Goldman Sachs Funds

TAXABLE INVESTMENT GRADE FUNDS

Semiannual Report April 30, 2000

Current income potential from

portfolios that invest in a

variety of fixed income securities.

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GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS

Market Overview

Dear Shareholder:

During the period under review, bond markets around the world generally posted lackluster results, due to expanding

economies and higher yields.

Market Review

• The Dollar Bloc -- Despite repeated attempts by the Federal Reserve Board to slow economic growth, the U.S. economy continued to grow at a rapid pace during the reporting period. The GDP increased 6.9% during the fourth quarter of 1999, and the economic expansion hit a record nine years in February 2000. The Federal Reserve vowed to remain steadfast in its resolve to cool the economy and preempt inflation. Another major factor affecting the U.S. bond market was the U.S. Treasury's decision to buy back long maturity debt. The reduction in supply is aimed at reducing the average maturity and interest cost of Treasury debt. This led to a sharp increase in demand for 30-year bonds, resulting in a sharp rally and an inverted yield curve.
  Elsewhere, in New Zealand, Canada and Australia returns were also lackluster, as interest rate hikes in both Australia and New Zealand, along with weakening currencies, resulted in higher yields in all these markets.
  
• Europe -- Throughout much of Continental Europe, there was a continuation of the economic rebound that took hold during 1999. Increase in economic activity, falling unemployment rates and strong consumer confidence, coupled with an uptick in inflation, prompted the European Central Bank (ECB) to raise interest rates on several occasions. While economic fundamentals in the region were strong, the euro fell sharply versus the U.S. dollar. Investors were drawn to the impressive growth rates in the U.S. and euro-zone finance ministers failed to take action to prop up the euro currency.
  
• Japan -- The long-awaited recovery in the Japanese economy may finally be at hand. While fragile macroeconomic conditions persist, corporate restructuring has helped to increase profitability in a number of sectors. Yields have moved higher as the brighter economic outlook has led market participants to speculate that Bank of Japan may soon end the "zero interest rate" policy.

  Outlook

  Looking ahead, we are becoming more constructive on the outlook for the U.S. and European bond markets, although we retain our negative bias toward the Japanese bond market. In both the U.S. and Europe, we believe previously enacted and anticipated interest rate hikes have been largely priced into the market. In both regions we feel that these increased rates will result in slower economic growth and moderate inflation and increase the potential for a moderate rebound in their respective bond markets. However, we believe that the Bank of Japan will raise rates prior to year-end, likely resulting in falling bond prices.

  Sincerely,

  /s/ David B. Ford	/s/ David W. Blood	/s/ Sharmin Mossavar-Rahmani
  David B. Ford	David W. Blood	Sharmin Mossavar-Rahmani
  Co-Head, Goldman Sachs	Co-Head, Goldman Sachs	CIO, Fixed Income Investments,
  Asset Management	Asset Management	Goldman Sachs Asset Management
  May 9, 2000

NOT FDIC-INSURED

May Lose Value

No Bank Guarantee

FUND BASICS

Adjustable Rate Government Fund

as of April 30, 2000

Assets Under Management

$247.8 Million

NASDAQ SYMBOLS

Class A Shares

GSAMX

Institutional Shares

GSARX

Service Shares

GSASX

PERFORMANCE REVIEW
October 31, 1999- April 30 , 2000	Fund Total Return (based on NAV)1	30-Day Standardized Yield2	6-Month U.S. Treasury3	1-Year U.S. Treasury3
Class A	2.70%	5.44%	2.72%	2.24%
Institutional	2.90%	5.92%	2.72%	2.24%
Service	2.48%	5.38%	2.72%	2.24%

1	The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares outstanding. The Fund's performance reflects the reinvestment of dividends and other distributions.
2	The 30-Day Standardized Yield of the Fund is calculated by dividing the net investment income per share (as defined by securities industry regulations) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders.
3	The 6-Month and 1-Year U.S. Treasury securities reported by Merrill Lynch do not reflect any fees or expenses.

PORTFOLIO COMPOSITION AS OF 4/30/00 5
Sector Allocation
Adjustable Rate Mortgage Securities	72.3%
Collateralized Mortgage Obligations	9.4%
Fixed Rate Pass-Throughs	6.6%
Cash Equivalents	9.0%

5	Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time.
	Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects expense limitations in effect. In their absence, performance would be reduced.

