GULFSTREAM [Registered Trademark]

                                   Breaking Records

                                       Delivering Results










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                          [IMAGE OF GULFSTREAM V]











                                      1998 Annual Report


<PAGE>

BREAKING RECORDS, DELIVERING RESULTS
1998  was a  year  of  outstanding  performance  for  Gulfstream  Aerospace
Corporation.  The Company  achieved a record 90 new aircraft orders plus 18
options,  closed the year with a backlog* comprised of 135 Gulfstream IV-SP
and Gulfstream V aircraft valued at approximately  $4.3 billion,  including
options,  grew  earnings  per share nearly 80 percent to $3.00 and received
aviation's  most  prestigious  award,  the  Robert J.  Collier  Trophy  for
aeronautical excellence. Through the focused execution of our business plan
and by adeptly responding to a dynamic competitive environment,  Gulfstream
solidified  its leadership in business  aviation and firmly  positioned the
Company for future growth. Looking ahead,  Gulfstream is poised to continue
to deliver exceptional shareholder value well into the future.

*  Reported  financial contract backlog is comprised of 106 aircraft valued
   at $3.3 billion. This excludes 18 options and 11 aircraft under contract
   but not yet delivered into the Middle East Shares  fractional  ownership
   program.  Reported new orders,  excluding  undelivered aircraft intended
   for the Middle East Shares program, totaled 79.

<PAGE>

FINANCIAL HIGHLIGHTS
                                                     Year ended December 31,
==============================================================================
                                                  1998        1997        1996
==============================================================================
(Dollars in millions, except per
   share amounts and units)
AIRCRAFT DELIVERIES                                 61          51          27
NET REVENUES                                 $ 2,428.0   $ 1,903.5   $ 1,063.7
PRO FORMA FULLY TAXED EPS*                   $    3.00   $    1.68   $    0.37
FINANCIAL CONTRACT BACKLOG**                 $ 3,301.9   $ 2,782.1   $ 3,104.0
CLOSING STOCK PRICE                          $   53.25   $   29.25   $   24.13


*  Diluted EPS, see Notes to the Consolidated Financial Statements.
** Excludes  18  options  and 11  Middle  East  Shares  aircraft  valued at
   approximately $1.0 billion.




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                                [BAR GRAPH]

AIRCRAFT DELIVERIES                 CLOSING STOCK PRICE

1996      27                        1996      $24.13
1997      51                        1997      $29.25
1998      61                        1998      $53.25

NET REVENUES                        PRO FORMA FULLY TAXED EARNINGS PER SHARE

1996      $1,063.7                  1996      $0.37
1997      $1,903.5                  1997      $1.68
1998      $2,428.0                  1998      $3.00


On the Front Cover
In 1998, the Gulfstream V continued to break  aeronautical  records and the
Company  continued  to  achieve  record-setting   operating  and  financial
performance.  Gulfstream  has now contracted for 136 Gulfstream V aircraft,
well before the competing aircraft is in service.

TABLE OF CONTENTS

Letter to Shareholders                                                 2
Delivering Results, Defining the Future                                5
Building a Diversified Product Portfolio to Meet Market Needs          6
Technological Leadership Through Quality, Performance and Reliability  9
Delivering Value-Added Services to Customers Worldwide                12
Sound Strategies, Expert Execution                                    16
Board of Directors                                                    18
Financial Review                                                      19

<PAGE>

DEAR SHAREHOLDERS
1998 was another  record year for  Gulfstream.  We exceeded  all of our key
operating  and  financial  goals and  reported  the  largest  number of new
aircraft  orders  in our  history,  leaving  us  with a  year-end  backlog,
including options,  of 135 aircraft valued at $4.3 billion.  Our successful
production  expansion and strategic  acquisition of K-C Aviation  positions
Gulfstream for increased revenues and earnings into the new millennium.  We
have never been more confident of our ability to sustain  profitable growth
and create ongoing shareholder value.

As the  Gulfstream  V  continued  to break  aeronautical  records,  we were
achieving  record-setting  operational and financial performance.  Revenues
increased 28 percent to $2.4 billion  while fully taxed  earnings per share
increased  nearly 80  percent  to  $3.00.  We  produced  and  delivered  61
production aircraft, outfitted 54 aircraft and grew our service business by
40 percent.

We  used  our  substantial  cash  flow to  make  strategic,  value-creating
investments  and moved  decisively  to expand our  product  portfolio.  The
acquisition of the leading  independent large cabin completions and service
provider, K-C Aviation,  added three facilities and a talented workforce to
support the  Company's  growth in  interior  outfitting  and  significantly
expand our aircraft  services  business.  This  acquisition is accretive to
1999  earnings by  approximately  $0.10 per share.  Early in the year,  the
Company  also  announced  a  $200  million  stock  repurchase  program  and
proceeded  throughout  the year to  repurchase  5.5  million  shares  at an
average price of $35.81.

Demand for our products was stronger than ever as we successfully continued
to expand our markets. The Gulfstream V's exceptional performance led to 40
firm aircraft  orders,  plus 15 options -- exceeding the number  recorded in
any year  since the  aircraft's  introduction.  Executive  Jet  ordered  22
Gulfstream  Vs  (including  12  options)  for  introduction  into the North
American  Shares  program with  delivery of aircraft  beginning in the year
2000. In addition,  this fine product continued to make significant inroads
in capturing the government and special  mission market.  With  significant
first-to-market  advantage,  we have now  contracted  for 136 Gulfstream Vs
before the competition has delivered its first aircraft into service.

The Gulfstream  IV-SP continues to be the most popular large cabin business
jet ever. We took orders for 50 aircraft,  plus three options,  including a
successful expansion of the Gulfstream Shares[Registered Trademark] program
into the Middle East with a 12 aircraft contract. Along with the Gulfstream
Vs,  Executive Jet ordered 14 Gulfstream  IV-SPs for the rapidly  expanding
North American Shares program,  resulting in the largest  aircraft order in
the history of business aviation.

In  1998,  we  created  another  market  expansion   opportunity  with  the
introduction  of  Gulfstream  LeaseSM  through a venture with GATX Capital.
Once again, Gulfstream is first-to-market with a short-term operating lease
product for both the  Gulfstream  IV-SP and the  Gulfstream  V. The initial
program order was for six aircraft -- five  Gulfstream Vs and one Gulfstream
IV-SP -- and includes options for three more of each.

The Company also made significant progress toward our goal to penetrate the
U.S.  and  international   government   special  mission  market  with  the
Gulfstream  V. The United  States Air Force took  delivery of the first two
completed  Gulfstream Vs under the VC-X program and ordered two  additional
Gulfstream Vs. The U.S. Air Force Contract
<PAGE>






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                      [IMAGE OF GULFSTREAM OFFICERS]





GULFSTREAM'S OFFICE OF THE CHIEF EXECUTIVE INCLUDES CHRIS A. DAVIS,
THEODORE J. FORSTMANN AND W. W. BOISTURE, JR. (LEFT TO RIGHT)

includes  options for up to three more  Gulfstream  Vs. The  government  of
Kuwait also ordered three  Gulfstream Vs. We continue to expect to see more
opportunities in government and special mission applications for this great
aircraft.

Our two fine aircraft  brought in 90 new orders,  plus 18 options,  in 1998
leaving Gulfstream with 135 aircraft under contract valued at $4.3 billion.
Sixty percent of these orders,  including  options,  will deliver from 2000
through  2007.  Seventy-six  percent of the  backlog  is in North  America,
predominantly with Fortune 500 companies and the Gulfstream Shares Program.
The  remaining 24 percent is  international  and, with the exception of the
Middle  East  Shares  Program,  is  spread  throughout  the  world  with no
significant portion in any single economic region.

Gulfstream  continued to profitably execute its plan to increase production
to meet  strong  customer  demand.  In  1998,  deliveries  of new  aircraft
increased 20 percent to 61 aircraft and we delivered 54 outfitted  aircraft
into service. Gross margins improved to 23.6 percent versus 20.0 percent in
the prior year as we implemented strategies to improve processes and reduce
cycle time.

1998 also saw  significant  growth in Aircraft  Services with the strategic
addition of facilities in Dallas, Texas, Appleton, Wisconsin and Westfield,
Massachusetts.  Revenues for this part of our business increased 40 percent
and we now have the capability to service non-Gulfstream mid-size and large
cabin  aircraft.  In  addition,  this  business  also  includes  engine and
auxiliary  power unit  repair and  overhaul.  This  provides us with future
growth  opportunities,  as  well as the  ability  to  provide  full-service
maintenance to customers with  multi-aircraft  fleets.

In December 1998, we  restructured  our management  team to better meet the
needs of Gulfstream's next phase of growth. The newly created Office of the
Chief  Executive  and Ted  Forstmann's  assumption  of the  role  of  Chief
Executive  Officer  reinforces  our personal  commitments to Gulfstream and
positions us to take full advantage of  Gulfstream's  still enormous growth
opportunities.  Over the past five  years,  we have built a strong and deep
management  team,  which has nearly  tripled the size of our business.  The
realignment of the  organization and the promotions of several of these key
leaders,  who have the talent and drive to further expand our market in the
years ahead,  supports our goal of continuing  double-digit earnings growth
going  forward.

As we enter 1999, the outlook remains  excellent with an expected  increase
in earnings per share of 25 percent. We plan to deliver 65 new aircraft and
complete the ramp-up of completions to match the level of production in the
future. The Company ended 1998 at the required production rate and level of
quality to meet this delivery schedule.  We are confident that the progress
we have made on production  efficiencies will continue and that we have the
right  team in place to drive  those  same  kind of  efficiencies  into the
completions process.
<PAGE>
Including our three new service locations, service revenues are expected to
grow at least 20 percent in 1999. The Company now commands approximately 75
percent market share in Gulfstream maintenance services and has the
opportunity to grow share in the non-Gulfstream product lines.
Profitability in this part of our business is forecasted to improve as the
new locations realize the cost advantage of volume purchases from suppliers
and the full benefit of the integration is achieved.

Looking ahead,  the Company expects at least 15 percent  earnings growth in
2000.   Much  of  this  earnings   growth  will  be  driven  by  continuing
manufacturing  improvements in both completions and production,  as well as
favorable prices on aircraft currently in the backlog.

We will  continue to invest for future  growth and creation of  shareholder
value.  On March 1, 1999, the Company  announced an additional $200 million
share  repurchase  program.  This new program reflects our continued strong
confidence in Gulfstream's current performance and future growth prospects.

In  addition,  the  Company  has plans to invest  $30  million  in  capital
equipment and business  systems and $15 million in research and development
in 1999 to  support  the  revenue  and  earnings  projections  at our eight
locations and to keep our products at the forefront of technology.

1998 was an exceptional  year for Gulfstream,  one in which we exceeded our
goals in every area of our business and  produced  significant  shareholder
return.  We are proud of our  accomplishments  and our 7,700  employees who
contributed to  Gulfstream's  success.  The outlook for Gulfstream  remains
strong and we are  confident  of our  ability to  successfully  execute our
plans for growth.

We are committed to  continuing  to set the standard for business  aviation
through excellence in products, service and financial return.


                         /s/ Theodore J. Forstmann
                         THEODORE J. FORSTMANN
                         Chairman of the Board and Chief Executive Officer
                         Chairman, Office of the Chief Executive


/s/ W.W. Boisture, Jr.
W.W. BOISTURE, JR.
President and Chief Operating Officer
Member of the Office of the Chief Executive


/s/ Chris A. Davis
CHRIS A. DAVIS
Executive Vice President and
Chief Financial and Administrative Officer
Member of the Office of the Chief Executive


<PAGE>









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In 1998, Gulfstream produced 61 aircraft, up 20 percent over 1997.

DELIVERING RESULTS, DEFINING THE FUTURE

Gulfstream  again  delivered  more  than  it  promised  in  1998.  Just  as
importantly,  we took steps to define our future and  generate  exceptional
earnings growth for 1999 and beyond. We achieved record sales and earnings,
aggressively expanded distribution channels for our products, significantly
expanded  our  production  capacity and service  market  share  through the
acquisition  of K-C Aviation,  realigned our resources to more  effectively
capitalize  on our strengths and expanded our portfolio of services to meet
our  customers'  needs and  broaden  our  sources  of  revenue.  Gulfstream
continues to set the standard for business  aviation and is well positioned
to continue our leadership position well into the future.
<PAGE>
BUILDING A DIVERSIFIED PRODUCT PORTFOLIO TO MEET MARKET NEEDS

From Sydney to St.  Louis,  Gulfstream is known for setting the standard in
business aviation. We sustain our reputation for excellence by offering the
highest  quality,  most reliable  business  aircraft to the most discerning
customers  -- national  and  multinational  corporations,  governments  and
private individuals. More than 900 Gulfstream aircraft are in service today
-- connecting cities and people and making commerce prosper in 50 countries
on six continents. Our growing and diverse customer base spans the spectrum
of industry -- from household names to emerging enterprises.  Two-thirds of
all U.S.  Fortune 500  companies  operating  large cabin  business  jets --
including  all of the  top  ten -- and 34  governments  operate  Gulfstream
aircraft.  In addition,  more than half of all Gulfstream buyers are repeat
customers -- a distinct advantage in today's competitive  market.  Overall,
Gulfstream   leads  the  large  cabin   category  of  business   jets  with
approximately 60 percent market share.

A number of factors fueled the strong demand for the  Gulfstream  IV-SP and
the  ultra-long  range  Gulfstream V. Foremost is the fact that  Gulfstream
aircraft  are  proven  to be the  world's  most  technologically  advanced,
reliable  and safe  business  aircraft.  Customers  look to our aircraft to
provide  a  level  of  safety,  security  and  convenience  unavailable  on
commercial  airlines.  And  they  view  our  products  as an  indispensable
business tool that offers an  opportunity  to gain an advantage in a highly
competitive worldwide market. Independent surveys taken in 1997 found that,
among  corporations  operating  business  aircraft,  100  percent of senior
management,  more than 60 percent of middle managers and over 40 percent of
sales professionals use these products in the normal course of business. In
fact,  corporate jets are considered a  significantly  more productive work
environment than commercial airlines.

In 1998,  we  aggressively  took  steps  to  capitalize  on our  leadership
position,  leverage the Gulfstream brand,  expand access to our markets and
meet our customers'  changing needs. By being first to market with product,
service and financing  innovations,  we now offer more  customers than ever
the  opportunity  to  experience  the value of the  Gulfstream  brand  with
transportation solutions provided by Gulfstream products.

Gulfstream  Shares is the industry's most successful large cabin fractional
ownership program with 80 aircraft now under contract. In 1998, we expanded
the program to include the Gulfstream V aircraft and introduced  Gulfstream
IV-SP  fractional  ownership  into  the  Middle  East.  More  than  100 new
customers have joined the  Gulfstream  family as part of the Shares program
since its launch in 1995.

Introduced  in 1998,  Gulfstream  Lease is the first  short-term  operating
lease  program  available  in business  aviation.  By  requiring no capital
investment  and  offering  lease  terms  ranging  from two to five years at
competitive  rates,  Gulfstream  Lease  offers a flexible  new  approach to
aircraft operation.

Gulfstream  Financial Services Corporation (GFSC) offers flexible financing
solutions  tailored to individual  customer  needs.  Through  private label
relationships with financing providers, GFSC has financed over $400 million
since 1996.

To provide service for Gulfstream operators, the Company operates a network
of service centers, authorized warranty providers and parts depots in eight
countries,  as well as worldwide field service  representatives.  To assist
customers  in  fulfilling  their  charter  needs,   Gulfstream   introduced
Gulfstream  Charter   ServicesSM  in  1998.   Gulfstream  also  now  offers
Gulfstream Management ServicesSM which provides  comprehensive flight crew,
hangar and aircraft maintenance management for customers.

As our products,  services and fleet of Gulfstream  aircraft have grown, we
have made strategic  investments to support this growth. We used our strong
cash flow to acquire  K-C  Aviation,  the  industry's  leading  independent
provider of aircraft  completions  services,  with  facilities in Appleton,
Wisconsin,  Dallas, Texas and Westfield,  Massachusetts.  This $250 million
acquisition gives Gulfstream two critical competitive advantages. First, it
offers the  opportunity  to increase  the number of aircraft  interiors  we
complete to match production  levels and meet customer demand.  Second,  it
expands our service and  maintenance  capacity and positions the Company to
grow our service  revenues for both Gulfstream and other mid-size and large
cabin aircraft.




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Gulfstream now offers  multiple  opportunities  for customers to fly in the
Gulfstream IV-SP, the world's  best-selling,  large cabin business jet, and
the Gulfstream V, the world's first  ultra-long  range  business  aircraft.
Customers can now benefit from these fine aircraft  through the  Gulfstream
Shares fractional ownership program,  Gulfstream Lease short-term operating
leases or direct purchase of an entire aircraft.
<PAGE>



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Gulfstream's Integrated Test Facility ensures high quality aircraft systems
integration in the manufacturing process.

