7.00 02/15/2023 255,152
262,792 7.00 04/15/2023 269,362
161,544 7.00 05/15/2023 165,531
587,366 7.50 05/15/2023 607,189
1,437,581 7.00 07/15/2023 1,473,269
686,626 7.00 08/15/2023 703,572
603,461 7.00 09/15/2023 618,354
123,509 7.00 10/15/2023 126,596
175,749 7.00 11/15/2023 180,143
508,219 7.00 12/15/2023 520,924
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A2
2,000,000 6.39 02/15/2030(a) 2,059,960
Morgan Stanley Capital Commercial Mortgage, Inc.
Series 1997-C1
400,000 7.46 05/15/2006 418,352
---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $46,318,822) $ 46,934,350
---------------------------------------------------------------------------------------------
Sovereign Credit - 1.6%
Commonwealth of Australia
$2,200,000 6.75% 11/15/2006 $ 1,544,709
Mexico (Utd Mex ST)
110,000 9.88 01/15/2007 108,900
380,000 6.25 12/31/2019 290,700
Province of Quebec
200,000 13.25 09/15/2014 218,392
345,000 7.50 07/15/2023 393,421
85,000 7.13 02/09/2024 93,031
Republic of Panama
770,014 6.19 05/10/2002 725,738
80,000 4.00 07/17/2014 58,700
Republic of Philippines
70,000 8.88 04/15/2008 70,000
Republic of Poland(c)
210,000 7.20 10/27/2014 195,300
270,000 9.11 10/27/2024 178,200
110,000 6.79 10/27/2024 77,825
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Sovereign Credit - (continued)
State of Israel
$ 190,000 6.38% 12/15/2005 $ 189,666
------------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(Cost $4,178,130) $ 4,144,582
------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 1.6%
U.S. Treasury Bill(c)
$ 1,125,000 4.48% 02/04/1999 $ 1,124,636
U.S. Principal Only Stripped Securities(c)
1,400,000 5.38 11/15/2026 319,410
U.S. Treasury Bonds(a)
900,000 8.13 08/15/2021 1,222,308
U.S. Treasury Interest-Only Stripped Securities(c)
2,570,000 5.46 08/15/2014 1,114,506
U.S. Treasury Principal-Only Stripped Securities(c)
950,000 5.57 05/15/2020 295,346
------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,933,497) $ 4,076,206
------------------------------------------------------------------------------------------------
Repurchase Agreement - 5.5%
Joint Repurchase Agreement Account(a)
$14,200,000 4.84% 02/01/1999 $ 14,200,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $14,200,000) $ 14,200,000
------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.0%
Republic of Argentina(c)
$ 90,000 9.48% 04/16/1999 $ 88,538
------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $88,316) $ 88,538
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $252,647,388)(d) $267,354,072
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Federal Income Tax Information:
<S> <C>
Gross unrealized gain for investments in which
value exceeds cost $21,184,811
Gross unrealized gain for investments in which
cost exceeds value $(6,817,570)
------------------------------------------------------------------------------------------------
Net unrealized gain $14,367,241
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Investments (continued)
January 31, 1999
Futures contracts open at January 31, 1999 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts
Long/ Settlement Unrealized
Type (Short)(f) Month Gain/(Loss)
---------------------------------------------------------------
<S> <C> <C> <C>
2-Year U.S. Treasury Note 10 March, 1999 1,968
5-Year U.S. Treasury Note (51) March, 1999 (13,559)
10-Year U.S. Treasury Note (11) March, 1999 (2,008)
20-Year U.S. Treasury Bond 65 March, 1999 7,852
S&P 500 Index 52 March, 1999 232,221
-------
226,474
---------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) Portions of these securities are being segregated as collateral for
futures contracts, TBA securities, mortgage dollar rolls and forward set-
tlement sales.
(b) TBA (To Be Assigned) securities are purchased on a forward commitment ba-
sis 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.
(c) The interest rate disclosed for these securities represents effective
yields to maturity.
(d) The aggregate cost for federal income tax purposes is $252,986,831.
