<PAGE>
Goldman Sachs Funds
ASSET ALLOCATION PORTFOLIOS Annual Report December 31, 1998
[GRAPHIC]
Strategies designed to provide a
comprehensive investment program
in a single investment and capitalize
on the benefits of asset allocation.
-------
Goldman
Sachs
-------
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Market Overview
Dear Shareholder,
Throughout 1998, events that began in Asia in 1997 continued to roil financial
markets around the world.
Global Equity Markets
The arrival of 1998 heralded another step up in the staircase
pattern of global equity prices. Worries about contagion from Asia
and Japan receded rapidly from the prior months, and the
deflationary influence from the East helped cool the U.S. and
European economies, thereby lowering bond yields and increasing
equity valuations. Global economic conditions continued to provide a
near-ideal background for holders of equity securities. In contrast,
the second half of the year was marked by a trend of escalating
volatility. Political and economic woes in Indonesia, Russia and
Brazil affected market performance around the globe, while the
continuing weakness of the Japanese yen placed further pressure on
the emerging Asian economies. The consequent deterioration of
several hedge funds further upset the financial sector. Investors
sought security in the form of fixed income investments.
By period end, equity markets rebounded on renewed confidence that
concerted action from the G-7, including an easing of rates by the
Federal Reserve Board, would help avert a global financial meltdown.
Markets were further boosted by encouraging news out of Japan, which
appeared to be prepared to address the country's structural
problems.
Global Fixed Income Markets
In the U.S., fixed income markets vacillated in response to investor
optimism that the Asian ordeal was well in hand and investor fears
that global market turmoil was threatening. At year-end, this
touch-and-go global anxiety culminated in a powerful Treasury rally,
spurred on, in part, by investors' wholesale preference for
Treasuries.
Europe's bond markets rallied for most of the year, reinforced in
part by "softer" retail sales data and lower-than-expected gross
domestic product data. The onset of economic and political turmoil
and uncertainty 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.
In Japan, bonds faltered 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, the poorly received rescue package, combined with
extremely weak gross domestic product, consumer spending and capital
expenditure data, helped to drive Japanese bond yields to record low
levels.
We encourage you to maintain your long-term investment program, and
look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Goldman Sachs Co-Head, Goldman Sachs
Asset Management Asset Management
January 29, 1999
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
FUND BASICS
Balanced/1/ Strategy
as of December 31, 1998
Assets Under Management
-----------------------
$96.9 million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GIPAX
-----------------------
Class B Shares
-----------------------
GIPBX
-----------------------
Class C Shares
-----------------------
GIPCX
-----------------------
Institutional Shares
-----------------------
GIPIX
-----------------------
Service Shares
-----------------------
GIPSX
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PERFORMANCE REVIEW
- ------------------------------------------------------------------------------------
January 2, 1998-December 31, 1998 Fund Cumulative Total Return (based on NAV)/2/
- ------------------------------------------------------------------------------------
<S> <C>
Class A 6.38%
Class B 5.75%
Class C 5.83%
Institutional 6.99%
Service Shares 6.30%
- ------------------------------------------------------------------------------------
</TABLE>
/2/The net asset value ("NAV") represents the net assets of the Portfolio
(ex-dividend) divided by the total number of shares. Performance does not
reflect the deduction of any applicable sales charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SEC CUMULATIVE TOTAL RETURNS/3/
- -------------------------------------------------------------------------------------------------
For the period ending December 31, 1998 Class A Class B Class C Institutional Service
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception (1/2/98) 0.55% 0.62% 4.80% 6.99% 6.30%
- -------------------------------------------------------------------------------------------------
</TABLE>
/3/The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering
price for specified periods, assuming reinvestment of all distributions at
NAV. The total return calculation reflects a maximum initial sales charge
of 5.5% for Class A shares, the assumed deferred sales charge for Class B
shares (5% maximum declining to 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 Class A shares on December 31,
1998 was $10.91 and represents the NAV plus the maximum sales charge of
5.5%.
- --------------------------------------------------------------------------------
COMPOSITION/4/
- --------------------------------------------------------------------------------
For the investor seeking a high level of current income with greater stability
of principal than an investment in equity funds alone. Over half of the
portfolio is in domestic fixed income funds which seek to provide income, and a
portion is in global bonds which seek to enhance income and total return. The
balance in equities is intended to add diversification and may enhance returns,
but will also add a moderate level of volatility to the portfolio.
STRATEGIC MODEL
PORTFOLIO WEIGHTINGS
[PIE CHART APPEARS HERE]
Short Duration Government Fund 43%
High Yield Fund 5%
Global Income Fund 12%
CORE Large Cap Value Fund/5/ 11%
CORE Large Cap Growth Fund 10%
CORE Small Cap Equity Fund 2%
CORE International Equity Fund 16%
Real Estate Securities Fund 2%
TACTICAL FUND WEIGHTINGS
(Changes quarterly)
[PIE CHART APPEARS HERE]
Short Duration Government Fund 35%
High Yield Fund 4%
Global Income Fund 13%
CORE Large Cap Value Fund/5/ 12%
CORE Large Cap Growth Fund 11%
CORE Small Cap Equity Fund 2%
CORE International Equity Fund 21%
Real Estate Securities Fund 2%
- --------------------------------------------------------------------------------
/1/Effective February 8, 1999, the Income Strategy Portfolio's name was
changed to the Balanced Strategy Portfolio.
/4/As of 12/31/98. Actual Fund weighting in asset allocation portfolios may
differ slightly from the figures shown above due to rounding, differences
in returns of the underlying Funds, or both. The above figures are not
indicative of future allocations.
/5/The allocation shown above for the Goldman Sachs CORE Large Cap Value Fund
is gradually being implemented; we anticipate that this process will be
completed by mid-February 1999. The Fund is replacing the Goldman Sachs
Growth and Income Fund. Goldman Sachs CORE Large Cap Value Fund more
closely tracks the Russell 2000 Index. The Russell 2000 Index is the
benchmark management uses to make asset allocation decisions.
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.
1
<PAGE>
FUND BASICS
Growth and Income Strategy
as of December 31, 1998
Assets Under Management
-----------------------
$427.9 million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GOIAX
-----------------------
Class B Shares
-----------------------
GOIBX
-----------------------
Class C Shares
-----------------------
GOICX
-----------------------
Institutional Shares
-----------------------
GOIIX
-----------------------
Service Shares
-----------------------
GOISX
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PERFORMANCE REVIEW
- ------------------------------------------------------------------------------------------
January 2, 1998-December 31, 1998 Fund Cumulative Total Return (based on NAV)/1/
- ------------------------------------------------------------------------------------------
<S> <C>
Class A 6.55%
Class B 5.82%
Class C 5.80%
Institutional 6.96%
Service Shares 6.43%
- ------------------------------------------------------------------------------------------
</TABLE>
/1/The net asset value ("NAV") represents the net assets of the Portfolio
(ex-dividend) divided by the total number of shares. Performance does not
reflect the deduction of any applicable sales charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SEC CUMULATIVE TOTAL RETURNS/2/
- -------------------------------------------------------------------------------------------------
For the period ending December 31, 1998 Class A Class B Class C Institutional Service
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception (1/2/98) 0.71% 0.71% 4.78% 6.96% 6.43%
- -------------------------------------------------------------------------------------------------
</TABLE>
/2/The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering
price for specified periods, assuming reinvestment of all distributions at
NAV. The total return calculation reflects a maximum initial sales charge
of 5.5% for Class A shares, the assumed deferred sales charge for Class B
shares (5% maximum declining to 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 Class A shares on December 31,
1998 was $10.98 and represents the NAV plus the maximum sales charge of
5.5%.
- --------------------------------------------------------------------------------
COMPOSITION/3/
- --------------------------------------------------------------------------------
For the investor who is less conservative and seeks current income with the
opportunity for long-term capital appreciation. Under normal circumstances,
assets are allocated fairly equally among fixed income funds, which are intended
to provide the income component, and equity funds, which are intended to provide
the capital appreciation component.
STRATEGIC MODEL
PORTFOLIO WEIGHTINGS/3/
[PIE CHART APPEARS HERE]
CORE Fixed Income Fund 18%
High Yield Fund 8%
Global Income Fund 14%
CORE Large Cap Value Fund/4/ 16%
CORE Large Cap Growth Fund 15%
CORE Small Cap Equity Fund 4%
CORE International Equity Fund 17%
Real Estate Securities Fund 2%
International Small Cap Fund 2%
TACTICAL FUND WEIGHTINGS/3/
(Changes quarterly)
[PIE CHART APPEARS HERE]
CORE Fixed Income Fund 11%
High Yield Fund 6%
Global Income Fund 15%
CORE Large Cap Value Fund/4/ 17%
CORE Large Cap Growth Fund 16%
CORE Small Cap Equity Fund 24%
CORE International Equity Fund 4%
Real Estate Securities Fund 2%
International Small Cap Fund 2%
- --------------------------------------------------------------------------------
/3/As of 12/31/98. Actual Fund weighting in asset allocation portfolios may
differ slightly from the figures shown above due to rounding, differences
in returns of the underlying Funds, or both. The above figures are not
indicative of future allocations.
