-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMMsyur8jPP8ke+aF6cqyGkOXI0kinLLpJGlo8FOSagWcwTHuH0UI0Sxn7QiwDR+ EM3fTGYSfhUxoPR2Aa2wAQ== 0000950130-99-000047.txt : 19990107 0000950130-99-000047.hdr.sgml : 19990107 ACCESSION NUMBER: 0000950130-99-000047 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDMAN SACHS TRUST CENTRAL INDEX KEY: 0000822977 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05349 FILM NUMBER: 99501246 BUSINESS ADDRESS: STREET 1: 4900 SEARS TWR STREET 2: C/O GOLDMAN SACHS & CO CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126554400 MAIL ADDRESS: STREET 1: 85 BROAD ST STREET 2: 85 BROARD STREET CITY: NEW YORK STATE: NY ZIP: 10004 FORMER COMPANY: FORMER CONFORMED NAME: GOLDMAN SACHS SHORT INTERMEDIATE GOVERNMENT FUND DATE OF NAME CHANGE: 19910711 FORMER COMPANY: FORMER CONFORMED NAME: SHORT INTERMEDIATE GOVERNMENT FUND DATE OF NAME CHANGE: 19900104 N-30D 1 TAXABLE INVESTMENT GRADE FUNDS Goldman Sachs Funds TAXABLE INVESTMENT GRADE FUNDS Annual Report October 31, 1998 [GRAPHIC] Current income potential from portfolios that invest in a variety of fixed income securities. GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS MARKET OVERVIEW Dear Shareholder, Investors' renewed interest in fixed income securities during the review period was further fueled by a worldwide flight to quality in the wake of increased levels of global market turmoil. - -------------------------------------------------------------------------------- Mutual funds, annuities, and other investment products: o are not FDIC insured; o are not deposits or obligations of, or guaranteed by, any financial institution; o are subject to investment risks, including possible loss of the principal amount invested. - -------------------------------------------------------------------------------- o The Dollar Bloc -- For most of the review period, markets vacillated in response to investor optimism that the Asian ordeal was well in hand and investor fears that global market turmoil was threatening. The result was a 12-month period punctuated by market sell-offs and rallies. At period end, this touch-and-go global anxiety culminated in a powerful Treasury rally. The catalyst for the rally included investors' wholesale preference for Treasuries -- exacerbated by the ruble devaluation and Russia's de facto default -- and technical imbalances (forced liquidations by highly leveraged players combined with seasonal supply pressures). Elsewhere in the dollar bloc, Canada, Australia and New Zealand generated mixed performance during the period under review. All three countries, however, ended the period on a positive note. Monetary conditions eased in both Canada and New Zealand, and the Bank of Canada cut rates. Likewise, Australian bonds performed well as the market started to discount an expected near-term easing by the Reserve Bank. o Europe -- Early in the period, Europe's bond markets rallied following an announcement by German officials that European Monetary Union (EMU) short-term interest rates would converge at the lower level of the core markets. The rallies continued into the new year, reinforced in part by "softer" retail sales data and lower than expected gross domestic product data. The onset of economic and political turmoil in Russia further helped European bond market performance. However, by period end, muted expectations of rate cuts in core European countries, combined with a changing political landscape in Germany, helped to limit the extent of Europe's bond rally. o Japan -- Continued troubles within the banking sector were a significant factor behind Japan's poor bond market performance early in the period. After a brief journey into positive territory in December, the market would continue its poor showing in the wake of the resignation of the Minister of Finance and amid assumptions that measures of fiscal stimulus were in the offing. When the long-awaited stimulus package was finally released, significant doubt remained as to whether it could lead to Japan's long-term recovery. Throughout the remainder of the period, this poorly received rescue package, combined with extremely weak gross domestic product, consumer spending and capital expenditure data, helped drive Japanese bond yields to record low levels. o Outlook -- Environment for Bonds Is Positive -- We believe the current positive global environment for bonds will continue for some time. We continue to favor Europe, and in particular the UK, where inflationary pressures are very low or in decline. In Japan, if global bond yields continue to decline, we expect that Japanese bonds will continue to underperform. We encourage you to maintain your long-term investment program and look forward to serving your investment needs in the years ahead. Sincerely, /s/ David B. Ford /s/ John P. McNulty /s/ Sharmin Mossavar-Rahmani David B. Ford John P. McNulty Sharmin Mossavar-Rahmani Co-Head, Goldman Sachs Co-Head, Goldman Sachs CIO Fixed Income Investments, Asset Management Asset Management Goldman Sachs Asset Management November 30, 1998 FUND BASICS Adjustable Rate Government Fund as of October 31, 1998 Assets Under Management ----------------------- $508.8 Million ----------------------- NASDAQ SYMBOLS Class A Shares ----------------------- GSAMX ----------------------- Institutional Shares ----------------------- GSARX ----------------------- Administration Shares ----------------------- GSRAX ----------------------- Service Shares ----------------------- GSASX ----------------------- - -------------------------------------------------------------------------------- PERFORMANCE REVIEW - --------------------------------------------------------------------------------
October 31, 1997- Fund Total Return 30-Day SEC 6-Month 1-Year October 31, 1998 (based on NAV)/1/ Yield/2/ U.S. Treasury/3/ U.S. Treasury/3/ - ----------------------------------------------------------------------------------------- Class A 3.71% 5.05% 5.72% 6.32% Institutional 4.09% 5.59% 5.72% 6.32% Administration 3.83% 5.33% 5.72% 6.32% Service 3.57% 5.06% 5.72% 6.32% - -----------------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares. /2/ The 30-Day SEC Yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders. /3/ The 6-Month and 1-Year U.S. Treasury securities reported by Merrill Lynch do not reflect any fees or expenses. - -------------------------------------------------------------------------------- SEC RETURNS - -------------------------------------------------------------------------------- For the period ending 9/30/98 Class A Institutional Administration Service - -------------------------------------------------------------------------------- One Year/4/ 2.93% 4.75% 4.49% 4.34% Five Years/4/ N/A 5.30% 5.04% N/A Since Inception/4/ 5.37% 5.42% 4.95% 5.09% (5/15/95) (7/17/91) (4/15/93) (3/27/97) - -------------------------------------------------------------------------------- /4/ The SEC Average Annualized Return is determined by computing the annual percentage change in the value of $1,000 invested at the maximum public offering price for specified periods, assuming reinvestment of all distributions at NAV. The total return calculation reflects a maximum initial sales charge of 1.5% for Class A shares. The public offering price of the Class A shares on 9/30/98 was $9.91 and represents the NAV plus the maximum sales charge of 1.5%. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF 10/31/98/5/ - -------------------------------------------------------------------------------- Sector Allocation - -------------------------------------------------------------------------------- Adjustable Rate Mortgage Securities 62.3% Collateralized Mortgage Obligations 12.2% Fixed Rate Pass-Throughs 11.5% Cash Equivalents 8.6% Agency Debentures 3.2% - -------------------------------------------------------------------------------- /5/ Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time. Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence, performance would be reduced. 1 PERFORMANCE OVERVIEW Adjustable Rate Government Fund Dear Shareholder, We are pleased to report on the performance of the Goldman Sachs Adjustable Rate Government Fund for the 12-month period ended October 31, 1998. Performance Review Over the 12-month period ended October 31, 1998, the Fund underperformed its benchmarks, the six-month U.S. Treasury bill and the one-year U.S. Treasury bill, which returned 5.72% and 6.32%, respectively. The Fund's underperformance during the first half of the year was driven by weakening fundamentals; that is, declining interest rates and a flattening yield curve. Underperformance during the latter six months was driven by investors' preference for the safety and liquidity of Treasuries. Investment Objective The Fund seeks a high level of current income consistent with low volatility of principal, primarily through investments in adjustable rate mortgage securities that are issued by the U.S. government, its agencies, instrumentalities or sponsored enterprises. Portfolio Composition Our strategy is to focus on securities that we believe will perform well relative to the overall market, regardless of the direction of interest rates. Throughout the period, we managed the Fund's duration (0.75 years as of October 31, 1998) within a tight range of that of a nine-month U.S. Treasury security, and employed Goldman, Sachs & Co.'s extensive research capabilities to identify attractively valued securities offering incremental yield relative to Treasuries. Portfolio Highlights o Adjustable Rate Mortgages (ARMs) (84.2% on October 31, 1997 to 62.3% on October 31, 1998) -- The Fund's allocation to ARMs declined during the period as cash inflows were invested in alternative sectors with higher expected rates of return (for example, pass-throughs and CMOs). o Collateralized Mortgage Obligations (CMOs) (5.4% on October 31, 1997 to 12.2% on October 31, 1998) -- Early in the period, we modestly increased the Fund's position in CMOs as we identified securities that possessed attractive yields and good cash flow stability. We maintained this position throughout the remaining months of the period under review. 2 PERFORMANCE OVERVIEW FIXED INCOME INVESTMENT PROCESS OVERVIEW ----------- 1 Sector Allocation ----------- Our sector specialists work together to assess relative value among sectors and create investment strategies to meet each fund's objectives. ----------- 2 Security Selection ----------- In selecting securities for each portfolio, our fixed income teams have access to the vast resources of Goldman Sachs. ----------- 3 Yield Curve Strategies ----------- We adjust the term structure of our portfolios based on our expectations of the relationship between short- and long-term interest rates, while keeping each fund's duration close to its benchmark. o Fixed Rate Pass-Throughs (1.0% on October 31, 1997 to 11.5% on October 31, 1998) -- The dramatic cheapening of mortgage pass-through securities (beyond that warranted by the fundamental environment) led us to substantially increase our allocation to the sector in the latter months of the period. o Cash (2.3% on October 31, 1997 to 8.6% on October 31, 1998) -- The Fund's cash position increased as we waited for opportunities to invest in attractively priced instruments. Portfolio Outlook Our outlook for the ARM sector has become cautiously optimistic as both fundamental and technical influences have turned more positive. From a fundamental standpoint, long-term interest rates have risen and the yield curve has steepened. As a result, ARM-to-fixed rate refinancing incentives are now less compelling. From a technical standpoint, the overall tone of the market has firmed as well; hedge fund selling has abated, while supply pressures from new mortgage origination activity have been concentrated primarily in fixed rate versus adjustable rate collateral. We thank you for your investment and look forward to your continued confidence. Goldman Sachs U.S. Fixed Income Investment Management Team November 30, 1998 3 FUND BASICS Short Duration Government Fund as of October 31, 1998 Assets Under Management ----------------------- $225.4 Million ----------------------- NASDAQ Symbols Class A Shares ----------------------- GSSDX ----------------------- Class B Shares ----------------------- GSDGX ----------------------- Class C Shares ----------------------- GSDCX ----------------------- Institutional Shares ----------------------- GSTGX ----------------------- Administration Shares ----------------------- GSDAX ----------------------- Service Shares ----------------------- GSDSX ----------------------- - -------------------------------------------------------------------------------- PERFORMANCE REVIEW - -------------------------------------------------------------------------------- October 31, 1997- Fund Total Return 30-Day SEC 2-Year U.S. October 31, 1998 (based on NAV)/1/ Yield/2/ Treasury Security/3/ - -------------------------------------------------------------------------------- Class A 6.36% 4.61% 7.65% Class B 5.62% 4.11% 7.65% Class C 5.46% N/A 7.65% Institutional 6.75% 5.12% 7.65% Administration 6.27% 4.87% 7.65% Service 6.12% 4.61% 7.65% - -------------------------------------------------------------------------------- /1/ The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares. /2/ The 30-Day SEC Yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders. /3/ The 2-Year U.S. Treasury security does not reflect any fees or expenses. - -------------------------------------------------------------------------------- SEC RETURNS - --------------------------------------------------------------------------------
For the period ending 9/30/98 Class A Class B Class C Institutional Administration Service - ---------------------------------------------------------------------------------------------------------------- One Year/4/ 4.91% 4.39% 5.18% 7.41% 7.14% 6.88% Five Years/4/ N/A N/A N/A 6.05% N/A N/A Ten Years/4/ N/A N/A N/A 7.16% N/A N/A Since Inception/4/ 5.97% 6.19% 6.25% 7.24% 6.70% 6.95% (5/1/97) (5/1/97) (8/15/97) (8/15/88) (2/28/96) (4/10/96) - ----------------------------------------------------------------------------------------------------------------
/4/ The SEC Average Annualized Return is determined by computing the annual percentage change in the value of $1,000 invested at the maximum public offering price for specified periods, assuming reinvestment of all distributions at NAV. The total return calculation reflects a maximum initial sales charge of 2% for Class A shares, the assumed deferred sales charge for Class B shares (2% maximum declining to 0% after three years) and the assumed deferred sales charge for Class C shares (1% if redeemed within 12 months of purchase). The public offering price of the Class A shares on 9/30/98 was $10.16 and represents the NAV plus the maximum sales charge of 2%. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF 10/31/98/5/ - -------------------------------------------------------------------------------- Sector Allocation - -------------------------------------------------------------------------------- Collateralized Mortgage Obligations 39.8% U.S. Treasuries 19.6% Fixed Rate Pass-Throughs 17.6% Adjustable Rate Mortgage Securities 12.4% Agency Debentures 7.6% Cash Equivalents 2.9% - -------------------------------------------------------------------------------- /5/ Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time. Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence, performance would be reduced. 4 PERFORMANCE OVERVIEW Short Duration Government Fund Dear Shareholder, We are pleased to report on the performance of the Goldman Sachs Short Duration Government Fund for the 12-month period ended October 31, 1998. Performance Review Over the 12-month period ended October 31, 1998, the Fund underperformed the 7.65% return of its benchmark, the two-year U.S. Treasury note, as mortgage-backed security spreads widened -- first, in response to falling interest rates (and accompanying prepayment concerns) and later, in response to global financial anxiety. Investment Objective The Fund seeks a high level of current income and, secondarily, in seeking current income, it may also consider the potential for capital appreciation, primarily through securities that are issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises. Portfolio Composition We maintained our strategy of focusing on securities that we believe will perform well relative to the overall market, regardless of the direction of interest rates. Our investment strategy is to closely manage the Fund's duration (2.2 years as of October 31, 1998) within a tight range of that of its benchmark, and to employ Goldman, Sachs & Co.'s extensive research capabilities to identify attractively valued securities within the mortgage and agency sectors. Portfolio Highlights o Collateralized Mortgage Obligations (CMOs) (57.2% on October 31, 1997 to 39.8% on October 31, 1998) -- The Fund's allocation to CMOs declined over the period as cash inflows were invested in alternative sectors -- for example, pass-throughs and agency debentures -- with more enhanced return opportunities. o Fixed Rate Pass-Throughs (5.6% on October 31, 1997 to 17.6% on October 31, 1998) -- The Fund's position in fixed rate pass-through securities increased significantly over the 12-month period. Although we were initially cautious on pass-throughs given their tight spreads and vulnerability to prepayment risk, we increased the Fund's exposure to the sector after spreads widened following the global flight to Treasuries. 5 PERFORMANCE OVERVIEW FIXED INCOME INVESTMENT PROCESS OVERVIEW ----------- 1 Sector Allocation ----------- Our sector specialists work together to assess relative value among sectors and create investment strategies to meet each fund's objectives. ----------- 2 Security Selection ----------- In selecting securities for each portfolio, our fixed income teams have access to the vast resources of Goldman Sachs. ----------- 3 Yield Curve Strategies ----------- We adjust the term structure of our portfolios based on our expectations of the relationship between short- and long-term interest rates, while keeping each fund's duration close to its benchmark. o Adjustable Rate Mortgage Securities (ARMs) (15.5% on October 31, 1997 to 12.4% on October 31, 1998) -- The Fund's allocation to ARMs declined moderately during the period as cash inflows were invested in alternative sectors with higher expected rates of return (for example, pass-throughs and agency debentures). o U.S. Treasuries (16.3% on October 31, 1997 to 19.6% on October 31, 1998) and Cash Equivalents (1.4% on October 31, 1997 to 2.9% on October 31, 1998) -- During the period, the Fund's positions in U.S. Treasuries and cash fluctuated in response to shifts in other sectors. Portfolio Outlook Within the pass-through market, the technical environment has become more favorable, as wider spreads have attracted a variety of investors and originator selling has diminished. Refinancing is also less of a concern, with interest rates currently more than 40 basis points off their lows. As a result, we are optimistic on the sector (particularly over longer investment horizons), as we believe current spreads should more than compensate for short-term volatility. CMO spreads have widened in concert with pass-through spreads over the past several months. Relative value opportunities should improve, however, as spreads stabilize and liquidity returns to the sector. Our outlook for the ARM sector has become cautiously optimistic, as both fundamental and technical influences have turned more positive. From a fundamental standpoint, long-term interest rates have risen and the yield curve has steepened; as a result, ARM-to-fixed rate refinancing incentives are now less compelling. From a technical standpoint, the overall tone of the market has firmed as well; hedge fund selling has abated, while supply pressures from new mortgage origination activity have been concentrated primarily in fixed rate versus adjustable rate collateral. We thank you for your investment and look forward to your continued confidence. Goldman Sachs U.S. Fixed Income Investment Management Team November 30, 1998 6 FUND BASICS Government Income Fund as of October 31, 1998 Assets Under Management ----------------------- $129.4 Million ----------------------- NASDAQ Symbols Class A Shares ----------------------- GSGOX ----------------------- Class B Shares ----------------------- GSOBX ----------------------- Class C Shares ----------------------- GSOCX ----------------------- Institutional Shares ----------------------- GSOIX ----------------------- Service Shares ----------------------- GSOSX ----------------------- - -------------------------------------------------------------------------------- PERFORMANCE REVIEW - -------------------------------------------------------------------------------- October 31, 1997- Fund Total Return 30-Day SEC Lehman Govt. October 31, 1998 (based on NAV)/1/ Yield/2/ Mortgage Index/3/ - -------------------------------------------------------------------------------- Class A 8.98% 4.70% 9.72% Class B 8.09% 4.21% 9.72% Class C 8.09% 4.16% 9.72% Institutional 9.19% N/A 9.72% Service 8.53% N/A 9.72% - ----------------------------------------------------------------------------- /1/ The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares. /2/ The 30-Day SEC Yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders. /3/ The Lehman Brothers Government/Mortgage Index does not reflect any fees or expenses. - -------------------------------------------------------------------------------- SEC RETURNS - --------------------------------------------------------------------------------
For the period ending 9/30/98 Class A Class B Class C Institutional Service - -------------------------------------------------------------------------------------- One Year/4/ 6.25% 5.12% 9.36% 11.53 11.08% Five Years/4/ 6.12% N/A N/A N/A 7.06% Since Inception/4/ 46.81% 7.75% 10.42% 11.52% 7.65% (2/10/93) (5/1/96) (8/15/97) (8/15/97) (2/10/93)5 - --------------------------------------------------------------------------------------
