<PAGE>
- -------------------------------------------------------------------------------
Letter to Shareholders
- -------------------------------------------------------------------------------
Dear Shareholders:
A return of robust economic growth during the period under review fueled
fears of higher inflation, which pushed Treasury yields higher across the
maturity spectrum. In this semiannual report, we will review the performance of
the Goldman Sachs Fixed Income Funds for the six-month period ended April 30,
1997, as well as provide a brief overview of the U.S. economy and the bond
market. We are pleased to note that during the period, the Goldman Sachs Fixed
Income Funds performed well compared with their peers.
Economic Activity Rebounded, Led by Consumer Spending
After a sluggish third quarter, the pace of economic growth strengthened
during the period. During November and December, consumer spending rebounded,
the trade deficit narrowed and industrial production climbed significantly. As a
result, fourth-quarter real Gross Domestic Product (GDP) growth was 3.8%
(annualized), up from 2.1% in the prior quarter.
Economic activity continued to gain momentum during the first quarter of
1997, with real GDP surging 5.8%, the largest jump in a decade. Signs of
strength were led by a sharp increase in consumer spending, which resulted in
solid sales gains for automobile manufacturers and retailers. In addition,
upbeat reports on factory orders and inventories, construction outlays and labor
market conditions all pointed towards economic acceleration. Despite the growth
spurt, reported inflation remained surprisingly mild during the period.
Furthermore, several economic reports for April came in at the low end of
consensus expectations, which suggested that the economy could moderate during
the second quarter.
The Bond Market Rallied, Then Fell as Inflation Fears Reemerged
The U.S. fixed income market came under pressure during the period under
review. In November, bonds performed well in anticipation of a continued
slowdown in U.S. economic growth. However, the market experienced a reversal in
December when better-than-expected economic data, in particular, robust
employment figures, triggered a sell-off and drove interest rates higher. In
early February, bond prices briefly rebounded, but later faltered as it became
increasingly likely that the U.S. Federal Reserve would raise short term
interest rates in March. By the end of March, the yield on the benchmark 30-year
Treasury bond rose above the psychologically important 7% threshold. Despite the
lackluster performance of the U.S. bond market for the period as a whole, a
sharp rebound at the end of April helped bonds recoup part of their earlier
losses.
The Fed Raised the Federal Funds Rate in March
In March 1997, the Fed raised the federal funds rate by 25 basis points to
5.50%. Though there were few signs of actual inflation, the Fed tightening was
prompted by the economy's pervasive strength. The Fed's action was its first
since a quarter-point cut in January 1996.
During the period under review, the yield curve shifted higher across all
maturities. The yield on six-month Treasury bills rose from 5.26% on October 31,
1996 to approximately 5.52% on April 30, 1997. For the same period, the yield on
the 30-year U.S. Treasury bond rose more dramatically, climbing from 6.64% to
6.95%.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Table of Contents
Market Overview 1 Financial Statements 18
Goldman Sachs Government Income Fund 3 Notes to Financial Statements 22
Goldman Sachs Global Income Fund 8 Financial Highlights 29
Goldman Sachs Municipal Income Fund 13
----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
1
<PAGE>
- -------------------------------------------------------------------------------
Letter to Shareholders (continued)
- -------------------------------------------------------------------------------
Historical Treasury Yield Curve
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
10/31/96 4/30/97
<S> <C> <C>
3-Month 5.14% 5.23%
6-Month 5.26% 5.52%
1 5.40% 5.89%
2 5.73% 6.27%
3 5.86% 6.40%
5 6.07% 6.57%
10 6.34% 6.71%
30 6.64% 6.95%
</TABLE>
Source: Bloomberg, L.P.
The yield curve shifted upward across all maturities and steepened sharply at
the short end.
Outlook: Strengthening Economic Growth May Trigger Further Preemptive Rate Hikes
Despite reports of economic moderation and minimal price acceleration, the
economy's broad-based fundamental strength and resilient equity market make
additional Fed rate increases likely this year. Goldman Sachs' economists
believe that the speed and extent of Fed tightening will depend in large part on
the emergence of conclusive signs that the economy is nearing maximum capacity,
rather than immediate evidence of increased inflationary pressures.
In conclusion, we thank you for your support of the Goldman Sachs Fixed
Income Funds and we look forward to continuing our relationship.
Sincerely,
/s/ David B. Ford
David B. Ford
Co-Head,
Goldman Sachs Asset Management
/s/ John P. McNulty
John P. McNulty
Co-Head,
Goldman Sachs Asset Management
/s/ Sharmin Mossavar-Rahmani
Sharmin Mossavar-Rahmani
Chief Investment Officer - Fixed Income Investments
Goldman Sachs Asset Management
May 30, 1997
- --------------------------------------------------------------------------------
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund
- --------------------------------------------------------------------------------
Investment Objective
The Goldman Sachs Government Income Fund seeks to provide shareholders with
a high level of current income consistent with safety of principal. Under normal
conditions, at least 65% of the portfolio's total assets will be invested in
U.S. government securities and in repurchase agreements collateralized by such
securities. The fund may also invest in securities of nongovernmental issuers,
including asset-backed securities, privately issued mortgage-backed securities
and corporate debt obligations. Such securities will be rated triple-A at the
time of investment or, if unrated, deemed to be of comparable quality by Goldman
Sachs Asset Management, the fund's investment adviser. The fund's interest rate
sensitivity is expected to be comparable to that of a five-year bond.
Mortgage-Backed Securities Continued to Perform Well
During the period under review, mortgage-backed securities (MBS) performed
very well, buoyed by a surge in investor demand and stable prepayment activity.
Investor interest in the MBS market was triggered primarily by the favorable
interest rate environment. Throughout the period, rates remained in a fairly
tight range, allowing prepayment anxieties to subside. In addition, with other
highly rated fixed income instruments yielding approximately the same as
similar-duration Treasuries, investors turned to the mortgage-backed sector for
yield enhancement. Finally, an increase in collateralized mortgage obligation
(CMO) creation led to steady demand for underlying pass-through securities. As a
result of all of these positive factors, mortgage-backed securities became
increasingly expensive during the period as their yield spreads relative to
Treasuries tightened.
Performance Review
For the six-month period ended April 30, 1997, the fund's Class A shares
outperformed the benchmark, the Lehman Brothers Government/Mortgage Index (the
"Index") due to strong results from its investments in mortgage-backed
securities, particularly CMOs. The fund's Class B shares, which have higher
expenses, also achieved positive returns. The net asset value (NAV) of both
classes declined due to rising interest rates during the period.
We are pleased to report that the fund's Class A shares ranked within the
top 10% of intermediate U.S. government income funds (seventh out of 122) based
on total return for the 12 months ended April 30, 1997, according to Lipper
Analytical Services, Inc. (Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results. Class B shares were not ranked for this period because they have been
in existence less than 12 months.)
- -----------------------------------------------------------------------
Performance Summary: October 31, 1996 - April 30, 1997
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Total Return (based on net asset value) 1.83% 1.43%
- --------------------------------------------------------------------
Return From Monthly Distributions 3.67% 3.28%
- --------------------------------------------------------------------
Return From Price Depreciation -1.84% -1.85%
- --------------------------------------------------------------------
Total Return of Lehman Brothers 1.81% 1.81%
Government/Mortgage Index
- --------------------------------------------------------------------
NAV (as of 4/30/97) $14.10 $14.11
- --------------------------------------------------------------------
NAV Change -$0.26 -$0.26
- --------------------------------------------------------------------
</TABLE>
Portfolio Composition and Investment Strategies
The primary changes to the portfolio's sector allocations during the period
were a reduction of fixed rate mortgage pass-through and asset-backed securities
in favor of U.S. Treasuries and agency debentures.
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
- --------------------------------------------------------------------------------
Portfolio Composition as of April 30, 1997*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
U.S. Treasuries 36.7%
Fixed Rate Mortgage Pass-Throughs 26.1%
CMO's 13.0%
Asset-Backed Securities 11.0%
Agency Debentures 10.2%
Repos/Cash Equivalents 3.0%
</TABLE>
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
.. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. The portfolio
held a 36.7% position in U.S. Treasuries, its single largest allocation as of
April 30. The fund's holdings in Treasuries more than doubled as we scaled back
exposure to the mortgage-backed and asset-backed sectors, both of which were
nearing full value.
.. Fixed Rate Mortgage Pass-Throughs. As of April 30, the fund's investment in
fixed rate mortgage pass-throughs accounted for 26.1% of the portfolio, down
from 40.4% six months earlier. The sector performed well during the period, as
many of the factors which supported MBS through 1996 remained in place: low
volatility, range-bound interest rates, tight yield spreads on alternative
sectors, and light issuance of corporate and asset-backed securities (ABS).
However, as the MBS market repriced to reflect the favorable environment, we
reduced the position.
We also used mortgage dollar rolls during the period, which helped the
portfolio to benefit from short-term supply and demand imbalances in the
mortgage settlement process. (Mortgage dollar rolls refer to transactions that
involve selling mortgage securities owned by the fund and simultaneously
contracting to buy back similar mortgage securities with the same coupon on a
specified future date -- usually one month forward.) At all times, we "cover"
the mortgage dollar rolls by keeping cash or liquid assets equal to the dollar
amount of the forward commitment in a segregated account with the fund's
custodian.
.. CMOs. The CMO market enjoyed strong demand from yield-seeking investors,
while the supply of CMOs, though rising, remained relatively low from a
historical perspective. As the sector became more expensive, we reduced the
fund's allocation to 13.0% from 22.0% last October. Specifically, we cut
sequential-pay/support CMOs to 7.2%, approximately half their weighting six
months ago, and planned amortization class (PAC) CMOs to 4.2% from 5.5%.
.. Asset-Backed Securities. As of April 30, the fund's ABS position was 11.0%,
down from 19.9% last October. During the period, the ABS sector experienced some
selling pressure, in part due to negative credit events among selected credit
card and sub-prime auto lenders. Overall, however, the sector performed well:
investor interest remained broad-based, ratings held firm and, relative to
similarly rated spread products, ABSs continued to offer attractive yield
enhancement opportunities.
.. Agency Debentures. Agency debentures represented 10.2% of the portfolio as
of the end of the period, constituting an overweighted position compared with
the benchmark's 8.0%. We added to the allocation during the period as
alternative sectors richened.
.. Issuer Composition. The portfolio composition of the fund's mortgage-backed
security holdings by issuer was 13.6% in Federal National Mortgage Association
(FNMA) issues and 13.2% in Government National Mortgage Association (GNMA)
issues.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
- --------------------------------------------------------------------------------
.. Credit Quality. As of April 30, 75.5% of the portfolio was invested in U.S.
government and agency securities, 21.5% of the portfolio was invested in triple-
A-rated securities and 3.0% of the portfolio was invested in cash equivalents.
.. Prudent Use of Derivatives. As discussed earlier, the fund held a 7.2%
position in sequential-pay/support CMOs and a 4.2% position in PAC CMOs,
securities that are generally considered to be lower risk derivative
instruments. In addition, the portfolio held small positions in inverse
floaters, interest-only (IO) CMOs and principal-only (PO) CMOs for their
potential to add incremental yield. The portfolio's combined position in these
higher risk derivatives was 1.6% as of the end of the period.
.. Duration. We seek excess return over the Index through sector weightings
and specific security selection rather than attempting to make interest rate
predictions. Therefore, we manage the fund's duration to approximate that of the
Index, partly through the use of futures. As of April 30, the fund's duration
was 4.4 years, in line with that of the Index.
