<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
We welcome the opportunity to review the performance and the investment
activity of the Goldman Sachs Fixed Income Funds for the 12-month period ended
October 31, 1996. To help put the portfolios' performance in perspective, we
will also provide a brief overview of the U.S. economy and the bond market
during the period.
We are pleased to report that the Goldman Sachs Fixed Income Funds fared
well relative to their peers during the period.
The Bond Market Sold Off Amid Rising Rates, Then Stabilized
The U.S. fixed income market began the 12-month period under review with
a robust rally, fueled by weak economic data and low inflation. However, in
February 1996, the bond market began to come under pressure when stronger than
expected economic and job growth as well as surging commodity prices aroused
fears of higher inflation on the horizon. Bond market conditions significantly
worsened during March and April, when a sharp rise in interest rates triggered a
sell-off and increased volatility. By early May, long-term bond yields had
climbed above the psychologically important 7.0% level for the first time in
nearly a year. At the end of May, interest rates began to stabilize and
Treasury prices remained in a narrow trading range throughout the summer and
fall. During September and October, however, interest rates retreated and the
bond market strengthened. The rebound was primarily due to evidence of a
slowing U.S. economy and strong demand for Treasury bonds from the central banks
of China, Japan and Germany, which accelerated their purchases dramatically
toward the end of the period. By the end of October, prices of 30-year
Treasuries broke out of the trading range that had persisted for over six
months.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Table of Contents
Market Overview 1 GS Core Fixed Income Fund 22
GS Adjustable Rate Government Fund 3 Financial Statements 30
GS Short Duration Government Fund 9 Notes to Financial Statements 34
GS Short Duration Tax-Free Fund 15 Financial Highlights 42
- ---------------------------------------------------------------------------------------------------------
</TABLE>
After a Weak Start, Economic Growth Rebounded, Then Moderated
In late 1995, the economy was anemic, with weak consumer and capital
spending contributing to a fourth-quarter real Gross Domestic Product (GDP)
growth of only 0.3% (annualized). During the first quarter of 1996, harsh winter
weather and the General Motors strike continued to restrain economic growth.
Despite these adverse conditions, the economy advanced faster than expected,
with first-quarter real GDP growth reported at 2.0% (annualized). Momentum
accelerated more dramatically during the second quarter, as industrial activity,
automobile sales and home sales all showed significant improvement. As a result,
second-quarter GDP rose a robust 4.7% (annualized), its highest rate in two
years.
The economy's torrid growth cooled markedly during the third quarter,
with annualized real GDP at a revised 2.0%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. In October some evidence of a
slowdown continued, with housing starts falling to their lowest level in a year
and U.S. capacity utilization also down. However, consumer confidence remained
high against a backdrop of low unemployment and higher household income. These
indicators led some economists to interpret October's retail sales numbers (up a
scant 0.2%) as a "breather" they expected to be followed by stronger holiday
shopping, while others were concerned about a more prolonged period of
restrained spending. Despite investors' earlier fears of increased inflationary
pressures and the fact that in October the producer and consumer price indexes
were up 0.4% and 0.3%, respectively, inflation remained subdued throughout the
period.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
The Fed Remained Neutral After Easing in December and January
In response to generally poor year-end 1995 economic conditions, the U.S.
Federal Reserve cut the Federal funds rate by 25 basis points in December 1995
and an additional 25 basis points in January 1996. The Fed then remained neutral
from February through the end of the period, leaving the Federal funds rate at
5.25% as of October 31, 1996.
During the period under review, the yield curve shifted upward everywhere
but at the shortest end, where it steepened. The yield on six-month Treasury
bills fell from 5.55% on October 31, 1995 to approximately 5.26% on October 31,
1996. For the same time period, the yield on the 30-year U.S. Treasury bond rose
from 6.33% a year ago to 6.64%. For the 12-month period ended October 31, 1996,
the total returns of one-year and 30-year Tresuries were 5.84% and 0.72%,
respectively.
Historical Treasury Yield Curve
[GRAPH APPEARS HERE]
The yield curve steepened on the short end and shifted upward on the longer end.
Outlook: Moderate Economic Growth for the Near Term
The recent economic weakness and the tame third-quarter labor cost report
increase the likelihood that the Fed will defer any changes in monetary policy
until 1997. Although a more extended slowdown is possible, as of this writing,
Goldman Sachs' economists believe a resumption of growth is likely if consumer
spending rebounds by year-end and the trade deficit does not significiantly
widen. On the fiscal front, the bond market environment should benefit from the
recent election results with President Clinton balanced by a
Republican-controlled Congress, which points toward continued budgetary
restraint.
We appreciate your confidence in the Goldman Sachs Fixed Income Funds and
we look forward to continuing to serve your investment needs in the future.
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
November 29, 1996
- --------------------------------------------------------------------------------
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Adjustable Rate Government Fund seeks a high level of current income
consistent with low volatility of principal. The portfolio ordinarily invests
substantially all of its assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, with primary emphasis on
adjustable rate mortgage securities (ARMs). Under normal interest rate
conditions, the fund's duration is expected to be in a range approximately equal
to that of a six-month to one-year U.S. Treasury security.
The ARM Market Began Weak but Improved as Prepayments Slowed and Demand
Increased
The key factors affecting ARM performance during the 12 months under review
were the changing direction of interest rates and, consequently, the pace of
mortgage prepayments. From November 1995 through early February 1996, declining
interest rates spurred homeowners to switch from ARMs to fixed rate mortgages to
lock in attractive rates. The high level of refinancing activity depressed the
ARM market and caused yield spreads between ARMs and Treasuries to widen until
the end of January 1996, when long-term interest rates began to rise. Throughout
the spring, the ARM market strengthened as interest rates climbed sharply.
Spreads between ARMs and Treasuries continued to tighten even after rates
stabilized from the end of May through August, partly due to strong demand from
"crossover" investors from other short-duration fixed income sectors. Although
interest rates declined in September and October, mortgage prepayment fears
remained subdued as rates were still relatively high compared with their levels
a year earlier. Investor demand for seasoned one-year Constant Maturity Treasury
(CMT) ARMs, which our fund stresses, remained especially strong due to their
relative prepayment stability in a falling rate environment.
Performance Review
During the period under review, the fund's Institutional, Administration
and Class A shares all significantly outperformed both the six-month U.S.
Treasury bill and the one-year U.S. Treasury bill. (As of October 31, the fund's
duration was 0.7 years, in between that of the six-month and the one-year U.S.
Treasury bill.) The fund's positive performance can be attributed to the
incremental yield its ARM holdings delivered over similar-duration Treasuries
and tightening spreads between ARMs and Treasuries.
- ------------------------------------------------------------------------
Performance Summary: October 31, 1995 - October 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six-
Month One-Year
Institu- Adminis- Class Treasury Treasury
tional tration A Bill Bill
------ ------- - ---- ----
<S> <C> <C> <C> <C> <C>
Total Return (based 6.86% 6.60% 6.60% 5.48% 5.82%
on net asset value)
- ------------------------------------------------------------------------
Return From 6.25% 5.99% 5.99% NA NA
Monthly
Distributions
- ------------------------------------------------------------------------
Return From Price 0.61% 0.61% 0.61% NA NA
Appreciation
- ------------------------------------------------------------------------
NAV (10/31/96) $9.83 $9.83 $9.83 NA NA
- ------------------------------------------------------------------------
NAV Change +$0.06 +$0.06 +$0.06 NA NA
- ------------------------------------------------------------------------
</TABLE>
We are also pleased to note that the fund outperformed most of its peers.
For the 12 months ended October 31, 1996, the fund's Institutional shares ranked
fourth out of 53 adjustable rate mortgage funds based on total return, as
tracked by Lipper Analytical Services, Inc. (Lipper does not rank the fund's
Administration and Class A shares. Please note that Lipper rankings do not take
sales charges into account and that past performance is not a guarantee of
future results.) As of October 31, 1996, the
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)
- --------------------------------------------------------------------------------
fund's Institutional shares were ranked "four stars" by Morningstar, Inc., an
independent rating agency.\1\
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Repos/Cash Equivalents 3.4%
CMOs 3.5%
SBA Floaters 7.8%
ARMs 85.3%
</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.
- ---------------------------------------------
/1/ Source (C) 1996 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 10/31/96.
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 ten-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 Institutional shares received five
and four stars for the three- and five-year periods, respectively. The
Institutional shares were rated among 1,054 and 572 fixed income funds for the
three- and five-year periods, respectively. For the one-year period, the
Institutional shares were rated among 1,654 fixed income funds. 22.5% of the
funds receive the four-star rating. The Morningstar rating applies only to the
fund's Institutional shares; the fund's Class A and Administration shares have
not been rated. Class A and Administration shares are subject to additional fees
that may have the effect of lowering performance and may affect and future
Morningstar rating. Morningstar rates funds against their peers in the same
category. In all, there are five Morningstar categories (domestic equity,
international equity, fixed income, municipal and hybrid). 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.
Portfolio Composition and Investment Strategies
During the period under review, the portfolio's sector allocation shifted
slightly, with reductions in collateralized mortgage obligations (CMOs) and
Small Business Administration (SBA) loans in favor of ARMs.
. ARMs. As of October 31, 1996, ARMs accounted for 85.3% of the portfolio, up
from 80.2% a year ago. We emphasized seasoned, one-year CMT issues that offered
relative prepayment and duration stability as well as incremental yield over
Treasuries. The position significantly contributed to the fund's performance
during the period.
. SBA Floaters. The portfolio held a 7.8% allocation in securities backed by
Small Business Administration loans, which traded at attractive spreads relative
to Treasuries. We trimmed the portfolio's holdings in the sector slightly from
8.9% a year ago to take profits after the position performed well.
. CMOs. CMOs accounted for 3.5% of the portfolio as of October 31,
approximately half their weighting a year ago (7.7%). This position provided
relatively stable cash flows and a greater number of opportunities to take
advantage of potential mispricing than comparable fixed income sectors. During
December 1995 and January 1996, the sector became expensive versus
similar-duration Treasuries, and we subsequently sold part of the fund's
holdings at a profit. The fund's CMO position included 1.4% in floaters, which
added incremental yield, and 0.4% in sequential-pay CMOs. In addition, the fund
held CMO super floaters, discussed below.
. Prudent Use of Derivatives. We used higher risk derivatives very sparingly to
enhance the fund's performance without taking on additional undue risk. As of
October 31, 1996, the fund held a 1.5% position in super floaters, which
contributed to its performance during the year. (Super floaters are floating
rate securities whose coupons reset higher and more quickly than regular
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)
- --------------------------------------------------------------------------------
ARMs in a rising interest rate environment.) The portfolio also included minor
positions in interest-only (IO) and inverse IO securities.
. Duration. As of October 31, the duration of the fund was 0.7 years, unchanged
from a year earlier. Rather than attempting to make interest rate predictions,
we seek to provide excess returns over a similar-duration U.S. Treasury security
through sector weightings and security selection. During the period, we used
financial futures as a tool to help manage the portfolio's duration.
. Credit Quality. The fund invests exclusively in securities issued by the U.S.
government and its agencies or instrumentalities, which are considered to be of
the highest credit quality.
ARM Outlook: Seasoned ARMs Are Expected to Perform Well Relative to Other
Sectors
Our outlook for the ARM sector is moderately constructive. Although spreads
have tightened over the course of the year, we expect them to remain stable for
the near term due to strong investor demand and limited supply. In addition, we
believe that our core holding of seasoned ARMs should fare well relative to less
seasoned issues if rates continue to decline and prepayments increase.
Distribution Policy
During the 12-month period ended October 31, 1996, the fund's Institutional,
Administration and Class A shares distributed $0.59, $0.57 and $0.57 per
share, respectively.
The fund distributes substantially all of its investment company taxable
income. The dividend is set at the start of each month, based on the income the
fund is expected to generate. However, because the fund invests primarily in
mortgage securities that are subject to prepayments, we cannot precisely predict
the amount of principal and interest that a portfolio will receive. Therefore,
at times a portfolio may distribute amounts above or below current income
levels. To date, however, our dividend policy has not affected the management of
the fund nor significantly affected its net asset value (NAV) per share.
In conclusion, we appreciate your investment in the GS Adjustable Rate
Government Fund and will continue to seek attractive fixed income investments in
the months ahead.