/4/ The SEC Average Annualized Return is determined by computing the annual percentage change in the value of $1,000 invested at the maximum public offering price for specified periods, assuming reinvestment of all distributions at NAV. The total return calculation reflects a maximum initial sales charge of 4.5% for Class A shares, the assumed deferred sales charge for Class B shares (5% maximum declining to 0% after six years), and the assumed deferred sales charge for Class C shares (1% if redeemed within 12 months of purchase). The public offering price of the Class A shares on 9/30/98 was $15.78 and represents the NAV plus the maximum sales charge of 4.5%. /5/ Performance data for Service shares prior to 8/15/97 is that of Class A shares (excluding the impact of front-end sales charges applicable to Class A shares since Service shares are not subject to any sales charges). Performance of Class A shares in the Fund reflects the expenses applicable to the Fund's Class A shares. The fees applicable to Service shares are different from those applicable to Class A shares which impact performance ratings and rankings for a class of shares. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF 10/31/98/6/ - -------------------------------------------------------------------------------- Sector Allocation - -------------------------------------------------------------------------------- Mortgage-Backed Securities 58.1% U.S. Treasuries 16.1% Asset-Backed Securities 15.8% Cash Equivalents 11.3% Agency Debentures 9.3% Municipal Bonds 1.8% - -------------------------------------------------------------------------------- /6/ Figures represent a percentage of net assets and may not sum to 100% . The Fund is actively managed and, as such, its composition may differ over time. Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence, performance would be reduced. 7 PERFORMANCE OVERVIEW Government Income Fund Dear Shareholder, We are pleased to report on the performance of the Goldman Sachs Government Income Fund for the 12-month period ended October 31, 1998. Performance Review Over the review period, the Fund generated positive performance. However, it slightly underperformed the 9.72% return of its benchmark, the Lehman Government/Mortgage Index, as mortgage-backed security spreads widened -- first, in response to falling interest rates (and accompanying prepayment concerns) and later, in response to global financial anxiety. Investment Objective The Fund seeks a high level of current income consistent with safety of principal, primarily through investments that include mortgage-backed securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises. Portfolio Composition During the period, we maintained our strategy of focusing on securities that we believe will perform well relative to the overall market regardless of the direction of interest rates. Our investment strategy is to closely manage the Fund's duration (4.41 years as of October 31, 1998) within a tight range of its benchmark (4.12 years), and seek excess returns over the benchmark through sector weightings and specific security selection. Portfolio Highlights o Mortgage-Backed Securities (MBS) (48.2% on October 31, 1997 to 58.1% on October 31, 1998) -- The Fund's position in mortgage-backed securities increased over the 12-month period, primarily due to an increase in the pass-through sector. Although we were initially cautious on mortgages given their tight spreads and vulnerability to prepayment risk, we increased the Fund's exposure to pass-throughs after the sector cheapened following the global flight to Treasuries. o U.S. Treasuries (22.7% on October 31, 1997 to 16.1% on October 31, 1998) and Cash Equivalents (0.3% on October 31, 1997 to 11.3% on October 31, 1998) -- During the period, the Fund's position in U.S. Treasuries decreased as we added to the Fund's position in mortgage-backed securities. The Fund's cash position increased from prior year end. 8 PERFORMANCE OVERVIEW FIXED INCOME INVESTMENT PROCESS OVERVIEW ----------- 1 Sector Allocation ----------- Our sector specialists work together to assess relative value among sectors and create investment strategies to meet each fund's objectives. ----------- 2 Security Selection ----------- In selecting securities for each portfolio, our fixed income teams have access to the vast resources of Goldman Sachs. ----------- 3 Yield Curve Strategies ----------- We adjust the term structure of our portfolios based on our expectations of the relationship between short- and long-term interest rates, while keeping each fund's duration close to its benchmark. o Asset-Backed Securities (ABS) (17.9% on October 31, 1997 to 15.8% on October 31, 1998) -- Early in the period, ABS performed well as investors demonstrated renewed interest in the sector. However, spreads widened in concert with other credit sectors during the months following the Russian ruble devaluation. o Insured Revenue Bonds (Municipal Bonds) (2.7% on October 31, 1997 to 1.8% on October 31, 1998) -- We maintained a small position in municipal bonds in order to take advantage of persistent cheapening in the municipal sector. We expect to "unwind" this trade when equilibrium is restored. Portfolio Outlook In the mortgage-backed security market, supply pressures have abated and refinancing activity is now less of a concern than previously. As a result, we believe current spreads, particularly within the pass-through sub-sector, should more than compensate for short-term volatility. Additionally, relative value opportunities should improve as spreads stabilize and liquidity returns to the collateralized mortgage obligations market. Finally, although further spread volatility is possible going into year-end, the strong fundamental backdrop and improving technical situation bode well for ABS spreads over the next several months. We thank you for your investment and look forward to your continued confidence. Goldman Sachs U.S. Fixed Income Investment Management Team November 30, 1998 9 FUND BASICS Core Fixed Income Fund as of October 31, 1998 Assets Under Management ----------------------- $282.8 Million ----------------------- NASDAQ Symbols Class A Shares ----------------------- GCFIX ----------------------- Class B Shares ----------------------- GCFBX ----------------------- Class C Shares ----------------------- GCFCX ----------------------- Institutional Shares ----------------------- GSFIX ----------------------- Administration Shares ----------------------- GSFAX ----------------------- Service Shares ----------------------- GSCSX ----------------------- - -------------------------------------------------------------------------------- PERFORMANCE REVIEW - -------------------------------------------------------------------------------- October 31, 1997- Fund Total Return 30-Day SEC Lehman Aggregate October 31, 1998 (based on NAV)/1/ Yield/2/ Bond Index/3/ - -------------------------------------------------------------------------------- Class A 8.76% 4.94% 9.34% Class B 7.94% 4.43% 9.34% Class C 7.94% 4.37% 9.34% Institutional 9.15% 5.57% 9.34% Administration 8.88% 5.34% 9.34% Service 8.50% 5.05% 9.34% - -------------------------------------------------------------------------------- /1/ The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares. /2/ The 30-Day SEC Yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders. /3/ The Lehman Aggregate Bond Index does not reflect any fees or expenses. - -------------------------------------------------------------------------------- SEC RETURNS - --------------------------------------------------------------------------------
For the period ending 9/30/98 Class A Class B Class C Institutional Administration Service - -------------------------------------------------------------------------------------------------------- One Year/4/ 5.95% 4.91% 9.14% 11.32% 11.05% 10.77% Since Inception/4/ 8.11% 7.98% 10.32% 7.77% 8.49% 8.93% (5/1/97) (5/1/97) (8/15/97) (1/5/94) (2/28/96) (3/13/96) - --------------------------------------------------------------------------------------------------------
/4/ The SEC Average Annualized Return is determined by computing the annual percentage change in the value of $1,000 invested at the maximum public offering price for specified periods, assuming reinvestment of all distributions at NAV. The total return calculation reflects a maximum initial sales charge of 4.5% for Class A shares, the assumed deferred sales charge for Class B shares (5% maximum declining to 0% after six years) and the assumed deferred sales charge for Class C shares (1% if redeemed within 12 months of purchase). The public offering price of the Class A shares on 9/30/98 was $10.85 and represents the NAV plus the maximum sales charge of 4.5%. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF 10/31/98/5/ - -------------------------------------------------------------------------------- Sector Allocation - -------------------------------------------------------------------------------- Mortgage-Backed Securities 39.2% Corporates 28.3% U.S. Treasuries 17.5% Asset-Backed Securities 11.9% Cash Equivalents 7.9% Emerging Market Debt 1.4% Agency Debentures 0.9% - -------------------------------------------------------------------------------- /5/ Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time. Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence, performance would be reduced. 10 PERFORMANCE OVERVIEW Core Fixed Income Fund Dear Shareholder, We are pleased to report on the performance of the Goldman Sachs Core Fixed Income Fund for the 12-month period ended October 31, 1998. Performance Review Over the 12-month period ended October 31, 1998, the Fund generated positive performance. Nonetheless, it slightly underperformed the 9.34% total return of its benchmark, the Lehman Brothers Aggregate Bond Index. The Fund's underperformance relative to its benchmark is primarily attributable to a widening in mortgage-backed spreads -- first in response to falling interest rates (and accompanying prepayment concerns) and later, in response to global financial anxiety. Investment Objective The Fund seeks total return consisting of capital appreciation and income that exceeds that of the Lehman Brothers Aggregate Bond Index, primarily through fixed income securities, including securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises, corporate securities, mortgage-backed securities and asset-backed securities. Portfolio Composition Our general investment strategy de-emphasizes Treasuries in favor of higher yielding fixed income alternatives with enhanced total return potential. Therefore, during the period under review, we underweighted Treasury and agency securities relative to the benchmark, and overweighted corporate, mortgage, asset-backed and emerging market debt securities. Portfolio Highlights o Mortgage-Backed Securities (MBS) (37.4% on October 31, 1997 to 39.2% on October 31, 1998) -- Throughout the period, we maintained an overweighted position in mortgage-backed securities -- including collateralized mortgage obligations (CMOs) -- versus the benchmark. However, within the overall sector, we were cautious on pass-through securities given their tight spreads and vulnerability to prepayment risk until the final months of the period, when we increased the Fund's exposure to the subsector after spreads widened in response to the global flight to Treasuries. o Corporates (28.8% on October 31, 1997 to 28.3% on October 31, 1998) -- Strong cash inflows into the Fund, combined with the fact that several bonds were called in the first six months of the period, resulted in a mid-period decrease in this position to 21.2%. In the remaining months of the period, however, we gradually added corporate exposure, particularly within the industrial and financial subsectors. 11 PERFORMANCE OVERVIEW FIXED INCOME INVESTMENT PROCESS OVERVIEW ----------- 1 Sector Allocation ----------- Our sector specialists work together to assess relative value among sectors and create investment strategies to meet each fund's objectives. ----------- 2 Security Selection ----------- In selecting securities for each portfolio, our fixed income teams have access to the vast resources of Goldman Sachs. ----------- 3 Yield Curve Strategies ----------- We adjust the term structure of our portfolios based on our expectations of the relationship between short- and long-term interest rates, while keeping each fund's duration close to its benchmark. o Asset-Backed Securities (ABS) (13.9% on October 31, 1997 to 11.9% on October 31, 1998) -- Early in the period, ABS performed well as investors demonstrated renewed interest in the sector. However, spreads widened in concert with other credit sectors during the months following the Russian ruble devaluation. o U.S. Treasuries (15.7% on October 31, 1997 to 17.5% on October 31, 1998) and Cash Equivalents (7.9% on October 31, 1998) -- The Fund's positions in U.S. Treasuries and cash equivalents fluctuated in response to increases in the Fund's exposure to both the mortgage pass-through and corporate sectors. o Emerging Market Debt (EMD) (5.0% on October 31, 1997 to 1.4% on October 31, 1998) -- During the period under review, we reduced the Fund's position in emerging market debt. The reduction reflected our ongoing concern regarding the global economic outlook and our anticipation of continued spread volatility. The remaining exposure is concentrated in Latin America. Portfolio Outlook In the mortgage-backed security market, supply pressures have abated and refinancing activity is now less of a concern. As a result, we believe current spreads, particularly within the pass-through subsector, should more than compensate for short-term volatility. Additionally, relative value opportunities are likely to improve as spreads stabilize and liquidity returns to the CMO market. Within the corporate sector, we intend to continue to look for opportunities to add exposure in order to achieve a neutral position (on a dollar-duration basis) relative to the corporate sector of the benchmark. Regarding the ABS sector, although further spread volatility is possible going into year-end, the strong fundamental backdrop and improving technical situation should bode well for spreads over the next several months. Finally, the outlook for EMD has improved recently, as both the U.S. Federal Reserve and the Brazilian authorities have acted decisively to avoid a deepening of the global financial crisis. The Fed's surprise easing, coupled with an announced fiscal adjustment and impending IMF support package for Brazil, has allayed fears of a global credit crunch and has led to tighter spreads in the sector. Going forward, we may look to opportunistically add to countries with low financing requirements. We thank you for your investment and look forward to your continued confidence. Goldman Sachs U.S. Fixed Income Investment Management Team November 30, 1998 12 FUND BASICS Global Income Fund as of October 31, 1998 Assets Under Management ----------------------- $409.2 Million ----------------------- NASDAQ Symbols Class A Shares ----------------------- GSGIX ----------------------- Class B Shares ----------------------- GSLBX ----------------------- Class C Shares ----------------------- GSLCX ----------------------- Institutional Shares ----------------------- GSGLX ----------------------- Service Shares ----------------------- GGISX ----------------------- - -------------------------------------------------------------------------------- PERFORMANCE REVIEW - -------------------------------------------------------------------------------- October 31, 1997- Fund Total Return 30-Day SEC JPM Global Govt. October 31, 1998 (based on NAV)/1/ Yield/2/ Bond Index/3/ - -------------------------------------------------------------------------------- Class A 11.21% 3.42% 12.70% Class B 10.66% 3.07% 12.70% Class C 10.65% 3.07% 12.70% Institutional 11.95% 4.23% 12.70% Service 11.43% 3.71% 12.70% - -------------------------------------------------------------------------------- /1/ The net asset value represents the net assets of the Fund (ex-dividend) divided by the total number of shares. /2/ The 30-Day SEC Yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a 30-day period (ending on the stated month-end date) by the maximum public offering price per share of the Fund on the last day of the period. This number is compounded semiannually and then annualized. This yield does not necessarily reflect income actually earned and distributed by the Fund and, therefore, may not be correlated with the dividends or other distributions paid to shareholders. /3/ The composition and characteristics of the securities in the JP Morgan (JPM) Global Government Bond Index (hedged) are not identical to those of the Fund. Also, unlike the Fund's return, the Index's return does not reflect any fees or expenses. - -------------------------------------------------------------------------------- SEC RETURNS - --------------------------------------------------------------------------------
For the period ending 9/30/98 Class A Class B Class C Institutional Service - ---------------------------------------------------------------------------------------------------- One Year/4/ 7.73% 6.91% 11.16% 13.61% 13.02% Five Years/4/ 7.81% N/A N/A N/A 8.84% Since Inception/4/ 8.22% 9.96% 13.21% 12.43% 8.95% (8/2/91) (5/1/96) (8/15/97) (8/1/95) (8/2/91)5 - ----------------------------------------------------------------------------------------------------
/4/ The SEC Average Annualized Return is determined by computing the annual percentage change in the value of $1,000 invested at the maximum public offering price for specified periods, assuming reinvestment of all distributions at NAV. The total return calculation reflects a maximum initial sales charge of 4.5% for Class A shares, the assumed deferred sales charge for Class B shares (5% maximum declining to 0% after six years), and the assumed deferred sales charge for Class C shares (1% if redeemed within 12 months of purchase). The public offering price of the Class A shares on 9/30/98 was $16.59 and represents the NAV plus the maximum sales charge of 4.5%. /5/ Performance data for Service shares prior to 3/12/97 is that of Class A shares (excluding the impact of front-end sales charges applicable to Class A shares since Service shares are not subject to any sales charges). Performance of Class A shares in the Fund reflects the expenses applicable to the Fund's Class A shares. The fees applicable to Service shares are different from those applicable to Class A shares which impact performance ratings and rankings for a class of shares. - -------------------------------------------------------------------------------- TOP 10 POSITIONS AS OF 10/31/98/6/ - -------------------------------------------------------------------------------- Bonds Denomination - -------------------------------------------------------------------------------- 1. U.S. Dollar 44.73% 2. British Pound 17.13% 3. German Mark 6.60% 4. Danish Krone 6.41% 5. Italian Lira 6.37% 6. U.S. Dollar Cash Equivalents 5.57% 7. Japanese Yen 5.42% 8. Spanish Peseta 2.34% 9. Canadian Dollar 2.07% 10. French Franc 1.12% - -------------------------------------------------------------------------------- /6/ Figures represent a percentage of net assets and may not sum to 100%. The Fund is actively managed and, as such, its composition may differ over time. Total return figures represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. Performance reflects fee waivers and expense limitations in effect. In their absence performance would be reduced. 13 PERFORMANCE OVERVIEW Global Income Fund Dear Shareholder, We are pleased to report on the performance of the Goldman Sachs Global Income Fund for the 12-month period ended October 31, 1998. Performance Review Over the 12-month period covered by this report, the Fund generated strong performance. Nonetheless, it slightly underperformed the 12.70% total return of its benchmark, the JP Morgan Global Government Bond Index (hedged into U.S. dollars). Over the same period, the Fund outperformed the 4.28% return of its peers within the Lipper Global Income Funds category, ranking the Fund's Class A, B, C, Institutional and Service shares 12, 15, 16, 8 and 11, respectively, out of 148 funds. For the five-year period ended October 31, 1998, the Fund's Class A shares ranked 3 out of 62 funds. Please note that Lipper rankings do not take sales charges into account and that past performance is not a guarantee of future results. A key factor behind the Fund's slight underperformance relative to its benchmark was a short yen position, which was held in line with our ongoing view that the Japanese economy is weak. Because of this position, however, the Fund did not benefit from a brief rally in Japanese bonds that occurred in October. Also, the Fund's overweight position in New Zealand bonds during the fourth quarter of 1997 and the first quarter of 1998 further proved detrimental to performance. Investment Objective The Fund seeks high total return, emphasizing current income and, to a lesser extent, providing opportunities for capital appreciation primarily through investments in fixed income securities of U.S. and foreign issuers and foreign currencies. Portfolio Positioning The Fund maintained a neutral position versus the benchmark in Europe at the beginning of the period, a position that was increased to an overweighting by period end. The shift occurred as falling inflation, moderate growth and low levels of unemployment indicated positive future performance for European bonds. In the U.S. and other dollar bloc countries, a neutral position early in the period was gradually increased to an overweight position amid signs of a slowing global economy. Finally, in Japan, we closed the period with an underweight position consistent with our pessimism regarding the health of Japan's financial markets. Portfolio Highlights o Danish Government Bonds -- The flight to quality through the recent sell-off in perceived higher risk assets also affected the Danish government bond market, and we used this as an opportunity to increase our positions. We expect Denmark to join the euro within the next three years. Moreover, the Danish Central Bank remains committed to keeping the krone closely pegged with the deutschemark/euro. 14 PERFORMANCE OVERVIEW FIXED INCOME INVESTMENT PROCESS OVERVIEW ----------- 1 Sector Allocation ----------- Our sector specialists work together to assess relative value among sectors and create investment strategies to meet each fund's objectives. ----------- 2 Security Selection ----------- In selecting securities for each portfolio, our fixed income teams have access to the vast resources of Goldman Sachs. ----------- 3 Yield Curve Strategies ----------- We adjust the term structure of our portfolios based on our expectations of the relationship between short- and long-term interest rates, while keeping each fund's duration close to its benchmark. o UK Bonds -- After the extreme weakness in the export and manufacturing sectors, we have finally begun to see weakness in the consumer sector; for example, consumer confidence and retail sales have both markedly declined recently. While the Bank of England has already eased rates, we expect 75 to 100 basis points of further rate cuts through the first half of 1999, as the consumer sector continues to deteriorate. This presents a favorable scenario for UK bonds. o Australian Bonds -- During the period, we held an overweight position in Australian bonds since, at one stage, the market was discounting a rate hike as the currency weakened. We viewed this as a temporary phenomenon prompted by the general weakness in Asian economies, and did not believe there was sufficient evidence to justify a rate hike. Hence, we purchased Australian bonds at spreads close to 100 basis points to equivalent-maturity U.S. bonds. The reduction of risk premia toward the end of the reporting period also translated into a stronger Australian dollar and an unwinding of rate hike expectations. This brought the Australian/U.S. spreads in by over 70 basis points, where we took profits. Portfolio Outlook Despite the recent stabilization in emerging markets, the U.S. equity market and credit conditions, we feel significant risks remain to the global and the U.S. domestic economy. The global outlook remains hinged on the success of policy measures in Japan to revive the economy and reform the banking sector, and on the success of the IMF package to Brazil. In both cases, we feel significant risks remain. The domestic economy of the U.S. is also vulnerable to any further deterioration in global growth, and there are already signs that the economy is slowing. We expect this to continue into 1999. Although we currently do not expect a full recession in the U.S. in 1999, we expect growth to slow enough to prompt the Federal Reserve into easing further, and we expect the bond market to perform strongly in this environment. o Euro 11 Markets -- In the Euro-11 markets, we expect the bond market to continue to strengthen. The inflation outlook for Europe remains very benign and we expect this to be reinforced by the introduction of EMU and the transfer of monetary policy to the new European Central Bank. The growth outlook for Europe is finely balanced and recent data is pointing to a slowing in the recovery. We expect European growth to be slowed further by the deteriorating international situation and there is a growing expectation that the next move in European rates will be a decline. This environment should be favorable for European bonds. o Non-Euro 11 Markets -- We expect non-Euro-11 markets to perform well in the medium-term. We expect the UK economy to slow sharply in 1999, prompting further cuts in interest rates. There is also an increasing market expectation that the UK will enter EMU within the next five years and we expect the UK bond market to converge further with core European markets. The Danish and Swedish markets are also likely to perform well as public sentiment in those countries shifts in favor of joining EMU. o Japan -- Our outlook for the Japanese bond market is negative. We expect the Japanese government to implement further economic and bank reform measures; the effects of these measures and the increase in bond supply is likely to be negative for the bond market. We thank you for your investment and look forward to your continued confidence. Goldman Sachs Global Fixed Income Investment Management Team November 30, 1998 15 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS By putting securities with different correlations to work in your portfolio, you can expand your investment opportunities while potentially spreading your risk. Fixed Income Funds -- An Effective Portfolio Diversifier Recent global market events -- and resulting price volatility in the stock market -- have encouraged many investors to seek more stability in their portfolio through greater diversification. In many cases, investors have increased their allocation to fixed income securities. What some individuals may have overlooked is the extent to which they can diversify within the fixed income arena. Different types of fixed income securities possess varying levels of market correlation to each other, and therefore should be able to provide an added measure of protection against market risk. Differing Correlations May Help Reduce Exposure to Risk Correlation simply defines how two investments move together. If you own two highly correlated investments, their returns will tend to move in tandem. If you own two loosely correlated assets, their returns will tend to move in opposite directions. The table below shows the different correlations between fixed income securities. A high correlation of 0.99, such as that between cash and Treasury bills, means these two securities tend to react similarly in a given market environment. A low correlation such as 0.23, such as that between high yield bonds and intermediate government bonds, means these two securities have a low correlation -- a difference that could provide an important level of diversification in a portfolio. - -------------------------------------------------------------------------------- CORRELATIONS OF FIXED INCOME SECURITIES - -------------------------------------------------------------------------------- Int. Long Long High Govt. Govt. Corp. Muni Global Yield Cash T-Bill Bonds Bonds Bonds Bonds Bonds Bonds - -------------------------------------------------------------------------------- Cash 1.00 T-Bill 0.99 1.00 Int. Govt. Bonds 0.15 0.12 1.00 Long Govt. Bonds 0.07 0.04 0.91 1.00 Long Corp. Bonds 0.13 0.10 0.98 0.96 1.00 Muni Bonds 0.04 0.03 0.75 0.76 0.78 1.00 Global Bonds 0.00 -0.03 0.73 0.64 0.69 0.54 1.00 High Yield Bonds -0.14 -0.13 0.23 0.26 0.31 0.31 0.09 1.00 - -------------------------------------------------------------------------------- Sources: See back cover. Past performance is no guarantee of future results. All of the indices are unmanaged and returns assume the reinvestment of income. Government bonds and T-bills, unlike Fund shares, are guaranteed as to the timely payment of principal and interest. The indices do not reflect any fees and expenses. The information in the chart above is not intended to imply the future performance of any of the investments mentioned or of any Goldman Sachs Fund, nor does it reflect any Fund's actual portfolio composition, fees or expenses. For More Information Fixed income mutual funds are a convenient way to acquire a diversified portfolio of fixed income securities. Goldman Sachs Fixed Income Funds can provide access to each of the fixed income securities shown above. For information on how these Funds can potentially help manage risk in your portfolio, consult your investment professional. 