SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    ---------

                                    FORM 10-K

    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
__X__  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the fiscal year ended November 27, 1998

                                       OR

_____  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the transition period from ________ to ________

                        Commission File Number: 000-25178

                        GS Financial Products U.S., L.P.
             (Exact name of registrant as specified in its charter)

       Cayman Islands                                    52-1919759
(State or other jurisdiction of             (I.R.S. employer identification no.)
incorporation or organization) 

P.O. Box 896, Harbour Centre, North Church Street
Grand Cayman, Cayman Islands, British West Indies                     N/A
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code (345)945-1326

           Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Title of each class:                                          Name of each exchange on which registered:
--------------------                                          ------------------------------------------
<S>                                                                     <C>
Nikkei 225 Indexed Notes due December 22, 2000                          American Stock Exchange
S&P Enhanced Stock Index Growth Notes due August 9, 2002                New York Stock Exchange
3% Citicorp Exchangeable Notes due August 28, 2002                      American Stock Exchange

</TABLE>
           Securities registered pursuant to Section 12(g) of the Act:

                          Limited partnership interests

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days: Yes __X__ No _____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: __X__

State the aggregate market value of the voting and non-voting common equity held
by  non-affiliates  of the  registrant.  The  aggregate  market  value  shall be
computed by reference to the price at which the common  equity was sold,  or the
average bid and asked  prices of such  common  equity,  as of a  specified  date
within 60 days prior to the date of filing. (See definition of affiliate in Rule
405.): Not Applicable

                   AS FILED WITH THE SEC ON FEBRUARY 25, 1999

                                      -1-
<PAGE>

                        GS FINANCIAL PRODUCTS U.S., L.P.
                           Annual Report on Form 10-K
                   For the Fiscal Year Ended November 27, 1998

Form 10-K Item Number:
                                                                       Page No.
                                                                       --------
PART I

Item 1:   Business  . . . . . . . . . . . . . . . . . . . . . . . . .      3
Item 2:   Properties  . . . . . . . . . . . . . . . . . . . . . . . .     20
Item 3:   Legal Proceedings   . . . . . . . . . . . . . . . . . . . .     20
Item 4:   Submission of Matters to a Vote of Security-Holders . . . .     20

PART II

Item 5:   Market for the Company's Common Equity and
          Related Stockholder Matters . . . . . . . . . . . . . . . .     20
Item 6:   Selected Financial Data  . . . . . . . . . . .. . . . . . .     21
Item 7:   Management's Discussion and Analysis of Financial
          Condition and Results of Operations . . . . . . . . . . . .     21
Item 8:   Financial Statements and Supplementary Data   . . . . . . .     35
Item 9:   Changes in and Disagreements With Accountants
          on Accounting and Financial Disclosure  . . . . . . . . . .     35

PART III

Item 10:  Directors and Executive Officers of the Registrant  . . . .     35
Item 11:  Executive Compensation  . . . . . . . . . . . . . . . . . .     37
Item 12:  Security Ownership of Certain Beneficial Owners and
          Management  . . . . . . . . . . . . . . . . . . . . . . . .     38
Item 13:  Certain Relationships and Related Transactions  . . . . . .     39

PART IV

Item 14:  Exhibits, Financial Statement Schedules, and Reports on 
          Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . . .     42

Index to Financial Statements of the Company  . . . . . . . . . . . .    F-1

Signatures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-18

Exhibit Index


                                      -2-
<PAGE>



                                     PART I
ITEM 1:  BUSINESS

General

GS Financial  Products U.S., L.P. (the "Company") was formed as a Cayman Islands
exempted limited partnership on February 5, 1992. All the partnership  interests
in the  Company  are owned by  subsidiaries  of The Goldman  Sachs  Group,  L.P.
("Group").  The Company  currently  owns or  guarantees  a portfolio  consisting
principally of approximately $12 billion notional amount of interest rate swaps,
interest rate options,  index swaps,  currency  options,  currency  forwards and
currency swaps denominated in a variety of currencies.  In addition, the Company
issued  an  aggregate  of $175  million  of  Medium-Term  Notes  ("Notes"),  the
principal  payments on which are determined by reference to the performance of a
single equity security or an equity index.

The Company is a derivative products company engaged in the business of entering
into, as principal or guarantor,  a variety of types of  transactions  involving
financial  instruments such as interest rate swaps, interest rate options (e.g.,
interest  rate caps,  interest  rate floors and options on interest rate swaps),
currency swaps and options, commodity swaps and options, index swaps and forward
contracts  (collectively,  "Derivative  Transactions").  Generally,  the Company
enters into or guarantees  Derivative  Transactions  in situations  where two or
more  counterparties  (typically  including  an affiliate of the Company wish to
enter into one or more Derivative Transactions between themselves,  but want the
Company to substitute its credit for that of one or more of the  counterparties.
In accordance with market practice,  the Company does this by entering into each
of such  transactions  directly as principal.  Such Derivative  Transactions may
also include the use of futures  contracts,  or the  purchase of the  underlying
instruments subject to the transactions,  such as foreign  currencies,  physical
commodities  and securities.  In addition,  from time to time the Company issues
structured notes.

Since October 1997, Group has undertaken a review of the business and operations
of the Company and certain other  affiliates of Group engaged in the  derivative
products  business  in order to  reassess  the  scope  of their  activities,  to
evaluate the level and nature of staffing and to review the procedures  that are
in place to handle  the type and  volume  of  businesses  that they may  pursue.
During this review,  the Company and GS Financial Products  International,  L.P.
("FPI")  have not  entered  into any new  Derivative  Transactions  and have not
issued  any new debt  securities.  This  lack of  activity  by the  Company  has
negatively  affected the Company's results of operations for all of fiscal 1998.
In addition,  this lack of activity is expected to have a  significant  negative
effect on the Company's  results of  operations  in the first fiscal  quarter of
1999, and may affect later quarters  depending upon the timing of the completion
of the review and the implementation of any findings.

The Company observes limits on its activities in order to avoid becoming subject
to regulation in one or more countries in which it does  business.  As discussed
under "Regulation" below, the principal  limitation on the Company's business is
that it will  generally  only transact  business in  instruments  which,  in its
opinion,  do  not  constitute  "securities"  under  the  United  States  federal
securities laws.  However,  the Company may engage in transactions in securities
to the extent that the Company does not believe that such  transactions are of a
magnitude  or of a nature  that will  cause the  Company  to become  subject  to
regulation.  Currently,  there are no regulations which materially  restrict the
ability  of the  Company  to  effect  transactions  in  commodities  or  futures
contracts or options on futures contracts.


                                      -3-
<PAGE>



Hedging of Derivative Transactions

Because of the nature of its business,  the Company does not intend to incur any
payment or  delivery  obligation  unless it is  entitled  to receive an equal or
greater  payment  or  delivery  from one or more  third  parties  (which  may be
affiliates of Group). In general,  the Company refers to transactions  where all
of the payment obligations or delivery obligations can be met from cash flows or
delivery  obligations  from one or more other  transactions  in its portfolio as
being "hedged", and as not having "market risk". It is important to note in this
regard  that the  Company  hedges  its cash  flow on a  portfolio  basis,  not a
transaction by transaction basis. Accordingly,  a particular payment or delivery
obligation  under a  transaction  may not be  offset  by a single  corresponding
transaction.

Hedging is a strategy  by which the  Company  seeks to  eliminate  market  risk.
Obligations  incurred by the Company may be hedged in several ways. For example,
if the  Company  enters  into a  contract  requiring  it to make a payment  to a
counterparty based on an index, the Company may enter into one or more contracts
that require one or more other counterparties, which may be affiliates of Group,
to make an equal or greater cash payment to the Company based on the same index.
Similarly,  the Company will only enter into an obligation to pay a fixed amount
(e.g.,  issue a fixed rate bond),  if it also  acquires one or more assets which
entitle the Company to receive  amounts  which are equal to or greater  than the
amounts it owes.

In its  simplest  form,  the Company  may hedge  obligations  by  entering  into
transactions  which mirror the  Company's  obligation.  For example,  if under a
10-year  interest rate swap with a $100 million  notional  principal  amount the
Company is obligated to make semi-annual payments to Party A based on a floating
rate of interest,  e.g.,  LIBOR,  and receive  payments based on a fixed rate of
interest,  e.g., 6.50%, the Company may hedge its payment  obligations under the
interest  rate swap by entering into an interest rate swap with Party B with the
same maturity and notional  principal amount under which Party B is obligated to
make  semi-annual  payments  to the  Company  based on LIBOR and the  Company is
obligated  to make  payments to Party B based on a 6.47% fixed rate of interest.
Over the term of the swaps, the Company's total revenue from the two swaps would
consist  of  the  .03%   difference   between  the  amounts   paid  by  the  two
counterparties.  This type of hedge  eliminates  all market  risk but leaves the
Company  exposed to the credit risk of either  Party A or Party B,  depending on
the level of the underlying index or interest rate (e.g., LIBOR).

The Company  also may hedge  obligations  by entering  into  transactions  which
generate cash flows that exceed the Company's  obligations.  In such cases,  the
Company would  typically have a cost to acquire the hedged  position,  and would
recover that cost together with a return,  over the life of the hedged position.
For  example,  the  Company  may enter into two  interest  rate swaps  which are
identical to those in the example above, except that Party A would agree to make
payments  based on a fixed  rate of 8.50%  instead  of 6.50%,  in return  for an
up-front  payment by the Company.  The up-front  payment would equal the present
value of the 2.00%  difference  between  the 8.50% paid by Party A and the 6.50%
market  level  for  similar  swaps.  In such a case,  the  Company  may fund the
up-front  payment by issuing debt.  The debt would be repaid from the difference
between the 8.50%  received from Party A and the 6.47% paid to Party B, over the
life of the swaps.  Over the term of the swaps, the Company's total revenue from
the two swaps would  consist of the  difference  between the amounts paid by the
two  counterparties,  less the amount originally paid by the Company to Party A.
This  would be  partially  offset  by  interest  on the debt  issued to fund the
up-front payment.  This type of hedge also eliminates all market risk but leaves
the Company  exposed to the credit risk of either Party A or Party B,  depending
on the level of the underlying index (e.g.,  LIBOR).  However, the profitability
of this type of hedge depends on the  difference  between the Company's  cost of
funds and the  discount  rate  applied to  determine  the amount of the up-front
payment.


                                      -4-
<PAGE>

In a more complex  manner,  the Company may hedge  obligations  by using futures
contracts,  options on futures or other derivative  instruments generally traded
on a futures  exchange or board of trade, or by holding a portfolio of financial
instruments or physical commodities.  In an interest rate swap, for example, the
Company's  payment  obligations  could be hedged by the  purchase of a series of
futures  contracts which require payments to the Company based on LIBOR, so long
as the payment  flows on the futures  contracts can be expected to match exactly
or exceed the payment obligations on the swap.  Regardless of the method used to
hedge an obligation,  however, the Company is essentially placing itself between
two or, in certain circumstances, more separate counterparties, thereby enabling
each  counterparty to rely on the Company's credit rather than the corresponding
counterparty's  credit.  Like other types of hedges discussed above, the Company
would use these types of hedges only if they  completely  eliminated  all market
risk.  The  advantage  of these  types of hedges is that they  typically  do not
introduce as much credit risk as a hedge with another counterparty. For example,
if  the  Company  uses  futures  to  hedge,  the  counterparty  is  an  exchange
clearinghouse and the credit exposure is subject to margin requirements.

Because the Company  anticipates  that all of its obligations  will be offset by
equal or greater  obligations  from third  parties,  the  Company  will,  in the
absence of a counterparty  default,  be protected  against the effects of market
fluctuations.   As  discussed  above,  however,  the  Company  will  enter  into
transactions  as  principal.  Accordingly,  in  the  event  of  a  default  by a
counterparty,  the Company  will be exposed to the risk of loss  because it will
remain  obligated  to comply  with its payment or  delivery  obligations  to the
non-defaulting counterparty.  Under such circumstances,  the Company may sustain
losses,  the amount of which will  depend  upon a number of  factors,  including
whether the  defaulting  counterparty  had accrued  payment  obligations  to the
Company,  whether the Company is able to enter into a transaction to replace the
position  on which the  default  occurred  and  whether  the  Company is able to
terminate  the  non-defaulted   position.  See  "Entering  into  New  Derivative
Transactions  and Risk  Management  -- Credit  Quality and  Counterparty  Credit
Risk" and "Monitoring the Portfolio" below.

Derivative Transactions

The  following  is a  summary  of the  types of  instruments  that  the  Company
currently  anticipates  entering  into,  purchasing,  selling and issuing in the
course of its business.  As discussed above, the Company's  current portfolio of
Derivative Transactions consists principally of interest rate swaps and options,
index swaps,  currency forwards and currency swaps and options  denominated in a
variety of  currencies.  Nevertheless,  the Company may expand its  portfolio by
entering into a greater variety of additional Derivative Transactions. The exact
extent and timing of the expansion of the Company's  portfolio  will depend upon
the completion and findings of the review by Group referred to above.

Margin or  collateral  is  sometimes  required  to be  deposited  by one or both
parties to a Derivative  Transaction.  The Company does not expect  generally to
require  counterparties  to post margin or  collateral  in respect of Derivative
Transactions.   Changes  in  general  market  practices  or  in  counterparties'
perception  of the  Company's  creditworthiness  could  result  in  the  Company
generally   being  required  to  post   collateral  or  margin  in  the  future.
Additionally,  as  described  in more  detail  below,  certain  exchange  traded
instruments always require margin deposits.

The Company does not currently  anticipate  entering  into a  transaction  which
requires it to post margin or collateral unless it anticipates having sufficient
unpledged assets to satisfy such margin or collateral requirements. For example,
the  Company  may agree to post  margin or  collateral  if it were to receive an
equivalent amount of margin or collateral under the related transactions.

                                      -5-
<PAGE>

The Company does not limit the concentration of its portfolio in any one type of
instrument.  As a result, the Company's  portfolio could consist entirely of one
kind of instrument, or it could contain many types of instruments. See "Entering
into New Derivative Transactions and Risk Management" below.

The  Company  may also engage in  Derivative  Transactions  to hedge its cost of
funds. For example, the Company may issue a debt obligation with a return linked
to an index,  and enter into a  Derivative  Transaction  with a third party or a
Group  affiliate to hedge the indexed  component of the debt obligation at terms
which will  result in a cost of funds to the  Company  which is either  fixed or
floating based on a short-term interest rate. See "Structured Notes" below.

   Interest Rate and Currency Swaps

An interest rate swap is a bilateral  agreement that requires each party to make
periodic payments to the other party, the amounts of which are determined on the
basis of a stated fixed or floating  rate of interest  and a specified  notional
principal  amount.  Typically,  one party  agrees to make  payments in an amount
equal to a fixed rate of interest  multiplied by the notional  principal amount,
while the other party agrees to make payments in an amount equal to a particular
floating  interest rate (e.g.,  LIBOR)  multiplied by the notional  amount.  The
payment obligations of the parties might also be based on two different floating
rates.  On each scheduled  payment date,  the amount  required to be paid by one
party is netted  against  the amount  required to be paid by the other party and
only this net amount is paid by one party to the other.  Neither party  actually
pays the  notional  principal  amount at any time  during  the term of the swap.
Under a currency swap, one party agrees to pay a fixed or a floating amount of a
specified  currency on each  payment  date,  and the other party agrees to pay a
fixed or floating amount of a different currency. In contrast with interest rate
swaps, the parties to currency swaps typically  exchange the notional  principal
amount of each currency at initiation and maturity.

Interest rate and currency swaps generally  require periodic payments and extend
for periods of up to 10 years.  However,  some interest rate and currency  swaps
may extend for  substantially  longer periods of time, such as 30 years or more.
Such  transactions  are  entered  into by each  party  acting as  principal  and
typically may not be transferred or terminated without counterparty  consent. As
a result,  interest rate and currency swaps have limited liquidity.  By entering
into a swap,  a party  assumes the risk of adverse  interest  or  exchange  rate
fluctuations, which could result in the party's being obligated to make payments
to its counterparty over a significant period of time.

   Interest Rate Caps and Floors

An interest rate cap provides the purchaser  with the right to receive  payments
in an amount  equal to the excess of a floating  interest  rate over a specified
fixed rate,  multiplied by a stated notional  principal amount. An interest rate
floor  provides the  purchaser  with the right to receive  payments in an amount
equal to the excess of a fixed interest rate over a floating rate, multiplied by
a stated  notional  principal  amount.  The  purchaser  of a cap or floor pays a
non-refundable fee (which may be referred to as a "premium") for this right, but
has no further payment obligations.  In contrast to a swap, therefore,  a cap or
floor  imposes  continuing  payment  obligations  only  on the  seller,  and the
purchaser  cannot lose more than the fee paid.  In  addition,  the seller has no
ongoing credit  exposure to the purchaser.  The seller,  however,  is subject to
risk of loss to the full extent of any adverse  fluctuations  in interest  rates
above,  in the case of a cap, or below,  in the case of a floor,  the fixed rate
and the purchaser  therefore  incurs exposure to the seller's  credit.  For this
reason, the seller may be required to deposit margin or collateral.  Conversely,
the seller's potential profit on the transaction is limited to the amount of the
fee.


                                      -6-
<PAGE>

Payments  are  required to be made under caps and floors on  periodic  scheduled
payment dates, or on a single date. As in the case of swaps,  interest rate caps
and floors are entered  into by each party  acting as  principal  and may not be
transferred or terminated without counterparty  consent,  although the purchaser
may simply allow the cap or floor to expire and forfeit the fee.

   Currency Forwards

Forward contracts on currencies are contractual  obligations between two parties
to purchase and sell a specific quantity of one currency for a specific quantity
of a second  currency  (thereby  creating a fixed  exchange rate between the two
currencies) at a stated time in the future.  Forward contracts generally may not
be  liquidated  prior to the stated  maturity  date,  although  the parties to a
forward  contract may agree to enter into a second  offsetting  transaction with
the  same  maturity,  thereby  fixing  each  party's  profit  or loss on the two
transactions.  As a result,  a party to a forward  contract  must be prepared to
perform its obligations under the contract in full.

Forward  contracts are entered into by the parties as  principals  and generally
may not be transferred or terminated without counterparty  consent. Each party's
profit or loss on the transaction  will be determined by changes in the exchange
rate between the two currencies that are the subject of the forward contract.

   Currency Options

An option on a currency provides the purchaser, or "holder", with the right, but
not the obligation,  to purchase, in the case of a "call" option, or to sell, in
the case of a "put" option,  a stated  quantity of the underlying  currency at a
fixed exchange rate up to a stated  expiration  date (or, in the case of certain
options,  on such date).  The holder pays a  non-refundable  fee for the option,
referred to as the "premium", but cannot lose more than this amount. In contrast
to a forward  contract,  an option  imposes  a  binding  obligation  only on the
seller,  or "writer",  of the option.  Upon the holder's exercise of the option,
the writer is obligated to complete the transaction in the underlying  currency.
An option becomes worthless to the holder when it expires.

As in the case of interest rate caps and floors, the writer of a currency option
has no ongoing  credit  exposure  to the  purchaser.  Because  the  writer  must
complete the purchase or sale of the  underlying  currency upon the  purchaser's
exercise of the option,  however, the writer is exposed to potentially unlimited
losses in the event of adverse  fluctuations in the relevant  exchange rate. The
purchaser therefore has ongoing credit exposure to the writer and the writer may
be required to deposit margin or collateral.  Currency  options are entered into
by the parties as principals,  and may not be transferred or terminated  without
counterparty consent (although, as in the case of caps and floors, the purchaser
may simply allow the option to expire and forfeit the premium).

   Futures Contracts

A futures contract is a bilateral  agreement providing for the purchase and sale
of a security (such as government bonds), currency,  physical commodity or index
for a specified price. By its terms, a futures contract provides for a specified
delivery  month in which the security,  currency or commodity is to be delivered
or, in the case of a futures  contract on an index of interest  rates or certain
financial  instruments,  in which a cash settlement is to be paid.  Unlike other
types of derivative  instruments  described above,  futures contracts are traded
only on organized  exchanges  and may be entered into only through  brokers that
are members of the relevant  exchanges.  The exchange  clearinghouse acts as the
counterparty  to each futures  contract  executed  through the exchange,  and is
responsible  for all clearance  and  settlement  functions.  In contrast to most
other

                                      -7-
<PAGE>

derivative  instruments  decribed  herein,  therefore,  the parties to a futures
contract do not deal with each other as principals and assume the credit risk of
an  exchange  clearinghouse,  rather  than  the  credit  risk  of  a  particular
counterparty.  In addition,  because of the clearinghouse  system,  positions in
futures contracts may be liquidated by entering into offsetting  transactions in
the same contract,  which serves to terminate the position. As a result, futures
positions  may  be  terminated  without  counterparty  consent,  subject  to the
availability  of a liquid  secondary  market on which to effect  the  offsetting
transaction on the relevant exchange. Most futures contracts are settled in this
manner  rather  than  through  the  delivery  of the  underlying  instrument  or
commodity.

Upon entering  into a futures  contract,  an amount of cash or cash  equivalents
must be deposited  with the broker by the  purchaser  and the seller as "initial
margin".  Subsequent payments to and from the broker,  referred to as "variation
margin", are then made on a daily basis as the value of the underlying security,
currency,  commodity or index  fluctuates in value,  thereby making positions in
the  futures  contract  more or less  valuable,  a process  known as "marking to
market".  The Company will be subject to margin  requirements in connection with
the futures contracts into which it enters.

   Options on Futures Contracts

An option on a futures contract  provides the holder with the right, but not the
obligation,  to enter into a "long" position in the underlying futures contract,
in the case of a "call" option, or a "short" position in the underlying  futures
contract,  in the  case  of a "put"  option,  at a fixed  price  up to a  stated
expiration  date.  As  in  the  case  of  other  options,   the  holder  pays  a
non-refundable premium for the option, but cannot lose more than this amount.