PERFORMANCE OVERVIE W

Adjustable Rate Government Fund

Dear Shareholder,

We are pleased to report on the performance of the Goldman Sachs Adjustable Rate Government Fund for the six month period that ended April 30, 2000.

Performance Review

Over the six month reporting period that ended April 30, 2000, the Fund's Class A, Institutional and Service shares generated cumulative total returns, at net asset value, of 2.70%, 2.90% and 2.48%, respectively. These returns generally outperformed the Fund's benchmarks, the six-month U.S. Treasury bill and the one-year U.S. Treasury bill, which returned 2.72% and 2.24%, respectively.

Investment Objective

The Fund seeks a high level of current income consistent with low volatility of principal, primarily through investments in securities issued by the U.S. government, its agencies, instrumentalities or sponsored enterprises that are adjustable rate mortgage pass-through securities and other mortgage securities with periodic interest rate resets.

Portfolio Composition

We maintained our strategy of focusing on sectors and securities that we believe will generate a competitive total rate of return relative to the benchmark, while de-emphasizing directional duration management.

Portfolio Highlights

• Adjustable Rate Mortgages (ARMS) (71.7% on October 31, 1999 to 72.3% on April 30, 2000) -- During the reporting period the Fund's allocation to ARMs increased, due to our positive view on prepayment spreads.
  
• Collateralized Mortgage Obligations (CMOs) (14.1% on October 31, 1999 to 9.4% on April 30, 2000) -- The Fund reallocated assets from CMOs to ARMs, based on their strong technical and fundamental factors.
  
• Fixed-Rate Pass-Throughs (7.9% on October 31, 1999 to 6.6% on April 30, 2000) -- The Fund's allocation to fixed-rate pass-throughs remained relatively stable during the reporting period.

PERFORMANCE OVERVIEW

Portfolio Outlook

We continue our favorable outlook on the U.S. fixed income market, although spreads remain vulnerable to technical factors including both Federal Reserve and U.S. Treasury activities. However, we also believe recent spread widening will provide attractive buying opportunities across a variety of fixed income sectors. In particular, we believe the mortgage market currently represents excellent value, and find lower coupons to be particularly attractive.

We thank you for your investment and look forward to your continued confidence.

Goldman Sachs U.S. Fixed Income Investment Management Team

May 9, 2000

FIXED INCOME
INVESTMENT
PROCESS OVERVIEW

1
Sector Allocation

Our sector specialists work together to assess relative value among sectors and create investment strategies to meet each fund's objectives.

In selecting securities for each portfolio, our fixed income teams have access to the vast resources of Goldman Sachs.

We adjust the term structure of our portfolios based on our expectations of the relationship between short- and long-term interest rates, while keeping each fund's duration close to its benchmark.

FUND BASICS

Short Duration Government Fund
as of April 30, 2000

Assets Under Management

$179.4 Million

NASDAQ SYMBOLS

Class A Shares

Class B Shares

Class C Shares

Institutional Shares

Service Shares

PERFORMANCE REVIEW
October 31, 1999- April 30, 2000	Fund Total Return (based on NAV)1	30-Day Standardized Yield2	2-Year U.S. Treasury Security3
Class A	1.31%	5.52%	1.33%
Class B	0.90%	5.04%	1.33%
Class C	0.82%	4.88%	1.33%
Institutional	1.41%	6.04%	1.33%
Service	1.15%	5.55%	1.33%

1	The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares outstanding. The Fund's performance reflects the reinvestment of dividends and other distributions.
2	The 30-Day Standardized Yield of the Fund is calculated by dividing the net investment income per share (as defined by securities industry regulations) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders.
3	The 2-Year U.S. Treasury security does not reflect any fees or expenses.

PORTFOLIO COMPOSITION AS OF 4/30/00 5
Sector Allocation
Collateralized Mortgage Obligations	44.8%
Fixed Rate Pass-Throughs	26.1%
Adjustable Rate Mortgage Securities	22.4%
Agency Debentures	4.5%

5	Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time.
	Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence, performance would be reduced.

PERFORMANCE OVERVIE W

Short Duration Government Fund

Dear Shareholder,

We are pleased to report on the performance of the Goldman Sachs Short Duration Government Fund for the six month period that ended April 30, 2000.