(e) Security is exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified insti-
tutional buyers in transactions exempt from registration. Total market
value of the rule 144A securities amounted to $3,728,252 as of January
31, 1999.
(f) Each 2-year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note and
20-Year U.S. Treasury Bond contracts represents $100,000 in notional par
value. Each S&P 500 Stock Index future utilize a multiplier of 250 per
contract with the index value at time of purchase in notional par value.
The net notional amount and market value at risk are $31,127,279 and
$34,190,251, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of mar-
ket 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.
12
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Assets and Liabilities
January 31.1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$252,647,388) $267,354,072
Cash 65,692
Receivables:
Investment securities sold 11,286,662
Dividends and interest 1,218,026
Fund shares sold 443,117
Forward foreign currency exchange contracts 24,853
Variation margin 195,092
Reimbursement from investment adviser 199,894
Deferred organization expenses, net 9,309
Other assets 50,503
-----------------------------------------------------------------------------
Total assets 280,847,220
-----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 16,435,233
Fund shares repurchased 1,744,486
Amounts owed to affiliates 278,482
Forward sale contract, at value 3,089,040
Accrued expenses and other liabilities 134,968
-----------------------------------------------------------------------------
Total liabilities 21,682,209
-----------------------------------------------------------------------------
Net Assets:
Paid-in capital 242,895,161
Accumulated undistributed net investment income 375,856
Accumulated net realized gain on investment, options, futures
and foreign currency related transactions 929,382
Net unrealized gain on investments, futures and translation of
assets and liabilities denominated in foreign currency 14,964,612
-----------------------------------------------------------------------------
NET ASSETS $259,165,011
-----------------------------------------------------------------------------
Net asset value, offering and redemption price per share:(a)
Class A $20.48
Class B $20.37
Class C $20.34
Institutional $20.48
Service $20.47
-----------------------------------------------------------------------------
Shares outstanding:
Class A 9,398,064
Class B 2,156,327
Class C 702,452
Institutional 391,095
Service 23,958
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 12,671,896
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0582) for Class A shares is $21.67. 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.
13
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statement of Operations
For the Year Ended January 31, 1999
<TABLE>
<S> <C>
Investment income:
Dividends(a) $ 2,087,290
Interest(b) 7,691,689
-------------------------------------------------------------------------------
Total income 9,778,979
-------------------------------------------------------------------------------
Expenses:
Management fees 1,609,311
Distribution & service fees(c) 1,338,603
Transfer agent fees 425,706
Custodian fees 170,642
Registration fees 89,428
Professional fees 77,861
Amortization of deferred organization expenses 13,432
Trustee fees 7,334
Service class fees 1,402
Other 123,248
-------------------------------------------------------------------------------
Total expenses 3,856,967
-------------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (913,363)
-------------------------------------------------------------------------------
Net expenses 2,943,604
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,835,375
-------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures, for-
eign currency and options transactions:
Net realized gain (loss) from:
Investment transactions (7,473,828)
Futures transactions 4,075,242
Foreign currency related transactions 3,371
Options written 619
Net change in unrealized gain on:
Investments 3,882,035
Futures 196,599
Translation of assets and liabilities denominated in foreign
currencies 35,728
-------------------------------------------------------------------------------
Net realized and unrealized gain on investment, futures, foreign
currency and options transactions 719,766
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,555,141
-------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $10,068.
(b) Taxes withheld on interest were $7,574.