<PAGE>

TECHNOLOGICAL LEADERSHIP THROUGH QUALITY, PERFORMANCE AND RELIABILITY

THE GULFSTREAM V

The Gulfstream V, the world's first  ultra-long  range  business  aircraft,
continued to exceed  expectations  in 1998.  Orders for this  revolutionary
aircraft totaled 55 in 1998, including 15 options. By year-end, we had sold
136 Gulfstream  Vs, a very powerful  start for a new aircraft  certified by
the Federal Aviation  Administration  less than two years ago. Early in the
year,  the Gulfstream V was recognized  with American  aviation's  greatest
honor -- the Robert J. Collier  Trophy.  Also in 1998,  the record flight of
the Gulfstream V from Washington,  D.C. to Dubai,  United Arab Emirates was
recognized among the "Ten Most Memorable Flights in 1997".

Like all preceding  Gulfstream  aircraft,  the  Gulfstream V represents the
standard of  performance,  reliability,  safety and comfort  against  which
other  aircraft are measured.  Cruising  effortlessly  at speeds up to Mach
0.885 or nearly 600 miles per hour, the Gulfstream V can fly 6,500 nautical
miles at 51,000 feet -- high above weather and commercial  aircraft traffic.
While renowned for its ultra-long range  capabilities,  the Gulfstream V is
equally well suited to short-range missions -- New York to Chicago, Paris to
Milan,  Hong Kong to Bejing.  With a proven ability to take off and land at
more airports than any aircraft in its class,  the  Gulfstream V offers its
owners  unsurpassed  flexibility.  In  every  aspect,  this  record-setting
aircraft  continues to exceed  customer  expectations  and  outperform  the
competition.

The  Gulfstream  V  also  offers   unparalleled   versatility  in  interior
furnishings and equipment,  as well as expanded baggage capacity. It is the
only  aircraft in its class to provide  100 percent  fresh air in the cabin
and maintain a constant 6,000 foot cabin pressure -- effectively  minimizing
the  wear and tear  effects  common  in long  distance  commercial  airline
travel.

The Gulfstream V's flexible operating capability, altitude, high speed, and
ultra-long  range has led to its  rapid  acceptance  as a  special  mission
aircraft  for  government  and  military  use. To date,  the United  States
Government has ordered four  Gulfstream V aircraft and holds options for up
to three additional aircraft.

In late 1998,  two  Gulfstream V aircraft  entered  service with the United
States Air Force (USAF) 89th Airlift Wing,  also known as the  Presidential
Wing.  Designated VC-X or C-37A,  these specially  outfitted  Gulfstream Vs
provide  worldwide  transportation  for  senior  government  officials  and
dignitaries.  Also in 1998, the U.S. Army's Priority Air Transport Squadron
ordered a  Gulfstream  V for  outfitted  delivery in the fourth  quarter of
1999. In early 1999, the USAF ordered an additional aircraft for use by the
Commanders  In Chief  of the  Unified  Commands.  Gulfstream  will  provide
technical and logistic  support,  spare parts and overhaul  services to the
Department of Defense in support of these aircraft.

Outside  the United  States,  the  Gulfstream  V is also  recognized  as an
exceptional  special  mission  aircraft.  In 1998, the Government of Kuwait
purchased  three  Gulfstream  V aircraft to provide  worldwide  airlift and
unprecedented ultra-long range medical evacuation capabilities.



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<PAGE>

THE GULFSTREAM IV-SP

In 1998, the Gulfstream IV-SP further solidified its leadership position in
the large cabin, long range business  aircraft market segment.  Fifty-three
aircraft were ordered in 1998, including three options,  bringing the total
number  of  Gulfstream  IV/IV-SP  aircraft  sold  to 423.  This  remarkable
aircraft  continues  to outsell  its  nearest  competitor  by a  two-to-one
margin.

The  continued  strong  demand  for the  Gulfstream  IV-SP  attests  to its
extraordinary  ability to perform on demand,  at unmatched levels of safety
and comfort. Its 4,220 nautical mile range is enough to connect Chicago and
Madrid,  London and Dubai,  Hong Kong and Perth,  and Buenos Aires and Cape
Town.  Like the  Gulfstream  V,  the  Gulfstream  IV-SP  flies  high  above
commercial  air traffic at 45,000  feet and offers a 100 percent  fresh air
environmental  control system with a constant cabin pressure of 6,500 feet,
well below the 8,000 foot cabin pressure of commercial airliners travelling
at 35,000 feet.

Its  record of  performance,  reliability  and  flexibility  also makes the
Gulfstream IV-SP a preferred  platform for special purpose missions ranging
from  medical  evacuation,  scientific  and weather  research  and military
surveillance to V.I.P.  transport.  Nearly 50 Gulfstream  IV/IV-SP aircraft
support government and military needs in 21 countries around the world.

Looking ahead, we expect the Gulfstream IV-SP to remain the leader in large
cabin,  long range business  aviation.  The aircraft's  digital design will
readily   incorporate   new   advances   in   avionics,   electronics   and
telecommunications   while  its  airframe  and  engine  combination  offers
unparalleled performance.


CUSTOMIZED INTERIORS

Gulfstream  aircraft  appeal to a wide  spectrum of customers  because they
combine  exceptional  technical  performance  with  flexible,  high quality
interior  designs.  Today,  Gulfstream  has  achieved its goal of providing
interiors  for every  aircraft  it  produces.  Gulfstream  aircraft  can be
outfitted  as a virtual  office  just as  readily as an  airborne  hospital
emergency   room   with    state-of-the-art    life   support    equipment.
Characteristics  like these provide a significant  advantage for Gulfstream
customers.

To increase completions capacity consistent with the Company's  accelerated
production plan,  Gulfstream acquired K-C Aviation,  the industry's leading
independent  provider  of  aircraft  completions  and  service,   from  the
Kimberly-Clark  Corporation in August, 1998 for approximately $250 million.
This  strategic  acquisition  gave  Gulfstream  additional  facilities  and
equipment for interior completions,  as well as an experienced and talented
team of 1,200  employees.  Gulfstream now completes  aircraft  interiors at
five locations -- Appleton,  Wisconsin,  Brunswick,  Georgia, Dallas, Texas,
Long Beach, California and Savannah, Georgia.

To help drive cost efficiencies  while continuing to provide the industry's
highest quality  completions,  Gulfstream is  aggressively  integrating the
best practices  across all locations into the overall  interior  design and
production process.

In 1998,  Gulfstream  also opened a new $8.5  million,  60,000 square foot,
state-of-the-art  paint  facility at its Long Beach,  California  location.
Combined with paint facilities at Appleton, Dallas and Savannah, Gulfstream
is  positioned  to increase the number of aircraft  completed  per year and
attract large maintenance and interior refurbishment jobs.





GULFSTREAM'S  TEAM OF  TALENTED  AND  DEDICATED  CRAFTSPEOPLE  PRODUCE  THE
INDUSTRY'S HIGHEST QUALITY CUSTOM INTERIORS.
<PAGE>




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<PAGE>

DELIVERING VALUE-ADDED SERVICES TO CUSTOMERS WORLDWIDE

Gulfstream  has taken  significant  steps to meet the changing needs of its
customers  and expand the  market for its  products.  The result is a broad
portfolio   of  products  and   services   that   leverage  the  brand  and
strategically  position  the  Company to be the first  choice  provider  of
transportation solutions for customers worldwide.


SUCCESSFULLY EXPANDING PRODUCT OFFERINGS

Gulfstream has expanded the market for the Gulfstream  IV-SP and Gulfstream
V aircraft by creating new distribution channels.  Innovative programs such
as Gulfstream Shares and Gulfstream Lease offer customers an opportunity to
gain the advantage of a Gulfstream without the investment required for full
aircraft purchase.

Gulfstream  Shares, a program offering  fractional  ownership  interests in
Gulfstream   aircraft,   is  a  key  contributor  to  Gulfstream's  growth.
Introduced  in 1995 in  conjunction  with  Executive  Jet (EJ),  Gulfstream
Shares offers the opportunity to own  one-eighth,  one-quarter and one-half
shares in Gulfstream  aircraft.  To date, more than 100 owners -- including
many  first-time  aircraft  operators -- have joined the Gulfstream  family
through this program.  Nearly half of Gulfstream  Shares  customers did not
previously  own an  aircraft  and  over  85  percent  have  never  owned  a
Gulfstream.  Eighteen  Gulfstream  IV-SPs are  currently  in service in the
Shares program.

The Gulfstream  Shares program grew  substantially in 1998. In October,  EJ
placed the largest order in business  aviation's  history for 14 Gulfstream
IV-SP  and  10  Gulfstream  V  aircraft  plus  options  for  12  additional
Gulfstream Vs. Valued at approximately $1.3 billion including a maintenance
services arrangement,  this agreement expanded the Gulfstream IV-SP program
and added the ultra-long range Gulfstream V in North America. Now customers
that require the extended range and  high-performance  capabilities  of the
Gulfstream  V  for  only  a  portion  of  their  transportation  needs  can
cost-effectively acquire a share of this asset.

At the end of  1998,  68  aircraft  valued  at $2  billion,  including  the
options,  were under contract with EJ for the Gulfstream  Shares program in
North America. Deliveries of these aircraft extend through 2007.

1998  marked  further  success  for the  Gulfstream  Shares  concept  as we
introduced  a  fractional  ownership  program into the Middle East with the
sale of 12 Gulfstream  IV-SP aircraft  valued at $335 million to a group of
Middle East investors.  The first aircraft will go into operational service
late in the second  quarter of 1999.  Gulfstream  will  provide  technical,
sales and  marketing  support  while  the  operation  of the fleet  will be
managed by EJ. We continue to see future  expansion  opportunities  for the
Gulfstream Shares program in other regions around the world.

In September 1998, we introduced  Gulfstream  Lease,  the industry's  first
short-term  operating  lease  program.  Created  in  conjunction  with GATX
Capital,  a  diversified   international  financial  services  corporation,
Gulfstream  Lease  provides  greater  flexibility  and  ease  of  entry  to
customers by eliminating the up-front capital investment and offering lease
terms  from  two to  five  years  at  competitive  rates.  Emerging  growth
companies,  enterprises  with  short-term  projects  such as  manufacturing
expansion or the integration of an acquisition,  companies with off-balance
sheet  financing  requirements  or  companies  awaiting  delivery  of a new
Gulfstream  aircraft  may find  this a  valuable  alternative  to  aircraft
ownership.

The newly formed  Gulfstream  GATX  Leasing  Company is owned 85 percent by
GATX Capital and 15 percent by Gulfstream.  Gulfstream  will provide sales,
marketing and aircraft  maintenance  services and GATX will provide account
management services for the program.




                            [GRAPHIC OMITTED]
                            [IMAGE OF AIRCRAFT]
<PAGE>




                            [GRAPHIC OMITTED]
                  [IMAGE OF AIRCRAFT, HANGAR AND MEETING]



In 1998, Gulfstream  successfully expanded the Gulfstream Shares program to
include the Gulfstream V aircraft and the Middle East region.
<PAGE>




                            [GRAPHIC OMITTED]
                  [IMAGE OF AIRCRAFT ENGINE AND MECHANIC]



Gulfstream now offers service for Gulfstream aircraft at six North American
locations. The Company also services Hawker, Falcon and Challenger aircraft
at three  locations:  Appleton,  Wisconsin,  Dallas,  Texas and  Westfield,
Massachusetts.
<PAGE>




                            [GRAPHIC OMITTED]
                             [IMAGE OF PEOPLE]



To launch  Gulfstream  Lease,  the venture signed  contracts valued at more
than $400 million for five  Gulfstream V, one Gulfstream  IV-SP and options
for three  Gulfstream  V and three  Gulfstream  IV-SP  aircraft.  The first
aircraft will be delivered into service at the end of 1999.



24 HOURS-A-DAY CONVENIENCE FOR OUR CUSTOMERS

The  purchase  of a  Gulfstream  aircraft  is the first step in  building a
long-term  relationship with our customer.  The Company has service centers
in Appleton,  Wisconsin,  Brunswick,  Georgia,  Dallas,  Texas, Long Beach,
California,  Savannah, Georgia and Westfield,  Massachusetts,  as well as a
network of worldwide  Gulfstream-authorized  service  warranty  centers and
parts depots available to service aircraft  maintenance  needs. By focusing
on the customer and  improving  turn times,  we have  increased  our market
share in service  successfully over the past three years. Today, we service
three out of every four  Gulfstream  aircraft in  operation.  Revenues  for
Gulfstream's  Aircraft  Services  business  increased 40 percent in 1998 to
$281.8  million,  including the impact of the  acquisition of the Appleton,
Dallas and Westfield facilities.

As the worldwide Gulfstream fleet continues to increase,  Aircraft Services
provides important growth opportunities for the Company. The acquisition of
the  Appleton,  Dallas and Westfield  facilities  supports the expansion of
this  strategic   business  and  allows   Gulfstream  to  offer  convenient
coast-to-coast  service  in the  United  States.  Gulfstream  also will now
service Hawker,  Falcon and Challenger  business jets at the new locations,
an advantage  for  customers  whose  aircraft  fleets  include a variety of
aircraft models.  The acquisition also strongly  establishes the Gulfstream
name in the engine and auxiliary power unit service market. Over the longer
term,  Gulfstream expects to use its expanded capacity to provide paint and
refurbishment  services to mid-size and large cabin aircraft operators,  an
important   differentiating   feature  in  attracting   large   maintenance
contracts.

To  help  customers  manage   maintenance   costs,   Gulfstream   offers  a
comprehensive,  nose-to-tail  maintenance  program with  guaranteed  hourly
costs.  Gulfstream  ServiceCareSM  covers virtually every part,  component,
assembly and system on the aircraft for a ten-year period.

In 1998,  Gulfstream  introduced  Gulfstream Charter Services to assist our
customers in chartering  Gulfstream  aircraft.  Gulfstream Charter Services
monitors availability of Gulfstream aircraft for charter, ensuring that the
charter  aircraft adhere to strict  standards,  are operated by a qualified
crew and reflect, as much as possible,  personal preferences in comfort and
in-flight service.

Gulfstream  Management  Services  simplifies aircraft ownership by offering
flight  operations  and  maintenance  services  for  Gulfstream  customers.
Offered  through an alliance  with  Chrysler  Pentastar  Aviation,  a world
leader in aviation  service and  support,  Gulfstream  Management  Services
provides crew,  hangar  facilities,  dispatch  scheduling  and  maintenance
management. It is the ideal solution for customers who want the benefits of
owning  a  Gulfstream  without  the  accompanying   complexities  of  fleet
management.  It is also expected to appeal to customers leasing an aircraft
on a short-term basis through Gulfstream Lease.
<PAGE>
SOUND STRATEGIES, EXPERT EXECUTION

Five years ago,  Gulfstream  established  a vision to "Set the Standard for
Business  Aviation through  Excellence in Products,  Services and Financial
Return." Our strategy was clear -- to bring the  Gulfstream V to market well
ahead of the  competition,  to capitalize on the success of the  Gulfstream
IV-SP  and to offer  new  products  and  services  to meet  our  customers'
changing needs.

We  have  successfully   executed  our  strategy  and  significantly  grown
revenues  and earnings  while  expanding our sources of revenue to provide
for  future  growth.  By  focusing  on our core  competencies,  maintaining
technical  leadership  in our  products  and driving  process  improvements
across all  business  areas,  we  realized a nearly 80 percent  increase in
earnings  in 1998 to  $3.00  per  share  and  expect  to grow  earnings  an
additional 25 percent in 1999 to $3.75 per share.

Gulfstream  increased production from 27 aircraft in 1996 to 61 aircraft in
1998 and we expect to  deliver 65 new  aircraft  in 1999.  This  production
increase was accomplished  with a capital  investment of approximately  $35
million.  In addition to our revenue  growth,  the increase in earnings has
been realized through cost  productivity on Gulfstream IV-SP and Gulfstream
V coproduction.  In 1998, the  manufacturing  hours to build the Gulfstream
IV-SP and the  Gulfstream  V were  reduced  by 14 percent  and 27  percent,
respectively.  We will continue to focus on driving cost  efficiencies  and
quality through process  improvements  developed by cross-functional  teams
working together to meet our goals. We expect to see margin expansion going
forward as we apply  this same  approach  to our  completions  and  service
businesses.

We plan to invest $15 million annually in research and development over the
next several  years to ensure that our products  remain at the forefront of
technological  advancement.  These investments will be primarily focused on
the  integration of useful  technology  into the  Gulfstream  IV-SP and the
Gulfstream V while seeking ways to continuously improve the reliability and
the cost of operations for these outstanding products.