Market Outlook
Despite some suggestion of economic moderation, we continue to believe that
interest rates are likely to move higher during the balance of the year. This
expectation is predicated on the economy's broad-based fundamental strength, as
well as the Fed's well-publicized commitment to monetary discipline.
Regarding specific fixed income sectors, investor demand for mortgage-
backed securities remains robust, but lower rates and rising volatility increase
the risk of refinancings and lead us to maintain a cautious outlook for mortgage
pass-throughs over the next few months. Similarly, while CMOs do not generally
offer significant value over mortgage pass-throughs, specific structures within
the CMO market present attractive investment opportunities. In the ABS sector,
anxiety regarding negative credit events during the first quarter appears to be
subsiding. However, we believe the market is now more alert to credit
distinctions among issuers, servicers and collateral types, and has begun
pricing securities accordingly. Consequently, it may become more challenging to
identify unrecognized value within the ABS sector, particularly among the higher
quality issues that we tend to emphasize.
Distribution Policy
The fund's Class A and Class B shares paid out monthly distributions of
approximately $0.52 and $0.47 per share, respectively, during the six-month
period ended April 30, 1997. Dividends are declared daily and paid on a monthly
basis. The fund distributes substantially all of its taxable income, as is
required for all investment companies.
/s/ Jonathan A. Beinner
Jonathan A. Beinner
/s/ Erica Adelberg
Erica Adelberg
/s/ James B. Clark
James B. Clark
Portfolio Managers
Goldman Sachs Government Income Fund
May 30, 1997
- --------------------------------------------------------------------------------
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage Backed Obligations--37.7%
Federal Home Loan Mortgage Corp. (FHLMC)--1.8%
$ 1,000,000 7.00% TBA 15-Yr /(a)/ $ 990,930
- --------------------------------------------------------------------------------
Federal National Mortgage Association (FNMA)--8.7%
$ 1,000,000/(h)/ 6.50% TBA 7-Yr /(a)/ $ 981,560
1,000,000 7.00 TBA 30-Yr /(a)/ 968,750
1,000,000 7.50 TBA 30-Yr /(a)/ 942,500
2,000,000/(h)/ 7.50 TBA 30-Yr /(a)/ 1,985,000
- --------------------------------------------------------------------------------
$ 4,877,810
- --------------------------------------------------------------------------------
Government National Mortgage Association
(GNMA) --13.0%
$ 238,209 9.00% 10/15/19 $ 253,098
97,383 9.00 12/15/19 103,470
315,821 7.50 04/15/23 314,933
610,646 7.50 07/15/23 608,930
368,845 7.00 08/15/23 359,162
695,669 7.00 10/15/23 677,408
61,762 7.00 11/15/23 60,141
877,541 7.00 12/15/23 854,506
1,005,084 8.00 12/15/26 1,018,690
2,000,000/(h)/ 7.50 TBA 30-Yr /(a)/ 1,982,500
1,000,000/(h)/ 8.00 TBA 30-Yr /(a)/ 1,013,430
- --------------------------------------------------------------------------------
$ 7,246,268
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations--14.2%
Interest Only--0.4%
FNMA Interest-Only Stripped Security, Series 151, Class 2/(d)/
$ 643,343 11.30% 07/25/22 $ 213,024
- --------------------------------------------------------------------------------
$ 213,024
- --------------------------------------------------------------------------------
Inverse Floater--0.7%
FNMA Remic Trust, Series 1992-62, Class S
$ 404,038 9.27%/(c)/ 05/25/99 $ 405,941
- --------------------------------------------------------------------------------
$ 405,941
- --------------------------------------------------------------------------------
Planned Amortization Class (PAC) CMOs--2.9%
FNMA Remic Trust, Series 1997-9, Class B
$ 1,000,000 6.50% 10/25/22 $ 962,510
GE Capital Mortgage Services, Inc., Series 1994-11, Class A1
644,342 6.50 03/25/24 644,941
- --------------------------------------------------------------------------------
$ 1,607,451
- --------------------------------------------------------------------------------
Principal Only--1.9%
FNMA Remic Trust, Series G-35, Class N/(d)/
$ 575,000 6.16% 10/25/21 $ 419,376
FNMA Remic Trust, Series 1993-205, Class C/(d)/
750,000 7.23% 09/25/23 625,545
- --------------------------------------------------------------------------------
$ 1,044,921
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--1.4%
Citicorp Mortgage Securities, Series 1993-11, Class A6
$ 818,108 6.25% 09/25/08 $ 788,362
- --------------------------------------------------------------------------------
$ 788,362
- --------------------------------------------------------------------------------
Support--7.0%
GE Capital Mortgage Services, Inc., Series 1994-10, Class A22
$ 996,703 6.50% 03/25/24 $ 865,497
Housing Securities, Inc., Series 1994-1, Class A13
1,455,585 6.50 03/25/09 1,329,852
Prudential Securities, Series 1995-2, Class A
797,338 5.77 11/15/15 799,578
Salomon Brothers Mortgage Securities VII, Series 1996-6H, Class A1
1,000,000 6.00 09/30/08 899,840
- --------------------------------------------------------------------------------
$ 3,894,767
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 7,954,466
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $21,101,884) $ 21,069,474
- --------------------------------------------------------------------------------
Asset-Backed Securities--11.6%
Asset Securitization Corp., Series 1996, Class A1
$ 300,000 6.88% 11/13/26 $ 295,699
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
720,000 6.23 06/15/03 710,546
CPS Auto Grantor Trust, Series 1993-3, Class A
855,634 6.30 08/15/02 850,107
Fingerhut Master Trust, Series 1996-1, Class A
590,000 6.45 02/20/02 589,263
Ford Credit Auto Loan Master Trust, Series 1996-1, Class A
650,000 5.50 02/15/03 622,980
JP Morgan Commercial Mortgage Finance Corp., Series 1997-C4
500,000 7.32 12/26/28 498,614
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1
500,000 7.46 05/15/06 506,875
Navistar Financial Corp. Owner Trust, Series 1995-A, Class A2
224,429 6.55 11/20/01 225,129
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset-Backed Securities(continued)
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
$ 420,638 6.85% 06/15/01 $ 424,099
Premier Auto Trust, Series 1993-6, Class A2
271,484 4.65 11/02/99 269,021
Premier Auto Trust, Series 1994-1, Class A3
176,500 4.75 02/02/00 175,672
Sears Credit Account Master Trust, Series 1995-2, Class A
460,000 8.10 06/15/04 473,368
Standard Credit Card Trust, Series 1990-3, Class A
860,000 9.50 07/10/98 860,533
- --------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $6,623,680) $ 6,501,906
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations--10.0%
Small Business Administration
$ 1,700,000 7.15% 03/01/17 $ 1,685,176
1,400,000 7.50 04/01/17 1,416,562
Sri Lanka Aid/(c)/
2,500,000 6.06 02/21/16 2,464,075
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $5,562,500) $ 5,565,813
- --------------------------------------------------------------------------------
U.S. Treasury Obligations--35.6%
United States Treasury Bonds
$ 140,000 8.75% 05/15/17 $ 165,484
270,000/(e)/ 8.88 08/15/17 322,988
3,450,000 8.75 05/15/20 4,109,813
180,000 8.75 08/15/20 214,565
690,000/(e)/ 7.63 02/15/25 740,025
United States Treasury Notes
1,460,000/(e)/ 7.38 11/15/97 1,471,636
700,000 5.88 04/30/98 699,342
5,650,000/(e)/ 6.88 08/31/99 5,712,659
3,700,000 6.13 07/31/00 3,664,739
1,100,000 5.63 11/30/00 1,070,091
1,200,000 7.50 02/15/05 1,256,436
United States Treasury Principal-Only Stripped Securities/(d)/
300,000 6.85 05/15/05 174,777
1,550,000 7.23 05/15/20 302,790
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $20,041,673) $ 19,905,345
- --------------------------------------------------------------------------------
Repurchase Agreement--19.9%
Joint Repurchase Agreement Account/(e)/
$ 11,100,000 5.49% 05/01/97 $ 11,100,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $11,100,000) $ 11,100,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $64,429,737/(f)/) $ 64,142,538
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Futures contracts open at April 30, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long (Short)/(g)/ Month Gain (Loss)
- --------------------------- ------------------ -------------- -------------
<S> <C> <C> <C>
Euro Dollars 3 September 1997 $375
5 Year U.S. Treasury Notes 19 June 1997 4,312
U.S. Long Term Bond 3 June 1997 6,282
-------------
$10,969
- --------------------------------------------------------------------------------
</TABLE>
Federal Income Tax Information:
<TABLE>
<S> <C>
Gross unrealized gain for investments in which value
exceeds cost $ 118,460
Gross unrealized loss for investments in which cost
exceeds value (509,387)
- --------------------------------------------------------------------------------
Net unrealized loss $ (390,927)
- --------------------------------------------------------------------------------
</TABLE>
/(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 rate due to
the amortization of related premiums.
/(c)/Variable rate security. Coupon rate disclosed is that which is in effect at
April 30, 1997.
/(d)/The interest rate disclosed for these securities represents effective
yields to maturity.
/(e)/Portions of these securities are being segregated for open TBA purchases,
open futures contracts and futures margin requirements.
/(f)/The aggregate cost for federal income tax purposes is $64,533,465.
/(g)/Each 5-Year U.S. Treasury Note and U.S. Long Term Bond contract represents
$100,000 in notional par value. Each Euro Dollar contract represents
$1,000,000 in notional par value. The total notional amount and market
value at risk are $5,200,000 and $3,032,288, respectively. The
determination of notional amounts as presented here are indicative only of
volume of activity and not a measure of market risk.
/(h)/When-issued security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
Goldman Sachs Global Income Fund
- -------------------------------------------------------------------------------
Investment Objective
The Goldman Sachs Global Income Fund seeks high total return, composed of
both current income and capital appreciation. The fund is permitted to invest in
government and other high-quality (double-A or better) fixed income securities
issued in the United States and in foreign markets. The fund has the additional
flexibility to invest in sovereign (government) debt rated single-A (or better)
or deemed to be of comparable quality. The maximum duration of the fund is 7.5
years and its approximate interest rate sensitivity is comparable to that of a
six-year bond. Under normal market conditions, the fund's neutral position is to
be fully hedged into U.S. dollars to best serve the needs of U.S. shareholders.
However, the fund may engage in currency transactions, both to hedge exchange
rate risk and to seek to enhance returns.
Special Event
To accommodate different clients' needs and preferences, on March 12, 1997,
the fund opened a new share class (Service).
Favorable Economic Factors Helped European Bonds While Rising Rates Impacted
Treasuries
Global bonds began the period under review on a strong note, but weakened
during the first quarter of 1997. European bonds were the best performers during
the period, while the United States lagged along with the dollar bloc markets.
The economic fundamentals that supported most European bonds throughout
1996 -- particularly weak economic growth and contained inflation -- remained
intact during the period. This favorable backdrop, plus yield convergence ahead
of European monetary union (EMU), helped the higher yielding bonds of Spain
achieve the best performance of all the major bond markets (hedged into U.S.
dollars). The "core" European markets such as Germany also fared well due to
increased expectations of tighter fiscal policies to help them meet EMU
criteria. In contrast, the U.K. gilt underperformed most European bonds as
sharply accelerating growth triggered fears of higher inflation. In Japan, the
performance of Japanese Government Bonds (JGBs) trailed nearly all of the major
European markets but still fared reasonably well (hedged into U.S. dollars). The
Japanese market strengthened following a sharp November sell-off when continued
weakness in the financial sector made near-term rate hikes by the Bank of Japan
unlikely.