The writer of an option on a futures  contract,  however,  is subject to initial
and variation  margin  requirements in connection with the option and is exposed
to  potentially  unlimited  losses.  The  Company  will  be  subject  to  margin
requirements  in  connection  with options on futures  contracts  written by it.
Options on futures  contracts are traded on the same exchanges as the underlying
futures  contracts,  and may only be  entered  into  through  brokers  which are
members of the relevant exchanges. Positions in options on futures contracts are
cleared through the relevant  exchange  clearinghouse,  in the same manner,  and
subject to the same  considerations,  as those discussed above under "-- Futures
Contracts".

   Forward Contracts on Physical Commodities

Forward  contracts on physical  commodities are  contractual  obligations by two
parties to purchase  and sell a stated  quantity of a commodity  for a specified
price at a stated time in the future.  Forward contracts on physical commodities
generally are used either to effect  purchases and sales of the commodity in the
future or to hedge against the risk of adverse  fluctuations in the value of the
commodity.  The Company may enter into forward contracts on physical commodities
in a manner substantially similar to its use of currency forwards, and will seek
to hedge  positions  in such  contracts  either  through  the  establishment  of
offsetting  forward positions or an offsetting  position in futures contracts on
the same commodity.

                                      -8-
<PAGE>

   Commodity Options

An option on a physical commodity provides the purchaser with the right, but not
the  obligation,  to purchase the  underlying  commodity,  in the case of a call
option, or to sell the underlying commodity, in the case of a put option, at any
time up to a stated  expiration  date for a specified  price.  As in the case of
other types of options, the holder pays the writer a non-refundable  premium for
the option but cannot lose more than this amount.  Upon the holder's exercise of
the  option,  the  writer  is  obligated  to  complete  the  transaction  in the
underlying physical commodity.

   Commodity Swaps

A commodity swap, which is substantially  similar to a swap on interest rates or
currency  exchange  rates,  is a  bilateral  agreement  between  two  parties to
exchange payments on regularly scheduled dates, based on changes in the value of
a specified  commodity.  One party to the transaction  undertakes to pay a fixed
amount on each payment date, while the other party agrees to pay a floating rate
based on the price of the underlying  commodity,  in each case,  multiplied by a
notional  quantity of the  commodity.  On each payment date, the parties net the
payments owed by each party, and only the net amount is paid by one party to the
other.

Commodity  swaps may  extend  over  substantial  periods  of time and  generally
require payments to be made on a quarterly basis.  Such transactions are entered
into by each party acting as principal and typically may not be  transferred  or
terminated  without  counterparty  consent.  As a result,  commodity  swaps have
limited  liquidity.  By entering into a commodity  swap,  each party assumes the
risk of adverse  changes in the value of the underlying  commodity,  which could
result in either party being obligated to make payments to its counterparty over
a significant period of time.

   Index Swaps

An index swap is a bilateral agreement between two parties based on the value of
an index of one or more currencies  (including  baskets of  currencies),  one or
more  commodities  (including  baskets of  commodities),  one or more securities
(including  baskets of securities)  and/or any other index.  One party (Party A)
may  undertake to pay any decrease in a specified  notional  value of a selected
index below a specified  level in exchange for the  agreement by the other party
(Party B) to pay any increase of the selected index above a specified  level. As
with commodity  swaps, on each payment date the parties net the payments owed by
each  party,  and only the net amount is paid by one party to the  other.  Index
swaps generally extend from relatively short periods (six months) to medium-term
maturities  (three  to five  years).  Payments  are  exchanged  periodically  at
intervals  negotiated  by  the  parties.  On  relatively  short-term  Derivative
Transactions,  the  exchange  of  payments  is  generally  only made on the swap
termination date.

In an index swap,  both  parties  assume the risk of changes in the value of the
selected  index,  since, in the example above, if the index value on the payment
date  is less  than  its  value  on the  inception  date,  Party A will  owe the
difference to Party B. On the other hand, if the index value on the payment date
is more than its value on the inception date, Party B will owe the difference to
Party A. In either case, any interest owed under the index swap will be added to
or netted against the amounts owed in respect of changes in the index.

Structured Notes

As discussed under "Management's  Discussion and Analysis of Financial Condition
and Results of  Operations  --  Overview"  under Item 7, the Company has entered
into a number of  transactions  in which the Company issued  Medium-Term  Notes,
where payments on the Notes are determined by


                                      -9-


<PAGE>

reference to the  performance  of a single  equity  security or an equity index.
Certain of the Notes are subject to  redemption  at the option of the Company if
certain  conditions  are met.  The terms of a Note linked to a single  stock may
either allow for or mandatorily  require the holder to exchange the Notes for an
amount of the underlying  security.  The Company has purchased equity securities
and has  entered  into  Derivative  Transactions  with  affiliates  of Group and
purchased exchange traded options to eliminate its market risk on the Notes. The
cost of hedging an equity-linked  Medium-Term Note may use up substantially  all
of the proceeds from the issuance of such Note.

Securities Owned

As of November 27, 1998, securities owned consisted of shares of common stock of
Oxford Health Plans, Inc. (fair value  approximately $1.9 million) and shares of
common stock of Citigroup,  Inc.  ("Citigroup")  (fair value approximately $36.9
million).  The  Company  purchased  these  securities  to hedge  certain  of the
Company's  exposures  incurred by its  issuance  of two series of Notes,  one of
which is  mandatorily  exchangeable  at maturity  into shares of common stock of
Oxford Health Plans, Inc. and the other of which is exchangeable,  at the option
of the holder, into shares of Citigroup common stock.

Entering into New Derivative Transactions and Risk Management

In connection with entering into any Derivative  Transaction,  the Company seeks
to ensure that its  obligations  under any new  Derivative  Transactions  can be
"hedged"  with other  Derivative  Transactions.  The  Company  also  considers a
variety of factors, including any existing exposure of the Company and Group and
its  affiliates to the proposed  counterparty,  the level and  volatility of the
index to which the  transaction  would be  linked,  the  credit  quality  of the
proposed  counterparty  and the credit risk it is undertaking in connection with
entering  into  such  Derivative  Transaction  as  well  as  the  impact  of any
additional risk on its portfolio of Derivative Transactions.  In addition, prior
to entering into a Derivative  Transaction,  the Company must determine  whether
the spread on such Derivative Transaction is satisfactory in light of the credit
risk associated with such Derivative  Transaction.  The Board of Directors of GS
Financial Products US Co. (the "Corporate General Partner"), the general partner
of the Company, has approved the Company's procedures to monitor and control the
credit quality of, and the Company's  exposure to,  counterparties  as described
below and under "--  Monitoring  the Portfolio"  below.  Such  procedures may be
changed  at any time and from time to time.  See  "Management's  Discussion  and
Analysis of Financial  Condition and Results of  Operations  -- Overview"  under
Item 7 for a  discussion  of the ongoing  review of the  Company's  business and
operations.

In connection with the Company entering into new Derivative Transactions,  it is
important  to  recognize  that Group has control over the amount of new business
that the  Company  originates  and that the  Company may decline to enter into a
transaction  that meets its credit standards but exceeds the exposure limits set
by Group for itself and its affiliates.  See "-- Credit Quality and Counterparty
Credit Risk -- Counterparty Credit Quality" below.

   Market Risk and Liquidity Exposures

The Company  intends to manage its portfolio of Derivative  Transactions so that
cash payments to the Company from its portfolio will be sufficient to make, when
due, all required payments on all the Company's liabilities,  including payments
of principal,  premium,  if any, and interest on any indebtedness.  As a result,
the Company  anticipates that it will not incur any direct  obligation unless it
enters  into one or more  Derivative  Transactions  which  provide  it with,  or
entitle it to receive,  an equal or greater amount from a third party, which may
be an affiliate of Group. In addition, the Company does not anticipate incurring
any  obligation  unless it has  scheduled  cash 

                                      -10-

<PAGE>

sources that are  available  on or before the dates of the required  payments on
the obligation.  For example, if the Company enters into a contract requiring it
to make payments based on an index,  the Company may  concurrently  enter into a
contract  that  requires a third party to make equal or greater  payments to the
Company based on the same index at the same time.  As a result,  so long as none
of its  counterparties  defaults,  the Company  believes that it bears no market
risk  (i.e.,  its  ability to satisfy  its  obligations  will not be affected by
market conditions).

The Company does not currently  engage in, nor does it  anticipate  engaging in,
"dynamic hedging" (i.e., entering into cash or Derivative Transactions which are
expected  approximately,  but  not  exactly,  to  offset  the  economics  of the
transactions  being hedged and which are adjusted  from time to time to maintain
the hedge ratio).  Generally,  dynamic hedging  strategies  would not permit the
Company to be certain that, absent a default,  cash flows would be sufficient to
satisfy all of the related liabilities.

   Credit Quality and Counterparty Credit Risk

The Company anticipates that it will make payments on its obligations, including
any indebtedness, principally or exclusively with cash on hand and receipts from
its portfolio of Derivative Transactions.  As a result, the Company's ability to
meet its  obligations  will depend on its  ability to collect  the amounts  owed
pursuant   to   such   Derivative   Transactions.   Accordingly,   defaults   by
counterparties  with large  obligations  to the  Company  could  materially  and
adversely  affect the Company's  financial  position,  results of operations and
cash flows.

The amount which the Company  would lose,  that is, the amount the Company would
be required to pay to obtain a replacement  instrument to hedge its  obligations
on any Derivative  Transaction  (the "loss"),  upon a counterparty  default on a
particular  transaction  would be  determined  principally  by the  level of the
indices to which payments on the instruments  issued by that  counterparty  were
linked. In the case of a default by a counterparty to an interest rate swap, for
example,  the amount of the Company's loss would depend principally on the level
of interest rates. Similarly, the amount of the Company's loss on a default in a
currency swap would depend  principally  on currency  exchange rates whereas the
amount of the Company's loss on a default in a Derivative  Transaction linked to
the price of a  commodity  (such as gold or oil) would  depend upon the price of
such  commodity.  The size of the loss  would be  affected  by the level of such
indices at the time of default  and, if the  Company  were unable to replace the
defaulted instrument or terminate its hedging  transactions,  the changes in the
level of such  indices  after the  default  and prior to maturity of the hedging
transactions.  A number of the  instruments  in which  the  Company  intends  to
transact  business have limited  liquidity  and therefore  could be difficult to
replace.  For any  particular  transaction  there will also be a number of other
factors which can affect the amount of the Company's  potential loss.  Depending
on the  terms of the  transaction,  these can  include,  for  example,  the time
remaining  until maturity of the  transaction,  the  availability of any netting
provisions in the agreement with the  counterparty and changes in the supply and
demand for that type of transaction.

The  Company  utilizes  several  techniques  to assess and limit  credit risk as
described  below.  The  Company's  procedures  to monitor and control the credit
quality of, and the Company's exposure to, counterparties as described below may
be  changed  at any time by the  Board of  Directors  of the  Corporate  General
Partner.  See "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations -- Overview"  under Item 7 for a discussion of the current
review of the Company's business and operations.

                                      -11-


<PAGE>

Counterparty  Credit Quality.  The Company's  principal means of controlling its
credit risk is to  substitute  its credit  principally  for highly  creditworthy
counterparties.  By doing so, the Company  anticipates that it will experience a
relatively low frequency of counterparty defaults.

The Company  anticipates  that it will  substitute  its credit  principally  for
obligors rated "A" or better by one or more  nationally  recognized  statistical
rating  organizations.  However, the Company may do business with counterparties
rated  below  "A"  and may  enter  into  Derivative  Transactions  with  unrated
counterparties.  The Company generally  structures its transactions with unrated
counterparties on a limited recourse basis.

Pursuant to an  Origination  Agreement with Goldman,  Sachs & Co.  ("GS&Co.") as
described under "Certain  Relationships and Related  Transactions -- Operational
and Administrative Relationships with Group -- New Business Services Agreements"
under Item 13,  GS&Co.  has agreed to provide,  or cause to be provided,  credit
reviews of  counterparties.  The  Company  has been  advised by GS&Co.  that the
credit quality of each counterparty to a new Derivative Transaction  (regardless
of the extent of existing  Derivative  Transactions with such counterparty) will
be evaluated by the credit department of one of its affiliates.  This evaluation
includes  a review of the credit  exposure  of Group and its  affiliates  to the
counterparty's credit. The Company has further been advised by GS&Co. that these
credit  reviews are performed by  representatives  of its credit  department and
that such representatives are responsible for conducting due diligence as to the
credit quality of potential  counterparties for the purposes of other activities
of Group and its affiliates.  GS&Co.'s role is solely to provide  information to
the Company,  and it has no liability to the Company in respect of the provision
of such credit reviews except in the case of gross  negligence.  Generally,  the
Company does not anticipate  entering into  transactions  which  otherwise might
meet its  standards  but exceed any exposure  limits set by Group for itself and
its  affiliates.  This may result in less business for the Company,  since Group
and its affiliates may have large existing exposures to certain counterparties.

Collateral  or Margin.  In certain  circumstances,  the  Company  may reduce its
credit  exposure to a counterparty  by requiring that the  counterparty  deposit
margin or collateral. When accepting margin or collateral, the Company generally
accepts highly liquid and creditworthy securities (e.g., U.S. Treasury bonds and
notes and securities issued or backed by U.S. government agencies).  The Company
calculates  credit  exposure net of  collateral  when it believes  that it has a
perfected  security  interest in such collateral  under an enforceable  security
agreement.

Documentation.  To  reduce  the  amount  of its  credit  exposure,  the  Company
anticipates  that many of its swaps,  currency  options,  forward  contracts and
other similar  transactions  will be subject to master agreements which provide,
among  other   things,   for  net  payments   between  the  parties  in  certain
circumstances  and  for the  closing  out,  on a net  settlement  basis,  of all
outstanding  transactions  upon a default by, or  insolvency  events  affecting,
either party. A common form of such an agreement, particularly for interest rate
and  currency  swaps,  is the form  published  by the  International  Swaps  and
Derivatives Association,  Inc. (the "ISDA Agreement"),  although other forms may
be used as well. The Company  anticipates  that it will enter into  transactions
with FPI and Goldman Sachs Capital Markets,  L.P. ("GSCM") in order to hedge its
obligations on transactions  between the Company and third parties.  In order to
facilitate such transactions,  the Company has entered into ISDA Agreements with
both FPI and GSCM.  The  obligations  of GSCM under its ISDA Agreement have been
unconditionally  guaranteed by Group.  Accordingly,  the Company treats Group as
the obligor with respect to the Derivative  Transactions  entered into under the
ISDA  Agreement  with GSCM.  For a summary of  notional or  contractual  amounts
involved in transactions  with such affiliates at November 27, 1998 and November
28, 1997, see Note 4 to the Company's audited financial  statements  included in
Item 14 below.


                                      -12-

<PAGE>

Derivatives  are reported on the balance  sheet on a  net-by-counterparty  basis
where  management  believes a legal right of setoff exists under an  enforceable
master netting  agreement.  In  considering  the  enforceability  of any netting
provisions,  the Company  relies on advice from counsel.  Any such analysis will
depend on the country,  governing  law, type of  transactions  and  counterparty
involved.

In certain circumstances,  the Company may be unable or unwilling to take credit
risk in a particular  transaction,  due to the  Company's  determination  of the
credit risks presented.  In certain cases, the Company may be able to enter into
such a  transaction  by  structuring  it on a  limited-recourse  basis,  thereby
eliminating its credit exposure to one counterparty.  In such a transaction, the
Company would enter into a Derivative  Transaction with one counterparty ("Party
A").  The Company  would hedge that  transaction  with a different  counterparty
("Party B") in a  transaction  where the Company  would not be obligated to make
payments to Party B if payments  are not  received by the Company  from Party A.
(Party B would not,  however,  have a security  interest in the transaction with
Party A.) As a result, the Company would have no credit exposure to Party A. The
Company has entered into this type of  transaction  with GSCM in the position of
Party B.


Aggregate Credit Risk.  Another  technique that the Company may use to limit the
total  credit risk to which it is exposed  (i.e.,  the  replacement  cost of its
portfolio) is to limit the growth of its business. If the Company's total credit
risk exceeded levels which the Company found to be acceptable, the Company would
not enter into any new  Derivative  Transactions  which would increase its total
credit risk, and would,  in the absence of Derivative  Transactions  which would
decrease its total credit risk, limit its operations to collecting payments from
assets as they mature and holding such payments in cash  equivalents  until they
are used to satisfy its liabilities (i.e., it would operate in run-off mode).

The Company's principal  measurement of its total credit risk (the "Total Credit
Risk") is an evaluation of the likelihood  that the Company's cash receipts will
be insufficient to meet its payment obligations on a timely basis as a result of
counterparty defaults, market risk, or differences in timing of payment receipts
and  obligations.  The Company  estimates  the Total Credit Risk using  computer
based  simulations  which take into  account  the timing and amount of  payments
required on the Company's assets, liabilities,  and contingent liabilities,  the
level and  volatility of any indices to which those  payments are linked and the
credit ratings of any counterparties  who could owe money to the Company.  These
simulation  programs were developed by GS&Co.  and are  periodically  updated by
GS&Co.  to reflect new product  types.  The  assumptions  used in the models are
changed from time to time when the Company, in consultation with GS&Co. and with
concurrence of the appropriate  rating  agency(s),  determines that such changes
would result in a more accurate measurement of its credit risk.

The Company  estimates  its credit risk (i.e.,  replacement  cost) in respect of
Derivative  Transactions  using financial  models developed by its affiliates to
estimate  fair  value.  The  models  incorporate  market  data for the  relevant
instruments or for instruments with similar  characteristics.  The nature, size,
and timing of  transactions  and the liquidity of the markets may not ultimately
allow for the realization of these values. The Company's estimates of its credit
risk are solely internal and neither the models nor the assumptions used in such
models are reviewed by third parties.

The Company  considers  the credit risks posed by its  existing  portfolio to be
below the levels it would find acceptable. The Company periodically monitors its
exposure to  individual  counterparties  and  reviews  its credit  exposure to a
counterparty  prior to entering into any new transaction with such counterparty.
If the Company determines that its exposure to any counterparty  exceeds a level
it deems  acceptable,  the Company will seek to reduce its exposure as described
under "-- Monitoring the Portfolio" below.


                                      -13-

<PAGE>

Affiliate  Credit Risk Limits.  The Company enters into Derivative  Transactions
with  affiliates  of  Group  (such  affiliates,   other  than  FPI,  the  "Group
Affiliates"),   principally   GSCM.   The  Company   also  enters  into  hedging
transactions with GSCM and FPI. Because the obligations of Group Affiliates will
be  guaranteed  by Group,  the  Company  treats  Group as the  obligor  on these
transactions  for purposes of measuring  its credit  exposure.  The Company may,
therefore,  have a significant  credit exposure to Group in the future, in which
case a default by Group would have a material  adverse  effect on the  Company's
financial  position,  results of operations and cash flows. The Company does not
expect, however, that such credit exposure would exceed the Company's net worth.

In order to limit its exposure to Group, the Company subjects  transactions with
Group  Affiliates  to an  additional  credit  limit  over and above  the  limits
discussed  above  which are  applicable  to other  obligors.  Specifically,  the
Company will not acquire any receivables  issued or written by Group  Affiliates
if, after  giving  effect to such  acquisition  and to the effect of any netting
agreements,  the value of all such receivables would exceed 15% of the Company's
total assets. For a discussion of the Company's policies with respect to netting
agreements,  see "-- Documentation" above. At November 27, 1998, the Company had
credit exposure of $22.7 million to Group or Group Affiliates. See "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Liquidity and Capital Resources" under Item 7.

The Company from time to time enters into Derivative  Transactions with FPI. The
Company is a general  partner of FPI. The Company does not intend to observe any
credit  limits on  transactions  with FPI, or with any other  entity in which it
becomes a general  partner in the  future.  The  Company  does not  consider  it
important  to limit its direct  credit  exposure  to any entity in which it is a
general partner, because as a general partner the Company is contingently liable
for all of the obligations of such entities (including transactions entered into
with third parties).

Monitoring the Portfolio

The Company  monitors its  portfolio on an ongoing basis to verify that there is
no market or  liquidity  exposure  and that its credit  risk to obligors is at a
level the Company considers  acceptable.  The Company recalculates its estimates
of Total  Credit  Risk when it  believes  there is a  significant  change in the
composition of its portfolio,  the credit quality of its  counterparties  or the
indices to which its Derivative  Transactions are linked.  Typically,  the Total
Credit Risk is recalculated at least monthly.

If  credit  risk  to one or more  obligors  exceeds  levels  which  the  Company
considers  acceptable,  then the Company  may attempt to reduce its  exposure to
such obligors by entering into one or more Derivative  Transactions  which would
have the  effect of  reducing  such risk.  Such  Derivative  Transactions  could
include, for example,  assigning or terminating a Derivative  Transaction upon a
counterparty  downgrade.   However,  counterparty  consent  would  generally  be
required for a sale or termination, and such consent may be difficult to obtain.
It may  also be  difficult  to sell  obligations  of  counterparties  which  are
perceived as weak credits.  There can be no assurance  that the Company would be
able to enter into Derivative Transactions which decrease the Total Credit Risk.

                                      -14-

<PAGE>
Competition

The market for  Derivative  Transactions  is highly  competitive.  The principal
means of competition are perceived credit quality, pricing and flexibility.

In general,  the Company competes with U.S. and  international  banks,  U.S. and
international insurance companies and other similar financial institutions. Many
of these  institutions  have  well-established  reputations  in the  market  for
Derivative Transactions and have significantly more capital than the Company.