16 GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND Performance Summary October 31, 1998 The following graph shows the value as of October 31, 1998, of a $10,000 in- vestment made in Institutional shares on August 1, 1991. For comparative pur- poses, the performance of the Fund's benchmarks (the Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index ("Lehman 1-2 Index") and the six-month and one-year U.S. Treasury Bills ("Six-Month T-Bill/One-Year T-Bill")) are shown. This performance data represents past performance and should not be considered indicative of future performance which will fluctuate with changes in market conditions. These performance fluctuations will cause an investor's shares, when redeemed, to be worth more or less than their original cost. Performance of Class A, Administration and Service shares will vary from In- stitutional shares due to differences in fees and loads. ADJUSTABLE RATE GOVERNMENT FUND'S LIFETIME PERFORMANCE GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1991 TO OCTOBER 31, 1998.(A) [LINE GRAPH APPEARS HERE] Adjustable Rate Government Fund Lehman 1-2 One-Year Six-Month (Institutional Shares) Index T-Bill T-Bill 8/1/91 10000 10000 10000 10000 Aug-91 10074 10120 10083 10060 Sep-91 10136 10213 10158 10117 10/91 10208 10316 10236 10174 Nov-91 10277 10415 10314 10234 Dec-91 10333 10554 10407 10300 1/92 10389 10556 10436 10335 Feb-92 10441 10588 10463 10365 Mar-92 10474 10600 10489 10397 4/92 10522 10694 10550 10450 May-92 10588 10777 10592 10489 Jun-92 10661 10870 10648 10531 7/92 10724 10979 10726 10583 Aug-92 10779 11056 10775 10617 Sep-92 10833 11149 10844 10665 10/92 10834 11100 10832 10675 Nov-92 10843 11092 10841 10698 Dec-92 10911 11190 10900 10740 1/93 10947 11288 10957 10780 Feb-93 10996 11361 10995 10808 Mar-93 11020 11393 11027 10841 4/93 11065 11455 11066 10870 May-93 11086 11433 11055 10887 Jun-93 11148 11505 11109 10920 7/93 11188 11533 11137 10949 Aug-93 11238 11610 11187 10984 Sep-93 11264 11647 11219 11015 10/93 11282 11672 11240 11039 Nov-93 11292 11686 11261 11067 Dec-93 11323 11728 11301 11106 1/94 11355 11796 11347 11142 Feb-94 11375 11746 11334 11152 Mar-94 11369 11717 11336 11180 4/94 11352 11688 11326 11197 May-94 11359 11709 11341 11228 Jun-94 11384 11742 11378 11277 7/94 11441 11836 11448 11324 Aug-94 11478 11876 11487 11369 Sep-94 11485 11866 11504 11400 10/94 11494 11900 11549 11452 Nov-94 11492 11861 11543 11486 Dec-94 11543 11891 11582 11536 1/95 11659 12036 11698 11611 Feb-95 11748 12178 11800 11679 Mar-95 11804 12248 11869 11739 4/95 11879 12347 11937 11801 May-95 11991 12518 12044 11872 Jun-95 12006 12585 12113 11935 7/95 12072 12644 12173 11995 Aug-95 12139 12713 12231 12054 Sep-95 12191 12771 12281 12104 10/95 12270 12865 12355 12164 Nov-95 12346 12960 12429 12223 Dec-95 12424 13051 12498 12291 1/96 12515 13154 12578 12352 Feb-96 12549 13125 12593 12396 Mar-96 12600 13133 12627 12438 4/96 12662 13158 12671 12489 May-96 12740 13198 12716 12540 Jun-96 12790 13286 12784 12594 7/96 12855 13338 12832 12649 Aug-96 12920 13393 12893 12705 Sep-96 13023 13500 12980 12771 10/96 13114 13635 13076 12832 Nov-96 13191 13722 13140 12889 Dec-96 13257 13744 13185 12943 1/97 13323 13808 13250 13000 Feb-97 13383 13849 13299 13060 Mar-97 13436 13854 13332 13111 4/97 13545 13958 13410 13173 May-97 13643 14051 13493 13244 Jun-97 13712 14140 13572 13308 7/97 13797 14269 13670 13370 Aug-97 13853 14297 13712 13424 Sep-97 13921 14394 13785 13493 10/97 13992 14489 13861 13554 Nov-97 14032 14529 13901 13602 Dec-97 14087 14621 13966 13665 1/98 14172 14745 14057 13735 Feb-98 14207 14769 14094 13786 Mar-98 14264 14829 14165 13854 4/98 14289 14899 14232 13915 5/98 14346 14975 14442 13976 6/98 14415 15050 14511 14043 7/98 14457 15121 14579 14110 8/98 14530 15277 14697 14183 9/98 14583 15451 14817 14268 10/98 14565 15531 14893 14328
SINCE INCEPTION OF CLASS FIVE YEARS ONE YEAR AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998 CLASS A (COMMENCED MAY 15, 1995) Excluding sales charges 5.63% n/a 3.71% Including sales charges 5.16% n/a 2.16% ------------------------------------------------------------------------------ INSTITUTIONAL CLASS (COMMENCED JULY 17, 1991) 5.34% 5.24% 4.09% ------------------------------------------------------------------------------ ADMINISTRATION CLASS (COMMENCED APRIL 15, 1993) 4.85% 4.98% 3.83% ------------------------------------------------------------------------------ SERVICE CLASS (COMMENCED MARCH 27, 1997) 4.63% n/a 3.57% ------------------------------------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on the first day of the month following commencement of operations. 17 GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - 86.0% ADJUSTABLE RATE FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)(A) - 20.7% $ 1,884,454 7.29% 07/01/2018 $ 1,917,809 4,154,158 8.16 11/01/2018 4,272,302 887,658 7.31 12/01/2018 902,908 6,485,132(b) 7.33 05/01/2019 6,574,043 15,255,307(b) 7.53 11/01/2019 15,689,625 8,378,831 7.24 01/01/2020 8,474,852 3,290,423 7.51 05/01/2020 3,366,497 12,052,342(b) 7.45 06/01/2020 12,241,684 24,961,460(b) 7.60 02/01/2022 25,569,522 4,706,626 7.22 06/01/2022 4,774,778 2,829,548 7.30 08/01/2022 2,866,247 3,968,347 7.19 09/01/2022 4,015,967 4,430,804(b) 7.36 09/01/2022 4,494,829 6,487,956(b) 7.52 06/01/2024 6,614,666 2,453,837 7.16 02/01/2028 2,479,284 1,136,617(b) 7.49 07/01/2030 1,157,929 ------------ $105,412,942 ---------------------------------------------------------------------------------------------- ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)(A) - 38.5% $ 1,056,694 7.22% 04/01/2003 $ 1,067,599 724,071 7.43 11/01/2014 741,239 466,162 7.21 12/01/2015 470,143 4,126,862 6.56 03/01/2017 4,130,741 2,519,416 7.38 03/01/2017 2,569,679 8,576,471 6.99 04/01/2017 8,675,615 539,836 7.19 11/01/2017 546,250 784,577 7.04 03/01/2018 793,819 2,955,406 6.35 03/01/2018 2,949,909 569,993 7.47 05/01/2018 576,674 288,552 7.15 06/01/2018 292,819 896,436 7.24 06/01/2018 910,366 6,020,013 7.31 06/01/2018 6,147,758 3,554,572 7.30 07/01/2018 3,623,566 4,337,221 7.07 08/01/2018 4,407,484 2,915,222 7.59 08/01/2018 2,991,338 2,147,218 7.30 10/01/2018 2,184,795 1,420,692 7.13 10/01/2018 1,441,946 127,626 7.12 11/01/2018 128,685 4,310,005 7.20 11/01/2018 4,383,404 1,321,719 7.17 12/01/2018 1,341,809 9,776,995(b) 7.62 12/01/2018 10,019,660 2,282,400 7.17 06/01/2019 2,310,839 1,086,940 7.13 07/01/2019 1,104,831 2,958,595 7.18 07/01/2019 3,006,199 1,167,823 7.14 08/01/2019 1,182,467 2,737,317 7.37 09/01/2019 2,791,625 2,071,759 7.57 03/01/2020 2,113,381 6,218,420 7.15 07/01/2020 6,313,127 14,630,896 7.51 01/01/2021 14,977,795 3,360,772 7.44 02/01/2021 3,441,834 3,708,467 7.15 04/01/2021 3,769,879 49,482,409(b) 7.37 09/01/2021 50,572,012 14,695,792(b) 7.45 02/01/2022 15,075,091 1,544,367 7.08 05/20/2022 1,555,749 4,580,430 7.49 06/01/2022 4,699,705 1,346,612 7.39 08/01/2022 1,376,440 4,748,688 7.45 09/01/2022 4,858,002 257,188 6.22 12/01/2023 259,680 ----------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)(A) - (CONTINUED) $10,797,106 6.94% 06/20/2024 $ 10,959,063 551,303 7.43 09/01/2025 562,390 2,874,064 7.06 08/01/2027 2,911,542 1,767,014 6.97 10/01/2027 1,796,646 ------------ $196,033,595 ---------------------------------------------------------------------------------------------- ADJUSTABLE RATE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)(A) - 3.0% $ 1,287,918 6.87% 03/20/2016 $ 1,311,667 3,747,337 6.62 08/20/2018 3,824,045 4,614,191 6.87 02/20/2021 4,687,742 2,273,990 6.87 06/20/2022 2,310,942 3,037,186 6.87 05/20/2023 3,060,876 ------------ $ 15,195,272 ---------------------------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - 3.2% $ 5,353,997 7.00% 12/01/1999 $ 5,384,676 1,951,984 6.50 03/01/2013 1,980,054 3,945,910 6.50 04/01/2013 4,002,653 1,634,011 6.50 05/01/2013 1,657,509 3,383,288 6.50 06/01/2013 3,424,371 ------------ $ 16,449,263 ---------------------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 3.5% $ 9,966,054 7.00% 10/01/2002 $ 10,106,206 6,862,306 8.00 11/01/2017 7,123,966 ------------ $ 17,230,172 ---------------------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 4.9% $ 8,209,936 9.00% 12/15/2017 $ 8,789,722 357,801 7.00 01/15/2023 366,299 540,955 7.00 05/15/2023 553,970 516,923 7.00 06/15/2023 529,361 2,435,399 7.00 07/15/2023 2,493,784 415,158 7.00 09/15/2023 425,147 1,237,675 7.00 10/15/2023 1,267,454 4,675,610 7.00 11/15/2023 4,786,572 5,867,550 7.00 12/15/2023 6,006,729 ------------ $ 25,219,038 ---------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS - 12.2% ADJUSTABLE RATE CMOS(A) - 1.4% FNMA Remic Trust 1990-145, Class A $ 7,235,523 6.40% 12/25/2020 $ 7,199,490 ---------------------------------------------------------------------------------------------- INVERSE FLOATER(A) - 1.4% FNMA Series 1993-189, Class SA $ 7,088,450 9.75% 10/25/2023 $ 7,091,143 ---------------------------------------------------------------------------------------------- IOETTE - 0.1% FNMA Remic Trust 1990-145, Class B $ 17,780 11.18%(c) 12/25/2020 $ 324,812 ---------------------------------------------------------------------------------------------- PLANNED AMORTIZATION CLASS (PAC) CMOS - 3.2% FHLMC Series 2055, Class OD(b) $10,000,000 6.00% 12/15/2007 $ 10,043,700 FNMA Series X-188B, Class ZA 6,144,677 5.75 09/25/2010 6,175,462 ------------ $ 16,219,162 ----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 18 GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) REGULAR FLOATER CMOS(A) - 1.3% FNMA Remic Trust 169B, Class FA $ 1,823,556 5.68% 09/25/2000 $ 1,835,518 FNMA Remic Trust 1997-43, Class FA 2,794,679 6.24 07/18/2027 2,799,039 FNMA Remic Trust 1997-7, Class FB 2,112,052 6.10 03/18/2027 2,114,122 ------------ $ 6,748,679 ------------------------------------------------------------------------------------------------ SEQUENTIAL FIXED RATE CMOS - 3.3% FHLMC Series 2064, Class M(b) $ 7,300,000 6.00% 06/15/2028 $ 7,437,671 FNMA Series 1998-36, Class J 9,095,000 6.00 07/18/2028 9,284,085 ------------ $ 16,721,756 ------------------------------------------------------------------------------------------------ SUPPORT - 1.5% FNMA Series G94 13, Class ZB $ 7,821,819 7.00% 11/17/2024 $ 7,808,786 ------------------------------------------------------------------------------------------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 62,113,828 ------------------------------------------------------------------------------------------------ TOTAL MORTGAGE BACKED OBLIGATIONS (COST $443,002,545) $437,654,110 ------------------------------------------------------------------------------------------------ AGENCY DEBENTURES - 3.2% ADJUSTABLE RATE SMALL BUSINESS ADMINISTRATION (SBA)(A) - 3.2% $ 865,252 6.37% 09/25/2016 $ 878,967 3,372,894 6.37 07/25/2017 3,424,542 5,530,015 6.37 08/25/2017 5,621,204 2,508,873 6.37 09/25/2017 2,547,683 2,781,031 6.37 10/25/2017 2,825,973 278,585 6.37 02/25/2018 283,279 814,558 6.12 11/25/2018 816,595 ------------------------------------------------------------------------------------------------ TOTAL AGENCY DEBENTURES (COST $16,143,349) $ 16,398,243 ------------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT - 8.6% JOINT REPURCHASE AGREEMENT ACCOUNT(B) $43,700,000 5.63% 11/02/1998 $ 43,700,000 ------------------------------------------------------------------------------------------------ TOTAL REPURCHASE AGREEMENT (COST $43,700,000) $ 43,700,000 ------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (COST $502,845,894)(D) $497,752,353 ------------------------------------------------------------------------------------------------
Futures contracts open at October 31, 1998 are as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED TYPE LONG (SHORT)(E) MONTH GAIN (LOSS) ------------------------------------------------------------------------------------- Euro Dollars 560 December 1998 $ 407,104 Euro Dollars 208 March 1999 588,017 Euro Dollars 89 June 1999 91,835 Euro Dollars (19) September 1999 (5,346) Euro Dollars (20) December 1999 (74,500) 5 Year U.S. Treasury Notes (90) December 1998 (165,368) 10 Year U.S. Treasury Notes 24 December 1998 (3,902) 20 Year Long Term Bond 6 December 1998 (30,226) ------------------------------------------------------------------------------------- $ 807,614 ------------------------------------------------------------------------------------- FEDERAL INCOME TAX INFORMATION: Gross unrealized gain for investments in which value exceeds cost $ 1,898,864 Gross unrealized loss for investments in which cost ex- ceeds value (6,992,405) ------------------------------------------------------------------------------------- Net unrealized loss $(5,093,541) -------------------------------------------------------------------------------------
(a) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1998. (b) Portions of these securities are being segregated for open futures contracts, futures margin requirements and open purchases. (c) Represents security with notional or nominal principal amount. The actual effective yield of this security. (d) The amount stated also represents aggregate cost for federal income tax purposes. (e) Each Euro Dollar contract represents $1,000,000 in notional par value. Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long Term Bond contract represents $100,000 in notional par value. The total notional amount and market value at risk are $908,000,000 and $227,205,706, respectively. The determination of notional amounts as presented here are indicative only of volume of activity and not a measure of market risk. The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 19 GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND Performance Summary October 31, 1998 The following graph shows the value as of October 31, 1998, of a $10,000 in- vestment made in Institutional shares on September 1, 1988. For comparative purposes, the performance of the Fund's benchmarks (the U.S. 2-Year Treasury Bill ("Two-Year T-Bill") and the Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index ("Lehman Short (1-3) Gov't Index")) are shown. This perfor- mance data represents past performance and should not be considered indica- tive of future performance which will fluctuate with changes in market conditions. These performance fluctuations will cause an investor's shares, when redeemed, to be worth more or less than their original cost. Performance of Class A, Class B, Class C, Administration and Service shares will vary from Institutional shares due to differences in fees and loads. SHORT DURATION GOVERNMENT FUND'S LIFETIME PERFORMANCE GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED SEPTEMBER 1, 1988 TO OCTOBER 31, 1998.(A) [LINE GRAPH APPEARS HERE] Short Duration Government Fund Lehman Short (Institutional Shares) (1-3) Gov't Index Two-Year T-Bill 9/1/88 10000 10000 10000 Sep-88 10129 10116 10109 10/88 10257 10218 10211 Nov-88 10221 10193 10169 Dec-88 10226 10215 10367 1/89 10315 10296 10455 Feb-89 10335 10297 10443 Mar-89 10359 10340 10474 4/89 10515 10509 10623 May-89 10673 10657 10786 Jun-89 10887 10855 10992 7/89 11040 11015 11158 Aug-89 10936 10950 11064 Sep-89 11008 11013 11119 10/89 11189 11184 11276 Nov-89 11287 11284 11367 Dec-89 11336 11327 11402 1/90 11323 11340 11391 Feb-90 11386 11400 11432 Mar-90 11445 11434 11464 4/90 11461 11461 11476 May-90 11616 11638 11655 Jun-90 11732 11760 11783 7/90 11864 11902 11929 Aug-90 11896 11945 11964 Sep-90 11993 12040 12052 10/90 12110 12173 12184 Nov-90 12225 12291 12301 Dec-90 12365 12436 12451 1/91 12468 12553 12548 Feb-91 12534 12634 12608 Mar-91 12623 12718 12696 4/91 12743 12840 12806 May-91 12809 12917 12893 Jun-91 12859 12965 12964 7/91 13030 13077 13089 Aug-91 13158 13256 13275 Sep-91 13334 13396 13420 10/91 13433 13541 13556 Nov-91 13592 13681 13694 Dec-91 13588 13889 13912 1/92 13568 13870 13880 Feb-92 13585 13912 13917 Mar-92 13577 13908 13905 4/92 13668 14034 14023 May-92 13820 14164 14165 Jun-92 13984 14307 14336 7/92 14152 14471 14508 Aug-92 14276 14588 14643 Sep-92 14384 14726 14786 10/92 14274 14642 14684 Nov-92 14261 14620 14649 Dec-92 14406 14756 14789 1/93 14569 14911 14959 Feb-93 14698 15030 15090 Mar-93 14707 15076 15132 4/93 14793 15168 15232 May-93 14763 15132 15168 Jun-93 14905 15245 15290 7/93 14937 15279 15319 Aug-93 15087 15406 15458 Sep-93 15082 15455 15510 10/93 15066 15489 15534 Nov-93 15038 15492 15541 Dec-93 15120 15554 15597 1/94 15238 15652 15697 Feb-94 15159 15557 15596 Mar-94 15026 15477 15518 4/94 14962 15419 15447 May-94 14998 15439 15458 Jun-94 15027 15477 15502 7/94 15158 15616 15643 Aug-94 15208 15668 15685 Sep-94 15183 15632 15643 10/94 15216 15668 15681 Nov-94 15156 15602 15616 Dec-94 15189 15632 15637 1/95 15400 15844 15870 Feb-95 15613 16060 16095 Mar-95 15687 16150 16178 4/95 15860 16294 16324 May-95 16142 16572 16629 Jun-95 16206 16662 16717 7/95 16226 16728 16776 Aug-95 16317 16829 16869 Sep-95 16426 16911 16949 10/95 16581 17051 17096 Nov-95 16747 17196 17250 Dec-95 16861 17327 17377 1/96 17058 17474 17525 Feb-96 16976 17406 17434 Mar-96 16963 17392 17411 4/96 16982 17409 17416 May-96 17019 17447 17446 Jun-96 17160 17575 17573 7/96 17214 17643 17635 Aug-96 17322 17708 17691 Sep-96 17502 17870 17856 10/96 17703 18072 18061 Nov-96 17833 18205 18200 Dec-96 17844 18209 18195 1/97 17942 18296 18264 Feb-97 18001 18340 18298 Mar-97 17986 18325 18289 4/97 18176 18475 18440 May-97 18290 18604 18565 Jun-97 18444 18733 18695 7/97 18675 18937 18912 Aug-97 18661 18956 18920 Sep-97 18836 19100 19060 10/97 18954 19241 19210 Nov-97 18974 19289 19233 Dec-97 19091 19419 19368 1/98 19307 19605 19571 Feb-98 19289 19623 19569 Mar-98 19349 19697 19638 4/98 19426 19792 19720 5/98 19547 19898 19820 6/98 19626 20000 19976 7/98 19728 20093 20064 8/98 19992 20356 20338 9/98 20232 20612 20635 10/98 20233 20712 20742
SINCE INCEPTION OF CLASS TEN YEARS FIVE YEARS ONE YEAR AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998 CLASS A (COMMENCED MAY 1, 1997) Excluding sales charges 7.04% n/a n/a 6.36% Including sales charges 5.61% n/a n/a 4.25% ----------------------------------------------------------------------------- CLASS B (COMMENCED MAY 1, 1997) Excluding sales charges 6.40% n/a n/a 5.62% Including sales charges 5.70% n/a n/a 3.51% ----------------------------------------------------------------------------- CLASS C (COMMENCED AUGUST 15, 1997) Excluding sales charges 5.72% n/a n/a 5.46% Including sales charges 5.72% n/a n/a 4.41% ----------------------------------------------------------------------------- INSTITUTIONAL CLASS (COM- MENCED AUGUST 15, 1988) 7.18% 7.03% 6.07% 6.75% ----------------------------------------------------------------------------- ADMINISTRATION CLASS (COM- MENCED FEBRUARY 28, 1996) 6.43% n/a n/a 6.27% ----------------------------------------------------------------------------- SERVICE CLASS (COMMENCED APRIL 10, 1996) 6.70% n/a n/a 6.12% -----------------------------------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on the first day of the month following commencement of operations. 20 GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - 69.8% ADJUSTABLE RATE FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)(A) - 6.6% $ 1,279,253(b) 7.12% 08/01/2017 $ 1,296,241 1,116,932(b) 7.30 05/01/2018 1,123,432 3,627,738(b) 7.55 06/01/2018 3,691,369 1,194,234(b) 7.31 12/01/2018 1,214,751 5,632,799(b) 7.60 02/01/2022 5,770,014 1,800,160 8.10 10/01/2025 1,834,669 ------------ $ 14,930,476 -------------------------------------------------------------------------------------------- ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)(A) - 5.8% $ 1,737,771(b) 7.43% 11/01/2014 $ 1,778,973 3,511,846(b) 7.04 06/01/2018 3,562,768 5,028,835(b) 7.51 01/01/2021 5,148,068 1,346,612 7.39 08/01/2022 1,376,440 1,128,360 7.49 01/01/2031 1,152,338 ------------ $ 13,018,587 -------------------------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - 8.6% $ 977,420 6.50% 04/01/2013 $ 992,081 2,001,140 6.50 05/01/2013 2,029,917 990,168 6.50 06/01/2013 1,005,020 5,004,665 8.00 01/01/2028 5,162,612 1,173,117 7.00 07/01/2028 1,196,204 3,032,566(b) 7.00 08/01/2028 3,092,246 5,786,724(b) 7.00 09/01/2028 5,900,606 ------------ $ 19,378,686 -------------------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 5.3% $ 7,034,861 7.00%(c) 10/01/2002 $ 7,133,793 1,600,449 8.50 05/01/2010 1,672,966 669,773 6.00 01/01/2014 667,542 2,457,610 6.00 03/01/2014 2,473,738 ------------ $ 11,948,039 -------------------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 3.7% $ 183,092 9.00% 12/15/2008 $ 192,431 306,512 9.00 01/15/2009 322,950 101,468 9.00 01/15/2010 107,144 718,503 9.00 07/15/2012 756,892 1,824,430 9.00 12/15/2017 1,953,272 4,920,830(b) 7.00 10/15/2023 5,039,225 ------------ $ 8,371,914 -------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS - 39.8% INVERSE FLOATER(A) - 1.6% FHLMC Series 1296, Class J $ 757,688 11.76% 07/15/1999 $ 772,842 FNMA Remic Trust 1990-134, Class S 1,653,536 13.68 11/25/2020 1,910,430 FNMA Remic Trust 1992-62, Class S 837,866 10.29 05/25/1999 851,590 ------------ $ 3,534,862 --------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED) INVERSE FLOATING RATE--INTEREST ONLY(A) - 0.1% FHLMC Series 1684, Class JD $ 1,658,552 28.11%(d) 08/15/2020 $ 108,867 FNMA Remic Trust 1993-110, Class SC 841,805 3.37(d) 04/25/2019 23,040 ------------ $ 131,907 ---------------------------------------------------------------------------------------------- PLANNED AMORTIZATION--INTEREST ONLY - 0.2% FHLMC Series 1587, Class HA $ 4,779,640 6.50%(d) 10/15/2008 $ 460,279 ---------------------------------------------------------------------------------------------- PLANNED AMORTIZATION--PRINCIPAL ONLY - 0.7% FNMA Remic Trust 1989-39, Class D $ 1,839,282 7.32%(d) 05/25/2018 $ 1,690,981 ---------------------------------------------------------------------------------------------- PLANNED AMORTIZATION CLASS (PAC) CMOS - 18.6% FHLMC Remic Trust 1997-84, Class PA $ 4,000,000 5.90% 11/25/2021 $ 4,092,920 FHLMC Series 1556, Class G(b) 2,000,000 6.35 10/15/2010 2,040,620 FHLMC Series 1627, Class PZ(b) 2,197,589 5.60 08/15/2017 2,207,192 FHLMC Series 1645, Class ZA(b) 6,909,745 5.50 04/15/2005 6,905,392 FHLMC Series 1985, Class PC(b) 6,000,000 6.35 05/17/2018 6,085,800 FHLMC Series 1987, Class L 4,000,000 6.20 08/25/2022 4,159,815 FHLMC Series 2055, Class OD(b) 3,000,000 6.00 12/15/2007 3,013,110 FNMA Remic Trust 1993-175, Class Z 6,068,469 5.75 10/25/2006 6,079,817 FNMA Remic Trust 1997-70, Class AB 1,250,000 6.50 09/25/2022 1,273,225 FNMA Remic Trust 1991-31, Class PJ(b) 3,000,000 6.55 10/25/2020 3,131,910 FNMA Series 1993-32, Class PH(b) 3,000,000 6.50 11/25/2022 3,061,110 ------------ $ 42,050,911 ---------------------------------------------------------------------------------------------- PRINCIPAL ONLY - 2.0% FNMA Remic Trust 1992 G-28, Class A $ 5,050,865 4.83%(d) 05/25/2007 $ 4,446,529 ---------------------------------------------------------------------------------------------- REGULAR FLOATER CMOS(A) - 3.7% FHLMC Series 1296, Class I $ 2,121,527 5.30% 07/15/1999 $ 2,108,925 FHLMC Series 1684, Class JC(b) 1,658,552 5.40 08/15/2020 1,633,143 FNMA Remic Trust 1988-12, Class B(b) 2,110,199 4.29 02/25/2018 2,020,160 FNMA Remic Trust 1993-110, Class FC 841,805 5.60 04/25/2019 834,439 FNMA Remic Trust 1997-21, Class FA 1,615,016 6.25 04/18/2027 1,617,600 ------------ $ 8,214,267 ----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 21 GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) SEQUENTIAL FIXED RATE CMOS - 12.0% FHLMC Series 1033, Class G(b) $ 1,949,674 8.00% 01/15/2006 $ 2,038,014 FNMA Remic Trust 1988-12, Class A(b) 2,672,918 10.00 02/25/2018 2,940,483 FNMA Remic Trust 1989-18, Class B 303,659 9.50 01/25/2004 306,410 FNMA Remic Trust 1989-59, Class H 149,564 7.75 10/25/2018 149,049 FNMA Remic Trust 1989-74, Class J(b) 1,099,205 9.80 10/25/2019 1,160,783 FNMA Remic Trust 1990-16, Class E(b) 6,056,201 9.00 03/25/2020 6,337,632 FNMA Remic Trust 1991-133, Class Z(b) 3,926,011 8.00 09/25/2006 4,102,682 FNMA Remic Trust 1992-44, Class CA 1,555,278 12.00 08/25/2020 1,589,883 FNMA Remic Trust 1992-G43, Class D 26,670 7.50 01/25/2003 26,591 FNMA Series 1998-36, Class J(b) 6,000,000 6.00 07/18/2028 6,124,740 GNMA Remic Trust 1995-3, Class DQ(b) 2,274,296 8.05 06/16/2025 2,361,086 ------------ $ 27,137,353 ---------------------------------------------------------------------------------------------- SUPPORT - 0.9% FHLMC Series 16, Class M $ 2,000,000 7.00% 08/25/2023 $ 2,013,840 ---------------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 89,680,929 ---------------------------------------------------------------------------------------------- TOTAL MORTGAGE BACKED OBLIGATIONS (COST $156,747,796) $157,328,631 ---------------------------------------------------------------------------------------------- AGENCY DEBENTURES - 7.6% Federal Home Loan Bank(b) $ 6,000,000 5.76% 03/23/2001 $ 6,148,140 Small Business Administration 1,460,773 7.20 06/01/2017 1,609,845 2,000,000(b) 6.30 05/01/2018 2,146,694 2,500,000(b) 6.30 06/01/2018 2,677,321 Sri Lanka Aid(a)(b) 4,500,000 4.92 02/21/2016 4,443,750 ---------------------------------------------------------------------------------------------- TOTAL AGENCY DEBENTURES (COST $16,562,497) $ 17,025,750 ---------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS - 19.6% United States Treasury Notes(b) $41,700,000 6.63% 07/31/2001 $ 44,143,203 ---------------------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $43,945,398) $ 44,143,203 ----------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE REPURCHASE AGREEMENT - 2.8% Joint Repurchase Agreement Account(b) $ 6,400,000 5.63% 11/02/1998 $ 6,400,000 ------------------------------------------------------------------------------------------------ TOTAL REPURCHASE AGREEMENT (COST $6,400,000) $ 6,400,000 ------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (COST $223,655,691)(E) $224,897,584 ------------------------------------------------------------------------------------------------