/4/The allocation shown above for the Goldman Sachs CORE Large Cap Value Fund
is gradually being implemented; we anticipate that this process will be
completed by mid-February 1999. The Fund is replacing the Goldman Sachs
Growth and Income Fund. Goldman Sachs CORE Large Cap Value Fund more
closely tracks the Russell 2000 Index. The Russell 2000 Index is the
benchmark management uses to make asset allocation decisions.
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.
2
<PAGE>
FUND BASICS
Growth Strategy
as of December 31, 1998
Assets Under Management
-----------------------
$304.2 million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GGSAX
-----------------------
Class B Shares
-----------------------
GGSBX
-----------------------
Class C Shares
-----------------------
GGSCX
-----------------------
Institutional Shares
-----------------------
GGSIX
-----------------------
Service Shares
-----------------------
GGSSX
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PERFORMANCE REVIEW
- ------------------------------------------------------------------------------------------
January 2, 1998-December 31, 1998 Fund Cumulative Total Return (based on NAV)/1/
- ------------------------------------------------------------------------------------------
<S> <C>
Class A 4.62%
Class B 3.98%
Class C 3.96%
Institutional 4.92%
Service Shares 4.45%
- ------------------------------------------------------------------------------------------
</TABLE>
/1/The net asset value ("NAV") represents the net assets of the Portfolio
(ex-dividend) divided by the total number of shares. Performance does not
reflect the deduction of any applicable sales charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SEC CUMULATIVE TOTAL RETURNS/2/
- -------------------------------------------------------------------------------------------------
For the period ending December 31, 1998 Class A Class B Class C Institutional Service
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception (1/2/98) -1.11% -1.07% 2.95% 4.92% 4.45%
- -------------------------------------------------------------------------------------------------
</TABLE>
/2/The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering
price for specified periods, assuming reinvestment of all distributions at
NAV. The total return calculation reflects a maximum initial sales charge
of 5.5% for Class A shares, the assumed deferred sales charge for Class B
shares (5% maximum declining to 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 Class A shares on December 31,
1998 was $10.89 and represents the NAV plus the maximum sales charge of
5.5%.
- --------------------------------------------------------------------------------
COMPOSITION/3/
- --------------------------------------------------------------------------------
For the investor seeking long-term capital appreciation and, secondarily,
current income. Over 75% of the assets are allocated among equity funds, with a
blend of domestic large cap, small cap and international funds, which seek to
provide capital appreciation. The bond portion is intended to provide
diversification.
STRATEGIC MODEL
PORTFOLIO WEIGHTINGS/3/
[PIE CHART APPEARS HERE]
CORE Fixed Income Fund 10%
High Yield Fund 5%
Global Income Fund 5%
CORE Large Cap Value Fund/4/ 23%
CORE Large Cap Growth Fund 19%
CORE Small Cap Equity Fund 5%
CORE International Equity Fund 24%
Emerging Markets Equity Fund 5%
Real Estate Securities Fund 3%
International Small Cap Fund 3%
TACTICAL FUND WEIGHTINGS/3/
(Changes quarterly)
[PIE CHART APPEARS HERE]
CORE Fixed Income Fund 3%
High Yield Fund 2%
Global Income Fund 6%
CORE Large Cap Value Fund/4/ 24%
CORE Large Cap Growth Fund 19%
CORE Small Cap Equity Fund 5%
CORE International Equity Fund 29%
Emerging Markets Equity Fund 5%
Real Estate Securities Fund 3%
International Small Cap Fund 3%
- --------------------------------------------------------------------------------
/3/As of 12/31/98. Actual Fund weighting in asset allocation portfolios may
differ slightly from the figures shown above due to rounding, differences
in returns of the underlying Funds, or both. The above figures are not
indicative of future allocations.
/4/The allocation shown above for the Goldman Sachs CORE Large Cap Value Fund
is gradually being implemented; we anticipate that this process will be
completed by mid-February 1999. The Fund is replacing the Goldman Sachs
Growth and Income Fund. Goldman Sachs CORELarge Cap Value Fund more
closely tracks the Russell 2000 Index. The Russell 2000 Index is the
benchmark management uses to make asset allocation decisions.
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.
3
<PAGE>
FUND BASICS
Aggressive Growth Strategy
as of December 31, 1998
Assets Under Management
-----------------------
$109.8 million
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GAPAX
-----------------------
Class B Shares
-----------------------
GAPBX
-----------------------
Class C Shares
-----------------------
GAXCX
-----------------------
Institutional Shares
-----------------------
GAPIX
-----------------------
Service Shares
-----------------------
GAPSX
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PERFORMANCE REVIEW
- ------------------------------------------------------------------------------------------
January 2, 1998-December 31, 1998 Fund Cumulative Total Return (based on NAV)/1/
- ------------------------------------------------------------------------------------------
<S> <C>
Class A 2.57%
Class B 1.93%
Class C 2.04%
Institutional 2.80%
Service Shares 2.54%
- ------------------------------------------------------------------------------------------
</TABLE>
/1/The net asset value ("NAV") represents the net assets of the Portfolio
(ex-dividend) divided by the total number of shares. Performance does not
reflect the deduction of any applicable sales charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SEC CUMULATIVE TOTAL RETURNS/2/
- -------------------------------------------------------------------------------------------------
For the period ending December 31, 1998 Class A Class B Class C Institutional Service
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception (1/2/98) -3.05% -3.09% 1.04% 2.80% 2.54%
- -------------------------------------------------------------------------------------------------
</TABLE>
/2/The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering
price for specified periods, assuming reinvestment of all distributions at
NAV. The total return calculation reflects a maximum initial sales charge
of 5.5% for Class A shares, the assumed deferred sales charge for Class B
shares (5% maximum declining to 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 Class A shares on December 31,
1998 was $10.75 and represents the NAV plus the maximum sales charge of
5.5%.
- --------------------------------------------------------------------------------
COMPOSITION/3/
- --------------------------------------------------------------------------------
For the investor seeking long-term capital appreciation. Substantially all
assets are allocated among equity funds, with a greater focus on small cap and
international investments for enhanced return opportunities.
STRATEGIC MODEL
PORTFOLIO WEIGHTINGS/3/
[PIE CHART APPEARS HERE]
CORE Large Cap Value Fund/4/ 30%
CORE Large Cap Growth Fund 23%
CORE Small Cap Equity Fund 7%
CORE International Equity Fund 27%
Emerging Markets Equity Fund 7%
Real Estate Securities Fund 3%
International Small Cap Fund 4%
TACTICAL FUND WEIGHTINGS/3/
(Changes quarterly)
[PIE CHART APPEARS HERE]
CORE Large Cap Value Fund/4/ 26%
CORE Large Cap Growth Fund 20%
CORE Small Cap Equity Fund 6%
CORE International Equity Fund 35%
Emerging Markets Equity Fund 7%
Real Estate Securities Fund 3%
International Small Cap Fund 4%
- --------------------------------------------------------------------------------
/3/As of 12/31/98. Actual Fund weighting in asset allocation portfolios may
differ slightly from the figures shown above due to rounding, differences
in returns of the underlying Funds, or both. The above figures are not
indicative of future allocations.
/4/The allocation shown above for the Goldman Sachs CORE Large Cap Value Fund
is gradually being implemented; we anticipate that this process will be
completed by mid-February 1999. The Fund is replacing the Goldman Sachs
Growth and Income Fund. Goldman Sachs CORELarge Cap Value Fund more
closely tracks the Russell 2000 Index. The Russell 2000 Index is the
benchmark management uses to make asset allocation decisions.
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.
4
<PAGE>
PERFORMANCE OVERVIEW
Asset Allocation Portfolios
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Asset
Allocation Portfolios. This annual report covers the period from January 2,
1998, when the Portfolios were initiated, through December 31, 1998.
Performance
The performance of your Portfolio is driven by three factors: 1) strategic
asset allocation policy; 2) fund performance; and 3) tactical
reallocation. By reallocating your Portfolio on a quarterly basis, we seek
to enhance the performance of your Portfolio over the long term.
Over the year, the Asset Allocation Portfolios generally benefited from
tactical reallocation decisions. More specifically, we maintained an
overweight position in global stocks, which outperformed both bonds and
cash. The Portfolios' overweight position in equities from developed
international markets relative to domestic equities also helped
performance during the period. Similarly, the Portfolios' overweight
position in global bonds relative to domestic bonds helped performance
during the period. The Portfolios' brief overweighting in domestic bonds
relative to global bonds in the second quarter did not significantly
impact performance.
On the negative side, however, the Portfolios' good performance from
tactical reallocation was offset by an atypically high level of volatility
due to global economic uncertainties. In this environment, investors
favored the quality and perceived safety of blue-chip, large cap,
growth-oriented industry leaders. As a result, the benefits of asset
allocation over the short term were not discernible. Also detrimental to
the Portfolios' performance was the weak performance of one of the
underlying funds, the Goldman Sachs Growth and Income Fund, which invests
primarily in value stocks. As with many value funds, the short-term
performance of the Goldman Sachs Growth and Income Fund suffered in this
market environment.