In the United States, stronger than expected economic growth pushed yields
higher and prompted the Federal Reserve to raise the federal funds rate by a
quarter-percentage point in March. As a result, U.S. Treasuries posted the
poorest performance of all the major bond markets.
Performance Review: Country Allocations Contributed to Performance
During the period under review, the Goldman Sachs Global Income Fund's
Institutional shares outperformed the fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged into U.S. dollars) (the "Index"). The Index covers
14 major bond markets and reflects their currency exposures. The fund's
favorable results were primarily due to its overweighting in German bonds, one
of the strongest European markets during the period, and its underweighting in
the United States, the weakest market.
The fund's Class A and B shares, which have higher expenses than the
Institutional shares, lagged the benchmark. The fund's Service shares achieved
positive performance since their inception on March 12, 1997; however, a partial
period of approximately 1 1/2 months is obviously too brief a period to measure
performance meaningfully.
The fund's Institutional and Class A shares fared well compared with their
peers. For the 12-month period ended April 30, the Institutional and Class A
shares ranked 25th and 29th, respectively, out of 133 global income funds based
on total return, according to Lipper Analytical Services, Inc. (Please note that
Lipper rankings do not take sales charges into account and that past
- -------------------------------------------------------------------------------
8
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Global Income Fund (continued)
- -------------------------------------------------------------------------------
performance is not a guarantee of future results. Class B and Service shares
were not ranked for this period because they were in existence less than 12
months.)
We are also pleased to announce that for the five-year period ended April
30, 1997, the fund's Class A shares were rated "four stars" (out of 641 taxable
bond funds) by Morningstar, Inc., an independent rating agency./1/
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Performance Summary: October 31, 1996 - April 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
Institu-
Class A Class B tional Service*
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Total Return (based on net
asset value) 3.22% 2.94% 3.50% 0.21%
- ----------------------------------------------------------------------------------------------------------------------
Return From Monthly 2.80% 2.59% 3.08% 0.01%
Distributions
- ----------------------------------------------------------------------------------------------------------------------
Return From Price 0.42% 0.35% 0.42% 0.20%
Appreciation
- ----------------------------------------------------------------------------------------------------------------------
Total Return of J.P. 3.47% 3.47% 3.47% 0.50%
Morgan Global
Government Bond Index
- ----------------------------------------------------------------------------------------------------------------------
NAV (as of 4/30/97) $14.59 $14.58 $14.58 $14.59
- ----------------------------------------------------------------------------------------------------------------------
NAV Change +$0.06 +$0.05 +$0.06 -$0.10
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* New share class opened during the period. Performance and net asset value
(NAV) change are from its inception date on 3/12/97.
- ------------------------------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 4/30/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five-, and 10-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund's Class A shares received "four stars"
for both the three- and one-year periods and were rated among 1,193 and 1,709
taxable bond funds for the three- and one-year periods, respectively. The
Morningstar ratings apply only to the fund's Class A shares; the fund's Class B,
Institutional and Service shares have not been rated. Class B and Service shares
are subject to additional fees and expenses that may have the effect of lowering
performance and may affect any future Morningstar rating. Morningstar rates each
fund against its peers in the same category. In all, there are four Morningstar
categories (domestic equity, international equity, taxable bond and municipal).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
During the period, we successfully employed several currency strategies
relative to our neutral position, which is to be fully hedged into U.S. dollars.
The main contributors to the positive currency performance were the fund's long
U.S. dollar positions against the yen and long positions in the high-yielding
European currencies against the Deutschemark and Swiss franc. The U.S. dollar
was supported by strong growth and rising short-term rates while the high-
yielding European currencies benefited from the EMU process gaining momentum.
Portfolio Composition and Investment Strategies
Portfolio Composition as of April 30, 1997*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
U.S. 33.1%
Germany 11.0%
Cash 10.7%
Japan 10.4%
U.K. 10.1%
Australia 8.5%
Italy 6.3%
Sweden 4.3%
France 3.0%
Spain 2.6%
</TABLE>
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
.. Dollar Bloc. As of April 30, 1997, the fund was slightly underweighted in
the dollar bloc countries (e.g., U.S., Canada and Australia) relative to the
Index, 41.6% versus 44.3%.
U.S. In the U.S., Treasury prices came under pressure when accelerating
economic growth drove bond yields
- -------------------------------------------------------------------------------
9
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
Goldman Sachs Global Income Fund (continued)
- -------------------------------------------------------------------------------
higher and prompted a Fed rate hike. As noted, the fund was underweighted in
Treasuries, which significantly benefited its performance relative to the Index.
As of April 30, 33.1% of the portfolio was invested in U.S. Treasuries compared
with a 40.2% allocation for the benchmark.
Other Dollar Bloc. The fund was not invested in Australia when the period
began, but we took advantage of improving bond fundamentals and a widening of
the Australia/U.S. bond yield differential by reestablishing a position in
December 1996. As of April 30, Australian bonds accounted for 8.5% of the
portfolio, overweighted compared with the benchmark's 1.2%. The fund also
briefly held a position in Canada, which performed well and was sold at a
profit.
.. Europe. European bonds were the strongest performers and they contributed
to the fund's favorable results during the period. As of April 30, the region
accounted for 37.3% of the portfolio compared with a 41.4% weighting for the
Index.
Germany. Despite a pickup in growth in mid-1996, the period under review
was marked by a return of softening economic activity. The most dramatic
indication of Germany's continuing economic difficulties was a record increase
in unemployment in January to levels last seen in 1933. The belief that an end
of the Bundesbank's very easy monetary policy was not in sight continued to
support the bond market. The fund held an overweighted position in Germany
relative to the Index, 11.0% versus 8.9%.
Spain, Sweden and Italy. When the period began, increased optimism
regarding EMU particularly benefited the higher-yielding bonds of Spain and
Sweden. Though the prospects for EMU dimmed somewhat during the first quarter,
Spain, a 2.6% position as of April 30, continued to perform well due to
favorable economic fundamentals. Sweden's portfolio weighting was in line with
the Index for most of the period, then increased to 4.3% in April in
anticipation of further rate cuts on the back of favorable inflation reports.
Finally, as of April 30, the portfolio was overweighted in Italy, 6.3% versus
4.9% for the Index, because growth remains muted and we expect it to benefit
from further yield convergence.
U.K. The U.K.'s economy continued to grow at a pace well above that of the
rest of Europe. The prospect of higher rates, as well as concerns surrounding
the general election, raised investor uncertainty and impacted the performance
of the U.K. gilt. However, we increased the portfolio's U.K. position in January
in the belief that the forward interest rate curve reflected an overly
pessimistic view of potential monetary tightening. By April 30, the U.K. was
10.1% of the portfolio, overweighted compared with the benchmark (6.4%).
France. Though the fund was not invested in France during most of the
period, we established a 3.0% position in April, as we believed that the
underperformance of shorter term bonds in that market presented an attractive
investment opportunity relative to Germany.
Ireland, Denmark and the Netherlands. During the period, we sold the
portfolio's small positions in Ireland, Denmark and the Netherlands after they
performed well and fulfilled our return expectations.
.. Japan. The fund significantly underweighted Japan relative to the Index
(10.4% versus 14.3%) because economic growth, though muted, continued to point
towards economic recovery. To a significant extent, the Japanese bond market
shrugged off signs of strengthening growth as being "front loading" ahead of the
consumption tax hike on April 1. Instead, the market focused on the need for a
continuation of low rates to assist the troubled financial sector.
.. Cash Equivalents. We reduced the fund's cash equivalent position to 10.7%,
down from 15.5% six months ago, in favor of attractive investment opportunities.
.. Credit Quality. Throughout the period, the portfolio was 100% invested in
triple-A-rated securities.
- -------------------------------------------------------------------------------
10
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Global Income Fund (continued)
- -------------------------------------------------------------------------------
.. Duration. As of the end of the period, the fund's duration was shorter
than that of the Index, 4.7 years compared with 5.1 years, primarily due to its
underweighting in Japan and its cash equivalent position. (Duration is a
measurement of the fund's sensitivity to interest rate movements; the shorter
the duration, the less the fund's NAV should move in relation to interest rate
fluctuations.)
Distribution Policy
During the six-month period under review, the fund's Class A, B and
Institutional shares paid out distributions of $0.40, $0.37 and $0.44 per share,
respectively. From their inception on March 12 through April 30, the fund's
Service shares paid out $0.13 per share. The fund declares and pays dividends on
a monthly basis. The fund distributes substantially all of its taxable income,
as is required for all investment companies.
Fund Outlook
The rapid pace of U.S. economic growth during the past two quarters leads
us to expect further Fed tightening. Despite early signs of a possible slowdown
in the second quarter, we continue to believe that bond yields will need to rise
from current levels to ensure that inflationary pressures remain in check.
European growth remains modest, but even more importantly, inflation
appears to be set for further declines (excluding the U.K.). Provided EMU
remains on track, short rates across Europe appear likely to stay at current
levels for a sustained period. Consequently, we expect European bonds to provide
reasonable returns, outperforming the weaker U.S. bond market. In the U.K., a
25-basis-point rate hike and greater independence for the Bank of England has
established the new Labor government's anti-inflation credentials. Any policy
that moves towards a closer relationship with continental Europe will further
highlight the fundamentally cheap levels for U.K. gilts relative to other
European bonds.
In Japan, a rate hike in the near future remains unlikely but JGBs are
vulnerable to the threat of a change in government policy or an asset allocation
shift. For example, the weakness of the life insurance companies may force the
authorities to consider the cost of maintaining historically low short-term
rates. Furthermore, the strong performance of the equity market at the end of
the period may prompt an asset allocation shift away from bonds into equities,
putting further upward pressure on Japanese yields.