Performance Review

Over the six month reporting period that ended April 30, 2000, the Fund's Class A, B, C, Institutional and Service shares generated cumulative total returns, at net asset value, of 1.31%, 0.90%, 0.82%, 1.41% and 1.15%, respectively. Over the same time period the Fund's benchmark, the two-year U.S. Treasury security, generated a 1.33% cumulative total return.

Investment Objective

The Fund seeks a high level of current income and, secondarily, in seeking current income, may also consider the potential for capital appreciation, primarily through investing in U.S. Government securities and repurchase agreements collateralized by such securities.

Portfolio Composition

During the period, we maintained our strategy of focusing on sectors and securities that we believe will generate a competitive total rate of return relative to the benchmark, while deemphasizing directional duration management.

Portfolio Highlights

• Collateralized Mortgage Obligations (CMOs) (41.4% on October 31, 1999 to 44.8% on April 30, 2000) --The Fund's exposure to CMOs rose, due to compelling values in the marketplace.
• Fixed Rate Pass-Throughs (30.2% on October 31, 1999 to 26.1% on April 30, 2000) --The Fund's holding in fixed-rate pass-throughs were reduced in favor of CMOs, to take advantage of relative values.
• Adjustable Rate Mortgage Securities (ARMs) (20.4% on October 31, 1999 to 22.4% on April 30, 2000) --The Fund increased its exposure to ARMs, as a ready supply existed at attractive prices.
• Agency Debentures (6.9% on October 31, 1999 to 4.5% on April 30, 2000) --The Fund shifted its exposure from agency debentures into ARMs based on the prevailing market environment.

PERFORMANCE OVERVIE W

Portfolio Outlook

We continue our favorable outlook on the U.S. fixed income market, although spreads remain vulnerable to technical factors including both Federal Reserve and U.S. Treasury activities. However, we also believe recent spread widening will provide attractive buying opportunities across a variety of fixed income sectors. In particular, we believe the mortgage market currently represents excellent value, and find lower coupons to be particularly attractive.

We thank you for your investment and look forward to your continued confidence.

Goldman Sachs U.S. Fixed Income Investment Management Team

May 9, 2000

FUND BASICS

Government Income Fund
as of April 30, 2000

Assets Under Management

$108.6 Million

NASDAQ SYMBOLS

Class A Shares

Class B Shares

Class C Shares

Institutional Shares

Service Shares

PERFORMANCE OVERVIE W

Government Income Fund

Dear Shareholder,

We are pleased to report on the performance of the Goldman Sachs Government Income Fund for the six month period that ended April 30, 2000.

Performance Review

Over the six month reporting period that ended April 30, 2000, the Fund's Class A, B, C, Institutional and Service shares generated cumulative total returns, at net asset value, of 1.65%, 1.20%, 1.20%, 1.85% and 1.97%, respectively. Over the same time period, the Fund's benchmark, the Lehman Government/Mortgage Index, generated a 1.80% cumulative total return.

Investment Objective

The Fund seeks a high level of current income consistent with safety of principal, primarily through investing in U.S. government securities and repurchase agreements collateralized by such securities.

Portfolio Composition

During the period, we maintained our strategy of focusing on sectors and securities that we believe will generate a competitive total rate of return relative to the benchmark, while deemphasizing directional duration management.

Portfolio Highlights

n Mortgage-Backed Securities (MBS) (59.7% on October 31, 1999 to 64.0% on April 30, 2000) - The Fund's position in mortgage-backed securities increased during the reporting period.

n U.S.Treasuries (12.2% on October 31, 1999 to 9.3% on April 30, 2000) - The Fund opportunistically moved out of U.S. Treasuries during the reporting period into higher yielding credit sectors.

n Asset-Backed Securities (ABS) (15.5% on October 31, 1999 to 15.3% on April 30, 2000)

The Fund maintained its exposure to asset-backed securities.

n Agency Debentures (10.7% on October 31, 1999 to 11.2% on April 30, 2000) - The Fund slightly increased its exposure to agency debentures during the reporting period.

PERFORMANCE OVERVIEW

Portfolio Outlook

We continue our favorable outlook on the U.S. fixed income market, although spreads remain vulnerable to technical factors including both Federal Reserve and U.S. Treasury activities. However, we also believe recent spread widening will provide attractive buying opportunities across a variety of fixed income sectors. In particular, we believe the mortgage market currently represents excellent value, and find lower coupons to be particularly attractive.

We thank you for your investment and look forward to your continued confidence.