Sincerely,
/s/ Jonathan A. Beinner
Jonathan A. Beinner
/s/ Peter D. Dion
Peter D. Dion
/s/ James P. McCarthy
James P. McCarthy
Portfolio Managers
GS Adjustable Rate Government Fund
November 29, 1996
- --------------------------------------------------------------------------------
5
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Adjustable Rate Government Fund based on a normal minimum
initial investment, for each class, is compared to its benchmarks--the Lehman
Brothers Mutual Fund Short (1-2) U.S. Government Index ("Lehman 1-2 Index") and
the six month and one year U.S. Treasury Bills ("6-Month T-Bill / 1-Year T-
Bill"). All performance data shown represents past performance and should not be
considered indicative of future performance which will fluctuate as market
conditions change. The investment return and principal value of an investment
will fluctuate with changes in market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL INVESTMENTS/(a)/
Institutional Shares
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Lehman Short (1-2) One Year Six Month
Shares Gov't Index T-Bill T-Bill
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8/1/91 50,000 50,000 50,000 50,000
- --------------------------------------------------------------------------------
10/31/91 51,047 51,581 51,179 50,870
- --------------------------------------------------------------------------------
10/31/92 54,176 55,506 54,161 53,376
- --------------------------------------------------------------------------------
10/31/93 56,414 58,368 56,198 55,197
- --------------------------------------------------------------------------------
10/31/94 57,475 59,511 57,744 57,257
- --------------------------------------------------------------------------------
10/31/95 61,355 64,343 61,766 60,819
- --------------------------------------------------------------------------------
10/31/96 65,576 68,197 65,373 64,158
- --------------------------------------------------------------------------------
</TABLE>
Administration Shares
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Administration Lehman Short (1-2) One Year Six Month
Shares Gov't Index T-Bill T-Bill
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/1/93 50,000 50,000 50,000 50,000
- --------------------------------------------------------------------------------
10/31/93 50,917 50,931 50,785 50,780
- --------------------------------------------------------------------------------
10/31/94 51,747 51,931 52,182 52,675
- --------------------------------------------------------------------------------
10/31/95 55,100 56,148 55,835 55,951
- --------------------------------------------------------------------------------
10/31/96 58,742 59,511 59,096 59,023
- --------------------------------------------------------------------------------
</TABLE>
Class A Shares
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class A Shares Class A Shares Lehman Short (1-2) One Year Six Month
(no sales charge) (w/ sales charge) Gov't Index T-Bill T-Bill
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/1/95 10,000 9,850 10,000 10,000 10,000
- ---------------------------------------------------------------------------------------------------
10/31/95 10,222 10,069 10,277 10,260 10,246
- ---------------------------------------------------------------------------------------------------
10/31/96 10,898 10,735 10,893 10,859 10,809
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
Average Annual Total Return
--------------------------------------------------
One Year Five Year Since Inception/(b)/
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Institutional Shares 6.86% 5.13% 5.32%
- --------------------------------------------------------------------------------
Administration Shares 6.60% N/A 4.69%
- --------------------------------------------------------------------------------
Class A Shares
excluding sales charge 6.60% N/A 6.40%
- --------------------------------------------------------------------------------
Class A Shares
including sales charge 4.99% N/A 5.29%
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the commencement of operations.
/(b)/ The Institutional, Administration and Class A shares commenced operations
July 17, 1991, April 15, 1993 and May 15, 1995, respectively.
- --------------------------------------------------------------------------------
6
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations--96.3%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(d)--25.6%
<S> <C> <C> <C>
$ 409,475 7.33% 11/01/17 $ 422,849
1,443,341 7.54 12/01/18 1,482,297
2,695,805 7.40 07/01/18 2,793,527
1,799,007 7.69 01/01/19 1,857,314
10,670,041 7.38 05/01/19 11,021,833
20,341,589 7.58 11/01/19 21,218,921
5,280,731 7.70 05/01/20 5,464,395
19,004,192 7.42 06/01/20 19,698,985
37,238,927 7.73 02/01/22/(a)/ 38,845,042
4,072,603 7.39 08/01/22 4,215,145
2,234,941 7.56 08/01/22 2,331,334
6,804,200 7.53 09/01/22 7,067,182
17,808,242 7.61 11/01/22 18,565,092
10,195,026 7.63 06/01/24 10,506,892
3,045,972 7.31 12/01/24 3,122,121
3,495,056 7.20 02/01/28 3,604,835
4,584,605 7.09 07/01/29 4,671,987
1,815,464 7.62 07/01/30 1,892,059
2,055,859 7.39 05/01/31 2,110,462
- --------------------------------------------------------------------------------
$160,892,272
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage Association
(FNMA)(d)--55.4%
$ 1,138,394 7.80% 11/01/14 $ 1,187,493
6,190,161 6.54 03/01/17 6,277,194
3,662,002 7.56 03/01/17 3,799,511
4,221,326 6.21 03/01/18 4,247,709
6,778,125 7.66 04/01/18 7,046,064
874,932 7.63 05/01/18 901,180
7,405,181 7.34 07/01/18 7,724,566
5,249,737 7.41 07/01/18 5,456,472
6,398,858 7.08 08/01/18 6,609,828
3,972,504 7.64 08/01/18 4,143,838
3,746,795 7.42 10/01/18 3,896,068
6,780,326 7.41 11/01/18 7,009,162
2,068,449 7.29 12/01/18 2,138,591
13,495,001 7.67 12/01/18/(a)/ 14,077,040
3,484,080 7.27 06/01/19 3,597,870
4,440,531 7.31 07/01/19 4,579,297
1,698,502 7.34 07/01/19 1,755,826
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations(continued)
Adjustable Rate Federal National Mortgage Association
(FNMA)(d)(continued)
<S> <C> <C> <C>
$ 2,849,462 7.46% 01/01/20 $ 2,942,526
3,037,915 7.70 03/01/20 3,168,940
8,771,533 7.40 07/01/20 9,055,204
4,563,057 7.48 09/01/20 4,746,994
4,953,382 7.53 02/01/21 5,167,022
5,289,644 7.28 04/01/21 5,464,044
74,489,219 7.51 09/01/21/(a)/ 77,678,102
4,088,820 7.95 11/01/21 4,210,095
22,090,964 7.56 02/01/22 23,043,747
14,611,569 7.68 06/01/22 15,112,892
6,682,461 7.47 08/01/22 6,893,894
759,290 7.48 08/01/22 776,511
38,116,807 7.56 09/01/22/(a)/ 39,760,785
1,934,079 7.53 02/01/23 1,968,235
277,701 6.22 12/01/23 276,574
18,079,861 7.48 09/01/25 18,856,752
2,565,500 7.33 10/01/27 2,653,702
1,177,401 7.04 07/01/29 1,205,729
3,288,252 7.59 04/01/30 3,376,640
8,565,310 7.58 01/01/31 8,934,732
28,276,177 6.09 02/01/31 28,161,376
- --------------------------------------------------------------------------------
$ 347,902,205
- --------------------------------------------------------------------------------
Adjustable Rate Government National Mortgage Association
(GNMA)(d) -- 2.2%
$ 1,527,707 6.50% 03/20/16 $ 1,551,096
1,806,135 7.12 08/20/17 1,839,711
1,026,294 7.12 08/20/18 1,046,984
8,886,125 6.00 11/20/25 9,040,211
- --------------------------------------------------------------------------------
$ 13,478,002
- --------------------------------------------------------------------------------
Adjustable Rate Small Business Administration (SBA)(d)--7.8%
$ 1,416,469 6.75% 10/25/14 $ 1,449,883
2,562,866 6.75 02/25/15 2,624,144
3,684,715 6.75 03/25/15 3,773,370
2,839,268 6.75 04/25/15 2,907,581
2,057,142 6.75 05/25/15 2,106,637
1,036,764 6.75 08/25/15 1,062,040
1,684,161 6.75 09/25/15 1,725,220
2,069,161 6.75 10/25/15 2,119,917
1,110,382 6.37 09/25/16 1,125,305
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations (continued)
Adjustable Rate Small Business Administration
(SBA)(d)(continued)
$ 4,125,881 6.37% 07/25/17 $ 4,181,333
9,019,837 6.37 08/25/17 9,141,062
4,040,857 6.37 09/25/17 4,095,166
3,577,478 6.37 10/25/17 3,625,559
8,937,943 6.37 02/25/18 9,058,069
- --------------------------------------------------------------------------------
$ 48,995,286
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations-5.3%
Adjustable Rate CMOs(d)-1.8%
FNMA Remic Trust 1990-145, Class A
$ 11,024,778 6.51% 12/25/20 $ 11,025,439
- --------------------------------------------------------------------------------
Inverse Floater(d)-0.0%
FNMA Remic Trust 1991-91, Class S
$ 164,490 17.66% 07/25/98 $ 174,261
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only(d)-0.0%
FNMA Remic Trust 1992-157, Class SA
$2,002,645/(b)/ 14.10% 03/25/04 $ 168,743
- --------------------------------------------------------------------------------
Inverse IOette-0.1%
FHLMC Series 1164, Class O
$ 36,128/(b)/ 29.44% 11/15/06 $ 489,372
- --------------------------------------------------------------------------------
IOette-0.1%
FNMA Remic Trust 1990-145, Class B
$ 27,091/(b)/ 10.00% 12/25/20 $ 657,906
- --------------------------------------------------------------------------------
Regular Floater CMOs(d)-1.4%
FHLMC Series 1011, Class F
$ 8,872,813 6.34% 11/15/20 $ 9,069,612
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs-0.4%
FNMA Remic Trust 1990-65, Class U
$ 616,589 9.50% 11/25/06 $ 619,475
FNMA Remic Trust 1991-37, Class E
1,664,339 8.50% 04/25/05 1,679,418
- --------------------------------------------------------------------------------
$ 2,298,893
- --------------------------------------------------------------------------------
Super Floater CMOs(d)-1.5%
FNMA Remic Trust 1992-157, Class FA
$ 9,859,177(b) 1.22% 03/25/04 $ 9,631,134
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 33,515,360
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $605,544,961) $604,783,125
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Repurchase Agreement-2.1%
Joint Repurchase Agreement Account
$ 13,000,000 5.58% 11/01/96/(a)/$ 13,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $13,000,000) $ 13,000,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $618,544,961/(c)/) $617,783,125
================================================================================
Futures contracts open at October 31, 1996:
</TABLE>
<TABLE>
<CAPTION>
Number of
Contracts
Long Settlement Unrealized
Type (Short)(e) Month Gain (Loss)
- --------------------------------- ------------- ------------------- ----------------
<S> <C> <C> <C>
1-Month Libor 45 November 1996 $4,500
Euro Dollars 365 December 1996 309,500
Euro Dollars 280 March 1997 95,000
Euro Dollars 55 June 1997 28,000
5-Year U.S. Treasury Notes 67 December 1996 9,766
10-Year U.S. Treasury Notes (270) December 1996 (302,812)
----------------
$143,954
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Federal Income Tax Information:
<S> <C>
Gross unrealized gain for investments in which value
exceeds cost $ 2,404,589
Gross unrealized loss for investments in which cost
exceeds value (3,318,600)
- --------------------------------------------------------------------------------------
Net unrealized gain $ (914,011)
======================================================================================
</TABLE>
(a) Portions of these securities are being segregated for futures margin
requirements.
(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) The aggregate costs for federal income tax purposes is $618,697,136.
(d) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1996.
(e) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each Libor contract represents $3,000,000 in notional par value. Each
5-Year and 10-Year U.S. Treasury Note and U.S. Treasury Bond contract
represents $100,000 in notional par value. The total notional amount and
market value are $879,000,000 and $200,909,125, respectively. The
determination of notional amounts and market value as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Government Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Short Duration Government Fund's primary objective is to provide a
high level of current income by investing in a portfolio that consists of
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including mortgage-backed securities as well as repurchase
agreements collateralized by such instruments. Under normal interest rate
conditions, the fund's duration is expected to be within one-half year of its
benchmark, the two-year U.S. Treasury security.
Performance Review
During the period under review, the fund's Institutional, Administration
and Service shares all outperformed the two-year U.S. Treasury security,
primarily due to our emphasis on and the favorable performance of
mortgage-backed security investments, as well as our ability to identify
relative value within the sector. In addition, the portfolio's term structure,
which overweighted one- and three-year maturity securities, also contributed to
performance when the yield curve steepened.