The Company will also compete with current and future  affiliates of Group which
are in businesses  substantially  similar to that of the Company.  These are FPI
and Goldman Sachs Mitsui Marine Derivative Products, L.P. ("GSMMDP"),  which was
organized by Group and Mitsui Marine and Fire  Insurance  Co.,  Ltd.  Neither of
these  entities is restricted  from  competing  with the Company and the Company
believes that each does so or intends to do so. The Company is a general partner
of FPI  and the  directors  and  executive  officers  of the  Company  are  also
directors  or  executive  officers  of  one  or  both  of  GSMMDP  or  FPI.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Overview"  under Item 7 and "Directors  and Executive  Officers of
the Registrant" under Item 10. Further, since each of these entities is directly
or indirectly  controlled by Group,  Group may increase or decrease the level or
vary the composition of new business in which any of these  entities,  including
the Company,  engages.  In addition,  Group recently  established  Goldman Sachs
Financial  Markets,  L.P.  ("GSFM")  and is in the  process of  applying  to the
Securities and Exchange  Commission  (the  "Commission")  to register GSFM as an
over-the-counter   ("OTC")  derivatives   dealer.   Group  expects  GSFM  to  be
operational  in the second  quarter of 1999.  No  assurances  can be given as to
whether  Group  will  allocate  business  to the  Company or to one of its other
highly rated affiliates or to GSFM. See "Management's Discussion and Analysis of
Financial  Condition and Results of  Operations -- Overview"  under Item 7 for a
discussion of the current review of the Company's business and operations.

The Company anticipates that Group and certain  counterparties may prefer to use
the Company's affiliates for certain Derivative Transactions because the Company
will be subject to the reporting  obligations of the Securities  Exchange Act of
1934, as amended (the "Exchange Act"), whereas the Company's affiliates are not.
Such  reporting   obligations  may  require   inclusion  in  public  filings  of
information that  counterparties do not wish to have disclosed and may increase,
because of the involvement of counsel and accountants assisting in such filings,
the costs  associated  with such  transactions.  Due principally to restrictions
imposed by the United  States  federal  securities  laws,  the Company  does not
expect that FPI or GSMMDP will compete with it for any  transaction  which would
require such  affiliate to issue an  instrument  which is a security  under such
laws to a U.S. person.  However,  GSFM may issue securities and may compete with
the Company for securities based transactions.  In addition, because the Company
will be able to access the U.S. capital markets, the Company's cost of funds may
be lower  than  the cost of funds  for the  Company's  affiliates.  The  Company
believes Group has organized these entities to take advantage of the flexibility
and cost advantages each of such entities provides.

GSMMDP is highly  rated,  conducts a similar  business as the Company and can be
expected to be a significant  competitor of the Company. The Company anticipates
that  GSMMDP  will  engage   principally   in   Derivative   Transactions   with
counterparties  rated in the  three  highest  rating  categories  by one or more
nationally recognized statistical rating agencies. As a result, the Company does
not  anticipate  that it will  compete  with GSMMDP for  transactions  involving
counterparties with ratings below the three highest categories. For transactions
where the Company  competes  with GSMMDP,  in addition to the factors  described
above, the Company anticipates that a number of counterparties may prefer GSMMDP
due to its credit support from


                                      -15-
<PAGE>

owners  with  a  longer  operating  history,   larger  capital  base,  and  more
diversified business than the Company. However, the Company is unable to predict
the degree to which potential  counterparties  may prefer GSMMDP to the Company.
One of the directors of the Corporate  General Partner is also a director of the
general  partner  of  GSMMDP.  See  "Directors  and  Executive  Officers  of the
Registrant" under Item 10.

FPI is a highly rated derivative  products  company.  FPI has the same executive
officers  as  the  Company.   See  "Directors  and  Executive  Officers  of  the
Registrant"  under  Item 10.  The  Company  anticipates  that FPI may  engage in
certain  transactions  that  the  Company  intends  to avoid  due to  regulatory
considerations,  i.e.,  transactions  which  involve  the  purchase  by  FPI  of
instruments  which may be  "securities"  within the meaning of the United States
federal securities laws. However,  the Company also expects that FPI may compete
with the  Company  for all types of other  transactions.  The  Company  does not
expect most  counterparties  to have a preference  between  itself and FPI. As a
result, the Company expects  competition with FPI to be based principally on the
factors described above.

GSFM,  subject to  registration  with the Commission,  will engage  primarily in
securities-based  OTC Derivatives  Transactions.  While Group does not presently
anticipate  that  GSFM  will  engage  in  Derivatives  Transactions  that  would
otherwise be engaged in by the Company,  no  assurances  can be given that Group
will not in the future allocate such business to GSFM instead of the Company.

Counterparties  with  the  highest  credit  rating  are the  most  desired.  The
Company's  long term debt and  counterparty  credit  risk have been rated in the
highest  rating  category by Standard & Poor's  Ratings  Group ("S&P") and Fitch
IBCA,   Inc.   ("Fitch"  and,   together  with  S&P,  the  "Rating   Agencies"),
respectively. A reduction in the Company's long term debt or counterparty credit
risk rating may adversely affect the Company's ability to compete successfully.

Price competition is reflected in the spread between the hedged  positions.  The
Company intends to keep its spreads competitive with the marketplace.

Regulation

In  certain  jurisdictions  where  the  Company's  counterparties  are  located,
particularly  the  United  States,  there  exist  regulatory  schemes  which are
designed for brokers,  dealers,  investment companies or banks. These regulatory
schemes  typically  have capital and other  requirements  with which the Company
could not comply.

The  Company  limits the types of  Derivative  Transactions  in which it acts as
counterparty  in  order to  avoid  becoming  subject  to such  regulations.  The
principal  limitation  is that the  Company  proposes  to  engage  primarily  in
transactions  involving  instruments  which are not,  in its view,  "securities"
within the meaning of the United States federal  securities laws. As a result of
such limitations on its business and the capital  structure of the Company,  the
Company  believes  that  it is  not  required  to  be  licensed,  registered  or
authorized  under any current  securities,  commodities,  or banking laws of the
Cayman  Islands or the United States.  Accordingly,  neither the Company nor the
Corporate  General Partner is registered as a  broker-dealer  under the Exchange
Act (or any similar state law); nor are they registered as investment  companies
under the Investment Company Act of 1940 (or any similar state law).

There can be no assurance,  however, that regulatory  authorities in one or more
jurisdictions  would not take a contrary view regarding the applicability of any
such  laws  (including  the  applicability  of  the   broker-dealer   regulation
requirements of the Exchange Act and the requirements of the Investment  Company
Act of 1940). For example, the Commission has generally not addressed the


                                      -16-

<PAGE>

question of what  constitutes  a  "security"  within the meaning of the Exchange
Act,  and has  broadly  interpreted  the  definition  of  "security"  under  the
Investment  Company  Act of 1940 in the  context of  applying  the  registration
requirements of that Act. In addition,  Congress and United States  governmental
agencies,  including the Commodity Futures Trading Commission and the Government
Accounting  Office,  have  considered  or are  considering  issues  relating  to
derivative   instruments   generally  and  the  appropriateness  of  alternative
regulatory  approaches.  Were  the  Commission  to take  the  position  that the
transactions in which the Company engages involve "securities", it might seek to
require the Company to register as a  broker-dealer,  OTC derivatives  dealer or
investment company.

Application  of these or any of the other  regulatory  schemes in their  current
form would have a material  adverse  effect on the business of the Company.  The
Company cannot,  of course,  predict the outcomes of any other current or future
considerations  of issues such as the definition of securities under the federal
securities  laws or the  appropriateness  or method of  regulation of derivative
instruments.  Any of these may have a material adverse effect on the business of
the Company.

As  discussed  herein,  the Company is a general  partner in FPI whose  business
involves the purchase and sale of instruments  that constitute  "securities" and
whose liabilities are held primarily outside the United States.  FPI is also not
registered as a broker-dealer under the Exchange Act or as an investment company
under the Investment Company Act of 1940, or licensed,  registered or authorized
under any other securities, commodities or banking laws of the Cayman Islands or
the United  States.  As with the  Company,  there can be no  assurance  that the
Commission or regulatory  authorities  in other  jurisdictions  would not take a
contrary view and require such  licensing,  registration  or  authorization.  By
virtue of the Company's general partnership  interest in FPI and transactions in
which the Company  may engage  with FPI,  any such  licensing,  registration  or
authorization  requirement  could have a material adverse effect on the business
of the Company.

From time to time bills have been  introduced  in the U.S.  Congress  which,  if
enacted into law, would impose  varying  degrees of regulation on certain of the
types of Derivative Transactions in which the Company acts as counterparty. Such
regulation could adversely affect certain of the Company's business activities.

Rating Information

The Company's long term debt and counterparty credit risk have been rated AAA by
the Rating  Agencies.  The Company  believes  that such ratings were based upon,
among other things,  the legal separation of the Company from Group, the absence
of market risk in the Company's  portfolio,  the credit quality of the Company's
counterparties, the capital of the Company available to absorb defaults, and the
procedures  implemented by the Company to monitor and control the credit quality
of, and the  Company's  exposure to,  counterparties.  See "-- Entering into New
Derivative  Transactions  and Risk Management" and "-- Monitoring the Portfolio"
above.

There can be no assurance  that the Rating  Agencies  will  continue to rate the
Company's long term debt and counterparty  credit risk,  respectively,  in their
highest  category  and any  decrease in such  ratings may  adversely  affect the
Company's ability to compete successfully. See "-- Competition" above.

A long  term  debt and  counterparty  risk  rating  is not a  recommendation  to
purchase,  sell or hold a security or enter into a Derivative  Transaction  with
the  Company.  Such rating does not comment as to the market price of a security
or the  suitability of entering into a Derivative  Transaction  for a 

                                      -17-

<PAGE>

particular investor or counterparty. Long term debt and counterparty credit risk
ratings may be changed or withdrawn at any time by the applicable Rating Agency.

Cayman Islands Taxation

Under existing legislation, the Government of the Cayman Islands will not impose
any income or profits tax,  capital gains tax, capital transfer tax, estate duty
or inheritance tax upon the Company or the general or limited partners  thereof.
Furthermore,  the  Company has  obtained a Tax  Exemption  Certificate  from the
Governor of the Cayman  Islands which is effective for a period of 50 years from
March 3, 1992.  The  undertaking  contained  in that  certificate  provides,  in
accordance  with the provisions of Section 17(1) of the Cayman Islands  Exempted
Limited  Partnership  Law, that no law thereafter  enacted in the Cayman Islands
imposing any tax to be levied on profits,  income, capital gains or appreciation
will apply to the Company or to any partner thereof in respect of the operations
or assets of such exempted limited partnership or the partnership  interest of a
partner  therein;  and that the  aforesaid  taxes  and any tax in the  nature of
estate duty or inheritance tax will not be payable in respect of the obligations
of the Company or the interests of the partners therein.  The Company is liable,
however,  to  pay  the  Government  of  the  Cayman  Islands  a  nominal  annual
registration fee.

United States Taxation

The Company,  as a  partnership,  is not subject to U.S.  federal  income taxes.
Prior to  January  1,  1997,  the  Company  was  required  by U.S.  federal  tax
regulations  to withhold  income tax on behalf of its partners.  These  payments
were made on behalf of the  Company by a related  party.  As of January 1, 1997,
the Company is no longer  required to withhold  taxes on behalf of its  partners
under U.S. federal tax regulations.

The Company's  income is subject to a 4% New York City  unincorporated  business
tax.  The  statements  of income for the fiscal  years ended  November 27, 1998,
November 28, 1997 and November 29, 1996 include a provision  for  unincorporated
business tax on income  earned by the Company  related to doing  business in New
York City.  Depending  upon the manner in which the business of the Company will
be operated in other jurisdictions, there is a possibility that one or more such
jurisdictions would impose tax on the profits of the Company.

Important Factors Regarding Forward-Looking Statements

The Company has made in this Annual Report on Form 10-K and anticipates  that it
will  make in  future  filings  with  the  Commission,  in  press  releases  and
otherwise, written and oral forward-looking statements. Any statement concerning
the Company's  expectations,  beliefs,  or intentions about future conditions or
events should be considered to be forward-looking and should be understood to be
subject to the factors  discussed  below,  among others,  which may cause actual
results  for the Company to differ  materially  from those  anticipated  by such
forward-looking statements.

The Company's  expectation  that it will not be subject to market risk,  that it
will receive an equal or greater payment or delivery with respect to any payment
or delivery  obligation it incurs,  and that it will have scheduled cash sources
that are  available  on or before  the  required  payment  of an  obligation  is
dependent  upon the  absence of  counterparty  default.  While the  Company  has
procedures  in place to monitor the credit  quality of its  counterparties,  the
credit  quality of a  counterparty  may be affected by economic,  political  and
other events beyond the Company's control. Defaults by counterparties with large
obligations to the Company could  materially and adversely  affect the Company's
financial condition, results of operations and cash flows.

                                      -18-

<PAGE>


Group indirectly controls the Company and all of its business activities.  Group
has several affiliates that compete with the Company for Derivative Transactions
and has its own credit  policies for  counterparties.  No assurance can be given
that Group will not allocate transactions to its other affiliates or will permit
the  business  of the Company to  continue  to expand.  Further,  Group has been
engaged in a review of the Company's operations since October 1997 and there can
be no assurance as to the outcome of this review.  See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations -- Overview" under
Item 7.

The Company may routinely enter into transactions with GSCM and other affiliates
of  Group.  The  obligations  of  GSCM  will  be  guaranteed  by  Group  and the
obligations  of other Group  affiliates  may also be  guaranteed  by Group.  The
Company  may,  therefore,  have a  significant  credit  exposure to Group in the
future.  If the  Company has a material  exposure  to Group,  a default by Group
would have a material and adverse effect on the Company.

In certain  circumstances the Company anticipates that it would attempt to enter
into Derivative Transactions to replace a defaulted transaction or to reduce the
risk of default.  Failure to replace a defaulted  Derivative  Transaction or the
inability to enter into a Derivative  Transaction  to reduce the risk of default
could  prevent  the  Company  from  eliminating  the market or credit  risk with
respect to one or more other Derivative  Transactions.  The Company's ability to
enter into replacement Derivative Transactions or other risk reducing Derivative
Transactions  will be limited by the availability of appropriate  counterparties
willing to enter into  suitable  Derivative  Transactions.  No assurance  can be
given that the Company will be able to enter into  replacement  or risk reducing
Derivative Transactions.

The Company anticipates that it will continue to depend upon affiliates of Group
for the performance of essential  management,  operational,  and  administrative
functions  and the  solicitation  of new  business.  The failure of the relevant
Group  affiliate  to perform  those  functions  could  prevent the Company  from
conducting its business,  including  making payments to its  counterparties  and
ensuring compliance with its operational  guidelines.  In this regard, Group has
informed  the Company of its  preparations  for the Year 2000.  A failure by the
relevant Group  affiliate to be Year 2000 compliant could  materially  adversely
affect the  business,  results of  operations  and  financial  condition  of the
Company.  See "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations Year 2000 Readiness Disclosure" under Item 7.

The Company limits the types of instruments  that it enters into as principal or
guarantees in order to avoid becoming  subject to  regulation.  The enactment of
new legislation or new  interpretations of existing statutes and regulations may
cause the Company to become subject to regulation in one or more  countries.  If
the Company were to become subject to regulation, no assurance can be given that
the Company would be able to comply with the applicable regulatory requirements.

While the Company believes that in the case of credit exposures  calculated on a
"net basis" (i.e., adding the positive and negative values) or net of collateral
that it has in place an enforceable netting agreement or an enforceable security
interest,  no assurance can be given that a court under all circumstances  would
enforce  the  netting  agreement  or  recognize  the  validity  of the  security
interest.

One of the ways the Company expects to make profits,  if any, is from the spread
between hedge transactions, which spread is expected to be a small percentage of
the  notional  amount  of such  transactions.  The  size of the  spread  between
transactions  is  subject  to  market  forces  and may be  materially  adversely
impacted by competitive or other economic conditions.

                                      -19-

<PAGE>

The Company's long term debt and counterparty credit risk have been rated in the
highest categories by the Rating Agencies. A change in the Company's ratings
would materially adversely impact its ability to compete successfully. The
Company's ratings may be changed or withdrawn at any time by any of the Rating
Agencies, based upon factors selected solely by the Rating Agencies.


ITEM 2: PROPERTIES

The Company does not own any real property and owns minimal physical assets. The
Company leases its office from an affiliate under a Space Sharing Agreement. See
"Certain   Relationships   and   Related   Transactions   --   Operational   and
Administrative  Relationships with Group -- Administrative  Services Agreements"
under Item 13.


ITEM 3: LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

Not applicable

                             PART II

ITEM 5: MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

All of the Company's general partnership and limited  partnership  interests are
indirectly held by Group (see Item 12). Accordingly,  there is no public market,
in the  United  States  or  elsewhere,  for the  Company's  limited  partnership
interests.  See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" under Item 7.

The Company,  as a  partnership,  is not subject to U.S.  federal  income taxes.
Prior to  January  1,  1997,  the  Company  was  required  by U.S.  federal  tax
regulations  to withhold  income tax on behalf of its partners.  These  payments
were made on behalf of the Company by a related party.  Such  withholdings  were
accounted for as a distribution to partners.  As of January 1, 1997, the Company
is no longer  required to withhold  taxes on behalf of its  partners  under U.S.
federal tax  regulations.  There is no reciprocal  tax treaty between the Cayman
Islands and the United States.

Partners'  capital is not subject to  withdrawal  or redemption on demand by the
partners. The Company anticipates that it will make distributions to partners in
the future.  However, the amount of such distributions will be limited to ensure
that the Company's ability to meet its obligations is not adversely affected.

                                      -20-
<PAGE>

ITEM 6: SELECTED FINANCIAL DATA

The selected income statement data for the fiscal years ended November 27, 1998,
November 28, 1997,  November 29, 1996,  November 24, 1995 and November 25, 1994,
and the balance sheet data as of November 27, 1998,  November 28, 1997, November
29, 1996, November 24, 1995 and November 25, 1994 are derived from the Company's
audited  financial  statements.  The selected  financial  data should be read in
conjunction  with the  financial  statements  of the Company  and notes  thereto
contained in Item 14.

(U.S. dollars in thousands, except ratios)


<TABLE>
<CAPTION>
                                         Fiscal Year       Fiscal Year      Fiscal Year      Fiscal Year     Fiscal Year    
                                         Ended             Ended            Ended            Ended           Ended          
                                         Nov. 27, 1998     Nov. 28, 1997    Nov. 29, 1996    Nov. 24, 1995   Nov. 25, 1994  
                                         -------------     -------------    -------------    -------------   -------------  
<S>                                      <C>               <C>              <C>              <C>             <C>    

Income Statement Data:
Revenues, net of interest expense         $11,516           $15,558          $15,393          $13,461         $11,844
Operating expenses                          1,964 (1)           722              879              878           1,645
Income before taxes                         9,552            14,836           14,514           12,583          10,199
Net income                                  9,170            14,228           13,933           12,280          10,199

Balance Sheet Data:
Total assets                             $460,794          $581,683         $370,975         $425,052        $334,068

Long-term borrowings                      209,033           276,489          116,778           40,383               0
Partners' capital                         157,319           148,121          134,043          124,805         117,042

Other Data
Ratio of earnings to fixed charges (2)       1.6X              2.6X             5X              26X            378X (3)

<FN>
Notes: (1)   The  increase in  operating  expenses in fiscal 1998 as compared to fiscal 1997 is due, in part,  to  additional
             consulting fees and amounts billed to the Company by GS&Co.  pursuant to the  Calculation  Agreement (as defined
             and described under Item 13) relating to the  aforementioned  review by Group.  The remainder of the increase is
             attributable  to a write-off of debt issuance  costs relating to the  retirements  of the $27 million  principal
             amount of Oxford Notes (as defined under Item 7) and $72 million  principal amount of Citicorp Notes (as defined
             under Item 7) during fiscal 1998.

       (2)   For purposes of computing the ratio of earning to fixed charges, earnings as adjusted consist of net income plus
             income taxes and fixed charges.  Fixed charges  consist of interest  expense and  amortization  of debt issuance
             costs.

       (3)   The Company does not consider this ratio to be meaningful since it is based on $5,000,000 in principal amount of
             the Company's Series A Medium-Term Notes outstanding only 42 days during fiscal 1994.
</FN>
</TABLE>

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS

Overview

The Company is a derivative products company engaged in the business of entering
into, as principal or guarantor, a variety of types of Derivative  Transactions,
principally  interest  rate swaps,  interest rate options  (e.g.,  interest rate
caps,  interest rate floors and options on interest rate swaps),  currency swaps
and options,  index swaps,  commodity swaps and options,  and forward contracts.
Generally,  the Company  enters into or guarantees  Derivative  Transactions  in
situations where two or more counterparties (typically including an affiliate of
the  Company)  wish to enter into one or more  Derivative  Transactions  between
themselves,  but want the  Company to  substitute  its credit for that of one or
more of the counterparties. In accordance with market practice, the Company does
this by entering  into each of such  transactions  directly as  principal.  Such
Derivative  Transactions may also include the use of futures  contracts,  or the
purchase of the  underlying  instruments  subject to the  transactions,  such as
foreign currency,  physical commodities 

                                      -21-

<PAGE>

and  securities.  Derivative  Transactions  entered  into or  guaranteed  by the
Company consist principally of interest rate swaps, interest rate options, index
swaps,  currency options,  currency forwards and currency swaps denominated in a
variety of currencies.  See "Business" in Item 1. In addition, from time to time
the Company issues structured notes.

At November 27, 1998,  the Company had entered into or guaranteed  $10.4 billion
notional  amount of interest  rate swaps and options and $1.4  billion  notional
amount  of   currency   options,   forwards   and  swaps  with  a  total  of  35
counterparties.

In  general,  the  Company  refers  to  transactions  where  all of the  payment
obligations  or  delivery  obligations  can be met from  cash  flow or  delivery
obligations from one or more transactions in its portfolio as being "hedged". It
is  important  to note in this  regard  that,  except  with  respect  to certain
interest  rate  swaps  entered  into to  hedge  the  interest  rate  risk on its
outstanding  debt, the Company hedges its cash flow on a portfolio basis, not on
a transaction  by transaction  basis.  Accordingly,  any  particular  payment or
delivery  obligation  under  a  transaction  may  not be  offset  with a  single
corresponding transaction.