Goldman Sachs U.S. Fixed Income Investment Management Team

May 9, 2000

FUND BASICS

Core Fixed Income Fund
as of April 30, 2000

Assets Under Management

$331.5 Million

NASDAQ SYMBOLS

Class A Shares

GCFIX

Class B Shares

GCFBX

Class C Shares

GCFCX

Institutional Shares

GSFIX

Service Shares

GSCSX

PERFORMANCE REVIEW

October 31, 1999- April 30, 2000	Fund Total Return (based on NAV)1	30-Day Standardized Yield2	Lehman Aggregate Bond Index3
Class A	1.27%	6.20%	1.42%
Class B	1.01%	5.72%	1.42%
Class C	1.01%	5.73%	1.42%
Institutional	1.48%	6.90%	1.42%
Service	1.33%	6.39%	1.42%

1	The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares outstanding. The Fund's performance reflects the reinvestment of dividends and other distributions.
2	The 30-Day Standardized Yield of the Fund is calculated by dividing the net investment income per share (as defined by securities industry regulations) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders.
3	The Lehman Aggregate Bond Index does not reflect any fees or expenses. Investors cannot invest directly in the Index.

STANDARDIZED TOTAL RETURNS

For the period ending 3/31/00	Class A	Class B	Class C	Institutional	Service
One Year4	-3.10%	-4.41%	-0.33%	1.83%	1.22%
Five Years4	N/A	N/A	N/A	7.05%	N/A
Since Inception4	4.07%	3.86%	4.06%	6.03%	5.62%
	(5/1/97)	(5/1/97)	(8/15/97)	(1/5/94)	(3/13/96)

4

The Standardized Total Returns are average annual returns as of the most recent calendar quarter-end. They assume reinvestment of all distributions at net asset value. These returns reflect a maximum initial sales charge of 4.5% for Class A shares, the assumed deferred sales charge for Class B shares (5% maximum declining to 0% after six years) and the assumed deferred sales charge for Class C shares (1% if redeemed within 12 months of purchase). Because Institutional and Service shares do not involve sales charges, such charges have not been applied to their Standardized Total Returns.

PORTFOLIO COMPOSITION AS OF 4/30/00 ⁵

Sector Allocation
Mortgage-Backed Securities	45.5%		U.S. Treasuries	5.6%
Corporate Bonds	32.8%		Emerging Market Debt	2.4%
Asset-Backed Securities	11.7%		Agency Debentures	1.0%
Cash Equivalents	7.6%		Sovereign Credit	0.9%

5	Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time.
	Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects expense limitations in effect. In their absence, performance would be reduced.

PERFORMANCE OVERVIEW

Core Fixed Income Fund

Dear Shareholder,

We are pleased to report on the performance of the Goldman Sachs Core Fixed Income Fund for the six month period that ended April 30, 2000.

Performance Review

Over the six month reporting period that ended April 30, 2000, the Fund's Class A, B, C, Institutional and Service shares generated cumulative total returns, at net asset value, of 1.27%, 1.01%, 1.01%, 1.48% and 1.33% respectively. Over the same time period, the Fund's benchmark, the Lehman Brothers Aggregate Bond Index, generated a cumulative return of 1.42%.

Investment Objective

The Fund seeks total return consisting of capital appreciation and income that exceeds that of the Lehman Brothers Aggregate Bond Index, primarily through fixed income securities, including securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises, corporate debt securities, mortgage-backed securities and asset-backed securities.

Portfolio Composition

During the period, we maintained our strategy of focusing on sectors and securities that we believe will generate a competitive total rate of return relative to the benchmark, while de-emphasizing directional duration management. Therefore, during the period under review, we underweighted Treasury and agency securities relative to the benchmark, and overweighted corporate, mortgage- and asset-backed and emerging market debt securities.

Portfolio Highlights

• Mortgage-Backed Securities (MBS) (42.6% on October 31, 1999 to 45.5% on April 30, 2000) -- The Fund's exposure to mortgage-backed securities slightly increased during the reporting period.
• Corporate Bonds (35.0% on October 31, 1999 to 32.8% on April 30, 2000) -- Generally speaking, corporate bonds underperformed during the period, with the inversion of the yield curve being the primary driver behind widening spreads at the long end of the corporate curve.
• Asset-Backed Securities (ABS) (9.6% on October 31, 1999 to 11.7% on April 30, 2000) -- ABS spreads widened in recent months. However, late in the reporting period spreads solidified, due to narrowing swap spreads and light primary issuance.
• U.S.Treasuries (4.2% on October 31, 1999 to 5.6% on April 30, 2000) -- Appreciation in the Fund's U.S. Treasury security holdings were largely responsible for its increased weighting in the portfolio.