(c) The distribution and service fees for Class A, Class B and Class C were
$823,738, $372,044, and $142,821, respectively.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS BALANCED FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
January 31, 1999 January 31, 1998
<S> <C> <C>
From operations:
Net investment income $ 6,835,375 $ 3,841,192
Net realized (loss) gain on investment,
options, futures and foreign currency
related transactions (3,394,596) 13,321,612
Net change in unrealized gain on
investments, futures and translation of
assets and liabilities denominated in
foreign currencies 4,114,362 2,251,255
------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 7,555,141 19,414,059
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (5,454,393) (3,280,878)
Class B shares (858,147) (212,816)
Class C shares (325,754) (37,737)
Institutional shares (294,710) (51,094)
Service shares (7,267) (160)
In excess of net investment income
Class B shares -- (503)
Class C shares -- (6,260)
Institutional shares -- (19,503)
Service shares -- (42)
From net realized gain on investment and
futures transactions
Class A shares -- (8,192,911)
Class B shares -- (995,615)
Class C shares -- (326,916)
Institutional shares -- (424,406)
Service shares -- (851)
------------------------------------------------------------------------------
Total distributions to shareholders (6,940,271) (13,549,692)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 116,979,156 123,854,644
Reinvestment of dividends and
distributions 6,132,572 12,247,021
Cost of shares repurchased (69,069,832) (20,977,914)
------------------------------------------------------------------------------
Net increase in net assets resulting
from share transactions 54,041,896 115,123,751
------------------------------------------------------------------------------
TOTAL INCREASE 54,656,766 120,988,118
------------------------------------------------------------------------------
Net assets:
Beginning of year 204,508,245 83,520,127
------------------------------------------------------------------------------
End of year $259,165,011 $204,508,245
------------------------------------------------------------------------------
Accumulated undistributed net investment
income $ 375,856 $ 410,404
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements
January 31, 1999
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 Balanced Fund
(the "Fund"). At January 31, 1999, the Fund offered five classes of shares --
Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. Investment Valuation -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded. If
no sale occurs, securities are valued at the mean between the closing bid and
asked prices. Debt securities are valued at prices supplied by independent
pricing services, which reflect broker / dealer-supplied valuations as matrix
pricing systems. Unlisted equity and debt securities for which market quota-
tions are available are valued at the last sale price on valuation date, or
if no sale occurs, at the mean between the most recent bid and asked prices.
Short-term debt obligations maturing in sixty days or less are valued at am-
ortized cost. Restricted securities, and other securities for which quota-
tions are not readily available, are valued at fair value using methods
approved by the Trusts's Board of Trustees.
B. Security Transactions and Investment Income -- Security transactions are
recorded as of the trade date. Realized gains and losses on sales of portfo-
lio securities are calculated using the identified-cost basis. Dividend in-
come is recorded on the ex-dividend date. Dividends for which the Fund has
the choice to receive either cash or stock are recognized as investment in-
come in an amount equal to the cash dividend. Interest income is recorded on
the basis of interest accrued, premium amortized and discount earned. Howev-
er, the Fund does not amortize premiums on U.S. Government and corporate
bonds. It is the Fund's policy, where necessary, to accrue for estimated cap-
ital gains taxes on foreign securities.
C. Mortgage Dollar Rolls -- The Fund may enter into mortgage "dollar rolls"
in which the Fund sells securities in the current month for delivery and si-
multaneously contracts 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 Fund treats
mortgage dollar rolls as two separate transactions; one involving the pur-
chase of a security and a separate transaction involving a sale.
D. 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; and (ii) purchases and sales of foreign invest-
ments, income and expenses are converted into U.S. dollars based upon cur-
rency exchange rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies; (ii) currency gains and losses between trade date
and settlement date on investment securities transactions and forward ex-
change contracts; and (iii) gains and losses from the difference between
amounts of dividends and interest recorded and the amounts actually received.
E. 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
16
<PAGE>
GOLDMAN SACHS BALANCED FUND
increase total return. All commitments are "marked-to-market" daily at the
applicable translation rates. The Fund realizes gains or losses at the time a
forward contract is offset by entry into a closing transaction or extin-
guished 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.
F. Short Securities Positions -- The Fund may enter into covered short sales.
Short securities positions are accounted for at cost and subsequently marked-
to-market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the Fund's records
and any difference between this market value and the cash received is re-
ported as unrealized gain or loss. Gains and losses are realized when a short
position is closed out by delivering securities back to the broker.
G. 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 Fund's distributions may be shown in the accompanying fi-
nancial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital, de-
pending on the type of book/tax differences that may exist as well as timing
differences associated with having different book and tax year ends.