Substantially all of the Company's  Derivative  Transactions involve some degree
of hedging  with  affiliates.  The Company has entered into or  guaranteed  $6.5
billion notional amount of Derivative  Transactions with affiliates  principally
to hedge exposures on third-party transactions.  In general, the notional amount
of Derivative  Transactions with affiliates exceeds that with non-affiliates due
to a greater  notional  amount of affiliate  versus  non-affiliate  transactions
guaranteed,   as  well  as  Derivative  Transactions  between  the  Company  and
affiliates  which hedge the  Company's  structured  notes and  interest  rate or
currency  exposure on surplus cash flow from its portfolio or which are intended
to mitigate total credit risk.

As of  November  27,  1998,  the  Company had  equity-linked  Medium-Term  Notes
outstanding with a carrying value of $212 million. Subject to the outcome of the
review of the Company's  business and operations  discussed  below,  the Company
expects to continue to issue equity-linked  Medium-Term Notes in the future. The
Company intends to utilize  substantially all of the proceeds received from such
issuances  to  acquire  shares of common  stock,  purchase  exchange-traded  and
over-the-counter  options and enter into interest rate and  equity-linked  swaps
with affiliates to hedge its obligations  under the Notes.  The remainder of the
proceeds from each issuance  will be added to the Company's  working  capital to
support its operating activities.

The  Company  does not  intend to be exposed to market  risk (see  "Business  --
Entering into New Derivative Transactions and Risk Management -- Market Risk and
Liquidity  Exposures"  under Item 1). As a result,  the Company  expects to make
profits, if any,  principally from the "spread" between the hedged transactions.
The  spread  between  the  hedged  transactions  will  depend  upon  the type of
instrument  subject  to the  transaction,  the size of the  transaction  and the
creditworthiness of the counterparties. Generally, the spread between the hedged
transactions will be a small percentage (usually less than .10%) of the notional
amount of the  transactions.  The  Derivative  Transactions  business  is highly
competitive,  however,  and the spread for any set of hedged transactions may be
less than .01%. See "Business -- Competition" under Item 1.

For a discussion of  affiliates of Group that may compete with the Company,  see
"Business -- Competition" under Item 1. It is important to recognize that, since
each of these  affiliates is directly or indirectly  controlled by Group,  Group
may  increase or decrease the level or vary the  composition  of new business in
which any of these affiliates, including the Company, engages. No assurances can
be given as to whether Group will allocate  business to the Company or to one of
its other highly rated affiliates.


                                      -22-

<PAGE>

Since October 1997, Group has undertaken a review of the business and operations
of the Company and certain other  affiliates of Group engaged in the  derivative
products  business  in order to  reassess  the  scope  of their  activities,  to
evaluate the level and nature of staffing and to review the procedures  that are
in place to handle  the type and  volume  of  businesses  that they may  pursue.
During this review, the Company and FPI have not entered into any new Derivative
Transactions and have not issued any new debt securities.  This lack of activity
by the Company has negatively  affected the Company's  results of operations for
all of fiscal  1998.  In  addition,  this lack of activity is expected to have a
significant  negative effect on the Company's results of operations in the first
fiscal quarter of 1999, and may affect later quarters  depending upon the timing
of the completion of the review and the implementation of any findings.

Results of Operations

Changes in the Company's  revenues are highly dependent on the volume,  term and
type of new  transactions  originated.  Derivative  Transactions are recorded at
their  estimated  fair  value.  As  a  result,  a  substantial  portion  of  the
intermediation  profit from new Derivative  Transactions  may be recognized upon
entering  into such  transactions.  Hence,  the Company's  profitability  may be
extremely  variable from quarter to quarter,  depending on the volume,  term and
type of origination.

Neither the Company nor its  partners  are subject to any income or profits tax,
capital gains tax,  capital  transfer tax,  estate duty or inheritance tax under
the  laws of the  Cayman  Islands.  Further,  the  Company  has  obtained  a Tax
Exemption  Certificate  from  the  Governor  of the  Cayman  Islands,  which  is
effective for 50 years from March 3, 1992, which provides that no law thereafter
enacted in the Cayman Islands imposing any tax on profits, income, capital gains
or appreciation may apply to the Company or any partner  thereof.  See "Business
-- Cayman Islands Taxation" under Item 1.

The Company,  as a  partnership,  is not subject to U.S.  federal  income taxes.
Prior to January 1, 1997,  the Company was required by United States federal tax
regulations  to withhold  income tax on behalf of its partners.  These  payments
were made on behalf of the Company by a related party. For the fiscal year ended
November 29, 1996, the related party remitted $4.53 million to tax  authorities,
the  entire  amount of which the  Company  repaid to the  related  party.  As of
January 1, 1997,  the Company is no longer  required to withhold taxes on behalf
of its partners under U.S. federal tax regulations.

The Company's  income is subject to a 4% New York City  unincorporated  business
tax.  The  statements  of income for the fiscal  years ended  November 27, 1998,
November 28, 1997 and November 29, 1996,  include a provision for unincorporated
business tax on income  earned by the Company  related to doing  business in New
York City.  Depending  upon the manner in which the business of the Company will
be operated in other jurisdictions, there is a possibility that one or more such
jurisdictions would impose tax on the profits of the Company.

   Fiscal 1998 Compared with Fiscal 1997

As described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview"  above,  Group has undertaken a review of the
operations of the Company and certain  other  affiliates of Group engaged in the
derivative products business. Since the commencement of this review, the Company
has neither  entered into nor guaranteed any new Derivative  Transactions.  This
lack of activity by the Company has negatively affected the Company's results of
operations in fiscal 1998 relative to fiscal 1997. See "Supplementary  Financial
Information" under Item 14.

                                      -23-


<PAGE>

For fiscal 1998, the Company  reported  revenues,  net of interest  expense,  of
$11.5 million, consisting principally of net interest income of $9.2 million and
intermediation  profits of $2.4 million. This represented a decrease in reported
revenues,  net of interest expense, of 26.0% compared to fiscal 1997. During the
period,  the  Company  did not  enter  into  or  guarantee  any  new  Derivative
Transactions  due to the  aforementioned  review by Group.  The Company incurred
interest  expense of $15.7 million during fiscal 1998 relating to  equity-linked
Medium-Term Notes. See "-- Liquidity and Capital Resources" below.

Interest  income for fiscal 1998 increased to $24.9  million,  compared to $14.2
million during the preceding year,  primarily as a result of amounts recorded as
interest  income on  Derivative  Transactions  relating  to Notes  issued by the
Company  that are linked to a single  stock.  As a result of the  aforementioned
review by Group,  the  Company did not earn any  initial  intermediation  profit
during fiscal 1998.  Other  intermediation  profit  decreased by $0.9 million to
$2.4 million in fiscal 1998 versus other  intermediation  profit of $3.3 million
in  fiscal  1997.  $2.9  million  of  other   intermediation   profit  reflected
amortization of performance guarantee fees, including  accelerated  amortization
of performance guarantee fees in an aggregate amount of $2.2 million relating to
transactions that were terminated at the request of the counterparties  prior to
maturity  during  fiscal  1998.  This was  offset in part by a  decrease  in the
present value of the expected cash flows of the  Company's  portfolio.  Interest
expense of $15.7 million for the fiscal year ended  November 27, 1998  increased
significantly  from the $9.3 million incurred in the same fiscal period in 1997.
This increase was the result of the  significant  increase in the average amount
of long term debt  outstanding  in fiscal 1998 as compared to fiscal  1997.  The
effective  weighted average interest rate for long term borrowings was 5.99% for
fiscal 1998 and 5.91% for fiscal 1997.

Operating expenses for the fiscal year ended November 27, 1998 increased 172% to
$2.0 million from $722 thousand during the same period in 1997.  Other operating
expenses were $1.4 million and $525 thousand for the fiscal years ended November
27, 1998 and November 28, 1997,  respectively.  The increase is due, in part, to
additional  consulting fees and amounts billed to the Company from GS&Co.  under
the Calculation  Agreement relating to the  aforementioned  review by Group. See
"Certain   Relationships   and   Related   Transactions   --   Operational   and
Administrative  Relationships  with Group -- Summary of Expenses" under Item 13.
The  remainder of the increase is  attributable  to a write-off of debt issuance
costs  relating  to  the  retirements  of $27  million  principal  amount  of 7%
Mandatorily  Exchangeable Notes due July 23, 1999 (Subject to Mandatory Exchange
into Shares of Common Stock of Oxford Health Plans,  Inc.) (the "Oxford  Notes")
and $72 million  principal amount of 3% Citicorp  Exchangeable  Notes due August
28,  2002  (the  "Citicorp   Notes")  during  fiscal  1998.   Fees  and  expense
reimbursement to Group affiliates  included within operating  expenses were $603
thousand  and $197  thousand  for the fiscal  years ended  November 27, 1998 and
November 28, 1997, respectively.

Net income of $9.2  million for the 1998 fiscal year  decreased by 35.5% or $5.1
million  from  fiscal  1997 net  income  of $14.2  million.  This  decrease  was
primarily  due to the lack of  activity  described  above.  Total  assets  as of
November 27, 1998 were $461  million,  consisting  principally  of cash and cash
equivalents,  Derivative  Transactions and securities  owned, a decline of 20.8%
from total assets of $582 million as of November 28, 1997.

Net cash provided by operating  activities during fiscal 1998 was $25.5 million,
which principally  reflected an increase in long-term borrowings due to embedded
Derivative Transactions,  unrealized losses on common stock purchased as a hedge
of  Medium-Term  Notes and net  income.  Net cash used in  financing  activities
during fiscal 1998 was $75.7 million reflecting repurchase and retirement of $27
million  aggregate  principal  amount of Oxford Notes and $72 million  aggregate
principal  amount of Citicorp Notes.  Net cash provided by investing  activities
during fiscal 1998 was $52.4 million reflecting the sale of securities that were
hedging Medium-

                                      -24-
<PAGE>

Term Notes which were  repurchased  and retired.  See "--  Liquidity and Capital
Resources" below. In comparison,  for the 1997 fiscal year, net cash provided by
operating activities was $125.8 million which principally  reflected a reduction
in the net  investment  in  Derivative  Transactions,  unrealized  losses on the
Oxford common stock purchased as a hedge of the Oxford Notes and net income. Net
cash  provided by  financing  activities  during  fiscal  1997 was $161  million
reflecting the issuance of  equity-linked  Medium-Term  Notes.  Net cash used in
investing  activities  during  fiscal  1997 was  $137  million,  reflecting  the
purchase of securities as a hedge of the Medium-Term Notes.

   Fiscal 1997 Compared with Fiscal 1996

For fiscal 1997, the Company reported  revenues net of interest expense of $15.6
million,  consisting  principally of intermediation profits of $10.6 million and
net interest  income of $5.0 million.  This  represented an increase in reported
revenues net of interest  expense of 1.2%  compared to fiscal  1996.  During the
period, the Company entered into or guaranteed 656 Derivative  Transactions with
non-affiliates,  and 683 Derivative Transactions with affiliates.  The aggregate
notional principal amount of Derivative  Transactions entered into or guaranteed
by the Company  during the period was $18.3  billion,  which resulted in initial
intermediation  profits of $7.3  million.  Other  intermediation  profit for the
period was $3.3 million,  resulting  principally from an increase in the present
value of the  expected  surplus  cash flows  from the  Company's  portfolio  due
primarily  to a  reduction  in the time  remaining  until  those  cash flows are
realized.  The Company  incurred  interest expense of $9.3 million during fiscal
1997 as a result of the  issuance of  equity-linked  Medium-Term  Notes.  See --
Liquidity and Capital Resources" below.

For fiscal 1996, the Company reported  revenues net of interest expense of $15.4
million,  which consisted principally of $11.6 million in intermediation profits
and net interest income of $3.8 million. During fiscal 1996, the Company entered
into or guaranteed 315 Derivative Transactions with non-affiliates,  including 8
transactions  which the Company  purchased  from an  affiliate  at their  market
value, and 369 hedging  Derivative  Transactions with affiliates.  The aggregate
notional principal amount of Derivative  Transactions entered into or guaranteed
by the Company  during the period was $18.6  billion,  which resulted in initial
intermediation  profits of $7.0 million,  including $473 thousand which resulted
from  transactions  purchased from affiliates.  The remainder of  intermediation
profits for fiscal 1996  resulted  from an increase in the present  value of the
expected  surplus cash flows from the Company's  portfolio due to a reduction in
the time  remaining  until those cash flows are realized.  The Company  incurred
interest expense of $3.6 million during fiscal 1996.

Interest  income for fiscal 1997  increased to $14.2  million,  compared to $7.5
million  during the  preceding  year,  primarily  as a result of larger  average
balances  of cash and cash  equivalents.  Total  intermediation  profit  for the
fiscal year ended November 28, 1997 decreased  approximately  $1 million or 8.2%
as  compared  to fiscal  1996.  Initial  intermediation  profit for fiscal  1997
increased  by $0.3 million or 4.3% over fiscal  1996,  reflecting a  significant
increase  in  the  number  of   Derivative   Transactions   entered   into  with
non-affiliates,  mostly offset by a reduction in the average  notional amount of
such  transactions  and  the  shorter  maturities  of such  transactions.  Other
intermediation  profit  decreased by $1.3 million to $3.3 million in fiscal 1997
versus other intermediation  profit of $4.6 million in fiscal 1996. The decrease
principally  reflected a decrease in the average net  investment  in  Derivative
Transactions  during the year.  Interest  expense of $9.3 million for the fiscal
year ended  November  28, 1997  increased  significantly  from the $3.6  million
incurred in the same fiscal period in 1996.  This increase was the result of the
significant  increase in the  average  amount of long term debt  outstanding  in
fiscal 1997 as compared to fiscal 1996. The effective  weighted average interest
rate for long term  borrowings  was 5.91% for  fiscal  1997 and 5.41% for fiscal
1996.

                                      -25-
<PAGE>

Operating  expenses  for the  fiscal  year  ended  November  28,  1997 were $722
thousand,  decreased from $879 thousand during the same period in 1996. Fees and
expense  reimbursement  to Group affiliates  included within operating  expenses
were $197  thousand and $211  thousand  for the fiscal years ended  November 28,
1997 and November 29, 1996,  respectively.  Other  operating  expenses were $525
thousand  and $668  thousand  for the fiscal  years ended  November 28, 1997 and
November 29, 1996, respectively,  and consisted principally of legal, accounting
and rating agency fees.

Net income of $14.2  million for the 1997 fiscal year  increased by 2.1% or $0.3
million  from  fiscal  1996 net  income  of $13.9  million.  Total  assets as of
November 28, 1997 were $582  million,  consisting  principally  of cash and cash
equivalents, Derivative Transactions and securities owned.

As  described  in "--  Overview"  above,  Group has  undertaken  a review of the
operations  of the  Company and certain  other Group  Affiliates  engaged in the
derivative products business. Since the commencement of this review, the Company
has not entered into any new Derivative  Transactions.  This lack of activity by
the Company has negatively  affected the Company's  results of operations in the
1997 fourth fiscal  quarter  relative to the fourth fiscal  quarter of the prior
year. See "Supplementary Financial Information" under Item 14.

Net cash provided by operating  activities  during fiscal 1997 was $126 million,
which  principally  reflected a reduction in the net  investment  in  Derivative
Transactions,  unrealized  losses on the Oxford Health Plans,  Inc. common stock
purchased as a hedge of a Medium-Term Note and net income.  Net cash provided by
financing activities during fiscal 1997 was $161 million reflecting the issuance
of Medium-Term  Notes. Net cash used in investing  activities during fiscal 1997
was  $137  million  reflecting  the  purchase  of  securities  as a hedge of the
Medium-Term  Notes.  See "-- Liquidity and Capital  Resources"  below. In fiscal
1996,  cash used in operating  activities was $115.8  million which  principally
reflected the pre-payment of certain  liabilities under Derivative  Transactions
with affiliates.  Net cash provided by financing  activities  during fiscal 1996
was $64.0  million,  principally  reflecting  proceeds  on the  issuance  of the
Company's  Medium-Term  Notes,  offset in part by distributions to the Company's
partners. Net cash provided by investing activities during fiscal 1996 was $24.7
million,  which  reflected  a  reduction  of the  Company's  investment  in time
deposits with a maturity of greater than three months.

Quantitative and Qualitative Disclosures about Market Risk

    Market-Sensitive Instruments and Risk Management

See "-- Overview" and  "Business -- Hedging of  Derivative  Transactions"  under
Item 1 for a description  of the  Company's  portfolio  composition  and hedging
strategies.

Interest-Rate Risk Management. Changes in interest rates will change the present
value of any cash flows  which the Company is entitled to receive in the future.
As a result, the Company may experience  fluctuations in reported revenues.  The
aggregate  hypothetical  reduction  in  reported  revenues  from  the  Company's
portfolio as of November 27, 1998 that would have resulted  from a  hypothetical
100 basis point  increase in interest  rates across the entire  yield curve,  is
estimated  to be $20  thousand.  Because  the  Company is unable to predict  the
movement  of  interest  rates,  the  Company  is unable to predict  whether  its
reported revenues would be reduced as a result of such exposure.

In  addition,  the  Company  has  issued  Medium-Term  Notes  with an  aggregate
principal amount of $175 million, the principal payments on which are determined
by reference to the performance of a 

                                      -26-

<PAGE>

single equity security or an equity index (see "-- Equity-Price Risk Management"
below).  The  interest  rate  component on the Notes has been hedged by entering
into Derivative Transactions with affiliates,  thereby eliminating the remaining
interest-rate risk in respect of the Notes.

Foreign-Exchange Risk Management. Although certain of the interest rate swaps in
the Company's  current  portfolio require payments in currencies other than U.S.
dollars, the Company has entered into Derivative Transactions with affiliates of
Group  which  entitle  it to  receive  equal  or  greater  amounts  of the  same
currencies. To the extent that the Company has or is entitled to receive amounts
of  currencies  other  than the U.S.  dollar,  which  amounts  are not needed to
service the  Company's  obligations,  the  Company's  reported  revenues will be
affected by changes in the value (expressed in U.S. dollars) of such currencies.
However,  as of November 27, 1998, the Company does not consider its exposure to
currencies other than the U.S. dollar to be material to its financial condition.
Based on the value of the  Company's  non-U.S.  dollar net assets as of November
27, 1998, its reported revenues would be reduced by $846 thousand if the Company
were to  realize  no value  from such  currencies.  As the  Company is unable to
predict  the  movement of foreign  currencies,  the Company is unable to predict
whether its reported revenues would be reduced as a result of such exposure.

Equity-Price  Risk  Management.  As  of  November  27,  1998,  the  Company  had
equity-linked  Medium-Term  Notes  outstanding  with a  carrying  value  of $212
million.  The Company  has  purchased  equity  securities  and has entered  into
various  Derivative  Transactions  with  affiliates  and has purchased  exchange
traded  options to  eliminate  its market  risk on the Notes.  As the  Company's
exposure to fluctuations in the market price of the equity securities,  exchange
traded options and Derivative  Transactions with affiliates is offset by changes
in its liability for the face or principal  amount of the  equity-linked  Notes,
fluctuations  in the prices for such securities and options will not result in a
reduction  of  the  Company's  reported  revenues.  As  discussed  above  in "--
Interest-Rate  Risk  Management",  the interest rate  component on the Notes has
been hedged by entering into Derivative  Transactions  with affiliates,  thereby
eliminating the remaining market risk in respect of the Notes.

Commodity-Price  Risk  Management.  The Company had no  positions  sensitive  to
commodity-price risk as of November 27, 1998.

Liquidity and Capital Resources

The Company  conducts  its  business in a manner  designed to require  that cash
payments  to  the  Company  from  its  portfolio,  taking  into  account  market
fluctuations and the possibility of default, will be sufficient to make when due
all required payments on all the Company's  liabilities,  including  payments of
principal and interest on borrowings.  The Company needs capital  principally to
absorb potential losses due to counterparty  defaults. If counterparties were to
default on their obligations to the Company,  these losses could be substantial.
However,   based  on  the  credit  quality  of  its  counterparties   (including
affiliates),  the Company does not currently  anticipate  any default losses and
has not recorded  any  provisions  for credit  losses.  For a discussion  of the
effects of a counterparty default, see "Business -- Entering into New Derivative
Transactions and Risk Management -- Credit Quality and Counterparty Credit Risk"
under Item 1.

The Company believes that the best measure,  at any point in time, of its credit
exposure to a particular  counterparty is the cost it would incur to replace the
obligations  of that  counterparty  if it  defaulted,  net of any  high  quality
marketable  securities  posted as  collateral by the  counterparty.  The Company
believes that under current  market  conditions it could enter into  replacement
contracts  for all of its  contracts  if the  counterparties  were  to  default.
However,  there can be no  assurance  that the  Company  could  enter  into such
replacement  contracts due to factors beyond the control of the Company, such as
the limited liquidity of many of the Company's assets and the

                                      -27-


<PAGE>

potential  unavailability  of  suitable  replacement  contracts.  Where  several
transactions  with one  counterparty  are  subject to a master  agreement  which
provides for netting and which management  believes is legally enforceable under
relevant  law,  the  Company   calculates  the  exposure  resulting  from  those
transactions on a net basis,  i.e., adding the positive and negative values; and
where the transactions are not subject to such a netting agreement,  the Company
calculates  its exposure on a gross basis,  i.e.,  adding only positive  values.
This method is identical to that used for  calculating  the value of  Derivative
Transactions  recorded on the Company's balance sheet. As a result, at any point
in time, the Company's  aggregate  credit exposure in respect of an asset equals
the cost of replacing such asset less the value of any collateral  posted by the
counterparty and of any Derivative Transactions structured on a limited recourse
basis as discussed under "Business -- Entering into New Derivative  Transactions
and  Risk  Management  --  Credit  Quality  and  Counterparty   Credit  Risk  --
Documentation" in Item 1. In certain  circumstances,  the Company may reduce its
credit  exposure to a counterparty  by requiring that the  counterparty  deposit
margin or collateral. When accepting margin or collateral, the Company generally
accepts only high quality  marketable  securities  (e.g., U.S. Treasury bonds or
notes  and  securities  issued or backed  by U.S.  governmental  agencies).  The
Company  calculates  credit  exposure net of collateral when it believes that it
has a  perfected  security  interest  in such  collateral  under an  enforceable
agreement.