Futures contracts open at October 31, 1998 are as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED TYPE LONG (SHORT)(F) MONTH GAIN (LOSS) ------------------------------------------------------------------------ Euro Dollars 179 December 1998 $ 121,078 Euro Dollars 96 March 1999 262,326 Euro Dollars 87 June 1999 267,801 Euro Dollars 46 September 1999 154,773 Euro Dollars 45 December 1999 162,375 Euro Dollars 45 March 2000 112,964 Euro Dollars 20 June 2000 (2,877) 2 year U.S. Treasury Notes 121 December 1998 179,593 5 Year U.S. Treasury Notes (30) December 1998 (90,191) 10 Year U.S. Treasury Notes (27) December 1998 (41,892) 20 Year Long Term Bond (9) December 1998 (9,337) ------------------------------------------------------------------------ $1,116,613 ------------------------------------------------------------------------ FEDERAL INCOME TAX INFORMATION: Gross unrealized gain for investments in which value exceeds cost $2,648,156 Gross unrealized loss for investments in which cost exceeds value (1,406,263) ------------------------------------------------------------------------ Net unrealized gain $1,241,893 ------------------------------------------------------------------------
(a) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1998. (b) Portions of these securities are being segregated for open futures contracts, futures margin requirements, when-issued securities and open purchases. (c) When-issued Security. (d) Represents security with notional or nominal principal amount. The actual effective yield of this security is different than the stated coupon due to the amortization of related premiums. (e) The amount stated also represents aggregate cost for federal income tax purposes. (f) Each Euro Dollar contract represents $1,000,000 in notional par value. Each 2-Year U.S. Treasury Note contract represents $200,000 in notional par value. Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20- Year Long Term Bond contract represents $100,000 in notional par value. The total notional amount and market value at risk are $548,800,000 and $157,066,369, respectively. The determination of notional amounts as presented here are indicative only of volume of activity and not a measure of market risk. The percentage shown for each investment category reflects the value of in- vestments in that category as a percentage of total net assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 22 GOLDMAN SACHS GOVERNMENT INCOME FUND Performance Summary October 31, 1998 The following graph shows the value as of October 31, 1998, of a $10,000 in- vestment made (with the maximum sales charge of 4.5%) in Class A shares on March 1, 1993. For comparative purposes, the performance of the Fund's bench- marks (the Lehman Brothers Mutual Fund Government/Mortgage Index ("Lehman Gov't/MBS Index") and the Lehman Brothers Mutual Fund General U.S. Government Index ("Lehman U.S. Gov't Index")) are shown. This performance data repre- sents past performance and should not be considered indicative of future per- formance which will fluctuate with changes in market conditions. These performance fluctuations will cause an investor's shares, when redeemed, to be worth more or less than their original cost. Performance of Class B, Class C, Institutional and Service shares will vary from Class A due to differences in fees and loads. GOVERNMENT INCOME FUND'S LIFETIME PERFORMANCE GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MARCH 1, 1993 TO OCTOBER 31, 1998.(A) [LINE GRAPH APPEARS HERE] Government Income Fund Lehman Gov't Lehman U.S. (Class A) /MBS Index Gov't Index 3/1/93 9550 10000 10000 Mar-93 9565 10043 10033 4/93 9658 10111 10110 May-93 9621 10124 10099 Jun-93 9793 10296 10323 7/93 9856 10351 10386 Aug-93 9995 10518 10618 Sep-93 10009 10547 10658 10/93 10036 10585 10699 Nov-93 9963 10502 10581 Dec-93 10019 10558 10622 1/94 10145 10689 10768 Feb-94 10028 10514 10540 Mar-94 9776 10265 10302 4/94 9695 10186 10221 May-94 9701 10192 10208 Jun-94 9702 10169 10184 7/94 9866 10362 10372 Aug-94 9874 10374 10374 Sep-94 9744 10228 10227 10/94 9737 10221 10219 Nov-94 9717 10197 10201 Dec-94 9813 10267 10263 1/95 9993 10468 10454 Feb-95 10216 10708 10679 Mar-95 10267 10769 10746 4/95 10407 10914 10887 May-95 10786 11321 11326 Jun-95 10852 11401 11413 7/95 10836 11380 11371 Aug-95 10941 11509 11505 Sep-95 11052 11616 11615 10/95 11187 11767 11792 Nov-95 11338 11934 11976 Dec-95 11493 12096 12146 1/96 11568 12176 12221 Feb-96 11373 11979 11972 Mar-96 11307 11898 11872 4/96 11256 11838 11796 May-96 11231 11813 11776 Jun-96 11389 11969 11928 7/96 11419 12003 11958 Aug-96 11418 11987 11932 Sep-96 11602 12187 12130 10/96 11838 12444 12397 Nov-96 12035 12647 12612 Dec-96 11930 12541 12484 1/97 11968 12583 12497 Feb-97 11994 12610 12515 Mar-97 11881 12481 12382 4/97 12054 12668 12560 May-97 12143 12784 12668 Jun-97 12282 12929 12810 7/97 12608 13250 13174 Aug-97 12510 13156 13043 Sep-97 12681 13343 13239 10/97 12870 13543 13468 Nov-97 12907 13602 13536 Dec-97 13042 13737 13678 1/98 13223 13917 13884 Feb-98 13206 13904 13846 Mar-98 13252 13952 13885 4/98 13300 14020 13947 5/98 13422 14281 14091 6/98 13534 14406 14251 7/98 13574 14448 14273 8/98 13846 14729 14644 9/98 14108 15039 15039 10/98 14025 15001 14988
SINCE INCEPTION OF CLASS FIVE YEARS ONE YEAR AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998 CLASS A (COMMENCED FEBRUARY 10, 1993) Excluding sales charges 7.46% 6.92% 8.98% Including sales charges 6.60% 5.94% 4.05% --------------------------------------------------------------------------- CLASS B (COMMENCED MAY 1, 1996) Excluding sales charges 8.39% n/a 8.09% Including sales charges 7.15% n/a 2.80% --------------------------------------------------------------------------- CLASS C (COMMENCED AUGUST 15, 1997) Excluding sales charges 9.01% n/a 8.09% Including sales charges 9.01% n/a 7.03% --------------------------------------------------------------------------- INSTITUTIONAL CLASS (COMMENCED AUGUST 15, 1997) 10.11% n/a 9.19% --------------------------------------------------------------------------- SERVICE CLASS (COMMENCED AUGUST 15, 1997) 7.37% n/a 8.53% ---------------------------------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on the first day of the month following commencement of operations. 23 GOLDMAN SACHS GOVERNMENT INCOME FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - 58.1% FEDERAL HOME LOAN MORTGAGE CORP. - 20.4% $ 971,452 6.00% 03/01/2013 $ 975,397 3,525,662 6.00 04/01/2013 3,539,975 185,433 6.00 06/01/2013 186,186 184,371 6.00 08/01/2013 185,119 34,505 7.00 03/01/2024 35,195 97,902 7.00 04/01/2024 99,860 17,515 7.00 08/01/2025 17,865 1,593,381 7.00 04/01/2026 1,625,248 966,972 7.00 05/01/2026 986,311 1,615,368 7.50 09/01/2026 1,655,235 827,655 7.50 11/01/2027 847,825 906,968 7.50 12/01/2027 929,071 709,551 7.00 01/01/2028 723,515 1,700,213 7.50 02/01/2028 1,741,647 666,981 7.00 08/01/2028 680,107 892,901 7.00 09/01/2028 910,473 5,000,000 7.00 TBA-30 Yr(a) 5,098,400 6,000,000 7.50 TBA-30 Yr(a) 6,146,220 ------------ $ 26,383,649 --------------------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 6.7% $ 245,551 6.50% 09/01/2025 $ 247,545 250,174 6.50 10/01/2025 252,206 335,559 6.50 11/01/2025 338,284 22,494 6.50 05/01/2026 22,677 467,443 6.50 08/01/2025 471,093 432,370 6.50 12/01/2025 435,767 44,820 6.50 03/01/2028 45,170 819,893 6.50 04/01/2028 826,297 1,065,828 6.50 05/01/2028 1,074,152 826,170 6.50 06/01/2028 832,622 989,378 6.50 07/01/2028 997,105 105,368 6.50 08/01/2028 106,190 105,894 6.50 09/01/2028 106,721 3,000,000 6.00 TBA-15 Yr(a) 3,012,188 ------------ $ 8,768,017 --------------------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 13.1% $ 178,982 9.00% 10/15/2019 $ 191,063 84,707 9.00 12/15/2019 90,425 236,191 7.00 03/15/2023 241,873 216,766 7.50 04/15/2023 223,267 725,346 7.00 05/15/2023 742,797 255,739 7.00 06/15/2023 261,893 1,066,013 7.00 07/15/2023 1,091,661 414,433 7.50 07/15/2023 426,862 496,340 7.00 08/15/2023 508,282 708,575 7.00 09/15/2023 725,623 1,390,624 7.00 10/15/2023 1,423,804 613,810 7.00 11/15/2023 628,578 762,633 7.00 12/15/2023 780,982 402,833 8.00 04/15/2026 417,311 357,949 8.00 05/15/2026 370,814 295,066 8.00 07/15/2026 305,671 138,693 8.00 12/15/2026 143,807 557,604 8.00 06/15/2027 578,163 ---------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - (CONTINUED) $ 602,695 7.50% 07/15/2027 $ 620,963 146,862 8.00 07/15/2027 152,140 274,549 7.50 09/15/2027 282,698 403,011 8.00 09/15/2027 417,495 246,870 7.50 10/15/2027 254,197 283,471 7.50 11/15/2027 292,063 696,390 7.50 12/15/2027 717,497 1,000,000 6.50 03/15/2028 1,010,930 2,988,014 7.00 08/15/2028 3,058,979 1,000,000 6.50 10/15/2028 1,010,930 ------------ $ 16,970,768 ---------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS - 17.9% INTEREST ONLY - 0.1% FNMA Interest-Only Stripped Security, Series 151, Class 2 $ 407,767(b) 15.47% 07/25/2022 $ 96,335 ---------------------------------------------------------------------------------------------- INVERSE FLOATER(C) - 1.0% FNMA Remic Trust 1992-62, Class S $ 279,289 10.29% 05/25/1999 $ 283,863 FNMA Series 1993-138, Class SM 921,052 12.09 12/25/2021 1,056,226 ------------ $ 1,340,089 ---------------------------------------------------------------------------------------------- INVERSE FLOATING RATE--INTEREST ONLY(C) - 0.3% Salomon Brothers Mortgage Securities VII Series 1996-6E, Class A2 $12,528,238(b) 10.01% 03/30/2005 $ 352,357 ---------------------------------------------------------------------------------------------- NON-AGENCY COMMERCIAL MBS - 1.0% First Union-Lehman Brothers Commercial Mortgage Services Series 1997- C1, Class A2 $ 400,000 7.30% 12/18/2006 $ 428,128 First Union-Lehman Brothers Commercial Mortgage Services Series 1997- C2, Class A2 800,000 6.60 11/18/2029 818,144 ------------ $ 1,246,272 ---------------------------------------------------------------------------------------------- PLANNED AMORTIZATION CLASS (PAC) CMOS - 9.0% FHLMC Series 1522, Class E $ 1,000,000 5.00% 10/15/2020 $ 992,180 FHLMC Series 1985, Class PC 1,500,000 6.35 05/17/2018 1,521,450 FHLMC Series 2055, Class OD 4,000,000 6.00 12/15/2007 4,017,480 FNMA REMIC Trust Series 1997-84, Class PB 2,000,000 5.50 01/25/2008 2,016,940 GE Capital Mortgage Services, Inc. 1997-8, Class A13 3,000,000 7.25 10/25/2027 3,048,270 ------------ $ 11,596,320 ----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 24 GOLDMAN SACHS GOVERNMENT INCOME FUND
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) PRINCIPAL ONLY - 0.2% FNMA Remic Trust, Series G-35, Class N $ 362,999 6.01%(d) 10/25/2021 $ 319,712 -------------------------------------------------------------------------------------------- SEQUENTIAL FIXED RATE CMOS - 2.6% Citicorp Mortgage Securities, Series 1993-11, Class A6 $ 561,687 6.25% 09/25/2008 $ 558,132 GE Capital Mortgage Services, Inc. Series 1995-1, Class A8 2,785,000 8.40 02/25/2025 2,807,336 ------------ $ 3,365,468 -------------------------------------------------------------------------------------------- SUPPORT - 3.7% FHLMC Series 16, Class M $1,000,000 7.00% 08/25/2023 $ 1,006,920 GE Capital Mortgage Services, Inc., Series 1994-10, Class A22 996,703 6.50 03/25/2024 967,809 Housing Securities, Inc., Series 1994-1, Class A13 1,455,585 6.50 03/25/2009 1,456,415 Prudential Securities, Series 1995-2, Class A(c) 357,820 6.02 11/15/2015 357,932 Salomon Brothers Mortgage Securities VII Series 1996-6H, Class A1 1,000,000 6.00 09/30/2008 1,008,350 ------------ $ 4,797,426 -------------------------------------------------------------------------------------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 23,113,979 -------------------------------------------------------------------------------------------- TOTAL MORTGAGE BACKED OBLIGATIONS (COST $74,290,993) $ 75,236,413 -------------------------------------------------------------------------------------------- AGENCY DEBENTURES - 9.3% Federal Home Loan Bank $1,700,000 5.76% 03/23/2001 $ 1,741,973 1,000,000 5.68 12/03/2007 1,022,020 Financing Corp. Stripped Security (Principal Only)(d) 2,000,000 5.83 03/07/2013 862,700 Small Business Administration 1,587,284 7.15 03/01/2017 1,764,932 1,307,453 7.50 04/01/2017 1,484,064 767,286 7.30 05/01/2017 856,782 1,000,000 6.30 05/01/2018 1,073,347 1,000,000 6.30 06/01/2018 1,070,929 Sri Lanka Aid(c) 2,250,000 4.92 02/21/2016 2,221,875 -------------------------------------------------------------------------------------------- TOTAL AGENCY DEBENTURES (COST $11,434,468) $ 12,098,622 -------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES - 15.8% AESOP Funding Series 1998-1, Class A(e)(f) $2,000,000 6.14% 05/20/2006 $ 2,055,700 --------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE ASSET-BACKED SECURITIES - (CONTINUED) AFC Series 1997-1, Class A(c) $ 759,096 5.44% 03/25/2027 $ 751,414 Americredit Automobile Receivables Series 1997-D, Class A3 1,300,000 6.24 09/05/2003 1,337,154 Arcadia Automobile Receivables Series 1998-C, Class A3(f) 2,500,000 5.67 08/15/2006 2,552,033 CPS Auto Grantor Trust 1,881,004 6.30 08/15/2002 1,898,291 Fasco Auto Trust, Series 1996-1 521,356 6.65 11/15/2001 536,596 Fingerhut Master Trust, Series 1996-1, Class A 511,333 6.45 02/20/2002 513,890 First Franklin Mortgage Loan Asset Backed Certificate Series 1997-FF2, Class A(c) 2,334,214 5.41 11/20/2027 2,324,731 First Merchants Auto Trust Series 1996-B, Class A1(c) 164,130 5.71 03/15/2000 164,138 First USA Credit Card Master Trust Series 1997-6, Class A 1,600,000 6.42 03/17/2005 1,656,000 MBNA Master Credit Card Trust Series 1998-C, Class A(c) 2,000,000 5.49 11/15/2005 1,979,360 Merrill Lynch Mortgage Investments, Inc. Series 1997-FF2, Class A(c) 1,482,209 5.93 08/25/2028 1,476,188 Mid State Trust, Series 4, Class A 864,300 8.33 04/01/2030 946,356 Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1(c) 500,000 7.46 05/15/2006 526,455 Olympic Automobile Receivables Trust, Series 1994-B, Class A2 160,643 6.85 06/15/2001 161,793 Sears Credit Account Master Trust, Series 1995-2, Class A 460,000 8.10 06/15/2004 473,943 The Money Store Home Equity Trust Series 1997-C, Class AF7 1,100,000 6.95 01/15/2039 1,097,250 ----------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST $20,237,191) $ 20,451,292 ----------------------------------------------------------------------------------------------- INSURED REVENUE BONDS - 1.8% New Jersey Economic Development Authority Series A $2,000,000 7.43% 02/15/2029 $ 2,278,380 ----------------------------------------------------------------------------------------------- TOTAL INSURED REVENUE BONDS (COST $2,000,000) $ 2,278,380 -----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 25 GOLDMAN SACHS GOVERNMENT INCOME FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE U.S. TREASURY OBLIGATIONS - 16.1% United States Treasury Bonds(f) $ 1,740,000 8.50% 02/15/2020 $ 2,417,243 1,400,000 8.75 05/15/2020 1,991,934 1,200,000 7.88 02/15/2021 1,581,000 2,460,000 8.13 05/15/2021 3,325,994 650,000 8.13 08/15/2021 879,834 United States Treasury Interest-Only Stripped Securities(d) 4,460,000 5.04 02/15/2009 2,671,629 2,700,000 5.36 05/15/2012 1,318,707 3,600,000 5.54 08/15/2014 1,525,248 United States Treasury Notes 1,700,000(f) 6.63 07/31/2001 1,799,603 1,400,000 5.75 10/31/2002 1,467,922 United States Treasury Principal-Only Stripped Securities(d) 2,400,000 4.55 11/15/2004 1,820,160 ---------------------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $20,796,641) $ 20,799,274 ---------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 11.3% Joint Repurchase Agreement Account(f) $14,600,000 5.63% 11/02/1998 $ 14,600,000 ---------------------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENT (COST $14,600,000) $ 14,600,000 ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST $143,359,293)(G) $145,463,981 ----------------------------------------------------------------------------------------------
Futures contracts open at October 31, 1998 are as follows: NUMBER OF CONTRACTS SETTLEMENT UNREALIZED TYPE LONG (H) MONTH GAIN (LOSS) ------------------------------------------------------------------ Euro Dollars 20 March 1999 $ 10,108 Euro Dollars 19 June 1999 442 Euro Dollars 19 September 1999 1,229 Euro Dollars 10 December 1999 12,062 Euro Dollars 10 March 2000 1,812 2 Year U.S. Treasury Notes 15 December 1998 43,030 5 Year U.S. Treasury Notes 98 December 1998 105,057 10 Year U.S. Treasury Notes 46 December 1998 22,910 ------------------------------------------------------------------ $196,650 ------------------------------------------------------------------
------------------------------------------------------------------------------ FEDERAL INCOME TAX INFORMATION: Gross unrealized gain for investments in which value exceeds cost $2,448,269 Gross unrealized loss for investments in which cost exceeds value (343,581) ----------------------------------------------------- Net unrealized gain $2,104,688 -----------------------------------------------------
(a) TBA (To Be Assigned) securities are purchased on a forward commitment basis with an approximate (generally + /--2.5%) principal amount and no definite maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. (b) Represents security with notional or nominal principal amount. The actual effective yield of this security is different than the stated coupon due to the amortization of related premiums. (c) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1998. (d) The interest rate disclosed for these securities represents effective yield to maturity. (e) Security is exempt from registration under rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers in transactions exempt from registration. Total market value of the Rule 144A securities amounted to $2,055,700 as of October 31, 1998. (f) Portions of these securities are being segregated for open TBA purchases, forward sale contract, open futures contracts and futures margin requirements. (g) The amount stated also represents aggregate cost for federal income tax purposes. (h) Each Euro Dollar Contract represents $1,000,000 in notional par value. Each 5-Year and 10-Year U.S. Treasury Note contract represents $100,000 in notional par value. Each 2-Year U.S. Treasury Note contract represents $200,000 in notional par value. The total notional amount and market value at risk are $95,400,000 and 38,596,038, respectively. The determination of notional amounts as presented here are indicative only of volume of activity and not a measure of market risk. The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 26 GOLDMAN SACHS CORE FIXED INCOME FUND Performance Summary October 31, 1998 The following graph shows the value as of October 31, 1998, of a $10,000 in- vestment made in Institutional shares on January 5, 1994 (commencement of operations). For comparative purposes, the performance of the Fund's bench- mark (the Lehman Brothers Aggregate Bond Index ("Lehman Aggregate Index")) is shown. This performance data represents past performance and should not be considered indicative of future performance which will fluctuate with changes in market conditions. These performance fluctuations will cause an investor's shares, when redeemed, to be worth more or less than their original cost. Performance of Class A, Class B, Class C, Administration and Service shares will vary from Institutional shares due to differences in fees and loads. CORE FIXED INCOME FUND'S LIFETIME PERFORMANCE GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED JANUARY 5, 1994 TO OCTOBER 31, 1998. [LINE GRAPH APPEARS HERE] Core Fixed Income Lehman Aggregate Fund (Institutional Shares) Index 1/5/94 10000 10000 1/94 10157 10135 Feb-94 9964 9959 Mar-94 9759 9713 4/94 9678 9635 May-94 9672 9634 Jun-94 9644 9613 7/94 9825 9804 Aug-94 9842 9816 Sep-94 9710 9672 10/94 9700 9663 Nov-94 9680 9642 Dec-94 9780 9708 1/95 9957 9900 Feb-95 10186 10136 Mar-95 10248 10198 4/95 10388 10341 May-95 10788 10741 Jun-95 10862 10819 7/95 10843 10795 Aug-95 10979 10926 Sep-95 11080 11032 10/95 11224 11175 Nov-95 11393 11343 Dec-95 11550 11502 1/96 11621 11578 Feb-96 11424 11376 Mar-96 11332 11297 4/96 11276 11233 May-96 11268 11211 Jun-96 11436 11361 7/96 11464 11392 Aug-96 11457 11372 Sep-96 11653 11570 10/96 11898 11827 Nov-96 12120 12029 Dec-96 12016 11918 1/97 12057 11955 Feb-97 12085 11984 Mar-97 11955 11851 4/97 12121 12029 May-97 12225 12143 Jun-97 12380 12288 7/97 12726 12620 Aug-97 12615 12512 Sep-97 12808 12696 10/97 12991 12880 Nov-97 13020 12940 Dec-97 13159 13070 1/98 13332 13238 Feb-98 13320 13227 Mar-98 13374 13273 4/98 13430 13342 5/98 13568 13469 6/98 13692 13583 7/98 13722 13612 8/98 13971 13834 9/98 14258 14157 10/98 14180 14083
SINCE INCEPTION OF CLASS ONE YEAR AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998 CLASS A (COMMENCED MAY 1, 1997) Excluding sales charges 10.57% 8.76% Including sales charges 7.22% 3.91% --------------------------------------------------------------------------------- CLASS B (COMMENCED MAY 1, 1997) Excluding sales charges 9.80% 7.94% Including sales charges 7.02% 2.64% --------------------------------------------------------------------------------- CLASS C (COMMENCED AUGUST 15, 1997) Excluding sales charges 8.89% 7.94% Including sales charges 8.89% 6.88% --------------------------------------------------------------------------------- INSTITUTIONAL CLASS (COMMENCED JANUARY 5, 1994) 7.51% 9.15% --------------------------------------------------------------------------------- ADMINISTRATION CLASS (COMMENCED FEBRUARY 28, 1996) 7.98% 8.88% --------------------------------------------------------------------------------- SERVICE CLASS (COMMENCED MARCH 13, 1996) 8.38% 8.50% ---------------------------------------------------------------------------------
27 GOLDMAN SACHS CORE FIXED INCOME FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE CORPORATE BONDS - 28.3% FINANCE BONDS - 10.3% American General Finance Corp. $ 1,110,000 5.84% 01/29/2001 $ 1,138,916 Associates Corp. of North America 2,950,000 5.75 11/01/2003 2,961,594 Bank of New York, Inc.(a) 1,100,000 7.88 11/15/2002 1,188,495 BankAmerica Corp. 300,000 7.75 07/15/2002 319,143 1,400,000 7.50 10/15/2002 1,480,136 730,000 7.88 12/01/2002 782,764 Capital One Bank 600,000 6.66 02/03/2000 604,110 400,000 6.88 04/24/2000 402,844 800,000 6.58 04/17/2001 805,784 650,000 6.15 06/01/2001 647,706 1,000,000 6.40 05/08/2003 992,190 330,000 7.15 09/15/2006 329,825 Capital One Financial Corp. 355,000 7.25 12/01/2003 362,927 Comdisco, Inc. 2,200,000 6.13 01/15/2003 2,227,060 Countrywide Capital Corp. 1,080,000 8.05 06/15/2027 1,165,633 Countrywide Funding Corp. 125,000 6.08 07/14/1999 125,908 250,000 8.43 11/16/1999 258,890 1,000,000 6.97 03/28/2003 1,058,830 Countrywide Home Loans, Inc. 950,000 6.45 02/27/2003 986,594 Developers Diversified Realty 1,400,000 6.84 12/16/2004 1,400,182 ERP Operating LP(b) 550,000 8.50 05/15/1999 559,614 Ford Capital Corp. 300,000 9.50 07/01/2001 331,011 Ford Motor Credit Co. 900,000 6.00 01/14/2003 917,514 General Motors Acceptance Corp. 375,000 9.63 12/15/2001 418,298 Homeside Lending, Inc. 400,000 6.75 08/01/2004 416,528 Long Island Savings Bank(a) 2,650,000 6.20 04/02/2001 2,642,368 Meditrust, Inc. 750,000 7.38 07/15/2000 730,095 390,000 7.82 09/10/2026 375,890 MIC Finance Trust(b) 360,000 8.38 02/01/2027 365,081 PXRE Capital Trust I 165,000 8.85 02/01/2027 164,639 Security Pacific Corp. 995,000 11.50 11/15/2000 1,106,818 ------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE CORPORATE BONDS - (CONTINUED) FINANCE BONDS - (CONTINUED) Signet Banking Corp. $ 240,000 9.63% 06/01/1999 $ 245,292 Simon Property Group, Inc.(b) 345,000 6.63 06/15/2003 337,447 The Money Store, Inc. 630,000 7.30 12/01/2002 668,569 World Financial Properties(b) 489,851 6.91 09/01/2013 517,337 ----------- $29,036,032 ----------------------------------------------------------------------------------------------- INDUSTRIAL BONDS - 14.4% 360 Communications Co. $ 1,015,000 7.12% 03/01/2003 $ 1,082,193 Ametek, Inc. 600,000 7.20 07/15/2008 607,614 Comcast Cable Communications 455,000 8.13 05/01/2004 502,984 Continental Airlines, Inc. 331,876 7.75 07/02/2014 378,587 540,781 8.56 07/02/2014 646,618 Hertz Corp. 1,200,000 6.00 01/15/2003 1,206,108 500,000 7.00 07/15/2003 523,270 Highwoods/Forsyth LP 835,000 6.75 12/01/2003 813,156 Liberty Property LP 115,000 7.10 08/15/2004 109,768 Nabsico, Inc. 1,650,000 6.00 02/15/2011 1,639,358 News America Holdings, Inc. 400,000 8.00 10/17/2016 419,324 1,100,000 7.12 04/08/2028 1,072,478 Northwest Airlines Corp. 148,555 8.26 03/10/2006 155,818 559,274 8.97 01/02/2015 645,732 Oryx Energy Co. 800,000 10.00 06/15/1999 824,376 Owens Corning 745,000 7.50 05/01/2005 762,560 Panamsat Corp. 2,650,000 6.13 01/15/2005 2,670,220 Pep Boys - Manny, Moe & Jack 550,000 6.75 03/10/2004 570,361 100,000 7.00 06/01/2005 106,264 Philip Morris Companies, Inc. 2,250,000 7.12 08/15/2002 2,357,460 R & B Falcon Corp. 215,000 6.50 04/15/2003 213,933 960,000 6.75 04/15/2005 986,448 RJR Nabisco, Inc. 600,000 7.63 09/01/2000 597,954 -----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 28 GOLDMAN SACHS CORE FIXED INCOME FUND