The Fund had approximately $2,357,000 at October 31, 1998 (the Fund's tax
year-end) of capital loss carryforward expiring 2006 for federal tax purpos-
es. This amount is available to be carried forward to offset future capital
gains to the extent permitted by applicable laws or regulations.
H. Deferred Organization Expenses -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
I. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon 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. Effective September 1,
1998, each class of Shares of the Fund separately bear its respective class-
specific transfer agency fees.
J. 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
17
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
January 31, 1999
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 orig-
inally paid.
K. 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, de-
pending on the fluctuations in the value of the contracts, and are recorded
for financial reporting purposes as unrealized gains or losses. When con-
tracts 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.
L. Forward Sales Contracts -- The Fund may enter into forward security sales
of mortgage backed securities in which the Fund sells securities in the cur-
rent month for delivery of securities defined by pool stipulated characteris-
tics on a specified future date. The value of the contract is recorded as a
liability on the Fund's records with the difference between its market value
and cash proceeds received being recorded as an unrealized gain or loss.
Gains or losses are realized upon delivery of the security.
3. AGREEMENTS
Pursuant to the Investment Management Agreement ("the Agreement"), Goldman
Sachs Asset Management, ("GSAM"), a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser for the Fund.
Under the Agreement, the adviser, 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 ex-
penses related thereto and administering the Fund's business affairs, includ-
ing providing facilities, the adviser is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to .65% of the average daily net
assets of the Fund.
The adviser had voluntarily agreed to limit certain "Other Expenses" of the
Fund (excluding management fees, distribution and service fees, taxes, inter-
est, brokerage, litigation, Service share fees, indemnification costs and
other extraordinary expenses) through August 31, 1998, to the extent that
such expenses exceeded, on an annual basis, .10% of the average daily net as-
sets of the Fund. Effective September 1, 1998, this expense limitation was
modified to, on an annual basis, .01% (excluding management fees, distribu-
tion and service fees, transfer agent fees, taxes, interest, brokerage, liti-
gation, Service share fees, indemnification costs and extraordinary
expenses). For the year ended January 31, 1999, Goldman Sachs reimbursed ap-
proximately $557,000.
Goldman Sachs serves as the Distributor of shares of the Fund 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 $328,000 during the year
ended January 31, 1999.
Prior to September 1, 1998, the Trust, on behalf of the 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
the Fund for distribution services equal, on an annual basis, to .25%, .75%
and .75% of the Fund's average daily net assets attributable to Class A,
Class B and Class C shares, respectively. For the year ended January 31,
1999, the Distributor voluntarily agreed to waive approximately $357,000 of
its distribution fee attributable to the Class A shares.
Prior to September 1, 1998, the Trust, on behalf of the Fund, had also
adopted Authorized Dealer Service Plans (the "Dealer Service Plans") pursuant
to which Goldman Sachs and Authorized Dealers were compensated for providing
18
<PAGE>
GOLDMAN SACHS BALANCED FUND
personal and account maintenance services. The Fund paid a fee under the
Dealer Service Plans equal, on an annual basis, up to .25% of its average
daily net assets attributable to Class A, Class B and Class C shares.
Effective September 1, 1998, the Distribution Plans and Dealer Service
Plans were combined into a Distribution and Service Plan. Under the Distribu-
tion and Service Plan, Goldman Sachs and/or Authorized Dealers are entitled
to a monthly fee from the Fund for distribution and shareholder maintenance
services equal, on an annual basis, to .25%, 1.00%, and 1.00% of the average
daily net assets attributable to Class A, Class B and Class C shares, respec-
tively.
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Ef-
fective September 1, 1998 the fees charged for such transfer agency services
are calculated daily and payable monthly at an annual rate as follows: .19%
of the average daily net assets for Class A, Class B and Class C Shares and
.04% of the average daily net assets for Institutional and Service 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.
As of January 31, 1999, the amounts owed to affiliates were approximately
$144,000, $91,000 and $43,000 for Management, Distribution and Service and
Transfer Agent fees, respectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures) for the year ended January 31, 1999, were
$475,210,628 and $410,891,302, respectively. Included in these amounts are
purchases and proceeds of sales or maturities of governmental securities in
the amounts of $33,685,467 and $49,351,055, respectively.