/s/ Stephen C. Fitzgerald
Stephen C. Fitzgerald
Portfolio Manager, Fixed Income Investments
/s/ Andrew F. Wilson
Andrew F. Wilson
Portfolio Manager, Fixed Income Investments
/s/ Gareth I. Evans
Gareth I. Evans
Portfolio Manager, Currency
Goldman Sachs Global Income Fund
London, May 30, 1997
- -------------------------------------------------------------------------------
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount(a) Rate Date Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligations--87.7%
Australian Dollar--8.4%
Commonwealth of Australia
AUD 21,700,000 10.00% 02/15/06 $ 19,262,621
- --------------------------------------------------------------------------------
British Pound Sterling--9.8%
United Kingdom Treasury
BPS 8,000,000 8.50% 12/07/05 $ 13,833,063
5,300,000 7.50 12/07/06 8,528,207
- --------------------------------------------------------------------------------
$ 22,361,270
- --------------------------------------------------------------------------------
Deutschemark--10.8%
Federal Republic of Germany
DEM 28,000,000 7.50% 11/11/04 $ 18,101,859
2,000,000 6.50 10/14/05 1,216,538
9,000,000 6.25 04/26/06 5,383,994
- --------------------------------------------------------------------------------
$ 24,702,391
- --------------------------------------------------------------------------------
French Franc--3.0%
Government of France
FRF 40,000,000 4.75% 03/12/02 $ 6,851,366
- --------------------------------------------------------------------------------
Italian Lira--6.1%
Republic of Italy
ITL 22,000,000,000 9.50% 05/01/01 $ 13,922,058
- --------------------------------------------------------------------------------
Japanese Yen--10.2%
International Bank for Reconstruction & Development
JPY 1,400,000,000 4.50% 06/20/00 $ 12,132,194
700,000,000 6.75 06/18/01 6,665,813
500,000,000 4.50 03/20/03 4,497,873
- --------------------------------------------------------------------------------
$ 23,295,880
- --------------------------------------------------------------------------------
Spanish Peseta--2.5%
Government of Spain
ESP 700,000,000 10.15% 01/31/06 $ 5,841,114
- --------------------------------------------------------------------------------
Swedish Krona--4.2%
Kingdom of Sweden
SEK 50,000,000 5.50% 04/12/02 $ 6,157,023
30,000,000 6.00 02/09/05 3,586,638
- --------------------------------------------------------------------------------
$ 9,743,661
- --------------------------------------------------------------------------------
United States Dollar--32.7%
United States Treasury Notes
USD 15,000,000 5.25% 01/31/01 $ 14,392,950
17,000,000 6.38 03/31/01 16,909,730
8,200,000 6.25 02/15/03 8,059,042
10,000,000 7.88 11/15/04 10,684,400
4,000,000 6.50 08/15/05 3,940,640
14,700,000 7.00 07/15/06 14,947,989
6,200,000 6.50 10/15/06 6,098,258
- --------------------------------------------------------------------------------
$ 75,033,009
- --------------------------------------------------------------------------------
Total Debt Obligations
(Cost $204,539,209) $ 201,013,370
- --------------------------------------------------------------------------------
Short-Term Obligations--13.6%
State Street Bank & Trust Euro-Time Deposit
USD 31,090,625 5.66% 05/01/97 31,090,625
- --------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $31,090,625) $ 31,090,625
- --------------------------------------------------------------------------------
<CAPTION>
Contracts Description Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Options--0.0%
FRF 60,000,000 Government of France 4.75% Call, $ 71,961
exp 7/97, Strike yield 4.85%
FRF 40,000,000 Government of France 4.75% Put, $ 39,750
exp 7/97, Strike yield 4.85%
- --------------------------------------------------------------------------------
Total Options
(Cost $124,428) $ 111,711
- --------------------------------------------------------------------------------
Total Investments
(Cost $235,754,262(b)) $ 232,215,706
- --------------------------------------------------------------------------------
<CAPTION>
Federal Income Tax Information:
<S> <C>
Gross unrealized gain for investments in which value $ 1,972,384
exceeds cost
Gross unrealized loss for investments in which cost (5,579,488)
exceeds value
- --------------------------------------------------------------------------------
Net unrealized loss $ (3,607,104)
- --------------------------------------------------------------------------------
</TABLE>
(a)The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
AUD = Australian Dollar JPY = Japanese Yen
BPS = British Pound Sterling ESP = Spanish Peseta
DEM = Deutschemark SEK = Swedish Krona
FRF = French Franc USD = United States Dollar
ITL = Italian Lira
/(b)/The aggregate cost for federal income tax purposes is $235,822,810.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund
- -------------------------------------------------------------------------------
Investment Objective
The Goldman Sachs Municipal Income Fund seeks to provide a high level of
current income that is exempt from regular federal income tax, consistent with
the preservation of capital. In pursuit of its objective, the fund invests in a
diversified portfolio of municipal securities with a weighted average credit
quality of double-A or better. The fund buys only investment-grade securities
or, if unrated, securities deemed to be of comparable quality. Under normal
interest rate conditions, the fund's duration is expected to be within one year
of its benchmark, the Lehman Brothers 15-Year Municipal Bond Index. The fund's
approximate interest rate sensitivity is comparable to that of a 15-year bond.
A Stable Municipal Bond Market
The municipal market has remained at relatively rich levels compared with
the taxable market since the end of 1996, as light primary and secondary supply
has been consumed easily by stable demand. The average price of a 15-year
municipal bond (as calculated from data provided by Municipal Market Data, an
independent municipal market information provider) declined approximately 1.07%,
while yields rose from 5.30% on October 31, 1996 to 5.40% on April 30, 1997.
Supply increased throughout most of the period, though it remained light
compared with historical averages. In November, municipal bond issuance was up
30% versus the prior three-month average. As is typical, increased supply
continued in early December due to the approaching year-end. The 1997 new issue
supply has followed historical early-month patterns, with January and February
supply well below annual averages (slightly more than $10 billion each month)
and March and April supply closer to normal levels ($13 to $14 billion).
Demand from individual investors (who control approximately two-thirds of
municipal bond ownership either through mutual funds or direct investment)
remained stable, but not strong, as long-term municipal yields were below the
psychologically significant 6% level. While yields have not yet cracked that
barrier, President Clinton's reelection and the loss of Republican momentum have
put talk of tax reform and talk of significant changes in the tax-exempt status
of municipal bonds on the back burner, comforting some of the investors
concerned about the market. In addition, the emergence of "nontraditional"
buyers during April has helped support the long end of the market.
Municipal Bond Yield Curve
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Yield
Year of Maturity 4/30/97 10/31/96
<S> <C> <C>
1998 3.85% 3.90%
1999 4.40% 4.15%
2000 4.60% 4.30%
2001 4.70% 4.40%
2002 4.80% 4.50%
2003 4.85% 4.60%
2004 4.90% 4.70%
2005 4.95% 4.80%
2006 5.00% 4.90%
2007 5.05% 5.00%
2008 5.10% 5.10%
2009 5.20% 5.20%
2010 5.30% 5.25%
2011 5.35% 5.30%
2012 5.40% 5.35%
2013 5.45% 5.40%
2014 5.50% 5.40%
2015 5.50% 5.45%
2016 5.55% 5.45%
2017 5.55% 5.45%
2018 5.55% 5.50%
2019 5.55% 5.50%
2020 5.60% 5.50%
2021 5.60% 5.50%
2022 5.60% 5.50%
2023 5.60% 5.50%
2024 5.60% 5.50%
2025 5.60% 5.50%
2026 5.60% 5.50%
2027 5.60% 5.50%
</TABLE>
The yield curve steepened and shifted upward at the short end, remained nearly
the same in the mid-range, and shifted marginally upward at the longer end, in
contrast to six months ago.
Performance Review: The Fund's Positive Performance Reflects Active Management
of Term Structure, Sector Weightings and Security Selection
During the period under review, the fund's Class A shares outperformed
their benchmark, the Lehman Brothers 15-Year Municipal Bond Index (the "Index").
The fund's Class B shares also performed well, although slightly below the
Index.
We are pleased to report that the fund's Class A shares outperformed most
of their peers. For the one-year period ended April 30, 1997, Class A shares
ranked in the top 10% of general municipal debt funds (20 out of 231) based on
total return, according to Lipper Analytical Services, Inc. The fund's Class B
shares were not in existence for the entire one-year period and were not
included in the ranking. (Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results.)
- -------------------------------------------------------------------------------
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary: October 31, 1996 - April 30, 1997
- --------------------------------------------------------------------------------
Class A Class B
------- -------
<S> <C> <C>
Total Return (based on net asset 2.57% 2.18%
value (NAV))
- --------------------------------------------------------------------------------
Return From Monthly Distributions 2.36% 1.97%
- --------------------------------------------------------------------------------
Return From Price Appreciation 0.21% 0.21%
- --------------------------------------------------------------------------------
Lehman Brothers 15-Year Municipal 2.49% 2.49%
Bond Index
- --------------------------------------------------------------------------------
NAV (as of 4/30/97) $14.40 $14.40
- --------------------------------------------------------------------------------
NAV Change +$0.03 +$0.03
- --------------------------------------------------------------------------------
</TABLE>
The fund's positive performance during the period can be attributed to our
term structure management, sector weightings and specific security selections.
As always, we did not make any bets on the direction of interest rates, but
rather kept the fund's duration in line with the Index, occasionally using
municipal and Treasury futures contracts to manage sector allocation and
duration.
.. The portfolio's structure is "credit-barbelled," emphasizing high-quality
bonds with maturities of 20 to 30 years on the long end of the yield curve and
lower quality bonds with four- to 10-year maturities on the short end of the
curve. This strategy allows us to extract extra yield from the shorter end of
the market while maintaining higher quality on the more interest-rate-sensitive
long end of the market. However, during the period, we regularly adjusted the
credit and term structure to take advantage of changing market conditions.
.. During the period, we employed several strategies using municipal and/or
treasury futures contracts. These trades are designed to exploit relative
pricing discrepancies between different markets, and are not designed to incur
additional interest rate risk. The fund stood at a 100% municipal bond weighting
(no Treasury or municipal contracts) at the end of the reporting period,
indicating attractive opportunities across the length of the municipal yield
curve.
.. The fund's performance also benefited from our extensive credit analysis.
Our research helped us identify specific investment opportunities, such as
"story" bonds. These securities are often misunderstood or incorrectly valued,
but can have unique security structures and attractive yield potential.
Portfolio Composition and Investment Strategies:
Emphasis on Revenue Bonds
Portfolio Composition as of April 30, 1997*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Revenue Bonds 44.1%
Insured Revenue Bonds 35.4%
Insured General Obligations 20.5%
</TABLE>
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
.. Revenue Bonds. We emphasized revenue bonds over general obligation bonds
because the sector offers higher yields and better price appreciation potential.
As of April 30, the fund held a 79.5% position in a combination of insured and
uninsured revenue bonds, overweighted compared with the Index (53.9%). (Revenue
bonds pay interest and principal out of a specific revenue stream, such as sales
taxes, hospital charges, tolls, electric rates and airport fees.)
.. General Obligation (GO) Bonds. As of April 30, the fund's GO holdings,
which are backed by the general taxing power of a municipality, were
underweighted relative to the Index, 20.5% versus 45.6%. Though the fund's total
GO allocation of 20.5% was down from 29.8% six months ago, the GO category is
now exclusively
- -------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund (continued)
- -------------------------------------------------------------------------------
weighted in insured GOs. Security-specific investment opportunities and the
relative cheapness of bond insurance for issuers enable the fund to purchase
higher yielding insured GOs without sacrificing quality.
.. Variable Rate Demand Notes (VRDNs). VRDNs, which are high-quality cash
equivalents, were used to manage the portfolio's excess liquidity. VRDNs fell
from 7.6% to 4.4% of the portfolio. The 4.4% VRDN allocation consists of 3.0%
GOs and 1.4% Revenue-Backed VRDNs.
.. Credit Quality. During the period, the fund's average credit quality has
remained double-A. The fund's credit quality maintained a "barbell" structure,
with higher quality securities at the long end of the yield curve and lower
quality securities (but still investment grade) at the short end, though there
have been slight increases in the double-A and single-A categories. As of April
30, 59.8% of the fund was invested in triple-A-rated securities, down from 70.5%
six months ago, while double-A- and single-A-rated securities were increased to
14.4% and 9.8% from 9.3% and 1.8%, respectively. We continued to maintain a
position in triple-B-rated securities (the lowest credit category for
investment-grade securities), which accounted for 16.0% of the portfolio, down
slightly from 18.4%. We used extensive credit research to identify specific
securities that offered higher yields than average triple-B-rated securities,
but still were of sound credit quality. The triple-B-rated position benefited
the fund's performance during the period by enabling us to lock in above-market
yields and providing greater price appreciation potential relative to the
market. Each of these positions is monitored carefully, and we will remain
vigilant for any changes in their credit quality.