The following is a summary of the performance of the Portfolios over the
year (figures do not reflect the deduction of any applicable sales
charge).
o Goldman Sachs Balanced Strategy Portfolio -- The Portfolio's Class A, B,
C, Institutional and Service shares generated cumulative total returns
since inception of 6.38%, 5.75%, 5.83%, 6.99% and 6.30%, respectively.
o Goldman Sachs Growth and Income Strategy Portfolio -- The Portfolio's
Class A, B, C, Institutional and Service shares generated cumulative total
returns since inception of 6.55%, 5.82%, 5.80%, 6.96% and 6.43%,
respectively.
o Goldman Sachs Growth Strategy Portfolio -- The Portfolio's Class A, B, C,
Institutional and Service shares generated cumulative total returns since
inception of 4.62%, 3.98%, 3.96%, 4.92% and 4.45%, respectively.
o Goldman Sachs Aggressive Growth Strategy Portfolio -- The Portfolio's
Class A, B, C, Institutional and Service shares generated cumulative total
returns since inception of 2.57%, 1.93%, 2.04%, 2.80% and 2.54%,
respectively.
[GRAPHIC]
5
<PAGE>
PERFORMANCE OVERVIEW
We believe that the success of our clients is often a product of carefully
planned and executed long-term investing strategies designed to suit individual
goals. The Goldman Sachs Asset Allocation Portfolios have been crafted to bring
this long-term investing approach to you.
Global Asset Allocation Views -- 1998
o Equities -- During most of the period, our view on Japan was positive due
to attractive valuations. We began the first quarter underweighted in
Japan due to negative momentum factors, moved to a neutral position in the
second quarter and were overweight in Japan for the second half of the
year. Within Europe, we favored at various times Finland, Italy, Norway,
Sweden, and Germany. We were negative on the UK throughout the period due
to unattractive valuations and relatively poor momentum. Likewise,
unattractive valuations led us to maintain an underweight position in the
U.S. throughout the period.
o Bonds -- Our favorite fixed income region throughout the period was
Europe, especially Sweden, due to attractive valuations and specific
momentum factors. We maintained our negative view on Japanese bonds
throughout the period due to poor market momentum and unattractive yields.
With regard to relative weightings, our positions varied. In the first
quarter, the Portfolios were overweight international bonds against the
U.S., while in the second quarter, they were overweight U.S. bonds
relative to the rest of the world. In the second half of the period, the
Portfolios were overweight U.S. bonds relative to Japan and Switzerland
(and, in the fourth quarter, Sweden), but underweight relative to the rest
of the world.
o Currencies -- For the first half of the period, we favored the U.S. dollar
versus international securities, due to continued market strength and
yield curve factors. The currencies of Malaysia, New Zealand and Singapore
were our least favorite, due mostly to poor momentum factors, and our view
on the yen was negative during both the first and second quarters.
Mid period, short-term momentum factors led us to favor the yen. This was
a significant change in our views. We continued to favor the U.S. dollar
versus international currencies, except in the cases of Japan and the
U.K., given market strength and yield curve factors. Our least favorite
currencies remained Malaysia, New Zealand and Singapore. By period end,
the yen was once again one of our least favorite currencies, along with
Australia and New Zealand, due to poor momentum and relatively
unattractive valuations. Market performance and continuing favorable
interest rate levels led us to favor the euro. We continued to like the
British pound due to an attractive yield curve and increasing momentum.
Current Outlook
We continue to favor global stocks over global bonds. Though valuations
have worsened, we continue to be bullish in stocks, due to a significant
improvement in the inflationary fears sub-model. We continue to prefer
international equities versus domestic equities. Despite a decline in the
attractiveness of valuation factors for fixed income securities, our
outlook on bonds versus cash remains positive as momentum has improved
substantially.
o Equities -- We continue to underweight the U.S. versus international
equities due to poor domestic valuations. Japan remains one of the most
attractive equity markets, mostly as a result of favorable valuation
measures. We are also favorable on continental Europe, particularly
Finland, Sweden and Spain. Finland and Spain show strong market
performance and earnings while Sweden has attractive currency-related
factors. We maintain a negative view on the U.K., as valuations and
momentum remain weak. We favor Australia and New Zealand, due specifically
to strong currency-related factors and favorable risk factors.
6
<PAGE>
o Bonds -- We continue to underweight the U.S., due primarily to poor
momentum and flat yield curves. Our favorite fixed income region continues
to be Europe, especially Sweden, which continues to show attractive
yield-related indicators and strong market performance. Our view on Japan
has become more positive, due mainly to stronger currency-related factors
and steeper yield curves. We are negative on the U.K. relative to the rest
of the world as yield-related and currency-related factors remain poor.
o Currencies -- The U.S. dollar continues to be our favorite currency due to
stronger market performance, higher earnings and continued attractive
yield-related factors. Despite recent poor market performance, we favor
the Japanese yen relative to the euro block, due in part to attractive
long-term value. Though market performance has improved, we still maintain
a neutral position on the British pound as interest rates became less
favorable and long-term value continues to be poor. Our least favorite
currencies are the Swedish krona, Swiss franc and Norwegian krone, due
primarily to poor valuations and relatively unattractive momentum.
A Final Note: New Asset Classes
Beginning this quarter, we are pleased to further distinguish our Asset
Allocation Portfolios by including two new asset classes: international
small-capitalization equities and real estate securities. The benefit of
these enhancements is clear: increased diversification and risk
management. Because these asset classes have relatively low correlation
with the existing asset classes, their inclusion may reduce the risk
and/or enhance the return of the Portfolios.
The real estate asset class will be implemented in all Portfolios, using
the Goldman Sachs Real Estate Securities Fund. The international small
capitalization asset class will be implemented in the three more
aggressive Portfolios, using the Goldman Sachs International Small Cap
Fund.
Optimization by the Goldman Sachs Asset Management Quantitative Research
Group, using the firm's proprietary Black-Litterman Asset Allocation
Model, has resulted in strategic weightings to real estate of 2% to 3%,
and to international small cap stocks of 2% to 4%, depending on the
Portfolio. These additions are intended to enhance the risk-adjusted
return of the Portfolios, and further demonstrate the commitment and
ability of Goldman Sachs Asset Management to bring our unique
institutional capabilities -- our access to global resources, quantitative
research capabilities and focus on risk management -- to you, the
shareholder.
We hope this summary has been helpful to you in your understanding of how
we manage your Asset Allocation Portfolio. If you have questions or
comments, we encourage you to contact your Goldman Sachs representative.
We thank you for the confidence you have placed in us and look forward to
your continued support.
Goldman Sachs Quantitative Research Group
New York, January 29, 1999
7
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
What Makes Asset Allocation at
Goldman Sachs Different?
Goldman Sachs' proprietary asset allocation strategy is based on an exclusive
risk management framework, the Black-Litterman Asset Allocation Model.
Many investors believe their success depends on investing at the right
time or choosing high-performing stocks or bonds. In reality, when
investors commit assets and which individual securities they buy are
believed to account for just 8.5%* of a portfolio's return over time.
Instead, their asset allocation strategy accounts for the majority of a
portfolio's return.
With this in mind, Goldman Sachs has developed an exclusive asset
allocation process that seeks to deliver the full range of global
investment opportunities in constantly changing markets.
+ =
o Portfolio management teams on-site, around the world including the
Americas, Europe and Asia-Pacific regions
o Firsthand insights into local cultures, markets and economies
o Expertise in geographic areas, investment styles, large-, mid- and
small-market capitalizations and issuers
o Specialized portfolio management teams that perform their own fundamental
analysis of securities -- and have access to Goldman Sachs' Global
Investment Research Department
This degree of global presence and market expertise cannot be accessed in
most mutual funds. We offer four Asset Allocation Portfolios to tap these
resources.
o Balanced Strategy
o Growth and Income Strategy
o Growth Strategy
o Aggressive Growth Strategy
- --------------------------------------------------------------------------------
ASSET ALLOCATION STRATEGIES
- --------------------------------------------------------------------------------
OTHER GOLDMAN SACHS
- --------------------------------------------------------------------------------
Constant. Tactical.
Rebalance quarterly which keeps Reallocate quarterly which captures
the same over time. in global markets.
- --------------------------------------------------------------------------------
Backward-Looking. Forward-Looking.
Base allocation decisions on past Base allocation decisions on expected
returns and market relationships. future returns given current market
conditions
- --------------------------------------------------------------------------------
Inconsistent Risk Profile. Consistent Risk Profile.
Identify the top performers and Focus on how tactical reallocation impacts
overweight that security/asset each Portfolio's risk profile, maintaining
class, changing an investor's an investor's original risk/return profile
original risk/return profile. over time.
- --------------------------------------------------------------------------------
*Source: Brinson, Hood & Beebower, "Determinants of Portfolio Performance,"
Financial Analysts Journal, May/June 1991.
8
<PAGE>
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charges of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for the Institutional and Service Classes in Goldman Sachs Balanced
Strategy Portfolio (formerly, the Goldman Sachs Income Strategy Portfolio) on
February 1, 1998. For comparative purposes, the performance of the portfolio
benchmark (the S&P 500, Lehman High Yield Bond Index and two-year U.S. Trea-
sury Bills ("Two-Year T-Bill")) are also shown. All performance data shown
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 original cost.