For the year ended January 31, 1999, Goldman Sachs earned approximately
$42,000 of brokerage commissions from portfolio transactions and the Fund had
the following outstanding forward foreign currency exchange contracts:
<TABLE>
<CAPTION>
Foreign Currency Value on Current Unrealized
Sale Contracts Settlement Date Value Gain
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar expiring 4/15/99 $1,577,361 $1,552,508 $24,853
-----------------------------------------------------------------------------
</TABLE>
The contractual amounts of the forward foreign currency exchange contracts
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risk associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At January 31,
1999, the Fund had sufficient cash and securities to cover any commitments
under these contracts. The Fund has recorded a "Receivable for forward for-
eign currency exchange contracts" of $24,853 of unrealized gains relating to
open forward foreign currency exchange contracts in the accompanying State-
ment of Assets and Liabilities.
For the year ended January 31, 1999, written call option transactions in
the Fund were as follows:
<TABLE>
<CAPTION>
Written Options Number of Contracts Premium Received
------------------------------------------------------------------------------
<S> <C> <C>
Balance outstanding at beginning of year -- --
Options written 2 619
Options expired (2) (619)
------------------------------------------------------------------------------
Balance Outstanding, End of Year -- --
------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS BALANCED FUND
Notes to Financial Statements (continued)
January 31, 1999
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 or its affiliates, transfers uninvested cash into
joint accounts, the daily aggregate balance of which is invested in one or
more repurchase agreements.
At January 31, 1999, the Fund had an undivided interest in the repurchase
agreements in the joint account which equaled $14,200,000 in principal
amount. At January 31, 1999, the following repurchase agreements held in this
joint account were fully collateralized by federal agency obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreement Amount Rate Date Cost
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN/AMRO, Inc. $ 875,000,000 4.84% 02/01/99 $ 875,000,000
--------------------------------------------------------------------------
Bear Stearns & Co. 250,000,000 4.83 02/01/99 250,000,000
--------------------------------------------------------------------------
NationsBanc Montgomery
Securities LLC 1,000,000,000 4.84 02/01/99 1,000,000,000
--------------------------------------------------------------------------
CS First Boston Corp. 363,500,000 4.83 02/01/99 363,500,000
--------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $2,488,500,000
--------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Fund participates in a $50,000,000 com-
mitted, unsecured revolving line of credit facility. Both facilities are to
be used solely for temporary or emergency purposes. Under the most restric-
tive arrangement, the Fund must own securities having a market value in ex-
cess of 300% of the total bank borrowings. The interest rate on the
borrowings is based on the Federal Funds rate. The committed facility also
requires a fee to be paid based on the amount of the commitment which has not
been utilized. During the year ended January 31, 1999, the Fund did not have
any borrowings under these facilities.
8 CERTAIN RECLASSIFICATIONS
In accordance with Statement of position 93-2, the Fund reclassified $9,713
from paid-in capital to accumulated undistributed net investment income,
$60,635 from accumulated net realized gain on investment, options, futures
and foreign currency related transactions to accumulated undistributed net
investment income and $1,392 from accumulated net realized gain on invest-
ment, options, futures and foreign currency related transactions to paid-in
capital. These reclassifications have no impact on the net asset value of the
Fund and are designed to present the Fund's capital accounts on a tax basis.