During the period, the net asset values (NAVs) of the fund's Institutional
and Administration shares (which opened February 28, 1996) were nearly unchanged
while the NAV of the fund's Service shares (which opened April 10, 1996) rose
$0.10 as interest rates stabilized and subsequently declined.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary
- --------------------------------------------------------------------------------
Institutional Administration* Service*
(10/31/95- (2/28/96- (4/10/96-
10/31/96) 10/31/96) 10/31/96)
-------- -------- --------
<S> <C> <C> <C>
Total Return (based on net 6.75% 4.00% 4.35%
asset value
- --------------------------------------------------------------------------------
Return From Monthly 6.65% 4.10% 3.32%
Distributions
- --------------------------------------------------------------------------------
Return From Price 0.10% -0.10% 1.03%
Depreciation/
Appreciation
- --------------------------------------------------------------------------------
Total Return of Two-Year 5.64% 3.61% 3.71%
U.S. Treasury
- --------------------------------------------------------------------------------
NAV (10/31/96) $9.83 $9.85 $9.82
- --------------------------------------------------------------------------------
NAV Change +$0.01 -$0.01 +$0.10
- --------------------------------------------------------------------------------
</TABLE>
* New share class opened during the period.
The fund performed well compared with its peers. The Institutional shares
ranked in the top 10% of short-intermediate U.S. government funds (fifth out of
88) based on total return for the 12-month period ended October 31, 1996,
according to Lipper Analytical Services, Inc. (The Administration and Service
shares were not ranked for this period because they were in existence less than
12 months. Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results.)
Portfolio Composition and Investment Strategies
The fund significantly reduced its allocation in U.S. Treasuries in favor
of collateralized mortgage obligations (CMOs), which offered more attractive
return potential according to our analysis. This strategy proved successful as
mortgage-backed securities outperformed comparable-duration Treasuries.
Portfolio Composition as of October 31, 1996*
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
<S> <C>
Repos/Cash Equivalents 1.1%
Fixed Rate Mortgage
Pass-Throughs 7.2%
U.S. Treasuries 15.8%
ARMs 19.0%
CMOs 56.9%
</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.
- --------------------------------------------------------------------------------
9
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Government Fund (continued)
- --------------------------------------------------------------------------------
. CMOs. During the period, we more than doubled the portfolio's allocation in
collateralized mortgage obligations, with most of the increase occurring from
February through April. As of October 31, 56.9% of the portfolio was invested in
CMOs, of which 24.7% were sequential-pay CMOs (up from 10.4% last year) and
17.0% were planned amortization class (PAC) CMOs (up from 1.9% last year).
These sectors were favored for their relatively stable cash flows and
incremental yields over Treasuries, and they performed well during the period.
Though the CMO sector was fairly valued relative to equal-duration Treasuries
from January through the end of the period, our extensive research enabled us to
identify specific securities that presented attractive investment opportunities.
. ARMs. Adjustable rate mortgage securities (ARMs) accounted for 19.0% of the
portfolio as of October 31, down from 23.7% last year. We focused on seasoned
securities indexed to the one-year Constant Maturity Treasury (CMT), which
offered attractive income stability and low relative prepayment risk. A high
level of mortgage refinancing adversely impacted the sector in November and
December of 1995 when rates had eased, but ARMs strengthened when rates started
to rise during the first quarter of 1996 and prepayment fears faded.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. The portfolio's
position in U.S. Treasuries was cut to 15.8%, down from 37.1% a year ago, as we
identified securities in other sectors that offered higher incremental yield. In
addition, repurchase agreements/cash equivalents were reduced to 1.1% from 4.7%
a year ago.
. Fixed Rate Mortgage Pass-Throughs. Fixed rate pass-throughs, a 7.2%
allocation, offered more attractive yield spreads than most of the other
high-credit quality fixed income sectors. During the period under review, the
technical balance of the pass-through market strengthened, with investor demand
improving as prepayments and supply slowed from the high levels experienced last
November. We continued to emphasize seasoned premium mortgages because they
typically have lower prepayment risk than recently issued mortgages.
. Issuer Composition. The breakdown of the portfolio's mortgage-backed security
holdings by issuer was 37.8% in Federal National Mortgage Association (FNMA)
issues, 36.0% in Federal Home Loan Mortgage Corporation (FHLMC) issues and 9.2%
in Government National Mortgage Association (GNMA) issues.
. Credit Quality. The fund invests exclusively in issues of the U.S. government
and its agencies or instrumentalities.
. Prudent Use of Derivatives. Sequential-pay CMOs and PAC CMOs, which are
typically considered to be lower risk derivatives, represented 24.7% and 17.0%
of the portfolio, respectively, as noted earlier. Other derivative investments
included CMO floaters (10.0%), which are securities whose coupons reset upward
as interest rates rise, and inverse floaters (3.2%), which have coupons that
reset in the opposite direction from interest rates. When floaters are held
along with inverse floaters, they can produce a position with a similar risk
profile as a fixed rate pass-through but provide a higher yield. The fund also
held a small position (1.3%) in PAC interest-only securities (IOs). We invest in
such higher risk derivatives very sparingly in an effort to enhance returns
without taking undue risk. In addition, we used futures as a tool to help manage
the portfolio's duration.
Market Outlook
In general, we have a cautiously optimistic view of the mortgage-backed
securities market in the near term. In the ARM sector, we expect spreads to
remain stable due to strong investor demand and limited supply. Given the
environment of declining rates for the past few months, we will continue to
emphasize seasoned one-year CMT
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
GS Short Duration Government Fund (continued)
- -------------------------------------------------------------------------------
ARMs due to the relative prepayment stability that these securities offer.
Though we have a neutral outlook for the CMO market, we continue to find areas
that offer attractive investment opportunities. In the mortgage pass-through
market, we believe the recent widening of yield spreads during September and
October has been somewhat overdone, but we will remain vigilant to an increase
in prepayments that may result from a further decline in interest rates. We will
continue to actively allocate the portfolio's assets among the various fixed
income sectors as their relative value changes throughout the coming year.
Distribution Policy
During the period under review, the fund's Institutional shares paid out
distributions of $0.63 per share. From their inceptions through October 31,
1996, the fund's Administration and Service shares distributed $0.39 per share
and $0.32 per share, respectively. (The Administration shares opened on February
28, 1996 and the Service shares opened on April 10, 1996.) The fund distributes
substantially all of its investment company taxable income, as required by tax
law.
We thank you for your support and look forward to continuing to meet your
investment needs in the future.
Sincerely,
/s/Jonathan A. Beinner
Jonathan A. Beinner
/s/James B. Clark
James B. Clark
Portfolio Managers
GS Short Duration Government Fund
November 29, 1996
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Short Duration Government Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Short-Term Government Fund based on the Fund's normal
minimum initial investment of $50,000, is compared to its benchmarks, the U.S.
2-Year Treasury Bill ("2-Year T-Bill") and the Lehman Brothers Mutual Fund Short
(1-3) U.S. Government Index ("Lehman Short (1-3) Gov't Index"). All performance
data shown represents past performance and should not be considered indicative
of future performance which will fluctuate as market conditions change. The
investment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Shares(a)
Institutional Shares 2-Year\r T-Bill Lehman Short (1-3)rGov't
<S> <C> <C> <C>
9/1/88 50,000 50,000 50,000
10/31/88 51,283 51,057 51,091
10/21/89 55,940 55,412 55,919
10/31/90 60,543 59,876 60,861
10/31/91 67,161 66,615 67,699
10/31/92 71,365 72,161 73,208
10/31/93 75,326 76,335 77,446
10/31/94 76,072 77,058 78,339
10/31/95 82,895 84,009 85,256
10/31/96 88,507 88,756 90,346
</TABLE>
Administration Shares
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Administration Shares 2-Year\rT-Bill Lehman Short (1-3)rGov't
<S> <C> <C> <C>
2/28/96 50,000 50,000 50,000
10/31/96 52,000 51,805 51,760
</TABLE>
Service Shares
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Service Shares 2-Year\rT-Bill Lehman Short (1-3)rGov't
<S> <C> <C> <C>
4/10/96 50,000 50,000 50,000
10/31/96 52,175 51,855 52,110
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Average Annual Total Return
-----------------------------------------------------------
One Year Five Year Since Inception(b)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional shares 6.75% 5.6% 7.24%
- --------------------------------------------------------------------------------
Administrative shares N/A N/A 4.00(c)
- --------------------------------------------------------------------------------
Service shares N/A N/A 4.35(c)
- --------------------------------------------------------------------------------
</TABLE>
/a/ For comparative purposes, initial investments are assumed to be made on the
first day of the month following the Fund's commencement of operations.
/b/ The Institutional, Administration and Service shares commenced operations
August 15, 1988, February 28, 1996 and April 10, 1996, respectively.
/c/ An aggregate total return (not annualized) is shown instead of an average
annual total return since the Administration and Service shares have not
completed a full twelve months of operations.
- --------------------------------------------------------------------------------
12
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Short Duration Government Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations--82.4%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(a)--14.2%
$ 1,208,677 6.00% 11/15/16 $ 1,198,196
1,941,838 7.54 12/01/18/(b)/ 1,994,248
8,544,958 7.73 02/01/22/(b)/ 8,913,502
2,234,941 7.56 08/01/22 2,331,334
- --------------------------------------------------------------------------------
$ 14,437,280
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage Association
(FNMA)(a)--6.2%
$ 389,769 9.00% 12/01/97 $ 402,558
2,732,146 7.80 11/01/14/(b)/ 2,849,984
3,025,230 7.48 08/01/22/(b)/ 3,093,842
- --------------------------------------------------------------------------------
$ 6,346,384
- --------------------------------------------------------------------------------
Fixed Rate Federal National Mortgage Association (GNMA)--3.5%
$ 1,093,610 6.00% 06/01/09/(b)/ $ 1,065,244
2,058,384 6.00 10/01/09/(b)/ 2,004,994
540,970 6.00 10/01/08/(b)/ 526,938
- --------------------------------------------------------------------------------
$ 3,597,176
- --------------------------------------------------------------------------------
Fixed Rate Government National Mortgage Association--3.3%
$ 3,040,068 10.00% 12/15/17/(b)/ $ 3,338,359
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations (CMOs)--55.3%
Inverse Floater(a)--5.7%
FHLMC Series 1296, Class J
$ 890,613 11.93% 07/15/99/(b)/ $ 948,502
FHLMC Series 1325, Class B
2,416,565 6.06 07/15/97/(b)/ 2,421,833
FHLMC Series 1325, Class C
1,028,325 7.56 07/15/97/(b)/ 1,034,598
FNMA Remic Trust 1991-127, Class S
144,496 12.98 09/25/98 153,084
FNMA Remic Trust, Series 1992-62, Class S
1,212,115 10.00 05/25/99 1,241,097
- --------------------------------------------------------------------------------
$ 5,799,114
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only(a)--0.3%
FHLMC Series 1684, Class JD
$ 2,801,277(c) 3.66% 08/15/20/(b)/ $ 199,759
FNMA Remic Trust 1993-110, Class SC
2,597,458(c) 3.46 04/25/19/(b)/ 126,990
- --------------------------------------------------------------------------------
$ 326,749
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------
Mortgage Backed Obligations (continued)
Collateralized Mortgage Obligations (continued)
Planned Amortization Class (PAC CMOs)--11.1%
FHLMC Series 1584, Class E
$ 3,000,000 5.75% 10/15/16/(b)/ $ 2,954,040
FNMA Remic Trust 1992-138, Class C
2,350,000 6.00 12/25/18/(b)/ 2,325,020
GNMA Remic Trust 1996-6, Class PB
6,000,000 6.50 06/16/09 6,038,400
- --------------------------------------------------------------------------------
$ 11,317,460
- --------------------------------------------------------------------------------
Planned Amortization Class Interest-Only (PAC IO) CMOs--0.6%
FHLMC Series 1552, Class JE
$ 10,552,245/(c)/ 7.00% 02/15/14/(b)/ $ 590,926
- --------------------------------------------------------------------------------
Planned Amortization Class Ioette CMOs--0.5%
FNMA Remic Trust 1992-198, Class K
$ 42,908/(c)/ 16.00% 12/25/15 $ 547,555
- --------------------------------------------------------------------------------
Regular Floater (a)--9.9%
FHLMC Series 1684, Class F
$ 5,000,000 5.75% 08/15/20/(b)/ $ 4,818,750
FHLMC Series 1684, Class JC
2,801,277 5.34 08/15/20/(b)/ 2,737,352
FNMA Remic Trust 1993-110, Class FC
2,597,459 5.54 04/25/19/(b)/ 2,565,796
- --------------------------------------------------------------------------------
$ 10,121,898
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--27.1%
FHLMC Series 1033, Class G
$ 2,000,000 8.00% 01/15/06/(b)/ $ 2,095,620
FHLMC Series 1296, Class I
2,493,715 5.24 07/15/99/(b)/ 2,481,546
FHLMC Series 174, Class Z
3,757,885 10.00 08/15/21 4,189,703
FNMA Remic Trust 1988-12, Class A
4,076,171 10.00 02/25/18/(b)/ 4,350,090
FNMA Remic Trust 1988-12, Class B
3,218,030 4.47 02/25/18/(b)/ 3,081,585
FNMA Remic Trust 1989-12, Class X
1,955,861 10.00 12/25/14/(b)/ 2,021,246
FNMA Remic Trust 1989-18, Class B
1,312,493 9.50 01/25/04 1,359,730
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Short Duration Government Fund (continued)
October 31, 1996
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations(continued)
Collateralized Mortgage Obligations(continued)
Sequential Fixed Rate CMOs (continued)
$ 4,628,657 7.75% 10/25/18 (b) $ 4,699,707
FNMA Remic Trust 1992-44, Class CA
3,000,000 12.00 08/25/20/(b)/ 3,394,800
- --------------------------------------------------------------------------------
$ 27,674,027
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 56,377,729
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $83,545,715) $ 84,096,928
- --------------------------------------------------------------------------------
U.S. Treasury Obligations--15.7%
United States Treasury Notes
$ 5,150,000 5.88% 04/30/98 $ 5,166,068
10,900,000 5.13 06/30/98/(b)/ 10,804,620
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $15,894,705) $ 15,970,688
- --------------------------------------------------------------------------------
Repurchase Agreement--1.0%
Joint Repurchase Agreement Account
$ 1,000,000 5.58% 11/01/96/(b)/ $ 1,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,000,000) $ 1,000,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $100,440,420(d)) $ 101,067,616
================================================================================
Futures contracts open at October 31, 1996 are as follows:
Number of
Contracts
Long Settlement Unrealized
Type (Short)(e) Month Gain (Loss)
- ------------------------- -------------- ------------------ ----------------
Euro Dollars 40 December 1996 $28,000
Euro Dollars 29 March 1997 34,650
Euro Dollars 37 June 1997 38,950
Euro Dollars 47 September 1997 68,625
Euro Dollars 45 December 1997 80,375
Euro Dollars 35 March 1998 25,250
Euro Dollars 20 June 1998 9,000
2 Year U.S. Treasury Notes 71 December 1996 87,859
5 Year U.S. Treasury Notes (89) December 1996 (173,203)
10 Year U.S. Treasury Notes (44) December 1996 (131,781)
20 Year U.S. Treasury Notes (7) December 1996 (34,844)
--------------
$32,881
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 826,961
Gross unrealized loss for investments in which
cost exceeds value (213,881)
- --------------------------------------------------------------------------------
Net unrealized gain $ 613,080
================================================================================
/(a)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1996.