Market Outlook
Our long-term outlook for municipal bond supply is essentially neutral, as
rates are at high levels compared with one year ago. As a result, the current
rate environment encourages neither supply (low rates bring refinancing) nor
demand (high rates attract buyers). At this point, the municipal market does not
perceive any real threats from the federal budget accord. Without any
fundamental problems in view for tax-exempts, we are left with technical forces
as the key driver in relative market performance.
Distribution Policy
Dividends are declared daily and paid on a monthly basis. During the period
under review, the fund's Class A and B shares paid out distributions of $0.34
and $0.32 per share, respectively. The fund intends to distribute substantially
all of its investment company tax-exempt and taxable income, as required by tax
law.
We value your investment in the Goldman Sachs Municipal Income Fund and we
look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Benjamin S. Thompson
Benjamin S. Thompson
/s/ Elisabeth Schupf Lonsdale
Elisabeth Schupf Lonsdale
Portfolio Managers
Goldman Sachs Municipal Income Fund
May 30, 1997
- -------------------------------------------------------------------------------
15
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligations--95.6%
Arizona--7.6%
Maricopa County MFH IDA (A)
$1,795,000 5.85% 01/01/08 $1,824,546
Maricopa County Unified School District No. 41 GO (FSA)
(AAA/Aaa)
2,500,000 6.25 07/01/15 2,618,500
- --------------------------------------------------------------------
$4,443,046
- --------------------------------------------------------------------
California--3.4%
Contra Costa Water District Series G RB (MBIA)
(AAA/Aaa)
$2,000,000 5.75% 10/01/14 $2,014,700
- --------------------------------------------------------------------
Colorado--4.3%
Englewood MFH RB (BBB)/(d)/
$2,500,000 6.65% 12/01/26 $2,495,575
- --------------------------------------------------------------------
Connecticut--3.6%
Mashantucket Western Pequot Tribe RB (BBB/Baa)
$2,000,000 6.50% 09/01/05 $2,107,780
- --------------------------------------------------------------------
Florida--6.7%
Escambia County Housing Authority, Single Family
Multi-County (FNMA/GNMA)(Aaa)
$1,390,000 6.80% 10/01/15 $1,460,070
Santa Rosa Bay Bridge Authority RB (BBB-)
2,500,000 6.25 07/01/28 2,472,900
- --------------------------------------------------------------------
$3,932,970
- --------------------------------------------------------------------
Illinois--14.6%
Chicago Midway Airport RB (MBIA)(AAA/Aaa)
$2,500,000 5.50% 01/01/10 $2,498,800
Lake County Unified School District No. 116 GO (FSA)
(AAA/Aaa)
2,000,000 7.60 02/01/14 2,423,180
1,525,000 6.10 02/01/16 1,555,988
O'Hare International Airport RB (MBIA)(AAA/Aaa)
2,000,000 6.38 01/01/15 2,104,080
- --------------------------------------------------------------------
$8,582,048
- --------------------------------------------------------------------
Indiana--7.0%
Indiana Bond Bank for Hendricks County RB (AA-)/(b)/
$1,420,000 6.00% 02/01/12 $1,472,540
Indiana Transportation Airport Series A RB (AAA/Aaa)
2,500,000 6.00 11/01/11 2,618,025
- --------------------------------------------------------------------
$4,090,565
- --------------------------------------------------------------------
Kentucky--1.8%
Nelson County Industrial Building RB for Mabex
Universal Corp. Project (A3)
$1,000,000 6.50% 04/01/05 $1,060,850
- --------------------------------------------------------------------
Louisiana--4.3%
South Louisiana Port RB for Cargill Corp. (Aa3)
$2,500,000 5.85% 04/01/17 $2,499,950
- --------------------------------------------------------------------
Maine--1.2%
Maine Educational Loan Authority RB Series A-1 (Aaa)
$ 675,000 6.80% 12/01/07 $ 721,177
- --------------------------------------------------------------------
Missouri--3.6%
St. Louis Municipal Finance Leasehold RB (A/Aa3)
$2,100,000 5.30% 07/15/02 $2,128,854
- --------------------------------------------------------------------
Nevada--3.1%
Washoe County GO (MBIA)(AAA/Aaa)
$2,000,000 5.00% 06/01/17 $1,822,080
- --------------------------------------------------------------------
New York--3.4%
Syracuse IDA RB (AA)
$2,000,000 5.13% 10/15/02 $1,992,580
- --------------------------------------------------------------------
North Dakota--3.5%
Mercer County PCRB for Basin Electric & Power 2nd
Series (AMBAC) (AAA/Aaa)/(d)/
$2,000,000 6.05% 01/01/19 $2,051,720
- --------------------------------------------------------------------
Ohio--1.0%
Cuyahoga County for Rock & Roll Hall of Fame RB (BBB)
$ 600,000 5.45% 12/01/05 $ 594,018
- --------------------------------------------------------------------
Oklahoma--4.0%
Holdenville IDA RB (BBB/Baa)
$1,245,000 5.95% 07/01/02 $1,279,001
Tulsa County Public Facilities RB (A-)
1,000,000 6.60 11/01/08 1,070,250
- --------------------------------------------------------------------
$2,349,251
- --------------------------------------------------------------------
Pennsylvania--3.5%
Bethlehem School District GO Bond (MBIA)(AAA/Aaa)
$2,000,000 6.00% 03/01/16 $2,035,940
- --------------------------------------------------------------------
South Carolina--2.5%
Piedmont Municipal Power Agency RB (MBIA)(AAA/Aaa)
$1,465,000 5.50% 01/01/10 $1,461,718
- --------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund (continued)
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligations(continued)
Tennessee--2.6%
McMinnville Housing Authority RB (A2)
$1,550,000 6.00% 10/01/09 $ 1,551,240
- --------------------------------------------------------------------
Texas--5.2%
Denison Water & Sewer RB (AMBAC)(AAA/Aaa)
$1,000,000 5.50% 09/01/09 $ 1,014,700
East Texas Criminal Justice Facilities Financing Corp.
RB (AMBAC) (AAA/Aaa)
2,000,000 5.75 11/01/09 2,035,100
- --------------------------------------------------------------------
$ 3,049,800
- --------------------------------------------------------------------
Washington--8.7%
Chelan County Public Utility RB (MBIA)(AAA/Aaa)
$2,500,000 6.35% 07/01/28 $ 2,586,650
Washington State Public Power Supply System Series A RB
(AMBAC)(AAA/Aaa)
2,500,000 5.70 07/01/11 2,491,850
- --------------------------------------------------------------------
$ 5,078,500
- --------------------------------------------------------------------
Total Debt Obligations
(Cost $55,481,930) $ 56,064,362
- --------------------------------------------------------------------
Short-Term Obligations--5.0%
Alabama--0.7%
Phenix City IDA RB (Toronto Dominion LOC)(AA)/(a)/
$ 400,000 5.05% 05/01/97 $ 400,000
- --------------------------------------------------------------------
New York--3.4%
New York GO (Kredietbank LOC)(AA-)/(a)/
$2,000,000 4.45% 05/01/97 $ 2,000,000
- --------------------------------------------------------------------
Texas--0.9%
Sabine River PCRB (Union Bank of Switzerland
LOC)(AA+)/(a)/
$ 500,000 5.55% 05/01/97 $ 500,000
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $2,900,000) $ 2,900,000
- --------------------------------------------------------------------
Total Investments
(Cost $58,381,930/(c)/) $58,964,362
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which value $739,962
exceeds cost
Gross unrealized loss for investments in which cost (157,530)
exceeds value
- --------------------------------------------------------------------
Net unrealized gain $582,432
- --------------------------------------------------------------------
</TABLE>
/(a)/ Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
/(b)/ When-issued security.
/(c)/ The amount stated also represents aggregate cost for federal income
tax purposes.
/(d)/ Portions of these securities are being segregated for when-issued
securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Abbreviations:
<S> <C>
AMBAC --Insured by American Municipal
Bond Assurance Corp.
FNMA --Insured by Federal National
Mortgage Association
FSA --Financial Security Assurance Co.
GNMA --Insured by Government National
Mortgage Association
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors
Assurance
MFH --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities
April 30, 1997
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
--------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities, at value (cost $64,429,737, $235,754,262 and $58,381,930) $64,142,538 $232,215,706 $58,964,362
Cash, at value 94,169 324,863 90,406
Receivables:
Investment securities sold 1,004,854 -- --
Interest 587,522 3,982,620 1,009,894
Forward foreign currency exchange contracts -- 2,735,490 --
Fund shares sold 664,318 373,902 93,800
Variation margin 6,413 -- --
Foreign tax withheld -- 87,755 --
Deferred organization expenses, net 14,677 -- 21,390
Other assets 63,375 3,239 9,208
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 66,577,866 239,723,575 60,189,060
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 10,549,108 8,691,808 1,387,075
Forward foreign currency exchange contracts -- 1,125,990 --
Fund shares repurchased 23,074 332,497 10,350
Income distribution 81,478 7,496 92,940
Investment adviser fees 10,999 82,520 19,312
Administration fees -- 28,132 7,242
Authorized dealer service fees 10,285 38,021 9,984
Distribution fees 1,290 30,045 169
Accrued expenses and other liabilities 19,056 98,644 12,103
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,695,290 10,435,153 1,539,175
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets:
Paid in capital 56,393,312 222,342,678 58,551,259
Accumulated undistributed net investment income 53,331 6,196,133 60,331
Accumulated net realized loss on investment transactions (287,837) (989,524) (544,137)
Accumulated net realized foreign currency gain -- 3,713,328 --
Net unrealized gain (loss) on investments and futures (276,230) 682,535 582,432
Net unrealized loss on translation of assets and liabilities denominated
in foreign currencies -- (2,656,728) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $55,882,576 $229,288,422 $58,649,885
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share:/(a)/
Class A $14.10 $14.59 $14.40
Class B $14.11 $14.58 $14.40
Institutional -- $14.58 --
Service -- $14.59 --
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 3,754,506 11,765,253 4,031,092
Class B 208,089 75,162 42,867
Institutional -- 3,870,161 --
Service -- 6,466 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of shares authorized) 3,962,595 15,717,042 4,073,959
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Maximum public offering price per share (NAV per share x 1.0471) for Class
A shares is $14.76, $15.28 and $15.08 for Government Income, Global Income
and Municipal Income, respectively. At redemption, Class B shares are
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.