Goldman Sachs Balanced Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Lehman High
Institutional Service Yield Bond
Class A Class B Class C Class Class S&P 500 Index Two-Year T-Bill
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9,450 10,000 10,000 10,000 10,000 10,000 10,000 10,000
2/28/98 9,814 9,879 10,279 10,401 10,393 10,721 10,059 10,000
3/98 9,975 10,041 10,442 10,575 10,555 11,270 10,154 10,035
4/98 10,006 10,067 10,468 10,610 10,586 11,384 10,193 10,077
5/98 9,950 10,003 10,404 10,554 10,527 11,118 10,229 10,128
6/98 9,965 10,012 10,414 10,573 10,541 11,642 10,266 10,177
7/98 9,932 9,961 10,374 10,541 10,495 11,518 10,324 10,221
8/98 9,300 9,304 9,704 9,873 9,835 9,852 9,754 10,370
9/98 9,394 9,402 9,797 9,975 9,933 10,484 9,798 10,512
10/98 9,674 9,679 10,083 10,277 10,229 11,336 9,597 10,567
11/98 9,878 9,886 10,291 10,496 10,443 12,023 9,996 10,517
12/98 10,055 10,062 10,481 10,699 10,630 12,715 10,007 10,546
</TABLE>
Average Annual Total Return through December 31, 1998(b)
Since Inception(c)
Class A
Excluding sales charges 6.38%
Including sales charges 0.55%
------------------------------------------
Class B
Excluding sales charges 5.75%
Including sales charges 0.62%
------------------------------------------
Class C
Excluding sales charges 5.83%
Including sales charges 4.80%
------------------------------------------
Institutional Class 6.99%
------------------------------------------
Service Class 6.30%
------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
9
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charges of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for the Institutional and Service Classes in Goldman Sachs Growth and In-
come Strategy Portfolio on February 1, 1998. For comparative purposes, the
performance of the portfolio benchmark (the S&P 500, Lehman High Yield Bond
Index, Lehman Aggregate Index and Morgan Stanley EAFE ("MSCI EAFE")) are also
shown. All performance data shown 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 rendered, to be worth more or less than original
cost.
Goldman Sachs Growth and Income Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Lehman
High Lehman
Institutional Service Yield Aggregate MSCI
Class A Class B Class C Class Class S&P 500 Bond Index Index EAFE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9,450 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
2/28/98 10,113 10,190 10,580 10,700 10,700 10,721 10,059 9,992 10,644
3/98 10,333 10,426 10,815 10,937 10,928 11,270 10,154 10,027 10,974
4/98 10,380 10,466 10,855 10,987 10,978 11,384 10,193 10,079 11,063
5/98 10,210 10,276 10,665 10,807 10,798 11,188 10,229 10,175 11,012
6/98 10,180 10,239 10,630 10,781 10,755 11,642 10,266 10,261 11,098
7/98 10,065 10,109 10,499 10,660 10,634 11,518 10,324 10,283 11,213
8/98 9,001 9,003 9,381 9,543 9,508 9,852 9,754 10,450 9,826
9/98 9,145 9,142 9,525 9,694 9,658 10,484 9,798 10,695 9,627
10/98 9,526 9,515 9,914 10,098 10,062 11,336 9,597 10,638 10,523
11/98 9,841 9,855 10,246 10,453 10,405 12,023 9,996 10,699 11,065
12/98 10,071 10,071 10,478 10,696 10,643 12,715 10,007 10,731 11,504
</TABLE>
Average Annual Total Return through December 31, 1998(b)
Since Inception(c)
Class A
Excluding sales charges 6.55%
Including sales charges 0.71%
--------------------------------------------
Class B
Excluding sales charges 5.82%
Including sales charges 0.71%
--------------------------------------------
Class C
Excluding sales charges 5.80%
Including sales charges 4.78%
--------------------------------------------
Institutional Class 6.96%
--------------------------------------------
Service Class 6.43%
--------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
10
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Investments
December 31, 1998
GOLDMAN SACHS
BALANCED STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Mutual Funds (Institutional Shares) - 97.8%
Equity - 47.3%
2,231,018 Goldman Sachs CORE International Equity Fund - 22.6% $22,377,111
469,802 Goldman Sachs Growth and Income Fund - 11.5% 11,345,722
580,663 Goldman Sachs CORE Large Cap Growth Fund - 9.0% 8,913,177
218,948 Goldman Sachs CORE Small Cap Equity Fund - 2.2% 2,217,940
210,071 Goldman Sachs Real Estate Securities Fund - 2.0% 1,934,758
-----------
$46,788,708
-----------------------------------------------------------------------------
Fixed Income - 50.5%
3,416,079 Goldman Sachs Short Duration Government Fund - 33.8% $33,409,253
817,579 Goldman Sachs Global Income
Fund - 12.7% 12,549,837
411,188 Goldman Sachs High Yield Fund - 4.0% 3,955,624
-----------
$49,914,714
-----------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(Cost $96,020,771) $96,703,422
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 0.2%
Joint Repurchase Agreement Account
<C> <S> <C> <C>
$200,000 4.89% 01/04/1999 $ 200,000
---------------------------------------------
TOTAL REPURCHASE AGREEMENT ACCOUNT
(Cost $200,000) $ 200,000
---------------------------------------------
TOTAL INVESTMENTS
(Cost
$96,220,771)(a) $96,903,422
---------------------------------------------
Federal Income Tax
Information:
Gross unrealized gain for in-
vestments in which value ex-
ceeds cost $ 1,262,141
Gross unrealized loss for in-
vestments in which cost ex-
ceeds value (1,572,147)
---------------------------------------------
Net unrealized loss $ (310,006)
---------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $97,213,428.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
GOLDMAN SACHS
GROWTH AND INCOME STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
Mutual Funds (Institutional Shares) - 99.2%
<C> <S> <C>
Equity - 68.0%
11,468,937 Goldman Sachs CORE International Equity Fund -
26.7% $115,033,442
2,932,080 Goldman Sachs Growth and Income Fund - 16.4% 70,809,735
3,282,943 Goldman Sachs CORE Large Cap Growth Fund - 11.7% 50,393,179
2,951,373 Goldman Sachs Emerging Markets Equity Fund - 4.9% 21,308,912
1,803,648 Goldman Sachs CORE Small Cap Equity Fund - 4.2% 18,270,959
839,951 Goldman Sachs International Small Cap Fund - 2.0% 8,769,087
931,109 Goldman Sachs Real Estate Securities Fund - 2.0% 8,575,518
------------
$293,160,832
----------------------------------------------------------------------------
Fixed Income - 31.2%
4,161,501 Goldman Sachs Global Income Fund - 14.8% $ 63,879,045
4,670,459 Goldman Sachs Core Fixed Income Fund - 10.9% 46,938,114
2,477,074 Goldman Sachs High Yield Fund - 5.5% 23,829,452
------------
$134,646,611
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $433,474,629)(a) $427,807,443
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Federal Income
Tax Information:
Gross unrealized
gain for invest-
ments in which
value exceeds
cost $ 7,824,638
Gross unrealized
loss for invest-
ments in which
cost exceeds
value (15,602,873)
--------------------------------
Net unrealized
loss $ (7,778,235)
--------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $435,585,678.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
For information on the underlying mutual funds, please call our toll free
Shareholder Services Line at
1-800-526-7384 or visit us on the web at www.gs.com/funds.
The accompanying notes are an
integral part of these financial
statements. 11
<PAGE>
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for Institutional and Service Classes in Goldman Sachs Growth Strategy
Portfolio on February 1, 1998. For comparative purposes, the performance of
the portfolio benchmark (the S&P 500, Morgan Stanley EAFE ("MSCI EAFE"), Rus-
sell 2000 and Morgan Stanley Emerging Market ("MSCI EMF")) are also shown.
All performance data shown represents past performance and should not be con-
sidered 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 original cost.
Goldman Sachs Growth Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Class A Class B Class C Institutional Service S&P 500 MSCI EAFE Russell 2000 MSCI EMF
Class Class
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9,450 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
2/28/98 10,217 10,310 10,710 10,810 10,890 10,721 10,644 10,739 11,044
3/98 10,491 10,593 10,991 11,104 11,190 11,270 10,974 11,181 11,523
4/98 10,548 10,643 11,041 11,164 11,250 11,384 11,063 11,243 11,398
5/98 10,283 10,363 10,761 10,884 10,880 11,188 11,012 10,637 9,836
6/98 10,213 10,275 10,684 10,816 10,760 11,642 11,098 10,659 8,804
7/98 10,024 10,065 10,474 10,615 10,520 11,518 11,213 9,796 9,083
8/98 8,612 8,621 8,992 9,120 8,750 9,852 9,826 7,894 6,457
9/98 8,760 8,765 9,141 9,285 8,910 10,484 9,527 8,512 6,867
10/98 9,244 9,240 9,637 9,798 9,520 11,336 10,523 8,859 7,590
11/98 9,614 9,616 10,014 10,200 9,940 12,023 11,065 9,323 8,221
12/98 9,889 9,893 10,295 10,492 10,254 12,715 11,504 9,900 8,102
</TABLE>
Average Annual Total Return through December 31,
1998(b)
Since Inception(c)
Class A
Excluding sales charges 4.62%
Including sales charges -1.11%
----------------------------------------------------
Class B
Excluding sales charges 3.98%
Including sales charges -1.07%
----------------------------------------------------
Class c
Excluding sales charges 3.96%
Including sales charges 2.95%
----------------------------------------------------
Institutional Class 4.92%
----------------------------------------------------
Service Class 4.45%
----------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
12
<PAGE>
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charges of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for the Institutional and Service Classes in Goldman Sachs Aggressive
Growth Strategy Portfolio on February 1, 1998. For comparative purposes, the
performance of the portfolio benchmark (the S&P 500, Morgan Stanley EAFE
("MSCI EAFE"), Russell 2000 and Morgan Stanley Emerging Market ("MSCI EMF"))
are also shown. All performance data shown represents past performance and
should not be considered indicative of future performance which will fluctu-
ate with changes in market conditions. These performance fluctuations will
cause an investor's shares, when redeemed, to be worth more or less than
original cost.