The  composition,  at November 27, 1998 and November 28, 1997,  of the Company's
credit  exposures is shown in the tables below  according to the long-term  debt
ratings of the  obligors by S&P rating and by the  industry  and location of the
obligors.  (Totals  do not  equal  Derivative  Transactions  reported  as assets
principally  because  credit  exposures  include cash and cash  equivalents  and
guarantees  and  exclude  certain  Derivative  Transactions  where  the  Company
believes that it does not have credit risk -- e.g., any  collateralized  portion
of Derivative  Transactions reported as assets to the extent of the value of the
collateral  received and any  Derivative  Transactions  structured  on a limited
recourse  basis as discussed  under " Business -- Entering  into New  Derivative
Transactions and Risk Management -- Credit Quality and Counterparty  Credit Risk
--  Documentation"  in Item 1.) At November 27, 1998 and November 28, 1997,  the
Company's  counterparties consisted largely of banks located in Europe and North
America,  as well as  affiliates  of  Group.  It is  important  to note that the
Company's  credit exposures will fluctuate as a result of new  transactions,  as
well as changes in the replacement cost of existing  transactions due to changes
in, among other things,  the level of indices to which  transactions are linked,
supply and demand  for  particular  transactions  and the time  remaining  until
maturity of the transactions.

                                      -28-


<PAGE>




               Current Credit Exposure - By S&P Rating of Obligor:
               ---------------------------------------------------
                           (U.S. dollars in millions)

                        November 27, 1998                  November 28, 1997
                        -----------------                  -----------------
S&P Rating:             $              Percent             $            Percent
-----------           ------           -------          ------          -------
AAA                   $104.5             25.0%          $127.8            28.8%
AA+                     78.4             18.8             77.1            17.4
AA                      36.9              8.8             70.4            15.9
AA-                    158.4             38.0             33.2             7.5
A+                      24.9              6.0             86.1            19.4
A                       11.1              2.7             11.0             2.5
A-                       0.0              0.0             37.1             8.4
Below A-                 3.0              0.7              0.3             0.1
                      ------           ------           ------          -------
     Total            $417.2            100.0%          $443.0           100.0%
     -----            ======           ======           ======          =======


         Current Credit Exposure - By Country of Obligor's Headquarters:
         ---------------------------------------------------------------
                           (U.S. dollars in millions)

                        November 27, 1998                  November 28, 1997
                        -----------------                  -----------------
Country:                $             Percent             $            Percent
--------              ------          -------           ------         -------
U.S.                  $239.9             57.5%          $253.2           57.2%
Switzerland             41.2              9.9             70.3           15.9
France                  30.1              7.2             58.6           13.2
Germany                 62.6             15.0             36.9            8.3
Japan                    3.0              0.7             24.0            5.4
Netherlands             38.5              9.2              0.0            0.0
Other                    1.9              0.5              0.0            0.0
                      ------            -----           ------          -----
     Total            $417.2            100.0%          $443.0          100.0%
                      ======            =====           ======          =====


                 Current Credit Exposure - By Obligor Industry:
                 ----------------------------------------------
                           (U.S. dollars in millions)

                        November 27, 1998                  November 28, 1997
                        -----------------                  -----------------
Industry:               $             Percent             $            Percent
---------             ------          -------           ------         -------
Banks                 $311.1            74.6%           $318.6          71.9%
Financials              39.1             9.4              60.2          13.6
Industrials             10.6             2.5              28.7           6.5
Government Agencies     56.4            13.5              35.5           8.0
                      ------           -----            ------         -----
     Total            $417.2           100.0%           $443.0         100.0%
                      ======           =====            ======         =====

The Company has entered  into and,  subject to the  conclusion  and  findings of
Group's review of its operations, expects to continue to enter into transactions
with FPI or GSCM (obligations of GSCM being unconditionally guaranteed by Group)
in order to hedge  transactions  with third  parties.  (The  notional  amount of
Derivative  Transactions with affiliates exceeds that with non-affiliates due to
a  greater  notional  amount  of  affiliate  versus  non-affiliate  transactions
guaranteed,   as  well  as  Derivative  Transactions  between  the  Company  and
affiliates  which  hedge  the  Company's  equity-linked  Medium-Term  Notes  and
interest  rate or currency  exposure on surplus cash flow from its  portfolio or
which are  intended to mitigate  total credit  risk.) At November 27, 1998,  the
Company had $9.7  million and $2.2  million of credit  exposure to GSCM and FPI,
respectively, as a result of

                                      -29-
<PAGE>

these  transactions.  In  addition,  the  Company  had $13.0  million  of credit
exposure  to Goldman  Sachs  International  ("GSI") as a result of  transactions
guaranteed.  Due to the level of credit  exposure to Group or its  affiliates at
November 27, 1998, the Company does not believe that financial  information with
respect to Group is material to investors in the Company's debt securities.

The Company  anticipates  that its credit  exposures may be highly  concentrated
since financial  instruments reported as assets may be transacted with a limited
number of counterparties.  At November 27, 1998, the Company had credit exposure
net of collateral  exceeding 10% of its total assets to Bank of America,  NA and
Commerzbank  AG. The combined  exposures to these two banks represent 24% of the
Company's  total  assets.  The  Company's  largest  credit  exposure  to any one
counterparty  was $60 million,  or 13% of its total assets,  to Bank of America,
NA.  Bank of  America,  NA and  Commerzbank  AG both  were  rated  AA- by S&P at
November 27, 1998.  The Company  would incur a large loss if either of these two
counterparties  were to default,  but the Company  currently does not anticipate
any loss as a result of these  exposures.  Additionally,  the Company  currently
does not consider its credit exposure to any  counterparty  excessive since none
of such  exposures  exceeded the Company's net worth.  At November 28, 1997, the
Company  had  credit  exposure  exceeding  10% of its total  assets to  Republic
National Bank,  Union Bank of Switzerland,  Morgan Guaranty Trust Company of New
York and Banque Nationale de Paris. Collectively, such exposures represented 44%
of total assets.  All four  counterparties  had a rating of A+ or better from at
least one internationally recognized credit rating agency.

As of November 27, 1998, the Company was a party to Derivative Transactions with
a notional  amount of $11.8  billion.  Of these,  $3.9 billion  notional  amount
represented Derivative Transactions which could not expose the Company to credit
risk (e.g., options written and Derivative  Transactions structured on a limited
recourse  basis).  The composition of the remainder of the Company's  Derivative
Transactions by maturity and  counterparty  S&P rating is illustrated  below. It
should be noted  that  notional  principal  amount is not a measure of market or
credit risk.


    Notional Amount of Derivative Transactions With Potential Credit Exposure
                                  By Maturity:
    -------------------------------------------------------------------------
                           (U.S. dollars in millions)

                         November 27, 1998                  November 28, 1997
                         -----------------                  -----------------
                        $             Percent             $             Percent
                      ------          -------           -------         -------
1997-1999             $1,968            24.7%            $8,374          40.1%
2000-2002              1,535            19.3              4,528          21.7
2003-2005              1,913            24.1              3,371          16.2
2006-2008              1,624            20.4              2,713          13.0
2009-2021                915            11.5              1,867           9.0
                      ------           -----            -------         -----
     Total            $7,955           100.0%           $20,853         100.0%



                                      -30-

<PAGE>

    Notional Amount of Derivative Transactions With Potential Credit Exposure
                          By Credit Quality of Obligor:
    -------------------------------------------------------------------------
                           (U.S. dollars in millions)

                         November 27, 1998                  November 28, 1997
                         -----------------                  -----------------
S&P Rating:             $              Percent             $            Percent
-----------           ------           -------           ------         -------
AAA                   $1,437             18.1%           $3,415           16.4%
AA+                      433              5.4               239            1.1
AA                       300              3.8               303            1.5
AA-                      189              2.4               438            2.1
A+                       101              1.3                66            0.3
A                        453              5.7             1,112            5.3
A-                         0              0.0             1,552            7.4
Below A-                 124              1.6               114 (a)        0.6
Affiliates             4,918             61.7            13,614           65.3
                      ------            -----           -------          -----
     Total            $7,955            100.0%          $20,853          100.0%
                      ======            =====           =======          =====

(a)  Includes  Derivative  Transactions  which were  collateralized  in part and
     therefore reflect reduced credit exposure.


   Notional Amount of Derivative Transactions With Potential Credit Exposure
                       By Principal Underlying Index Type:
   -------------------------------------------------------------------------
                           (U.S. dollars in millions)

                        November 27, 1998             November 28, 1997
                        -----------------             -----------------
                        $            Percent           $            Percent
                      ------         -------        ------          -------
Interest rate         $7,059          88.7%         $16,498           79.1%
Currency                 860          10.8            4,271           20.5
Other                     36           0.5               84            0.4
                      ------         -----           ------          ----- 
    Total             $7,955         100.0%         $20,853          100.0%
                      ======         =====          =======          =====


The notional  amount of  currencies,  expressed in U.S.  dollars at November 27,
1998, to be exchanged under currency  options and currency swaps  outstanding at
November 27, 1998 (see  "Currency"  in the table above) were U.S.  dollars ($150
million),  European currency units  (approximately  $120 million),  Japanese yen
(approximately  $54  million),  Dutch  guilders  (approximately  $162  million),
Deutsche marks (approximately $221 million),  British pounds  (approximately $99
million),   Italian  lire   (approximately   $38  million)  and  French   francs
(approximately $16 million).

The fair  values of  Derivative  Transactions  as of  November  27, 1998 and the
average monthly fair values of such  instruments for the fiscal year then ended,
computed in accordance with the Company's netting policy, are as follows:


                                   November 27, 1998          Average
                                   -----------------          -------
(U.S. dollars in millions)        Assets  Liabilities    Assets  Liabilities
                                  ------  -----------    ------  -----------

Non-affiliates
--------------
Derivative Transactions           $115.0    $89.1       $148.2    $122.4

Affiliates
----------
Derivative Transactions             11.9      0.0         12.3       0.0



                                      -31-
<PAGE>


                                   November 28, 1997          Average
                                   -----------------     -------------------
(U.S. dollars in millions)        Assets  Liabilities    Assets  Liabilities
                                  ------  -----------    ------  -----------

Non-affiliates
--------------
Derivative Transactions           $173.0    $154.0       $175.1    $131.2

Affiliates
----------
Derivative Transactions             19.6       0.0         14.0       0.0


The Company is also a general partner of FPI and, as such,  would  ultimately be
liable for all the  obligations  of FPI if it were  insolvent.  At November  27,
1998, FPI had total  liabilities of $137 million.  The Company,  after analyzing
the financial  position,  results of operations and cash flows of FPI,  believes
that FPI will be able to meet its obligations under its outstanding liabilities.
Accordingly,  the Company does not believe that it is necessary to, and has not,
established a reserve with respect to FPI's obligations under its liabilities.

As of November 27, 1998, FPI's long-term debt securities were rated Aaa, AAA and
AAA by Moody's Investors Service, Inc. ("Moody's"), S&P and Fitch, respectively.

At November 27, 1998, the Company had $294 million of cash and cash  equivalents
available to meet its payment obligations.  The Company believes that such level
of cash and cash  equivalents  is  sufficient  to  enable  it to meet all of its
current  payment  obligations.   The  Company  anticipates  that  it  will  make
distributions  to  partners  in  the  future.   However,   the  amount  of  such
distributions  will be  limited  to ensure  the  Company's  ability  to meet its
obligations is not adversely affected.

The Company may expand its portfolio by purchasing new Derivative  Transactions,
principally from affiliates of Group. The Company has an effective  registration
statement that initially covered $500 million of Notes. As of November 27, 1998,
the  Company  had  $226  million   available  for  future  issuance  under  such
registration statement.  The Company has issued and outstanding $40 million face
amount of Nikkei 225 Indexed  Notes due  December  22,  2000,  $73 million  face
amount  of  S&P   Enhanced   Stock  Index  Growth  Notes  due  August  9,  2002,
approximately  $13.5 million  initial  principal  amount of Oxford Notes and $48
million  principal  amount of Citicorp  Notes.  The single  stock  related  Note
issuances  (i.e.,  the Oxford Notes and the Citicorp Notes) are an integral part
of individually structured derivative transactions.  Payments on the above Notes
are determined by reference to the performance of a single equity security or an
equity index. The terms of the Citicorp Notes allow, and the terms of the Oxford
Notes require, the holder to exchange the Notes into an amount of the underlying
security.  The Company has  purchased  equity  securities  and has entered  into
Derivative  Transactions with affiliates of Group and purchased  exchange traded
options  to  eliminate  its  market  risk  on  the  Notes.  The  hedging  of the
equity-linked  Notes has utilized  substantially  all of the  proceeds  from the
issuance of such Notes. Subject to the completion of the review of the Company's
business and operations discussed above under "-- Overview", the Company intends
to continue to issue  equity-linked  Notes. As a result,  the Company's leverage
will  increase.  The  Company's  activities  also  may  include  purchasing  new
instruments,  primarily  interest  rate and currency  swaps,  and entering  into
hedges which convert the return on such Derivative  Transactions into a fixed or
floating rate of return on the Company's investment.

On July 16, 1998, the Company repurchased and then retired  approximately 67% of
the Oxford Notes for $7.1  million,  representing  320,000 such Notes.  Prior to
repurchase,  the Notes were held by an affiliate.  The Company recognized a loss
of $65 thousand on the retirement, primarily


                                      -32-
<PAGE>

consisting  of  expenses  relating  to the  early  termination  of a  Derivative
Transaction related to the Notes.

On November  20,  1998,  the  Company  repurchased  and then  retired 60% of the
Citicorp Notes for $68.6 million,  representing $72 million aggregate face value
of such Notes.  Prior to  repurchase,  the Notes were held by an affiliate.  The
Company recorded no gain or loss on the retirement.

As of November 27, 1998,  securities  owned consisted of shares of Oxford common
stock of Oxford Health Plans, Inc. (fair value  approximately  $1.9 million) and
shares of Citigroup  common stock (fair value  approximately  $36.9
million).

Partners'  capital is not subject to  withdrawal  or redemption on demand by the
partners. All net income during fiscal 1997 and fiscal 1998,  respectively,  was
retained in  partners'  capital.  At  November  27,  1998,  the Company had $157
million  of  partners'  capital.  Subject  to the  completion  and review of the
Company's  business and  operations  discussed  above under "--  Overview",  the
Company  believes that this level of partners'  capital is sufficient  for it to
continue to expand both the type and the volume of its Derivative Transactions.

YEAR 2000 READINESS DISCLOSURE

As  discussed  under  "Certain   Relationships   and  Related   Transactions  --
Operational  and  Administrative  Relationships  with  Group  --  Administrative
Services   Agreements"  under  Item  13,  substantially  all  of  the  Company's
operational  and  administrative  functions are provided by affiliates of Group.
Group has advised the  Company as follows  with  respect to Year 2000 issues:

   YEAR 2000

With the new  millennium  approaching,  many  institutions  around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant.  The issue, in general terms, is that many existing  computer systems
and  microprocessors  with data functions  (including  those in  non-information
technology  equipment and systems) use only two digits to identify a year in the
date field with the assumption  that the first two digits of the year are always
"19".  Consequently,  on  January  1,  2000,  computers  that are not Year  2000
compliant will read the year as 1900.  Systems that  calculate,  compare or sort
using the incorrect date will malfunction.

Group,  which  for  purposes  of this  discussion  of  Year  2000  includes  its
affiliates,  has  determined  that it will be  required  to  modify  or  replace
portions of its information  technology systems, both hardware and software, and
its non-information  technology systems so that they will properly recognize and
utilize  dates beyond  December 31, 1999.  Group  presently  believes  that with
modifications to existing software,  conversions to new software and replacement
of some hardware, the Year 2000 issue will be satisfactorily resolved in its own
systems worldwide.  However,  if such modifications and conversions are not made
or are not  completed  on a  timely  basis,  or if  Group's  identification  and
assessment  of  "mission-critical"  systems  proves  to have been  incorrect  or
incomplete,  the Year 2000 issue  would have a  material  adverse  effect on the
Company.  Moreover,  even if these  changes  are  successful,  failure  of third
parties to which Group is financially or  operationally  linked to address their
own system problems would have a material adverse effect on the Company.

Group's  Year 2000  plans are based on a five  phase  approach,  which  includes
awareness;  inventory,  assessment  and  planning;  remediation;   testing;  and
implementation.  In 1997, the awareness  phase (in which Group defined the scope
and components of the problem,  its methodology and approach and obtained senior
management support and funding) was


                                      -33-
<PAGE>
completed. Group completed the inventory,  assessment and planning phase for its
systems by  September  30,  1997.  By December  1998,  Group had  completed  the
remediation phase for approximately 99% of its mission-critical  systems and had
completed the application  testing and  implementation  phases for approximately
95% of its  mission-critical  systems.  Group plans to complete these phases for
the few remaining  mission-critical systems by the end of March 1999. During the
first half of calendar 1999, Group is scheduled to conduct internal  integration
testing with respect to critical  securities and  transaction  flows in order to
validate that its systems can successfully  perform critical business  functions
beginning in January  2000.  With respect to its  non-mission-critical  systems,
Group expects to complete its Year 2000 efforts during calendar 1999.

For  technology  products that are supplied by  third-party  vendors,  Group has
completed an  inventory,  ranked  products  according to their  importance,  and
developed a strategy for achieving  Year 2000  readiness for  substantially  all
non-compliant  versions of software and  hardware.  While this process  included
collecting  information  from vendors,  Group is not relying  solely on vendors'
verification  that products are Year 2000 compliant or ready.  Rather,  Group is
also testing vendor-supplied products that it considers mission-critical to help
determine  whether  they will  perform  properly  and  support  Group's  systems
beginning in January 2000. As of December 31, 1998,  Group's mainframe  platform
and products had been tested and  substantial  progress had been made in testing
Group's  telecommunications and non-mainframe technology  infrastructure.  Since
telecommunications  carriers  have  indicated  that  they  will  not  test  with
individual companies,  Group is relying on information provided by these vendors
as to whether they are Year 2000 compliant.

Group is also  addressing  Year  2000  issues  that may  exist  outside  its own
technology activities, including its facilities and other business processes, as
well as  external  service  providers  and other  third  parties  with  which it
interfaces. Group has inventoried and ranked its customers, business and trading
partners, utilities, exchanges,  depositories,  clearing and custodial banks and
other third  parties with which Group has important  financial  and  operational
relationships.

By the  end of  December  1998,  Group  had  participated  in  approximately  50
"external",  i.e.,  industry-wide  or  point-to-point,  tests  of  its  systems,
including  the "Beta" test  sponsored  by the  Securities  Industry  Association
("SIA") for its U.S. members in July 1998, which Group  successfully  completed.
By the end of June 1999, Group expects to have participated in approximately 120
additional  external tests of its U.S.  systems,  including the SIA "Streetwide"
test  scheduled for March 1999,  and other major  industry tests in those global
markets where Group conducts significant business.

Group has created an assessment program to monitor the Year 2000 preparedness of
its customers and trading counterparties and considers Year 2000 preparedness as
part of the credit  review  process.  Assessments  for  material  customers  and
counterparties  were  substantially  complete  (96%) as of  September  30, 1998.
Group's  efforts to  evaluate  the risks  posed by third  parties is ongoing and
Group expects to take mitigation  steps,  as appropriate,  to reduce exposure to
these  parties  who  pose  financial  or  operational  risks  to  Group  and its
affiliates,  including  the Company.  In  addition,  Group is  inventorying  its
facilities in over fifty locations,  including buildings that are owned by Group
or controlled by landlords. Testing is underway for building management systems,
including  elevators,  fire and safety systems, and other products with embedded
chip technology.

If third  parties with whom the Company  interacts  have Year 2000 problems that
are not  remedied,  problems  could  include the  following:  (i) in the case of
vendors,  disruption of important services upon which the Company depends,  such
as telecommunications  and electrical power; (ii) in the case of data providers,
receipt of inaccurate or out-of-date information that would impair the


                                      -34-
<PAGE>

Company's  ability to  perform  critical  data  functions,  such as pricing  the
Company's   securities  or  other  assets;   (iii)  in  the  case  of  financial
intermediaries   such  as  exchanges  and  clearing  agents,   in  failed  trade
settlements,  inability to trade in certain  markets and  disruption  of funding
flows;  (iv)  in  the  case  of  counterparties  and  customers,  financial  and
accounting  difficulties  for those parties that expose the Company to increased
credit  risk and lost  business.  Disruption  or  suspension  of activity in the
world's financial markets is also possible.

Acknowledging that a Year 2000 failure, whether internal or external, could have
an  adverse  effect on the  ability  to conduct  day-to-day  business,  Group is
employing a comprehensive and global approach to contingency  planning.  Group's
contingency  planning effort is based on the  presumption  that any component in
the  environment  could fail,  whether it be an internally  developed,  mission-
critical  application,  a vendor  product or service,  a facility or other third
parties, including exchanges,  clearinghouses and depositories. Group expects to
have  contingency  plans  covering the  businesses  of the Company  completed by
October 15, 1999.

Group has  incurred  and  expects to  continue to incur  expenses  allocable  to
internal  staff,  as well as costs for  outside  consultants,  to  complete  the
remediation and testing of internally-developed systems, replacement and testing
of third-party products and services,  including  non-technological products and
services, in order to achieve Year 2000 compliance as well as in connection with
Group's Year 2000 contingency  planning efforts.  Group currently estimates that
these costs will total between $140 million and $150 million, over half of which
has been spent to date. These estimates include the cost of technology personnel
but do not include the cost of most non-technology personnel involved in Group's
Year 2000 effort. The remaining cost of Group's Year 2000 program is expected to
be incurred in 1999 and early 2000.