18
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Statements of Operations
For the Six Months Ended April 30, 1997
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
--------------------------------------------
<S> <C> <C> <C>
Investment income:
Interest/(a)/ $ 1,346,191 $ 7,675,570 $1,514,540
- ----------------------------------------------------------------------------------------------------------------------------------
Total income 1,346,191 7,675,570 1,514,540
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment adviser fees 98,534 915,292 109,080
Administration fees 29,560 183,102 40,904
Authorized dealer service fees 49,266 235,877 68,174
Distribution fees 51,745 237,238 69,406
Custodian fees 31,954 76,892 20,721
Transfer agent fees 42,728 53,004 44,706
Professional fees 30,344 40,805 29,494
Registration fees 13,207 28,146 14,522
Amortization of deferred organization expenses 9,321 -- 8,700
Trustee fees 332 2,324 553
Other 6,659 23,235 6,641
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 363,650 1,795,915 412,901
Less--expenses reimbursable and fees waived by Goldman Sachs (261,399) (513,953) (179,441)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 102,251 1,281,962 233,460
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 1,243,940 6,393,608 1,281,080
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions (102,548) 3,647,163 384,465
Futures transactions 19,662 -- 96,288
Foreign currency related transactions -- 3,669,694 --
Net change in unrealized gain (loss) on:
Investments (363,801) (4,182,327) (408,697)
Futures (63,631) -- --
Translation of assets and liabilities denominated in foreign currencies -- (1,445,970) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, futures and foreign
currency transactions (510,318) 1,688,560 72,056
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 733,622 $ 8,082,168 $1,353,136
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ Net of $94,607 in foreign withholding tax for the Global Income Fund.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Six Months Ended April 30, 1997
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
-------------------------------------------
<S> <C> <C> <C>
From operations:
Net investment income $ 1,243,940 $ 6,393,608 $1,281,080
Net realized gain (loss) from investment transactions (82,886) 3,647,163 480,753
Net realized gain from foreign currency related transactions -- 3,669,694 --
Net change in unrealized gain (loss) on investments and futures (427,432) (4,182,327) (408,697)
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- (1,445,970) --
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 733,622 8,082,168 1,353,136
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,217,324) (5,196,561) (1,272,366)
Class B (26,616) (15,612) (8,714)
Institutional Class -- (1,688,968) --
Service Class -- (559) --
Net realized gain on investment transactions
Class A (157,412) -- --
Class B (1,780) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,403,132) (6,901,700) (1,281,080)
- -------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 32,392,263 19,707,735 10,342,628
Reinvestment of dividends and distributions 1,137,480 4,631,079 756,256
Cost of shares repurchased (7,815,079) (49,406,305) (5,043,455)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 25,714,664 (25,067,491) 6,055,429
- -------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 25,045,154 (23,887,023) 6,127,485
Net assets:
Beginning of period 30,837,422 253,175,445 52,522,400
- -------------------------------------------------------------------------------------------------------------------------------
End of period $ 55,882,576 $ 229,288,422 $58,649,885
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income $ 53,331 $ 6,196,133 $ 60,331
- -------------------------------------------------------------------------------------------------------------------------------
Summary of share transactions:
Shares sold 2,285,678 1,345,225 716,106
Reinvestment of dividends and distributions 80,099 316,808 52,251
Shares repurchased (550,966) (3,368,115) (349,613)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 1,814,811 (1,706,082) 418,744
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
--------------------------------------------
<S> <C> <C> <C>
From operations:
Net investment income $ 1,900,328 $ 15,455,369 $ 2,420,375
Net realized gain from investment transactions 47,581 9,268,666 1,239,690
Net realized loss from foreign currency related transactions -- (2,192,328) --
Net change in unrealized gain (loss) on investments and futures (257,605) 54,149 (513,085)
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- 4,948,769 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,690,304 27,534,625 3,146,980
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,898,372) (22,455,377) (2,418,570)
Class B (3,324) (3,052) (1,805)
Institutional Class -- (4,050,770) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,901,696) (26,509,199) (2,420,375)
- ---------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 8,922,548 39,747,372 6,389,765
Reinvestment of dividends and distributions 1,614,587 16,968,046 1,484,778
Cost of shares repurchased (8,990,920) (82,019,748) (9,875,982)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 1,546,215 (25,304,330) (2,001,439)
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 1,334,823 (24,278,904) (1,274,834)
Net assets:
Beginning of year 29,502,599 277,454,349 53,797,234
- ---------------------------------------------------------------------------------------------------------------------------------
End of year $ 30,837,422 $ 253,175,445 $ 52,522,400
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income $ 53,331 $ 6,704,225 $ 60,331
- ---------------------------------------------------------------------------------------------------------------------------------
Summary of share transactions:
Shares sold 624,626 2,811,314 449,496
Reinvestment of dividends and distributions 112,977 1,198,568 104,201
Shares repurchased (628,175) (5,784,097) (694,794)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 109,428 (1,774,215) (141,097)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements
April 30, 1997
(Unaudited)
- -------------------------------------------------------------------------------
1. Organization
Goldman Sachs Trust (the "Trust") is a Massachusetts business trust registered
under the Investment Company Act of 1940 (as amended) as an open-end, management
investment company. Included in this report are the financial statements for the
Goldman Sachs Government Income Fund (Government Income), the Goldman Sachs
Global Income Fund (Global Income) and the Goldman Sachs Municipal Income Fund
(Municipal Income), collectively, "the Funds" or individually a "Fund."
Government Income and Municipal Income are diversified portfolios whereas Global
Income is a non-diversified portfolio. As of April 30, 1997, the Funds offer
Class A and Class B shares. In addition, Global Income offers Institutional and
Service shares. Effective May 1, 1997, the Trust was reorganized from a
Massachusetts business trust to a Delaware business trust and various
operational changes were approved, including updating certain investment
restrictions and amending the management contracts.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds which are in conformity with those generally accepted in
the investment company industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect the reported amounts.
A. Investment Valuation
- -----------------------
Investments in mortgage backed, asset backed and U.S. Treasury obligations for
which accurate market quotations are readily available are valued on the basis
of quotations furnished by a pricing service or provided by dealers in such
securities. Portfolio securities for which accurate market quotations are not
readily available are valued based on yield equivalents, pricing matrix 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 valued
at amortized cost.
B. Security Transactions and Investment Income
- ----------------------------------------------
Security transactions are recorded on the trade date. Realized gains and losses
on sales of portfolio securities are calculated on the identified cost basis.
Interest income is recorded 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 respective securities, taking into account principal prepayment
experience and estimates of future principal prepayments. 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 security 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 available from the issuer.
Recorded amortization amounts are adjusted when actual OID factors are received.
For Municipal Income, market premiums on other long-term debt securities are
amortized to interest income while for Global Income, market discounts on other
long-term debt securities are accreted to interest income.
C. Foreign Currency Translations
- --------------------------------
Amounts denominated in foreign currencies are translated into U.S. dollars on
the following basis: (i) investment valuations, 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 exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange
- -------------------------------------------------------------------------------
22
<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
gains and losses from the sale and holdings of foreign currencies and
investments; (ii) gains and losses between trade date and settlement date on
investment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of interest recorded and
the amounts actually received.
D. Forward Foreign Currency Exchange Contracts
- ----------------------------------------------
Global Income may enter into forward foreign exchange contracts for the purchase
or sale of a specific foreign currency at a fixed price on a future date as a
hedge or cross-hedge against either specific transactions or portfolio
positions. Global Income may also purchase and sell forward contracts to seek to
increase total return. All commitments are "marked-to-market" daily at the
applicable translation rates and any resulting unrealized gains or losses are
recorded in the Fund's financial statements. The Fund records realized gains or
losses at the time the 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.
E. Mortgage Dollar Rolls
- ------------------------
Government Income and Global Income may enter into mortgage "dollar rolls" in
which the Fund sells securities in the current month for delivery and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund loses the right to receive principal and interest paid on the
securities sold but benefits to the extent of any price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. The Fund will hold and maintain in a segregated account, until the
settlement date, cash or liquid, high grade debt securities in an amount equal
to the forward purchase price. For financial reporting and tax reporting
purposes, the Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving a
sale.
F. Option Accounting Principles
- -------------------------------
The Funds may purchase or write call and put options to hedge against changes in
security prices. When call or put options are written, an amount equal to the
premium received is recorded as a liability in the Statement of Assets and
Liabilities which is subsequently marked-to-market to reflect the current value
of the written option. Upon the purchase of a call option or a protective put
option, the premium paid is recorded as an investment, and subsequently
marked-to-market to reflect the current market value of the option. If a closing
transaction has been entered into, a gain or loss may be realized on the written
or purchased option. When options expire, the premium received from a written
option is treated as a realized gain while the cost of a purchased option is
treated as a realized loss. If an option is exercised, the premium paid or
received will be offset against the proceeds on the sale or the purchase cost of
the underlying security to determine realized gains or losses. Gains and losses
are reported in the Statement of Operations.
Certain risks arise upon entering into options contracts. The risk in
writing a call option is that the Fund gives up the opportunity to profit if the
underlying security's market value increases beyond the exercise price and the
option is exercised. The risk in writing a put option is that the Fund may
realize a loss if the market price of an underlying security declines and the
option is exercised. A premium must be paid for purchased options regardless of
whether or not the option is exercised. The Fund also has the risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
G. Futures Contracts
- --------------------
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices,
- -------------------------------------------------------------------------------
23
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
April 30, 1997
(Unaudited)
- -------------------------------------------------------------------------------
currency exchange rates (in the case of Global Income) or to seek to increase
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 futures exchange on which the contract is traded.
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 equal to the
difference between the value of the futures contract to sell and the value of
the futures contract to buy. Gains and losses are reported in the Statement of
Operations.
The use of futures contracts involve, to varying degrees, elements of
market 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 underlying
securities decreasing the effectiveness of the Funds' hedging strategies
potentially resulting in a loss.
H. 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
substantially all investment company tax-exempt and taxable income to its
shareholders each year. Accordingly, no federal tax provisions are required.
The characterization of distributions to shareholders for financial
reporting 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, depending on
the type of book/tax differences that may exist.
The Funds, at their most recent tax year-ends (October 31, 1996 for Global
Income and December 31, 1996 for Government Income and Municipal Income) had
approximately the following amounts of capital loss carryforwards for U.S.
federal tax purposes:
<TABLE>
<CAPTION>
Year of
Fund Amount Expiration
- ----------------------------------- ---------------- --------------
<S> <C> <C>
Global Income $4,471,734 2004
Municipal Income $ 702,691 2004
</TABLE>
I. Deferred Organization Expenses
- ---------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
J. Expenses
- -----------
Expenses incurred by the Trust that do not specifically relate to an individual
portfolio of the Trust are generally allocated to the portfolios based on each
portfolio's relative average net assets for the period.
Class A and Class B shareholders of the Funds bear all expenses and fees
relating to their respective distribution and authorized dealer service plans as
well as other expenses which are directly attributable to such shares. Transfer
agent fees are subject to separate arrangements for each class. Shareholders of
Service shares bear all expenses and fees paid to service organizations for
their services with respect to such shares as well as other expenses (subject to
expense limitations) which are directly attributable to such shares.
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's investment adviser
pursuant to Investment Advisory Agreements. Goldman Sachs Asset Management
International ("GSAM International"), an affiliate of Goldman Sachs, acts as
subadviser under a Subadvisory Agreement for Global Income. Under the Investment
Advisory and Subadvisory Agreements, GSAM and GSAM International, subject to the
general supervision of the Trust's Board of Trustees, manage the Funds'
portfolios. As compensation for the services rendered pursuant to the Investment
Advisory Agreements and the assumption of the expenses related thereto, GSAM is
entitled to a fee, computed daily and
- -------------------------------------------------------------------------------
24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
payable monthly at an annual rate equal to .50%, .25% and .40% of average daily
net assets of Government Income, Global Income and Municipal Income,
respectively. As compensation for the services rendered pursuant to the
Subadvisory Agreement, GSAM International is entitled to a subadvisory fee from
Global Income of .50% of the average daily net assets.
GSAM serves as each Fund's administrator pursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreement, GSAM is entitled to
a fee, computed daily and payable monthly at an annual rate equal to .15% of
each Fund's average daily net assets.