PERFORMANCE OVERVIEW

• Emerging Market Debt (EMD) (1.7% on October 31, 1999 to 2.4% on April 30, 2000) -- As equity markets have performed strongly across the globe, the EMD sector has recently been a key contributor to excess returns. However, the sector remains vulnerable to U.S. fixed income and equity market volatility.

  Portfolio Outlook

  We continue our favorable outlook on the U.S. fixed income market, although spreads remain vulnerable to technical factors including both Federal Reserve and U.S. Treasury activities. However, we also believe recent spread widening will provide attractive buying opportunities across a variety of fixed income sectors. In particular, we believe the mortgage market currently represents excellent value, and find lower coupons to be particularly attractive. In addition, our outlook within emerging markets remains positive, as fundamentals, growth prospects and capital flows remain supportive for the market.

  We thank you for your investment and look forward to your continued confidence.

  Goldman Sachs U.S. Fixed Income Investment Management Team

  May 9, 2000

FUND BASICS

Global Income Fund
as of April 30, 2000

Assets Under Management

$571.4 Million

NASDAQ SYMBOLS

Class A Shares

GSGIX

Class B Shares

GSLBX

Class C Shares

GSLCX

Institutional Shares

GSGLX

Service Shares

GGISX

PERFORMANCE REVIEW

October 31, 1999--	Fund Total Return	30-Day	JPM Global Govt.
April 30, 2000	(based on NAV)1	Standardized Yield2	Bond Index3
Class A	2.16%	3.81%	3.38%
Class B	1.92%	3.49%	3.38%
Class C	1.91%	3.49%	3.38%
Institutional	2.43%	4.65%	3.38%
Service	2.18%	4.15%	3.38%

¹ The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares outstanding. The Fund's performance reflects the reinvestment of dividends and other distributions.

² The 30-Day Standardized Yield of the Fund is calculated by dividing the net investment income per share (as defined by securities industry regulations) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders.

³ The composition and characteristics of the securities in the JP Morgan (JPM) Global Government Bond Index (hedged) are not identical to those of the Fund. Also, unlike the Fund's return, the Index's return does not reflect any fees or expenses. Investors cannot invest directly in the Index.

STANDARDIZED TOTAL RETURNS

For the period ending 3/31/00	Class A	Class B	Class C	Institutional	Service
One Year4	-4.30%	-5.23%	-1.20%	0.88%	0.31%
Five Years4	7.23%	N/A	N/A	N/A	8.29%
Since Inception4	6.77%	5.83%	5.26%	8.55%	7.39%
	(8/2/91)	(5/1/96)	(8/15/97)	(8/1/95)	(8/2/91)5

4	The Standardized Total Returns are average annual returns as of the most recent calendar quarter-end. They assume reinvestment of all distributions at net asset value. These returns reflect a maximum initial sales charge of 4.5% for Class A shares, the assumed deferred sales charge for Class B shares (5% maximum declining to 0% after six years), and the assumed deferred sales charge for Class C shares (1% if redeemed within 12 months of purchase).Because Institutional and Service shares do not involve sales charges, such charges have not been applied to their Standardized Total Returns.
5	Performance data for Service shares prior to 3/12/97 (commencement of operations) is that of Class A shares (excluding the impact of front-end sales charges applicable to Class A shares since Service shares are not subject to any sales charges). Performance of Class A shares in the Fund reflects the expenses applicable to the Fund's Class A shares. The fees applicable to Service shares are different from those applicable to Class A shares which impact performance ratings and rankings for a class of shares.

TOP POSITIONS AS OF 4/30/00 ⁶

Bonds Denomination			Bonds Denomination
1. U.S. Dollar	37.4%		6. Canadian Dollar	2.0%
2. Euro Currency	22.2%		7. Swedish Krona	1.8%
3. Japanese Yen	17.5%		8. South African Rand	1.7%
4. British Pound	10.7%		9. Danish Krone	1.6%
5. U.S. Dollar Cash Equivalents	2.7%		10. German Mark	1.5%

6	Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time.
	Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence performance would be reduced.