The costs of the Year 2000 program and the date on which Group plans to complete
the Year  2000  modifications  are based on  current  estimates,  which  reflect
numerous assumptions about future events,  including the continued  availability
of certain  resources,  the timing and effectiveness of third-party  remediation
plans and other factors.  The Company can give no assurance that these estimates
will be achieved, and actual results could differ materially from Group's plans.
Specific  factors that might cause  material  differences  include,  but are not
limited to, the  availability  and cost of personnel  trained in this area,  the
ability to locate and correct  relevant  computer source codes and embedded chip
technology,  the results of internal and external testing and the timeliness and
effectiveness of remediation efforts of third parties.


ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements and Schedules on page F-1.

ITEM  9:  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

Not applicable

                                    PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  Partnership  Agreement (as defined in Item 12) of the Company  provides for
the conduct and  management  of the  Company's  business to be  performed by the
Corporate  General  Partner.  The Company does not  compensate  the directors or
officers of the Corporate General Partner for their services to the Company. The
compensation received by a director or officer of the Corporate


                                      -35-
<PAGE>

General  Partner from Group or its  affiliates is not determined by reference to
the services  performed by such  director or officer for the  Corporate  General
Partner.

The table below sets forth the names,  ages and positions of the persons who are
the directors and executive  officers of the Corporate General Partner.  All the
directors  below are also  directors of GS Financial  Products Co. ("GSFP Co."),
the managing  general  partner of FPI.


NAME                          AGE                 POSITION
----                          ---                 --------

Noel B. Donohoe               40                  Director
C. Douglas Fuge               43                  Director and President
Jonathan M. Lopatin           44                  Director
Kenneth A. Miller             48                  Director
Thomas K. Montag              42                  Director
Mark A. Zurack                42                  Director
Denis Dennehy                 28                  Vice President
Jay J. Ryan                   36                  Vice President
Brian J. Lee                  32                  Treasurer
Patrick E. Harris             40                  Secretary


Noel Donohoe has been a Director of the Corporate General Partner since December
7, 1998. Mr. Donohoe became a Managing Director of GS&Co. in September 1998, and
was a Vice President of GS&Co. prior to that time.

C.  Douglas  Fuge has been a Director and  President  of the  Corporate  General
Partner since  December 7, 1998. Mr. Fuge is also the President of GSFP Co., the
managing  general partner of FPI. Mr. Fuge became a Managing  Director of GS&Co.
in November 1996, and was a Vice President of GS&Co. prior to that time.

Jonathan M. Lopatin has been a Director of the Corporate  General  Partner since
December 7, 1998. Mr. Lopatin became general  partner of GS&Co. in November 1994
and was a vice  president of GS&Co.  prior to that time. In November  1996,  Mr.
Lopatin became a  participating  limited  partner of Group and an Executive Vice
President of the general partner of Group.

Kenneth A. Miller has been a Director of the  Corporate  General  Partner  since
December 7, 1998.  Mr.  Miller became a Managing  Director of GS&Co.  in October
1996, and was a Vice President of GS&Co. prior to that time.

Thomas K. Montag has been a Director of the Corporate  General Partner since May
1, 1995. Mr. Montag became a general  partner of GS&Co. in November 1994 and was
a Vice  President of GS&Co.  prior to that time. Mr. Montag is a Director of the
corporate general partner of GSMMDP.  Commencing in October 1993, Mr. Montag has
served  intermittently  as president and vice president of the corporate general
partner of GSMMDP.  In November 1996, Mr. Montag became a participating  limited
partner of Group and an  Executive  Vice  President  of the  general  partner of
Group.

Mark A. Zurack has been a Director of the Corporate  General Partner since April
1, 1997. Mr. Zurack became a general  partner of GS&Co. in November 1994 and was
a vice  president of GS&Co.  prior to that time.  In November  1996,  Mr. Zurack
became a participating  limited partner of Group and an Executive Vice President
of the general partner of Group.

Denis  Dennehy has been Vice  President of the Corporate  General  Partner since
February  23,  1999.  Mr.  Dennehy  is also a Vice  President  of GSFP Co.,  the
managing general partner of FPI.


                                      -36-
<PAGE>


Mr. Dennehy has been a vice president of GS&Co. since 1998. Mr. Dennehy has been
an  employee  of GS&Co.  since  February  1996 and prior to that was a  treasury
associate of GSI.

Jay J. Ryan has been Vice  President  of the  Corporate  General  Partner  since
February 23, 1999.  Mr. Ryan is also a Vice  President of GSFP Co., the managing
general partner of FPI. Mr. Ryan has been a vice president of GS&Co. since 1992.

Brian J. Lee has been Treasurer of the Corporate  General Partner since February
23, 1999. Mr. Lee is also Treasurer of GSFP Co., the managing general partner of
FPI. Mr. Lee has been a vice president of GS&Co. since 1996. Prior to that time,
Mr. Lee was a financial analyst of GS&Co.

Patrick E. Harris has been  Secretary of the  Corporate  General  Partner  since
February  23,  1999.  Mr.  Harris is also  Secretary  of GSFP Co.,  the managing
general partner of FPI. Mr. Harris has been Associate  General Counsel of GS&Co.
since 1999.  Prior to that time,  Mr.  Harris was Assistant  General  Counsel of
GS&Co.

The  President,  the Vice  Presidents  and the Treasurer are  responsible to the
Board of Directors for the execution of  transactions  approved by the Board and
the  administration of the business of the Corporate General Partner  (including
the business of the Company) pursuant to authorities  given by the Board.  There
are no other officers of the Corporate General Partner or the Company.

ITEM 11:  EXECUTIVE COMPENSATION

The Company  does not employ any persons to conduct  its  business  and does not
maintain  any  employee  benefit  plans.   Instead,  as  discussed  above  under
"Directors and Executive Officers" in Item 10, the conduct and management of the
Company's  business is performed by the Corporate  General Partner.  Neither the
directors  nor  the  officers  of the  Corporate  General  Partner  receive  any
compensation  from the Company for their  services to the Company.  As discussed
under "Certain  Relationships and Related  Transactions" in Item 13, the Company
engages Group Affiliates to perform operational and administrative functions.

The Company  expensed $174  thousand and $155  thousand  during the fiscal years
ended  November  27, 1998 and  November  28,  1997,  respectively,  for services
provided  by Group  Affiliates  pursuant  to the  Custodian  and  Space  Sharing
Agreements  (as  defined  in Item 13).  Additionally,  the  Company  paid  Group
Affiliates  $702 thousand for services  rendered in connection with the issuance
of its equity-linked  Medium-Term Notes, pursuant to the Origination  Agreements
(as  defined in Item 13) during the fiscal  year ended  November  28,  1997.  No
services were obtained or charged under the  Origination  Agreements  during the
fiscal year ended  November  29, 1996 since all  transactions  in that year were
done on a principal  basis.  In addition,  no services  were obtained or charged
under the Origination Agreements during fiscal 1998 as a result of the review of
the  Company's  business  and  operations  discussed  above under  "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Overview" under Item 7. The Company also expensed $429 thousand and $42 thousand
during  the  fiscal  years  ended  November  27,  1998 and  November  28,  1997,
respectively,  for  services  provided  by  Group  Affiliates  pursuant  to  the
Calculation  Agreement  (as  defined in Item 13).  The  significant  increase in
expenses  billed under the  Calculation  Agreement in fiscal 1998 as compared to
fiscal 1997 was due primarily to expenses related to the aforementioned  review.
See "Certain  Relationships and Related  Transactions -- Summary of Expenses" in
Item 13.


The Company and the  affiliates of Group  providing  services to the Company are
all subsidiaries of Group.  Each director of the Corporate  General Partner that
is a participating  limited partner of Group has substantially the same interest
in the profits of the Company as he has in the profits of


                                      -37-
<PAGE>


the affiliates that provide services to the Company.  Accordingly, the directors
of the  Corporate  General  Partner  are not  benefited  by these  inter-company
payments.

Under the  Partnership  Agreement  (as defined in Item 12) of the  Company,  the
Corporate  General  Partner  has an  interest  in the  profits and losses of the
Company which may not fall below 0.2%.  This  interest is intended,  in part, to
compensate  the Corporate  General  Partner for the services of its officers and
directors to the Company.  No other  payments to the Corporate  General  Partner
will be made as a result of the  performance  of  services by the  officers  and
directors of the Corporate General Partner to the Company. The Corporate General
Partner  does not  incur  expenses  on its own  behalf  as a result of its being
Corporate General Partner.

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The  Company  was formed  February  5, 1992  pursuant  to a limited  partnership
agreement (as amended and restated, the "Partnership Agreement").  There are two
partners of the Company, the Corporate General Partner,  which is both a general
and a limited  partner,  and GS Financial  Products,  L.P.  ("GSFP"),  a limited
partner.

The sole business of the Corporate General Partner is to manage the Company.  As
of November 27, 1998, the Corporate  General Partner had equity of $2.4 million,
and assets of $2.6 million (principally cash and cash equivalents).

The Corporate General Partner has one authorized and outstanding  deferred share
(the "Deferred  Share") held by Deutsche Morgan Grenfell Nominees (Cayman) Ltd.,
a Cayman  Islands  company  ("DMGCL").  Under the Articles of Association of the
Corporate  General  Partner,  the Deferred Share has sufficient  voting power to
permit  its holder to block an attempt to  voluntarily  dissolve  the  Corporate
General  Partner  or the  Company,  even in  circumstances  where  Group  or its
affiliates have become subject to insolvency proceedings. The Deferred Share has
no other economic or voting rights. DMGCL holds the Deferred Share as beneficial
owner and not as trustee for the holders of any  indebtedness of the Company and
owes no duty to holders of the indebtedness,  or other creditors of the Company,
with  respect to the  exercise of the voting  rights  attached  to the  Deferred
Share.

In the event of an  insolvency of the Company and an inadequacy of the assets of
the Company to satisfy its liabilities,  under Cayman Islands law, the assets of
the Corporate  General  Partner  would become  available to the creditors of the
Company.  The Corporate  General  Partner is a Cayman Islands  exempted  limited
liability  company.  As a result,  under Cayman  Islands  law,  creditors of the
Company  would have no  recourse  against  the owners of the  Corporate  General
Partner.  Accordingly,  in an  insolvency  proceeding,  creditors of the Company
would have only the assets of the  Company  and the  Corporate  General  Partner
available to satisfy their claims.  This is similar to the  protection  afforded
shareholders of a corporation organized in the United States.

The sole shareholder of the Corporate  General Partner is GSFP, a Cayman Islands
exempted  limited  partnership.  GSFP has two  partners,  GSFP  Co.,  a  general
partner, and GSCI Holdings L.L.C. ("Holdings"),  a limited partner. GSFP is also
the managing  general  partner of FPI, while the Company is a general partner of
FPI.

GSFP Co. is a Cayman  Islands  limited  liability  company,  all of the ordinary
shares of which are owned by Holdings.  Like the Corporate General Partner, GSFP
Co. has one authorized and  outstanding  deferred  share.  Under the Articles of
Association of GSFP Co. the deferred share has sufficient voting power to permit
its  holder to block an  attempt  to  dissolve  voluntarily  GSFP  Co.,


                                      -38-
<PAGE>


even in  circumstances  where Group or its  affiliates  have  become  subject to
insolvency proceedings.

Holdings is a Delaware limited  liability company which is owned by Group and GS
Equity Markets, L.P., a partnership controlled by Group.

Group is the parent  company of the Goldman  Sachs  organization.  As  discussed
above,  Group  directly  and  indirectly  owns  all of the  ordinary  shares  of
Holdings. In addition, all of the directors of the Corporate General Partner are
either  Executive  Vice  Presidents of the general  partner of Group or Managing
Directors of entities controlled by Group. Therefore, Group effectively controls
the business  and  operations  of the  Company.  See  "Directors  and  Executive
Officers of the  Registrant"  under Item 10. See  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations  -- Overview" for a
discussion  of the current  review of the  Company's  business  and  operations.
However,  liabilities of the Company are not  liabilities  of, or guaranteed by,
Group or any partner thereof or controlling person thereof. Accordingly, neither
Group nor any such person has any liability with respect to any  indebtedness or
other obligations of the Company.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HEDGING TRANSACTIONS WITH GSCM AND FPI

In the ordinary course of business, the Company enters into hedging transactions
with GSCM and/or  FPI.  As of November  27,  1998 and  November  28,  1997,  the
notional amounts of the Derivative  Transactions with GSCM were $6.5 billion and
$15.7  billion,  respectively.  As of each of November 27, 1998 and November 28,
1997,  the notional  amounts of the  Derivative  Transactions  with FPI were $40
million.

OPERATIONAL AND ADMINISTRATIVE RELATIONSHIPS WITH GROUP

The Company has engaged  Group  Affiliates to perform  substantially  all of its
operational and administrative  functions.  These services include both services
which the Company  believes are essential to its ability to continue to function
("Administrative  Services"),  as well as those services which it needs in order
to continue to expand its business ("New Business  Services").  The Company will
not enter into any  agreement or  Derivative  Transaction  with any affiliate of
Group on terms  that it  believes  are less  favorable  than arm's  length.  The
Company believes that the fees it has paid or will pay to Group Affiliates under
the Administrative Services and New Business Services agreements are at least as
favorable  as would be available  from  non-affiliated  entities.  Each of these
agreements  had an  original  term of 10 years.  While each of these  agreements
provides for resignation or termination of the appointment of the relevant Group
Affiliate  upon 60 days' written  notice,  the relevant  Group  Affiliate is not
permitted to resign until a successor is appointed.  Were the Company to replace
Group  Affiliates as the  providers of services  under these  agreements,  it is
uncertain whether such services could be obtained at the same expense.

The Company has also  entered  into backup  arrangements  with  Deutsche  Morgan
Grenfell  (Cayman)  Limited  to  provide  Administrative  Services  if the Group
Affiliates  providing the  Administrative  Services were unable to do so or were
terminated by the Company.  However, in the case of New Business Services,  if a
Group Affiliate  performing New Business Services were unable to perform or were
terminated by the Company,  the Company might not be able to find a successor to
perform such services.  Without New Business Services, the Company may be unable
to enter into any further Derivative  Transactions,  at which point its business
may in practice be restricted to collecting the payments from its assets as they
mature and  holding  such  payments in cash  equivalents  until they are used to
satisfy its liabilities.


                                      -39-
<PAGE>


Following  are  summaries  of certain  provisions  of the  Company's  agreements
regarding operational and administrative  services with Group Affiliates.  These
summaries do not purport to be complete and are subject to, and are qualified in
their  entirety by reference  to, copies of the  agreements,  which are exhibits
hereto. See Item 14.

   ADMINISTRATIVE SERVICES AGREEMENTS

The services which the Company  considers  Administrative  Services  include the
maintenance of books, records and accounts,  the preparation and distribution of
financial statements and other such material, and the investment on a short-term
basis of the Company's excess cash resources pursuant to prearranged guidelines.
These  services  currently  are  provided  under an  agreement  (the  "Custodian
Agreement")  with Goldman Sachs (Cayman) Trust,  Limited  ("Cayman  Trust").  In
addition, pursuant to another agreement (the "Space Sharing Agreement"),  Cayman
Trust  provides for the  non-exclusive  use within its premises of space for the
Company's business uses, including directors' and partners' meetings, as well as
telecopy facilities and separate telephone and post office box facilities.  Each
of the Company's  agreements  with Cayman Trust was entered into on November 27,
1992 and the Custodian Agreement was amended on February 14, 1996. The Custodian
Agreement  requires the Company to pay fees of $150,000 per annum plus  variable
expenses, subject to renegotiation under materially changed circumstances, while
the Space  Sharing  Agreement  requires  the  Company  to pay fees of $5,000 per
annum, plus reasonable expenses.

Additionally, the Company holds a brokerage account with The Goldman Sachs Trust
Company,  and various Group  Affiliates  may provide  custody  services for, and
clear and settle transactions by, the Company.

   NEW BUSINESS SERVICES AGREEMENTS

Each of GS&Co. and GSI provides or will provide New Business  Services  pursuant
to  separate   agreements   with  the  Company   (together,   the   "Origination
Agreements").  Under these Agreements,  each of GS&Co. and GSI has agreed to use
reasonable  efforts to obtain bids from third  parties  with respect to proposed
transactions  between third  parties and the Company.  In addition,  GS&Co.  has
agreed  to  provide,  or  cause  to  be  provided,   analyses  of  products  and
transactions  and credit  reviews of  counterparties.  See "Business -- Entering
into New  Derivative  Transactions  and Risk  Management  -- Credit  Quality and
Counterparty  Credit Risk --  Counterparty  Credit Quality" under Item 1. GS&Co.
has no liability in respect of the  provision of such credit  reviews  except in
the  case of  gross  negligence.  GS&Co.  also  provides,  pursuant  to  another
agreement (the "Calculation  Agreement"),  certain technical and  administrative
services to the  Company,  principally  those  required in  connection  with new
Derivative  Transactions  such as  performing  calculations  designed to measure
credit and other risks to which the Company may be subject.  As described  under
"Executive  Compensation"  under Item 11, amounts  charged under the Calculation
Agreement  during  fiscal  1998  increased  significantly  from fiscal 1997 as a
result of the review of the Company's  business and operations  discussed  above
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations -- Overview" under Item 7.

The Origination Agreements and the Calculation Agreement require the Company to
pay an amount equal to 105% of the costs and expenses of providing the services
covered by the agreements, apportioned in accordance with Group's apportionment
of such expenses for federal income tax purposes. In addition, if the Company
enters into a transaction based on a bid provided pursuant to an Origination
Agreement, the Company would pay a fee equal to the fee which typically would be
charged to third parties with respect to those services. For an interest rate
swap,


                                      -40-

<PAGE>

the fee would  generally be the present value of between .001% and .01% per year
of the notional principal amount of the interest rate swap.

The  Company  does not  currently  anticipate  making any  changes to the method
pursuant to which costs are  apportioned  under the  Origination and Calculation
Agreements.  The  Company  expects  the level of such  expenses  to  continue to
fluctuate  in  proportion  with  changes,  if any,  in the volume of  Derivative
Transactions  entered  into.  The  Company  believes  that  its  costs  would be
substantially  similar if it were to obtain  from  third  parties  the  services
provided  pursuant to these  agreements  and that the method of cost  allocation
used in such agreements is reasonable.

   SUMMARY OF EXPENSES

The following table summarizes the charges paid by the Company during the fiscal
years ended November 27, 1998,  November 28, 1997 and November 29, 1996 pursuant
to the  foregoing  agreements.  No services  were  obtained or charged under the
Origination  Agreements through November 29, 1996, since all of the transactions
prior to such date were done on a principal basis. In addition, no services were
obtained or charged  under the  Origination  Agreements  during fiscal 1998 as a
result of the review of the Company's  business and operations  discussed  above
under  "Management's  Discussion and Analysis of Financial Condition and Results
of  Operations  --  Overview"  under  Item 7.  The  payments  under  the  GS&Co.
Origination  Agreement for the 1997 fiscal year related to services performed by
GS&Co. in connection with the issuance of equity-linked  Medium-Term  Notes. The
payments will be amortized  over the life of the Notes.  The Company  expects to
make similar  payments in connection with future  equity-linked  Note issuances.
Charges  under the  Calculation  Agreement  for the period  were  determined  by
applying  estimated  overhead rates for the time spent by individuals  providing
services under such Agreement.


<TABLE>
<CAPTION>

                                               GROUP AFFILIATE    BASIS OF                 COMPENSATION EXPENSE INCURRED
AGREEMENT           DESCRIPTION OF SERVICE     PARTY THERETO     COMPENSATION               DURING THE FISCAL YEARS ENDED
------------        ----------------------     ---------------   ------------               ------------------------------
                                                                                              (U.S. DOLLARS IN THOUSANDS)
                                                                                    NOV. 27, 1998     NOV. 28, 1997   NOV. 29, 1996
                                                                                    -------------     -------------   -------------
<S>                 <C>                        <C>             <C>                  <C>               <C>             <C>
Custodian           "Back Office", i.e.,        Cayman Trust   $150,000 per annum      $168.7           $150.0           $150.0
Agreement           payment processing,                        plus variable
                    accounting, cash                           expenses
                    management, custody

Space Sharing       Office Space                Cayman Trust   $5,000 per annum          $5.0             $5.0             $5.0
Agreement

Origination         Opportunities to bid on     GS&Co.         Cost plus 5%              $0.0           $702.0(a)           0.0
Agreement           intermediation of third
                    party transactions

Origination         Opportunities to bid on     GSI            Cost plus 5%              $0.0             $0.0             $0.0
Agreement           intermediation of third
                    party transactions

Calculation         Credit Risk limit           GS&Co.         Cost plus 5%            $428.9(b)         $42.0            $56.0
Agreement           calculations and other
                    administrative services
<FN>
(a)  Payments were  capitalized  and will be amortized over the life of the Notes.  $262 thousand of these costs were written off in
     1998 as part of the repurchase and retirement of the Oxford Notes and Citicorp Notes. See "Management's Discussion and Analysis
     of Financial  Condition  and Results of Operations - Results of Operations -- Fiscal 1998 Compared with Fiscal 1997" under Item
     7.
(b)  The increase in the amount billed to the Company under the  Calculation  Agreement in fiscal 1998 as compared to fiscal 1997 is
     attributable to increased  technical and administrative  services provided to the Company in conjunction with Group's review of
     the  Company's  business and  operations.  See  "Management's  Discussion  and Analysis of Financial  Condition  and Results of
     Operations -- Overview" under Item 7.
</FN>
</TABLE>


                                      -41-
<PAGE>
                                     PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  DOCUMENTS FILED AS A PART OF THIS REPORT:

     1. Financial Statements
        The financial statements are listed on page F-1 hereof
  
     2. Financial Statement Schedules
        None required

(b) REPORTS ON FORM 8-K:

The Company filed a report on Form 8-K,  dated  November 20, 1998, to report the
repurchase  by the Company from GS&Co.,  and the  cancellation,  of  $72,000,000
aggregate face amount of the Company's 3% Citicorp Exchangeable Notes due August
28, 2002.