Goldman Sachs Aggressive Growth Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Institutional Service
Class A Class B Class C Class Class S&P 500 MSCI EAFE Russell 2000 MSCI EMF
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9,450 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
2/28/98 10,293 10,390 10,790 10,890 10,890 10,721 10,644 10,739 11,044
3/98 10,577 10,690 11,090 11,190 11,190 11,270 10,974 11,181 11,523
4/98 10,633 10,740 11,140 11,250 11,250 11,384 11,063 11,243 11,398
5/98 10,284 10,370 10,770 10,880 10,880 11,188 11,012 10,637 9,836
6/98 10,170 10,240 10,640 10,760 10,760 11,642 11,098 10,659 8,804
7/98 9,943 10,000 10,390 10,520 10,520 11,518 11,213 9,796 9,083
8/98 8,280 8,294 8,643 8,760 8,750 9,852 9,826 7,894 6,457
9/98 8,422 8,436 8,791 8,910 8,910 10,484 9,527 8,512 6,867
10/98 8,998 8,997 9,385 9,520 9,520 11,336 10,523 8,859 7,590
11/98 9,395 9,396 9,801 9,940 9,940 12,023 11,065 9,323 8,221
12/98 9,695 9,691 10,104 10,280 10,254 12,715 11,504 9,900 8,102
</TABLE>
Average Annual Total Return through December 31, 1998(b)
Since Inception(c)
Class A
Excluding sales charges 2.57%
Including sales charges -3.05%
---------------------------------------------
Class B
Excluding sales charges 1.93%
Including sales charges -3.09%
---------------------------------------------
Class C
Excluding sales charges 2.04%
Including sales charges 1.04%
---------------------------------------------
Institutional Class 2.80%
---------------------------------------------
Service Class 2.54%
---------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
13
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Investments
December 31, 1998
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
Mutual Funds (Institutional Shares) - 99.9%
<C> <S> <C>
Equity - 88.2%
9,268,044 Goldman Sachs CORE International Equity Fund -
30.5% $ 92,958,486
3,029,881 Goldman Sachs Growth and Income Fund - 24.0% 73,171,629
3,247,155 Goldman Sachs CORE Large Cap Growth Fund -16.4% 49,843,822
2,872,947 Goldman Sachs Emerging Markets Equity Fund - 6.8% 20,742,674
1,623,281 Goldman Sachs CORE Small Cap Equity Fund - 5.4% 16,443,840
743,457 Goldman Sachs International Small Cap Fund - 2.6% 7,761,696
824,039 Goldman Sachs Real Estate Securities Fund - 2.5% 7,589,403
------------
$268,511,550
----------------------------------------------------------------------------
Fixed Income - 11.7%
1,000,717 Goldman Sachs Core Fixed Income Fund - 3.3% $ 10,057,210
1,229,432 Goldman Sachs Global Income Fund - 6.2% 18,871,775
707,924 Goldman Sachs High Yield Fund - 2.2% 6,810,226
------------
$ 35,739,211
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $309,339,607)(a) $304,250,761
----------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds
cost $ 6,520,352
Gross unrealized loss for investsments in which cost exceeds
value (14,122,153)
----------------------------------------------------------------------------
Net unrealized loss $ (7,601,801)
----------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $311,852,562.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Mutual Funds (Institutional Shares) - 99.7%
Equity - 99.7%
3,797,990 Goldman Sachs CORE International
Equity Fund - 34.5% $ 38,093,842
1,161,682 Goldman Sachs Growth and Income Fund - 25.5% 28,054,617
1,215,815 Goldman Sachs CORE Large Cap Growth Fund - 16.9% 18,662,763
1,454,891 Goldman Sachs Emerging Markets Equity Fund - 9.5% 10,504,311
679,684 Goldman Sachs CORE Small Cap Equity Fund - 6.2% 6,885,197
428,515 Goldman Sachs International Small Cap Fund - 4.1% 4,473,692
356,179 Goldman Sachs Real Estate Securities Fund - 3.0% 3,280,413
------------
$109,954,835
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $113,119,461)(a) $109,954,835
----------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds
cost $ 1,955,478
Gross unrealized loss for investsments in which cost exceeds
value (6,209,134)
----------------------------------------------------------------------------
Net unrealized loss $ (4,253,656)
----------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $114,208,491.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
For information on the underlying mutual funds, please call our toll free
Shareholder Services Line at
1-800-526-7384 or visit us on the web at www.gs.com/funds.
14 The accompanying notes are an integral part of these financial
statements.
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio Strategy Portfolio Strategy Portfolio Strategy Portfolio
Assets:
<S> <C> <C> <C> <C>
Investment in
securities, at value
(identified cost
$96,220,771,
$433,474,629,
$309,339,607,
$113,119,461,
respectively) $96,903,422 $427,807,443 $304,250,761 $109,954,835
Cash 315,106 1,415,394 201,452 --
Receivables:
Investment securities
sold -- 148,884 291,580 126,701
Dividends and interest 204,223 1,178,251 317,096 --
Fund shares sold 1,899,991 3,609,578 1,745,473 811,672
Reimbursement from
adviser 73,585 156,144 190,546 104,555
Deferred organization
expenses, net 12,508 12,508 12,508 12,508
Other assets -- 8,070 254 993
----------------------------------------------------------------------------------------------------------
Total assets 99,408,835 434,336,272 307,009,670 111,011,264
----------------------------------------------------------------------------------------------------------
Liabilities:
Due to Bank -- -- -- 126,701
Payables:
Investment securities
purchased 204,105 -- -- --
Fund shares repurchased 122,229 2,275,342 1,940,264 322,311
Amounts owed to
affiliates 84,035 357,588 258,255 110,107
Accrued expenses and
other liabilities 142,491 252,994 225,167 142,211
----------------------------------------------------------------------------------------------------------
Total liabilities 552,860 2,885,924 2,423,686 701,330
----------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 99,193,278 438,910,650 313,588,270 115,743,162
Accumulated
undistributed net
investment income 21,172 -- -- 15,311
Accumulated net realized
loss on investment
transactions (1,041,126) (1,793,116) (3,913,440) (2,283,913)
Net unrealized gain
(loss) on investments 682,651 (5,667,186) (5,088,846) (3,164,626)
----------------------------------------------------------------------------------------------------------
NET ASSETS $98,855,975 $431,450,348 $304,585,984 $110,309,934
----------------------------------------------------------------------------------------------------------
Net asset value per
share:(a)
Class A $10.31 $10.38 $10.29 $10.16
Class B $10.31 $10.36 $10.28 $10.14
Class C $10.32 $10.36 $10.28 $10.15
Institutional $10.32 $10.39 $10.29 $10.16
Service $10.31 $10.37 $10.29 $10.15
----------------------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 3,901,387 17,472,321 12,518,008 4,638,495
Class B 3,274,954 13,402,760 10,630,600 4,061,821
Class C 2,345,641 9,722,378 6,216,695 2,139,879
Institutional 19,857 869,159 214,334 12,162
Service 44,171 130,588 36,710 11,886
----------------------------------------------------------------------------------------------------------
Total shares
outstanding, $.001 par
value
(unlimited number of
shares authorized) 9,586,010 41,597,206 29,616,347 10,864,243
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share divided by 1 minus
maximum sales charge of 5.5%) for Class A shares of the Balanced, Growth
& Income, Growth and Aggressive Growth Strategy Portfolios is $10.91,
$10.98, 10.89, $10.75, respectively. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Operations
For the Period Ended December 31, 1998
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs
Balanced Growth and Income Growth
Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a)
<CAPTION>
Goldman Sachs
Aggressive Growth
Strategy Portfolio(a)
<S> <C> <C> <C>
Investment income:
Income distributions from underlying
funds $1,877,900 $ 7,017,569 $ 3,503,789
Interest 21,198 91,521 64,645
------------------------------------------------------------------------------------------------------------
Total income 1,899,098 7,109,090 3,568,434
------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income distributions from underlying
funds $ 898,684
Interest 23,129
------------------------------------------------------------------------------------------------------------
Total income 921,813
------------------------------------------------------------------------------------------------------------
Expenses:
Expenses:
Management fees 182,558 834,668 593,231
Distribution and Service fees(b) 373,218 1,682,211 1,222,350
Custodian fees 36,000 47,000 36,000
Transfer Agent fees 157,025 414,136 399,850
Registration fees 109,531 247,354 210,061
Professional fees 30,475 30,475 30,475
Trustee fees 5,448 5,417 5,483
Amortization of deferred
organization expenses 3,116 3,116 3,116
Service class fees 1,358 3,734 820
Other 39,495 39,570 39,450
------------------------------------------------------------------------------------------------------------
Total expenses 938,224 3,307,681 2,540,836
------------------------------------------------------------------------------------------------------------
Less--
expenses reimbursed and fees waived by
Goldman Sachs (422,724) (985,336) (861,810)
------------------------------------------------------------------------------------------------------------
Net expenses 515,500 2,322,345 1,679,026
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,383,598 4,786,745 1,889,408
------------------------------------------------------------------------------------------------------------
Management fees 219,795
Distribution and Service fees(b) 461,440
Custodian fees 36,000
Transfer Agent fees 209,288
Registration fees 118,413
Professional fees 30,475
Trustee fees 5,714
Amortization of deferred
organization expenses 3,116
Service class fees 306
Other 37,857
------------------------------------------------------------------------------------------------------------
Total expenses 1,122,404
------------------------------------------------------------------------------------------------------------
Less--
expenses reimbursed and fees waived by
Goldman Sachs (491,207)
------------------------------------------------------------------------------------------------------------
Net expenses 631,197
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 290,616
------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss):
Realized and unrealized gain (loss):
Capital gain distributions from
underlying funds 268,323 2,045,037 555,931
Net realized loss from investment
transactions (659,779) (104,094) (2,593,098)
Net change in unrealized gain (loss)
on investments 682,651 (5,667,186) (5,088,846)
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 291,195 (3,726,243) (7,126,013)
------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $1,674,793 $ 1,060,502 $(5,236,605)
------------------------------------------------------------------------------------------------------------
Capital gain distributions from
underlying funds 1,196
Net realized loss from investment
transactions (1,810,785)
Net change in unrealized gain (loss)
on investments (3,164,626)
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (4,974,215)
------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $(4,683,599)
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was January 2, 1998.