GSAM has voluntarily agreed to limit certain of the Funds' expenses
(excluding advisory, administration, distribution and authorized dealer service
fees, taxes, interest, brokerage, litigation, indemnification and other
extraordinary expenses and with respect to Global Income, transfer agent fees)
to the extent such expenses exceed .00%, .06% and .05% per annum of Government
Income, Global Income and Municipal Income, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
a Distribution Agreement and as such may receive a portion of the sales load
imposed on the sale of Fund shares. During the period ended April 30, 1997,
Goldman Sachs retained approximately $134,700, $46,600 and $40,300 of sales
loads related to sales of Government Income, Global Income and Municipal Income,
respectively.
The Trust, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% and .75% of each Fund's average
daily net assets attributable to Class A and Class B shares, respectively. The
Trust, on behalf of each Fund, has adopted an Authorized Dealer Service Plan
(the "Service Plan") pursuant to which Goldman Sachs and Authorized Dealers are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Service Plan equal, on an annual basis, up to .25% of the
average daily net assets attributable to the Class A and Class B shares. Goldman
Sachs also serves as the Transfer Agent of the Funds for a fee.
For the six months ended April 30, 1997, the advisors, administrators and
distributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
<TABLE>
<CAPTION>
Waivers
-------------------------------
Reimburse-
Admin- Class A Reimburse- ment
Fund Advisor istrator 12b-1 ment Outstanding
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government
Income $49 $30 $48 $134 $24
Global
Income 378 -- 38 98 --
Municipal
Income --- -- 68 111 9
</TABLE>
The Investment Advisors and Administrator may discontinue or modify such
waivers and limitations in the future at their discretion.
For the six months ended April 30, 1997, Government Income and Municipal
Income incurred commissions expense of approximately $877 and $500 respectively,
in connection with futures contracts entered into with Goldman Sachs. At April
30, 1997, Goldman Sachs owes approximately $6,400 to Government Income related
to variation margin on futures contracts.
As of May 1, 1997 each Fund's advisory and administration agreements were
combined into a single management agreement encompassing the same services and
fee structure. The investment adviser for Global Income changed from GSAM to
GSAM International.
4. 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
- -------------------------------------------------------------------------------
25
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
April 30, 1997
(Unaudited)
- --------------------------------------------------------------------------------
are to be used solely for temporary or emergency purposes. Under the most
restrictive arrangement, each Fund must own securities having a market value in
excess of 300% of the total bank borrowings. The interest rate on borrowings is
based on the federal funds rate. The committed facility also requires a fee to
be paid based on the amount of the commitment which has not been utilized. For
the period ended April 30, 1997, the Funds did not have any borrowings under
these facilities.
5. Investment Transactions
Purchases and proceeds of sales or maturities of long-term securities for the
six months ended April 30, 1997, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Government Global Municipal
Fund Income Income Income
- --------------------------------------------------------------------
<S> <C> <C> <C>
Purchases of U.S.
Government and agency
obligations $89,868,153 $31,460,469 $ --
- --------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) 2,626,912 251,582,253 52,647,833
- --------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 66,314,796 46,245,813 --
- --------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and agency
obligations) 2,926,850 234,275,222 50,202,452
- --------------------------------------------------------------------
</TABLE>
At April 30, 1997, Global Income had outstanding forward foreign currency
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value on
Foreign Currency Settlement Current Unrealized
Purchase Contracts Date Value (Loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Finnish Markka
Expiring 7/10/97 $ 5,769,651 $ 5,743,713 $ (25,938)
Norwegian Krone
Expiring 7/18/97 6,967,220 6,931,393 (35,827)
- ----------------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $12,736,871 $12,675,106 $ (61,765)
- ----------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================================
Value on
Foreign Currency Settlement Current Unrealized
Sale Contracts Date Value Gain/(Loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
Expiring 6/16/97 $ 19,731,038 $ 19,370,358 $ 360,680
British Pound Sterling
Expiring 5/15/97 22,990,248 22,842,002 148,246
Deutschemark
Expiring 5/23/97 9,189,539 9,098,874 90,665
Expiring 7/10/97 5,769,651 5,746,603 23,048
French Franc
Expiring 7/22/97 19,223,491 18,986,663 236,828
Italian Lira
Expiring 5/23/97 14,576,014 14,452,635 123,379
Japanese Yen
Expiring 7/24/97 46,975,472 46,670,841 304,631
Spanish Peseta
Expiring 6/11/97 5,856,184 5,819,307 36,877
Swedish Krona
Expiring 6/12/97 10,186,641 9,919,416 267,225
Swiss Franc
Expiring 5/23/97 240,202 240,493 (291)
Expiring 5/23/97 11,211,600 11,103,780 107,820
- ----------------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $165,950,080 $164,250,972 $1,699,108
- ----------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
At April 30, 1997, Global Income had sufficient cash and/or securities to
cover any commitments under these contracts.
Global Income has recorded a "Receivable for forward foreign currency
exchange contracts" and "Payable for forward foreign currency exchange
contracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $2,735,490 and $1,125,990 respectively, in the
accompanying Statement of Assets and Liabilities. Included in the "Receivable
and Payable for forward foreign currency exchange contracts" are $1,036,091 and
$1,063,934 respectively, related to forward contracts closed but not settled as
of April 30, 1997.
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
6. Summary of Share Transactions
Share activity for the six months ended April 30, 1997 is as follows:
<TABLE>
<CAPTION>
Government Income Global Income Municipal Income
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 2,087,525 $29,588,339 1,091,068 $15,982,653 687,045 $9,922,452
Reinvestment of dividends and
distributions 78,520 1,115,153 240,916 3,522,418 51,831 750,177
Shares repurchased (543,006) (7,702,748) (3,237,001) (47,484,511) (345,221) (4,979,641)
--------------------------------------------------------------------------------------
1,623,039 23,000,744 (1,905,017) (27,979,440) 393,655 5,692,988
--------------------------------------------------------------------------------------
Class B shares
Shares sold 198,153 2,803,924 65,331 958,124 29,061 420,176
Reinvestment of dividends and
distributions 1,579 22,327 715 10,428 420 6,079
Shares repurchased (7,960) (112,331) (8,487) (124,059) (4,392) (63,814)
--------------------------------------------------------------------------------------
191,772 2,713,920 57,559 844,493 25,089 362,441
--------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 182,398 2,673,084 -- --
Reinvestment of dividends and
distributions -- -- 75,139 1,097,674 -- --
Shares repurchased -- -- (122,627) (1,797,735) -- --
--------------------------------------------------------------------------------------
-- -- 134,910 1,973,023 -- --
--------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 6,428 93,874 -- --
Reinvestment of dividends and
distributions -- -- 38 559 -- --
Shares repurchased -- -- -- -- -- --
--------------------------------------------------------------------------------------
-- -- 6,466 94,433 -- --
--------------------------------------------------------------------------------------
Net increase (decrease) 1,814,811 $25,714,664 (1,706,082)$(25,067,491) 418,744 $6,055,429
=====================================================================================-
</TABLE>
Share activity for the year ended October 31, 1996 is as follows:
<TABLE>
<CAPTION>
Government Income Global Income Municipal Income
- --------------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 607,156 $8,675,868 1,089,521 $15,545,777 431,736 $6,139,212
Reinvestment of dividends and
distributions 112,752 1,611,387 947,846 13,419,614 104,074 1,482,976
Shares repurchased (626,797) (8,971,389) (5,376,065) (76,216,894) (694,685) (9,874,431)
--------------------------------------------------------------------------------------
93,111 1,315,866 (3,338,698) (47,251,503) (158,875) (2,252,243)
--------------------------------------------------------------------------------------
Class B shares
Shares sold 17,470 246,680 18,628 265,053 17,760 250,553
Reinvestment of dividends and
distributions 225 3,200 119 1,708 127 1,802
Shares repurchased (1,378) (19,531) (1,144) (16,373) (109) (1,551)
--------------------------------------------------------------------------------------
16,317 230,349 17,603 250,388 17,778 250,804
--------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 1,703,165 23,936,542 -- --
Reinvestment of dividends and
distributions -- -- 250,603 3,546,724 -- --
Shares repurchased -- -- (406,888) (5,786,481) -- --
--------------------------------------------------------------------------------------
-- -- 1,546,880 21,696,785 -- --
--------------------------------------------------------------------------------------
Net increase (decrease) 109,428 $1,546,215 (1,774,215)$(25,304,330) (141,097) $(2,001,439)
======================================================================================
</TABLE>
27
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
April 30, 1997
(Unaudited)
- --------------------------------------------------------------------------------
7. Repurchase Agreements
During the term of a repurchase agreement, the value of the underlying
securities, 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.
8. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having advisory
agreements with GSAM, transfer uninvested cash balances into joint accounts, the
daily aggregate balance of which is invested in one or more repurchase
agreements. The underlying securities for the repurchase agreements are U.S.
Treasury and agency obligations. At April 30, 1997, Government Income had an
undivided interest in the repurchase agreement in the following joint account
which equaled $11,100,000 in principal amount. At April 30, the repurchase
agreements held in this joint account, along with the corresponding underlying
securities (including the type of security, market value, interest rate and
maturity date) were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns & Co., dated 4/30/97, repurchase price
$680,103,889 (GNMA: $59,497,211, 7.50%-9.00%,
12/15/21-12/15/26; FNMA: $267,568,394, 5.50%,
02/01/09-04/01/27; FHLMC: $373,405,594, 5.50%-7.50%,
2/01/98-4/01/27)
$680,000,000 5.50% 5/01/97 $680,000,000
Nomura Securities International, Inc. dated 4/30/97,
repurchase price $300,045,833 (FNMA: $182,812,268,
5.94%-8.01%, 7/22/97-5/11/05; FHLMC: $38,631,543,
6.02%-6.75%, 1/28/00-12/04/01, FCSB: $49,581,430,
6.05%-6.25%, 5/10/99-12/03/99, SLMA: $29,222,430,
6.00%, 1/16/01)
300,000,000 5.50 5/01/97 300,000,000
Credit Suisse First Boston, dated 4/30/97, repurchase
price $52,307,845 (U.S. Treasury Bill: $53,475,803,
2/05/98)
52,300,000 5.40 5/01/97 52,300,000
- --------------------------------------------------------------------
Total Joint Repurchase Agreement Account $1,032,300,000
- --------------------------------------------------------------------
</TABLE>
9. Other
As of April 30, 1997, the Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 16% of the
outstanding shares of Global Income.