(c)  EXHIBITS:

EXHIBIT NO.       DESCRIPTION
-----------       -----------

  1.1             Distribution Agreement, dated January 3, 1996, between
                  the Company and Goldman, Sachs & Co. ("GS&Co.")*

  3.1             Certificate of Registration of the Company**

  3.2(a)          Amended and Restated Limited Partnership Agreement of
                  the Company**

  3.2 (b)         Amendment, dated November 24, 1993, to the Amended and
                  Restated Partnership Agreement of the Company**

  3.3             Memorandum of Association of the Corporate General Partner**

  3.4             Restated Articles of Association of the Corporate General 
                  Partner**

  4.1             Indenture between the Company and The Bank of New York,
                  as Trustee, dated October 11, 1994***

  10.1            Origination Agreement, dated January 5, 1994, between Goldman
                  Sachs International Limited and the Company**

  10.2            Origination Agreement, dated November 27, 1992, between GS&Co.
                  and the Company**

  10.3            International Swaps and Derivative Association, Inc. Master
                  Agreement, dated November 4, 1993, between the Company and
                  GS Financial Products International, L.P.**

  10.4            International Swaps and Derivatives Association, Inc. Master
                  Agreement, dated February 24, 1993 (the "GSCM Agreement"),
                  between the Company and Goldman Sachs Capital Markets, L.P.
                  ("GSCM")**

  10.5            Guaranty, dated February 24, 1993, by The Goldman Sachs Group,
                  L.P. of GSCM's obligations under the GSCM Agreement**

  10.6            Calculation Agreement, dated January 5, 1994, between the
                  Company and GS&Co.**


                                      -42-


<PAGE>

EXHIBIT NO.       DESCRIPTION
-----------       -----------

  10.7(a)         Custodian Agreement, dated November 27, 1992 (the "Custody
                  Agreement") between the Company and Goldman Sachs (Cayman)
                  Trust, Limited ("Cayman Trust")****

  10.7(b)         Amendment No. 1, dated as of February 14, 1996, to the Custody
                  Agreement*****

  10.8            Space Sharing Agreement, dated November 27, 1992, between
                  Cayman Trust and the Company**

  10.9            Back-up Agreement, dated June 10, 1993, between Morgan
                  Grenfell (Cayman) Limited and the Company**

  10.10           Assignment and Assumption Agreement, dated as of November 23,
                  1992, among the Company, GS&Co., GSCM and Group** +

  12.1            Statement re computation of ratios of earnings to fixed
                  charges

  23.1            Consent of PricewaterhouseCoopers LLP

  27.1            Financial Data Schedule

  99.1            Tax Exemption Certificate of the Company**

  99.2            Tax Exemption Certificate of the Corporate General Partner**


Notes
------------

*     Incorporated herein by reference to the same numbered exhibit to the
      Company's Current Report on Form 8-K dated January 3, 1996.

**    Incorporated herein by reference from the same numbered exhibit to the
      Company's Registration Statement on Form S-1 (File No. 33-71544), dated
      October 7, 1994.

***   Incorporated herein by reference to the same numbered exhibit to the
      Company's Quarterly Report on Form 10-Q for the quarter ended August 26,
      1994.

****  Incorporated herein by reference to Exhibit 10.7 to the Company's
      Registration Statement  on Form  S-1 (File No. 33-71544), dated
      October 7, 1994.

***** Incorporated herein by reference to the same numbered exhibit to the
      Company's Annual Report on Form 10-K for the year ended November 24, 1995.

+     A portion of this exhibit has been omitted pursuant to an order of the
      Securities and Exchange Commission dated October 6, 1994.











                                      -43-

<PAGE>

INDEX TO FINANCIAL STATEMENTS OF THE COMPANY

Report of Independent Accountants .....................................   F-2

Balance Sheets as of November 27, 1998 and November 28, 1997...........   F-3

Statements of Income for the fiscal years ended November 27, 1998,
November 28, 1997 and November 29, 1996 ...............................   F-4

Statements of Changes in Partners' Capital for the fiscal years
ended November 27, 1998, November 28, 1997 and November 29, 1996.......   F-5

Statements of Cash Flows for the fiscal years ended November 27,
1998, November 28, 1997 and November 29, 1996 .........................   F-6

Notes to Financial Statements .........................................   F-7

Supplementary Financial Information (Unaudited) .......................   F-17


                                      F-1
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS
                                  -------------


To the Partners,
GS Financial Products U.S., L.P.:

In our opinion,  the accompanying  balance sheets and the related  statements of
income,  changes in  partners'  capital and cash flows  present  fairly,  in all
material  respects,  the financial  position of GS Financial Products U.S., L.P.
(the "Company") at November 27,1998 and November 28,1997, and the results of its
operations  and its cash flows for the three  fiscal  years in the period  ended
November 27,1998, in conformity with generally accepted  accounting  principles.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
generally  accepted auditing  standards,  which require that we plan and perform
the audits 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,
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.

PricewaterhouseCoopers LLP

New York, New York
February 25, 1999.















                                      F-2
<PAGE>



                        GS FINANCIAL PRODUCTS U.S., L.P.

                                 BALANCE SHEETS
                           (U.S. dollars in thousands)
                                   ----------

                                          November 27, 1998   November 28, 1997
                                          -----------------   -----------------
ASSETS:
Cash and cash equivalents                      $293,636           $291,375
Securities owned, at fair value                  38,828             95,185
Derivative transactions, at fair value
       Affiliate                                 11,865             19,561
       Non-affiliate                            114,958            172,956
Investment in affiliates                            804                780
Other assets                                        703              1,826
                                               --------           --------
                    Total assets               $460,794           $581,683
                                               ========           ========

LIABILITIES AND PARTNERS' CAPITAL:
Current portion of long-term borrowings          $2,573                 $0
Derivative transactions, at fair value
       Affiliate                                      0                  0
       Non-affiliate                             89,078            153,983
Long-term borrowings                            209,033            276,489
Other liabilities and accrued expenses            2,791              3,090
                                               --------           --------
                       Total liabilities        303,475            433,562

Commitments and contingencies

Partners' capital:
   Limited Partners                             156,525            147,373
   General Partner                                  794                748
                                               --------            --------
                    Total partners' capital     157,319            148,121
                                               --------            --------

      Total liabilities and partners' capital  $460,794           $581,683
                                               ========           ========


    The accompanying notes are an integral part of the financial statements.


                                      F-3

<PAGE>

                        GS FINANCIAL PRODUCTS U.S., L.P.

<TABLE>
                              STATEMENTS OF INCOME
                          (U.S. dollars in thousands)
                                   ----------

<CAPTION>
                                                                            Fiscal Years Ended
                                                      ----------------------------------------------------------
                                                      November 27 1998    November 28, 1997    November 28, 1996
                                                      -----------------   -----------------    -----------------
<S>                                                        <C>                 <C>                    <C>
REVENUES:
Intermediation profit                                      $ 2,356             $10,622                $11,570
Interest                                                    24,893              14,224                  7,460
Equity in loss of affiliate                                     (5)                (23)                   (10)
                                                           -------             -------               ---------
         Total revenues                                     27,244              24,823                 19,020

Interest expense                                            15,728               9,265                  3,627
                                                           -------              -------                -------
   Revenues, net of interest expense                        11,516              15,558                 15,393

EXPENSES:

Operating                                                    1,964                 722                    879
                                                           -------             -------                -------

Income before taxes                                          9,552              14,836                 14,514

Income taxes                                                   382                 608                    581
                                                           -------             -------                -------
         Net Income                                        $ 9,170             $14,228                $13,933
                                                           =======             =======                =======

</TABLE>






    The accompanying notes are an integral part of the financial statements


                                      F-4



<PAGE>


                        GS FINANCIAL PRODUCTS U.S., L.P.

<TABLE>
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                          (U.S. dollars in thousands)
                                   ----------

<CAPTION>
                                                          General               Limited                 Total
                                                      Partner's Capital     Partners' Capital     Partners' Capital
                                                      -----------------     -----------------     -----------------
<S>                                                   <C>                   <C>                   <C>              
Balance, November 24, 1995                                 $633                 $124,172               $124,805
     Change in cumulative translation adjustment             (1)                    (164)                  (165)
     Net Income                                              69                   13,864                 13,933
     Distribution to partners                               (22)                  (4,508)                (4,530)
                                                      -------------------------------------------------------------
Balance, November 29, 1996                                  679                  133,364                134,043
     Change in cumulative translation adjustment             (1)                    (149)                  (150)
     Net Income                                              70                   14,158                 14,228
                                                      -------------------------------------------------------------
Balance, November 28, 1997                                  748                  147,373                148,121
     Change in cumulative translation adjustment              0                       28                     28
     Net Income                                              46                    9,124                  9,170
                                                      -------------------------------------------------------------
Balance, November 27, 1998                                 $794                 $156,525                $157,319
                                                      =============================================================

</TABLE>

    The accompanying notes are an integral part of the financial statements


                                      F-5

<PAGE>


                        GS FINANCIAL PRODUCTS U.S., L.P.

<TABLE>
                            STATEMENTS OF CASH FLOWS
                          (U.S. dollars in thousands)
                                   ----------

<CAPTION>
                                                           NOVEMBER 27, 1998    NOVEMBER 28, 1997    NOVEMBER 29, 1996
                                                           -----------------    -----------------    -----------------
<S>                                                             <C>                  <C>                  <C>     
Cash flows from operating activities:
    Net Income                                                    $9,170              $14,228              $13,933
    Adjustments to reconcile net income to net cash
        provided by operating activities:
            Equity in loss of affiliate                                5                   23                   10
            Unrealized loss on securities owned                    3,924               41,613                    0
            Increase (decrease) in long-term borrowing
              due to embedded derivative transactions, net        10,767               (1,087)                   0

Decreases (increases) in operating assets:
     Derivative transactions, at fair value:
            Affiliate                                              7,696              (14,288)              (4,050)
            Non-affiliate                                         57,998               49,537                7,833
     Other assets                                                  1,123               (1,119)                (490)

Increases (decreases) in operating liabilities:
     Derivative transactions, at fair value:
            Affiliate                                                  0               (4,157)            (149,481)
            Non-affiliate                                        (64,905)              46,582                8,681
     Other liabilities and accrued expenses                         (300)              (5,506)               7,748
                                                           -----------------------------------------------------------

Net cash provided by (used in) operating activities               25,478              125,826             (115,816)

Cash flows from investing activities:
    Short term investments                                             0                    0               24,690
    Purchase of securities owned                                       0             (136,798)                   0
    Sales of securities owned                                     52,433                    0                    0
                                                           -----------------------------------------------------------

Net cash provided by (used in) investing activities               52,433             (136,798)             (24,690)

Cash flows from financing activities:
    Repurchase of long-term borrowings                           (75,650)                   0                    0
    Proceeds from long-term borrowings                                 0              160,797               73,000
    Distribution to partners                                           0                    0               (9,016)
                                                           -----------------------------------------------------------

Net cash (used in) provided by financing activities              (75,650)             160,797               63,984

Net increase (decrease) in cash and cash equivalents               2,261              149,825              (27,142)

Cash and cash equivalents, beginning of period                   291,375              141,550              168,692
                                                           -----------------------------------------------------------

Cash and cash equivalents, end of period                        $293,636             $291,375             $141,550
                                                           ===========================================================

Supplemental disclosure of cash flow information:
    Interest paid                                                 $9,703               $4,824               $1,067
    Income taxes paid                                               $364                 $155                 $752


</TABLE>


     The accompanying notes are an integral part of the financial statements

                                      F-6


<PAGE>

                        GS FINANCIAL PRODUCTS U.S., L.P.
                        NOTES TO THE FINANCIAL STATEMENTS
                                  ------------

1.   DESCRIPTION OF BUSINESS:
     -----------------------

     The business of GS Financial  Products  U.S.,  L.P.  (the  "Company") is to
     enter into, as principal or guarantor,  a variety of types of  transactions
     involving financial  instruments such as interest rate swaps, interest rate
     options  (e.g.,  interest  rate caps,  interest  rate floors and options on
     interest  rate  swaps),  currency  swaps and options,  commodity  swaps and
     options,  index  swaps and  forward  contracts  (collectively,  "Derivative
     Transactions"). Generally, the Company enters into or guarantees Derivative
     Transactions  in  situations  where two or more  counterparties  (typically
     including  an  affiliate  of the  Company)  wish to enter  into one or more
     Derivative   Transactions  between  themselves  but  want  the  Company  to
     substitute  its  credit for that of one or more of the  counterparties.  In
     accordance  with market  practice,  the Company does this by entering  into
     each  of  such   transactions   directly  as  principal.   Such  Derivative
     Transactions may also include the use of futures contracts, or the purchase
     of the underlying instruments subject to the transactions,  such as foreign
     currency,  physical  commodities  and  securities.  Because it conducts its
     business  exclusively on a matched basis,  the Company is subject to credit
     risk but not market risk on Derivative  Transactions  (as  described  under
     "Derivative  Transactions" -- see Note 4). In addition,  from time to time,
     the Company issues structured notes (see Note 7).

     Since October 1997, The Goldman Sachs Group, L.P.  ("Group") has undertaken
     a review of the business and  operations  of the Company and certain  other
     affiliates of Group engaged in the derivative products business in order to
     reassess the scope of their activities, to evaluate the level and nature of
     staffing and to review the procedures  that are in place to handle the type
     and volume of  businesses  that they may pursue.  During this  review,  the
     Company and GS  Financial  Products  International,  L.P.  ("FPI") have not
     entered into any new  Derivative  Transactions  and have not issued any new
     debt  securities.  This lack of  activity  by the  Company  has  negatively
     affected the Company's  results of operations  for the fiscal year 1998. In
     addition,  this lack of activity is expected to have a significant negative
     effect on the Company's  results of operations in the first fiscal  quarter
     of 1999, and it may affect later quarters  depending upon the timing of the
     completion of the review and the implementation of any findings.

     The Company's  long-term debt and counterparty  credit risk have been rated
     AAA by  Standard  & Poor's  Ratings  Group  ("S&P")  and Fitch  IBCA,  Inc.
     ("Fitch").  There can be no assurance  that S&P and Fitch will  continue to
     rate  the  Company's   long-term   debt  and   counterparty   credit  risk,
     respectively,  in their  highest  category and any decrease in such ratings
     may adversely affect the Company's ability to compete successfully.

2.   SIGNIFICANT ACCOUNTING POLICIES:
     -------------------------------

     BASIS OF PRESENTATION

     These financial  statements have been prepared in accordance with generally
     accepted  accounting  principles that require  management to make estimates
     and   assumptions   that  affect  the  financial   statements  and  related
     disclosures.  These  estimates and  assumptions  are based on judgement and
     available information and, consequently, actual results could be materially
     different from these estimates.

     The Company is organized as a Cayman Islands exempted limited  partnership.
     All the  partnership  interests in the Company are owned by subsidiaries of
     Group.


                                      F-7
<PAGE>
                        GS FINANCIAL PRODUCTS U.S., L.P.
                        NOTES TO THE FINANCIAL STATEMENTS
                                  ------------

     The  financial  statements  are reported in U.S.  dollars,  the  functional
     currency of the Company.  Assets and liabilities  denominated in currencies
     other than the U.S. dollar are measured using exchange rates  prevailing as
     of the balance sheet dates.  Revenues and expenses are measured at weighted
     average rates of exchange for the periods. The Company's equity in gains or
     losses resulting from translating the financial statements of affiliates in
     which it has  invested,  whose  functional  currency is other than the U.S.
     dollar, is recorded as a cumulative  translation adjustment and included in
     partners' capital.

     Certain  transactions  entered  into  by the  Company  are  presented  on a
     net-by-counterparty  basis,  where  management  believes  a right of setoff
     exists under an enforceable master netting agreement.

     Certain  prior period  amounts have been  reclassified  to conform with the
     November 27, 1998 presentation.

     CASH AND CASH EQUIVALENTS

     Cash equivalents are short-term, highly liquid investments and include time
     deposits at banks with original maturities of three months or less.

     FINANCIAL INSTRUMENTS

     The Company's Derivative  Transactions and securities owned are recorded on
     a trade date basis.

     Securities owned are recorded at their fair value.  Derivative Transactions
     are recorded at their estimated fair value. As a result,  due to the nature
     of the Company's  activities,  a substantial  portion of the intermediation
     profit from credit enhancing new Derivative  Transactions may be recognized
     upon entering into such  transactions.  Such amounts were $0, $7.3 million,
     and  $7.0  million  for  the  fiscal  years  ended  1998,  1997  and  1996,
     respectively.

     Other  intermediation  profit was $2.4  million  for the fiscal  year ended
     1998. $2.9 million of other intermediation profit reflected amortization of
     performance   guarantee  fees,   including   accelerated   amortization  of
     performance  guarantee fees in an aggregate amount of $2.2 million relating
     to transactions  that were terminated at the request of the  counterparties
     prior to maturity during fiscal 1998. This was offset in part by a decrease
     in the present value of the expected cash flows of the Company's portfolio.
     The other  intermediation  profit for the fiscal  year ended 1997  resulted
     principally  from an increase in the present value of the expected  surplus
     cash  flows  from  the  Company's  portfolio  due to a  reduction  in  time
     remaining until those cash flows are realized  (including the impact of all
     hedges).

     Fair value for all securities owned is based on quoted market prices.  Fair
     value for all  Derivative  Transactions  is  estimated  by using  financial
     models  developed  by  affiliates,  which  incorporate  market data for the
     relevant instruments or for instruments with similar  characteristics.  The
     nature,  size, and timing of transactions  and the liquidity of the markets
     may not ultimately allow for the realization of these values.

     Intermediation  profit  earned on  performance  guarantees  is deferred and
     amortized  over the term of the  guarantee  (see Notes 4 & 5).  Unamortized
     guarantee fees are recognized as


                                       F-8
<PAGE>
                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------

     intermediation   profit  upon  any  early  termination  of  the  underlying
     Derivative Transactions, as noted above.

     PROVISION FOR TAXES

     The Company, as a partnership, is not subject to U.S. federal income taxes.
     Prior to January 1, 1997,  the  Company was  required  by U.S.  federal tax
     regulations to withhold income tax on behalf of its partners. As of January
     1, 1997,  the Company is no longer  required to withhold taxes on behalf of
     its partners under U.S. federal tax regulations.

     The  Company's  income  is  subject  to a 4% New York  City  unincorporated
     business tax. The  statements of income for the fiscal 1998 and fiscal 1997
     include a provision for unincorporated business tax on income earned by the
     Company related to doing business in New York City.

     CREDIT EXPOSURE

     At November 27, 1998, the Company had Credit Exposure (as defined in Note 4
     below)  exceeding  10% of its  total  assets to two  counterparties,  which
     represented 24% of total assets.  These two  counterparties had a rating of
     AA- or better from at least one  internationally  recognized  credit rating
     agency. At November 28, 1997, the Company had credit exposure exceeding 10%
     of its total assets to four counterparties,  which represented 44% of total
     assets. All four  counterparties had a rating of A+ or better from at least
     one internationally recognized credit rating agency.

     ACCOUNTING DEVELOPMENTS

     In June 1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
     Statement of Financial  Accounting  Standards ("SFAS") No. 130,  "Reporting
     Comprehensive Income",  effective for fiscal years beginning after December
     15, 1997, with reclassification of earlier periods required for comparative
     purposes.  SFAS  No.  130  establishes  standards  for  the  reporting  and
     presentation  of  comprehensive  income and its components in the financial
     statements.  The Company intends to adopt this standard beginning in fiscal
     year  1999.   This   Statement  is  limited  to  issues  of  reporting  and
     presentation  and,  therefore,  will not  affect the  Company's  results of
     operations or financial condition.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities",  effective for fiscal years beginning
     after June 15, 1999.  SFAS No. 133  establishes  accounting  and  reporting
     standards  for  derivative   instruments,   including  certain   derivative
     instruments  embedded  in  other  contracts  (collectively  referred  to as
     derivatives),  and for hedging activities.  This Statement requires that an
     entity  recognize all  derivatives  as either assets or  liabilities on the
     balance sheet and measure those  instruments at fair value.  The accounting
     for changes in the fair value of a  derivative  depends on its intended use
     of the derivative  and the resulting  designation.  The Company  intends to
     adopt  this  standard  beginning  in  fiscal  year  2000  and is  currently
     assessing its impact.


                                       F-9
<PAGE>

                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------

3.   SECURITIES OWNED:
     ---------------- 

     As of November 27, 1998 and November 28, 1997,  securities  owned consisted
     of  shares of  common  stock of  Oxford  Health  Plans,  Inc.  (fair  value
     approximately  $1.9 million and $11.4 million,  respectively) and shares of
     common stock of Citigroup, Inc. (fair value approximately $36.9 million and
     $83.8 million,  respectively).  The Company  purchased these  securities to
     hedge  certain of the Company's  exposures  incurred by its issuance of two
     series of debt  securities,  one of which is  mandatorily  exchangeable  at
     maturity into shares of common stock of Oxford  Health Plans,  Inc. and the
     other of which is exchangeable, at the option of the holder, into shares of
     Citigroup, Inc. common stock. (See Note 7.)

4.   DERIVATIVE TRANSACTIONS:
     -----------------------

     The fair values of Derivative  Transactions entered into by the Company are
     presented  in the  balance  sheets on a  net-by-counterparty  basis,  where
     management  believes a right of setoff exists under an  enforceable  master
     netting agreement.  Derivative  Transactions are principally  interest rate
     swaps,  interest  rate options,  index swaps,  currency  options,  currency
     forwards and currency swaps which are  denominated  in various  currencies.
     The fair values of swap and forward agreements in a gain position,  as well
     as options  purchased,  are  reported,  in  accordance  with the  Company's
     netting  policy,  as assets in  "Derivative  transactions,  at fair value".
     Similarly,  the  fair  value  of  swap  and  forward  agreements  in a loss
     position,  as well as  options  written  are  reported  as  liabilities  in
     "Derivative transactions, at fair value". Derivative Transactions reported,
     in accordance with the Company's  netting policy, as assets are principally
     obligations of major international financial institutions, primarily banks,
     which are rated A or  better  by at least  one  internationally  recognized
     rating agency.