/(b)/Portions of these securities are being segregated for futures margin
requirements.
/(c)/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.
/(d)/The aggregate cost for federal income tax purposes is $100,454,536.
/(e)/Each Euro Dollar contract represents $1,000,000 in notional par value. Each
2-Year U.S. Treasury Note contract represents $200,000 in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note, and 20-
Year U.S. Treasury Note contract represents $100,000 in notional par value.
The total notional amount and market value are $253,200,000 and
$89,469,788, respectively. The determination of notional amounts and market
value as presented here are indicative only of volume of activity and not a
measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Short Duration Tax-Free Fund seeks to provide a high level of
current income exempt from regular federal income tax, consistent with
relatively low principal volatility, through investments in municipal securities
rated single-A or better or deemed to be of comparable quality. Under normal
interest rate conditions, the fund's duration will be within one-half year of
its benchmark, the Lehman Brothers Three-Year Municipal Bond Index. The fund's
approximate interest rate sensitivity is comparable to that of a three-year
bond.
After a Weak Start, the Municipal Bond Market Strengthened
The municipal bond market outperformed Treasuries during the 12-month
period under review, though both markets came under pressure when rates rose
during the first half of 1996. The average price of a three-year municipal bond
(as calculated from data provided by Municipal Market Data, an independent
municipal market information provider) fell slightly (0.14%), while yields rose
from 4.10% on October 31, 1995 to 4.15% on October 31, 1996.
The municipal bond market began the period under review on a weak note.
Tax reform uncertainty impacted investor demand during November and December
1995, while municipal bond supply was high due to seasonably heavy year-end
issuance. The market environment improved during January and February 1996, when
fading tax reform concerns helped to revive investor interest in the sector and
issuance declined. From March through the end of the period, the market's
technical balance was generally healthy, though occasional spikes in supply
periodically overwhelmed demand and briefly impacted performance. The largest of
these surges occurred in June when supply rose to its highest level since late
1995, but subsequently both new issuance and secondary supply fell dramatically
from July through September.
On the demand side, interest in municipal bonds was generally stable until
late summer and early fall. Demand from individual investors (who control
approximately 65% of municipal bond ownership either through mutual funds or
direct investment) began to decline when interest rates declined and municipal
yields fell below the psychologically significant 6% level. In addition,
property/casualty companies (which control approximately 10% of municipal bond
ownership) also dropped out of the market because the sector had become somewhat
unattractive relative to Treasuries. The supply drought finally abated in
October when many issuers sought to take advantage of lower interest rates, and
a continued weakness in demand caused municipals to underperform taxable bonds
for the month.
Municipal Bond Yield Curve
[LINE GRAPH APPEARS HERE]
The yield curve steepened at the short end and shifted downward at the longer
end.
Performance Review
The performance of the fund's Institutional shares was in line with the
benchmark, the Lehman Brothers Three-Year Municipal Bond Index (the "Index"),
for the 12-month period ended October 31, 1996. The Administration and Service
shares also performed well, but slightly lagged the benchmark.
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary: October 31, 1995 - October 31, 1996
- --------------------------------------------------------------------------------
Lehman Brothers
Institu- Adminis- 3-Year
tional tration Service Municipal Bond Index
-------- -------- ------- ---------------------
<S> <C> <C> <C> <C>
Total Return (based on net 4.50% 4.24% 3.98% 4.51%
asset value)
- --------------------------------------------------------------------------------
Return From 4.30% 4.04% 3.78% NA
Monthly
Distributions
- --------------------------------------------------------------------------------
Return From Price 0.20% 0.20% 0.20% NA
Appreciation
- --------------------------------------------------------------------------------
NAV (as of 10/31/96) $9.96 $9.96 $9.97 NA
- --------------------------------------------------------------------------------
NAV Change +$0.02 +$0.02 +$0.02 NA
- --------------------------------------------------------------------------------
</TABLE>
The fund's positive performance during the period was primarily due to our
emphasis on higher yielding revenue bonds, as well as successful selection of
specific securities and relative value trades. 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 Treasury futures to actively manage
sector allocation.
In our search for incremental yield, we focused on three types of bonds.
The first category was relatively generic, highly liquid securities; the second
included slightly less liquid issues such as insured hospital bonds and
letter-of-credit-backed debt; and the last area was "story" bonds, such as
uninsured hospital and electric utility issues and multifamily housing revenue
bonds, whose value is often unrecognized by the market because they are unique
or generally not well understood. We identified attractive investment
opportunities for the third category through our extensive credit analysis.
We are pleased to report that the fund's Institutional shares ranked first
out of 26 funds in Lipper Analytical Services, Inc.'s short-intermediate
municipal debt category for the 12-month period ended October 31, 1996 based on
total return. (Lipper did not rank the fund's Administration and Service shares.
Please note that Lipper rankings do not take sales charges into account and that
past performance is not a guarantee of future results.) In addition, as of
October 31, 1996, the fund's Institutional shares were rated "five stars" by
Morningstar, Inc., its highest rating./1/
Portfolio Composition and Investment Strategies:
Revenue Bonds Dramatically Increased
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
General Obligations 3.0%
Variable Rate Demand Notes 4.7%
Insured General Obligations 12.6%
Insured Revenue Bonds 24.2%
Revenue Bonds 55.5%
* 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.
- ----------------------------
1 Source: (C) 1996 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 10/31/96.
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 ten-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 Institutional shares received
five stars and were rated among 1,038 municipal bond funds for the three-year
period. For the one-year period, the Institutional shares received five stars
and were rated among 1,728 municipal bond funds. 10% of the funds receive the
five-star rating. The Morningstar rating applies only to the fund's
Institutional shares; the fund's Administration and Service shares have not been
rated. Administration and Service shares are subject to additional fees that may
have the effect of lowering performance and may affect any future Morningstar
rating. Morningstar rates funds against their peers in the same category. In
all, there are five Morningstar categories (domestic equity, international
equity, fixed income, municipal and hybrid). 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.
- --------------------------------------------------------------------------------
16
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
- --------------------------------------
. Revenue Bonds. As of October 31, the portfolio's combined position in
insured and uninsured revenue bonds was significantly overweighted compared with
the Index, 79.7% versus 35.8%. We substantially increased the portfolio's total
revenue bond allocation (from 29.2% a year ago) because our emphasis on credit
analysis enabled us to identify attractive revenue bonds that offered higher
incremental yield than was available from general obligation bonds. (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. The fund's allocation in insured and
uninsured GO bonds was dramatically cut during the period to 15.6% of the
portfolio, down from 51.0% a year ago and significantly underweighted versus the
Index's 55.5%. GOs are backed by the general taxing power of a municipality and
are typically higher credit quality but lower yielding than revenue bonds.
. Variable Rate Demand Notes (VRDNs). VRDNs are high-quality cash
equivalents that we used to manage the portfolio's excess liquidity. VRDNs
were a 4.7% position, down from 10.0% a year ago.
. Pre-refunded Bonds. Over the course of the year, we trimmed the fund's
holdings in pre-refunded bonds (9.8% as of October 31, 1995). In October, we
sold the fund's remaining position in the sector in favor of revenue bonds that
offered more attractive yields.
. Duration. As of October 31, the fund's duration was in line with that of
the Index at 2.7 years.
. Credit Quality. During the year, the fund's credit quality allocations
shifted. We reduced the portfolio's allocation in triple-A-rated GOs in favor of
single-A-rated revenue bonds, which allowed us to maintain the fund's targeted
double-A-rated average credit quality and liquidity while achieving higher
overall yields. We structured the portfolio's credit-quality allocation like a
"barbell," emphasizing higher credit quality securities in the four- to five-
year maturity range and lower relative credit quality securities in the one- to
three-year maturity range. As of October 31, more than half of the portfolio was
invested in triple-A-rated bonds (52.7%), while double-A- and single-A-rated
securities accounted for 20.1% and 27.2%, respectively.
Market Outlook
We have a bullish long-term outlook for municipal bond supply, since new
money issuance (bonds issued for purposes other than refunding older debt) tends
to be stable and grows at the same rate as GDP. In addition, we do not
anticipate a significant increase in refunding unless interest rates drop
substantially. On the demand side, investor interest is likely to remain
healthy, as we believe that two to four more years of divided government (a
Democratic president and a Republican-controlled Congress) should avert any
significant tax reform that would threaten municipal bonds' tax-exempt status.
Distribution Policy
Dividends are declared daily and paid on a monthly basis. During the
12-month period ended October 31, 1996, the fund's Institutional, Administration
and Service shares paid out monthly distributions totaling approximately $0.42,
$0.39 and $0.37 per share, respectively. The fund intends to distribute
substantially all of its investment company tax-exempt income, as required by
tax law.