- --------------------------------------------------------------------------------
28
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
------------------------------------------------------------- -----------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment,
value at Net option and currency from From net option
beginning investment futures related investment investment and futures
of period income transactions/(a)/ transactions operations income transactions
--------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
For the Period Ended April 30,
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997-Class A shares $14.36 $0.46 $(0.20) -- $0.26 $(0.45) $(0.07)
1997-Class B shares 14.37 0.40 (0.19) -- 0.21 (0.40) (0.07)
For the Years Ended October 31,
- -----------------------------------------------------------------
1996-Class A shares 14.47 0.92 (0.11) -- 0.81 (0.92) --
1996-Class B shares/(c)/ 14.11 0.41 0.26 -- 0.67 (0.41) --
1995-Class A shares 13.47 0.94 1.00 -- 1.94 (0.94) --
1994-Class A shares 14.90 0.85 (1.28) -- (0.43) (0.85) (0.12)
For the Period February 10, 1993/(d)/through October 31,
- -----------------------------------------------------------------
1993-Class A shares 14.32 0.56 0.58 -- 1.14 (0.56) --
GLOBAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
For the Period Ended April 30,
- -----------------------------------------------------------------
1997-Class A shares $14.53 $0.25 $(0.07) $0.28 $0.46 $(0.40) --
1997-Class B shares 14.53 0.36 (0.02) 0.08 0.42 (0.37) --
1997-Institutional shares 14.52 0.42 (0.02) 0.10 0.50 (0.44) --
1997-Service shares/(i)/ 14.69 0.10 0.02 (0.09) 0.03 (0.13) --
For the Years Ended October 31,
- -----------------------------------------------------------------
1996-Class A shares 14.45 0.71 0.62 0.18 1.51 (1.43) --
1996-Class B shares/(c)/ 14.03 0.34 0.41 0.11 0.86 (0.36) --
1996-Institutional shares 14.45 1.15 0.32 0.10 1.57 (1.50) --
1995-Class A shares 13.43 0.89 0.92 0.15 1.96 (0.94) --
1995-Institutional shares/(f)/ 14.09 0.22 0.34 0.06 0.62 (0.26) --
1994-Class A shares 15.07 0.84 (1.37) (0.12) (0.65) (0.22) (0.16)
1993-Class A shares 14.69 0.85 1.07 (0.42) 1.50 (0.85) (0.27)
1992-Class A shares 14.60 1.14 0.45 (0.36) 1.23 (1.14) --
For the Period August 2, 1991/(d)/through October 31,
- -----------------------------------------------------------------
1991-Class A shares 14.55 0.25 0.23 (0.19) 0.29 (0.24) --
<CAPTION>
Distributions to shareholders
-----------------------------------------------------------
In excess of
net realized Net
gain on increase
In excess investment, From Total (decrease) Net asset
of net option and paid distributions in net value at
investment futures in to asset end of Total
income transactions capital shareholders value period return/(b)/
-----------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
For the Period Ended April 30,
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997-Class A shares -- -- -- $(0.52) $(0.26) $14.10 1.83%/(g)/
1997-Class B shares -- -- -- (0.47) (0.26) 14.11 1.43/(g)/
For the Years Ended October 31,
- -----------------------------------------------------------------
1996-Class A shares -- -- -- (0.92) (0.11) 14.36 5.80
1996-Class B shares/(c)/ -- -- -- (0.41) 0.26 14.37 4.85/(g)/
1995-Class A shares -- -- -- (0.94) 1.00 14.47 14.90
1994-Class A shares (0.02) (0.01) -- (1.00) (1.43) 13.47 (2.98)
For the Period February 10, 1993/(d)/through October 31,
- -----------------------------------------------------------------
1993-Class A shares -- -- -- (0.56) 0.58 14.90 8.03/(g)/
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
For the Period Ended April 30,
- -----------------------------------------------------------------
1997-Class A shares -- -- -- $(0.40) $0.06 $14.59 3.22%/(g)/
1997-Class B shares -- -- -- (0.37) 0.05 14.58 2.94/(g)/
1997-Institutional shares -- -- -- (0.44) 0.06 14.58 3.50/(g)/
1997-Service shares/(i)/ -- -- -- (0.13) (0.10) 14.59 0.21/(g)/
For the Years Ended October 31,
- -----------------------------------------------------------------
1996-Class A shares -- -- -- (1.43) 0.08 14.53 11.05
1996-Class B shares/(c)/ -- -- -- (0.36) 0.50 14.53 6.24/(g)/
1996-Institutional shares -- -- -- (1.50) 0.07 14.52 11.55
1995-Class A shares -- -- -- (0.94) 1.02 14.45 15.08
1995-Institutional shares/(f)/ -- -- -- (0.26) 0.36 14.45 4.42/(g)/
1994-Class A shares -- -- (0.61) (0.99) (1.64) 13.43 (4.49)
1993-Class A shares -- -- -- (1.12) 0.38 15.07 10.75
1992-Class A shares -- -- -- (1.14) 0.09 14.69 8.77
For the Period August 2, 1991/(d)/through October 31,
- ---------------------------------------------------------------------
1991-Class A shares -- -- -- (0.24) 0.05 14.60 2.00
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
----------------------------
Ratio of Net Ratio of
Ratio of net assets net
net investment at end Ratio of investment
expenses income Portfolio of expenses income
to average to average turnover period to average to average
net assets net assets rate/(h)/ (in 000s) net assets net assets
--------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
- ---------------------------------------------------------------------------------------------------------------
For the Period Ended April 30,
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997-Class A shares 0.50%/(e)/ 6.34%/(e)/ 182.25%/(g)/ $52,946 1.83%/(e)/ 5.01%/(e)/
1997-Class B shares 1.25/(e)/ 5.37/(e)/ 182.25/(g)/ 2,937 2.33/(e)/ 4.29/(e)/
For the Years Ended October 31,
- -----------------------------------------------------------------
1996-Class A shares 0.50 6.42 485.09 30,603 1.89 5.03
1996-Class B shares/(c)/ 1.25/(e)/ 5.65/(e)/ 485.09 234 2.39/(e)/ 4.51/(e)/
1995-Class A shares 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A shares 0.11 6.06 654.90 14,452 2.86 3.31
For the Period February 10, 1993/(d)/through October 31,
- -----------------------------------------------------------------
1993-Class A shares 0.00/(e)/ 4.87/(e)/ 725.41/(g)/ 12,860 4.00/(e)/ 0.87/(e)/
GLOBAL INCOME FUND
- ---------------------------------------------------------------------------------------------------------------
For the Period Ended April 30,
- -----------------------------------------------------------------
1997-Class A shares 1.17%/(e)/ 5.12%/(e)/ 136.72%/(g)/ $171,668 1.60%/(e)/ 4.69%/(e)/
1997-Class B shares 1.71/(e)/ 4.73/(e)/ 136.72/(g)/ 1,095 2.10/(e)/ 4.34/(e)/
1997-Institutional shares 0.65/(e)/ 5.64/(e)/ 136.72/(g)/ 56,431 1.04/(e)/ 5.25/(e)/
1997-Service shares/(i)/ 1.15/(e)/ 5.85/(e)/ 136.72/(g)/ 94 1.54/(e)/ 5.46/(e)/
For the Years Ended October 31,
- -----------------------------------------------------------------
1996-Class A shares 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B shares/(c)/ 1.70/(e)/ 5.16/(e)/ 232.15 256 2.14/(e)/ 4.72/(e)/
1996-Institutional shares 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A shares 1.29 6.23 265.86 245,835 1.58 5.94
1995-Institutional shares/(f)/ 0.65/(e)/ 6.01/(e)/ 265.86 31,619 1.08/(e)/ 5.58/(e)/
1994-Class A shares 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A shares 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A shares 1.37 7.85 270.75 588,893 1.62 7.60
For the Period August 2, 1991/(d)/through October 31,
- -----------------------------------------------------------------
1991-Class A shares 0.38/(g)/ 1.72/(g)/ 34.22/(g)/ 388,744 0.44/(g)/ 1.66/(g)/
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations/(a)/ Distributions to shareholders
------------------------------------------------------------- ------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment,
value at Net option and currency from From net option
beginning investment futures related investment investment and futures
of period income transactions/a/ transactions operations income transactions
---------------------------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Period Ended April 30,
- ---------------------------------------------------------------------
1997-Class A shares $14.37 $0.34 $0.03 -- $0.37 $(0.34) --
1997-Class B shares 14.37 0.28 0.03 -- 0.31 (0.28) --
For the Years Ended October 31,
- ---------------------------------------------------------------------
1996-Class A shares 14.17 0.65 0.20 -- 0.85 (0.65) --
1996-Class B shares/(c)/ 14.03 0.27 0.34 -- 0.61 (0.27) --
1995-Class A shares 13.08 0.67 1.09 -- 1.76 (0.67) --
1994-Class A shares 14.64 0.73 (1.51) -- (0.78) (0.73) (0.05)
For the Period July 20, 1993/(d)/ through October 31,
- ---------------------------------------------------------------------
1993-Class A shares 14.32 0.22 0.32 -- 0.54 (0.22) --
<CAPTION>
Distributions to shareholders
----------------------------------------------------------
In excess of
net realized Net
gain on increase
In excess investment, From Total (decrease) Net asset
of net option and paid distributions in net value at
investment futures in to asset end of Total
income transactions capital shareholders value period return/(b)/
------------------------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Period Ended April 30,
- ---------------------------------------------------------------------
1997-Class A shares -- -- -- $(0.34) $0.03 $14.40 2.57%/(g)/
1997-Class B shares -- -- -- (0.28) 0.03 14.40 2.18/(g)/
For the Years Ended October 31,
- ---------------------------------------------------------------------
1996-Class A shares -- -- -- (0.65) 0.20 14.37 6.13
1996-Class B shares/(c)/ -- -- -- (0.27) 0.34 14.37 4.40/(g)/
1995-Class A shares -- -- -- (0.67) 1.09 14.17 13.79
1994-Class A shares -- -- -- (0.78) (1.56) 13.08 (5.51)
For the Period July 20, 1993/(d)/ through October 31,
- ---------------------------------------------------------------------
1993-Class A shares -- -- -- (0.22) 0.32 14.64 3.73/(g)/
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
----------------------------
Ratio of Net Ratio of
Ratio of net assets net
net investment at end Ratio of investment
expenses income Portfolio of expenses income
to average to average turnover period to average to average
net assets net assets rate/(h)/ (in 000s) net assets net assets
------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Period Ended April 30,
- ---------------------------------------------------------------------
1997-Class A shares 0.85%/(e)/ 4.70%/(e)/ 90.46%/(g)/ $58,033 1.51%/(e)/ 4.04%/(e)/
1997-Class B shares 1.60/(e)/ 3.92/(e)/ 90.46/(g)/ 617 2.01/(e)/ 3.51/(e)/
For the Years Ended October 31,
- ---------------------------------------------------------------------
1996-Class A shares 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B shares/(c)/ 1.60/(e)/ 3.55/(e)/ 344.13 255 2.05/(e)/ 3.10/(e)/
1995-Class A shares 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A shares 0.45 5.28 357.54 47,373 1.55 4.18
For the Period July 20, 1993/(d)/ through October 31,
- ---------------------------------------------------------------------
1993-Class A shares 0.00/(e)/ 5.15/(e)/ 99.99/(g)/ 30,166 2.42/(e)/ 2.73/(e)/
</TABLE>
- ---------------------------
/(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 or a contingent deferred sales charge for Class B shares were
taken into account.
/(c)/ Class B shares commenced operations on May 1, 1996.
/(d)/ Commencement of operations.
/(e)/ Annualized.
/(f)/ Institutional shares commenced operations on June 1, 1995.
/(g)/ Not annualized.
/(h)/ Includes the effect of mortgage dollar roll transactions for the
Government Income Fund.
/(i)/ Service Class shares commenced operations on March 12, 1997.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Semiannual Report is authorized for distribution to prospective investors
only when preceded or accompanied by a Goldman Sachs Trust Prospectus which
contains facts concerning the Fund's objectives and policies, management,
expenses and other information.
- --------------------------------------------------------------------------------
<PAGE>
Goldman Sachs
1 New York Plaza
New York, NY 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
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Goldman Sachs
Investment Adviser,
Distributor and Transfer Agent
FISARRET
The Goldman Sachs
Fixed Income Funds
- --------------------------------------------------------------------------------
Semiannual Report
April 30, 1997
Goldman Sachs Government Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Municipal Income Fund
[LOGO OF GOLDMAN SACHS APPEARS HERE]
- -------------------------------------------------------------------------------