     Futures contracts are exchange-traded  standardized contractual commitments
     to buy or sell a specified quantity of a financial instrument,  currency or
     commodity  at a specified  price and future  date.  Forward  contracts  are
     over-the-counter  ("OTC")  contracts  between  two  parties  who  agree  to
     exchange a  specified  quantity  of a  financial  instrument,  currency  or
     commodity at a specified price and future date. Option contracts convey the
     right to buy (call  option) or sell (put  option) a  financial  instrument,
     currency  or  commodity  at a  pre-determined  price.  For  written  option
     contracts,  the writer  receives a premium in exchange for bearing the risk
     of unfavorable changes in the financial instrument,  currency or commodity.
     Swaps are OTC contracts  between two parties who agree to exchange periodic
     cash flow streams  calculated on a  pre-determined  contractual  (notional)
     amount.

     In the normal  course of its  business  the  Company  enters  into  various
     Derivative  Transactions whereby the Company agrees to pay amounts that may
     increase in the event of changes in the level of an underlying  index.  The
     Company enters into such  transactions  with  counterparties  only if it is
     able to enter into  offsetting  transactions  that  entitle  the Company to
     receive amounts that are equal to or in excess of the amounts it owes. As a
     result,  so  long  as  none of its  counterparties  defaults,  the  Company
     believes  that it bears no market  risk  (i.e.,  its ability to satisfy its
     obligations will not be affected by market conditions).

     While the ultimate excess cash flows on these offsetting  transactions will
     be  positive or zero,  the  reported  revenues in any period  (based on the
     discounted value of these excess cash flows) will be impacted by changes in
     interest rates or foreign currency exchange rates.


                                      F-10

<PAGE>
                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------

     The Company's principal risk in respect of Derivative  Transactions entered
     into or guaranteed is the credit risk associated with potential  failure by
     counterparties  to  perform  under  the terms of their  obligations  to the
     Company  ("Credit  Exposure").  Credit Exposure is measured by the loss the
     Company  would record in such a  circumstance  and equals,  at any point in
     time,  the cost of replacing a Derivative  Transaction  in a gain position,
     net  of  collateral   posted  by  the   counterparty   and  any  Derivative
     Transactions  structured on a limited  recourse  basis.  As of November 27,
     1998 and November 28, 1997,  the  Company's  aggregate  credit  exposure in
     respect of Derivative  Transactions was approximately $124 million and $152
     million, respectively.

     The  Company  limits its credit  risk by doing  business  principally  with
     highly rated counterparties. In certain circumstances, the Company may also
     require a counterparty  to post  marketable  securities,  principally  U.S.
     government agency and U.S. treasury  securities,  as collateral in order to
     reduce  the  amount of the  Company's  credit  exposure.  The  Company  had
     obtained  collateral  of  approximately  $3 million  related to  Derivative
     Transactions as of November 27, 1998.

     The Company also limits its credit risk by observing certain limitations on
     new Derivative  Transactions.  If such limits exceed management's criteria,
     the Company will not enter into any transaction  which increases that risk.
     The  calculation of these  limitations  incorporates  the net assets of the
     Company's  general  partner  which is  ultimately  liable for the Company's
     obligations (See Note 8).

     A summary of the  notional or  contractual  amounts ($ in  millions) of the
     Company's Derivative  Transactions by principal  characteristic follows. It
     should be noted that notional  principal  amount is not a measure of market
     or credit risk.

                                           November 27, 1998   November 28, 1997
                                           -----------------   -----------------
     Non-affiliates
       Interest rate swap agreements             $2,385             $5,809
       Currency options written                     304                909
       Currency options purchased                   108                589
       Interest rate options written                826              1,471
       Interest rate options purchased            1,450              1,787
       Currency and other swap agreements           162                162
       Foreign currency forwards                     66              1,552
       Equity options purchased                      37                 84

      Affiliates
       Interest rate swap agreements             $3,413             $8,003
       Currency options written                     108                396
       Currency options purchased                   304              1,103
       Interest rate options written              1,450              1,742
       Interest rate options purchased              826              2,081
       Currency and other swap agreements           312                893
       Foreign currency forwards                     64              1,535

     The notional amount of Derivative Transactions with affiliates differs from
     that with  non-affiliates  generally due to a different  notional amount of
     affiliate  versus  non-affiliate  transactions  guaranteed,  as  well as to
     Derivative Transactions between the Company and


                                      F-11
<PAGE>
                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------

     affiliates which hedge the Company's  interest rate or currency exposure on
     surplus  cash flow from its  portfolio,  or which are  intended to mitigate
     total credit risk.

     As described in Note 2,  Derivative  Transactions  are carried at estimated
     fair value,  with the resulting  gains and losses  recognized  currently as
     intermediation profit. The fair values of Derivative  Transactions owned or
     issued as of November 27, 1998 and the average  monthly fair values of such
     instruments for the fiscal year then ended, computed in accordance with the
     Company's netting policy, are as follows:

     (U.S. dollars in millions)        November 27, 1998           Average
     --------------------------      --------------------   --------------------
                                     Assets   Liabilities   Assets   Liabilities
                                     ------   -----------   ------   -----------
     Non-affiliates
     --------------
     Derivative transactions         $115.0     $89.1       $148.2    $122.4

     Affiliates
     ----------
     Derivative transactions           11.9       0.0         12.3       0.0


     (U.S. dollars in millions)        November 28, 1997           Average
     --------------------------      --------------------   --------------------
                                     Assets   Liabilities   Assets   Liabilities
                                     ------   -----------   ------   -----------
     Non-Affiliates
     --------------
     Derivative transactions          173.0    $154.0       $175.0     131.2

     Affiliates
     ----------
     Derivative transactions           19.6       0.0         14.0       0.0


5.   RELATED PARTY TRANSACTIONS:
     --------------------------

     In the  ordinary  course of  business,  the  Company  enters  into  hedging
     transactions with affiliates.  Through November 27, 1998, substantially all
     of the Company's  Derivative  Transactions  involved some degree of hedging
     with affiliates.

     The Company  paid  approximately  $702  thousand  during  fiscal 1997 to an
     affiliate related to the issuance of certain  medium-term notes pursuant to
     an origination agreement.  The Company has deferred and is amortizing these
     costs over the lives of the  related  notes.  $262  thousand of these costs
     were written-off in fiscal 1998 as part of the repurchase and retirement of
     $27 million principal amount of 7% Mandatorily  Exchangeable Notes due July
     23, 1999  (Subject to  Mandatory  Exchange  into Shares of Common  Stock of
     Oxford Health Plans,  Inc.) and $72 million principal amount of 3% Citicorp
     Exchangeable Notes due August 28, 2002.

     During the fiscal year ended November 29, 1996, the Company purchased third
     party  interest  rate swaps and options from an affiliate at fair value and
     hedged these purchases with Derivative  Transactions  issued to affiliates.
     Intermediation  profit related to these  transactions was $473 thousand for
     the fiscal  year  ended  November  29,  1996.  There  were no  transactions
     purchased from affiliates during fiscal 1998 or fiscal 1997.

     In  accordance  with  agreements  with certain  affiliates,  technical  and
     administrative  services  may be  provided  to the  Company  for an  amount
     representing  105% of the cost  incurred.  In  addition,  the  Company  has
     entered into a custodian and space sharing agreement with another affiliate
     for which an agreed upon fee per annum is charged. The Company also


                                      F-12
<PAGE>

                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------

     obtains  brokerage and custodial  services from affiliates at market rates.
     For the  fiscal  years  ended  1998,  1997  and  1996,  approximately  $603
     thousand,  $197 thousand and $211 thousand were charged for such  services,
     respectively.

6.   INVESTMENT IN AFFILIATES:
     ------------------------

     The Company owns an approximate 2% general and limited partnership interest
     in FPI.  The Company  accounts for its  investment  in FPI under the equity
     method because of its non-managing general partner interest in FPI.

     FPI is engaged in a business similar to that of the Company. As of November
     27, 1998, its assets consist  principally of cash and cash  equivalents and
     equity  securities of entities  organized  under Japanese law. Under Cayman
     Islands law, as a general  partner,  the Company would be liable for all of
     the  liabilities  of FPI if the assets of FPI were  inadequate  to meet its
     obligations.  As of November 27, 1998,  FPI had total  liabilities  of $137
     million.  The Company,  after analyzing the financial position,  results of
     operations  and cash flows of FPI,  believes  that FPI will be able to meet
     its obligations under its outstanding liabilities. Accordingly, the Company
     does not  believe  that it is  necessary  to,  and has not,  established  a
     reserve with respect to FPI's obligations under to its liabilities.

     As of November 27, 1998,  FPI's  long-term debt  securities were rated Aaa,
     AAA and AAA by Moody's Investors Service, Inc. ("Moody's"),  S&P and Fitch,
     respectively.

     FPI's  functional  currency is the Japanese yen, and the amounts  presented
     below were translated at the appropriate yen/dollar exchange rate.

     Selected financial data for FPI (U.S. dollars in millions):


                                           Fiscal years ended
                        --------------------------------------------------------
                        November 27, 1998  November 28, 1997  November 29, 1996
                        -----------------  -----------------  -----------------

     Total assets              $170              $235              $400
     Total liabilities          137               203               304
     Partners' capital           33                32                96
     Net loss                  (0.2)             (2.7)             (0.3)

     The  decrease  in  capital  in fiscal  1997 is a result  of a (Y)6  billion
     distribution of capital made by FPI to GS Financial Products,  L.P., one of
     the  Company's  limited  partners.  As a result of this  distribution,  the
     Company's general and limited partnership interest in FPI increased from 1%
     to 2%.

7.   LONG-TERM BORROWINGS:
     --------------------

     The Company has issued both principal protected and non-principal protected
     equity-linked  Medium-Term  Notes ("Notes").  The payments on the Notes are
     determined by reference to the  performance of a single equity  security or
     an equity index. The Company's obligations to the holders of the Notes will
     fluctuate  based on the closing price of the applicable  equity security or
     equity index.  Certain of the Notes are subject to redemption at the option
     of the Company if certain conditions are met. The terms of a Note linked to
     a single  stock may either allow for or  mandatorily  require the holder to
     exchange the Notes into an amount of

                                      F-13
<PAGE>

                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------

     the underlying  security.  The hedging of equity-linked  Notes has utilized
     substantially all of the proceeds from the issuance of such Notes.

     The Company has ascribed, where applicable,  the proceeds from the Notes to
     the   underlying   principal   component   and  the   embedded   Derivative
     Transactions. The amounts ascribed to the principal component will accrete,
     under the effective  interest rate method,  to the stated  principal amount
     over time. The embedded  Derivative  Transactions are recorded at estimated
     fair value.

     The Company has purchased  equity  securities  and has entered into various
     Derivative  Transactions with affiliates and has purchased  exchange traded
     options  to  eliminate  its  market  risk on the  Notes.  (See Note 4 for a
     discussion of credit risk on Derivative  Transactions.)  The fixed rates on
     Notes  linked to an equity  index have been  effectively  converted to U.S.
     dollar- based  floating  interest  rate costs by entering  into  Derivative
     Transactions  with  affiliates.  The gains and  losses on these  Derivative
     Transactions  hedging the principal component are deferred and the periodic
     receipts and payments are recognized as adjustments to interest expense and
     are accrued  over the life of the Notes.  For the year ended  November  27,
     1998,  interest  expense  on the Notes  linked  to a single  stock was $9.4
     million which is primarily  offset by amounts  recorded in interest income.
     As discussed in Note 2,  securities  owned and the Derivative  Transactions
     hedging the embedded Derivative Transactions are recorded at fair value and
     estimated fair value, respectively.

<TABLE>
<CAPTION>
                                                            November 27, 1998          November 28, 1997
                                                            -----------------          -----------------
<S>                                                         <C>                        <C>

     Nikkei Indexed Notes due December 22, 2000(1)                 $49,818                   $52,008

     S&P Enhanced Stock Index Growth Notes due August 9, 2002(2)   116,399                    94,380

     7% Mandatorily Exchangeable Notes due July 23, 1999(3)          2,573                    16,808
       (Subject to Mandatory Exchange into Shares of
        Common Stock of Oxford Health Plans, Inc.)

     3% Citicorp Exchangeable Notes due August 28, 2002(4)          42,816                   113,293
                                                                  --------                  --------

     Total long-term borrowings                                   $211,606                  $276,489

     Current portion of long-term borrowings(3)                      2,573                        --
                                                                  --------                  --------
     Long-term borrowings, les current portion                    $209,033                  $276,489
                                                                  ========                  ========

</TABLE>

     (1)  The $40 million  face  amount of Nikkei  Indexed  Notes are  principal
          protected and have no stated  coupon.  The carrying value is inclusive
          of an embedded  written option to the note holders of $14.7 million as
          at November 27, 1998 and $19.0 million as at November 28, 1997.

     (2)  The $73 million face amount of S&P  Enhanced  Stock Index Growth Notes
          is principal protected and has no stated coupon. The carrying value is
          inclusive of an embedded  written  option to the holders of such notes
          of $58.6  million  as at  November  27,  1998 and $40.1  million as at
          November 28, 1997.

     (3)  The 7% Mandatorily  Exchangeable Notes due July 23, 1999 do not have a
          face  amount,  but had an initial  principal  amount of $40.8  million
          which  represented  477,865  notes at the  prevailing  market price of
          Oxford Health Plans,  Inc.  common stock on the date of issue. On July
          16, 1998, the Company  repurchased and then retired  approximately 67%
          of the  notes  for  $7.1  million,  representing  320,000  notes.  The
          remaining notes have an outstanding  principal amount of $13.5 million
          after the  repurchase  and  retirement,  and the carrying value of the
          remaining  notes of $2.6  million is  included  in current  portion of
          long-term  borrowings  in the  November 27, 1998  balance  sheet.  The
          principal  repayment  amount at  maturity  will be  determined  by the
          closing  price  of the  Oxford  Health  Plans,  Inc.  common  stock at
          maturity and, accordingly, the carrying


                                      F-14
<PAGE>
                        GS FINANCIAL PRODUCTS U.S., L.P.
                  NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
                                  ------------


          value will  fluctuate  based upon the  prevailing  market price of the
          common stock.  The ability of the holders of such notes to participate
          in the  appreciation of the Oxford Health Plans,  Inc. common stock is
          limited  and  cannot  exceed a closing  price of  $129.77  per note at
          maturity.   The  carrying  value  includes  the  embedded   Derivative
          Transactions of ($10.9) million and ($29.4) million as at November 27,
          1998 and November 28, 1997, respectively.

     (4)  The 3% Citicorp  Exchangeable  Notes are  principal  protected and are
          exchangeable  in $250,000  increments  by the holders of such Notes at
          the rate of  3,637.5  shares  of  Citigroup,  Inc.  common  stock  per
          increment.  In addition,  the Notes are  redeemable  by the Company at
          various  times  after  September  14,  1999 at the face  amount,  plus
          accrued  interest,  if the  note  holders  have  not  exercised  their
          exchange  option.  On November 20, 1998, the Company  repurchased  and
          then  retired  60%  of the  Notes,  for  $68.6  million  reducing  the
          outstanding  principal  amount from $120 million to $48  million.  The
          carrying value includes the embedded Derivative Transactions of ($0.7)
          million and ($8.6)  million as at November  27, 1998 and  November 28,
          1997, respectively.


     Including the impact of the Derivative  Transactions,  the weighted average
     interest  rate for the notes was 5.99% as of November 27, 1998 and 5.91% as
     of November 28, 1997.

     On July 16, 1998, the Company  repurchased  and then retired  approximately
     67% of the 7%  Mandatorily  Exchangeable  Notes due July 23,  1999 for $7.1
     million,  representing  320,000 such notes. Prior to repurchase,  the notes
     were held by an affiliate. The Company recognized a loss of $65 thousand on
     the  retirement,   which  was  recorded  in  other  intermediation  profit,
     primarily  consisting of expenses  relating to the early  termination  of a
     Derivative Transaction related to the notes.

     On October 8, 1998,  Citicorp  common shares were converted into Citigroup,
     Inc.  common  shares at the ratio of 2.5  Citigroup  common shares for each
     Citicorp  common  share as a result  of the  merger  between  Citicorp  and
     Travelers Group Inc.

     On November 20, 1998, the Company  repurchased  and then retired 60% of the
     3%  Citicorp  Exchangeable  Notes due  August 28,  2002 for $68.6  million,
     representing  $72  million  aggregate  face value of such  notes.  Prior to
     repurchase,  the notes were held by an affiliate.  The Company  recorded no
     gain or loss on the retirement.

8.   LIABILITY OF GENERAL PARTNER:
     ----------------------------

     The  Company's  sole general  partner is GS Financial  Products US Co. (the
     "Corporate  General  Partner").  Under Cayman  Islands  law, the  Corporate
     General Partner,  but not its shareholders,  would be liable for all of the
     obligations of the Company if the assets of the Company were  inadequate to
     meet its obligations. The sole business of the Corporate General Partner is
     to manage the Company.

     The assets of the Corporate General Partner consist principally of cash and
     cash equivalents.  The Corporate General Partner had assets of $2.6 million
     and equity of  approximately  $2.24  million as of  November  27,  1998 and
     assets of  approximately  $2.8  million and equity of  approximately  $2.4
     million as of November 28, 1997.

9.   INCOME TAXES:
     ------------

     The Company, as a partnership, is not subject to U.S. federal income taxes.
     Prior to January 1, 1997,  the  Company was  required  by U.S.  federal tax
     regulations  to  withhold  income  tax on  behalf  of its  partners.  These
     payments  were made on behalf of the  Company by a related  party.  For the
     fiscal year ended  November  29, 1996,  the related  party  remitted  $4.53
     million to tax  authorities,  the entire amount of which the Company repaid
     to the related party. As of


                                      F-15
<PAGE>

     January 1, 1997,  the Company is no longer  required  to withhold  taxes on
     behalf of its partners under U.S. federal tax regulations.

     The  Company's  income  is  subject  to a 4% New York  City  unincorporated
     business tax. The  statement of income for the fiscal years ended  November
     27, 1998,  November 28, 1997 and November 29, 1996 includes a provision for
     unincorporated  business  tax on income  earned by the  Company  related to
     doing business in New York City.




                                      F-16
<PAGE>



GS FINANCIAL PRODUCTS U.S., L.P.

SUPPLEMENTARY FINANCIAL INFORMATION

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


                                            1998 Fiscal Quarters Ended
(U.S. dollars in thousands)       February 27  May 29   August 28  November 27
                                  -----------  ------   ---------  -------------

Total revenues                       5,769      5,551     6,002       9,922

Revenues, net of interest
  expense                            2,457      2,271     1,865       4,923

Net income (1)                       1,997      1,893     1,552       3,728


                                            1997 Fiscal Quarters Ended
(U.S. dollars in thousands)       February 28  May 31  August 29  November 28(1)
                                  -----------  ------  ---------  -------------

Total revenues                       6,424      4,524     7,076       6,799

Revenues, net of interest
  expense                            4,822      2,923     5,125       2,688

Net income                           4,457      2,674     4,692       2,405


                                            1996 Fiscal Quarters Ended
(U.S. dollars in thousands)       February 23  May 31   August 30  November 29
                                  -----------  ------   ---------  -------------

Total revenues                       4,072      4,007     4,419       6,522

Revenues, net of interest
  expense                            3,511      3,375     3,568       4,939

Net income                           3,083      3,061     3,264       4,525



(1)  Since  October  1997,  Group has  undertaken  a review of the  business and
     operations of the Company and certain other  affiliates of Group engaged in
     the  derivative  products  business in order to reassess the scope of their
     activities,  to evaluate the level and nature of staffing and to review the
     procedures  that are in place to handle the type and  volume of  businesses
     that they may pursue.  During this review, the Company has not entered into
     any new Derivative Transactions and has not issued any new debt securities.
     This lack of activity by the Company has negatively  affected the Company's
     results  of  operations  for the fourth  fiscal  quarter of 1997 and all of
     fiscal  1998.  In  addition,  this lack of  activity  is expected to have a
     significant  negative effect on the Company's  results of operations in the
     first fiscal quarter of 1999, and may affect later quarters  depending upon
     the timing of the  completion of the review and the  implementation  of any
     findings.





                                      F-17
<PAGE>


                                    SIGNATURE


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned  thereunto  duly  authorized  on this 25th day of
February, 1999.



                                 GS FINANCIAL PRODUCTS U.S., L.P.
                                 acting by its general partner, GS Financial
                                 Products US Co.



                           By:             /s/  C. Douglas Fuge

                                 ----------------------------------------------
                                                C. Douglas Fuge
                                     President, Principal Financial Officer
                                     and Principal Accounting Officer

                                 For and on behalf of GS  Financial  Products US
                                 Co.,  managing  general partner of GS Financial
                                 Products U.S., L.P.





                                      F-18
<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.



      Signatures                     Capacity                      Date
      ----------                     --------                      ----
                           position with general partner


  /s/ Noel B. Donohoe                Director               February 23, 1999
-----------------------
Noel B. Donohoe


                                     Director,
  /s/ C. Douglas Fuge                President,             February 23, 1999
-----------------------   Principal Financial Officer and
C. Douglas Fuge             Principal Accounting Officer



/s/ Jonathan M. Lopatin              Director               February 23, 1999
-----------------------
Jonathan M. Lopatin



 /s/ Kenneth A. Miller               Director               February 19, 1999
-----------------------
Kenneth A. Miller



 /s/ Thomas K. Montag                Director               February 23, 1999
-----------------------
Thomas K. Montag



  /s/ Mark A. Zurack                 Director               February 23, 1999
-----------------------
Mark A. Zurack



                                      F-19