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE CORPORATE BONDS - (CONTINUED) INDUSTRIAL BONDS - (CONTINUED) RJR Nabisco, Inc. -- (continued) $ 375,000 8.00% 07/15/2001 $ 376,920 Scotia Pacific Co.(b) 1,000,000 6.55 01/20/2007 1,012,190 Sears Roebuck Acceptance Corp. 500,000 6.41 11/19/2002 514,660 TCI Communications, Inc. 1,725,000 8.00 08/01/2005 1,933,311 290,000 8.75 08/01/2015 351,901 Tele-Communications, Inc. 100,000 7.38 02/15/2000 102,467 750,000 8.25 01/15/2003 828,158 Time Warner, Inc. 1,650,000 7.95 02/01/2000 1,695,738 1,350,000 9.63 05/01/2002 1,513,175 400,000 7.98 08/15/2004 441,180 1,000,000 7.75 06/15/2005 1,093,990 TKR Cable Inc. 3,195,000 10.50 10/30/2007 3,509,644 Tyco International Group 460,000 5.88 11/01/2004 458,523 1,150,000 6.38 06/15/2005 1,179,682 U.S. Air, Inc. 534,117 6.76 04/15/2008 567,671 USI American Holdings 150,000 7.25 12/01/2006 156,216 Viacom, Inc. 1,250,000 6.75 01/15/2003 1,288,738 Videotron Group Ltd. 835,000 10.63 02/15/2005 898,669 Williams Communications Solutions, Inc. 2,030,000 6.13 02/15/2002 2,052,208 WMX Technologies, Inc. 1,225,000(a) 6.25 10/15/2000 1,240,594 700,000 6.38 12/01/2003 709,576 ----------- $40,817,795 --------------------------------------------------------------------------------------------- UTILITY BONDS - 3.6% Cable & Wireless Communications $ 1,360,000 6.38% 03/06/2003 $ 1,386,438 California Energy, Inc. 735,000 10.25 01/15/2004 774,293 CE Electric UK Funding Co.(b) 1,000,000 6.85 12/30/2004 1,047,318 Central Maine Power Co. 330,000 7.45 08/30/1999 334,976 Edison Mission Energy Funding Corp. 138,284 6.77 09/15/2003 143,242 Niagara Mohawk Power Corp. 650,000 6.88 04/01/2003 676,371 750,000 8.00 06/01/2004 814,103 Salton Sea Funding 233,243 7.02 05/30/2000 235,470 ---------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE CORPORATE BONDS - (CONTINUED) UTILITY BONDS - (CONTINUED) Worldcom, Inc. $ 1,700,000 6.13% 08/15/2001 $ 1,731,875 650,000 9.38 01/15/2004 676,280 1,725,000 6.40 08/15/2005 1,795,794 450,000 8.88 01/15/2006 493,146 ----------- $10,109,306 ----------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (COST $78,496,873) $79,963,133 ----------------------------------------------------------------------------------------------- AGENCY DEBENTURES - 0.9% Small Business Administration $ 2,500,000 6.30% 06/01/2018 $ 2,677,321 ----------------------------------------------------------------------------------------------- TOTAL AGENCY DEBENTURES (COST $2,501,936) $ 2,677,321 ----------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES - 11.9% Aames Mortgage Trust Series 1998 B(a) $ 3,500,000 6.46% 09/15/2028 $ 3,644,301 AESOP Funding Series 1998-1, Class A(a)(b) 3,400,000 6.14 05/20/2006 3,494,690 AFC Series 1997-1, Class A(c) 556,671 5.44 03/25/2027 551,037 Americredit Automobile Receivables Trust Series 1998-A, Class A3(a) 2,500,000 5.88 12/05/2003 2,557,225 Chevy Chase Auto Receivables Trust Series 1995-2, Class A 59,883 5.80 06/15/2002 59,938 Discover Card Master Trust Series 1996-4, Class B(c) 850,000 5.96 10/16/2013 826,625 DVI Equipment Lease Trust 1996-1, Class A(b) 614,875 6.55 07/10/2004 628,961 EQCC Home Equity Loan Trust Series 1997-3, Class A(c) 1,108,980 5.58 11/15/2028 1,108,292 Fingerhut Master Trust Series 1998-2, Class A(a) 3,600,000 6.23 02/15/2007 3,717,216 First Franklin Mortgage Loan Asset Backed Certificate Series 1997-FF3, Class A2(c) 1,459,072 5.41 11/20/2027 1,453,145 General Motors Acceptance Corp. Series 1995, Class A 15,094 7.15 03/15/2000 15,103 Green Tree Financial Corp. Series 1998-6, Class M1(a) 4,250,000 6.63 06/01/2030 4,354,848 H + T Master Trust Series 1996-1, Class A2(b)(c) 550,000 8.18 8/15/2002 550,880 IMC Home Equity Loan Trust Series 1998-3, Class A8(a) 5,200,000 6.34 08/20/2029 5,272,436 Mid State Trust, Series 4, Class A(a) 2,880,999 8.33 04/01/2030 3,154,521 -----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 29 GOLDMAN SACHS CORE FIXED INCOME FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE ASSET BACKED SECURITIES - (CONTINUED) Olympic Automobile Receivables Trust, Series 1994-B, Class A2 $ 93,578 6.85% 06/15/2001 $ 94,251 Sears Credit Account Master Trust, Series 1995-2, Class A 550,000 8.10 06/15/2004 566,671 Sears Credit Account Master Trust, Series 1996-1, Class A 680,000 6.20 02/16/2006 692,532 Sears Credit Card Master Trust, Series 1995-3, Class A 300,000 7.00 10/15/2004 307,500 Standard Credit Card Master Trust, Series 1994-4, Class A 680,000 8.25 11/07/2003 732,061 ----------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST $33,194,392) $33,782,233 ----------------------------------------------------------------------------------------------- EMERGING MARKET DEBT - 1.4% Banco de Colombia $ 260,000 8.62% 06/02/2000 $ 241,800 Corp. Andina de Fomento 1,500,000 7.38 07/21/2000 1,524,045 Financiera Energy Nacional(b) 600,000 9.38 06/15/2006 450,000 YPF Sociedad Anonima 90,575 7.00 10/26/2002 82,298 485,314 7.50 10/26/2002 467,722 1,141,859 7.50 10/26/2002 1,150,157 ----------------------------------------------------------------------------------------------- TOTAL EMERGING MARKET DEBT (COST $4,154,927) $ 3,916,022 ----------------------------------------------------------------------------------------------- MORTGAGE BACKED OBLIGATIONS - 39.2% Asset Securitization Corp. $ 900,000 7.49% 04/14/2029 $ 975,321 Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2(a) 3,100,000 6.60 11/19/2007 3,223,411 Chase Commercial Mortgage Securities Corp. Series 1998-1, Class A2(a) 3,000,000 6.56 05/18/2030 3,250,418 Collateralized Mortgage Obligation Trust Series 63, Class Z 983,310 9.00 10/20/2020 1,029,093 Commercial Mortgage Acceptance Corp. Series 1998-C1, Class A2 2,200,000 6.49 05/15/2008 2,246,376 DLJ Commercial Mortgage Corp. Series 1998-CG1, Class A(a) 4,902,852 6.11 06/10/2031 5,121,188 Federal Home Loan Mortgage Corp. (FHLMC) 217,814 8.00 08/01/2010 224,863 959,767 6.00 11/01/2012 963,663 4,879,536 6.00 04/01/2013 4,899,346 1,000,000 6.35 03/25/2018 1,020,620 485,550 7.50 09/01/2025 497,534 -----------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) $ 586,618 7.00% 04/01/2026 $ 598,350 595,402 7.50 09/01/2026 610,096 205,586 7.50 10/01/2026 210,660 447,709 7.50 04/01/2027 458,620 842,659 7.50 05/01/2027 863,194 836,598 7.00 10/01/2027 853,330 1,542,087 7.00 12/01/2027 1,572,435 832,632 7.50 01/01/2028 852,923 1,067,982 7.00 02/01/2028 1,089,000 1,700,213 7.50 02/01/2028 1,741,647 685,013 7.50 03/01/2028 701,707 256,171 7.50 03/01/2028 262,496 587,270 7.50 04/01/2028 601,581 1,432,925 7.50 05/01/2028 1,468,028 1,334,585 7.00 06/01/2028 1,360,850 1,999,535 7.00 07/01/2028 2,038,886 517,189 7.00 08/01/2028 527,367 8,000,000 7.00 TBA-30 Yr(d) 8,157,440 9,000,000 7.50 TBA-30 Yr(d) 9,219,330 Federal National Mortgage Association (FNMA) 88,270 6.50 02/01/2026 88,987 225,754 6.50 08/01/2026 227,587 174,984 6.50 09/01/2027 176,351 387,887 6.50 10/01/2027 390,916 2,220,909 6.50 11/01/2027 2,238,255 2,531,772 6.50 12/01/2027 2,551,547 857,192 6.50 02/01/2028 863,887 846,854 6.50 04/01/2028 853,468 364,622 6.50 06/01/2028 367,470 1,197,316 6.50 07/01/2028 1,206,667 184,635 6.50 08/01/2028 186,077 1,069,013 6.00 09/01/2028 1,077,362 5,000,000 6.00 TBA-15 Yr(d) 5,020,313 FHLMC Series 2055, Class OD 2,000,000 6.00 12/15/2007 2,008,740 First Union-Lehman Brothers Commercial Mortgage Services Series 1997- C1, Class A2 600,000 7.30 12/18/2006 642,192 First Union-Lehman Brothers Commercial Mortgage Services Series 1997- C2, Class A2 1,000,000 6.60 11/18/2029 1,022,680 FNMA Remic Trust 1997-70, Class AB 1,250,000 6.50 09/25/2022 1,273,225 FNMA Remic Trust 31, Class PJ 750,000 6.55 10/25/2020 782,978 Government National Mortgage Association (GNMA) 264,666 8.00 02/15/2017 276,775 24,132 7.00 11/15/2022 24,713 860,816 7.00 12/15/2022 881,527 581,532 7.00 01/15/2023 595,870 158,879 7.00 03/15/2023 162,652 587,392 7.50 03/15/2023 605,008 1,989,300 7.00 05/15/2023 2,037,163 31,272 7.00 06/15/2023 32,024 2,049,546 7.00 07/15/2023 2,098,706 617,324 7.00 08/15/2023 632,177 ------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 30 GOLDMAN SACHS CORE FIXED INCOME FUND
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE MORTGAGE BACKED OBLIGATIONS - (CONTINUED) $ 98,811 7.50% 08/15/2023 $ 101,775 1,677,280 7.00 10/15/2023 1,716,809 33,112 7.00 11/15/2023 33,909 102,521 7.00 12/01/2023 104,987 1,148,813 7.00 12/15/2023 1,175,815 235,803 8.00 11/15/2025 244,497 147,963 7.50 02/15/2026 152,448 440,555 8.00 05/15/2026 456,388 935,156 7.50 08/15/2026 962,911 91,011 8.00 09/15/2026 94,367 425,734 8.00 03/15/2027 441,035 425,395 8.00 04/15/2027 440,684 16,911 8.00 05/15/2027 17,535 242,878 7.50 08/15/2027 250,086 893,368 7.50 11/15/2027 919,883 814,173 7.50 12/15/2027 838,850 747,294 8.00 12/15/2027 774,847 1,000,000 6.50 03/15/2028 1,010,930 278,357 6.50 08/15/2028 281,399 4,993,306 7.00 08/15/2028 5,111,897 2,721,643 6.50 10/15/2028 2,751,391 Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A2(a) 3,690,000 6.39 02/15/2030 3,949,184 Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1 900,000 7.46 05/15/2006 947,619 Prudential Home Mortgage Securities Corp. 1992-39 A8(c) 1,000,000 7.99 12/25/2007 1,049,750 Residental Funding Mortgage Securities I Series 1997-S12, Class A19(a) 2,000,000 6.75 08/25/2027 2,023,531 ----------------------------------------------------------------------------------------------- TOTAL MORTGAGE BACKED OBLIGATIONS (COST $108,991,413) $110,817,617 ----------------------------------------------------------------------------------------------- SOVEREIGN CREDIT - 0.3% Province of Quebec $ 520,000 13.25% 09/15/2014 $ 577,288 State of Israel 370,000 6.38 12/15/2005 369,338 ----------------------------------------------------------------------------------------------- TOTAL SOVEREIGN CREDIT (COST $999,207) $ 946,626 ----------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS - 17.5% United States Treasury Bonds $1,000,000 8.75% 05/15/2020 $ 1,422,810 2,300,000 7.88 02/15/2021 3,030,250
PRINCIPAL INTEREST MATURITY AMOUNT RATE DATE VALUE U.S. TREASURY OBLIGATIONS - (CONTINUED) United States Treasury Interest-Only Stripped Securities(e) $10,230,000 5.04% 02/15/2009 $ 6,127,975 350,000(b) 5.22 11/15/2010 188,577 15,300,000 5.36 05/15/2012 7,472,673 9,990,000 5.54 08/15/2014 4,232,563 United States Treasury Note 15,000,000 6.63 07/31/2001 15,878,850 United States Treasury Principal-Only Stripped Securities(e) 5,110,000 4.55 11/15/2004 3,875,424 6,000,000 5.66 11/15/2018 1,955,400 16,200,000 5.67 02/15/2019 5,195,988 ---------------------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $49,229,921) $ 49,380,510 ---------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 7.9% Joint Repurchase Agreement Account(a) $22,300,000 5.63% 11/02/1998 $ 22,300,000 ---------------------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENT (COST $22,300,000) $ 22,300,000 ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST $299,868,669)(F) $303,783,462 ---------------------------------------------------------------------------------------------- Futures contracts open at October 31, 1998 are as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED TYPE LONG (SHORT)(G) MONTH GAIN (LOSS) ------------------------------------------------------------------------ Euro Dollars 8 December 1998 $ 19,049 Euro Dollars 20 March 1999 35,174 Euro Dollars 15 June 1999 8,030 Euro Dollars 15 September 1999 9,280 Euro Dollars 35 December 1999 49,465 Euro Dollars 25 March 2000 52,091 5 Year U.S. Treasury Notes 70 December 1998 306,352 10 Year U.S. Treasury Notes (15) December 1998 (55,258) 20 Year Long Term Bond 66 December 1998 158,409 ------------------------------------------------------------------------ $582,592 ------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION: Gross unrealized gain for investments in which value exceeds cost $ 4,917,833 Gross unrealized loss for investments in which cost exceeds value (1,003,040) ------------------------------------------------------------ Net unrealized gain $ 3,914,793 ------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 31 GOLDMAN SACHS CORE FIXED INCOME FUND Statement of Investments October 31, 1998 (a) Portions of these securities are being segregated for open TBA purchases, open purchases, mortgage dollar rolls, forward sale contract, open futures contracts and futures margin requirements. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers in transactions exempt from registration. Total market value of the Rule 144A securities amounted to $8,963,518 as of October 31, 1998. (c) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1998. (d) TBA (To Be Assigned) securities are purchased on a forward commitment basis with an approximate (generally + / -2.5%) principal amount and no definite maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. (e) The interest rate disclosed for these securities represents effective yield to maturity. (f) The amount stated also represents aggregate cost for federal income tax purposes. (g) Each Euro Dollar contract represents $1,000,000 in notional par value. Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long Term Bond Contract represents $100,000 in notional par value. The total notional amount and market value at risk are $133,100,000 and $46,515,044, respectively. The determination of notional amounts as presented here are indicative only of volume of activity and not a measure of market risk. The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 32 GOLDMAN SACHS GLOBAL INCOME FUND Performance Summary October 31, 1998 The following graph shows the value as of October 31, 1998, of a $10,000 in- vestment made (with the maximum sales charge of 4.5%) in Class A shares on September 1, 1991. For comparative purposes, the performance of the Fund's benchmark (the J.P. Morgan Global Government Bond Index hedged to U.S. Dol- lars (the "J.P. Morgan GGB Index - $ Hedged")) is shown. This performance data represents past performance and should not be considered indicative of future performance which will fluctuate with changes in market conditions. These performance fluctuations will cause an investor's shares, when re- deemed, to be worth more or less than their original cost. Performance of Class B, Class C, Institutional and Service shares will vary from Class A due to differences in fees and loads. GLOBAL INCOME FUND'S LIFETIME PERFORMANCE GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED SEPTEMBER 1, 1991 TO OCTOBER 31, 1998.(A) [LINE GRAPH APPEARS HERE] Global Income Fund J.P. Morgan (Class A) GGB Index-$ Hedged 9/1/91 9550 10000 9/91 9640 10174 10/91 9686 10263 11/91 9689 10327 12/91 9810 10583 1/92 9857 10546 2/92 9857 10584 3/92 9768 10517 4/92 9827 10578 5/92 9896 10721 6/92 10125 10799 7/92 10357 10918 8/92 10678 10974 9/92 10550 11129 10/92 10536 11156 11/92 10514 11130 12/92 10545 11288 1/93 10623 11457 2/93 10886 11671 3/93 10763 11695 4/93 10849 11745 5/93 10928 11766 6/93 11193 12006 7/93 11338 12103 8/93 11483 12352 9/93 11491 12404 10/93 11668 12509 11/93 11633 12500 12/93 11878 12660 1/94 11957 12702 2/94 11561 12432 3/94 11362 12258 4/94 11298 12167 5/94 11217 12089 6/94 11136 12013 7/94 11250 12145 8/94 11185 12085 9/94 11152 12027 10/94 11144 12050 11/94 11202 12132 12/94 11252 12147 1/95 11369 12314 2/95 11580 12516 3/95 11826 12697 4/95 11963 12880 5/95 12340 13324 6/95 12288 13340 7/95 12297 13430 8/95 12489 13556 9/95 12612 13732 10/95 12824 13901 11/95 13073 14167 12/95 13251 14321 1/96 13471 14465 2/96 13250 14258 3/96 13255 14288 4/96 13383 14365 5/96 13426 14418 6/96 13546 14555 7/96 13609 14636 8/96 13720 14753 9/96 14026 15034 10/96 14246 15303 11/96 14525 15589 12/96 14500 15552 1/97 14569 15684 2/97 14669 15754 3/97 14549 15644 4/97 14704 15835 5/97 14730 15941 6/97 14968 16177 7/97 15258 16522 8/97 15202 16464 9/97 15535 16740 10/97 15622 16925 11/97 15710 17033 12/97 15897 17242 1/98 16068 17487 2/98 16100 17559 3/98 16273 17674 4/98 16354 17760 5/98 16566 18327 6/98 16604 18458 7/98 16719 18576 8/98 17043 19000 9/98 17523 19484 10/98 17374 19440
SINCE INCEPTION OF CLASS FIVE YEARS ONE YEAR AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998 CLASS A (COMMENCED AUGUST 2, 1991) Excluding sales charges 8.68% 8.28% 11.21% Including sales charges 7.99% 7.29% 6.22% ------------------------------------------------------------------------------ CLASS B (COMMENCED MAY 1, 1996) Excluding sales charges 10.43% n/a 10.66% Including sales charges 9.23% n/a 5.33% ------------------------------------------------------------------------------ CLASS C (COMMENCED AUGUST 15, 1997) Excluding sales charges 11.40% n/a 10.65% Including sales charges 11.40% n/a 9.58% ------------------------------------------------------------------------------ INSTITUTIONAL CLASS (COMMENCED AUGUST 1, 1995) 11.81% n/a 11.95% ------------------------------------------------------------------------------ SERVICE CLASS (COMMENCED MARCH 12, 1997) 8.71% n/a 11.43% ------------------------------------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on the first day of the month following commencement of operations. 33 GOLDMAN SACHS GLOBAL INCOME FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT(A) RATE DATE VALUE FOREIGN DEBT OBLIGATIONS - 48.5% BRITISH POUND STERLING - 17.1% Abbey National Treasury(b) BPS 4,000,000 8.00% 04/02/2003 $ 7,202,503 Bank Nederlandse Gemeenten 2,500,000 6.38 03/30/2005 4,304,335 United Kingdom Treasury(b) 14,400,000 9.50 10/25/2004 29,512,506 9,300,000 7.75 09/08/2006 18,182,707 4,700,000 9.00 08/06/2012 10,888,414 ----------------------------------------------------------------- $ 70,090,465 ------------------------------------------------------------------------------------------ CANADIAN DOLLAR - 2.1% Government of Canada(b) CAD 12,200,000 6.00% 06/01/2008 $ 8,454,608 ------------------------------------------------------------------------------------------ DANISH KRONE - 6.5% Kingdom of Denmark(b) DKK 95,100,000 8.00% 05/15/2003 $ 17,383,640 47,500,000 8.00 03/15/2006 9,111,123 ----------------------------------------------------------------- $ 26,494,763 ------------------------------------------------------------------------------------------ DEUTSCHEMARK - 6.6% Baden Wuerttemberg Finance DEM 10,000,000 5.38% 02/05/2010 $ 6,471,476 Federal Republic of Germany(b) 22,500,000 6.25 01/04/2024 15,791,238 Halifax 5,000,000 5.63 07/23/2007 3,235,738 Merrill Lynch and Co., Inc. 2,500,000 5.38 01/04/2009 1,494,114 ----------------------------------------------------------------- $ 26,992,566 ------------------------------------------------------------------------------------------ FRENCH FRANC - 1.1% Government of France(b) FRF 9,000,000 5.50% 10/25/2007 $ 1,772,141 10,000,000 8.50 04/25/2023 2,634,039 ----------------------------------------------------------------- $ 4,406,180 ------------------------------------------------------------------------------------------ ITALIAN LIRA - 6.4% Republic of Italy ITL24,000,000,000(b) 8.50% 08/01/2004 $ 17,849,614 9,000,000,000(b) 6.75 07/01/2007 6,360,465 2,000,000,000 9.00 11/01/2023 1,820,944 ----------------------------------------------------------------- $ 26,031,023 ------------------------------------------------------------------------------------------ JAPANESE YEN - 5.4% Asian Development Bank JPY 650,000,000 5.63% 02/18/2002 $ 6,502,871 Government of Japan 1,170,000,000 0.90 12/22/2008 9,957,746 Republic of Italy 550,000,000 5.13 07/29/2003 5,717,608 ----------------------------------------------------------------- $ 22,178,225 ------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT(A) RATE DATE VALUE FOREIGN DEBT OBLIGATIONS - (CONTINUED) SPANISH PESETA - 2.3% Government of Spain ESP1,210,000,000 6.00% 01/31/2008 $ 9,555,615 ------------------------------------------------------------------------------------------- SWEDISH KRONA - 1.0% Kingdom of Sweden SEK 24,000,000 9.00% 04/20/2009 $ 4,161,516 ------------------------------------------------------------------------------------------- TOTAL DEBT OBLIGATIONS (COST $186,733,877) $198,364,961 ------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES - 3.0% AESOP Funding Series 1998-1, Class A(c) USD 1,000,000 6.14% 05/20/2006 $ 1,027,850 AFC Series 1997-1, Class A(d) 759,096 5.44 03/25/2027 751,414 ALAC Automobile Receivable Series 1997-1, Class A(c) 244,819 6.29 12/15/2002 246,572 Americredit Automobile Receivables Series 1997-D, Class A3 450,000 6.24 09/05/2003 462,861 Arcadia Automobile Receivables Series 1997-D, Class A4 950,000 6.35 11/15/2005 1,015,090 Arcadia Automobile Receivables Series 1998-C, Class A3 1,000,000 5.67 08/15/2006 1,020,813 Asset Securitization Corp. Series 1997-D5, Class A1 450,000 6.66 02/14/2041 467,505 CIT RV Trust Series 1995-B, Class A 174,410 6.50 04/15/2011 175,711 Citibank Credit Card Master Trust I Series 1998-3, Class A 1,000,000 5.80 02/07/2005 1,012,500 EQCC Home Equity Loan Trust Series 1997-3, Class A(d) 539,504 5.58 11/15/2028 539,169 Fingerhut Master Trust Series 1998-2, Class A 1,000,000 6.23 02/15/2007 1,032,560 First USA Credit Card Master Trust Series 1997-6, Class A 900,000 6.42 03/17/2005 931,500 General Motors Acceptance Corp. Series 1997-C1, Class A 450,000 6.85 09/15/2006 471,519 Mid State Trust, Series 4, Class A 1,280,450 8.33 04/01/2030 1,402,016 Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1 650,000 7.46 05/15/2006 684,392 Nissan Auto Receivables Series 1995-A, Class A 468,872 6.10 08/15/2001 469,604 UCFC Home Equity Loan Trust Series 1997-D, Class A8(d) 743,293 5.63 12/15/2027 741,667 ------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST $12,151,871) $ 12,452,743 -------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 34 GOLDMAN SACHS GLOBAL INCOME FUND
PRINCIPAL INTEREST MATURITY AMOUNT(A) RATE DATe VALUE CORPORATE BONDS - 13.4% 360 Communications Co. USD 300,000 7.12% 03/01/2003 $ 319,860 Ameritech Capital Funding 4,000,000 5.88 02/19/2003 4,120,000 Ametek, Inc. 130,000 7.20 07/15/2008 131,650 Associates Corp. of North America 750,000 5.75 11/01/2003 752,948 BankAmerica Corp. 900,000 7.75 07/15/2002 957,429 Bayerische Landesbank Girozent 4,500,000 6.63 06/25/2007 4,843,710 Beneficial Corp. 500,000 6.43 04/10/2002 511,015 Cable & Wireless Communications 260,000 6.38 03/06/2003 265,054 Capital One Bank 275,000 6.39 03/05/2001 276,009 400,000 6.40 05/08/2003 396,876 CE Electric UK Funding Co.(c) 180,000 6.85 12/30/2004 188,517 Chelsea GCA Realty 250,000 7.75 01/26/2001 241,160 Comdisco, Inc. 450,000 6.13 01/15/2003 455,535 Continental Airlines, Inc. 315,000 6.54 09/15/2009 307,746 Countrywide Home Loans, Inc. 450,000 6.45 02/27/2003 467,334 200,000 6.84 10/22/2004 212,366 Developers Diversified Realty 125,000 6.84 12/16/2004 125,016 Ford Motor Credit Corp. 5,000,000 6.13 04/28/2003 5,128,250 Hertz Corp. 250,000 6.00 01/15/2003 251,273 Instituto de Credito Oficial 3,000,000 6.00 05/19/2008 3,149,700 International Bank for Reconstruction and Development 3,000,000 5.75 02/06/2008 3,126,600 KFW International Finance 3,000,000 5.75 01/15/2008 3,109,800 Liberty Property LP 235,000 6.97 12/11/2003 252,465 Long Island Savings Bank 300,000 7.00 06/13/2002 303,450 Merrill Lynch and Co., Inc. 3,400,000 6.00 02/12/2003 3,445,594 Nabisco, Inc. 700,000 6.00 02/15/2011 695,485 Nederlandse Waterschapsbank 5,000,000 6.13 02/13/2008 5,261,055 --------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT(A) RATE DATE VALUE CORPORATE BONDS - (CONTINUED) News America Holdings, Inc. USD 175,000 9.25% 02/01/2013 $ 201,283 65,000 8.00 10/17/2016 68,140 100,000 7.12 04/08/2028 97,498 Niagara Mohawk Power Corp. 250,000 6.88 04/01/2003 260,143 Northwest Airlines Corp. 273,291 7.67 07/02/2016 305,143 Ontario Hydro 3,000,000 6.10 01/30/2008 3,110,880 Oryx Energy Co. 40,000 10.00 06/15/1999 41,219 155,000 9.50 11/01/1999 159,594 Owens Corning 150,000 7.50 05/01/2005 153,536 Panamsat Corp. 515,000 6.13 01/15/2005 518,929 Paramount Communications 300,000 7.50 01/15/2002 313,863 Pep Boys - Manny, Moe & Jack 480,000 6.75 03/10/2004 497,770 Philip Morris Companies, Inc. 180,000 9.00 01/01/2001 193,926 95,000 6.95 06/01/2006 99,476 Prudential Insurance Company of America 3,500,000 6.38 07/23/2006 3,557,050 R & B Falcon Corp. 240,000 6.75 04/15/2005 246,612 RJR Nabisco, Inc. 190,000 8.00 07/15/2001 190,973 Salomon Smith Barney, Inc. 655,000 6.46 08/15/2000 670,563 Salton Sea Funding 295,575 7.02 05/30/2000 298,398 Scotia Pacific Co.(c) 220,000 6.55 01/20/2007 222,682 Sears Roebuck Acceptance Corp. 240,000 6.72 09/17/2003 251,544 Simon Property Group, Inc.(c) 200,000 6.63 06/15/2003 195,621 Tele-Communications, Inc. 850,000 8.25 01/15/2003 938,579 The Money Store, Inc. 225,000 7.30 12/01/2002 238,775 Time Warner, Inc. 450,000 7.95 02/01/2000 462,474 250,000 6.85 01/15/2026 258,968 TKR Cable Inc. 220,000 10.50 10/30/2007 241,666 Tyco International Group 260,000 5.88 11/01/2004 259,165 190,000 6.38 06/15/2005 194,904 ------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 35 GOLDMAN SACHS GLOBAL INCOME FUND Statement of Investments October 31, 1998
PRINCIPAL INTEREST MATURITY AMOUNT(A) RATE DATE VALUE CORPORATE BONDS - (CONTINUED) Videotron Group Ltd. USD 165,000 10.63% 02/15/2005 $ 177,581 Williams Communications Solutions, Inc. 390,000 6.13 02/15/2002 394,267 Worldcom, Inc. 340,000 6.13 08/15/2001 346,375 350,000 9.38 01/15/2004 364,151 120,000 6.40 08/15/2005 124,925 --------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (COST $53,476,453) $ 54,952,570 --------------------------------------------------------------------------------------------- MORTGAGE BACKED OBLIGATIONS - 4.3% Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2 USD 1,400,000 6.60% 11/19/2007 $ 1,455,734 CMC Securities Corp. IV 1997-2, Class IA13 2,450,000 6.60 11/25/2027 2,458,404 Country Wide Funding Corp. Series 1994-2, Class A 1,000,000 6.50 02/25/2009 1,044,680 Country Wide Funding Corp. Series 1994-I, Class A 2,000,000 6.25 07/25/2009 2,009,360 FHLMC Series 1522, Class E 2,000,000 5.00 10/15/2020 1,984,360 General Electric Capital Mortgage Services Series 1994-2, Class A(d) 564,879 5.46 01/25/2009 544,171 968,367 6.31 01/25/2009 986,214 Government National Mortgage Association (GNMA) 214,244 9.00 03/15/2005 228,470 170,268 9.00 02/15/2006 181,639 548,958 9.00 02/15/2010 571,948 893,160 6.00 01/15/2011 903,762 595,614 7.50 01/15/2023 613,477 120,686 7.50 04/15/2023 124,305 87,543 7.50 05/15/2023 90,168 687,953 7.00 07/15/2023 704,506 670,791 7.00 08/15/2023 686,931 216,126 7.50 08/15/2023 222,608 395,860 7.00 09/15/2023 405,384 499,943 7.00 10/15/2023 511,972 281,844 7.00 11/15/2023 288,625 588,262 7.50 12/15/2023 605,904 Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A2 750,000 6.39 02/15/2030 802,671 --------------------------------------------------------------------------------------------- TOTAL MORTGAGE BACKED OBLIGATIONS (COST $16,991,790) $ 17,425,293 ---------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY AMOUNT(A) RATE DATE VALUE U.S. TREASURY OBLIGATIONS - 24.0% United States Treasury Bonds USD 800,000(b) 8.13% 08/15/2021 $ 1,082,872 7,500,000(b) 6.75 08/15/2026 8,992,950 2,000,000 6.50 11/15/2026 2,327,820 United States Treasury Interest-Only Stripped Securities(e) 200,000 5.05 02/15/2009 119,804 400,000 5.52 08/15/2014 169,472 United States Treasury Notes 7,700,000 6.63 07/31/2001 8,151,143 13,300,000(b) 7.00 07/15/2006 15,315,748 12,800,000(b) 6.50 10/15/2006 14,358,016 4,600,000 6.63 05/15/2007 5,223,162 35,500,000(b) 5.63 05/15/2008 38,267,935 United States Treasury Principal-Only Stripped Securities(e) 1,000,000 5.64 08/15/2017 351,430 5,200,000 5.67 02/15/2019 1,667,848 2,760,000 5.67 05/15/2020 823,612 5,600,000 5.47 08/15/2025 1,317,792 -------------------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $95,577,505) $ 98,169,604 -------------------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS - 5.6% State Street Bank & Trust Euro-Time Deposit(b) USD 22,805,457 5.63% 11/02/1998 $ 22,805,457 -------------------------------------------------------------------------------------------- TOTAL SHORT-TERM OBLIGATIONS (COST $22,805,457) $ 22,805,457 -------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST $387,736,953)(F) $404,170,628 --------------------------------------------------------------------------------------------