PERFORMANCE OVERVIEW

Global Income Fund

Dear Shareholder,

We are pleased to report on the performance of the Goldman Sachs Global Income Fund for the six month period that ended April 30, 2000.

Performance Review

Over the six month reporting period that ended April 30, 2000, the Fund's Class A, B, C, Institutional and Service shares generated cumulative total returns, at net asset value, of 2.16%, 1.92%, 1.91%, 2.43% and 2.18%, respectively. Over the same time period, the Fund's benchmark, the JP Morgan Global Government Bond Index (hedged into U.S. dollars), generated a 3.38% cumulative total return.

The Fund's underperformance versus its benchmark is attributable to several factors. In recent months, the exposure to credit in the portfolio had an offsetting negative impact, due to a widening of swap spreads in the U.S. Currency management also has a negative impact on overall performance, caused mainly by the fall in the Australian dollar.

Investment Objective

The Fund seeks high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation primarily through investments in fixed income securities of U.S. and foreign issuers and through transactions in foreign currencies.

Portfolio Positioning

The Fund began the reporting period with an overweight exposure in the U.S., as a slowing of economic growth rates was anticipated. However, we scaled back to a neutral position, based on continued robust economic expansion, and the near certainty that the Federal Reserve will continue raising interest rates to ward off inflation. The Fund also moved to an underweight position in Canadian bonds, following a period of significant outperformance relative to the U.S.

During the first quarter of the year, a position in the 2-3 year area of the UK yield curve was introduced. This was based on the belief that UK economy has entered the advance stages of its economic upturn. Recent economic data has demonstrated that aggressive tightening by the Monetary Policy Committee is starting to have an effect on the manufacturing and retail sectors. In addition, with sterling remaining strong, it's believed that the short end of the UK yield curve offers attractive values.

In terms of currency, we have recently implemented a short yen position, as we feel that much of the Japanese recovery story has been priced into the market. In addition, we believe that equity flows will be less supportive for the yen going forward. Exposure to the British pound was also taken against the U.S, dollar and euro.

PERFORMANCE OVERVIE W

Portfolio Outlook

We currently favor the U.S. and European bond markets over the Japanese counterparts. In the U.S., the recent emergence of inflationary pressures have resulted in a sharp sell off in the bond market, with a further 100 basis points of tightening now fully discounted. In our view these rate hikes, combined with the previous 125 basis points of tightening, will slow the economy and more importantly keep inflationary pressures in check. Similarly in Europe, the prospective rate hikes now priced into the bond market should ensure that the ECB keeps inflation below their ceiling of 2%. This could enable bonds to stage a moderate rally through to year-end.

Japan continues to grow at a steady but unspectacular pace, which nevertheless should provide the Bank of Japan with the ability to raise rates moderately before year end, thereby bringing an end to the zero rate policy. This is currently not fully discounted by the market and we would anticipate a modest sell-off in the Japanese bond market.

In terms of currencies, we maintain a positive view on the U.S. dollar versus the yen, euro and the pound. This is largely due to interest rate differentials. In addition, with respect to the yen, recent data has shown limited signs of a sustainable recovery in the economy. This, coupled with foreign investors reducing equity weights, leads us to believe that the yen will remain under pressure. Finally, we expect the drivers for the weak euro to remain. These include equity outflows from U.S. investors and continued purchase of U.S. assets from Europe.

We thank you for your investment and look forward to your continued confidence.

Goldman Sachs Global Fixed Income Investment Management Team

May 9, 2000

GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS

The Goldman Sachs Advantage

Founded in 1869, Goldman, Sachs & Co. is a premier financial services firm traditionally known on Wall Street and around the world for its institutional expertise.

Today, the firm's Investment Management Division provides individual investors the opportunity to tap the resources of a global institutional powerhouse -- and put this expertise to work in their individual portfolios.

What Sets Goldman Sachs Funds Apart?

2
In-Depth Research
Our portfolio management teams make on-site visits to hundreds of companies eachmonth, then construct selective portfolios with an emphasis on their best ideas. Our teams also have access to Goldman, Sachs & Co.'s Global Investment ResearchDepartment.

Risk Management
In this, our institutional heritage is clear. Institutions, as well as many individual investors, often look to us to manage the risks of global investing over time in different market environments.

To learn more about the Goldman Sachs Funds, call your investment professional today.