We are  also  focused  on  sustaining  a  culture  based  on  teamwork  and
entrepreneurial  spirit.  We will  continue  to lead  our  employees  in an
environment supported by these values:

     o  We take personal and professional  pride in the integrity,  quality
        and safety of  products  and  services  we sell and  provide to our
        customers.

     o  We expect to treat each other and our  customers  with the greatest
        respect.

     o  We work diligently, supportively and safely as "One Team."

     o  We are committed to achieving  excellent  business  performance for
        our shareowners.

     o  We are committed to sustaining an  action-oriented  environment  of
        continuous improvement, risk taking and personal integrity.

As we look forward, Gulfstream is well positioned for continued growth with
a broader set of product  offerings -- the Gulfstream  IV-SP, the Gulfstream
V, Gulfstream  Shares,  Gulfstream  Lease,  Gulfstream  Worldwide  Service,
Gulfstream Financial Services,  Gulfstream  Pre-Owned Aircraft,  Gulfstream
Charter  Services and Gulfstream  Management  Services -- which will provide
transportation  solutions to customers  worldwide.  We have never been more
confident in our ability to sustain  profitable  growth and create  ongoing
shareholder value.



OVER THE PAST FIVE YEARS, GULFSTREAM HAS BUILT A STRONG MANAGEMENT TEAM
WHICH HAS NEARLY TRIPLED THE SIZE OF THE BUSINESS AND HAS THE TALENT AND
DRIVE TO EXPAND OUR MARKETS IN THE YEARS AHEAD.
<PAGE>




                            [GRAPHIC OMITTED]
                   [IMAGE OF GULFSTREAM LEADERSHIP TEAM]



          GULFSTREAM NOW OFFERS A BROAD RANGE OF TRANSPORTATION
                           PRODUCTS AND SERVICES

 GULFSTREAM LEASE                                   GULFSTREAM SHARES

GULFSTREAM WORLDWIDE        [GRAPHIC OMITTED]      GULFSTREAM PRE-OWNED
      SERVICE             [IMAGES OF GULFSTREAM V        AIRCRAFT
                            & GULFSTREAM IV-SP]
                         GULFSTREAM CHARTER SERVICES

GULFSTREAM FINANCIAL                               GULFSTREAM MANAGEMENT
      SERVICES                                            SERVICES

                        GULFSTREAM CHARTER SERVICES
<PAGE>
BOARD OF DIRECTORS

[GRAPHIC OMITTED]
[IMAGE OF R. ANDERSON]
Robert Anderson
Chairman Emeritus
Rockwell International Corporation

[GRAPHIC OMITTED]
[IMAGE OF C. L. BEERS]
Charlotte L. Beers
Chairman
J. Walter Thompson

[GRAPHIC OMITTED]
[IMAGE OF T. D. BELL, JR.]
Thomas D. Bell, Jr.
Chairman & Chief Executive Officer
Young & Rubicam Advertising

[GRAPHIC OMITTED]
[IMAGE OF W. W. BOISTURE, JR.]
W. W. Boisture, Jr.
President & Chief Operating Officer
Gulfstream Aerospace Corporation

[GRAPHIC OMITTED]
[IMAGE OF C. A. DAVIS]
Chris A. Davis
Executive Vice President &
Chief Financial & Administrative Officer
Gulfstream Aerospace Corporation

[GRAPHIC OMITTED]
[IMAGE OF L. FORESTER]
Lynn Forester
Co-Chief Executive Officer
FirstMark Communications
International L.L.C.

[GRAPHIC OMITTED]
[IMAGE OF N. C. FORSTMANN]
Nicholas C. Forstmann
Founding General Partner
Forstmann Little & Co.

[GRAPHIC OMITTED]
[IMAGE OF T. J. FORSTMANN]
Theodore J. Forstmann
Chairman & Chief Executive Officer
Gulfstream Aerospace Corporation
Founding General Partner
Forstmann Little & Co.

[GRAPHIC OMITTED]
[IMAGE OF S. J. HORBACH]
Sandra J. Horbach
General Partner
Forstmann Little & Co.

[GRAPHIC OMITTED]
[IMAGE OF J. T. JOHNSON]
James T. Johnson
Former President & Chief Operating Officer
Gulfstream Aerospace Corporation

[GRAPHIC OMITTED]
[IMAGE OF H. A. KISSINGER]
Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
Former U.S. Secretary of State

[GRAPHIC OMITTED]
[IMAGE OF D. LEWIS]
Drew Lewis
Former Chairman & Chief Executive Officer
Union Pacific Corporation

[GRAPHIC OMITTED]
[IMAGE OF M. H. MCCORMACK]
Mark H. McCormack
Chairman, President & Chief Executive Officer
International Management Group

[GRAPHIC OMITTED]
[IMAGE OF B. T. MOSS]
Bryan T. Moss
Vice Chairman
Gulfstream Aerospace Corporation

[GRAPHIC OMITTED]
[IMAGE OF M. S. OVITZ]
Michael S. Ovitz
CKE Investments
Artists Management Group

[GRAPHIC OMITTED]
[IMAGE OF A. E. PAULSON]
Allen E. Paulson
Chairman Emeritus
Gulfstream Aerospace Corporation

[GRAPHIC OMITTED]
[IMAGE OF R. S. PENSKE]
Roger S. Penske
Chairman
Penske Corporation

[GRAPHIC OMITTED]
[IMAGE OF C. L. POWELL]
Colin L. Powell
Chairman, America's Promise --
The Alliance for Youth
Former Chairman, U.S. Joint Chiefs of Staff

[GRAPHIC OMITTED]
[IMAGE OF G. R. ROCHE]
Gerard R. Roche
Chairman
Heidrick & Struggles, Inc.

[GRAPHIC OMITTED]
[IMAGE OF D. H. RUMSFELD]
Donald H. Rumsfeld
Chairman
Gilead Sciences, Inc.
Former U.S. Secretary of Defense

[GRAPHIC OMITTED]
[IMAGE OF G. P. SHULTZ]
George P. Shultz
Former U.S. Secretary of State

[GRAPHIC OMITTED]
[IMAGE OF R. S. STRAUSS]
Robert S. Strauss
Founder & Partner
Akin, Gump, Strauss, Hauer & Feld
Former U.S. Ambassador to Russia
<PAGE>
                        FINANCIAL TABLE OF CONTENTS
==============================================================================

          Management's Discussion & Analysis                20
          Consolidated Statements of Income                 26
          Consolidated Balance Sheets                       27
          Consolidated Statements of Stockholders' Equity   28
          Consolidated Statements of Cash Flows             29
          Notes to Consolidated Financial Statements        30
          Independent Auditors' Report                      39
          Report of Management's Responsibility             39
          Quarterly Financial Results                       40
          Quarterly Common Stock Price Range                40
          Selected Financial Data                           41
          Corporate Information                             41


<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

BUSINESS

Gulfstream  is  recognized  worldwide  as a  leading  designer,  developer,
manufacturer  and  marketer  of  intercontinental  business  aircraft.  The
Company  operates  principally in three  segments:  New Aircraft,  Aircraft
Services and Pre-Owned Aircraft. Within New Aircraft, the Company's current
product  offerings are the Gulfstream  IV-SP,  the Gulfstream V, Gulfstream
Shares  (fractional  ownership interest in Gulfstream IV-SPs and Gulfstream
Vs),  and  Gulfstream  Lease.   Also,  the  Company's   financial  services
subsidiary,  Gulfstream  Financial  Services  Corporation,  through private
label relationships with third-party aircraft financing  providers,  offers
customized  products to finance the worldwide sale of Gulfstream  aircraft.
Within its  Aircraft  Services  segment,  the  Company  offers  aftermarket
maintenance  services,  spare parts,  and engine and  auxiliary  power unit
service and overhaul for both Gulfstream and other business  aircraft.  The
Company's Pre-Owned Aircraft segment markets and sells pre-owned Gulfstream
aircraft and other  business  aircraft,  acquired in trade,  to a worldwide
market.

The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated  Financial  Statements and Notes thereto beginning on page 26,
which are included herein.

ACQUISITION OF K-C AVIATION

On August 19, 1998, the Company  completed the acquisition of K-C Aviation,
Inc. for  approximately  $250 million,  including  acquisition  costs.  The
acquisition is a key part of  Gulfstream's  growth strategy and has allowed
the  Company  to obtain a skilled  workforce,  as well as add  capacity  to
accelerate  its  aircraft  completions  business,  diversify  and  grow its
aircraft  maintenance  and  parts  business,  and  strongly  establish  the
Gulfstream name in the aircraft engine service market.

K-C Aviation was a leading provider of business  aviation  services and the
largest  independent  completion  center  for  business  aircraft  in North
America.  In addition to custom  aircraft  interiors,  K-C Aviation was the
second  largest  independent  aircraft  engine service center in the United
States and also offers maintenance services,  spare parts,  auxiliary power
unit  service,  avionics  retrofit,  non-destructive  testing and component
overhaul.

The  purchase of K-C  Aviation  was funded  primarily  from  existing  cash
balances,  and due to the timing of the  closing of the  transaction,  also
from the revolving credit facility.  The acquisition has been accounted for
as a purchase, and the purchase price exceeded the fair value of net assets
acquired by  approximately  $178 million.  The discussion and analysis that
follows reflects the combined results from the date of the acquisition.

RESULTS OF OPERATIONS

The following sets forth certain  statistical data concerning the Company's
deliveries, orders and financial contract backlog for new aircraft.

                                  1998       1997      1996
============================================================
Units delivered
during period:
  Gulfstream IV-SP                 32         22         24
  Gulfstream V                     29         29          3
============================================================
  Total green deliveries           61         51         27
Units ordered during period:
  Gulfstream IV-SP                 39         39         44
  Gulfstream V                     40          7         21
============================================================
  Total orders                     79         46         65
Units in backlog at end
of period:
  Gulfstream IV-SP (1)             50         43         27
  Gulfstream V (2)                 56         45         67
============================================================
  Total backlog
 (in units) (3)                   106         88         94

Estimated backlog
(in billions) (3)               $ 3.3      $ 2.8      $ 3.1

----------------------
(1) Net of one  cancellation  in 1997,  which relates to an order placed in
    that year.
(2) Net of one  cancellation in 1996, which relates to an order placed in a
    prior year.
(3) Backlog  and  orders  exclude  11 Middle  East  Shares  contracts.  See
    discussion of Financial Contract Backlog on page 24.

The  Company  recognizes  revenue  for the sale of a new  "green"  aircraft
(i.e.,  before  exterior  painting and  installation  of  customer-selected
interiors  and optional  avionics)  when that  aircraft is delivered to the
customer. Revenues from completion services are recorded when the outfitted
aircraft is delivered to the customer.  Revenues on all other  products and
services,  including pre-owned aircraft,  are recognized when such products
are  delivered  or  such  services  are  performed.   Generally,   aircraft
deliveries remain relatively  smooth throughout a year.  However,  aircraft
deliveries  can vary  significantly  depending  upon the timing of contract
execution  and  final  customer  acceptance.   Accordingly,  the  Company's
revenues can vary significantly from quarter to quarter.
<PAGE>
TOTAL COMPANY REVENUES AND GROSS MARGIN

In 1998,  total Company  revenues  increased by $524.5  million to $2,428.0
million from  $1,903.5  million in 1997. In 1997,  total  Company  revenues
increased  $839.8  million from $1,063.7  million in 1996.  The increase in
revenues  is  principally  attributable  to the  increase  in new  aircraft
deliveries to 61 in 1998 from 51 in 1997 and 27 in 1996. The Company's 1998
results of  operations  include  revenues of K-C Aviation  from the date of
acquisition,  totaling $84.9 million,  a portion of which resulted from the
delivery of eight non-Gulfstream completions. Cost of sales of the acquired
business includes a non-cash acquisition-related charge of $7.2 million for
the  fair  value  step-up  related  to the sale of  inventories.  Excluding
pre-owned aircraft,  which generally are sold at or near break-even levels,
and the non-cash inventory  step-up,  the Company's gross margin percentage
for 1998 was 23.6% compared to 20.0% for 1997 and 24.8% in 1996.

NET REVENUES

[GRAPHIC OMITTED]
[BAR GRAPH]

1996           $1,063.7
1997           $1,903.5
1998           $2,428.0



The following  table displays net revenues and segment gross margin for the
Gulfstream Aerospace Corporation  reportable segments for each of the three
years in the period  ended  December  31,  1998,  which  correspond  to the
segment  information  presented  in Note 15 to the  consolidated  financial
statements.

NET REVENUES                 1998          1997          1996
===============================================================
(Dollars in millions)
New Aircraft             $ 1,909.0     $ 1,492.0     $   740.5
Aircraft Services            281.8         201.1         169.9
Pre-Owned Aircraft           237.2         210.4         153.3
                         --------------------------------------
  Total Net Revenues     $ 2,428.0     $ 1,903.5     $ 1,063.7
                         ======================================


SEGMENT GROSS MARGIN         1998          1997          1996
===============================================================
(Dollars in millions)
New Aircraft             $   464.3     $   297.5     $   193.9
Aircraft Services             53.7          45.0          36.5
Pre-Owned Aircraft            11.4           8.2          (1.7)
                         --------------------------------------
  Segment  Gross Margin  $   529.4     $   350.7     $   228.7
                         ======================================

NEW AIRCRAFT

New Aircraft  segment  revenues have  continued to grow over the last three
years,  reaching  $1,909.0  million in 1998,  after  increasing to $1,492.0
million in 1997 from $740.5 in 1996.  This  represents a 27.9%  increase in
1998 over 1997 and a twofold  increase  in 1997  compared  with  1996.  The
overall growth in New Aircraft  revenues is primarily due to the increasing
level of production to meet expanded  product  demand.  See also "Financial
Contract  Backlog".  In 1998, the New Aircraft segment delivered a total of
61 green  aircraft,  including  both  Gulfstream  IV-SPs and Gulfstream Vs,
compared  to 51 in 1997 and 27 in 1996.  The  increase in 1998 over 1997 is
driven by delivery of 10 additional Gulfstream IV-SP aircraft. The increase
in 1997 over  1996 is driven by  delivery  of 26  additional  Gulfstream  V
aircraft, which commenced delivery in December 1996.

The gross margins for New Aircraft were $464.3 million, $297.5 million, and
$193.9  million  for  1998,  1997  and  1996,  respectively.  Gross  margin
percentage  increased to 24.3% in 1998 from 19.9% in 1997 but declined from
26.2% in 1996. The increase in gross margin percentage in 1998 is primarily
attributable to reductions in new aircraft production costs. The decline in
gross  margin   percentage  in  1997  is  primarily   attributable  to  the
introduction  of the  Gulfstream V aircraft into  production and the higher
costs  experienced in 1997 associated with the early stages of Gulfstream V
production and completions.

AIRCRAFT SERVICES

Revenues for Aircraft  Services  increased  40.1% to $281.8 million in 1998
from $201.1 million in 1997. In 1997 Aircraft Services  revenues  increased
18.4% over 1996.  Contributing  to the  revenue  increase in 1998 was $57.4
million of revenues  resulting from the  acquisition  of K-C Aviation.  The
continuing  growth  in  Aircraft  Services  revenue  from  1996  to 1998 is
directly  related  to the  Company's  success in  significantly  increasing
market share.  

Gross  margin  percentages  for  Aircraft  Services  were 19.1% in 1998,  a
decrease  from 22.4% in 1997,  after  increasing  from  21.5% in 1996.  The
decrease in gross margins in 1998 from 1997 resulted principally from lower
levels of gross margins realized on revenues from the acquired K-C Aviation
business. The increase in 1997 compared with 1996 is primarily attributable
to improved  operating  performance.  

PRE-OWNED AIRCRAFT

Pre-Owned  Aircraft revenues were $237.2 million in 1998, $210.4 million in
1997 and $153.3 million in 1996. These increases  represent 12.7% growth in
1998  over  1997  compared  to a 37.2%  increase  from  1996 to 1997.  This
increase  in revenue  year over year is a  function  of the volume of units
delivered and the mix of aircraft sold (i.e.,  Gulfstream  IIs,  IIIs,  and
IVs, etc.).

Gross margins for the Pre-Owned Aircraft segment can vary from year to year
depending  on the mix of  aircraft  sold  and  current  market  conditions.
Generally,  gross margins on pre-owned  aircraft sales have been at or near
break-even, with 1998 gross margins reflecting favorable market conditions.
<PAGE>
Selling and Administrative Expense
% of Net Revenues

[GRAPHICS OMITTED]
[BAR GRAPH]

1996           9.3%
1997           5.1%
1998           5.0%



SELLING AND  ADMINISTRATIVE  EXPENSE.  Selling and  administrative  expense
increased by $23.8 million,  or 24.4%, to $121.3 million in 1998 from $97.5
million in 1997. Selling and administrative  expense decreased $2.0 million
in 1997 from  $99.5  million  in 1996.  As a  percentage  of net  revenues,
selling and administrative expenses decreased slightly to 5.0% in 1998 from
5.1% in 1997 and 9.3% in 1996. Expenses were higher in 1998 due principally
to increased  levels of sales and  marketing  expenses  and  administrative
costs associated with the acquisition of K-C Aviation. Expenses were higher
in 1996 due principally to the level of advertising  and marketing  expense
associated with the  certification  and initial customer  deliveries of the
Gulfstream V.