Futures contracts open at October 31, 1998 are as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED TYPE LONG (SHORT)(G) MONTH GAIN (LOSS) ------------------------------------------------------------------------ Euro Dollars 6 June 1999 $ 13,575 Euro Dollars 5 September 1999 12,125 Euro Dollars 7 March 2000 (4,112) Euro Dollars 7 June 2000 1,487 5 Year U.S. Treasury Notes 10 December 1998 (9,532) 10 Year U.S. Treasury Notes (19) December 1998 (58,250) 20 Year Long Term Bond 79 December 1998 225,571 ------------------------------------------------------------------------ $180,864 ------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 36 GOLDMAN SACHS GLOBAL INCOME FUND ------------------------------- FEDERAL INCOME TAX INFORMATION: Gross unrealized gain for invest- ments in which value exceeds cost $17,008,304 Gross unrealized loss for invest- ments in which cost exceeds value (574,629) ------------------------------- Net unrealized loss $16,433,675 ------------------------------- (a) The principal amount of each security is stated in the currency in which the bond is denominated. See below. BPS = British Pound Sterling ITL = Italian Lira CAD = Canadian Dollar JPY = Japanese Yen DKK = Danish Krone ESP = Spanish Peseta DEM = Deutschemark SEK = Swedish Krona FRF = French Franc USD = United States Dollar (b) Portions of these securities are being segregated for open futures contracts and futures margin requirements. (c) Security is exempt from registration under rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers in transactions exempt from registration. Total market value of the Rule 144A securities amounted to $1,881,242 as of October 31, 1998. (d) Variable rate security. Coupon rate disclosed is that which is in effect at October 31, 1998. (e) The interest rate disclosed for these securities represents effective yield to maturity. (f) The amount stated also represents the aggregate cost for federal income tax purposes. (g) Each Euro Dollar contract represents $1,000,000 in notional par value. Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long Term Bond contract represents $100,000 in notional par value. The total notional amount and market value at risk are $35,800,000 and $19,587,951, respectively. The determination of notional amounts as presented here are indicative only of volume of activity and not a measure of market risk. The percentage shown for each investment category reflects the value of investments in that category as a percentage of total net assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 37 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Statements of Assets and Liabilities October 31, 1998
ADJUSTABLE RATE GOVERNMENT FUND ASSETS: Investment in securities, at value (identified cost $502,845,894, $223,655,691, $143,359,293, $299,868,669 and $387,736,953) $497,752,353 Cash, at value 4,381 Receivables: Investment securities sold 718,061 Interest, at value 6,268,327 Fund shares sold 16,559,494 Forward foreign currency exchange contracts -- Variation margin -- Deferred organization expenses, net -- Other assets 69,531 ----------------------------------------------------------------------------- TOTAL ASSETS 521,372,147 ----------------------------------------------------------------------------- LIABILITIES: Due to Bank -- Payables: Investment securities purchased 10,141,083 Income distribution 1,089,533 Fund shares repurchased 865,411 Amounts owed to affiliates 217,022 Forward foreign currency exchange contracts -- Variation margin 156,937 Forward sale contract, at value -- Accrued expenses and other liabilities 70,950 ----------------------------------------------------------------------------- TOTAL LIABILITIES 12,540,936 ----------------------------------------------------------------------------- NET ASSETS: Paid-in capital 565,695,928 Accumulated undistributed (distributions in excess of) net investment income (3,550,919) Accumulated undistributed net realized gain (loss) on investment, options, futures and foreign currency related transactions (49,027,871) Net unrealized gain (loss) on investments, futures and translation of assets and liabilities denominated in foreign currencies (4,285,927) ----------------------------------------------------------------------------- NET ASSETS $508,831,211 ----------------------------------------------------------------------------- Net asset value per share:(a) Class A $9.69 Class B -- Class C -- Institutional $9.70 Administration $9.70 Service $9.70 ----------------------------------------------------------------------------- Shares outstanding: Class A 6,272,861 Class B -- Class C -- Institutional 45,502,280 Administration 618,625 Service 84,772 ----------------------------------------------------------------------------- Total shares outstanding, $.001 par value (unlimited number of shares authorized) 52,478,538 -----------------------------------------------------------------------------
(a) Maximum public offering price per share for Class A shares is $9.84 (NAV per share plus maximum sales charge of 1.5%), $10.11 (NAV per share plus maximum sales charge of 2.0%), $15.61 (NAV per share plus maximum sales charge of 4.5%), $10.73 (NAV per share plus maximum sales charge of 4.5%) and $16.39 (NAV per share plus maximum sales charge of 4.5%) for Adjustable Rate Government, Short Duration Government, Government Income, Core Fixed Income and Global Income, respectively. At redemption, Class B and Class C shares may be subject to a contingent deferred sales charge, assessed on the amount equal to the lesser of the current net asset value or the original purchase price of the shares. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 38 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND $224,897,584 $145,463,981 $303,783,462 $404,170,628 94,277 19,853 -- 204,705 75,409 7,877,876 12,914,221 9,752,514 2,444,400 895,776 2,729,419 8,208,935 6,006,143 398,856 1,014,701 8,228,277 -- -- -- 1,802,980 -- -- -- 30,022 -- -- 4,362 -- 99,962 95,140 161,772 149,840 ---------------------------------------------------------------------------------------- 233,617,775 154,751,482 320,607,937 432,547,901 ---------------------------------------------------------------------------------------- -- -- 444,433 -- 7,158,411 21,805,685 33,295,853 17,578,658 302,565 115,033 491,528 11,496 421,340 935,911 142,604 352,593 142,448 143,286 144,749 371,388 -- -- -- 4,943,283 131,406 129,916 127,839 -- -- 2,118,104 3,058,336 -- 82,052 80,358 103,824 113,018 ---------------------------------------------------------------------------------------- 8,238,222 25,328,293 37,809,166 23,370,436 ---------------------------------------------------------------------------------------- 237,352,470 124,893,318 274,980,654 380,662,043 567,164 (202,850) -- 4,880,723 (14,898,587) 2,431,368 3,320,362 9,205,494 2,358,506 2,301,353 4,497,755 14,429,205 ---------------------------------------------------------------------------------------- $225,379,553 $129,423,189 $282,798,771 $409,177,465 ---------------------------------------------------------------------------------------- $9.91 $14.91 $10.25 $15.65 $9.88 $14.92 $10.28 $15.63 $9.88 $14.91 $10.28 $15.60 $9.90 $14.90 $10.28 $15.64 $9.91 -- $10.27 -- $9.89 $14.88 $10.28 $15.64 ---------------------------------------------------------------------------------------- 5,726,272 6,777,371 5,487,732 13,885,248 508,361 1,080,648 701,054 520,616 458,229 646,476 543,267 262,123 14,705,273 177,318 19,045,777 11,411,638 742,127 -- 1,240,570 -- 630,425 112 511,939 67,640 ---------------------------------------------------------------------------------------- 22,770,687 8,681,925 27,530,339 26,147,265 ----------------------------------------------------------------------------------------
39 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Statements of Operations For the Year Ended October 31, 1998
ADJUSTABLE RATE GOVERNMENT FUND INVESTMENT INCOME: Interest(a) $30,500,158 ----------------------------------------------------------------------------- TOTAL INCOME 30,500,158 ----------------------------------------------------------------------------- EXPENSES: Management fees 1,980,544 Distribution and service fees(b) 217,577 Transfer agent fees 229,368 Custodian fees 118,369 Registration fees 57,272 Professional fees 58,806 Trustee fees 6,432 Administration share fees 10,895 Service share fees 2,702 Amortization of deferred organization expenses -- Other 191,398 ----------------------------------------------------------------------------- TOTAL EXPENSES 2,873,363 ----------------------------------------------------------------------------- Less -- expenses reimbursed and fees waived by Goldman Sachs (124,935) ----------------------------------------------------------------------------- NET EXPENSES 2,748,428 ----------------------------------------------------------------------------- NET INVESTMENT INCOME 27,751,730 ----------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT, FUTURES AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investment transactions 103,747 Futures transactions (1,536,545) Foreign currency related transactions -- Net change in unrealized gain (loss) on: Investments (8,168,671) Futures 1,241,567 Translation of assets and liabilities denominated in foreign currencies -- ----------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT, FUTURES AND FOREIGN CURRENCY TRANSACTIONS: (8,359,902) ----------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,391,828 -----------------------------------------------------------------------------
(a) Net of $2,706 and $32,585 in foreign withholding tax for the Core Fixed Income and Global Income Funds, respectively. (b) Class A, Class B and Class C of the following funds had distribution and services fees of: Adjustable Rate Government Fund -- $217,577 for class A only. Short Duration Government Fund -- $111,382, $23,889 and $18,510, respectively. Government Income Fund -- $462,183, $119,856 and $37,728, respectively. Core Fixed Income Fund -- $152,462, $31,187 and $30,651, respectively. Global Income Fund -- $902,695, $54,794 and $22,140, respectively. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 40 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND $10,605,385 $7,259,007 $11,986,716 $17,529,866 --------------------------------------------------------------------------------------- 10,605,385 7,259,007 11,986,716 17,529,866 --------------------------------------------------------------------------------------- 807,888 747,673 750,536 2,613,060 153,781 619,767 214,300 979,629 191,462 189,925 211,200 378,171 90,250 104,410 131,433 214,328 100,705 81,231 109,950 103,600 56,023 52,852 53,898 66,174 5,893 5,915 5,804 5,614 10,828 -- 5,460 -- 23,540 -- 39,455 885 -- 5,201 24,495 -- 107,890 60,817 73,727 73,521 --------------------------------------------------------------------------------------- 1,548,260 1,867,791 1,620,258 4,434,982 --------------------------------------------------------------------------------------- (555,828) (843,878) (555,918) (1,244,867) --------------------------------------------------------------------------------------- 992,432 1,023,913 1,064,340 3,190,115 --------------------------------------------------------------------------------------- 9,612,953 6,235,094 10,922,376 14,339,751 --------------------------------------------------------------------------------------- 822,488 2,347,325 3,616,346 11,911,240 (1,182,898) 374,866 214,664 468,362 -- -- 57,117 (8,799,445) 55,613 649,663 1,637,958 12,207,707 1,157,810 137,832 489,714 180,864 -- -- 17 2,383,424 --------------------------------------------------------------------------------------- 853,013 3,509,686 6,015,816 18,352,152 --------------------------------------------------------------------------------------- $10,465,966 $9,744,780 $16,938,192 $32,691,903 ---------------------------------------------------------------------------------------
41 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Statements of Changes in Net Assets For the Year Ended October 31, 1998
ADJUSTABLE RATE GOVERNMENT FUND FROM OPERATIONS: Net investment income $ 27,751,730 Net realized gain (loss) on investment, futures and foreign currency related transactions (1,432,798) Net change in unrealized gain (loss) on investments, futures and translation of assets and liabilities denominated in foreign currencies (6,927,104) ----------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 19,391,828 ----------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class A shares (2,487,566) Class B shares -- Class C shares -- Institutional shares (25,001,833) Administration shares (234,475) Service shares (27,856) In excess of net investment income Class A shares (98,798) Class B shares -- Class C shares -- Institutional shares (992,993) Administration shares (9,313) Service shares (1,106) From net realized gain on investment, futures and foreign currency transactions Class A shares -- Class B shares -- Class C shares -- Institutional shares -- Administration shares -- Service shares -- ----------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (28,853,940) ----------------------------------------------------------------------------- FROM SHARE TRANSACTIONS: Net proceeds from sales of shares 480,828,950 Reinvestment of dividends and distributions 20,351,273 Cost of shares repurchased (492,929,797) ----------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 8,250,426 ----------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) (1,211,686) ----------------------------------------------------------------------------- NET ASSETS: Beginning of year 510,042,897 ----------------------------------------------------------------------------- End of year $ 508,831,211 ----------------------------------------------------------------------------- ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME $ (3,550,919) -----------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 42 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND $ 9,612,953 $ 6,235,094 $ 10,922,376 $ 14,339,751 (360,410) 2,722,191 3,888,127 3,580,157 1,213,423 787,495 2,127,689 14,771,995 ----------------------------------------------------------------------------------- 10,465,966 9,744,780 16,938,192 32,691,903 ----------------------------------------------------------------------------------- (1,420,203) (5,471,980) (1,853,415) (11,773,305) (124,011) (589,599) (152,279) (310,470) (88,564) (181,328) (150,232) (116,153) (7,578,309) (126,383) (8,016,713) (6,720,480) (270,953) -- (664,748) -- (265,819) (114) (176,911) (25,498) -- (316,755) (75,186) -- -- (34,130) (6,177) -- -- (10,497) (6,094) -- -- (7,316) (325,203) -- -- -- (26,966) -- -- (7) (7,176) -- -- (336,409) (84,830) (628,833) -- (41,187) (8,016) (15,200) -- (9,732) (4,098) (4,258) -- (8,246) (459,667) (240,253) -- -- (51,390) -- -- (7) (10,588) (604) ----------------------------------------------------------------------------------- (9,747,859) (7,133,690) (12,079,689) (19,835,054) ----------------------------------------------------------------------------------- 301,176,652 174,396,555 274,106,821 254,174,010 6,473,398 5,523,470 8,519,118 13,914,727 (201,542,539) (133,099,760) (102,188,552) (103,905,121) ----------------------------------------------------------------------------------- 106,107,511 46,820,265 180,437,387 164,183,616 ----------------------------------------------------------------------------------- 106,825,618 49,431,355 185,295,890 177,040,465 ----------------------------------------------------------------------------------- 118,553,935 79,991,834 97,502,881 232,137,000 ----------------------------------------------------------------------------------- $ 225,379,553 $ 129,423,189 $ 282,798,771 $ 409,177,465 ----------------------------------------------------------------------------------- $ 567,164 $ (202,850) $ -- $ 4,880,723 -----------------------------------------------------------------------------------
43 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Statements of Changes in Net Assets For the Year Ended October 31, 1997
ADJUSTABLE RATE GOVERNMENT FUND FROM OPERATIONS: Net investment income $ 34,206,530 Net realized gain from investment and foreign currency related transactions 76,946 Net change in unrealized gain (loss) on investments, futures and translation of assets and liabilities denominated in foreign currencies 3,259,059 ----------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 37,542,535 ----------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A (1,858,740) Class B -- Class C -- Institutional shares (32,067,893) Administration shares (222,274) Service shares (3,287) Net realized gain on investment transactions Class A -- Class B -- Class C -- Institutional shares -- Administration shares -- Service shares -- ----------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (34,152,194) ----------------------------------------------------------------------------- FROM SHARE TRANSACTIONS: Net proceeds from sales of shares 398,400,844 Reinvestment of dividends and distributions 20,070,536 Cost of shares repurchased (539,487,702) ----------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (121,016,322) ----------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) (117,625,981) ----------------------------------------------------------------------------- NET ASSETS: Beginning of period 627,668,878 ----------------------------------------------------------------------------- End of period $ 510,042,897 ----------------------------------------------------------------------------- ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME $ (3,387,447) -----------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 44 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
GLOBAL SHORT DURATION GOVERNMENT CORE FIXED INCOME GOVERNMENT FUND INCOME FUND INCOME FUND FUND $ 6,770,045 $ 3,409,797 $ 5,427,639 $ 12,745,232 45,514 489,671 732,174 13,556,278 485,006 1,362,656 1,440,455 (3,996,894) ------------------------------------------------------------------------------------- 7,300,565 5,262,124 7,600,268 22,304,616 ------------------------------------------------------------------------------------- (85,889) (3,152,235) (107,876) (9,752,023) (12,146) (186,284) (7,255) (74,972) (632) (5,823) (778) (2,823) (6,559,922) (2,853) (4,853,239) (3,332,259) (79,521) -- (365,897) -- (145,168) (20) (74,035) (5,785) -- (157,471) -- -- -- (1,780) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------------------------------------------------------------------------------- (6,883,278) (3,506,466) (5,409,080) (13,167,862) ------------------------------------------------------------------------------------- 61,888,188 69,513,073 38,830,106 56,787,564 4,611,022 2,614,489 4,813,853 9,138,023 (50,380,123) (24,728,808) (21,476,685) (96,100,786) ------------------------------------------------------------------------------------- 16,119,087 47,398,754 22,167,274 (30,175,199) ------------------------------------------------------------------------------------- 16,536,374 49,154,412 24,358,462 (21,038,445) ------------------------------------------------------------------------------------- 102,017,561 30,837,422 73,144,419 253,175,445 ------------------------------------------------------------------------------------- $118,553,935 $ 79,991,834 $ 97,502,881 $232,137,000 ------------------------------------------------------------------------------------- $ 693,874 $ 134,310 $ 91,922 $ 16,021,332 -------------------------------------------------------------------------------------
45 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Notes to Financial Statements October 31, 1998 1. ORGANIZATION Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un- der the Investment Company Act of 1940 (as amended) as an open-end, manage- ment investment company. The Trust includes Goldman Sachs Adjustable Rate Government Fund (Adjustable Rate Government), Goldman Sachs Short Duration Government Fund (Short Duration Government), Goldman Sachs Government Income Fund (Government Income), Goldman Sachs Core Fixed Income Fund (Core Fixed Income) and Goldman Sachs Global Income Fund (Global Income), collectively, "the Funds" or individually a "Fund." Adjustable Rate Government, Short Dura- tion Government, Government Income, and Core Fixed Income are diversified portfolios of the Trust whereas Global Income is a non-diversified portfolio. Adjustable Rate Government offers four classes of shares -- Class A, Institu- tional, Administration and Service. Government Income and Global Income offer five classes of shares -- Class A, Class B, Class C, Institutional and Serv- ice. Short Duration Government and Core Fixed Income offer six classes of shares -- Class A, Class B, Class C, Institutional, Administration and Serv- ice. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make es- timates and assumptions that may affect the reported amounts. Certain reclas- sifications have been made to the prior period's amounts to conform with the current period presentation. Such reclassifications have no effect on previ- ously reported net asset values of the Fund. A. INVESTMENT VALUATION -- Portfolio securities for which accurate market quotations are readily available are valued on the basis of quotations fur- nished by a pricing service or provided by dealers in such securities. Port- folio securities for which accurate market quotations are not readily available are valued based on yield equivalents, pricing matrices or other sources, under valuation procedures established by the Trust's Board of Trustees. Short-term debt obligations maturing in sixty days or less are val- ued at amortized cost. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are recorded on trade date. Realized gains and losses on sales of portfolio secu- rities are calculated using the identified cost basis. Interest income is re- corded on the basis of interest accrued. Premiums on interest-only securities and on collateralized mortgage obligations with nominal principal amounts are amortized, on an effective yield basis, over the expected lives of the re- spective securities. Certain mortgage security paydown gains and losses are taxable as ordinary income. Such paydown gains and losses increase or decrease taxable ordinary income available for distribution and are classified as interest income in the accompanying Statements of Operations. Original issue discounts ("OID") on debt securities are amortized to interest income over the life of the se- curity with a corresponding increase in the cost basis of that security. OID amortization on mortgage backed REMIC securities is initially recorded based on estimates of principal paydowns using the most recent OID factors avail- able from the issuer. Recorded amortization amounts are adjusted when actual OID factors are received. Market discounts and market premiums on debt secu- rities, other than mortgage backed REMIC securities, are amortized to inter- est income over the life of the security with a corresponding adjustment in the cost basis of that security for Core Fixed Income. Global Income amor- tizes only market discounts on debt securities other than REMIC mortgage backed securities. 46 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS C. FEDERAL TAXES -- It is each Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute each year substantially all of its investment company taxable and tax- exempt income and capital gains to its shareholders. Accordingly, no federal tax provisions are required. The characterization of distributions to shareholders for financial report- ing purposes is determined in accordance with income tax rules. Therefore, the source of a portfolio's distributions may be shown in the accompanying financial statements as either from or in excess of net investment income or net realized gain on investment transactions, or from paid-in-capital, de- pending on the type of book/tax differences that may exist as well as timing differences associated with having different book and tax year ends. Adjustable Rate Government and Short Duration Government, at their most re- cent tax year-ends of December 31, 1997, had approximately the following amounts of capital loss carryforward for U.S. federal tax purposes. These amounts are available to be carried forward to offset future capital gains to the extent permitted by applicable laws or regulations.