(b) Class A, Class B and Class C of the following funds had distribution and
service fees of:
Goldman Sachs Balanced Strategy Portfolio: $86,263, $156,644, and $130,311,
respectively.
Goldman Sachs Growth and Income Strategy Portfolio: $381,299, $736,771, and
$564,141, respectively.
Goldman Sachs Growth Strategy Portfolio: $267,938, $587,857, and $366,555,
respectively.
Goldman Sachs Aggressive Growth Strategy Portfolio: $94,953, $240,609, and
$125,878, respectively.
16 The accompanying notes are an integral part of these financial
statements.
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Changes in Net Assets
For the Period Ended December 31, 1998
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a)
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 1,383,598 $ 4,786,745 $ 1,889,408 $ 290,616
Net realized gain (loss) (391,456) 1,940,943 (2,037,167) (1,809,589)
Net change in unrealized
gain (loss) on
investments 682,651 (5,667,186) (5,088,846) (3,164,626)
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 1,674,793 1,060,502 (5,236,605) (4,683,599)
----------------------------------------------------------------------------------------------------------------------
Distributions to share-
holders:
From net investment
income
Class A shares (675,433) (2,306,364) (1,028,555) (235,518)
Class B shares (389,882) (1,359,409) (531,921) (33,771)
Class C shares (308,560) (990,627) (309,463) (19,874)
Institutional shares (2,105) (112,462) (16,851) (830)
Service shares (7,619) (17,883) (2,618) (623)
In excess of net
investment income
Class A shares (113,394) (822,962) (291,624) (689)
Class B shares (65,455) (485,067) (150,814) (99)
Class C shares (51,802) (353,478) (87,742) (58)
Institutional shares (353) (40,129) (4,778) (2)
Service shares (1,279) (6,381) (742) (2)
From net realized gain
Class A shares (162,793) (867,706) (595,050) (201,675)
Class B shares (140,756) (672,087) (501,683) (176,608)
Class C shares (102,275) (483,928) (297,823) (93,875)
Institutional shares (747) (43,567) (9,965) (496)
Service shares (1,869) (6,591) (1,740) (474)
----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (2,024,322) (8,568,641) (3,831,369) (764,594)
----------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales
of shares 116,904,997 479,484,104 345,618,571 134,338,429
Reinvestment of
dividends and
distributions 1,726,504 7,902,811 3,614,716 736,661
Cost of shares
repurchased (19,425,997) (48,428,428) (35,579,329) (19,316,963)
----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
share transactions 99,205,504 438,958,487 313,653,958 115,758,127
----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 98,855,975 431,450,348 304,585,984 110,309,934
----------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period -- -- -- --
----------------------------------------------------------------------------------------------------------------------
End of period $ 98,855,975 $431,450,348 $304,585,984 $110,309,934
----------------------------------------------------------------------------------------------------------------------
Accumulated
undistributed net
investment income $ 21,172 $ -- $ -- $ 15,311
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was January 2, 1998.
17
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes Goldman Sachs Balanced Strategy
Portfolio formerly, the Goldman Sachs Income Strategy Portfolio- (Balanced
Strategy), Goldman Sachs Growth and Income Strategy Portfolio (Growth and In-
come Strategy), Goldman Sachs Growth Strategy Portfolio (Growth Strategy) and
Goldman Sachs Aggressive Growth Strategy Portfolio (Aggressive Growth Strate-
gy), collectively, (the "Portfolios") or individually (a "Portfolio"). Effec-
tive February 8, 1999, the name of Goldman Sachs Income Strategy Portfolio
was changed to Goldman Sachs Balanced Strategy Portfolio. All of the Portfo-
lios offer five classes of shares --Class A, Class B, Class C, Institutional
and Service shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios. 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 -- Each Portfolio invests in a combination of Under-
lying Funds (the "Underlying Funds") for which Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs & Co. ("Goldman
Sachs"), Goldman Sachs Funds Management L.P. ("GSFM"), an affiliate of
Goldman Sachs or Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, acts as investment adviser. Investments in the
Underlying Funds are valued at the closing net asset value per share of each
Underlying Fund on the day of valuation. Because each Portfolio invests pri-
marily in other mutual funds, which fluctuate in value, the Portfolios'
shares will correspondingly fluctuate in value. Short-term debt obligations
maturing in sixty days or less are valued at amortized cost.
B. Securities Transactions and Investment Income -- Security transactions are
recorded as of trade date. Realized gains and losses on sales of portfolio
securities are calculated on the identified cost basis. Dividend income and
capital gains distributions from the Underlying Funds are recorded on the ex-
dividend date. Interest income is determined on the basis of interest ac-
crued.
C. Federal Taxes -- It is each Portfolio's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment compa-
nies and to distribute each year substantially all of its investment company
taxable income and capital gains to its shareholders. Accordingly, no federal
tax provisions are required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of a Portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in-capital, de-
pending on the type of book/tax differences that may exist.
D. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual Portfolio of the Trust are allocated to the Portfolios based
on the nature of the expense.
Class A, Class B and Class C shareholders of the Portfolios bear all ex-
penses and fees relating to their respective distribution and service plans.
Shareholders of Service shares bear all expenses and fees paid to service or-
ganizations for their services with respect to such shares. Effective Septem-
ber 1, 1998, each Class of shares of the Funds now 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.
18
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Portfolios' investment ad-
viser pursuant to the Investment Management Agreement (the "Agreement"). Un-
der the Agreement, GSAM, subject to the general supervision of the Trust's
Board of Trustees, manages the Portfolios. As compensation for the services
rendered pursuant to the Agreement, the assumption of the expenses related
thereto and administering the Portfolios' business affairs, including provid-
ing facilities, GSAM is entitled to a fee, computed daily and payable monthly
at an annual rate equal to .35% of average daily net assets of each Portfo-
lio.
During the period, GSAM has voluntarily agreed to limit "Other Expenses"
(excluding management fees, distribution and service fees, taxes, interest,
brokerage, litigation, service share fees, indemnification costs and other
extraordinary expenses) to the extent that such expenses exceed .10% of the
average daily net assets of each Portfolio. Effective September 1, 1998 this
expense limitation was modified to .00% (excluding management fees, distribu-
tion and service fees, transfer agent fees, taxes, interest, brokerage, liti-
gation, service share fees, indemnification costs and extraordinary expenses)
of the average daily net assets of each Fund until further notice.
Goldman Sachs serves as Distributor of the shares of the Portfolios pursu-
ant to Distribution Agreements. Goldman Sachs may receive a portion of the
Class A sales load and Class B and Class C contingent deferred sales charges
and has advised the Portfolios that it retained approximately $156,000,
$858,000, $593,000 and $243,000 for the period ended December 31, 1998 for
the Balanced, Growth and Income, Growth and Aggressive Growth Strategies,
respectively.
The Trust, on behalf of each Portfolio, has adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from each Portfolio for distri-
bution services equal, on an annual basis, to .25%, .75% and .75% of the av-
erage daily net assets attributable to Class A, Class B and Class C shares,
respectively.
The Trust, on behalf of each Portfolio, had 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. Each Portfolio paid a fee under the Dealer Service Plan
equal, on an annual basis, to .25% of its average daily net assets attribut-
able to Class A, Class B and Class C shares.