STOCK OPTION COMPENSATION EXPENSE. Non-cash compensation charges related to
stock  options  were $6.9  million in 1998,  $1.6  million in 1997 and $7.2
million  in  1996.  The 1998  expense  includes  $5.8  million  related  to
modification  of certain prior grants in connection with the retirement of
a senior executive during the fourth quarter.

RESEARCH AND  DEVELOPMENT  EXPENSE.  Research and  development  expense was
$10.0 million in 1998, relatively unchanged from the $10.8 million incurred
in 1997,  and  significantly  below the  $58.1  million  incurred  in 1996.
Research and development  expense  decreased during 1998 and 1997 from 1996
principally as a result of the  substantial  completion of the Gulfstream V
development program. Research and development expense for 1997 and 1996 are
net of credits of $10.0 million and $8.0 million,  respectively, for launch
assistance  funds received from suppliers  participating in the development
of the Gulfstream V. Research and development  expenditures in 1999 and the
near-term future are expected to stem principally from product improvements
and enhancements, rather than new aircraft development.

AMORTIZATION OF INTANGIBLES  AND DEFERRED  CHARGES.  This non-cash  expense
includes amortization of goodwill and other intangible assets consisting of
aftermarket  service and aftermarket  product support,  as well as deferred
financing charges related to the Company's pre-existing and new bank credit
facilities.  Amortization  of  intangibles  and deferred  charges were $9.3
million  for 1998,  $7.3  million  in 1997 and $9.4  million  in 1996.  The
increase in 1998 was a result of additional goodwill  amortization directly
attributable to the acquisition of K-C Aviation.  The decrease in 1997 from
1996 was a result  of the  accelerated  amortization  in 1996 of  financing
charges associated with the Company's prior bank credit  facilities,  which
were repaid in October 1996. Amortization will increase in 1999 as a result
of a full year of amortization attributable to the acquisition.

INTEREST INCOME AND EXPENSE.  Interest income  decreased by $4.2 million to
$7.3 million in 1998 from $11.5 million in 1997.  Interest income decreased
$3.1  million in 1997 from  $14.6  million in 1996.  The  decrease  in both
periods  was a result  of lower  average  cash  balances  the  Company  had
invested compared to the previous year. For 1998, this was principally as a
result of cash used for the Company's 1998 share repurchase program and the
acquisition of K-C Aviation.  Interest  expense consists almost entirely of
interest  paid on  long-term  borrowings  under the  Company's  bank credit
facilities. Interest expense decreased to $28.0 million for 1998 from $31.2
million  in 1997.  Interest  expense  increased  $13.3  million  from $17.9
million in 1996.  This  decrease  in 1998 was due to a decrease  in average
borrowings, as well as lower average borrowing costs of 7.3% in 1998 versus
7.7% in 1997.  The  increase  in 1997 from 1996 was due  principally  to an
increase in average  borrowings.  See  "Liquidity  and Capital  Resources".

INCOME TAXES. The Company recorded income tax expense of $126.7 million for
1998,  based on an annual  effective  tax rate of 36.0% as  compared  to an
income tax benefit of $33.9  million in 1997. No provision for income taxes
was recorded in 1996,  principally  due to the utilization of net operating
loss  carryforwards.  The Company, in estimating its ability to realize the
benefit  of its net  deferred  tax  assets,  considers  both  positive  and
negative  evidence and gives greater weight to evidence that is objectively
verifiable.  As a result of numerous factors including, but not limited to,
recent earnings trends and the size of its financial contract backlog,  the
Company  currently  believes that its net deferred tax asset is more likely
than not to be realized. In the third quarter of 1997, the Company released
its deferred tax  valuation  allowance,  totaling  $94.2  million.  Of this
amount,  $29.4  million  related to the  exercise of stock  options and was
credited to additional  paid-in capital and $64.8 million was recorded as a
one-time  non-cash  income tax benefit.  During the fourth quarter of 1997,
the  Company  recorded a  provision  for income  taxes based on its overall
estimated  effective tax rate of 37.5%.  The  Company's net operating  loss
carryforward  for regular  federal income tax purposes at December 31, 1997
was  approximately  $65.0 million,  which was fully  utilized  during 1998.

EARNINGS  PER SHARE.  The Company  reported  diluted  earnings per share of
$3.00 for 1998 compared to diluted earnings per share of $3.12 for 1997 and
diluted earnings per share of $0.60 in 1996. On a pro forma basis, assuming
an effective tax rate of 37.5%,  the Company's  diluted  earnings per share
would have been $1.68 and $0.37 for 1997 and 1996, respectively.


Pro Forma (Fully Taxed)
Earnings per Share

[GRAPHICS OMITTED]
[BAR GRAPH]

1996           $0.37
1997           $1.68
1998           $3.00
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The  Company's  liquidity  needs arise  principally  from  working  capital
requirements,  capital  expenditures,  principal  and interest  payments on
long-term debt (including the revolving credit facility), and the Company's
share repurchase  program  described  below.  During 1998, the Company also
acquired  K-C  Aviation.  During 1998 and 1997,  the Company  relied on its
available cash balances and, in 1998, its revolving credit facility to fund
these needs.

The  Company  had cash and  cash  equivalents  totaling  $38.1  million  at
December 31,  1998,  down from $306.5  million at December  31, 1997.  This
decrease is  attributable  to the  acquisition  of K-C Aviation  during the
third quarter of 1998 and the Company's share repurchase program.

In January 1998, the Company established a program to repurchase up to $200
million of its common  stock.  As of December 31, 1998,  approximately  5.5
million  shares,  at an  average  price  of  $35.81  per  share,  had  been
repurchased under this plan for an aggregate amount of approximately $198.5
million.

On March 1, 1999, the Company  established a program to repurchase up to an
additional  $200 million of its common stock.  The  purchases  will be made
from time to time in the open market or through negotiated  transactions as
market conditions warrant.

Net cash  generated  by operating  activities  was $194.7  million,  $120.4
million  and $243.4  million in 1998,  1997,  and 1996,  respectively.  The
increase  in 1998 from 1997 was  primarily  due to the  increase  in income
before income  taxes.  The reduction in 1997 from 1996 was primarily due to
the decrease in customer progress payments  associated with new aircraft in
backlog.

During the third quarter of 1998,  the Company,  together with GATX Capital
Corporation, a diversified international financial services company, formed
Gulfstream  GATX Leasing  Company to provide an operating  lease program to
customers  in  the  large  cabin,  long  range  business  aircraft  market.
Gulfstream  GATX  Leasing  Company is owned 85% by GATX  Capital and 15% by
Gulfstream.

During  the year  ended  December  31,  1998,  additions  to  property  and
equipment  amounted to $27.0  million.  Additions to property and equipment
were $26.7  million in 1997 and $16.2  million in 1996.  Additions  in 1998
include  approximately  $2.0 million of property and equipment  acquired to
upgrade existing equipment at the newly acquired locations.  As a result of
both  continued  production  level  increases  and the  acquisition  of K-C
Aviation,  the  Company  plans to spend  approximately  $30.0  million  for
property and equipment in 1999.  The  increased  level of spending of $10.5
million  in 1997 over 1996  primarily  related to the  Company's  strategic
initiative to increase its annual production rate to 65 aircraft by 1999, a
twofold  increase  over its 1996 annual  production  rate.  At December 31,
1998,  the Company was not  committed  to the  purchase of any  significant
amount of property  and  equipment.  The Company  continually  monitors its
capital spending in relation to current and anticipated  business needs. As
circumstances dictate, facilities are added, consolidated, or modernized.

In May 1998,  certain  stockholders of the Company completed the sale of 18
million shares of common stock in a secondary  offering (the  "Secondary").
The Company did not receive any of the proceeds  from the sale of shares in
the Secondary. In connection with the Secondary, certain current and former
directors and employees  of, and advisors to, the Company  exercised  stock
options to purchase, in the aggregate,  approximately 2.9 million shares of
common  stock  from  the  Company  for  an  aggregate   exercise  price  of
approximately  $27.4 million,  after deducting issuance costs. The Company
used the proceeds from these exercises for working capital purposes.

On October  16,  1996,  Gulfstream  Delaware  Corporation,  a wholly  owned
subsidiary of the Company, entered into a $650 million credit facility (the
"Credit  Agreement").  The Credit Agreement consists of a $400 million term
loan facility and a $250 million  revolving credit  facility.  A portion of
the revolving credit facility, in an amount not to exceed $150 million, may
be used (to the extent  available)  for standby and  commercial  letters of
credit,  and up to $200 million of the  revolving  credit  facility will be
available to the Company for borrowings.  In addition, up to $20 million of
the  revolving  credit  facility  may be used for  swing  line  loans.  The
revolving  credit  facility  expires  September  30,  2002 with any amounts
outstanding  due on that date.  While the Company  utilized  the  revolving
credit facility during 1998,  there were no amounts  outstanding  under the
revolving  credit  facility  on December  31,  1998.  The Credit  Agreement
contains   customary   affirmative   and   negative   covenants   including
restrictions on the ability of the Company and its subsidiaries to pay cash
dividends,  as well as  financial  covenants,  under which the Company must
operate.  As of December 31, 1998,  the Company was in compliance  with the
covenants contained in the Credit Agreement, but was prohibited from paying
dividends.  Payments  under the term loan  facility  were $75.0  million in
1998, and scheduled  repayments are $75.0 million in each of the years 1999
through 2001 and $80.0 million in 2002.

On November 30, 1998, the Company issued notes totaling $56 million secured
by three  pre-owned  aircraft used as core fleet in the  Gulfstream  Shares
Program.  The notes underlying the agreement have  substantially  identical
terms and are repayable in consecutive  monthly  installments  of principal
commencing  December 31, 1999,  with a final maturity on November 30, 2008;
aggregate  principal  payments  for  each  of the  following  years  are as
follows:  1999 -- $0.3 million;  2000 through 2007 -- $3.1 million; 2008 --
$30.6 million.

The Company's  principal source of liquidity both on a short- and long-term
basis is cash flow provided from operations,  including  customer  progress
payments  and  deposits on new aircraft  orders.  However,  the Company may
borrow against the Credit  Agreement or through other  available  borrowing
vehicles to supplement  cash flow from  operations.  The Company  believes,
based upon its analysis of its consolidated  financial  position,  its cash
flow during the past 12 months and its expected  results of  operations  in
the future,  that  operating cash flow and available  borrowings  under the
Credit Agreement and other available borrowing vehicles will be adequate to
fund  operations,  capital  expenditures,  debt service,  and the Company's
share  repurchase  program  for at least the next 12  months.  The  Company
intends to repay its remaining  indebtedness  primarily with cash flow from
operations.   There   can   be   no   assurance,   however,   that   future
industry-specific   developments  or  general   economic  trends  will  not
adversely  affect the Company's  operations or its ability to meet its cash
requirements.

As of December  31, 1998,  in  connection  with orders for 21  Gulfstream V
aircraft in the backlog, the Company has offered customers trade-in options
(which may or may not be exercised by the customer) under which the Company
will accept trade-in  aircraft  (primarily  Gulfstream IVs and IV-SPs) at a
guaranteed  minimum  trade-in  price.  Additionally,   in  connection  with
recorded  sales of new  aircraft,  at December  31,  1998,  the Company has
agreed to accept  pre-owned  aircraft  totaling $209.9 million.  Management
believes  that the fair  market  value of all  such  aircraft  exceeds  the
specified trade-in value.

The  Company is party to an  agreement  with the Pension  Benefit  Guaranty
Corporation  (the  "PBGC")  concerning  funding  of the  Company's  defined
benefit pension plans. Pursuant to this agreement,  the Company contributed
$25.0  million  during 1998 and has agreed to  contribute  a total of $25.0
million annually (to be paid quarterly in equal  installments) for 1999 and
2000 to its pension  plans,  which  payments are expected to result in such
plans being fully funded. The payments to be made under this agreement were
already part of the Company's  overall financial  planning,  and therefore,
are not  expected  to  have a  material  adverse  effect  on the  Company's
financial  statements.  The funding  required under this agreement will not
result in any increase in the Company's annual pension expense.

The Company is currently  engaged in the  monitoring and cleanup of certain
groundwater  at its Savannah  facility  under the  oversight of the Georgia
Department  of Natural  Resources.  Expenses  incurred for cleanup have not
been significant.  Liabilities are recorded when environmental  assessments
and/or  remedial  efforts  are  probable  and the costs  can be  reasonably
estimated.  The Company believes the remainder of the Savannah facility, as
well as other Gulfstream properties,  are being carefully monitored and are
in  substantial   compliance   with  current   federal,   state  and  local
environmental  regulations.  The Company believes the liabilities,  if any,
that will  result  from the  above  environmental  matters  will not have a
material adverse effect on its financial statements.

The  Company is  involved  in tax audits by the  Internal  Revenue  Service
covering the years 1990 through 1994. The revenue  agent's  reports include
several  proposed  adjustments   involving  the  deductibility  of  certain
compensation expense,  items relating to the initial  capitalization of the
Company,  the allocation of the original purchase price for the acquisition
by the Company of the  Gulfstream  business,  including  the  treatment  of
advance  payments  with  respect to and the cost of  aircraft  that were in
backlog at the time of the  acquisition,  and the  amortization  of amounts
allocated to  intangible  assets.  The Company  believes  that the ultimate
resolution of these issues will not have a material  adverse  effect on its
financial  statements because the financial statements already reflect what
the Company currently believes is the expected loss of benefit arising from
the resolution of these issues.

FINANCIAL CONTRACT BACKLOG

At December  31,  1998,  the Company  had a financial  contract  backlog of
approximately  $3.3  billion,  representing  a total  of 50  contracts  for
Gulfstream  IV-SPs,  and 56 contracts for Gulfstream Vs, compared with $2.8
billion  at the end of  1997,  representing  a total  of 43  contracts  for
Gulfstream  IV-SPs and 45 contracts  for  Gulfstream  Vs.  Including the 11
undelivered  aircraft in the Middle East Shares  contract,  which have been
excluded from the Company's  financial contract backlog,  the Company had a
total of 117 aircraft,  valued at  approximately  $3.6 billion of potential
future  revenues,  under  contract at December 31, 1998.  This  excludes 18
options valued at $0.7 billion. The increase in backlog from 1997 is driven
by the high demand for the Company's products.

During the third quarter of 1998,  Gulfstream GATX Leasing Company executed
agreements to purchase five Gulfstream Vs and one Gulfstream IV-SP,  valued
at approximately  $210 million,  with deliveries from 1999 through 2001. It
also executed  options to purchase three Gulfstream Vs and three Gulfstream
IV-SPs,  valued at approximately  $200 million,  with potential  deliveries
from 2001 through 2004.

During  the  first  quarter  of 1998,  the  Company  signed a $335  million
contract  for  12  Gulfstream   IV-SPs  to  expand  its  highly  successful
Gulfstream Shares  fractional  ownership program to the Middle East region.
The first  green  aircraft  delivery  for the Middle  East  Shares  Program
occurred  during the third quarter of 1998.  The  remaining 11  undelivered
aircraft are not included in the Company's  financial contract backlog.  In
1993, the Company  established  very  stringent  deposit  requirements  for
recording  aircraft  into its  backlog.  The  contract  for the Middle East
Shares expansion includes modestly different deposit  requirements early in
the program.  The Company has decided for the initial  phase of the program
to record these orders into backlog when the aircraft are delivered.

As of December 31, 1998, the Company had contracted to deliver to Executive
Jet 44 Gulfstream  IV-SPs and 12  Gulfstream  Vs in  connection  with North
American   Gulfstream   Shares  program  plus  options  for  additional  12
Gulfstream  Vs. Of these,  18  Gulfstream  IV-SPs are in service,  with the
remaining 50 Gulfstream  IV-SPs and  Gulfstream Vs to be delivered  through
2007.

The Company  includes an order in  financial  contract  backlog only if the
Company has entered into a purchase contract (with no  contingencies)  with
the  customer  and has received a  significant  (generally  non-refundable)
deposit from the  customer.  In total,  approximately  50% of the Company's
contractual backlog is scheduled for delivery beyond 1999.