- --------------------------------------------------------------------------------
17
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
- --------------------------------------------------------------------------------
We value your continued confidence in the GS Short Duration Tax-Free Fund
and 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
GS Short Duration Tax-Free Fund
November 29, 1996
- --------------------------------------------------------------------------------
18
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Short Duration Tax-Free Fund based on the Fund's normal
minimum initial investment of $50,000, is compared to its benchmark, the Lehman
Brothers 3-Year Municipal Bond Index ("3-Year Bond Index"). All performance data
shown represents past performance and should not be considered indicative of
future performance which will fluctuate as market conditions change. The
investment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT/(a)/
[GRAPH APPEARS HERE]
Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares 3yr Bond Index
- --------------------------------------------------------------------------------
<S> <C> <C>
10/1/92 50000 50000
- --------------------------------------------------------------------------------
10/31/92 49830 49805
- --------------------------------------------------------------------------------
10/31/93 53333 53102
- --------------------------------------------------------------------------------
10/31/94 53424 53825
- --------------------------------------------------------------------------------
10/31/95 56618 58023
- --------------------------------------------------------------------------------
10/31/96 59172 60646
- --------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
Administration Shares
<TABLE>
<CAPTION>
Admin 3yr Bond Index
- --------------------------------------------------------------------------------
<S> <C> <C>
6/1/93 50000 50000
- --------------------------------------------------------------------------------
10/31/93 51088 51144
- --------------------------------------------------------------------------------
10/31/94 51031 51840
- --------------------------------------------------------------------------------
10/31/95 53971 55884
- --------------------------------------------------------------------------------
10/31/96 56265 58410
- --------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
Service Shares
<TABLE>
<CAPTION>
Service 3yr Bond Index
- --------------------------------------------------------------------------------
<S> <C> <C>
10/1/94 50000 50000
- --------------------------------------------------------------------------------
10/31/94 49810 49880
- --------------------------------------------------------------------------------
10/31/95 52594 53771
- --------------------------------------------------------------------------------
10/31/96 54693 56201
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
Average Annual Total Return
------------------------------------
One Year Since Inception/(b)/
-----------------------------------------------------------
<S> <C> <C>
Institutional Shares 4.50% 4.21%
-----------------------------------------------------------
Administration Shares 4.24% 3.51%
-----------------------------------------------------------
Service Shares 3.98% 4.36%
-----------------------------------------------------------
</TABLE>
/(a)/For comparative purposes, initial investments are assumed to be made on the
first day of the month following the commencement of operations of the
Administration and Service share classes.
/(b)/The Institutional, Administration and Service shares commenced operations
October 1, 1992, May 20, 1993 and September 20, 1994, respectively.
- --------------------------------------------------------------------------------
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligation--98.2%
Alabama--2.8%
Selma, AL IDA for International Paper Co. PCRB (A-/A3)
$1,000,000 4.15% 07/15/08 $1,000,000
- --------------------------------------------------------------------------------
Arkansas--3.8%
West Memphis, AR Public Utility System RB (MBIA) (NR/Aaa)
$1,310,000 5.25%(e) 12/01/00 $1,344,388
- --------------------------------------------------------------------------------
Colorado--4.2%
Municipal Sub District of Northern Colorado Water Conservation Co.
RB(AMBAC)(AAA/Aaa)
$1,435,000 5.75% 12/01/01 $1,508,845
- --------------------------------------------------------------------------------
Connecticut--4.3%
Connecticut State Resource Recovery Authority Series A RB (AA-/NR)
$1,500,000 5.60% 11/15/99 $1,546,185
- --------------------------------------------------------------------------------
Illinois--4.4%
Chicago, IL GO (MBIA) (AA/Aaa)
$1,500,000 5.40% 10/31/00 $1,547,670
- --------------------------------------------------------------------------------
Kentucky--7.5%
Jefferson County, KY Trust Certificates (A+/NR)RB
$1,145,000 5.25% 03/01/99 $1,163,904
Pendleton County, KY LOC (Self Insurance)(NR/VMIG1)
1,500,000 4.25 07/01/01 1,503,045
- --------------------------------------------------------------------------------
$2,666,949
- --------------------------------------------------------------------------------
Louisiana--7.4%
Louisiana Offshore Deepwater Part Authority Term B RB (A/Baa1)
$1,000,000 5.85% 09/01/00 $1,040,080
Louisiana State Refunding RB, Series A GO (FGIC) (AAA/Aaa)
1,500,000 6.00 08/01/01 1,583,970
- --------------------------------------------------------------------------------
$2,624,050
- --------------------------------------------------------------------------------
New Jersey--4.0%
West Windsor/Plainsboro, NJ Regional School District (FGIC)
(AAA/Aaa)
$1,400,000 5.25% 12/01/99 $1,436,750
- --------------------------------------------------------------------------------
New York--6.8%
Municipal Assistance Corp. Refunding RB (AMBAC) (AAA/Aaa)
$1,000,000 6.00% 07/01/00 $1,051,690
Syracuse, NY IDA RB (AA/NR)
$1,365,000 4.60% 10/15/98 $1,369,491
- --------------------------------------------------------------------------------
$2,421,181
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oklahoma--13.5%
Enid, OK Hospital Authority RB (Societe Generale LOC) (NR/Aa2)
$2,700,000 6.63%(a) 10/01/15 $2,747,115
Southern Oklahoma Memorial Hospital RB(b) (A/A)
2,000,000 5.60 02/01/00 2,043,680
- -------------------------------------------------------------------------------
$4,790,795
- -------------------------------------------------------------------------------
Oregon--4.2%
Klamath Falls, OR Salt Caves Hydroelectic RB (SP1+/NR)
$1,500,000 4.50% 05/01/23 $1,507,980
- -------------------------------------------------------------------------------
Pennsylvania--9.7%
Pennsylvania Intergovernmental Cooperative Authority Special Tax RB
(FGIC) (AAA/Aaa)
$1,500,000 5.75% 06/15/00 $1,559,730
Philadelphia, PA Gas Works COPS (FSA) (AAA/Aaa)
1,800,000 5.95 04/01/00 1,879,146
- --------------------------------------------------------------------------------
$3,438,876
- --------------------------------------------------------------------------------
Texas--11.4%
Bexar County, TX MFH Finance Corp. RB (CFMG) (NR/A3)
$1,500,000 4.88% 11/01/04 $1,502,220
Houston, TX Water & Sewer RB Series B (A/A)
1,430,000 5.25 12/01/99 1,460,802
Port Neches, TX Independent School District GO (AAA/Aaa)
1,000,000 7.00 02/15/01 1,092,480
- -------------------------------------------------------------------------------
$4,055,502
- -------------------------------------------------------------------------------
Virginia--5.0%
Petersburg, VA Hospital Authority RB (NR/A)
$1,760,000 5.50% 07/01/99 $1,798,157
- -------------------------------------------------------------------------------
Washington--4.6%
Washington State Public Power Supply System RB, Series B (AA-/Aa1)
$1,500,000 7.20% 07/01/02 $1,623,044
- -------------------------------------------------------------------------------
Wyoming--4.6%
Uinta County, WY School District GO, Series A (FSA) (AAA/Aaa)
$1,500,000 6.88% 06/01/00 $1,620,390
- -------------------------------------------------------------------------------
Total Debt Obligations
(Cost $34,727,338) $34,930,762
===============================================================================
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Short-Term Obligations--4.5%
Illinois--0.6%
Illinois Development Finance Authority RB (AA+/A-1)/(c)/
$200,000 3.55% 01/1/96 $200,000
Louisiana--3.9%
East Baton Rouge Parish PCRB (AAA/Aaa)/(c)/
$1,400,000 3.60% 11/1/96 $1,400,000
- --------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $1,600,000) $ 1,600,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $36,328,338)/(d)/ $36,530,762
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 204,715
Gross unrealized loss for investments in which
cost exceeds value (2,291)
- --------------------------------------------------------------------------------
Net unrealized gain $ 202,424
================================================================================
</TABLE>
/(a)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1996.
/(b)/Portions of these securities are being segregated for when-issued
securities.
/(c)/Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next reset interest dates.
/(d)/The amount stated also represents aggregate cost for federal income tax
purposes.
/(e)/When-issued securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
================================================================================
Investment Abbreviations:
AMBAC --Insured by American Municipal Bond Assurance Corp.
CFMG --Credit Lyonnais Line of Credit
COPS --Certificates of Participation
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
NR --Not Rated
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Core Fixed Income Fund seeks to achieve a total return consisting of
capital appreciation and income that exceeds the total return of its benchmark,
the Lehman Brothers Aggregate Bond Index (the "Index"), through a diversified
portfolio of fixed income securities. The fund may invest in U.S. Treasury,
agency, corporate, mortgage-backed and asset-backed securities, as well as in a
limited amount of non-dollar-denominated fixed income securities. While the
fund's performance will be measured against the Index, the portfolio is not
required to hold the same securities or match the sector weightings of the
Index. Every security in the portfolio must be rated at least investment grade
by an independent rating agency or be considered to be of equivalent quality by
Goldman Sachs Asset Management at the time it is purchased. The fund's
approximate interest rate sensitivity is expected to be comparable to that of a
five-year bond.
Performance Review
During the period under review, the fund's Institutional shares outperformed
the Index. The strong performance was primarily due to its investments in
corporate bonds and emerging market debt. In addition, the fund also benefited
from its mortgage-backed and asset-backed holdings when both sectors
strengthened during the period.
The fund fared well relative to its peers. For the 12-month period ended
October 31, 1996, the fund's Institutional shares ranked in the top quartile
(24th out of 96 funds) in Lipper Analytical Services, Inc.'s "corporate debt -
BBB-rated" category based on total return. (Lipper did not rank the fund's
Administration and Service shares for the period because they were in existence
less than 12 months. Please note that Lipper rankings do not take sales charges
into account and that past performance is not a guarantee of future results.)
The fund's Administration and Service shares, which began operations on
February 28, 1996 and March 13, 1996, respectively, achieved positive returns
since their inceptions.
During the period, the net asset value (NAV) of the fund's Institutional
shares fell $0.15 due to the sharp rise in interest rates during the first half
of 1996. Reflecting the fact that rates had already risen significantly, the NAV
of the fund's Administration shares (which opened in February) also declined but
not as significantly, while the NAV of the fund's Service shares (which opened
in March) rose $0.09.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Performance Summary
- -------------------------------------------------------------------------------
Institutional Administration* Service*
(10/31/95- (2/28/96- (3/13/96-
10/31/96) 10/31/96) 10/31/96)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return (based on 5.98% 3.56% 4.90%
net asset value)
- -------------------------------------------------------------------------------
Return From Monthly 7.48% 4.27% 3.98%
Distributions
- -------------------------------------------------------------------------------
Return From Price -1.50% -0.71% 0.92%
Depreciation/
Appreciation
- -------------------------------------------------------------------------------
Total Return of Lehman 5.83% 3.74% 4.94%
Brothers Aggregate
Bond Index
- -------------------------------------------------------------------------------
NAV (as of 10/31/96) $9.85 $9.84 $9.86
- -------------------------------------------------------------------------------
NAV Change -$0.15 -$0.07 +$0.09
- -------------------------------------------------------------------------------
</TABLE>
*New share class opened during the period.
Portfolio Composition and Investment Strategies
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
Corporate Bonds 26.6%
Fixed Rate Mortgage Pass-Throughs 23.9%
U.S. Treasuries 19.5%
ABSs 12.5%
CMOs 9.8%
Emerging Market Debt 4.5%
Repos/Cash Equivalents 1.7%
Agency Debentures 1.5%
* 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.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- --------------------------------------------------------------------------------
. Corporate Bonds. As of October 31, the fund's largest allocation was in
corporate bonds, overweighted relative to the Index (26.6% versus 17.6%),
which significantly benefited performance. Though corporate bonds began the
period on a weak note due to the economic slowdown during November and December,
the sector improved dramatically when companies reported positive earnings
growth from January 1996 through the end of the period. Within the sector, we
stressed industrial and financial issues. Industrials performed well due to the
strengthening economy, while financials benefited from the relatively steep
yield curve, which enabled issuers to borrow at lower, short-term rates and lend
at higher, long-term rates.
. Fixed Rate Mortgage Pass-Throughs. Fixed rate mortgage pass-throughs, a
23.9% position as of October 31, were underweighted compared with the Index
(29.7%), with the remainder of the fund's mortgage-backed security allocation
invested in collateralized mortgage obligations (CMOs). We emphasized seasoned
premium mortgages, which have lower prepayment risk than recently issued
mortgages. The sector suffered from high prepayments during November and
December 1995, but conditions improved when interest rates rose sharply during
the first half of 1996 and prepayments declined. Over the course of the year,
these securities positively contributed to the fund's performance.
During the period, we occasionally used mortgage dollar rolls 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 high-grade liquid debt securities equal to the dollar amount of
the forward commitment in a segregated account with the fund's custodian.