20
<PAGE>
GOLDMAN SACHS BALANCED FUND
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended:
<TABLE>
<CAPTION>
January 31, 1999 January 31, 1998
------------------------ -----------------------
Shares Dollars Shares Dollars
---------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 3,748,039 $ 76,506,479 4,149,265 $ 84,252,017
Reinvestments of dividends
and distributions 241,188 4,838,697 521,497 10,355,369
Shares repurchased (2,655,783) (53,412,703) (942,243) (19,021,204)
---------------------------------------------------
1,333,444 27,932,473 3,728,519 75,586,182
------------------------------------------------------------------------------
Class B Shares
Shares sold 1,305,421 26,769,887 1,042,755 21,328,112
Reinvestments of dividends
and distributions 37,761 751,177 55,971 1,106,250
Shares repurchased (357,101) (7,118,524) (41,140) (847,100)
---------------------------------------------------
986,081 20,402,540 1,057,586 21,587,262
------------------------------------------------------------------------------
Class C Shares
Shares sold 532,005 10,982,657 441,362 9,200,739
Reinvestments of dividends
and distributions 13,484 268,120 14,762 290,280
Shares repurchased (281,904) (5,604,206) (17,257) (343,901)
---------------------------------------------------
263,585 5,646,571 438,867 9,147,118
------------------------------------------------------------------------------
Institutional Shares
Shares sold 108,930 2,247,577 422,391 9,058,228
Reinvestments of dividends
and distributions 13,275 267,312 24,982 494,072
Shares repurchased (143,532) (2,931,934) (34,951) (765,709)
---------------------------------------------------
(21,327) (417,045) 412,422 8,786,591
------------------------------------------------------------------------------
Service Shares
Shares sold 22,926 472,556 728 15,548
Reinvestments of dividends
and distributions 375 7,266 52 1,050
Shares Repurchased (123) (2,465) -- --
---------------------------------------------------
23,178 477,357 780 16,598
------------------------------------------------------------------------------
NET INCREASE 2,584,961 $ 54,041,896 5,638,174 $115,123,751
------------------------------------------------------------------------------
</TABLE>
Goldman Sachs Balanced Fund -- Tax Information (unaudited)
During the year ended January 31, 1999, 23.27% of the dividends
paid from net investment income by the Fund qualify for the divi-
dends received deduction available to corporations.
21
<PAGE>
GOLDMAN SACHS BALANCED FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income from
investment operations(d) Distributions to shareholders
--------------------------- ---------------------------------------
Net realized
and unrealized From net
gain (loss) on realized gain
investment, on investment,
Net asset futures and In excess futures and Net increase
value, Net foreign currency From net of net foreign currency (decrease)
beginning investment related investment investment related in net asset
of period income transactions income income transactions value
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $20.29 $0.58 $0.20 $(0.59) $ -- $ -- $ 0.19
1999 - Class B Shares 20.20 0.41 0.21 (0.45) -- -- 0.17
1999 - Class C Shares 20.17 0.41 0.21 (0.45) -- -- 0.17
1999 - Institutional
Shares 20.29 0.64 0.20 (0.65) -- -- 0.19
1999 - Service Shares 20.28 0.53 0.21 (0.55) -- -- 0.19
---------------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 18.78 0.57 2.66 (0.56) -- (1.16) 1.51
1998 - Class B Shares 18.73 0.50 2.57 (0.42) (0.02) (1.16) 1.47
1998 - Class C Shares
(commenced August 15,
1997) 21.10 0.25 0.24 (0.22) (0.04) (1.16) (0.93)
1998 - Institutional
Shares (commenced August
15, 1997) 21.18 0.26 0.32 (0.23) (0.08) (1.16) (0.89)
1998 - Service Shares
(commenced August 15,
1997) 21.18 0.22 0.32 (0.22) (0.06) (1.16) (0.90)
---------------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 17.31 0.66 2.47 (0.66) -- (1.00) 1.47
1997 - Class B Shares
(commenced May 1, 1996) 17.46 0.42 2.34 (0.42) (0.07) (1.00) 1.27
---------------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 14.22 0.51 3.43 (0.50) -- (0.35) 3.09
FOR THE PERIOD ENDED JANUARY 31,
1995 - Class A Shares
(commenced October 12,
1994) 14.18 0.10 0.02 (0.08) -- -- 0.04
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of
the period and no sales or redemption charges. Total return would be
reduced if a sales or redemption charge were taken into account.
(b) Annualized.
(c) Not annualized.
(d) Includes the balancing effect of calculating per share amounts.