Effective September 1, 1998, the Distribution Plans and Authorized 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 from each Portfolio for distribution and service
fees 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, respectively.
Goldman Sachs also serves as Transfer Agent of the Portfolios for a fee.
Effective September 1, 1998 fees charged for such transfer agency services
are calculated daily and payable monthly at an annual rate as follows: 0.19%
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 each Portfolio, has adopted Service Plans. These
plans allow for Service shares to compensate service organizations for pro-
viding varying levels of account administration and shareholder liaison serv-
ices 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 an annualized basis), respectively, of the average
daily net asset value of the Service shares.
19
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1998
For the period ended December 31, 1998, the adviser and distributor have
voluntarily agreed to waive certain fees and reimburse other expenses as fol-
lows (in thousands):
<TABLE>
<CAPTION>
Waivers
------------------
Class A Total Waivers
Portfolio Management 12b-1 Reimbursement and Reimbursement
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Strategy $105 $17 $301 $423
------------------------------------------------------------------------------
Growth & Income Strategy 478 74 433 985
------------------------------------------------------------------------------
Growth Strategy 340 51 471 862
------------------------------------------------------------------------------
Aggressive Growth Strategy 126 18 347 491
------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the "Amounts owed to affiliates" are as follows
(in thousands):
<TABLE>
<CAPTION>
Distribution
Management Transfer and Service
Portfolio Fees Agent Fees Fees Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Strategy $12 $17 $ 55 $ 84
----------------------------------------------------------------------------------
Growth & Income Strategy 53 70 235 358
----------------------------------------------------------------------------------
Growth Strategy 38 50 170 258
----------------------------------------------------------------------------------
Aggressive Growth Strategy 14 35 61 110
----------------------------------------------------------------------------------
</TABLE>
4. PORTFOLIO SECURITY TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
period ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
-----------------------------------------------------
<S> <C> <C>
Balanced Strategy $124,863,661 $ 28,183,111
-----------------------------------------------------
Growth and Income Strategy 537,922,179 104,343,456
-----------------------------------------------------
Growth Strategy 379,889,757 67,957,052
-----------------------------------------------------
Aggressive Growth Strategy 132,116,746 17,186,500
-----------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Portfolios participate in a $250,000,000 uncommitted, unsecured revolving
line of credit facility and a $50,000,000 committed, unsecured revolving line
of credit facility. Both facilities are to be used solely for temporary or
emergency purposes. Under the most restrictive arrangement, each Portfolio
must own securities having a market value in excess of 300% of the total bank
borrowings. The interest rate on the borrowings is based on the federal funds
rate. The committed facility also requires a fee to be paid by each Portfolio
based on the amount of the commitment which has not been utilized. During the
period ended December 31, 1998, the Portfolios did not have any borrowings
under these facilities.
20
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
6. 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 Portfolios' custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios, together with other registered investment companies having
management agreements with GSAM or their affiliates, transfer uninvested cash
into joint accounts, the daily aggregate balance of which is invested in one
or more repurchase agreements.
At December 31, 1998, Balanced Strategy had undivided interests in the re-
purchase agreements in the following joint account which equaled $200,000 in
principal amount. At December 31, 1998, the following repurchase agreements
held in this joint account were fully collateralized by Federal Agency obli-
gations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN/AMRO, Inc. $120,000,000 5.15% 01/04/1999 $ 120,000,000
---------------------------------------------------------------------------------------
Deutsche Bank 77,300,000 5.07 01/04/1999 77,300,000
---------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette, Inc. 150,000,000 4.95 01/04/1999 150,000,000
---------------------------------------------------------------------------------------
J.P. Morgan Securities, Inc. 700,000,000 4.75 01/04/1999 700,000,000
---------------------------------------------------------------------------------------
Morgan Stanley & Co. 200,000,000 4.95 01/04/1999 200,000,000
---------------------------------------------------------------------------------------
NationsBanc Montgomery Securities LLC 125,000,000 5.15 01/04/1999 125,000,000
---------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,372,300,000
---------------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Balanced Strategy Portfo-
lio reclassified $12,226 and $241,230 from paid-in capital and accumulated
net realized loss, respectively, to accumulated undistributed net investment
income. The Growth and Income Strategy Portfolio reclassified $47,837 and
$1,660,180 from paid-in capital and accumulated net realized loss, respec-
tively, to accumulated undistributed net investment income. The Growth Strat-
egy Portfolio has reclassified $65,688 and $470,012 from paid-in capital and
accumulated net realized loss, respectively, to accumulated undistributed net
investment income. The Aggressive Growth Strategy has reclassified $14,965
and $1,196 from paid-in capital and accumulated net realized loss, respec-
tively, to accumulated undistributed net investment income. These reclassifi-
cations have no impact on the net asset value of the Funds and are designed
to present the Portfolio's capital accounts on a tax basis.
21
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1998
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
Goldman Sachs
Balanced Strategy Portfolio(a)
-----------------------------
Shares Dollars
-----------------------------
<S> <C> <C>
Class A Shares
Shares sold 4,997,152 $ 51,471,820
Reinvestment of dividends and distributions 82,247 838,318
Shares repurchased (1,178,013) (11,684,097)
-----------------------------
3,901,386 40,626,041
------------------------------------------------------------------------------
Class B Shares
Shares sold 3,444,665 35,434,153
Reinvestment of dividends and distributions 48,225 491,183
Shares repurchased (217,935) (2,216,520)
-----------------------------
3,274,955 33,708,816
------------------------------------------------------------------------------
Class C Shares
Shares sold 2,844,974 29,279,282
Reinvestment of dividends and distributions 38,221 389,643
Shares repurchased (537,554) (5,467,423)
-----------------------------
2,345,641 24,201,502
------------------------------------------------------------------------------
Institutional Shares
Shares sold 19,543 202,615
Reinvestment of dividends and distributions 314 3,204
Shares repurchased -- (28)
-----------------------------
19,857 205,791
------------------------------------------------------------------------------
Service Shares
Shares sold 49,317 517,127
Reinvestment of dividends and distributions 403 4,156
Shares repurchased (5,549) (57,929)
-----------------------------
44,171 463,354
------------------------------------------------------------------------------
NET INCREASE IN SHARES 9,586,010 $ 99,205,504
------------------------------------------------------------------------------
</TABLE>
(a) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
22
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Strategy Portfolio(a) Growth Strategy Portfolio(a) Aggressive Growth Strategy Portfolio(a)
--------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
19,544,296 $ 205,404,749 14,105,119 $ 148,698,602 5,615,397 $ 58,906,369
371,985 3,793,531 186,185 1,875,658 43,646 434,720
(2,443,960) (24,540,186) (1,773,296) (17,687,486) (1,020,548) (10,034,193)
--------------------------------------------------------------------------------------------------------------------
17,472,321 184,658,094 12,518,008 132,886,774 4,638,495 49,306,896
--------------------------------------------------------------------------------------------------------------------
14,322,312 149,921,704 11,471,847 120,504,688 4,598,907 48,814,394
224,284 2,285,787 109,293 1,104,065 20,086 199,458
(1,143,836) (11,542,305) (950,540) (9,481,003) (557,172) (5,486,370)
--------------------------------------------------------------------------------------------------------------------
13,402,760 140,665,186 10,630,600 112,127,750 4,061,821 43,527,482
--------------------------------------------------------------------------------------------------------------------
10,771,031 113,315,585 7,001,932 73,846,842 2,517,693 26,370,878
159,052 1,620,876 59,550 601,742 10,102 100,417
(1,207,705) (12,060,724) (844,787) (8,390,385) (387,916) (3,796,390)
--------------------------------------------------------------------------------------------------------------------
9,722,378 102,875,737 6,216,695 66,058,199 2,139,879 22,674,905
--------------------------------------------------------------------------------------------------------------------
875,077 9,413,016 212,556 2,180,254 12,029 120,329
17,891 181,644 2,843 28,730 133 1,327
(23,809) (235,710) (1,065) (11,445) -- --
--------------------------------------------------------------------------------------------------------------------
869,159 9,358,950 214,334 2,197,539 12,162 121,656
--------------------------------------------------------------------------------------------------------------------
133,145 1,429,050 37,114 388,185 11,813 126,459
2,056 20,973 450 4,521 74 739
(4,613) (49,503) (854) (9,010) (1) (10)