. CMOs. During the period, we increased the portfolio's CMO allocation to
9.8%, up from 2.0% a year earlier. Within the sector, we initiated a
position in sequential-pay/support CMOs (5.1% as of October 31) and increased
the portfolio's position in planned amortization class (PAC) CMOs to 3.5% from
0.9%. These securities were favored for their relative stability and attractive
spreads compared with Treasuries, and they benefited performance during the
period. The remaining CMO positions were inverse floaters, discussed below.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. The fund's
allocation in U.S. Treasuries was reduced to 19.5% from 24.7% a year ago. We
significantly underweighted Treasuries relative to the benchmark (45.2%) to
focus on other sectors that offered more attractive relative value. In addition,
repurchase agreements/cash equivalents accounted for 1.7% of the portfolio, up
from 0.4% a year ago.
. Asset-Backed Securities (ABSs). We increased the fund's allocation in ABSs to
12.5%, up from 9.9% a year ago. The ABS position consisted of short-term,
high-credit-quality issues primarily backed by credit card loans, as well as
smaller positions in automobile loan debt and other receivables, that offered
incremental yield over similar-duration Treasuries. When the period under review
began, the ABS market was weak due to uncertainty regarding credit card
delinquencies, but those concerns waned and the sector strengthened from January
through October. The supply of ABSs was robust during the period, with a wide
variety of innovative new issues across a range of maturities, collateral types
and structures. Despite the increased issuance, the technical balance of the ABS
market remained favorable due to heavy investor demand from foreign banks,
insurance companies and an increasing number of corporate "crossover" accounts.
- --------------------------------------------------------------------------------
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- --------------------------------------------------------------------------------
. Emerging Market Debt. The portfolio's investments in emerging market debt
(4.5%) performed extremely well during the period. We carefully managed the
fund's exposure in the sector by stressing higher credit-quality, short-duration
bonds. Geographically, we emphasized Latin American countries because we believe
this region has the best risk/reward characteristics. During the period, we
focused on bonds from Chile, Colombia and the Andean region development bank. We
also initiated a new position in investment-grade Mexican bonds.
. Agency Debentures. Agency debentures, a small position (1.5%), added to the
portfolio's diversification and contributed incremental yield. However, we
underweighted the sector relative to the Index (6.5%) because our analysis
indicated that it did not adequately compensate us given its level of risk.
. Duration. As of October 31, the fund's duration matched that of the Index at
4.7 years. Rather than attempting to predict the direction of interest rates, we
manage the fund's duration to approximate that of the Index, partly through the
use of financial futures. We seek to add incremental return over the Index
through sector weighting and individual security selection.
. Credit Quality. More than half of the portfolio was invested in government
and agency securities (51 .1%), with another 12.6% invested in triple-A-rated
securities. The remainder of the portfolio was made up of double-A-rated
securities (2.7%), single-A-rated securities (12.5%), triple-B-rated
securities (19.4%) and cash equivalents
(1.7%).
. Prudent Use of Derivatives. As noted, the portfolio held positions in asset-
backed securities (12.5%), sequential-pay/support CMOs (5.1%) and PAC CMOs
(3.5%), which are all typically considered to be lower risk derivatives. In
addition, we held a 1.2% position in inverse floaters, which are securities
whose coupons reset in the opposite direction from interest rate movements.
These securities performed well during the period, offering incremental yield
over Treasuries.
Market Outlook
We are somewhat cautious on the corporate bond sector as it has become
expensive relative to Treasuries, but expect the sector to continue to benefit
from strong technical and fundamental factors. We intend to continue to
overweight industrial and financial issues and underweight utilities due to
their regulatory and competitive pressures. In the mortgage pass-through market,
certain segments are attractively valued, and we believe that our current
seasoned holdings should fare well relative to other sectors if interest rates
were to continue to fall and increase the level of prepayments. We are
cautiously optimistic on the ABS market, where we expect the sector's
significant spread premiums relative to comparably rated corporate securities to
continue to buoy investor demand. In addition, Fed surveys indicate that banks
have been tightening their underwriting standards over the last three quarters,
which should help to allay lingering investor concerns surrounding consumer
credit card delinquencies. Finally, we remain optimistic on the prospects for
the relative performance of emerging market debt, which continues to offer good
value compared with other asset classes. Overall, the economic trends in
emerging markets appear to be headed in the right direction and the
globalization of financial markets is likely to increase investor interest in
the sector. During the coming year, we will continue to actively allocate the
portfolio's assets among the various fixed income sectors as their relative
value changes.
Distribution Policy
During the 12-month period under review, the fund's Institutional shares
distributed $0.72 per share. From their inceptions through October 31, the
fund's Administration and Service shares paid out $0.41 and $0.38 per share,
respectively. (The Administration shares' inception date was on February 28,
1996, and the Service shares' inception date was on March 13, 1996.) Dividends
are
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- --------------------------------------------------------------------------------
declared daily and paid on a monthly basis. As required by tax law, the fund
distributes substantially all of its investment company taxable income.
In closing, we appreciate your investment and look forward to serving you in
the future.
Sincerely,
/s/ Jonathan A Beinner
Jonathan A Beinner
/s/ Richard H. Buckholz
Richard H. Buckholz
/s/ C. Richard Lucy
C. Richard Lucy
/s/ Stephen R. Warren
Stephen R. Warren
Portfolio Managers
GS Core Fixed Income Fund
November 29, 1996
- --------------------------------------------------------------------------------
25
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund
- --------------------------------------------------------------------------------
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Core Fixed Income Fund based on the Fund's normal minimum
initial investment of $50,000, is compared to its benchmark, the Lehman Brothers
Aggregate Bond Index ("Lehman Aggregate Index"). All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate as market conditions change. The investment
return and principal value of an investment will fluctuate with changes in
market conditions so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
Institutional Shares/(a)/ Administration Shares Service Shares
1/5/94 50000 2/28/96 50000 3/13/96 50000
10/31/94 48500 10/31/96 51780 10/31/96 52450
10/31/95 56124
10/31/96 59492
Lehman Aggregate Index Lehman Aggregate Index Lehman Aggregate Index
1/5/94 50000 2/28/96 50000 3/13/96 50000
10/31/94 46980 10/31/96 51870 10/31/96 52470
10/31/95 54332
10/31/96 57505
<TABLE>
<CAPTION>
------------------------ -----------------------------------------------------
Average Annual Total Return
------------------------ -----------------------------------------------------
One Year Since Inception/(a)/
<S> <C> <C>
------------------------ ---------------------------- ------------------------
Institutional Shares 5.98% 6.34%
------------------------ ---------------------------- ------------------------
Administration Shares N/A 3.56/(b)/
------------------------ ---------------------------- ------------------------
Service Shares N/A 4.90/(b)/
------------------------ ---------------------------- ------------------------
</TABLE>
(a) The Institutional, Administration and Service shares commenced operations
January 5, 1994, February 28, 1996 and March 13, 1996, respectively
(b) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Administration and Service shares have not
completed a full twelve months of operations.
- --------------------------------------------------------------------------------
26
<PAGE>
Statement of Investments
- ---------------------------------------------------------------------
GS Core Fixed Income Fund
October 31, 1996
- ---------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
=====================================================================
Corporate Bonds--26.8%
Finance Bonds--12.6%
BankAmerica Corp.
$ 20,000 6.03% 05/17/99 $ 201,724
Bear Stearns Mortgage Securities, Inc.
2,045,784 6.50 03/28/09 1,903,048
Capital One Bank
600,000 8.63 01/15/97 603,000
500,000 8.13 02/27/98 511,610
Comdisco Inc.
950,000 9.75 01/15/97 956,717
200,000 7.33 03/06/97 201,112
Conseco Inc.
340,000 10.50 12/15/04 402,688
Continental Bank N.A.
525,000 11.25 07/01/01 565,971
Countrywide Funding Corp.
125,000 6.08 07/14/99 124,166
250,000 8.43 11/16/99 263,653
250,000 7.75 08/10/01 259,800
Ford Capital Corp.
200,000 9.38 01/01/98 207,584
300,000 9.50 07/01/01 333,960
General Motors Acceptance Corp.
275,000 7.63 03/09/98 281,064
200,000 7.13 05/10/00 204,238
375,000 9.63 12/15/01 422,483
Meditrust, Inc.
240,000 7.82 09/10/26 258,144
Security Pacific Corp.
995,000 11.50 11/15/00 1,268,429
Signet Banking Corp.
240,000 9.63 06/01/99 257,527
Washington Real Estate Corp.
120,000 7.13 08/13/03 120,307
- ---------------------------------------------------------------------
$ 9,247,225
- ---------------------------------------------------------------------
Industrial Bonds--13.7%
360 Communications Co.
$ 525,000 7.13% 03/01/03 $ 520,312
Auburn Hills Trust
210,000 12.00 05/01/20 316,730
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
=====================================================================
Corporate Bonds (continued)
Industrial Bonds (continued)
Cablevision Industries Corp.
$ 150,000 10.75% 01/30/02 $ 162,534
Continental Airlines, Inc.
349,679 7.75 07/02/14 364,513
569,776 8.56 07/02/14 620,880
Ford Holdings, Inc.
300,000 9.25 03/01/00 325,581
Mitchell Energy & Development Corp.
400,000 8.00 07/15/99 410,020
News America Holdings, Inc.
350,000 9.13 10/15/99 375,340
150,000 7.50 03/01/00 154,083
Northwest Airlines Corp.
167,795 8.26 03/10/06 179,500
575,000 8.97 01/02/15 605,573
RJR Nabisco Inc.
175,000 8.00 07/15/01 175,334
450,000 8.63 12/01/02 456,467
Tele-Communications, Inc.
50,000 6.46 03/06/00 49,465
300,000 8.25 01/15/03 296,652
1,135,000 6.27 09/15/03 1,132,764
Tenneco Inc.
1,175,000 10.00 08/01/98 1,249,178
Time Warner, Inc.
1,650,000 7.95 02/01/00 1,708,410
400,000 7.98 08/15/04 409,452
U.S. Air Inc.
560,072 6.76 04/15/08 547,711
- ---------------------------------------------------------------------
$10,060,499
- ---------------------------------------------------------------------
Utility Bonds--0.5%
Central Maine Power Co.