(e) Includes the effect of mortgage dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GOLDMAN SACHS BALANCED 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 at end of net expenses income to expenses to income (loss) to Portfolio
value, end Total period to average average net average net average net turnover
of period return(a) (in 000s) net assets assets assets assets rate(e)
<S> <C> <C> <C> <C> <C> <C> <C>
$20.48 3.94% $192,453 1.04% 2.90% 1.45% 2.49% 175.06%
20.37 3.15 43,926 1.80 2.16 2.02 1.94 175.06
20.34 3.14 14,286 1.80 2.17 2.02 1.95 175.06
20.48 4.25 8,010 0.73 3.22 0.95 3.00 175.06
20.47 3.80 490 1.23 2.77 1.45 2.55 175.06
- ----------------------------------------------------------------------------------------------------------------------
20.29 17.54 163,636 1.00 2.94 1.57 2.37 190.43
20.20 16.71 23,639 1.76 2.14 2.07 1.83 190.43
20.17 2.49(c) 8,850 1.77(b) 2.13(b) 2.08(b) 1.82(b) 190.43
20.29 2.93(c) 8,367 0.76(b) 3.13(b) 1.07(b) 2.82(b) 190.43
20.28 2.66(c) 16 1.26(b) 2.58(b) 1.57(b) 2.27(b) 190.43
- ----------------------------------------------------------------------------------------------------------------------
18.78 18.59 81,410 1.00 3.76 1.77 2.99 208.11
18.73 16.22(c) 2,110 1.75(b) 2.59(b) 2.27(b) 2.07(b) 208.11
- ----------------------------------------------------------------------------------------------------------------------
17.31 28.10 50,928 1.00 3.65 1.90 2.75 197.10
14.22 0.87(c) 7,510 1.00(b) 3.39(b) 8.29(b) (3.90)(b) 14.71
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS BALANCED FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
Goldman Sachs Trust -- Balanced Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Balanced Fund, one of the portfolios constituting Goldman Sachs
Trust -- Equity Funds (a Delaware Business Trust), including the statement of
investments, as of January 31, 1999, and the related statement of operations,
the statements of changes in net assets and the financial highlights for the
periods presented. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to ex-
press an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of January 31, 1999 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 Balanced Fund as of January 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 19, 1999
24
<PAGE>
GOLDMAN SACHS FUND PROFILE
The Goldman Sachs Balanced Fund
An Investment Idea for the Long Term
History has shown that an investment composed of a blend of stocks and
bonds provides reduced volatility of returns while capturing the
appreciation potential of the portion invested in stocks.
Goldman Sachs Balanced Fund provides investors access to the benefits
associated with an investment that is composed of both stocks and bonds.
The Fund seeks long-term capital growth and current income through
investments in equity and fixed income securities.
Target Your Needs
The Goldman Sachs Balanced 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 Funds
Goldman Sachs Funds offers more than 30 investment options for global
diversification across borders, investment styles, asset classes and
security capitalizations.
MONEY
MARKET
FIXED
INCOME
DOMESTIC
EQUITY
INTERNATIONAL
EQUITY
[LEFT ARROW] Lower Risk/Return Higher Risk/Return[RIGHT ARROW]
ASSET ALLOCATION
SPECIALTY
.Goldman Sachs
Balanced Fund
For More Information
To learn more about the Goldman Sachs Balanced 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
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Philip V. Giuca,Jr., Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Visit our internet address: www.gs.com/funds
This material is not authorized for distribution to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
The Fund's foreign investments and active management techniques are subject to
risks in addition to those customarily associated with investing in dollar-
denominated securities of U.S. issuers. Compared with U.S. securities markets,
foreign markets may be less liquid,more volatile and less subject to
governmental regulation,and may make available less public information about
issuers.Funds that invest in foreign issues may incur losses because of changes
in securities prices expressed in local currencies, movements in exchange rates,
or both.
An investment in a money market fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that any money market fund will be
able to maintain a net asset value of $1.00 per share.
Copyright 1999 Goldman, Sachs & Co. All rights reserved.
Date of first use: March 31,1999 BALAR /26K /3-99