Financial Contract Backlog

[GRAPHICS OMITTED]
[BAR GRAPH]

1996      $3,104.0
1997      $2,782.1
1998      $3,301.9
<PAGE>
The Company continually monitors the condition of its backlog and believes,
based on the nature of its customers and its  historical  experience,  that
there will not be a significant  number of cancellations.  However,  to the
extent that there is a lengthy period of time between a customer's aircraft
order and its expected delivery date, there may be increased uncertainty as
to changes in business and economic  conditions  which may affect  customer
cancellations.

FOREIGN  EXCHANGE 

The Company does not have any significant assets located outside the United
States.  All the Company's sales and contracts have  historically  been and
currently are denominated in U.S. dollars and, as a result, are not subject
to  changes  in  exchange  rates.  In  addition,  substantially  all of the
Company's material purchases are currently denominated in U.S. dollars.

INFLATION

The Company  continually  attempts to minimize  any effect of  inflation on
earnings by controlling its operating costs and selling prices.  During the
past  few  years,  the  rate of  inflation  has  been low and has not had a
significant impact on the results of the Company's operations.

A portion of the Company's  Gulfstream V contracts contain an adjustment in
the purchase price to account for inflation. Such adjustments are generally
capped at an aggregate of 3% per year.  These  adjustments  are intended to
minimize  the  Company's  cost risk  associated  with the small  portion of
material contracts which are not under long-term agreements.

YEAR 2000 READINESS 

As part of the Company's initiatives, begun in 1996, to increase production
rates and coproduce the Gulfstream IV-SP and Gulfstream V, the Company has,
and  continues  to,  upgrade and  replace  business  systems  and  facility
infrastructure.  These  initiatives  help to reduce the potential impact of
the Year 2000 issue on the Company's operations.

In  addition,  the  Company has  implemented  a Year 2000  Compliance  Plan
designed to ensure that all other hardware, software, systems, and products
with  microprocessors  relevant to the Company's business are not adversely
affected by the Year 2000  issue.  The  Company  has  established  a formal
program office under the  leadership of a senior level  executive to manage
the assessment and  implementation  of the Plan objectives.  The program is
reviewed regularly with executive management.

Gulfstream  has  reviewed  all current  production  components  and systems
installed in the  Gulfstream  IV-SP and Gulfstream V aircraft and has found
no issues. Older aircraft which are no longer under warranty have also been
reviewed and some require minor component  modifications.  This information
has been made  available to  Gulfstream  operators.  Gulfstream  intends to
substantially  complete Year 2000 compliance remediation and testing by the
first quarter 1999, with some activities  continuing  through the remainder
of 1999.  Gulfstream  has  completed  approximately  85% of its  Year  2000
program  plan for products and  infrastructure.  Confirmation  of Year 2000
plans for all significant suppliers has also been completed.  Supplier Year
2000 compliance monitoring will continue through year-end 1999 and into the
year 2000.

The Company  currently  estimates the total costs of these efforts incurred
during the years 1997 through 1999 to be  approximately  $3.5  million.  In
addition,  some  non-compliant  systems will be  eliminated  as the company
installs  Year 2000  compliant  software  in  connection  with its  ongoing
integrated  resource  planning  project.  The cost of this  effort has been
included in the company's  capital  projections  discussed  above under the
caption "Liquidity and Capital Resources".

The Company  does not  believe  that the  implementation  of this Year 2000
Compliance  Plan will have a  material  effect  on the  Company's  business
operations, financial condition, liquidity or capital resources. Management
of the Company believes it has an effective program in place to address the
Year  2000  issue in a  timely  manner.  As a  component  of the Year  2000
Compliance  Plan, the Company is developing  contingency  plans to mitigate
the effects of potential problems experienced by it or its key suppliers or
governmental  agencies  in  the  timely  implementation  of its  Year  2000
Compliance Plan.  Nevertheless,  since it is not possible to anticipate all
future outcomes, especially when third parties are involved, there could be
circumstances  in  which  the  Company's   operations  would  be  adversely
affected.

The   statements  in  this  section   constitute  a  "Year  2000  Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act to
the extent provided therein.

OUTLOOK

Based on its strong backlog and continued product demand,  Gulfstream plans
to increase  production  to 65 new  aircraft in 1999.  With this  increased
production and continuing  margin  improvements,  the Company  expects 1999
diluted  earnings per share of $3.75, a 25% increase over 1998. The Company
also expects diluted EPS in 2000 to increase by at least 15%.

FORWARD-LOOKING  INFORMATION  IS  SUBJECT TO RISK AND  UNCERTAINTY

Certain statements contained in this "Management's  Discussion and Analysis
of Financial Condition and Results of Operations," including the statements
under the heading "Outlook,"  as well as other statements elsewhere in this
Annual Report to Stockholders,  contain forward-looking information.  These
forward-looking  statements are subject to risks and uncertainties.  Actual
results might differ materially from those projected in the forward-looking
statements.  Additional  information  concerning  factors  that could cause
actual  results to  materially  differ  from  those in the  forward-looking
statements  is  contained  in Exhibit 99 to the  Company's  Securities  and
Exchange Commission filings.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME

                                                Year ended December 31,
                                        ---------------------------------------
                                             1998         1997          1996
-------------------------------------------------------------------------------
(In thousands, except per share amounts)

Net revenues                            $ 2,427,958   $ 1,903,494   $ 1,063,713
Cost and expenses
  Cost of sales                           1,907,749     1,557,520       839,254
  Selling and administrative                121,294        97,499        99,452
  Stock option compensation expense           6,908         1,640         7,186
  Research and development                   10,030        10,792        58,118
  Amortization of intangibles and
    deferred charges                          9,285         7,347         9,434
                                        ---------------------------------------
   Total costs and expenses               2,055,266     1,674,798     1,013,444
                                        ---------------------------------------
     Income from operations                 372,692       228,696        50,269
Interest income                               7,280        11,532        14,605
Interest expense                            (27,959)      (31,159)      (17,909)
                                        ---------------------------------------
     Income before income taxes             352,013       209,069        46,965
Income tax expense (benefit)                126,725       (33,942)          ---
                                        ---------------------------------------
     Net income                         $   225,288   $   243,011   $    46,965
                                        =======================================
Earnings per share:
     Basic                              $      3.08   $      3.28   $       .64
     Diluted                            $      3.00   $      3.12   $       .60
                                        =======================================

See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS

                                                             December 31,
                                                      -------------------------
                                                         1998           1997
-------------------------------------------------------------------------------
(In thousands, except for share amounts)

ASSETS
Cash and cash equivalents                             $   38,149     $  306,451
Accounts receivable (less allowance for
  doubtful accounts: $2,525 and $1,144)                  263,959        177,228
Inventories                                              729,874        629,876
Deferred income taxes                                     17,132         33,795
Prepaids and other assets                                  6,494         11,318
                                                      -------------------------
   Total current assets                                1,055,608      1,158,668

Property and equipment, net                              166,777        134,611
Tooling, net of accumulated
  amortization: $15,220 and $7,680                        36,415         43,471
Goodwill, net of accumulated
  amortization: $11,268 and $8,433                       213,906         38,957
Other intangible assets, net                              45,414         50,485
Deferred income taxes                                     22,011         32,950
Other assets and deferred charges                         74,003         14,525
                                                      -------------------------
Total Assets                                          $1,614,134     $1,473,667
                                                      =========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt                     $   75,262     $   75,000
Accounts payable                                         182,040        147,618
Accrued liabilities                                      170,681         93,798
Customer deposits                                        488,218        546,441
                                                      -------------------------
   Total current liabilities                             916,201        862,857
Long-term debt                                           285,738        305,000
Accrued postretirement benefit cost                      115,154        115,405
Customer deposits -- long-term                            94,445         88,075
Other long-term liabilities                                6,916          9,573

Stockholders' equity
  Common stock, $.01 par value; 
    300,000,000 shares authorized; 
    shares issued: 89,818,774 and 86,522,089                 898            865
  Additional paid-in capital                             444,301        370,258
  Accumulated deficit                                       (672)      (225,960)
  Accumulated other comprehensive income                  (2,441)          (762)
  Unamortized stock plan expense                             (52)        (1,155)
  Less: Treasury stock: 17,244,581 and 
    11,978,439 shares                                   (246,354)       (50,489)
                                                      -------------------------
   Total stockholders' equity                            195,680         92,757
                                                      -------------------------

Total Liabilities and Stockholders' Equity            $1,614,134     $1,473,667
                                                      =========================

See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                                  Accumulated
                                                                                     Other   Unamortized             Total
                                                             Additional             Compre-     Stock                Stock-
                                       Preferred   Common     Paid-In  Accumulated  hensive     Plan     Treasury   holders'
                                         Stock     Stock      Capital    Deficit    Income     Expense     Stock     Equity
-----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>     

BALANCE AS OF JANUARY 1, 1996          $468,938     $523     $210,631   $(410,613) $(1,450)     $---     $(50,489)  $217,540
Net income for fiscal 1996                                                 46,965                                     46,965
Minimum pension liability adjustment                                                   (14)                             (14)
                                                                                                                   ---------
  Total comprehensive income                                                                                          46,951
                                                                                                                   ---------
Repurchase of preferred stock          (468,938)                                                                    (468,938)
Dividends paid on preferred stock                                        (105,323)                                  (105,323)
Issuance of compensatory
  common stock options                                          9,618                          (9,618)                   ---
Amortization of stock plan expense                                                              7,186                  7,186
Conversion of common stock                            (8)           8                                                    ---
Stock Split of 1.5 for 1                             258         (258)                                                   ---
Common stock offering, net of expenses                46       99,557                                                 99,603
Exercise of common stock options                      40       14,130                                                 14,170
                                      --------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1996             ---      859      333,686    (468,971)  (1,464)    (2,432)    (50,489)  (188,811)
Net income for fiscal 1997                                                243,011                                    243,011
Minimum pension liability adjustment                                                   702                               702
                                                                                                                   ---------
  Total comprehensive income                                                                                         243,713
                                                                                                                   ---------
Issuance of compensatory
  common stock options                                            363                            (363)                   ---
Amortization of stock plan expense                                                              1,640                  1,640
Tax benefit of exercised
  common stock options                                         33,682                                                 33,682
Exercise of common stock options                       6        2,527                                                  2,533
                                      --------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1997             ---      865      370,258    (225,960)    (762)    (1,155)    (50,489)    92,757
Net income for fiscal 1998                                                225,288                                    225,288
Minimum pension liability
  adjustment, net of tax of $1,464                                                  (1,679)                          (1,679)
                                                                                                                   ---------
  Total comprehensive income                                                                                         223,609
                                                                                                                   ---------
Modification of common stock options                            5,805                                                  5,805
Amortization of stock plan expense                                                              1,103                  1,103
Exercise of common stock options
  with the offering, net of expenses                  26       25,331                                       2,044     27,401
Tax benefit of exercised
  common stock options                                         39,551                                                 39,551
Exercise of common stock options                       7        3,356                                         558      3,921
Purchase of treasury stock                                                                               (198,467)  (198,467)
                                      --------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1998        $    ---     $898     $444,301   $    (672) $(2,441)   $   (52)  $(246,354)  $195,680
                                      ======================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                   Year ended December 31,
                                              ---------------------------------
                                                 1998        1997        1996
-------------------------------------------------------------------------------
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                    $ 225,288   $ 243,011   $  46,965
Adjustments to reconcile net income
   to net cash provided by operating
   activities:
  Acquisition related non-cash items              7,195         ---         ---
  Depreciation and amortization                  34,851      33,022      26,910
  Postretirement benefit cost                     7,438       6,700       6,684
  Non-cash stock option
     compensation expense                         6,908       1,640       7,186
  Provision for loss (recovery)
     on pre-owned aircraft                          ---      (1,600)      1,000
  Deferred income taxes                          62,803     (37,867)        ---
  Other, net                                       (243)      1,428         417
  Change in assets and liabilities,
     net of acquired assets
     and liabilities:
   Accounts receivable                          (47,210)    (39,978)    (55,029)
   Inventories                                  (55,370)     26,961    (263,112)
   Prepaids, other assets and
      deferred charges                          (53,498)     (5,080)     (5,578)
   Accounts payable and
      accrued liabilities                        96,439         763     102,551
   Customer deposits                            (72,940)   (109,443)    432,365
   Other long-term liabilities                  (16,957)        864     (56,956)
                                             ----------------------------------
Net Cash Provided by Operating Activities       194,704     120,421     243,403
                                             ==================================
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for business acquired                  (248,887)        ---         ---
Investment in unconsolidated affiliate           (1,260)        ---         ---
Expenditures for property and equipment         (26,955)    (26,692)    (16,167)
Expenditures for tooling                           (594)     (2,984)     (2,085)
Proceeds from sales of assets                       835           1          28
                                             ----------------------------------
Net Cash Used in Investing Activities          (276,861)    (29,675)    (18,224)
                                             ==================================
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock              ---         ---      99,603
Proceeds from exercise of common
   stock options                                 31,322       2,533      14,170
Repurchase of preferred stock                       ---         ---    (468,938)
Dividends  paid on preferred stock                  ---         ---    (105,323)
Proceeds  from  issuance of
   long-term  debt                               56,000         ---     400,000
Principal payments on long-term debt            (75,000)    (20,000)   (146,331)
Payment of financing costs                          ---         ---      (8,500)
Purchase of treasury stock                     (198,467)        ---         ---
                                             ----------------------------------
Net Cash Used in Financing Activities          (186,145)    (17,467)   (215,319)
                                             ----------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year        (268,302)     73,279       9,860
Cash and cash equivalents, beginning of year    306,451     233,172     223,312
                                             ----------------------------------
Cash and Cash Equivalents, End of Year        $  38,149   $ 306,451   $ 233,172
                                             ==================================

See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Gulfstream is primarily engaged in the design, development,  production and
sale of large  business  jet  aircraft.  The  Company is also  engaged in a
number of related businesses,  including:  product support and services for
customer-owned aircraft, which include maintenance services and replacement
parts for both Gulfstream and non-Gulfstream aircraft; engine and auxiliary
power unit service and overhaul;  and the sale of pre-owned  aircraft.  The
majority of the Company's  aircraft are sold to domestic and  multinational
corporations and domestic and foreign governments.

BASIS OF CONSOLIDATION AND USE OF ESTIMATES

The consolidated  financial  statements include the accounts of the Company
and majority-owned  subsidiaries,  all of which are wholly owned.  Material
intercompany   balances   and   transactions   have  been   eliminated   in
consolidation.  The preparation of financial  statements in conformity with
generally  accepted  accounting  principles  requires  management  to  make
assumptions and estimates that directly affect the amounts  reported in the
consolidated financial statements.  Significant estimates for which changes
in the near term are  considered  reasonably  possible  and that may have a
material effect on the financial statements are addressed in these notes to
the consolidated financial statements.

REVENUE RECOGNITION

Contracts for new aircraft are  segmented  between the  manufacture  of the
"green"  aircraft  (i.e.,  before  exterior  painting and  installation  of
customer-selected  interiors  and optional  avionics)  and its  completion.
Sales of new Gulfstream  green aircraft are recorded as deliveries are made
to the customer prior to the aircraft entering the completion process. With
respect to completed  aircraft,  any costs related to parts to be installed
and services to be performed under the contract,  after the delivery of the
aircraft,  which are not significant,  are included as cost of sales at the
time of the sale of the new  aircraft.  Sales  of all  other  products  and
services,  including pre-owned  aircraft,  are recognized when delivered or
the service is performed.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents  consist of highly liquid  financial  instruments
which have  maturities  of less than three months.  The Company  places its
temporary cash investments with high credit quality financial institutions.

INVENTORIES

Inventories  of work in process and finished  goods for aircraft are stated
at the lower of cost (based on  estimated  average unit costs of the number
of units in a production lot) or market. Raw materials, material components
of other work in process and  substantially all purchased parts inventories
are  stated at the lower of cost  (first-in,  first-out  method) or market.
Pre-owned aircraft acquired in connection with the sale of new aircraft are
recorded at the lower of the  trade-in  value or estimated  net  realizable
value.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  recorded  at  cost  and  depreciated  by the
straight-line  method over their estimated  useful lives ranging from 15 to
40 years for buildings and  improvements and four to 20 years for all other
property and equipment.  The cost of maintenance  and repairs is charged to
operations  as  incurred;   significant   renewals  and   betterments   are
capitalized.

TOOLING

Tooling  is  stated at cost and  represents  primarily  production  tooling
relating to the Gulfstream V aircraft program.  Tooling associated with the
Gulfstream  V is  amortized to cost of sales on a unit basis over the first
200 units of the Gulfstream V program.

INTANGIBLES AND OTHER ASSETS

Goodwill,  including  goodwill  arising  from the 1998  acquisition  of K-C
Aviation,  is being amortized using the straight-line method over 40 years.
Other  intangible  assets  consisting  of  aftermarket  service and product
support (i.e., customer lists) are being amortized on a straight-line basis
over the expected  useful lives which range from 10 to 21 years.  The costs
of obtaining bank financing have been included in other assets and deferred
charges  and are  being  amortized  over  the  lives  of the  related  bank
borrowings.