$ 330,000 7.45% 08/30/99 $ 329,248
- ---------------------------------------------------------------------
$ 329,248
- ---------------------------------------------------------------------
Total Corporate Bonds
(Cost $19,435,482) $19,636,972
- ---------------------------------------------------------------------
Asset-Backed Securities--12.2%
Airplanes Pass Through Trust Series 1, Class C
$ 155,000 8.15% 03/15/19 $ 159,816
- ---------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
27
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C> <C>
Asset-Backed Securities (continued)
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
$ 232,121 5.80% 06/15/02 $ 231,466
Discover Card Master Trust, Series 1996-4, Class A
1,910,000 5.76 10/16/13 1,926,101
Discover Card Master Trust, Series 1996-4, Class B
1,100,000 5.93 10/16/13 1,100,000
General Motors Acceptance Corp. Series 1995, Class A
99,367 7.15 03/15/00 100,546
Navistar Financial Corp. Owner Trust, Series 1995-A, Class A2
291,994 6.55 11/20/01 293,725
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
314,669 6.85 06/15/01 318,757
Premier Auto Trust Series 1995-1, Class A4
360,000 7.85 09/04/98 362,023
Premier Auto Trust Series 1995-1, Class A5
80,000 7.90 05/04/99 81,150
Sears Credit Account Master Trust, Series 1996-1, Class A
680,000 6.20 02/16/06 675,750
Sears Credit Account Master Trust, Series 1995-2, Class A
550,000 8.10 06/15/04 577,500
Sears Credit Card Master Trust, Series 1995-3, Class A
300,000 7.00 10/15/04 306,561
Standard Credit Card Trust, Series 1990-3, Class A
1,120,000 9.50 07/10/98 1,140,294
Standard Credit Card Trust, Series 1990-6, Class B
900,000 9.63 09/10/98 924,183
Standard Credit Card Trust, Series 1994-4, Class A
680,000 8.25 11/07/03 726,111
- --------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $8,987,847) $8,923,983
- --------------------------------------------------------------------------------
Emerging Market Debt--3.9%
Bancoldex
$ 160,000 8.63% 06/02/00 $ 164,731
Corp. Andina de Fomento
200,000 7.25 04/30/98 202,294
40,000 8.38 07/29/01 40,698
Empresa Col Petroleos
900,000 7.25 07/08/98 904,563
Financiera Energy Nacional
530,000 6.63 12/13/96 534,400
160,000 9.38 06/15/06 165,234
- --------------------------------------------------------------------------------
Emerging Market Debt (continued)
Instituto de Fomento Industrial
$ 80,000 8.38% 07/29/01 $ 81,397
Korea Electric Power
266,952 7.40 04/01/16 269,197
YPF Sociedad Anonima
456,886 7.50 10/26/02 463,036
- --------------------------------------------------------------------------------
Total Emerging Market Debt
(Cost $2,799,425) $2,825,550
- --------------------------------------------------------------------------------
Government Bonds--0.9%
Province of Quebec
$ 520,000 13.25% 09/15/14 $ 630,058
- --------------------------------------------------------------------------------
Total Government Bonds
(Cost $653,628) $ 630,058
- --------------------------------------------------------------------------------
Mortgage Backed Obligations--31.1%
Federal Home Loan Mortgage Corp. (FHLMC((b)
$4,500,000 7.50% TBA-30 Yr(b) $4,515,435
1,208,677 6.00 TBA-30 Yr(b) 1,198,196
Federal National Mortgage Association (FNMA)
1,000,000 7.00 TBA-30 Yr(b) 980,930
1,000,000 8.00 11/15/16 1,020,000
126,229 8.50 06/01/06 131,790
125,861 8.50 09/01/06 131,406
720,814 8.50 03/01/10 752,213
500,000 6.25 07/25/18 492,810
989,360 7.00 02/01/26 970,493
1,000,001 8.50 07/01/26 1,034,681
FNMA Remic Trust, Series 1993-201G
1,000,000 3.50 05/25/19 871,560
GE Capital Mortgage Services, Inc. Series 1994-17, Class A10
2,000,000 7.00 05/25/24 1,842,500
Government National Mortgage Association (GNMA)
1,000,000 7.00 TBA-30 Yr(b) 980,620
1,000,000 7.50 TBA-30 Yr(b) 1,003,120
3,000,000 8.00 TBA-30 Yr(b) 3,067,500
1,000,000 8.50 TBA-30 Yr(b) 1,038,120
342,966 8.00 02/15/17 356,042
850,876 7.50 03/15/23 857,785
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
- ----------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
======================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations(continued)
Government National Mortgage Association (GNMA)--(continued)
$ 512,583 7.00% 08/15/23 $ 505,699
124,369 7.50 08/15/23 125,379
Prudential Home Mortgage Securities Corp., Series 1992-39 A8
1,000,000 7.74 12/25/07 892,270
- ----------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $22,482,170) $22,768,549
- ----------------------------------------------------------------------
Sovereign Credit--1.3%
United Mexican States
$ 650,000 7.69% 08/06/01 $ 658,769
State of Israel
300,000 6.38 12/15/05 286,611
- ----------------------------------------------------------------------
Total Sovereign Credit
(Cost $926,260) $ 945,380
- ----------------------------------------------------------------------
U.S. Government Agency Obligations--1.5%
Federal Home Loan Mortgage Corp. (FHLMC)
$ 300,000 8.20% 01/16/98 $ 301,734
250,000 6.83 09/18/02 249,023
Resolution Funding Corp. Principal-Only Stripped Securities/(c)/
1,790,000 7.08 10/15/20 335,392
1,140,000 7.08 01/15/21 210,136
- ----------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $1,058,170) $ 1,096,285
- ----------------------------------------------------------------------
U.S. Treasury Obligations--19.3%
United States Treasury Bonds
$ 3,900,000 8.75% 05/15/17 $ 4,772,625
30,000 8.88 08/15/17 37,153
150,000 8.75 08/15/20 185,180
120,000 7.88 02/15/21 135,900
United States Treasury Interest-Only Stripped Securities/(d)/
2,250,000 6.69 08/15/09 968,063
350,000 6.75 11/15/10 137,736
United States Treasury Notes
1,200,000 5.88 04/30/98 1,203,744
3,250,000 6.88 08/31/99 3,331,250
100,000 6.13 07/31/00 100,375
2,090,000 7.88 11/15/04 2,293,775
United States Treasury Principal-Only Stripped Securities/(c)/
40,000 5.54 11/15/97 37,792
590,000 6.41 11/15/04 354,885
2,920,000 6.95 05/15/20 581,460
- ----------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $13,792,338) $14,139,938
- ----------------------------------------------------------------------
Repurchase Agreements--19.0%
Joint Repurchase Agreement Account/(a)/
$ 13,900,000 5.58% 11/01/96 $13,900,000
- ----------------------------------------------------------------------
Total Repurchase Agreements
(Cost $13,900,000) $13,900,000
- ----------------------------------------------------------------------
Total Investments
(Cost $84,035,320/(e)/) $84,866,715
======================================================================
</TABLE>
Futures contracts open at October 31, 1996 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long (f) Month Gain
- ------------------------- ------------ --------------- ------------
<S> <C> <C> <C>
Euro Dollars 5 December 1996 $5,125
Euro Dollars 5 March 1997 6,875
Euro Dollars 3 September 1997 825
Euro Dollars 5 June 1997 7,500
Euro Dollars 5 June 1998 3,625
5-Year U.S. Treasury
Notes 7 December 1996 8,641
10-Year U.S. Treasury
Notes 18 December 1996 65,625
=====================================================================
$98,216
-----------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 993,383
Gross unrealized loss for investments in
which cost exceeds value (243,229)
=====================================================================
Net unrealized gain $ 750,154
- ---------------------------------------------------------------------
</TABLE>
/(a)/Portions of these securities are being segregated for open TBA purchases,
mortgage dollar rolls and futures.
/(b)/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.
/(c)/The interest rate disclosed for these securities represents effective
yields to maturity.
/(d)/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.
/(e)/The aggregate cost for federal income tax purposes is $84,116,561.
/(f)/Each Euro Dollar contract represents $1,000,000 in notional par value. Each
5-Year U.S. Treasury Note and, 10-Year U.S. Treasury Note contract
represents $100,000 in notional par value. The total notional amount and
market value are $25,500,000 and $8,144,325, respectively. The
determination of notional amounts and market value as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short GS Short GS Core
Rate Duration Duration Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
==============================================================
<S> <C> <C> <C> <C>
Assets:
Investments in securities, at value (cost $618,544,961, $100,440,420,
$36,328,338 and $84,035,320, respectively) $617,783,125 $1O1,067,616 $36,530,762 $84,866,715
Receivables:
Investment securities sold 9,023,710 -- 2,639,947 4,512,122
Interest 6,238,391 962,570 560,207 981,011
Fund shares sold 93,534 9,761 48,407
Variation margin -- -- -- 5,475
Cash 23,482 85,863 133,870 70,206
Deferred organization expenses, net -- -- 20,748 53,352
Other assets 186,057 127,499 66,001 66,089
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 633,348,299 102,253,309 39,999,942 90,554,970
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Dividends 1,479,757 109,402 20,960 23,483
Investment securities purchased 3,134,490 -- 4,336,434 17,313,687
Fund shares repurchased 732,405 55,958 20,916 6,846
Variation margin 20,125 256 -- --
Investment adviser fees 210,539 34,534 11,033 22,677
Transfer agent fees 46,181 -- 5,254 3,058
Authorized dealer service fees 1,675 -- -- --
Accrued expenses and other liabilities 54,249 35,598 48,693 40,800
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,679,421 235,748 4,443,290 17,410,551
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid in capital 680,810,713 115,128,671 39,403,964 72,421,889
Accumulated undistributed (distributions in excess of) net
investment income (3,441,783) 770,624 90,133 33,551
Accumulated net realized loss on investment and futures
transactions (49,082,170) (14,541,811) (4,139,869) (240,632)
Net unrealized gain (loss) on investments and futures (617,882) 660,077 202,424 929,611
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $627,668,878 $102,017,561 $35,556,652 $73,144,419
===================================================================================================================================
Net asset value, offering and redemption price per share
Institutional shares $9.83 $9.83 $9.96 $9.85
Administration shares $9.83 $9.85 $9.96 $9.84
Service shares -- $9.82 $9.97 $9.86
Class A shares(a) $9.83 -- -- --
===================================================================================================================================
Shares Outstanding:
Institutional shares 62,407,407 10,168,881 3,494,408 7,312,322
Administration shares 385,738 25,537 4,845 71,240
Service shares -- 185,492 69,696 38,782
Class A shares 1,091,335 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total shares of beneficial interest outstanding, $.001 par value
(unlimited number of shares authorized) 63,884,480 10,379,910 3,568,949 7,422,344
===================================================================================================================================
</TABLE>
(a) Maximum public offering price per share (NAV per share x 1.0152) for Class A
shares of GS Adjustable Rate Government Fund is $9.97
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Operations
October 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GS Adjustable GS Short GS Short GS Core
Rate Duration Duration Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
==========================================================
<S> <C> <C> <C> <C>
Investment income:
Interest, net (a) $39,925,070 $7,068,555 $1,979,825 $4,292,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 39,925,070 7,068,555 1,979,825 4,292,039
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment adviser fees 2,535,709 514,200 169,796 246,568
Distribution fees 30,905 -- -- --
Authorized dealer service fees 30,905 -- -- --
Administration share fees 9,833 107 129 751
Service share fees -- 1,222 2,322 422
Transfer agent fees 278,337 -- 16,980 24,657
Custodian fees 136,975 66,180 53,929 81,841
Professional fees 86,751 56,020 54,712 53,340
Registration fees 72,001 37,210 44,701 48,435
Amortization of deferred organization expenses 20,848 -- 22,735 24,562
Trustees' fees 1,899 1,287 760 915
Other 106,857 59,952 65,554 30,136
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,311,020 736,178 431,618 511,627
Less--Expenses reimbursable and fees waived by Goldman Sachs (417,768) (272,069) (238,097) (233,065)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 2,893,252 464,109 193,521 278,562
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 37,031,818 6,604,446 1,786,304 4,013,477
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and
futures transactions:
Net realized gain (loss) from:
Investment transactions (310,326) (222,458) 367,144 (108,070)
Futures transactions (2,192,298) (345,361) (35,506) (145,350)
Net change in unrealized gain (loss) on:
Investments 6,892,986 661,003 (396,071) (192,910)
Futures 818,120 (41,385) -- 117,560
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment and futures
transactions 5,208,482 51,799 (64,433) (328,770)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $42,240,300 $ 6,656,245 $ 1,721,871 $3,684,707
====================================================================================================================================
(a) Net of $1,314 in foreign withholding tax for the Core Fixed Income Fund.