YEARS OF FUND AMOUNT EXPIRATION ----------------------------------------------------------------------------------------- Adjustable Rate Government $47,859,000 2000-2004 ----------------------------------------------------------------------------------------- Short Duration Government $14,280,000 2002-2005 -----------------------------------------------------------------------------------------
D. EXPENSES -- Expenses incurred by the Trust that do not specifically relate to an individual Fund of the Trust are allocated to the Funds based on the nature of the expense. Class A, Class B and Class C shareholders of the Funds bear all expenses and fees relating to their respective distribution and service plans. Share- holders of Service and Administration shares bear all expenses and fees paid to service organizations for their services with respect to such shares. Ef- fective October 1, 1998, each class of shares of the Funds now separately bear their respective class-specific transfer agency fees. E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am- ortized on a straight-line basis over a period of five years. The amortiza- tion costs of Adjustable Rate Government, Short Duration Government, Government Income and Global Income are fully amortized. F. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Funds are maintained in U.S. dollars. Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investment valua- tions, foreign currency and other assets and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates; (ii) purchases and sales of foreign investments, income and expenses are converted into U.S. dollars based upon currency ex- change rates prevailing on the respective dates of such transactions. Net realized and unrealized gain (loss) on foreign currency transactions will represent: (i) foreign exchange gains and losses from the sale and hold- ings of foreign currencies and sale of investments; (ii) gains and losses be- tween trade date and settlement date on investment securities transactions and forward exchange contracts; and (iii) gains and losses from the differ- ence between amounts of interest recorded and the amounts actually received. G. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- Core Fixed Income and Global Income may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a fu- ture date as a hedge or cross-hedge against either specific transactions or portfolio positions. Core Fixed Income and Global Income may also purchase and sell forward contracts to seek to increase total return. All commitments are "marked-to-market" daily at 47 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Notes to Financial Statements October 31, 1998 the applicable translation rates and any resulting unrealized gains or losses are recorded in the Funds' financial statements. The Funds record realized gains or losses at the time a forward contract is offset by entry into a closing transaction or extinguished by delivery of the currency. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. H. FUTURES CONTRACTS -- The Funds may enter into futures transactions to hedge against changes in interest rates, securities prices, currency exchange rates (in the case of Core Fixed Income and Global Income) or to seek to in- crease total return. Upon entering into a futures contract, the Funds are required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirement of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Funds daily, dependent on the daily fluctuations in the value of the contracts, and are recorded for financial reporting purposes as unrealized gains or losses. When contracts are closed, the Funds realize a gain or loss which is reported in the Statements of Operations. The use of futures contracts involve, to varying degrees, elements of mar- ket and counterparty risk which may exceed the amounts recognized in the Statements of Assets and Liabilities. Changes in the value of the futures contract may not directly correlate with changes in the value of the under- lying securities. This risk may decrease the effectiveness of the Funds' hedging strategies and potentially result in a loss. I. OPTION ACCOUNTING PRINCIPLES -- When the Funds write call or put options, an amount equal to the premium received is recorded as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to- market to reflect the current market value of the option written. When a written option expires on its stipulated expiration date or the Funds enter into a closing purchase transaction, the Funds realize a gain or loss without regard to any unrealized gain or loss on the underlying security, and the li- ability related to such option is extinguished. When a written call option is exercised, the Funds realize a gain or loss from the sale of the underlying security, and the proceeds of the sale are increased by the premium origi- nally received. When a written put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Funds purchase upon exercise. There is a risk of loss from a change in value of such options which may exceed the related premiums received. Upon the purchase of a call option or a protective put option by the Funds, the premium paid is recorded as an investment and subsequently marked-to-mar- ket to reflect the current market value of the option. If an option which the Funds have purchased expires on the stipulated expiration date, the Funds will realize a loss in the amount of the cost of the option. If the Funds en- ter into a closing sale transaction, the Funds will realize a gain or loss, depending on whether the sale proceeds for the closing sale transaction are greater or less than the cost of the option. If the Funds exercise a pur- chased put option, the Funds will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Funds exercise a purchased call option, the cost of the security which the Funds purchase upon exercise will be increased by the premium originally paid. J. MORTGAGE DOLLAR ROLLS -- The Funds may enter into mortgage "dollar rolls" in which the Funds sell securities in the current month for delivery and si- multaneously contract with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. For financial reporting and tax reporting purposes, the Funds treat mortgage dollar rolls as two separate transactions; one involving the pur- chase of a security and a separate transaction involving a sale. 48 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS 3. AGREEMENTS Pursuant to the Investment Management Agreements (the "Agreements"), Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment adviser for Adjustable Rate Gov- ernment and Short Duration Government. Goldman Sachs Asset Management ("GSAM"), a separate operating division of Goldman Sachs, serves as the in- vestment adviser for Government Income and Core Fixed Income. Goldman Sachs Asset Management International ("GSAMI"), an affiliate of GSAM, serves as the investment adviser for Global Income. Under the Agreements, the respective adviser, subject to the general supervision of the Trust's Board of Trustees, manages the Funds' portfolios. As compensation for the services rendered pur- suant to the Agreements, the assumption of the expenses related thereto and administering the Funds' business affairs, including providing facilities, the adviser is entitled to a fee, computed daily and payable monthly at an annual rate equal to .40%, .50%, .65%, .40% and .90% of average daily net as- sets of Adjustable Rate Government, Short Duration Government, Government In- come, Core Fixed Income and Global Income, respectively. Each adviser has voluntarily agreed to limit "Other Expenses", with the ex- ception of Adjustable Rate Government, (excluding management fees, distribu- tion and service fees, taxes, interest, brokerage, litigation, Administrative and Service share fees, indemnification costs and other extraordinary ex- penses and with respect to Global Income, transfer agent fees) to the extent that such expenses exceeded .05%, .00%, .05% and .06% of the average daily net assets of Short Duration Government, Government Income, Core Fixed Income and Global Income, respectively. Effective September 1, 1998 for Global In- come and October 1, 1998 for Adjustable Rate Government, Short Duration Gov- ernment, Government Income and Core Fixed Income, these expense limitations were modified to .00%, .05%, .00%, .00% and .10% (excluding management fees, distribution and service fees, transfer agent fees, taxes, interest, broker- age, litigation, administration and service share fees, indemnification costs and extraordinary expenses), respectively. Goldman Sachs serves as Distributor of the shares of the Funds pursuant to a Distribution Agreement. Goldman Sachs may receive a portion of the Class A sales load and Class B and Class C contingent deferred sales charges and has advised the Funds that it retained approximately $28,000, $157,000, $212,000, $82,000 and $133,000 for the year ended October 31, 1998 for Adjustable Rate Government, Short Duration Government, Government Income, Core Fixed Income and Global Income, respectively. The Trust, on behalf of each Fund, had adopted Distribution Plans (the "Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans, Goldman Sachs was entitled to a quarterly fee from each Fund for distribution services equal, on an annual basis, to .25%, .75% and .75% of the average daily net assets attributable to Class A, Class B and Class C shares, respec- tively. The Trust, on behalf of each Fund, had adopted Authorized Dealer Service Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and Autho- rized Dealers were compensated for providing personal and account maintenance services. Each Fund paid a fee under the Dealer Service Plan equal, on an an- nual basis, up to .25% of its average daily net assets attributable to Class A, Class B and Class C shares. Effective September 1, 1998 for Global Income and October 1, 1998 for Ad- justable Rate Government, Short Duration Government, Government Income and Core Fixed Income, the Distribution Plans and Dealer Service Plans were com- bined into Distribution and Service plans. Under the Distribution and Service Plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee from each fund for distribution services and shareholder maintenance equal, on an annual basis, to .50%, 1.00% and 1.00% for Global Income and .25%, 1.00% and 1.00% of each of the other funds' average daily net assets attrib- utable to Class A, Class B and Class C shares, respectively. Goldman Sachs also serves as Transfer Agent of the Funds for a fee. Effec- tive September 1, 1998 for Global Income and October 1, 1998 for Adjustable Rate Government, Short Duration Government, Government Income and Core Fixed Income, the fees charged for such transfer agency services are calculated daily and payable monthly at an annual rate as 49 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Notes to Financial Statements October 31, 1998 follows: .19% of average daily net assets for Class A, Class B and Class C shares and .04% of average daily net assets for Institutional, Service and Administration Shares. The Trust, on behalf of the Funds, has adopted Service Plans. In addition, the Trust, on behalf of Adjustable Rate Government, Short Duration Government and Core Fixed Income, has adopted Administration Plans. These plans allow for Service shares and Administration shares, respectively, to compensate service organizations for providing varying levels of account administration and shareholder liaison services to their customers who are beneficial owners of such shares. The Service and Administration Plans provide for compensation to the service organizations in an amount up to .50% and .25% (on an annualized basis), respectively, of the average daily net asset value of the respective shares. For the year ended October 31, 1998, the advisors and distributor have vol- untarily agreed to waive certain fees and reimburse other expenses as follows (in thousands):
WAIVERS ------------------------------------ CLASS A CLASS B DISTRIBUTION DISTRIBUTION REIMBURSEMENT FUND MANAGEMENT AND SERVICE AND SERVICE REIMBURSEMENT OUTSTANDING ----------------------------------------------------------------------------------- Adjustable Rate Govern- ment $ -- $103 $-- $ 22 $ 22 ----------------------------------------------------------------------------------- Short Dura- tion Govern- ment 42 50 4 460 99 ----------------------------------------------------------------------------------- Government Income 152 219 -- 473 78 ----------------------------------------------------------------------------------- Core Fixed Income -- 70 -- 486 141 ----------------------------------------------------------------------------------- Global In- come 861 58 -- 326 148 -----------------------------------------------------------------------------------
At October 31, 1998, the amounts owed to affiliates were as follows (in thousands):
DISTRIBUTION TRANSFER FUND MANAGEMENT AND SERVICE AGENT TOTAL -------------------------------------------------------------------------------- Adjustable Rate Government $177 $12 $28 $217 -------------------------------------------------------------------------------- Short Duration Government 95 20 27 142 -------------------------------------------------------------------------------- Government Income 64 45 34 143 -------------------------------------------------------------------------------- Core Fixed Income 95 22 28 145 -------------------------------------------------------------------------------- Global Income 216 98 57 371 --------------------------------------------------------------------------------
50 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS 4. PORTFOLIO SECURITY TRANSACTIONS Purchases and proceeds of sales or maturities of long-term securities for the year ended October 31, 1998, were as follows:
SALES OR SALES OR MATURITIES PURCHASES OF PURCHASES MATURITIES OF (EXCLUDING U.S. GOVERNMENT (EXCLUDING U.S. GOVERNMENT U.S. GOVERNMENT AND AND AGENCY U.S. GOVERNMENT AND AND AGENCY AGENCY OBLIGATIONS AGENCY OBLIGATIONS) OBLIGATIONS OBLIGATIONS) ----------------------------------------------------------------------------------- Adjustable Rate Gov- ernment $175,786,143 $ -- $154,710,424 $ -- ----------------------------------------------------------------------------------- Short Du- ration Gov- ernment 305,220,351 -- 188,067,941 -- ----------------------------------------------------------------------------------- Government Income 380,017,030 23,234,953 343,576,248 5,799,796 ----------------------------------------------------------------------------------- Core Fixed Income 521,496,377 156,943,148 428,086,652 67,496,063 ----------------------------------------------------------------------------------- Global In- come 200,935,755 567,499,157 134,428,516 490,054,826 -----------------------------------------------------------------------------------
At October 31, 1998, Global Income had outstanding forward foreign currency exchange contracts, both to purchase and sell foreign currencies as follows:
FOREIGN CURRENCY VALUE ON UNREALIZED PURCHASE CONTRACTS SETTLEMENT DATE CURRENT VALUE GAIN (LOSS) ----------------------------------------------------------------------------- Australian Dollar expiring 11/20/98 $ 200,114 $ 202,016 $ 1,902 Deutsche Mark expiring 11/10/98 159,316 173,595 14,279 expiring 1/29/99 5,731,566 5,700,981 (30,585) ----------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY PURCHASE CONTRACTS $ 6,090,996 $ 6,076,592 $ (14,404) ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- FOREIGN CURRENCY VALUE ON UNREALIZED SALE CONTRACTS SETTLEMENT DATE CURRENT VALUE GAIN (LOSS) ----------------------------------------------------------------------------- British Pound expiring 1/29/99 $ 52,117,193 $ 51,337,748 $ 779,445 expiring 1/29/99 12,806,986 12,824,173 (17,187) Canadian Dollar expiring 11/20/98 8,514,767 8,444,199 70,568 Danish Kroner expiring 1/13/99 28,023,165 27,793,076 230,089 Deutsche Mark expiring 12/4/98 4,097,113 4,196,298 (99,185) expiring 1/22/99 2,542,895 2,521,022 21,873 expiring 1/25/99 4,703,312 4,714,684 (11,372) expiring 1/25/99 5,694,778 5,682,105 12,673 French Franc expiring 1/14/99 6,595,663 6,512,727 82,936 Italian Lira expiring 11/13/98 24,352,416 26,131,764 (1,779,348) Japanese Yen expiring 12/4/98 686,226 790,350 (104,124) expiring 2/10/99 25,373,876 25,644,571 (270,695) Spanish Peseta expiring 12/10/98 9,333,401 9,743,034 (409,633) Swedish Krona expiring 1/22/99 1,743,193 1,743,792 (599) Swiss Franc expiring 11/17/98 8,486,072 9,362,582 (876,510) expiring 11/17/98 151,092 150,086 1,006 ----------------------------------------------------------------------------- TOTAL FOREIGN CURRENCY SALE CON- TRACTS $195,222,148 $197,592,211 $(2,370,063) -----------------------------------------------------------------------------
51 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Notes to Financial Statements October 31, 1998 The contractual amounts of forward foreign currency exchange contracts do not necessarily represent the amounts potentially subject to risk. The mea- surement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. At October 31, 1998, Global Income had sufficient cash and/or securities to cover any com- mitments under these contracts. Global Income has recorded a "Receivable for forward foreign currency ex- change contracts" and "Payable for forward foreign currency exchange con- tracts" resulting from open and closed but not settled forward foreign currency exchange contracts of $1,802,980 and $4,943,283, respectively, in the accompanying Statement of Assets and Liabilities. Included in the Global Income "Receivable and Payable for forward foreign currency exchange con- tracts" are $588,209 and $1,344,045, respectively, related to forward con- tracts closed but not settled as of October 31, 1998. For the year ended October 31, 1998, Adjustable Rate Government, Short Du- ration Government, Government Income, Core Fixed Income and Global Income in- curred commission expenses of approximately $54,000, $26,000, $8,000, $9,000 and $8,000, respectively, in connection with futures contracts entered into with Goldman Sachs. At October 31, 1998, Goldman Sachs was owed approximately $157,000, $131,000, $130,000 and $128,000 from Adjustable Rate Government, Short Duration Government, Government Income and Core Fixed Income, respec- tively, related to variation margin on futures contracts. Goldman Sachs owed approximately $30,000 to Global Income related to variation margin on futures contracts. 5. REPURCHASE AGREEMENTS During the term of a repurchase agreement, the value of the underlying secu- rities, including accrued interest, is required to equal or exceed the value of the repurchase agreement. The underlying securities for all repurchase agreements are held in safekeeping at the Funds' custodian. 6. JOINT REPURCHASE AGREEMENT ACCOUNT The Funds, together with other registered investment companies having manage- ment agreements with GSFM, GSAMI and GSAM or their affiliates, transfer uninvested cash into joint accounts, the daily aggregate balance of which is invested in one or more repurchase agreements. At October 31, 1998, Adjustable Rate Government, Short Duration Government, Government Income and Core Fixed Income had undivided interests in the repur- chase agreements in the following joint account which equaled $43,700,000, $6,400,000, $14,600,000 and $22,300,000, respectively, in principal amount. At October 31, 1998, the following repurchase agreements held in this joint account were fully collateralized by U.S. Treasury and agency obligations.
PRINCIPAL INTEREST MATURITY AMORTIZED REPURCHASE AGREEMENTS AMOUNT RATE DATE COST --------------------------------------------------------------------------------------- CS FIRST BOSTON CORP. $ 25,000,000 5.50% 11/02/1998 $ 25,000,000 --------------------------------------------------------------------------------------- NATIONSBANC MONTGOMERY SECURITIES LLC 800,000,000 5.65 11/02/1998 800,000,000 --------------------------------------------------------------------------------------- CHASE MANHATTAN BANK 600,000,000 5.60 11/02/1998 600,000,000 --------------------------------------------------------------------------------------- TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,425,000,000 ---------------------------------------------------------------------------------------
52 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS 7. LINE OF CREDIT FACILITY The Funds participate in a $250,000,000 uncommitted, unsecured revolving line of credit facility. In addition, Global Income participates in a $50,000,000 committed, unsecured revolving line of credit facility. Both facilities are to be used solely for temporary or emergency purposes. Under the most re- strictive arrangement, each Fund must own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on the borrowings is based on the federal funds rate. The committed facility also requires a fee to be paid by the Fund based on the amount of the commitment which has not been utilized. During the year ended October 31, 1998, the Funds did not have any borrowings under these facilities. 8. OTHER MATTERS As of October 31, 1998, the Goldman, Sachs & Co. Profit Sharing Master Trust was the beneficial owner of approximately 20% and 15% of the outstanding shares of Short Duration Government and Global Income, respectively. In addi- tion, the Goldman Sachs Balanced Strategy Portfolio was the beneficial owner of approximately 14%, 3% and 1% of the outstanding shares of Short Duration Government, Global Income and High Yield, respectively. The Goldman Sachs Growth and Income Strategy Portfolio was the beneficial owner of approxi- mately 19%, 15% and 5% of the outstanding shares of Core Fixed Income, Global Income and High Yield, respectively. The Goldman Sachs Growth Strategy Port- folio was the beneficial owner of approximately 6%, 4% and 2% of Core Fixed Income, Global Income and High Yield, respectively. 9. CERTAIN RECLASSIFICATIONS In accordance with Statement of Position 93-2, Adjustable Rate Government has reclassified $938,738 and $1,410,151 from paid-in capital to accumulated dis- tributions in excess of net investment income and accumulated net realized loss, respectively. Short Duration Government has reclassified $33,684 and $8,196 to paid-in capital and accumulated undistributed net investment in- come, respectively, from accumulated net realized loss. Government Income has reclassified $1,659 from paid-in capital to accumulated distributions in ex- cess of net investment income and an additional $164,196 and $15,707 from ac- cumulated net realized gain to accumulated distributions in excess of net investment income and paid-in capital, respectively. Core Fixed Income has reclassified $24,095 and $444,061 from paid-in capital and accumulated net realized gain, respectively, to accumulated distributions in excess of net investment income. In addition, Core Fixed Income has reclassified $2,294 and $19,060 from accumulated distributions in excess of net investment income to paid-in capital and accumulated net realized gain, respectively. Global In- come has reclassified $6,564,667 from accumulated undistributed net invest- ment income to accumulated net realized gain and an additional $30,213 and $726,330 from paid-in capital to accumulated undistributed net investment in- come and accumulated net realized gain, respectively. These reclassifications have no impact on the net asset value of the Funds and are designed to present the Fund's capital accounts on a tax basis. 53 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Notes to Financial Statements October 31, 1998 10. SUMMARY OF SHARE TRANSACTIONS Share activity for the year ended October 31, 1998 is as follows:
ADJUSTABLE RATE GOVERNMENT SHORT DURATION GOVERNMENT ------------------------------------------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------------------------------------------- CLASS A SHARES Shares sold 19,932,653 $ 194,697,319 16,985,961 $ 167,624,322 Reinvestments of divi- dends and distributions 604,097 5,945,679 120,111 1,185,808 Shares repurchased (18,654,663) (182,295,231) (12,340,018) (121,740,352) ------------------------------------------------------ 1,882,087 18,347,767 4,766,054 47,069,778 ------------------------------------------------------------------------------- CLASS B SHARES Shares sold -- -- 603,049 5,943,625 Reinvestments of divi- dends and distributions -- -- 7,568 74,540 Shares repurchased -- -- (177,997) (1,755,511) ------------------------------------------------------ -- -- 432,620 4,262,654 ------------------------------------------------------------------------------- CLASS C SHARES Shares sold -- -- 2,838,549 27,966,526 Reinvestments of divi- dends and distributions -- -- 4,686 46,150 Shares repurchased -- -- (2,404,324) (23,689,726) ------------------------------------------------------ -- -- 438,911 4,322,950 ------------------------------------------------------------------------------- INSTITUTIONAL SHARES Shares sold 28,576,509 280,382,576 8,996,219 88,597,711 Reinvestments of divi- dends and distributions 1,450,779 14,219,494 476,030 4,685,919 Shares repurchased (31,436,222) (308,484,524) (5,282,160) (51,951,739) ------------------------------------------------------ (1,408,934) (13,882,454) 4,190,089 41,331,891 ------------------------------------------------------------------------------- ADMINISTRATION SHARES Shares sold 526,967 5,168,122 643,992 6,337,403 Reinvestments of divi- dends and distributions 16,347 159,947 21,813 215,247 Shares repurchased (207,333) (2,030,808) (30,888) (304,789) ------------------------------------------------------ 335,981 3,297,261 634,917 6,247,861 ------------------------------------------------------------------------------- SERVICE SHARES Shares sold 59,251 580,933 478,854 4,707,065 Reinvestments of divi- dends and distributions 2,671 26,153 26,999 265,734 Shares repurchased (12,170) (119,234) (213,862) (2,100,422) ------------------------------------------------------ 49,752 487,852 291,991 2,872,377 ------------------------------------------------------------------------------- NET INCREASE 858,886 $ 8,250,426 10,754,582 $ 106,107,511 -------------------------------------------------------------------------------
54 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
GOVERNMENT INCOME CORE FIXED INCOME GLOBAL INCOME --------------------------------------------------------------------------------- SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS --------------------------------------------------------------------------------- 10,117,601 $ 148,936,815 8,313,076 $ 84,205,066 6,208,388 $ 94,795,767 317,568 4,667,254 192,581 1,951,173 644,423 9,725,285 (8,375,782) (123,588,302) (3,945,813) (40,108,401) (4,034,417) (61,329,954) --------------------------------------------------------------------------------- 2,059,387 30,015,767 4,559,844 46,047,838 2,818,394 43,191,098 --------------------------------------------------------------------------------- 988,916 14,582,947 762,323 7,750,260 358,077 5,463,974 36,689 539,851 10,510 106,863 16,608 250,647 (495,310) (7,326,615) (133,282) (1,356,868) (83,968) (1,277,096) --------------------------------------------------------------------------------- 530,295 7,796,183 639,551 6,500,255 290,717 4,437,525 --------------------------------------------------------------------------------- 695,338 10,239,137 641,726 6,499,362 284,497 4,320,887 12,307 181,980 10,040 102,303 6,328 95,885 (143,057) (2,112,718) (135,503) (1,377,439) (61,616) (932,193) --------------------------------------------------------------------------------- 564,588 8,308,399 516,263 5,224,226 229,209 3,484,579 --------------------------------------------------------------------------------- 43,336 637,656 16,206,866 163,978,142 9,752,852 148,646,615 9,140 134,281 558,960 5,664,936 252,867 3,816,828 (4,930) (72,125) (5,578,137) (56,603,166) (2,632,348) (40,270,900) --------------------------------------------------------------------------------- 47,546 699,812 11,187,689 113,039,912 7,373,371 112,192,543 --------------------------------------------------------------------------------- -- -- 779,791 7,866,673 -- -- -- -- 49,361 499,933 -- -- -- -- (201,424) (2,053,871) -- -- --------------------------------------------------------------------------------- -- -- 627,728 6,312,735 -- -- --------------------------------------------------------------------------------- -- -- 375,085 3,807,318 62,146 946,767 7 104 19,089 193,910 1,707 26,082 -- -- (67,401) (688,807) (6,198) (94,978) --------------------------------------------------------------------------------- 7 104 326,773 3,312,421 57,655 877,871 --------------------------------------------------------------------------------- 3,201,823 $ 46,820,265 17,857,848 $180,437,387 10,769,346 $164,183,616 ---------------------------------------------------------------------------------
55 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS Notes to Financial Statements October 31, 1998 10. SUMMARY OF SHARE TRANSACTIONS Share activity for the year ended October 31, 1997 is as follows:
ADJUSTABLE RATE SHORT DURATION GOVERNMENT GOVERNMENT ------------------------------------------------------ SHARES DOLLARS SHARES DOLLARS ------------------------------------------------------------------------------ CLASS A SHARES Shares sold 7,590,281 $ 74,855,744 1,141,319 $ 11,256,436 Reinvestments of divi- dends and distributions 194,263 1,918,232 8,343 82,332 Shares repurchased (4,485,105) (44,283,044) (189,444) (1,867,761) ------------------------------------------------------ 3,299,439 32,490,932 960,218 9,471,007 ------------------------------------------------------------------------------ CLASS B SHARES Shares sold -- -- 95,322 934,856 Reinvestments of divi- dends and distributions -- -- 449 4,421 Shares repurchased -- -- (20,030) (196,887) ------------------------------------------------------ -- -- 75,741 742,390 ------------------------------------------------------------------------------ CLASS C SHARES Shares sold -- -- 21,033 207,264 Reinvestments of divi- dends and distributions -- -- 63 625 Shares repurchased -- -- (1,778) (17,517) ------------------------------------------------------ -- -- 19,318 190,372 ------------------------------------------------------------------------------ INSTITUTIONAL SHARES Shares sold 32,562,840 321,007,102 4,524,108 44,408,312 Reinvestments of divi- dends and distributions 1,830,181 18,045,430 440,142 4,313,493 Shares repurchased (49,889,214) (491,883,845) (4,617,947) (45,299,315) ------------------------------------------------------ (15,496,193) (152,831,313) 346,303 3,422,490 ------------------------------------------------------------------------------ ADMINISTRATION SHARES Shares sold 209,261 2,063,528 325,429 3,199,356 Reinvestment of divi- dends and distributions 10,639 104,909 6,605 64,920 Shares repurchased (322,994) (3,190,328) (250,361) (2,471,239) ------------------------------------------------------ (103,094) (1,021,891) 81,673 793,037 ------------------------------------------------------------------------------ SERVICE SHARES Shares sold 48,034 474,470 191,963 1,881,964 Reinvestment of divi- dends and distributions 199 1,965 14,820 145,231 Shares repurchased (13,213) (130,485) (53,841) (527,404) ------------------------------------------------------ 35,020 345,950 152,942 1,499,791 ------------------------------------------------------------------------------ NET INCREASE (DECREASE) (12,264,828) $(121,016,322) 1,636,195 $ 16,119,087 ------------------------------------------------------------------------------
56 GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