RESEARCH AND DEVELOPMENT

Research and  development  expenses are charged  directly to  operations as
incurred.

PRODUCT WARRANTIES

Product  warranty  expense is recorded as aircraft are delivered based upon
the estimated aggregate future warranty costs relating to the aircraft.

CUSTOMER DEPOSITS

Substantially  all customer  deposits  represent  advance  payments for new
aircraft  purchases.  The  deposits  on  aircraft  that are  expected to be
delivered  in  the  following   year  are  classified  as  current  in  the
accompanying consolidated balance sheets.

CONCENTRATIONS  OF CREDIT

Financial   instruments  which  may  potentially  subject  the  Company  to
concentrations  of  credit  risk  consist  principally  of  temporary  cash
investments  and trade and contract  receivables.  Approximately  14.0% and
32.0%,  respectively,  of accounts  receivable  outstanding at December 31,
1998 and 1997 are represented by a contract receivable  associated with the
sale of multiple aircraft to one customer.  Generally, contract receivables
are satisfied  prior to delivery of the outfitted  aircraft.  In the normal
course of business the Company performs  ongoing credit  evaluations of its
customers'  financial  position,  and  for  trade  receivables,   generally
requires no  collateral  from its  customers.  Overall,  credit  risks with
respect to trade  receivables are limited due to the Company's large number
of customers and their  dispersion  across many  industries  and geographic
regions.
<PAGE>
INCOME TAXES

Deferred income taxes reflect the impact of temporary  differences  between
the amounts of assets and  liabilities  recognized for financial  reporting
purposes and the amounts  recognized for tax purposes as well as tax credit
carryforwards  and loss  carryforwards.  These  deferred  income  taxes are
measured  by  applying  enacted  tax  rates  in  the  years  in  which  the
differences are expected to reverse. A valuation allowance reduces deferred
tax assets when it is "more  likely  than not" that some  portion or all of
the deferred tax assets will not be realized.

FAIR VALUE OF  FINANCIAL INSTRUMENTS

The  carrying  amount of cash and cash  equivalents,  accounts  receivable,
accounts  payable  and  accrued  liabilities  reflected  in  the  financial
statements  approximates  fair value  because of the  short-term  nature of
these instruments.  Based on the borrowing rates currently available to the
Company  for bank loans with  similar  terms and  maturities,  the  Company
estimates that the carrying value of its long-term debt  approximates  fair
value.

IMPAIRMENT  OF  LONG-LIVED  ASSETS

The Company periodically assesses the recoverability of assets based on its
expectations  of future  profitability  and  undiscounted  cash flow of the
related  operations and, when circumstances  dictate,  adjusts the carrying
value of the  asset.  These  factors,  along with  management's  plans with
respect to the operations,  are considered in assessing the  recoverability
of goodwill, other purchased intangibles, and property and equipment.

NOTE 2 BUSINESS ACQUISITION

On August 19, 1998, the Company  completed the acquisition of K-C Aviation,
Inc. for  approximately  $250 million,  including  acquisition  costs.  K-C
Aviation  was a leading  provider of  business  aviation  services  and the
largest  independent  completion  center  for  business  aircraft  in North
America.  In addition to custom  aircraft  interiors,  K-C Aviation was the
second  largest  independent  aircraft  engine service center in the United
States and offered maintenance services,  spare parts, auxiliary power unit
service, avionics retrofit, non-destructive testing and component overhaul.

The  purchase of K-C  Aviation  was funded  primarily  from  existing  cash
balances,  and due to the timing of the  closing of the  transaction,  also
from the revolving credit facility.

The acquisition has been accounted for as a purchase, and accordingly,  the
operating  results of K-C  Aviation  have been  included  in the  Company's
consolidated  financial  statements  since  the  date of  acquisition.  The
purchase  price  exceeded  the  fair  value  of  net  assets   acquired  by
approximately $178 million. In connection with the acquisition, the Company
assumed $51.2 million in liabilities.

The following  unaudited pro forma summary presents the combined results of
operations  of the  Company and K-C  Aviation,  as if the  acquisition  had
occurred at the  beginning of fiscal 1998 and 1997.  The pro forma  amounts
give effect to certain adjustments,  including the amortization of goodwill
and  inventory  step-up,  reduced  interest  income  from cash  utilized to
complete the acquisition and the related income tax effects.

The pro forma consolidated results are not indicative of results that would
have occurred had the acquisition been in effect for the periods presented,
nor are they indicative of the results that are expected in the future.

Year ended December 31,                                1998          1997
---------------------------------------------------------------------------
(In millions, except per share amounts)

Pro forma net revenues                             $  2,551.2    $  2,090.6
Pro forma income before  income taxes                   346.2         198.5
Pro forma net income                                    221.6         236.4
Pro forma earnings per share:
  Basic                                            $     3.03    $     3.19
  Diluted                                                2.95          3.03

NOTE 3 INVENTORIES

Inventories consisted of the following at:

December 31,                                           1998          1997
---------------------------------------------------------------------------
(In thousands)

Work in process                                    $  359,212    $  330,155
Raw materials                                         190,890       134,973
Vendor progress payments                               85,605        60,606
Pre-owned aircraft                                     94,167       104,142
                                                   ------------------------
                                                   $  729,874    $  629,876
                                                   ========================

NOTE 4 PROPERTY AND EQUIPMENT

The major  categories of property and equipment  consisted of the following
at:

December 31,                                           1998          1997
---------------------------------------------------------------------------
(In thousands)

Land                                               $    4,409    $    4,109
Buildings and improvements                            126,580       101,836
Machinery and equipment                               150,797       130,491
Construction in progress                                8,385         9,074
                                                   ------------------------
Total                                                 290,171       245,510
Less accumulated depreciation                        (123,394)     (110,899)
                                                   ------------------------
                                                   $  166,777    $  134,611
                                                   ========================

NOTE 5 OTHER INTANGIBLE ASSETS

Other intangible assets are comprised of the following at:

December 31,                                           1998          1997
---------------------------------------------------------------------------
(In thousands)

Aftermarket - Service Center                       $   15,000    $   15,000
Aftermarket - Product Support                          75,000        75,000
                                                   ------------------------
Total                                                  90,000        90,000
Less accumulated amortization                         (44,586)      (39,515)
                                                   ------------------------
                                                   $   45,414    $   50,485
                                                   ========================
<PAGE>
NOTE 6 INCOME TAXES

The components of income tax expense (benefit) consisted of the following:

Year ended December 31,                                1998          1997
---------------------------------------------------------------------------
(In thousands)

Current                                            $   63,922    $    3,925
Deferred                                               62,803        26,934
Decrease in valuation allowance                           ---       (64,801)
                                                   ------------------------
Income tax expense (benefit)                       $  126,725    $  (33,942)
                                                   ========================

Although the Company  recorded net income  during  1996,  no provision  for
income taxes was recorded,  principally  as a result of  utilization of net
operating loss carryforwards.  The Company made income tax payments of $4.4
million,   $4.8  million  and  $0.3  million  for  1998,   1997  and  1996,
respectively.  The Company's  provision for income taxes  differed from the
amount computed by applying the U.S. federal income tax rate as follows:

Year ended December 31,                                1998          1997
---------------------------------------------------------------------------
(In thousands)

Statutory federal tax rate                         $  123,205    $   73,174
Foreign Sales Corporation tax benefit                  (5,614)       (1,888)
State income tax provision                              9,056         1,605
Decrease in valuation allowance                           ---       (64,801)
Net operating loss carryforwards                          ---       (43,613)
Other provision adjustments                                78         1,581
                                                   ------------------------
Income tax expense (benefit)                       $  126,725    $  (33,942)
                                                   ========================

The tax effects of  significant  components of the  Company's  deferred tax
assets and liabilities are as follows:

December 31,                                           1998          1997
---------------------------------------------------------------------------
(In thousands) 

DEFERRED TAX ASSETS RELATED TO:
Postretirement benefits                            $   43,183    $   43,386
Tax credit carryforwards                               16,049         7,037
Warranty reserves                                      12,569         9,199
Net operating loss carryforwards                          ---        24,500
Intangible assets                                         ---         7,031
Other                                                   7,567         9,114
                                                   ------------------------
                                                       79,368       100,267
                                                   ========================

DEFERRED TAX LIABILITIES RELATED TO:
Property and equipment,
  principally due to basis difference                 (14,826)      (17,392)
Inventory                                             (11,295)       (9,147)
Pension and other employee benefits                    (7,648)       (6,236)
Intangible assets                                      (2,053)          ---
Other                                                  (4,403)         (747)
                                                   ------------------------
                                                      (40,225)      (33,522)
                                                   ------------------------
Net deferred tax assets                            $   39,143    $   66,745
                                                   ========================

At December 31, 1998,  the Company had available  tax credit  carryforwards
for regular federal income tax purposes of approximately $6.3 million which
will expire beginning in 2009.

During the third quarter ended  September 30, 1997, as a result of numerous
factors,  including,  but not limited to the Company's  earnings trends and
the size of its financial contract backlog, the Company determined that its
net deferred tax asset is more likely than not to be realized, and released
its deferred tax  valuation  allowance,  totaling  $94.2  million.  Of this
amount, $29.4 million related to the exercise of stock options was credited
to  additional  paid-in  capital  and the  remainder,  $64.8  million,  was
recorded as a one-time, non-cash income tax benefit.

The  Company is  involved  in tax audits by the  Internal  Revenue  Service
covering the years 1990 through 1994. The revenue  agent's  reports include
several  proposed  adjustments   involving  the  deductibility  of  certain
compensation expense,  items relating to the initial  capitalization of the
Company,  the allocation of the original purchase price for the acquisition
by the Company of the  Gulfstream  business,  including  the  treatment  of
advance  payments with respect to the cost of aircraft that were in backlog
at the time of the acquisition,  and the amortization of amounts  allocated
to intangible assets. The Company believes that the ultimate  resolution of
these  issues  will not have a  material  adverse  effect on its  financial
statements  because  the  financial  statements  already  reflect  what the
Company currently believes is the expected loss of benefit arising from the
resolution of these issues.

NOTE 7 ACCRUED LIABILITIES

Accrued liabilities are comprised of the following at:

December 31,                                           1998          1997
---------------------------------------------------------------------------
(In thousands)

Income taxes                                       $   51,615    $      ---
Employee compensation and benefits                     36,954        33,245
Accrued warranty                                       32,017        23,844
Uncompleted work on delivered aircraft                 20,798        11,098
Other                                                  29,297        25,611
                                                   ------------------------
                                                   $  170,681    $   93,798
                                                   ========================

NOTE 8 LONG-TERM DEBT

Long-term debt consisted of the following at:

December 31,                                           1998          1997
---------------------------------------------------------------------------
(In thousands)

Notes payable                                      $   56,000    $      ---
Term loans                                            305,000       380,000
                                                   ------------------------
                                                      361,000       380,000
Less current portion                                  (75,262)      (75,000)
                                                   ------------------------
                                                   $  285,738    $  305,000
                                                   ========================

On November 30, 1998, the Company issued notes totaling $56 million secured
by three  pre-owned  aircraft used as core fleet in the  Gulfstream  Shares
Program. The notes underlying the agreement have substantially
<PAGE>
identical  terms and are repayable in consecutive  monthly  installments of
principal  commencing  December 31, 1999 with a final  maturity on November
30, 2008;  aggregate principal payments for each of the following years are
as follows:  1999 -- $0.3 million;  2000 through 2007 -- $3.1 million; 2008
-- $30.6 million.  Interest is payable  monthly from November 30, 1998, and
is based on LIBOR plus 1.4%.

On October 16, 1996, the Company entered into a long-term  credit agreement
under  which the  lenders  who are  parties  to the credit  agreement  made
available  to the  Company a $400  million  term loan  facility  and a $250
million  revolving  credit  facility.  A portion  of the  revolving  credit
facility,  in an amount  not to exceed  $150  million,  may be used (to the
extent available) for standby and commercial  letters of credit,  and up to
$200  million of the  revolving  credit  facility  will be available to the
Company for borrowings. Concurrent with entering into the credit agreement,
the Company repaid all amounts  outstanding  under its pre-existing  credit
agreements totaling $107.7 million, and terminated such agreements.

The term loan is repayable in  consecutive  quarterly  installments  with a
final maturity on September 30, 2002, in aggregate  amounts for each of the
following  years as follows:  1999 through 2001 -- $75.0  million;  2002 --
$80.0 million.  The revolving credit facility  expires  September 30, 2002,
with any  outstanding  amounts due on that date. The Company is required to
pay  commitment  fees on the average daily  unutilized  portion of the term
loan facility and the revolving credit facility,  which fees were initially
set at 0.375% per annum. The credit agreement permits the Company to choose
either the Adjusted Base Rate (the "ABR") interest option which is based on
the greater of the prime rate or the federal funds rate, or LIBOR,  in each
case,  plus an applied  margin.  The interest rates and commitment fees are
subject  to change  based on the  Company's  performance  with  respect  to
certain financial ratios set forth in the credit agreement.

The credit agreement includes restrictions as to, amongst other things, the
amount of additional indebtedness,  contingent obligations,  liens, capital
expenditures,  and  dividends,  and  requires  the  maintenance  of certain
financial ratios. At December 31, 1998, the credit agreement prohibited the
payment of  dividends.  In addition,  under the credit  agreement,  certain
changes in control of the  Company  would cause an event of default and the
banks could declare all outstanding  borrowings  under the credit agreement
immediately  due and  payable.  None of the  restrictions  contained in the
credit  agreement are expected to have a significant  effect on the ability
of the Company to  operate.  As of December  31,  1998,  the Company was in
compliance  with all  financial and  operating  covenants  under the credit
agreement.

The Company has pledged the common stock of certain of its  subsidiaries as
well  as  certain   intercompany  notes  as  collateral  under  the  credit
agreement,  and the Company and certain of its subsidiaries have guaranteed
repayment of amounts borrowed under the credit agreement.

The available  revolving  credit  commitment  was $213.6 million and $203.6
million at December 31, 1998 and 1997,  respectively.  At December 31, 1998
and  December  31,  1997,  the  Company had  outstanding  letters of credit
totaling $56.9 million and $46.4 million, respectively.

The effective interest rate on the Company's long-term debt at December 31,
1998 and 1997 was 6.2 % and 6.9%,  respectively.  The Company paid interest
of $29.2 million,  $32.3 million,  and $12.9 million during the years 1998,
1997 and 1996, respectively.

NOTE 9 LEASES 

The  Company  has  various  operating  leases  for both  real and  personal
property including Company aircraft. Rental expense for 1998, 1997 and 1996
was $15.5 million,  $10.9 million and $13.4 million,  respectively.  Future
minimum  lease  payments for all  noncancelable  operating  leases having a
remaining  term in  excess of one year at  December  31,  1998,  aggregated
approximately  $40.0 million,  and payments during the next five years are:
1999,  $13.0 million;  2000, $9.6 million;  2001, $7.0 million;  2002, $2.1
million;  2003,  $1.4 million.  The Company also receives  sublease  rental
income under an operating  lease which ends November 1999; the  approximate
future minimum sublease rental income is $2.3 million.

NOTE 10 EMPLOYEE BENEFIT PLANS

PENSION PLANS 

The  Company   maintains  four  defined   benefit  pension  plans  covering
substantially all employees.  Benefits paid to retirees are based primarily
on age at retirement,  years of credited  service and  compensation  earned
during   employment.   The  Company's  funding  policy  complies  with  the
requirements  of Federal law and  regulations.  The Company's total pension
fund contributions were $25.0 million,  $25.0 million, and $34.4 million in
1998, 1997 and 1996, respectively. Effective August 19, 1998 and as part of
the  acquisition  described  in Note 2, the  Company  adopted a new pension
plan,  covering all  employees of the acquired  company and all  non-vested
employees  of the  Company  except  for those  covered  under a  collective
bargaining agreement.

OTHER BENEFIT PLANS 

In addition to pension  benefits,  the Company provides certain health care
insurance  benefits to retired Company employees and their dependents.  The
Company currently funds these plans on a pay-as-you-go basis. Substantially
all of the Company's salaried employees and certain hourly employees become
eligible  for such  benefits  when  they  attain  certain  age and  service
requirements  while employed by the Company.  In December 1998, a Voluntary
Employees'  Beneficiary  Association  Trust was established and funded with
$14.3  million of Company funds for the purpose of paying  retiree  claims.
The  Company  will  periodically  obtain  reimbursement  from the Trust for
retiree claims.