--------------------------------------------------------------------------------------------------------------------
130,588 1,400,520 36,710 383,696 11,886 127,188
--------------------------------------------------------------------------------------------------------------------
41,597,206 $ 438,958,487 29,616,347 $ 313,653,958 10,864,243 $ 115,758,127
--------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Income from
investment operations(e) Distributions to shareholders
------------------------- -----------------------------------
Net asset In excess
value, Net Net realized From net of net Net increase
beginning investment and unrealized investment investment From net in net asset
of period income gain income income realized gain value
<S> <C> <C> <C> <C> <C> <C> <C>
Goldman Sachs Balanced Strategy Portfolio for the Period Ended December
31,(b)
1998 - Class A Shares $10.00 $0.25 $0.38 $(0.25) $(0.03) $(0.04) $0.31
1998 - Class B Shares 10.00 0.19 0.38 (0.19) (0.03) (0.04) 0.31
1998 - Class C Shares 10.00 0.19 0.39 (0.19) (0.03) (0.04) 0.32
1998 - Institutional
Shares 10.00 0.30 0.39 (0.30) (0.03) (0.04) 0.32
1998 - Service Shares 10.00 0.25 0.37 (0.25) (0.02) (0.04) 0.31
Goldman Sachs Growth and Income Strategy Portfolio for the Period Ended
December 31,(b)
1998--Class A Shares $10.00 $0.18 $0.47 $(0.18) $(0.04) $(0.05) $0.38
1998--Class B Shares 10.00 0.12 0.46 (0.12) (0.05) (0.05) 0.36
1998--Class C Shares 10.00 0.12 0.46 (0.12) (0.05) (0.05) 0.36
1998--Institutional
Shares 10.00 0.20 0.49 (0.20) (0.05) (0.05) 0.39
1998--Service Shares 10.00 0.16 0.48 (0.16) (0.06) (0.05) 0.37
Goldman Sachs Growth Strategy Portfolio for the Period Ended December 31,(b)
1998 - Class A Shares $10.00 $0.10 $0.36 $(0.10) $(0.02) $(0.05) $0.29
1998 - Class B Shares 10.00 0.05 0.35 (0.05) (0.02) (0.05) 0.28
1998 - Class C Shares 10.00 0.05 0.35 (0.05) (0.02) (0.05) 0.28
1998 - Institutional
Shares 10.00 0.12 0.37 (0.12) (0.03) (0.05) 0.29
1998 - Service Shares 10.00 0.09 0.35 (0.09) (0.01) (0.05) 0.29
Goldman Sachs Aggressive Growth Strategy Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.05 $0.20 $(0.05) $ -- $(0.04) $0.16
1998 - Class B Shares 10.00 0.01 0.18 (0.01) -- (0.04) 0.14
1998 - Class C Shares 10.00 0.01 0.19 (0.01) -- (0.04) 0.15
1998 - Institutional
Shares 10.00 0.07 0.20 (0.07) -- (0.04) 0.16
1998 - Service Shares 10.00 0.04 0.21 (0.04) (0.02) (0.04) 0.15
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<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 expenses to income to Portfolio
value, end Total period to average to average average net average turnover
of period return(a)(d) (in 000s) net assets(c) net assets(c) assets(c) net assets(c) rate(d)
<S> <C> <C> <C> <C> <C> <C> <C>
$10.31 6.38% $ 40,237 0.60% 3.03% 1.46% 2.17% 50.84%
10.31 5.75 33,763 1.30 2.38 2.08 1.60 50.84
10.32 5.83 24,195 1.30 2.34 2.08 1.56 50.84
10.32 6.99 205 0.24 3.55 1.02 2.77 50.84
10.31 6.30 456 0.74 2.90 1.52 2.12 50.84
$10.38 6.55% $181,441 0.60% 2.37% 1.05% 1.92% 41.91%
10.36 5.82 138,914 1.30 1.72 1.68 1.34 41.91
10.36 5.80 100,711 1.30 1.68 1.68 1.30 41.91
10.39 6.96 9,030 0.23 2.97 0.61 2.59 41.91
10.37 6.43 1,354 0.73 2.28 1.11 1.90 41.91
$10.29 4.62% $128,832 0.60% 1.50% 1.15% 0.95% 38.43%
10.28 3.98 109,246 1.30 0.83 1.78 0.35 38.43
10.28 3.96 63,925 1.30 0.79 1.78 0.31 38.43
10.29 4.92 2,205 0.23 2.88 0.71 2.40 38.43
10.29 4.45 378 0.73 1.63 1.21 1.15 38.43
$10.16 2.57% $ 47,135 0.60% 0.91% 1.42% 0.09% 26.27%
10.14 1.93 41,204 1.30 0.14 2.05 (0.61) 26.27
10.15 2.04 21,726 1.30 0.16 2.05 (0.59) 26.27
10.16 2.80 124 0.24 8.17 0.99 7.42 26.27
10.15 2.54 121 0.74 0.76 1.49 0.01 26.27
----------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
GOLDMAN SACHS TRUST -- ASSET ALLOCATION PORTFOLIOS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of
Goldman Sachs Trust -- Asset Allocation Portfolios:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Balanced Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio, Goldman Sachs Growth Strategy Portfolio and Goldman Sachs
Aggressive Growth Strategy Portfolio, the portfolios constituting Goldman
Sachs Trust -- Asset Allocation Portfolios (a Delaware Business Trust), in-
cluding the statements of investments, as of December 31, 1998, and the re-
lated statements of operations and the statements of changes in net assets
and the financial highlights for the period presented. These financial state-
ments and the financial highlights are the responsibility of the Funds' man-
agement. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements and financial highlights. Our procedures included confirma-
tion of securities owned as of December 31, 1998 by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the over-
all 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 Strategy Portfolio, Goldman Sachs Growth and
Income Strategy Portfolio, Goldman Sachs Growth Strategy Portfolio and
Goldman Sachs Aggressive Growth Strategy Portfolio constituting Goldman Sachs
Trust -- Asset Allocation Portfolios as of December 31, 1998, the results of
their operations and the changes in their net assets and the financial high-
lights for the periods presented, in conformity with generally accepted ac-
counting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 16, 1999
26
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs
Asset Allocation Portfolios
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Asset Allocation Portfolios, you can
capitalize on Goldman Sachs' 129-year history of excellence while benefiting
from the firm's leadership in three areas:
Global Resources
With professionals based throughout the Americas, Europe and Asia, Goldman Sachs
possesses first-hand knowledge of the world's markets and economies.
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.
Risk Management
Goldman Sachs excels in understanding, measuring and monitoring investment risk
- -- a process that is integrated into all Goldman Sachs investment products.
Through the application of Goldman Sachs Asset Management's extensive
global resources, fundamental research and risk management capabilities,
the Goldman Sachs Asset Allocation Portfolios seek to provide investors
with a variety of long-term, total portfolio approaches to investing. In
fulfilling our clients' needs for calculated allocations of mutual funds,
the Portfolios are:
o Complementary Investment Strategies -- Each Portfolio provides a carefully
balanced blend of Goldman Sachs Funds.
o Goal Driven -- Each Portfolio seeks one of four specified goals:
Aggressive Growth, Growth, Growth and Income, or Balanced.
o Lifetime Investments -- Since each Portfolio has a risk/return profile
that complements the others, each may be suitable for investors with a
variety of financial needs and time frames.
o Professionally Managed -- Each Portfolio is maintained by professional
investment managers who monitor global economic, market and political
conditions and adjust the blend of funds accordingly.
Target Your Needs
As your investment objectives change, you can exchange shares among the
Goldman Sachs Asset Allocation Portfolios without any additional
charge.*(Please note:in general greater returns are associated with
greater risk.) For more information on the Goldman Sachs Asset Allocation
Portfolios, call your investment professional today.
- --------------------------------------------------------------------------------
Goldman Sachs Asset Allocation Portfolios
GROWTH AND INCOME STRATEGY AGGRESSIVE GROWTH STRATEGY
- --------------------------------------------------------------------------------
Lower Risk/Return Higher Risk/Return
- --------------------------------------------------------------------------------
BALANCED STRATEGY GROWTH STRATEGY
*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
GOLDMAN, SACHS & CO.
Distributor and Transfer Agent
GOLDMAN SACHS ASSET MANAGEMENT
Investment Adviser
OFFICERS
Douglas C. Grip, President
Jesse H. Cole, Vice President
James A. Fitzpatrick, Vice President
Ann E. Marcel, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Philip V. Guica, Jr., Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS INTERNATIONAL
133 Peterborough Court
London, England EA 2BB
Visit our internet address: www.gs.com/funds
This material is not authorized for distribution to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
Goldman, Sachs & Co., distributor of the Funds, is not a bank, and Fund shares
distributed by it are neither bank deposits nor obligations of, nor endorsed,
nor guaranteed by, any bank or other insured depository institution, nor are
they insured by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other government agency. Investment in the Funds involves
risks, including possible loss of the principal amount invested.
CORE International Equity Fund's, Global Income Fund's and 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.
Short Duration Government Fund's net asset value and yield are not guaranteed by
the U.S. Government or by its agencies, instrumentalities, or sponsored
enterprises.
The 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 investment in higher rated fixed income securities.
The CORE Small Cap Equity Fund and the International Small Cap Fund invest in
stocks of smaller companies. The stocks of smaller companies are often
associated with higher risks than the stocks of larger companies, including
higher volatility.
The Emerging Markets Equity Fund's and the International Small Cap Fund's
investment in securities of foreign issuers and foreign currencies entails
certain risks not customarily associated with investing in securities of U.S.
issuers. Quoted in U.S. dollars. In particular, the securities markets of
emerging countries in which the Fund may invest without limit are less liquid,
subject to greater price volatility, have smaller market capitalizations, have
problems with share registration and custody, have less government regulation,
and are not subject to as extensive and frequent accounting, financial and other
reporting requirements as the securities markets of more developed countries.
An investment in real estate securities is subject to greater price volatility
and the special risks associated with the direct ownership of real estate.
(C) Copyright 1999 Goldman, Sachs & Co. All rights reserved.
Date of first use: February 28, 1999 AAAR/75K/2-99