GOVERNMENT INCOME CORE FIXED INCOME GLOBAL INCOME -------------------------------------------------------------------------------- SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS -------------------------------------------------------------------------------- 4,037,141 $ 57,488,835 1,104,533 $ 11,020,182 3,015,583 $ 44,585,997 171,093 2,446,417 10,252 102,270 467,859 6,894,169 (1,621,717) (23,201,046) (186,897) (1,876,109) (6,086,858) (89,969,794) -------------------------------------------------------------------------------- 2,586,517 36,734,206 927,888 9,246,343 (2,603,416) (38,489,628) -------------------------------------------------------------------------------- 616,145 8,785,642 71,697 712,089 234,541 3,469,609 11,108 159,730 635 6,353 3,715 55,069 (93,217) (1,338,822) (10,829) (107,884) (25,960) (383,982) -------------------------------------------------------------------------------- 534,036 7,606,550 61,503 610,558 212,296 3,140,696 -------------------------------------------------------------------------------- 94,585 1,365,823 28,196 281,946 39,328 589,195 379 5,517 8 78 183 2,750 (13,076) (188,940) (1,200) (12,024) (6,597) (98,680) -------------------------------------------------------------------------------- 81,888 1,182,400 27,004 270,000 32,914 493,265 -------------------------------------------------------------------------------- 129,579 1,871,267 1,146,499 11,325,306 520,054 7,743,275 193 2,806 450,657 4,441,709 148,072 2,180,251 -- -- (1,051,390) (10,391,058) (365,110) (5,385,751) -------------------------------------------------------------------------------- 129,772 1,874,073 545,766 5,375,957 303,016 4,537,775 -------------------------------------------------------------------------------- -- -- 1,366,455 13,474,489 -- -- -- -- 19,189 189,462 -- -- -- -- (844,042) (8,441,000) -- -- -------------------------------------------------------------------------------- -- -- 541,602 5,222,951 -- -- -------------------------------------------------------------------------------- 104 1,506 204,087 2,016,094 27,005 399,488 1 19 7,480 73,981 390 5,784 -- -- (65,183) (648,610) (17,410) (262,579) -------------------------------------------------------------------------------- 105 1,525 146,384 1,441,465 9,985 142,693 -------------------------------------------------------------------------------- 3,332,318 $ 47,398,754 2,250,147 $ 22,167,274 (2,045,205) $(30,175,199) --------------------------------------------------------------------------------
57 GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND Financial Highlights Selected Data for a Share Outstanding Throughout Each Period
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS -------------------------- ------------------------------------ NET REALIZED AND UNREALIZED FROM NET NET GAIN (LOSS) REALIZED GAIN INCREASE NET ASSET ON INVESTMENT, IN EXCESS ON INVESTMENT, (DECREASE) VALUE AT NET OPTION AND FROM NET OF NET OPTION IN NET BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT AND FUTURES ASSET OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE FOR THE YEARS ENDED OCTOBER 31, 1998 - Class A Shares $ 9.88 $0.53 $(0.17) $(0.53) $(0.02) $-- $(0.19) 1998 - Institutional Shares 9.88 0.55 (0.16) (0.55) (0.02) -- (0.18) 1998 - Administration Shares 9.88 0.53 (0.16) (0.53) (0.02) -- (0.18) 1998 - Service Shares 9.88 0.51 (0.16) (0.51) (0.02) -- (0.18) ---------------------------------------------------------------------------------------------------------- 1997 - Class A Shares 9.83 0.57(f) 0.05(f) (0.57) -- -- 0.05 1997 - Institutional Shares 9.83 0.59(f) 0.05(f) (0.59) -- -- 0.05 1997 - Administration Shares 9.83 0.57(f) 0.05(f) (0.57) -- -- 0.05 1997 - Service Shares (commenced March 27) 9.84 0.33(f) 0.04(f) (0.33) -- -- 0.04 ---------------------------------------------------------------------------------------------------------- 1996 - Class A Shares 9.77 0.55(f) 0.08(f) (0.55) (0.02) -- 0.06 1996 - Institutional Shares 9.77 0.57(f) 0.08(f) (0.57) (0.02) -- 0.06 1996 - Administration Shares 9.77 0.55(f) 0.08(f) (0.55) (0.02) -- 0.06 ---------------------------------------------------------------------------------------------------------- 1995 - Class A Shares (commenced May 15) 9.79 0.27(f) (0.01)(f) (0.27) (0.01) -- (0.02) 1995 - Institutional Shares 9.74 0.56(f) 0.07(f) (0.57) (0.03) -- 0.03 1995 - Administration Shares 9.74 0.54(f) 0.07(f) (0.55) (0.03) -- 0.03 ---------------------------------------------------------------------------------------------------------- 1994 - Institutional Shares 10.00 0.43(f) (0.24)(f) (0.45) -- -- (0.26) 1994 - Administration Shares 10.00 0.42(f) (0.26)(f) (0.42) -- -- (0.26) ----------------------------------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts. (b) Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of period and no sales charge. Total return would be reduced if a sales charge for Class A shares were taken into account. (c) Annualized. (d) Not annualized. (e) Includes the effect of mortgage dollar roll transactions. (f) Calculated based on the average shares outstanding methodology. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 58 GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
RATIOS ASSUMING NO VOLUNTARY WAIVER OF FEES OR EXPENSE LIMITATIONS --------------------- NET RATIO OF RATIO OF ASSETS RATIO OF NET NET NET ASSET AT END NET INVESTMENT RATIO OF INVESTMENT VALUE, PORTFOLIO OF EXPENSES INCOME EXPENSES INCOME END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS $9.69 3.71% 33.64% $ 60,782 0.80% 5.40% 1.02% 5.18% 9.70 4.09 33.64 441,228 0.53 5.63 0.53 5.63 9.70 3.83 33.64 5,999 0.78 5.33 0.78 5.33 9.70 3.57 33.64 822 1.03 5.09 1.03 5.09 --------------------------------------------------------------------------------------- 9.88 6.43 46.58 43,393 0.74 5.60 1.02 5.32 9.88 6.70 46.58 463,511 0.49 5.99 0.52 5.96 9.88 6.43 46.58 2,793 0.74 5.73 0.77 5.70 9.88 3.81(d) 46.58 346 1.05(c) 5.64(c) 1.08(c) 5.61(c) --------------------------------------------------------------------------------------- 9.83 6.60 52.36 10,728 0.70 5.59 1.01 5.28 9.83 6.86 52.36 613,149 0.45 5.85 0.51 5.79 9.83 6.60 52.36 3,792 0.70 5.59 0.76 5.53 --------------------------------------------------------------------------------------- 9.77 2.74(d) 24.12 15,203 0.69(c) 5.87(c) 1.01(c) 5.55(c) 9.77 6.75 24.12 657,358 0.46 5.77 0.53 5.70 9.77 6.48 24.12 3,572 0.71 5.50 0.78 5.43 --------------------------------------------------------------------------------------- 9.74 1.88 37.81 942,523 0.46 4.38 0.49 4.35 9.74 1.63 37.81 6,960 0.71 4.27 0.74 4.24 ---------------------------------------------------------------------------------------
59 GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND Financial Highlights Selected Data for a Share Outstanding Throughout Each Period THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS ------------------------------- ------------------------------------ NET REALIZED FROM NET AND UNREALIZED REALIZED GAIN NET NET ASSET GAIN (LOSS) ON IN EXCESS ON INVESTMENT, INCREASE VALUE AT NET INVESTMENT, OPTION FROM NET OF NET OPTION (DECREASE) BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES IN NET OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS ASSET VALUE FOR THE YEARS ENDED OCTOBER 31, 1998 - Class A Shares $ 9.88 $0.57 $ 0.04 $(0.58) $-- $ -- $ 0.03 1998 - Class B Shares 9.86 0.51 0.03 (0.52) -- -- 0.02 1998 - Class C Shares 9.86 0.49 0.03 (0.50) -- -- 0.02 1998 - Institutional Shares 9.86 0.58 0.06 (0.60) -- -- 0.04 1998 - Administration Shares 9.89 0.55 0.05 (0.58) -- -- 0.02 1998 - Service Shares 9.86 0.55 0.04 (0.56) -- -- 0.03 ---------------------------------------------------------------------------------------------------------------- 1997 - Class A Shares (commenced May 1) 9.78 0.31(f) 0.09 (f) (0.30) -- -- 0.10 1997 - Class B Shares (commenced May 1) 9.75 0.28(f) 0.10 (f) (0.27) -- -- 0.11 1997 - Class C Shares (commenced May 15) 9.83 0.12(f) 0.02 (f) (0.11) -- -- 0.03 1997 - Institutional Shares 9.83 0.64(f) 0.03 (f) (0.64) -- -- 0.03 1997 - Administration Shares 9.85 0.62(f) 0.04 (f) (0.62) -- -- 0.04 1997 - Service Shares 9.82 0.59(f) 0.04 (f) (0.59) -- -- 0.04 ---------------------------------------------------------------------------------------------------------------- 1996 - Institutional Shares 9.82 0.63(f) 0.01 (f) (0.63) -- -- 0.01 1996 - Administration Shares(g) 9.86 0.38(f) -- (f) (0.39) -- -- (0.01) 1996 - Service Shares (Commenced April 10) 9.72 0.31(f) 0.10 (f) (0.31) -- -- 0.10 ---------------------------------------------------------------------------------------------------------------- 1995 - Institutional Shares 9.64 0.66(f) 0.17 (f) (0.65) -- -- 0.18 1995 - Administration Shares(g) 9.64 0.24(f) (0.04)(f) (0.21) -- -- (0.01) ---------------------------------------------------------------------------------------------------------------- 1994 - Institutional Shares 10.14 0.56(f) (0.46)(f) (0.56) -- (0.04) (0.50) 1994 - Administration Shares 10.14 0.53(f) (0.45)(f) (0.54) -- (0.04) (0.50) ----------------------------------------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts. (b) Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales charge. Total return would be reduced if a sales or redemption charge were taken into account. (c) Annualized. (d) Not annualized. (e) Includes the effect of mortgage dollar roll transactions. (f) Calculated based on the average shares outstanding methodology. (g) Short Duration Government Fund Administration shares commenced activity on April 15, 1993, were redeemed in full on February 23, 1995 and re- commenced on February 28, 1996 at $9.86. 60 GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
RATIOS ASSUMING NO VOLUNTARY WAIVER OF FEES OR EXPENSE LIMITATIONS ----------------------- RATIO OF NET RATIO OF NET NET ASSET NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT VALUE, PORTFOLIO AT END OF EXPENSES INCOME EXPENSES INCOME END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS $9.91 6.36% 119.89% $ 56,725 0.81% 5.68% 1.32% 5.17% 9.88 5.62 119.89 5,025 1.41 5.12 1.87 4.66 9.88 5.46 119.89 4,527 1.56 4.64 1.87 4.33 9.90 6.75 119.89 145,514 0.53 6.06 0.84 5.75 9.91 6.27 119.89 7,357 0.78 5.76 1.09 5.45 9.89 6.12 119.89 6,232 1.03 5.56 1.34 5.25 ---------------------------------------------------------------------------------------------- 9.88 4.14(d) 102.58 9,491 0.70(c) 6.05(c) 1.32(c) 5.43(c) 9.86 3.94(d) 102.58 747 1.30(c) 5.52(c) 1.82(c) 5.00(c) 9.86 1.44(d) 102.58 190 1.45(c) 5.52(c) 1.82(c) 5.15(c) 9.86 7.07 102.58 103,729 0.45 6.43 0.82 6.06 9.89 6.91 102.58 1,060 0.70 6.19 1.07 5.82 9.86 6.63 102.58 3,337 0.95 5.92 1.32 5.55 ---------------------------------------------------------------------------------------------- 9.83 6.75 115.45 99,944 0.45 6.44 0.71 6.18 9.85 4.00(d) 115.45 252 0.70(c) 5.97(c) 0.96(c) 5.71(c) 9.82 4.35(d) 115.45 1,822 0.95(c) 6.05(c) 1.21(c) 5.79(c) ---------------------------------------------------------------------------------------------- 9.82 8.97 292.56 103,760 0.45 6.87 0.72 6.60 9.63 2.10(d) 292.56 -- 0.70(c) 7.91(c) 0.90(c) 7.71(c) ---------------------------------------------------------------------------------------------- 9.64 0.99 289.79 193,095 0.45 5.69 0.59 5.55 9.64 0.73 289.79 730 0.70 5.38 0.84 5.24 ----------------------------------------------------------------------------------------------
61 GOLDMAN SACHS GOVERNMENT INCOME FUND Financial Highlights Selected Data for a Share Outstanding Throughout Each Period
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS ------------------------- ----------------------------------------------- ------- NET REALIZED FROM IN EXCESS OF AND UNREALIZED NET REALIZED NET REALIZED GAIN (LOSS) ON GAIN ON GAIN ON NET ASSET INVESTMENT, IN EXCESS INVESTMENT, INVESTMENT, VALUE, NET OPTION AND FROM NET OF NET OPTION AND OPTION AND BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT FUTURES FUTURES OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS FOR THE YEARS ENDED OCTOBER 31, 1998 - Class A Shares $14.59 $0.81 $0.45 $(0.81) $(0.07) $(0.06) $ -- 1998 - Class B Shares 14.61 0.72 0.42 (0.72) (0.05) (0.06) -- 1998 - Class C Shares 14.60 0.74 0.40 (0.74) (0.03) (0.06) -- 1998 - Institutional Shares 14.59 0.87 0.42 (0.87) (0.05) (0.06) -- 1998 - Service Shares 14.59 0.80 0.40 (0.80) (0.05) (0.06) -- ----------------------------------------------------------------------------------------------------------------- 1997 - Class A Shares 14.36 0.91 0.29 (0.90) -- (0.07) -- 1997 - Class B Shares 14.37 0.80 0.30 (0.79) -- (0.07) -- 1997 - Class C Shares (commenced August 15) 14.38 0.17 0.22 (0.17) -- -- -- 1997 - Institutional Shares (commenced August 15) 14.37 0.20 0.22 (0.20) -- -- -- 1997 - Service Shares (commenced August 15) 14.37 0.20 0.21 (0.19) -- -- -- ----------------------------------------------------------------------------------------------------------------- 1996 - Class A shares 14.47 0.92 (0.11) (0.92) -- -- -- 1996 - Class B shares (commenced May 1) 14.11 0.41 0.26 (0.41) -- -- -- ----------------------------------------------------------------------------------------------------------------- 1995 - Class A shares 13.47 0.94 1.00 (0.94) -- -- -- ----------------------------------------------------------------------------------------------------------------- 1994 - Class A shares 14.90 0.85 (1.28) (0.85) (0.02) (0.12) (0.01) -----------------------------------------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts. (b) Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of the period and no sales charge. Total return would be reduced if a sales or redemption charge were taken into account. (c) Annualized. (d) Not annualized. (e) Includes the effect of mortgage dollar roll transactions. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 62 GOLDMAN SACHS GOVERNMENT INCOME FUND
RATIOS ASSUMING NO VOLUNTARY WAIVER OF FEES OR EXPENSE LIMITATIONS ------------------------------- RATIO OF NET NET RATIO OF NET INCREASE NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT (DECREASE) VALUE, PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME IN NET END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE ASSET VALUE PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS $0.32 $14.91 8.98% 315.43% $101,015 0.76% 5.53% 1.53% 4.76% 0.31 14.92 8.09 315.43 16,125 1.51 4.76 2.05 4.22 0.31 14.91 8.09 315.43 9,639 1.51 4.59 2.05 4.05 0.31 14.90 9.19 315.43 2,642 0.51 5.82 1.05 5.28 0.29 14.88 8.53 315.43 2 1.01 5.48 1.55 4.94 - ----------------------------------------------------------------------------------------------------------------------- 0.23 14.59 8.72 395.75 68,859 0.50 6.38 1.82 5.06 0.24 14.61 7.96 395.75 8,041 1.25 5.59 2.32 4.52 0.22 14.60 2.72(d) 395.75 1,196 1.25(c) 5.45(c) 2.32(c) 4.38(c) 0.22 14.59 2.94(d) 395.75 1,894 0.25(c) 7.03(c) 1.32(c) 5.96(c) 0.22 14.59 2.85(d) 395.75 2 0.75(c) 6.49(c) 1.82(c) 5.42(c) - ----------------------------------------------------------------------------------------------------------------------- (0.11) 14.36 5.80 485.09 30,603 0.50 6.42 1.89 5.03 0.26 14.37 4.85(d) 485.09 234 1.25(c) 5.65(c) 2.39(c) 4.51(c) - ----------------------------------------------------------------------------------------------------------------------- 1.00 14.47 14.90 449.53 29,503 0.47 6.67 2.34 4.80 - ----------------------------------------------------------------------------------------------------------------------- (1.43) 13.47 (2.98) 654.90 14,452 0.11 6.06 2.86 3.31 - -----------------------------------------------------------------------------------------------------------------------
63 GOLDMAN SACHS CORE FIXED INCOME FUND Financial Highlights Selected Data for a Share Outstanding Throughout Each Period
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS --------------------------- ---------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON FROM NET INVESTMENT, REALIZED NET OPTION, GAIN ON INCREASE NET ASSET FUTURES AND IN EXCESS INVESTMENT, (DECREASE) VALUE AT NET FOREIGN CURRENCY FROM NET OF NET OPTION AND IN NET BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT FUTURES ASSET OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE FOR THE YEARS ENDED OCTOBER 31, 1998 - Class A Shares $10.06 $0.59 $ 0.27 $(0.59) $(0.02) $(0.06) $0.19 1998 - Class B Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19 1998 - Class C Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19 1998 - Institutional Shares 10.08 0.61 0.29 (0.61) (0.03) (0.06) 0.20 1998 - Administration Shares 10.07 0.57 0.29 (0.57) (0.03) (0.06) 0.20 1998 - Service Shares 10.09 0.56 0.27 (0.56) (0.02) (0.06) 0.19 ------------------------------------------------------------------------------------------------------------ 1997 - Class A Shares (commenced May 1) 9.70 0.30 0.36 (0.30) -- -- 0.36 1997 - Class B Shares (commenced May 1) 9.72 0.27 0.37 (0.27) -- -- 0.37 1997 - Class C Shares (commenced August 15) 9.93 0.11 0.16 (0.11) -- -- 0.16 1997 - Institutional Shares 9.85 0.64 0.23 (0.64) -- -- 0.23 1997 - Administration Shares 9.84 0.62 0.23 (0.62) -- -- 0.23 1997 - Service Shares 9.86 0.59 0.23 (0.59) -- -- 0.23 ------------------------------------------------------------------------------------------------------------ 1996 - Institutional Shares 10.00 0.64 (0.07) (0.64) -- (0.08) (0.15) 1996 - Administrative Shares (commenced February 28) 9.91 0.41 (0.07) (0.41) -- -- (0.07) 1996 - Service Shares (commenced March 13) 9.77 0.38 0.09 (0.38) -- -- 0.09 ------------------------------------------------------------------------------------------------------------ 1995 - Institutional Shares 9.24 0.64 0.76 (0.64) -- -- 0.76 FOR THE PERIOD ENDED OCTOBER 31, 1994 - Institutional Shares (commenced January 5) 10.00 0.46 (0.76) (0.46) -- -- (0.76) ------------------------------------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts. (b) Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of period and no sales charge. Total return would be reduced if a sales or redemption charge were taken into account. (c) Annualized. (d) Not annualized. (e) Includes the effect of mortgage dollar roll transactions. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 64 GOLDMAN SACHS CORE FIXED INCOME FUND
RATIOS ASSUMING NO VOLUNTARY WAIVER OF FEES OR EXPENSE LIMITATIONS --------------------- NET RATIO OF RATIO OF ASSETS RATIO OF NET NET NET ASSET AT END NET INVESTMENT RATIO OF INVESTMENT VALUE, PORTFOLIO OF EXPENSES INCOME EXPENSES INCOME END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS $10.25 8.76% 271.50% $56,267 0.74% 5.58% 1.21% 5.11% 10.28 7.94 271.50 7,209 1.49 4.82 1.75 4.56 10.28 7.94 271.50 5,587 1.49 4.81 1.75 4.55 10.28 9.15 271.50 195,730 0.46 5.95 0.72 5.69 10.27 8.88 271.50 12,743 0.71 5.70 0.97 5.44 10.28 8.50 271.50 5,263 0.96 5.44 1.22 5.18 - ----------------------------------------------------------------------------------------- 10.06 6.94(d) 361.27 9,336 0.70(c) 6.13(c) 1.33(c) 5.50(c) 10.09 6.63(d) 361.27 621 1.45(c) 5.28(c) 1.83(c) 4.90(c) 10.09 2.74(d) 361.27 272 1.45(c) 4.84(c) 1.83(c) 4.46(c) 10.08 9.19 361.27 79,230 0.45 6.53 0.83 6.15 10.07 8.92 361.27 6,176 0.70 6.27 1.08 5.89 10.09 8.65 361.27 1,868 0.95 6.00 1.33 5.62 - ----------------------------------------------------------------------------------------- 9.85 5.98 414.20 72,061 0.45 6.51 0.83 6.13 9.84 3.56(d) 414.20 702 0.70(c) 6.41(c) 1.08(c) 6.03(c) 9.86 4.90(d) 414.20 381 0.95(c) 6.37(c) 1.33(c) 5.99(c) - ----------------------------------------------------------------------------------------- 10.00 15.72 382.26 55,502 0.45 6.56 0.96 6.05 9.24 (3.00)(d) 285.25 24,508 0.45(c) 6.48(c) 1.46(c) 5.47(c) - -----------------------------------------------------------------------------------------
65 GOLDMAN SACHS GLOBAL INCOME FUND Financial Highlights Selected Data for a Share Outstanding Throughout Each Period
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS --------------------------- ---------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, NET REALIZED OPTION, FUTURES GAIN ON NET NET ASSET AND FOREIGN IN EXCESS INVESTMENT, INCREASE VALUE, NET CURRENCY FROM NET OF NET OPTION AND FROM (DECREASE) BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT FUTURES PAID IN IN NET OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS CAPITAL ASSET VALUE FOR THE YEARS ENDED OCTOBER 31, 1998 - Class A Shares $15.10 $0.72(e) $ 0.90(e) $(1.01) $-- $(0.06) $ -- $0.55 1998 - Class B Shares 15.08 0.63(e) 0.92(e) (0.94) -- (0.06) -- 0.55 1998 - Class C Shares 15.06 0.63(e) 0.91(e) (0.94) -- (0.06) -- 0.54 1998 - Institutional Shares 15.09 0.82(e) 0.90(e) (1.11) -- (0.06) -- 0.55 1998 - Service Shares 15.09 0.74(e) 0.91(e) (1.04) -- (0.06) -- 0.55 ------------------------------------------------------------------------------------------------------------------------- 1997 - Class A shares 14.53 0.59 0.77 (0.79) -- -- -- 0.57 1997 - Class B shares 14.53 0.72 0.56 (0.73) -- -- -- 0.55 1997 - Class C shares (commenced August 15) 14.80 0.16 0.29 (0.19) -- -- -- 0.26 1997 - Institutional Shares 14.52 0.88 0.56 (0.87) -- -- -- 0.57 1997 - Service Shares (commenced March 12) 14.69 0.53 0.39 (0.52) -- -- -- 0.40 ------------------------------------------------------------------------------------------------------------------------- 1996 - Class A shares 14.45 0.71 0.80 (1.43) -- -- -- 0.08 1996 - Class B shares (commenced May 1) 14.03 0.34 0.52 (0.36) -- -- -- 0.50 1996 - Institutional shares 14.45 1.15 0.42 (1.50) -- -- -- 0.07 ------------------------------------------------------------------------------------------------------------------------- 1995 - Class A shares 13.43 0.89 1.07 (0.94) -- -- -- 1.02 1995 - Institutional shares (commenced August 1) 14.09 0.22 0.40 (0.26) -- -- -- 0.36 ------------------------------------------------------------------------------------------------------------------------- 1994 - Class A shares 15.07 0.84 (1.49) (0.22) -- (0.16) (0.61) (1.64) -------------------------------------------------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts. (b) Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of period and no sales charge. Total return would be reduced if a sales or redemption charge were taken into account. (c) Annualized. (d) Not annualized. (e) Calculated based on the average shares outstanding methodology. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 66 GOLDMAN SACHS GLOBAL INCOME FUND
- RATIOS ASSUMING NO VOLUNTARY WAIVER OF FEES OR EXPENSE LIMITATIONS -------------------------------- RATIO OF NET RATIO OF NET NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME VALUE, TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE END OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS $15.65 11.21% 229.91% $217,362 1.31% 4.71% 1.75% 4.27% 15.63 10.66 229.91 8,135 1.83 4.19 2.24 3.78 15.60 10.65 229.91 4,090 1.83 4.20 2.24 3.79 15.64 11.95 229.91 178,532 0.66 5.40 1.07 4.99 15.64 11.43 229.91 1,058 1.16 4.92 1.57 4.51 - ------------------------------------------------------------------------------------------------------------------ 15.10 9.66 383.72 167,096 1.17 5.19 1.60 4.76 15.08 9.04 383.72 3,465 1.71 4.76 2.10 4.37 15.06 3.03(d) 383.72 496 1.71(c) 4.98(c) 2.10(c) 4.59(c) 15.09 10.26 383.72 60,929 0.65 5.72 1.04 5.33 15.09 6.42(d) 383.72 151 1.15(c) 5.33(c) 1.54(c) 4.94(c) - ------------------------------------------------------------------------------------------------------------------ 14.53 11.05 232.15 198,665 1.16 5.81 1.64 5.33 14.53 6.24(d) 232.15 256 1.70(c) 5.16(c) 2.14(c) 4.72(c) 14.52 11.55 232.15 54,254 0.65 6.35 1.11 5.89 - ------------------------------------------------------------------------------------------------------------------ 14.45 15.08 265.86 245,835 1.29 6.23 1.58 5.94 14.45 4.42(d) 265.86 31,619 0.65(c) 6.01(c) 1.08(c) 5.58(c) - ------------------------------------------------------------------------------------------------------------------ 13.43 (4.49) 343.74 396,584 1.28 5.73 1.53 5.48 - ------------------------------------------------------------------------------------------------------------------
67 GOLDMAN SACHS TRUST TAXABLE INVESTMENT GRADE FUNDS Report of Independent Public Accountants To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Taxable Investment Grade Fixed Income Funds: We have audited the accompanying statements of assets and liabilities of Goldman Sachs Adjustable Rate Government Fund, Short Duration Government Fund, Government Income Fund, Core Fixed Income Fund and Global Income Fund, five of the portfolios constituting Goldman Sachs Trust -- Fixed Income Funds (a Delaware Business Trust), including the statements of investments, as of October 31, 1998, and the related statements of operations and the statements of changes in net assets and the financial highlights for the periods pre- sented. These financial statements and the financial highlights are the re- sponsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing stan- dards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the finan- cial statements. Our procedures included confirmation of securities owned as of October 31, 1998 by correspondence with the custodian and brokers. An au- dit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights re- ferred to above present fairly, in all material respects, the financial posi- tion of Goldman Sachs Adjustable Rate Government Fund, Short Duration Government Fund, Government Income Fund, Core Fixed Income Fund and Global Income Fund as of October 31, 1998, the results of their operations and the changes in their net assets and the financial highlights for the periods pre- sented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts December 11, 1998 68 GOLDMAN SACHS FUND PROFILE THE GOLDMAN SACHS ADVANTAGE When you invest in Goldman Sachs Taxable Investment Grade Funds, you can capitalize on Goldman Sachs' 129-year history of excellence while benefiting from the firm's leadership in three areas: 1 Global Resources With professionals based throughout the Americas, Europe and Asia, Goldman Sachs possesses first-hand knowledge of the world's markets and economies. 2 Fundamental Research Goldman Sachs is recognized by the managements of corporations worldwide as a leader in investment research. As a result, we obtain face-to-face meetings with managers on a timely, regular basis. 3 Risk Management Goldman, Sachs & Co. excels in understanding, monitoring and managing investment risk -- a process that is integrated into all Goldman Sachs investment products. Goldman Sachs Taxable Investment Grade Funds Generally speaking, bond investments may help individuals mitigate overall portfolio volatility, without sacrificing attractive returns. Goldman Sachs Taxable Investment Grade Funds offer investors access to the benefits associated with fixed income investing. The Funds seek current income from portfolios that invest in a variety of fixed income securities. Target Your Needs Goldman Sachs Taxable Investment Grade Funds have distinct investment objectives and defined positions on the risk/return spectrum. As your investment objectives change, you can exchange shares within Goldman Sachs Funds without any additional charge. (Please note: in general, greater returns are associated with greater risk.)* Goldman Sachs Fixed Income Funds [GRAPHIC]
[GRAPHIC] Lower risk/return Higher risk/return - ------------------------------------------------------------------------------------------------------------------ TAX-FREE TAXABLE HIGH YIELD . Municipal Income Fund . Global Income Fund . High Yield Fund . Short Duration Tax-Free Fund . Core Fixed Income Fund . Government Income Fund . Short Duration Government Fund . Adjustable Rate Government Fund
For More Information To learn more about Goldman Sachs Taxable Investment Grade Funds and other Goldman Sachs Funds, call your investment professional today. * The exchange privilege is subject to termination and its terms are subject to change. - -------------------------------------------------------------------------------- GOLDMAN SACHS ASSET MANAGEMENT ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 10004 - -------------------------------------------------------------------------------- TRUSTEES Ashok N. Bakhru, Chairman David B. Ford Douglas C. Grip John P. McNulty Mary P. McPherson Alan A. Shuch Jackson W. Smart, Jr. William H. Springer Richard P. Strubel OFFICERS Douglas C. Grip, President Jesse H. Cole, Vice President James A. Fitzpatrick, Vice President Anne E. Marcel, Vice President John M. Perlowski, Treasurer Philip V. Giuca, Jr., Assistant Treasurer Michael J. Richman, Secretary Howard B. Surloff, Assistant Secretary Valerie A. Zondorak, Assistant Secretary GOLDMAN, SACHS & CO. Distributor and Transfer Agent GOLDMAN SACHS ASSET MANAGEMENT Investment Adviser GOLDMAN SACHS INTERNATIONAL 133 Peterborough Court London, England EC4A 2BB Visit our internet address: www.gs.com/funds Sources (page 16): Lipper Analytical Services. The correlation measures the relationship between two data sets that are scaled to be independent of the unit of measurement. The population correlation calculation is computed as the covariance of the monthly return series divided by the product of their standard deviations. Correlations based on monthly returns from 10/31/88 through 10/31/98 of the following: Cash - 1-month Certificate of Deposit (CD). Treasury Bill - 3-month Treasury Bill; CD and Treasury bill indices are derived from secondary market interest rates as published by the Federal Reserve Bank. Intermediate-Term Government Bonds - Lehman Intermediate Government Bond Index. Long Term Government Bonds - Lehman Long Term Government Bond Index; Lehman Government Bond Indices are made up of agency (all publicly issued debt of U.S. Government agencies and quasi-federal corporations, and corporate debt guaranteed by the U.S. Government) and treasury securities (all public obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted issues). Corporate Bonds - the Lehman Aggregate Bond Index represents a diversified portfolio of fixed income securities, including U.S. Treasuries, investment-grade corporation bonds, and mortgage- and asset-backed securities. Municipal Bonds - the Lehman Muni 10-Year Index, a broad-based total return index that is comprised of investment grade, fixed rate, long-term maturities (ranging from nine to 12 years) and are selected from issues larger than $50 million with dates since January 1984. Global Bonds - the Merrill Lynch Global Bond Index, a broad-based index consisting of fixed-rate, coupon-bearing bonds with an outstanding par greater than or equal to $25 million and a maturity range greater than or equal to one year. High Yield Bonds - Lehman High Yield Bond Index, includes all fixed income securities having a maximum quality rating of Ba1 (including defaulted issues), a minimum amount outstanding of $100mm, and at least one year to maturity; PIKs and Eurodollars are excluded. This material is not authorized for distribution to prospective investors unless preceded or accompanied by a current Prospectus. Investors should read the Prospectus carefully before investing or sending money. Goldman, Sachs & Co., distributor of the Funds, is not a bank, and Fund shares distributed by it are neither bank deposits nor obligations of, nor endorsed, nor guaranteed by, any bank or other insured depository institution, nor are they insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other government agency. Investment in the Funds involves risks, including possible loss of the principal amount invested. Goldman Sachs Government Income Fund's, Goldman Sachs Short Duration Government Fund's and Goldman Sachs Adjustable Rate Government Fund's net asset values and yields are not guaranteed by the U.S. Government or by its agencies, instrumentalities or sponsored enterprises. Goldman Sachs High Yield Fund invests primarily in high yield, fixed income securities rated below investment grade that are considered speculative and generally involve greater price volatility and greater risk of loss of principal and interest than investments in higher rated fixed income securities. Goldman Sachs Global Income Fund's, Goldman Sachs High Yield Fund's and Goldman Sachs Core Fixed Income Fund's foreign investments and active management techniques entail risks in addition to those customarily associated with investing in dollar-denominated securities of U.S. issuers. Compared with U.S. securities markets, foreign markets may be less liquid, more volatile and less subject to governmental regulation, and may make available less public information about issuers. The Funds may incur losses because of changes in securities prices expressed in local currencies, movements in exchange rates, or both. Goldman Sachs Municipal Income Fund and Goldman Sachs Short Duration Tax-Free Fund can invest up to 100% and 20%, respectively, in private activity bonds, the interest from which is subject to the federal alternative minimum tax. (C) Copyright 1998 Goldman, Sachs & Co. All rights reserved. Date of first use: December 30, 1998 FI/INVGRAR / 26K / 12-98 -----END PRIVACY-ENHANCED MESSAGE-----