The Company has supplemental benefit plans covering certain key executives.
These plans provide for benefits  which  supplement  those  provided by the
Company's other retirement plans.
<PAGE>
The following table is based on an actuarial valuation date as of September
30,  and  amounts  recognized  in  the  Company's   consolidated  financial
statements as of December 31. The following  provides a  reconciliation  of
benefit obligations, plan assets and funded status of the plans:

<TABLE>
<CAPTION>
                                                       Pension Benefits             Other Benefits
                                                  --------------------------  ------------------------
                                                      1998          1997          1998          1997
------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                               <C>           <C>           <C>           <C>       

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year           $  255,074    $  213,080    $   96,788    $   87,231
Service cost                                          17,599        12,466         5,616         4,283
Interest cost                                         18,842        16,743         7,277         6,820
Amendments                                               ---           ---        (2,742)         (879)
Actuarial (gain) loss                                 41,451        20,470           (34)        1,983
Benefits paid                                         (7,995)       (7,685)       (3,900)       (2,650)
                                                  ----------------------------------------------------
Benefit obligation at end of year                 $  324,971    $  255,074    $  103,005    $   96,788
                                                  ----------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year    $  239,001    $  163,598    $      ---    $      ---
Actual return on plan assets                           9,164        49,892           ---           ---
Company contributions                                 25,000        33,196         3,900         2,650
Benefits paid                                         (7,995)       (7,685)       (3,900)       (2,650)
                                                  ----------------------------------------------------
Fair value of plan assets at end of year          $  265,170    $  239,001    $      ---    $      ---
                                                  ----------------------------------------------------
Funded status of the plans                        $  (59,801)   $  (16,073)   $ (103,005)   $  (96,788)
Unrecognized actuarial (gain) loss                    48,718        (3,900)      (15,472)      (15,839)
Unrecognized prior service cost (benefit)              5,393         5,860       (16,079)       (7,599)
Contributions paid in fourth quarter                   6,250         6,250        15,168           809
                                                  ----------------------------------------------------
Prepaid (accrued) benefit cost                    $      560    $   (7,863)   $ (119,388)   $ (119,417)
                                                  ====================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS CONSIST OF:
Prepaid benefit cost                              $      190    $    2,543    $      ---    $      ---
Accrued benefit liability                             (5,125)      (10,316)     (120,341)     (120,343)
Intangible asset                                       2,334           ---           209           164
Accumulated other comprehensive income                 3,161           ---           744           762
                                                  ----------------------------------------------------
Net amount  recognized                            $      560    $   (7,863)   $ (119,388)   $ (119,417)
                                                  ====================================================
</TABLE>

The projected benefit obligation,  accumulated benefit obligation, and fair
value  of plan  assets  for  the  pension  plan  with  accumulated  benefit
obligations in excess of plan assets were $20.9 million, $20.9 million, and
$19.8  million,  respectively,  as of December 31, 1998, and $17.0 million,
$17.0 million,  and $17.8 million,  respectively,  as of December 31, 1997.
Accumulated other comprehensive income represents minimum pension liability
adjustments.

Net  periodic  pension  and  other  benefit  costs  include  the  following
components:

<TABLE>
<CAPTION>
                                                 Pension Benefits                           Other Benefits
                                     ----------------------------------------  --------------------------------------
Year ended December 31,                  1998          1997          1996          1998          1997          1996
---------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                 <C>           <C>           <C>           <C>           <C>           <C>

Service cost                         $   17,599    $   12,466    $   11,258    $    5,616    $    4,283    $    4,162
Interest cost                            18,842        16,743        14,966         7,277         6,820         6,581
Expected return on plan assets          (20,442)      (16,385)      (12,950)          ---           ---           ---
Amortization of prior service cost          467           467           313          (873)         (489)         (430)
Recognized actuarial (gain) loss            111           ---           ---          (400)         (648)         (377)
                                     --------------------------------------------------------------------------------
Net periodic benefit cost            $   16,577    $   13,291    $   13,587    $   11,620    $    9,966    $    9,936
                                     ================================================================================
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate                             6.75%         7.50%         8.00%         6.75%         7.50%         8.00%
Expected return on plan assets            9.50%         9.50%         9.50%           ---           ---           ---
Rate of compensation increase             4.75%         4.75%         4.75%           ---           ---           ---
</TABLE>
<PAGE>
Assumed  health  care cost  trend  rates have a  significant  effect on the
amounts reported for the health care plans. A  one-percentage-point  change
in assumed health care cost trend rates would have the following effects:


                                       1-Percentage-         1-Percentage-
                                       Point Increase        Point Decrease
---------------------------------------------------------------------------
(In thousands)
Effect on total of service and
  interest cost components               $   2,071              $   (1,685)
Effect on the postretirement
  benefit obligation                        14,417                 (11,989)

For measurement  purposes, a 7.5% annual rate of increase in the per capita
cost of medicare  ineligible  employees'  covered  health care benefits was
assumed for 1998.  The rate was  assumed to  decrease  annually by 0.75% to
5.0% and remain at that level thereafter.  For medicare eligible employees,
a 5.25%  annual  rate of  increase  in the per capita  cost of health  care
benefits was assumed for 1998. The rate was assumed to decrease annually by
0.75% to 4.5% and remain at that level thereafter.

INVESTMENT AND OTHER PLANS 

The Company sponsors two voluntary 401(k)  investment plans which cover all
eligible  employees and are designed to enhance existing  retirement plans.
The Company matches either 37.5% or 50.0% of the employee's contribution up
to a maximum of four percent of the employee's eligible compensation. Total
expense for the plans were $3.1 million,  $2.6 million and $2.2 million for
1998, 1997 and 1996, respectively.

The  Company  has  an  Incentive  Compensation  Plan  administered  by  the
Compensation Committee of the Board of Directors which provides for payment
of cash awards to officers  and key  employees  based upon  achievement  of
specific  goals by the Company  and the  participating  employees.  For the
years ended 1998, 1997 and 1996,  provisions of approximately $6.3 million,
$5.8 million and $5.5 million,  respectively,  were charged  against income
related to the plan. Payouts are based entirely on achievement of financial
and business objectives. 

NOTE 11 STOCKHOLDERS' EQUITY

On October 16, 1996, the Company issued  4,559,100  shares of common stock,
and selling  stockholders  sold  37,940,900  shares of common stock,  in an
initial  public  offering  pursuant  to the  Securities  Act of  1933  (the
"Offering").  In  connection  and  simultaneously  with the  closing of the
Offering,   the  Company  (a)   effected  a   recapitalization   plan  (the
"Recapitalization")  which  included  (i)  the  repurchase  of  all  of its
outstanding 7% Series A Cumulative  Preferred Stock for a purchase price of
$450 million plus approximately $1.3 million of unpaid dividends,  (ii) the
exchange  of all  outstanding  shares  of Class A,  Series  A-2 and Class B
common stock for Class A, Series A-1 common stock,  (iii) the redesignation
of all Class A, Series A-1 common stock into common stock, (iv) a 1.5-for-1
stock split of the common stock,  and (v) the  restatement of the Company's
certificate of incorporation  to provide that the authorized  capital stock
of the Company consists of 300,000,000 shares of common stock, par value of
$.01 per share, and 20,000,000 shares of Preferred Stock, par value of $.01
per  share,  and (b)  issued  3,949,346  shares of common  stock to certain
option holders  pursuant to existing option  agreements,  who  subsequently
sold those shares in the Offering.

In May 1998, the Company  completed a secondary  offering (the "Secondary")
in which 18 million shares of stock were sold by certain stockholders.  The
Company did not receive any of the proceeds  from the sale of shares in the
Secondary.  In connection  with the Secondary,  certain  current and former
directors and employees  of, and advisors to, the Company  exercised  stock
options to purchase, in the aggregate,  approximately 2.9 million shares of
common  stock  from  the  Company  for  an  aggregate   exercise  price  of
approximately  $27.4 million,  after deducting  issuance costs. The Company
used the proceeds from these exercises for working capital purposes.

TREASURY STOCK

During  January 1998,  the Company  announced a program to repurchase up to
$200 million of its common stock.  As of December 31, 1998, the Company had
repurchased approximately 5.5 million shares, at an average price of $35.81
per share,  for an aggregate amount of  approximately  $198.5 million.  The
repurchase program was funded from the Company's available cash.

STOCK OPTIONS

Under the  Amended and  Restated  1990 Stock  Option  Plan  approved by its
stockholders  effective March 28, 1997, as further amended, the Company has
granted options to purchase its common stock to certain Company  employees,
directors and advisors.  Generally,  options granted prior to July 1, 1994,
vest 25.0% on date of issuance,  25.0% on the first anniversary of the date
of issuance and 25.0% annually thereafter. Generally, options granted on or
after July 1,  1994,  vest  33.3% on the first  anniversary  of the date of
issuance,  33.3% on the second  anniversary of the date of issuance and the
last 33.3% on the third  anniversary of the date of issuance.  In addition,
the Company has granted  options to purchase its common stock to certain of
its executive  officers,  directors  and advisors  outside the Stock Option
Plan with  vesting  periods  ranging  from  immediately  up to three years.
Generally, such options expire 10 years from date of grant.
<PAGE>
The Company recorded compensation expense of $6.9 million, $1.6 million and
$7.2 million in 1998, 1997 and 1996, respectively,  related to stock option
grants and  modification of certain  existing grants in connection with the
retirement of a senior executive.  At December 31, 1998,  approximately 5.3
million  shares of common stock were reserved for issuance  under the Stock
Option Plan and non-plan options.

Statement of Financial  Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based  Compensation,  defines a fair value based method of accounting
for an employee stock option or similar equity  instrument.  This statement
gives  entities a choice of  recognizing  related  compensation  expense by
adopting  the fair  value  method  or to  measure  compensation  using  the
intrinsic value approach under  Accounting  Principles  Board (APB) Opinion
No. 25. The Company has elected to continue  using the  measurement  method
prescribed  by  APB  Opinion  No.  25,  by  adopting  the   disclosure-only
provisions of SFAS No. 123. Had  compensation  cost for the Company's stock
options granted been determined  based on the fair value at the grant dates
for awards under those plans  consistent  with a method  prescribed in SFAS
No. 123,  the  Company's  net income and earnings per share would have been
reduced to the pro forma amounts indicated below:

Year ended December 31,                           1998         1997        1996
-------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net income --
  As reported                                $ 225,288    $ 243,011    $ 46,965
  Pro forma                                    218,708      240,769      46,480
Basic earnings per share--
  As reported                                $    3.08    $    3.28    $    .64
  Pro forma                                       2.99         3.25         .63
Diluted earnings per share--
  As reported                                $    3.00    $    3.12    $    .60
  Pro forma                                       2.91         3.09         .59

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes  option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively:  expected
volatility of 46.13%, 32.01% and 36.02%,  respectively;  risk-free interest
rate of 4.75%, 5.96% and 6.27%, respectively; expected lives of three years
for all  years;  and no  dividend  yield.  

A summary of the status of the Company's  stock option plans as of December
31, 1998, 1997 and 1996, and changes during the years ending on those dates
is presented below:

<TABLE>
<CAPTION>


                                                              1998                               1997                          1996
-----------------------------------------------------------------------------------------------------------------------------------
                                                  Weighted Average                   Weighted Average              Weighted Average
Options                                 Shares      Exercise Price       Shares        Exercise Price      Shares    Exercise Price
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                 <C>          <C>                   <C>         <C>               <C>

Outstanding at beginning of year     6,494,978             $  9.40    5,729,279               $  3.91   8,691,573           $  3.88
Granted                              2,334,674               47.53    1,566,000                 26.72   1,020,000              4.10
Exercised                           (3,572,160)               9.02     (631,877)                 4.01  (3,949,346)             3.88
Forfeited                             (318,195)              26.57     (168,424)                 3.90     (32,948)             4.10
                                    -----------------------------------------------------------------------------------------------
Outstanding at end of year           4,939,297             $ 26.59    6,494,978               $  9.40   5,729,279           $  3.91
                                    ===============================================================================================

Options exercisable at year-end      2,794,729             $ 13.22    4,112,728               $  3.86   3,817,582           $  3.80
Weighted average fair value of
  options granted during the year                $ 17.07                           $ 6.97                          $ 10.13

</TABLE>

Information  with respect to stock options  outstanding  and exercisable at
December 31, 1998, is as follows:

<TABLE>
<CAPTION>


                              Options Outstanding                                   Options Exercisable
--------------------------------------------------------------------------------------------------------------
                                    Weighted Average
       Range of            Number          Remaining     Weighted Average          Number     Weighted Average
Exercise Prices       Outstanding   Contractual Life       Exercise Price     Exercisable       Exercise Price
--------------------------------------------------------------------------------------------------------------
<S>                           <C>                <C>                  <C>             <C>                  <C>

$  3.11-$  4.10         2,129,342                5.2              $  3.99       2,024,004              $  3.98
$ 21.50-$ 29.75           534,731                8.7                26.70         263,675                26.94
$ 36.88-$ 42.06           152,174                9.6                39.21               -                    -
$ 43.00-$ 50.06         2,123,050                9.8                48.33         507,050                43.00
                        --------------------------------------------------------------------------------------
                        4,939,297                7.7              $ 26.59       2,794,729              $ 13.22
                        ======================================================================================
</TABLE>

<PAGE>

NOTE 12 RELATED PARTY TRANSACTIONS

At December  31, 1998 and 1997,  certain  partnerships  formed by Forstmann
Little & Co.  ("Forstmann  Little")  owned  approximately  22.8% and 42.1%,
respectively, of the Company's common stock.

During  1998,  the Company sold to a director of the Company a Gulfstream V
previously  utilized  by the  Company  as a  flight  test  aircraft,  for a
purchase price equal to the estimated fair market value of the aircraft. In
1997, the Company purchased a pre-owned aircraft for $21.0 million from the
same director.

Under a usage  agreement  which ended in August  1996,  the Company paid an
affiliate  of  Forstmann  Little for the use of a  Gulfstream  IV which was
utilized  as  a  demonstrator  aircraft  by  the  Company.  Total  expenses
associated  with this  agreement were $1.6 million in 1996 and $2.3 million
in 1995.  Beginning  in August  1996,  the Company  engaged an affiliate of
Forstmann  Little to manage the  operations  of the  Gulfstream IV aircraft
discussed  below.  Total payments were $2.0 million,  $2.1 million and $0.7
million in 1998, 1997 and 1996, respectively. Management believes all these
transactions  with related  parties are on terms  similar to those of other
customers and suppliers.

In August 1996,  the Company  entered into  agreements  with the  Company's
Chairman  pursuant to which the Company will provide the Chairman  with the
use of a  Gulfstream  V for a period of ten years.  Until the  Gulfstream V
becomes  available,  the  Company  has made  available  to the  Chairman  a
Gulfstream IV, which the Company  received through an assumption of a lease
from an affiliate of Forstmann  Little.  During  January 1997,  the Company
exercised  its early  buyout  option  under the  lease  and  purchased  the
aircraft  from the lessor,  an  international  financial  institution.  The
Chairman  paid $0.8 million in both 1998 and 1997 and has agreed to pay the
Company up to $1.0 million annually for non-company use of the aircraft. If
the Chairman is no longer serving as a director or official of the Company,
he has agreed to reimburse  the Company  $1,800 per hour for all use of the
aircraft,  or other such rate  required so as not to exceed FAA  regulatory
requirements.

NOTE 13 COMMITMENTS AND CONTINGENCIES

In the normal course of business,  lawsuits,  claims and  proceedings  have
been or may be  instituted  or asserted  against  the  Company  relating to
various  matters,  including  product  liability.  Although  the outcome of
litigation cannot be predicted with certainty and some lawsuits,  claims or
proceedings  may be disposed of unfavorably to the Company,  management has
made provision for all known probable losses related to lawsuits and claims
and  believes  that the  disposition  of all  matters  which are pending or
asserted  will  not  have  a  material  adverse  effect  on  the  financial
statements of the Company.

The Company is currently  engaged in the  monitoring and cleanup of certain
groundwater  at its Savannah  facility  under the  oversight of the Georgia
Department  of Natural  Resources.  Expenses  incurred for cleanup have not
been significant.  Liabilities are recorded when environmental  assessments
and/or  remedial  efforts  are  probable  and the costs  can be  reasonably
estimated.  The Company believes the remainder of the Savannah facility, as
well as other Gulfstream properties,  are being carefully monitored and are
in  substantial   compliance   with  current   federal,   state  and  local
environmental  regulations.  The Company believes the liabilities,  if any,
that will  result  from the  above  environmental  matters  will not have a
material adverse effect on its financial statements.

The Company has  agreements  with certain of its suppliers to procure major
aircraft  components such as engines,  wings, and avionics.  The agreements
vary in length from three to five years and generally provide for price and
quantity of components to be supplied.  In connection with the Gulfstream V
program,  the Company has entered into revenue sharing  agreements with two
suppliers.  The terms of such  agreements  require the suppliers to design,
manufacture and supply certain aircraft  components in exchange for a fixed
percentage  of the revenues of each  Gulfstream V sold.  Progress  payments
under the revenue sharing agreements are generally required to be made on a
pro  rata  basis  concurrent  with  the  associated  deposits  received  on
Gulfstream V contracts.

As of December  31, 1998,  in  connection  with orders for 21  Gulfstream V
aircraft  in the  financial  contract  backlog,  the  Company  has  offered
customers  trade-in  options  (which  may or may  not be  exercised  by the
customer) under which the Company will accept trade-in aircraft  (primarily
Gulfstream  IVs  and  IV-SPs)  at  a  guaranteed  minimum  trade-in  price.
Additionally,  in  connection  with  recorded  sales  of new  aircraft,  at
December  31,  1998,  the Company has agreed to accept  pre-owned  aircraft
totaling $209.9 million.  Management believes that the fair market value of
all such aircraft exceeds the specified trade-in value.

NOTE 14 EARNINGS PER SHARE

Basic EPS is computed based on net income  divided by the weighted  average
common shares  outstanding.  Diluted EPS is computed by dividing net income
by the weighted  average  common shares  outstanding  plus the  incremental
shares that would have been outstanding under stock option plans.

EPS  information  for 1996 is based on  historical  unadjusted  net  income
divided by pro forma weighted average number of shares. Shares included for
basic EPS give  retroactive  effect  to the  Recapitalization,  the  shares
issued to option  holders  upon the  exercise of options at the date of the
Offering,  and the shares issued pursuant to the Offering (all of which are
described in Note 11) as if such transactions had occurred at the beginning
of the period.  Diluted EPS further includes the effects of options granted
in 1996 as if such options had been outstanding for the entire period.
<PAGE>
The following table sets forth the reconciliation of per share data:

Year ended December 31,                            1998         1997        1996
--------------------------------------------------------------------------------
(In thousands, except per share amounts)
NET INCOME                                    $ 225,288    $ 243,011    $ 46,965
                                              ==================================
BASIC EPS
Average shares issued
  and outstanding
  (after giving effect to
  the Recapitalization)                          73,089       74,095      67,530
Exercise of certain stock
  options with the Offering                                                2,962
Shares issued pursuant
  to the Offering                                                          3,419
                                              ----------------------------------
Weighted average common
  shares outstanding                             73,089       74,095      73,911

DILUTED EPS
Incremental shares from
  stock options                                   1,947        3,800       4,624
                                              ----------------------------------
Weighted average common
  and common equivalent
  shares outstanding                             75,036       77,895      78,535
                                              ==================================
EARNINGS PER SHARE:
  Basic                                       $    3.08    $    3.28    $    .64
  Diluted                                     $    3.00    $    3.12    $    .60
                                              ==================================

NOTE 15 BUSINESS SEGMENTS AND RELATED INFORMATION

The  Company  adopted  SFAS  No.  131,  Disclosures  about  Segments  of an
Enterprise and Related  Information,  during 1998. SFAS No. 131 established
standards  for reporting  information  about  operating  segments in annual
financial  statements and requires  selected  information  about  operating
segments  in interim  financial  reports  issued to  stockholders.  It also
established  standards for related disclosures about products and services,
and geographic areas.

The Company operates in three reportable segments:  New Aircraft,  Aircraft
Services and Pre-Owned  Aircraft.  New Aircraft is comprised of the design,
development,   production  (including  customized  interiors  and  optional
avionics) and sale of large  business  aircraft to customers on a worldwide
basis. Aircraft Services provides aftermarket  maintenance services,  spare
parts,  engine and  auxiliary  power unit  service  and  overhaul  for both
Gulfstream and other business  aircraft.  The Company's  Pre-Owned Aircraft
segment  consists of the sale of  pre-owned  Gulfstream  aircraft and other
business aircraft acquired as trade-ins against the sale of new aircraft to
a  worldwide  market.  The  accounting  policies  used to  develop  segment
information  correspond  to those  described in the summary of  significant
accounting  policies in Note 1.  Intersegment  sales and  transfers are not
significant. The Company has no significant assets domiciled outside of the
United  States and assets are not  allocated to  reportable  segments.  The
information  for 1997 and 1996 has  been  restated  from the  prior  year's
presentation in order to conform to the 1998 presentation.

Gulfstream  evaluates  each  segment's  performance  based on gross  profit
margins  (net  revenues  less cost of sales)  excluding  inventory  step-up
charges.   Summarized  financial   information   concerning  the  Company's
reportable segments is shown in the following table.  Unallocated  expenses
represent expenses not directly related to the reportable segments.

                                                         Net Revenues
                                         --------------------------------------
Year ended December 31,                        1998           1997         1996
-------------------------------------------------------------------------------
(In millions)                            
New Aircraft                            $  1,909.0     $  1,492.0    $    740.5
Aircraft Services                            281.8          201.1         169.9
Pre-owned aircraft                           237.2          210.4         153.3
                                        ---------------------------------------
  Total Net Revenues                    $  2,428.0     $  1,903.5    $  1,063.7
                                        =======================================
                                   
                                                      Segment Gross Margin
                                        ---------------------------------------
Year ended December 31,                       1998           1997          1996
-------------------------------------------------------------------------------
(In millions)                           
New Aircraft                            $    464.3     $    297.5    $    193.9
Aircraft Services                             53.7          45.0           36.5
Pre-owned Aircraft                            11.4           8.2           (1.7)
                                        ---------------------------------------
Segment gross margin                         529.4         350.7          228.7
  Unallocated expenses                      (156.7)       (122.0)        (178.4)
                                         --------------------------------------
  Income from operations                     372.7         228.7           50.3
Interest income                                7.3          11.5           14.6
Interest expense                             (28.0)        (31.1)         (17.9)
                                         --------------------------------------
  Income before income taxes             $   352.0     $   209.1      $    47.0
                                         ======================================

The following table presents revenues by geographic area of the location of
the Company's customers:

Year ended December 31,                        1998           1997          1996
--------------------------------------------------------------------------------
(In millions)
North America
  United States                          $  1,833.0     $  1,403.1    $    799.4
  Canada and Mexico                            96.4           67.3           5.2
                                         ---------------------------------------
    Total North America                     1,929.4        1,470.4         784.6
Asia/Pacific                                  243.5          162.9          85.1
Africa/Middle East                            104.9            3.8          71.5
Europe                                         83.4          185.2          24.6
Latin America/Other                            66.8           81.2          97.9
                                         ---------------------------------------
    Total                                $  2,428.0     $  1,903.5    $  1,063.7
                                         =======================================

During 1996,  revenues  from one customer  included in the New Aircraft and
Aircraft Services  reportable segments  represented  approximately 11.7% of
the Company's total revenues.

NOTE 16 SUBSEQUENT EVENT

On March 1, 1999, the Company  established a program to repurchase up to an
additional  $200 million of its common stock.  The  purchases  will be made
from time to time in the open market or through negotiated  transactions as
market conditions warrant.

<PAGE>
INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:

We have audited the  consolidated  balance  sheets of Gulfstream  Aerospace
Corporation  and  subsidiaries  as of December  31, 1998 and 1997,  and the
related consolidated  statements of income,  stockholders' equity, and cash
flows for each of the three years in the period  ended  December  31, 1998.
These  consolidated  financial  statements  are the  responsibility  of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those  standards  require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material  misstatement.  An audit includes  examining,  on a test basis,
evidence   supporting   the  amounts  and   disclosures  in  the  financial
statements. An audit also includes assessing the accounting principles used
and  significant  estimates made by  management,  as well as evaluating the
overall  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial statements present fairly, in
all material  respects,  the  financial  position of  Gulfstream  Aerospace
Corporation and subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended  December 31, 1998,  in  conformity  with  generally  accepted
accounting principles.


/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 1, 1999
(March 1, 1999 as to Note 16)



REPORT OF MANAGEMENT'S RESPONSIBILITY


The management of Gulfstream  Aerospace  Corporation is responsible for the
preparation and integrity of the consolidated  financial  statements of the
Company.  The  financial  statements  and notes have been  prepared  by the
Company in accordance with generally accepted accounting principles and, in
the judgment of management, present fairly the Company's financial position
and results of operations. The financial information contained elsewhere in
this annual report is consistent with that in the financial statements. The
financial statements and other financial  information in this annual report
include amounts that are based on management's best estimates and judgments
and give due consideration to materiality.

The Company maintains a system of internal  accounting  controls to provide
reasonable  assurance that assets are safeguarded and that transactions are
executed  in  accordance  with  management's   authorization  and  recorded
properly to permit the  preparation  of financial  statements in accordance
with generally accepted accounting principles.

The Board of Directors  discharges  its  responsibility  for the  Company's
financial  statements  primarily  through  its Audit  Committee.  The Audit
Committee,  comprised solely of outside  directors,  meets periodically and
privately with the independent auditors and representatives from management
to appraise the adequacy and  effectiveness of internal control systems and
quality of our financial accounting and reporting.

The Company's independent auditors,  Deloitte & Touche LLP, are recommended
by the Audit Committee of the Board of Directors,  selected by the Board of
Directors and ratified by our Company's stockholders. Deloitte & Touche LLP
is engaged to perform an audit of the consolidated  financial statements of
Gulfstream Aerospace  Corporation and subsidiaries.  This audit provides an
objective outside review of management's responsibility to report operating
results  and  financial  condition.   They  audit  and  perform  tests,  as
appropriate, of the data included in the financial statements.


/s/ Chris A. Davis
Chris A. Davis
Executive Vice President and
Chief Financial and Administrative Officer
February 1, 1999

<PAGE>
QUARTERLY FINANCIAL RESULTS (UNAUDITED)

The  following  tables set forth the unaudited  consolidated  statements of
operating data for each quarter of 1998 and 1997. The operating results for
any quarter are not indicative of results for any future period.

<TABLE>
<CAPTION>



1998                                                         First     Second        Third         Fourth
---------------------------------------------------------------------------------------------------------
(In thousands, except deliveries and per share amounts)
<S>                                                         <C>        <C>         <C>          <C>

Net revenues                                              $503,407   $557,042     $626,177       $741,332
Gross profit                                                99,338    125,817      138,816        156,238
Income from operations (1)                                  69,246     91,607      103,676        108,163
Net income                                                  40,481     55,577       64,721         64,509
Earnings per share: 
  Basic                                                   $    .56   $    .75     $    .88       $    .89
  Diluted                                                 $    .54   $    .73     $    .86       $    .87

Aircraft deliveries (in units):
  Gulfstream IV-SP (green)                                       6          8            9              9
  Gulfstream V (green)                                           7          7            7              8
  Completion -- Gulfstream                                       7          9           11             19
  Completion -- Non-Gulfstream                                   -          -            5              3
  Pre-owned aircraft                                             3          4            2              3
                                                          -----------------------------------------------


1997                                                         First     Second        Third         Fourth
---------------------------------------------------------------------------------------------------------
(In thousands, except deliveries and per share amounts)
<S>                                                         <C>        <C>           <C>            <C>

Net revenues                                              $375,626   $522,906     $464,036       $540,926
Gross profit                                                70,474     76,010       91,053        108,437
Income from operations (1)                                  47,037     45,445       60,668         75,546
Net income                                                  40,030     39,504      119,088(2)   44,389(2)
Earnings per share:
  Basic                                                   $    .54   $    .53     $   1.61       $    .60
  Diluted                                                 $    .51   $    .50     $   1.54       $    .58

Pro forma (fully taxed)
  Earnings per share -- diluted (3)                       $    .33   $    .32     $    .45       $    .58

Aircraft deliveries (in units):
  Gulfstream IV-SP (green)                                       5          5            6              6
  Gulfstream V (green)                                           6          7            8              8
  Completion                                                     5          5            5             11
  Pre-owned aircraft                                             1          9            2              2
                                                          -----------------------------------------------

<FN>

(1) Non-cash  compensation  expense of $0.3  million,  $0.5  million,  $0.1
    million,  and $6.0 million was  recorded in each of the 1998  quarters,
    and $0.5  million,  $0.5 million,  $0.3  million,  and $0.3 million was
    recorded  in each of the 1997  quarters,  respectively,  related to the
    issuance  of  options  to  purchase  common  stock.  See Note 11 to the
    consolidated financial statements.

(2) As  described  under the caption  Income  Taxes on page 22, the Company
    recorded  a net income tax  benefit of $63.1  million  during the third
    quarter  of 1997.  During  the  fourth  quarter  of 1997,  the  Company
    recorded an income tax provision of $26.6 million based on an estimated
    effective tax rate of 37.5%.

(3) Pro forma (fully taxed)  earnings per share -- diluted is presented for
    all periods assuming an estimated effective tax rate of 37.5%.
</FN>
</TABLE>

QUARTERLY COMMON STOCK PRICE RANGE

1998                                    First     Second      Third       Fourth
--------------------------------------------------------------------------------
High                                   $44.44     $46.94     $51.50       $57.44
Low                                     28.75      41.25      31.13        29.00
                                       -----------------------------------------

1997                                    First     Second      Third       Fourth
--------------------------------------------------------------------------------
High                                   $24.13     $32.75     $31.13       $32.06
Low                                     21.25      21.75      26.00        26.50
                                       -----------------------------------------

Gulfstream  Aerospace  Corporation's  common stock is traded principally on
the New York Stock Exchange  under the symbol GAC. At March 1, 1999,  there
were  approximately 245 holders of record.  The Company has never paid cash
dividends  on its  common  stock and does not  anticipate  paying  any cash
dividends in the near future.

<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA


Fiscal Year                                  1998         1997         1996         1995       1994
---------------------------------------------------------------------------------------------------
(In thousands, except per share data)

<S>                                    <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA
Revenues                               $2,427,958   $1,903,494   $1,063,713   $1,041,514   $901,638
Income from operations                    372,692      228,696       50,269       42,090     43,883
Net income                                225,288      243,011       46,965       28,894     23,564

Earnings per share:
  Basic (1)                                  3.08         3.28          .64          .39        N/A
  Diluted (1)                                3.00         3.12          .60          .37        N/A
                                       ------------------------------------------------------------

Pro forma (fully taxed)
  Earnings per share--diluted (2)            3.00         1.68         0.37         0.23        N/A

BALANCE SHEET DATA
Working capital                        $  139,407   $  295,811   $  138,091   $  356,976   $301,913
Total assets                            1,614,134    1,473,667    1,313,215      981,253    745,761
Total debt                                361,000      380,000      400,000      146,331    178,145
Total stockholders' equity (deficit)(3)   195,680       92,757     (188,811)     217,540    188,950
                                       ------------------------------------------------------------

<FN>
(1) Earnings  per  share  (EPS)  information  for 1996 and 1995 is based on
    historical  unadjusted net income divided by pro forma weighted average
    number of shares. Shares included for basic EPS give retroactive effect
    to the  Recapitalization,  the shares issued to option holders upon the
    exercise of options at the date of the Offering,  and the shares issued
    pursuant to the Offering  (all of which are described in Note 11 to the
    consolidated financial statements) as if such transactions had occurred
    at the  beginning  of the  period.  Diluted EPS  further  includes  the
    effects of options granted in 1996 and 1995 as if such options had been
    outstanding  for  all  periods  presented.  See  also  Note  14 to  the
    consolidated  financial  statements for a  reconciliation  of per share
    data.

(2) Pro forma (fully taxed)  earnings per share -- diluted is presented for
    all periods prior to 1998 assuming an effective tax rate of 37.5%.

(3) Total  stockholders'  equity and total debt at December  31, 1996 gives
    effect to the  Recapitalization  and Offering which occurred during the
    fourth quarter 1996. See "Liquidity and Capital Resources" on page 23.
</FN>
</TABLE>








CORPORATE INFORMATION

CORPORATE OFFICES

Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, Georgia 31408
912 965-3000

MAILING ADDRESS

P.O. Box 2206
Savannah, Georgia 31402-2206

WEBSITE

www.gulfstreamaircraft.com

STOCK LISTINGS

New York Stock Exchange
Symbol "GAC"

ANNUAL MEETING

May 19, 1999 at 9:30 a.m.
St. Regis Hotel
Two East 55th Street
Iridium Room-Lower Level
New York, New York 10022

TRANSFER AGENT & REGISTRAR

ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
800 526-0801
www.chasemellon.com

INDEPENDENT AUDITORS

DELOITTE & TOUCHE LLP
191 Peachtree Street
Atlanta, Georgia 30303

FINANCIAL INFORMATION

Copies  of  Gulfstream's  annual  report  and Form  10-K  submitted  to the
Securities and Exchange Commision may be obtained by visiting the Company's
website or by written request to:

Gulfstream Investor Relations
P.O. Box 2206, Mail Stop A-01
Savannah, Georgia 31402-2206
<PAGE>
Gulfstream(R)
P.O. Box 2206 Savannah, Georgia  31402-2206
912 965-3000 www.gulfstreamaircraft.com