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
October 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
GS Adjustable GS Short GS Short GS Core
Rate Duration Duration Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
----------------------------------------------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 37,031,818 $6,604,446 $1,786,304 $4,013,477
Net realized gain (loss) from investment and futures transactions (2,502,624) (567,819) 331,638 (253,420)
Net change in unrealized gain (loss) on investments and futures 7,711,106 619,618 (396,071) (75,350)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 42,240,300 6,656,245 1,721,871 3,684,707
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (36,233,589) (6,561,519) (1,766,892) (4,019,797)
Administration shares (220,450) (2,548) (2,032) (19,144)
Service shares -- (14,792) (17,380) (5,349)
Class A shares (577,779) -- -- --
In excess of net investment income
Institutional shares (1,304,006) -- -- --
Administration shares (7,930) -- -- --
Class A shares (20,794) -- -- --
Net realized gain (loss) on investment, and future transactions
Institutional shares -- -- -- (450,016)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (38,364,548) (6,578,859) (1,786,304) (4,494,306)
- ------------------------------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 406,586,374 42,019,441 22,248,684 21,976,567
Reinvestment of dividends and distributions 18,181,648 4,153,816 1,401,492 4,315,748
Cost of shares repurchased (477,107,914) (47,993,112) (46,918,400) (7,840,575)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from shares transactions (52,339,892) (1,819,855) (23,268,224) 18,451,740
- ------------------------------------------------------------------------------------------------------------------------------
Total (decrease) increase (48,464,140) (1,742,469) (23,332,657) 17,642,141
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of year $676,133,018 $103,760,030 $58,889,309 $55,502,278
- ------------------------------------------------------------------------------------------------------------------------------
End of year $627,668,878 $102,017,561 $35,556,652 $73,144,419
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated (distributions in excess of) undistributed
net investment income $ (3,441,783) $ 770,624 $ 90,133 $ 33,551
- ------------------------------------------------------------------------------------------------------------------------------
Summary of Share Transactions:
Shares sold 41,534,978 4,293,467 2,233,482 2,244,430
Reinvestment of dividends and distributions 1,856,783 424,274 140,950 439,299
Shares repurchased (48,741,470) (4,905,357) (4,727,959) (811,075)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (5,349,709) (187,616) (2,353,527) 1,872,654
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
32
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short-Term
Rate Government
Government Agency
Agency Fund Fund
==================================
<S> <C> <C>
From Operations:
Net investment income $ 42,586,453 $ 8,885,667
Net realized gain (loss) from investment and futures transactions (12,000,479) (4,030,174)
Net change in unrealized gain on investments and futures 16,138,367 5,735,691
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 46,724,341 10,591,184
- ----------------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (42,629,917) (8,684,213)
Administration shares (278,448) (11,164)
Service shares -- --
Class A shares (425,863) --
In excess of net investment income
Institutional shares (2,124,188) --
Administration shares (13,875) --
Class A shares (21,220) --
- ----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (45,493,511) (8,695,377)
- ----------------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 456,762,969 49,034,023
Proceeds from reorganizations 37,593,780 --
Reinvestment of dividends and distributions 21,273,685 4,993,443
Cost of shares repurchased (790,211,526) (145,988,674)
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets resulting from share
transactions (274,581,092) (91,961,208)
- ----------------------------------------------------------------------------------------------------------------
Total (decrease) increase (273,350,262) (90,065,401)
Net Assets:
Beginning of year 949,483,280 193,825,431
- ----------------------------------------------------------------------------------------------------------------
End of year $676,133,018 $103,760,030
================================================================================================================
Accumulated (distributions in excess of) undistributed net investment
income $ (2,129,902) $ 708,450
================================================================================================================
Summary of Share Transactions:
Shares sold 46,809,171 5,072,030
Shares exchanged in reorganizations 3,843,169 --
Reinvestment of dividends and distributions 2,181,117 516,178
Shares repurchased (81,125,615) (15,135,663)
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in shares outstanding (28,292,158) (9,547,455)
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
GS Short GS Core
Duration Fixed
Tax-Free Income
Fund Fund
============================
<S> <C> <C>
From Operations:
Net investment income $ 2,814,454 $2,248,195
Net realized gain (loss) from investment and futures transactions (472,312) 921,130
Net change in unrealized gain on investments and futures 1,270,197 1,663,176
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,612,339 4,832,501
- ---------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (2,771,793) (2,253,625)
Administration shares (20,584) --
Service shares (22,077) --
Class A shares -- --
In excess of net investment income
Institutional shares -- --
Administration shares -- --
Class A shares -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions to shareholders (2,814,454) (2,253,625)
- ---------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 36,468,900 30,256,879
Proceeds from reorganizations -- --
Reinvestment of dividends and distributions 1,873,154 2,232,160
Cost of shares repurchased (67,865,169) (4,073,379)
- ---------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets resulting from share
transactions (29,523,115) 28,415,660
- ---------------------------------------------------------------------------------------------------------
Total (decrease) increase (28,725,230) 30,994,536
Net Assets:
Beginning of year 87,614,539 24,507,742
- ---------------------------------------------------------------------------------------------------------
End of year $58,889,309 $55,502,278
=========================================================================================================
Accumulated (distributions in excess of) undistributed net investment
income $ 67,398 $ 40,202
=========================================================================================================
Summary of Share Transactions:
Shares sold 3,733,382 3,077,397
Shares exchanged in reorganizations -- --
Reinvestment of dividends and distributions 190,942 230,595
Shares repurchased (6,950,294) (411,156)
- ---------------------------------------------------------------------------------------------------------
Net (decrease) increase in shares outstanding (3,025,970) 2,896,836
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
33
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1996
- --------------------------------------------------------------------------------
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 GS Adjustable Rate Government Fund, GS Short Duration
Government Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund,
collectively, ("the Funds"). The Funds are diversified portfolios of the Trust
offering three classes of shares - Institutional shares, Administration shares
and Service shares. In addition, the GS Adjustable Rate Government Fund offers
Class A shares.
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. Other securities are valued based on yield equivalents, a
pricing matrix or other sources, under valuation procedures established by the
Trust's Board of Trustees. 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 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 actual 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.
Market premiums resulting from the purchase of long-term debt securities are
amortized to interest income over the life of the security with a corresponding
decrease in the cost basis of that security for GS Short Duration Tax-Free Fund.
Market discounts and market premiums on debt securities, other than mortgage
backed securities, are amortized to interest income over the life of the
security with a corresponding adjustment in the cost basis of that security for
GS Core Fixed Income Fund.
C. Mortgage Dollar Rolls
--------------------------
The Funds, with the exception of the GS Short Duration Tax-Free Fund, 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,
34
<PAGE>
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. However, the Fund 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.
D. Futures Contracts
----------------------
The Funds may enter into futures transactions in order to hedge against
changes in interest rates, securities prices, currency exchange rates in the
case of GS Core Fixed Income Fund or to seek to increase total return. A Fund
will engage in futures transactions only for bona fide hedging purposes as
defined in regulations of the CFTC or to seek to increase total return to the
extent permitted by such regulations. The use of futures contracts involve, to
varying degrees, elements of market risk which may exceed the amounts recognized
in the Statements of Assets and Liabilities.
Upon entering into a futures contract, a Fund is 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. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses by the
Fund. When entering into a closing transaction, the Fund will realize, for book
purposes, a gain or loss equal to the difference between the value of the
futures contract to sell and the futures contract to buy. Futures contracts are
valued at the most recent settlement price, unless such price does not reflect
the fair market value of the contract, in which case the position will be valued
using methods as approved by the Board of Trustees.
Certain risks may arise upon entering into futures contracts. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds' hedging strategies and
may also result in a loss to the Funds.
E. Deferred Organization Expenses
-----------------------------------
Organization-related costs are being amortized on a straight-line basis
over a period of five years.
F. Expenses
-------------
Expenses incurred by the Trust that do not specifically relate to an
individual portfolio of the Trust are allocated to the portfolios based on each
portfolio's relative average net assets for the period.
Shareholders of Administration shares and 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. For the GS Adjustable Rate Government
Fund, shareholders of Class A shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses which
are directly attributable to such shares.
G. Federal Taxes
------------------
It is each Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute each
year substantially all of its investment company taxable and tax-exempt income
to its shareholders. Accordingly, no federal tax provisions are required.
35
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
- --------------------------------------------------------------------------------
The characterization of distributions to shareholders for financial
statement purposes as either from or in excess of net investment income or net
realized gain on investment transactions, or from capital, depends on the type
of book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
At October 31, 1996, the Funds had approximately the following amounts of
capital loss carryforward for U.S. federal tax purposes:
<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
- --------------------------------------- --------------------- -----------------
<S> <C> <C>
GS Adjustable Rate
Government Fund $47,923,000 2000-2003
GS Short Duration Government
Fund $13,272,000 2002-2003
GS Short Duration Tax-Free
Fund $4,271,000 2002-2003
GS Core Fixed Income
Fund $77,000 2004
</TABLE>
These amounts are available to be carried forward to offset future capital
gains to the extent permitted by applicable laws or regulations.
3. Agreements
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser for the GS
Adjustable Rate Government and GS Short Duration Government Funds pursuant to
Investment Advisory Agreements. Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman Sachs, serves as the investment adviser
for the GS Short Duration Tax-Free and GS Core Fixed Income Funds pursuant to
Investment Advisory Agreements. Under the Investment Advisory Agreements, the
adviser, subject to the general supervision of the Trust's Board of Trustees,
manages the Funds' portfolios and provides for the administration of the Funds'
other affairs. As compensation for the services rendered under the Investment
Advisory Agreements and the assumption of the expenses related thereto, the
adviser is entitled to a fee, computed daily and payable monthly at an annual
rate equal to .40% of average daily net assets of GS Adjustable Rate Government,
GS Short Duration Tax-Free and GS Core Fixed Income Funds and .50% of average
daily net assets of GS Short Duration Government Fund. Until further notice,
GSFM has voluntarily agreed not to impose .10% of its investment advisory fee
for the GS Short Duration Government Fund. For the year ended October 31, 1996,
investment advisory fees of approximately $103,000 were waived for the GS Short
Duration Government Fund.
The adviser has voluntarily agreed to limit certain of the Funds' expenses
(excluding investment advisory fees, taxes, interest, brokerage, litigation,
administrative and service share fees, indemnification and other extraordinary
expenses and with respect to GS Adjustable Rate Government Class A shares,
distribution and authorized dealer service fees) to the extent that such
expenses exceed .05% per annum of each Fund's average daily net assets. For the
year ended October 31, 1996, the amount of reimbursed expenses for the GS
Adjustable Rate Government, GS Short Duration Government, GS Short Duration
Tax-Free and GS Core Fixed Income Funds were approximately $387,000, $169,000,
$238,000 and $233,000, respectively. The amounts reimbursable to the GS
Adjustable Rate Government, GS Short Duration Government, GS Short Duration
Tax-Free and the GS Core Fixed Income Funds at October 31, 1996 were
approximately $29,000, $12,000, $31,000 and $19,000, respectively, and are
included in "Other assets" in the accompanying Statements of Assets and
Liabilities.
Goldman Sachs serves as Distributor of the shares of the Funds pursuant to
a Distribution Agreement and receives no compensation in this capacity with the
exception of GS Adjustable Rate Government Fund Class A shares. At October 31,
1996, Goldman Sachs retained approximately $79,000 of sales load related to
Class A shares. Goldman Sachs also serves as Transfer Agent of the Funds for a
fee.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
The Trust, on behalf of the GS Adjustable Rate Government Fund, has
adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 for the Class A
shares. Under the Plan, Goldman Sachs is entitled to receive a quarterly
distribution fee equal, on an annual basis, to .25% of the average daily net
assets of Class A shares. Currently, Goldman Sachs has agreed to voluntarily
waive this distribution fee. Distribution fees waived for the period amounted to
approximately $31,000.
The Trust, on behalf of the GS Adjustable Rate Government Fund, has
adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. GS Adjustable Rate
Government Fund pays a fee under the Service Plan equal, on an annual basis, to
.25% of its average daily net assets attributable to Class A shares.
For the year ended October 31, 1996, GS Adjustable Rate Government Fund,
GS Short Duration Government Fund, GS Short Duration Tax-Free Fund and GS Core
Fixed Income Fund incurred commission expenses of approximately $108,000,
$24,000, $1,000 and $4,000, respectively, in connection with futures contracts
entered into with Goldman Sachs. At October 31, 1996, GS Adjustable Rate
Government Fund had approximately $20,000, payable to Goldman Sachs related to
variation margin on futures contracts. Approximately $5,000 relating to
variation margin was due to the GS Core Fixed Income Fund from Goldman Sachs.
4. Line of Credit Facility
The Funds participate in a $100,000,000 uncommitted, unsecured revolving
line of credit facility 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 the borrowings is based on the federal funds rate. During the year ended
October 31, 1996, the Funds did not have any borrowings under this facility.
5. Investment Transactions
Purchases and proceeds of sales or maturities of long-term securities for
the year ended October 31, 1996, were as follows:
================================================================================
GS GS GS
Adjustable Short Short GS
Rate Duration Duration Core Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Purchases of U.S.
Government and
agency obligations $319,204,368 $117,205,724 -- $227,149,602
- --------------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) -- -- $101,504,852 41,015,852
- --------------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 370,448,093 113,784,637 -- 251,512,185
- --------------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) -- -- 128,041,004 19,684,141
- --------------------------------------------------------------------------------
6. Summary of Share Transactions
Share activity for the year ended October 31, 1996 is as follows:
Fund Dollars Shares
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund
Institutional Shares:
Shares sold $391,363,204 39,981,299
Reinvestment of dividends and
distributions 17,432,484 1,780,288
Shares repurchased (456,776,795) (46,666,343)
----------------------------------------
(47,981,107) (4,904,756)
----------------------------------------
Administration Shares:
Shares sold 1,457,872 148,981
Reinvestment of dividends and
distributions 94,420 9,641
Shares repurchased (1,356,764) (138,609)
----------------------------------------
195,528 20,013
----------------------------------------
37
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund: Dollars Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares:
Shares sold $ 13,765,298 1,404,698
Reinvestment of dividends and distributions 654,744 66,854
Shares repurchased (18,974,355) (1,936,518)
-------------------------------------
(4,554,313) (464,966)
-------------------------------------
Total $ (52,339,892) (5,349,709)
=====================================
GS Short Duration Government Fund
Institutional Shares:
Shares sold $ 39,855,638 4,072,082
Reinvestment of dividends and distributions 4,137,041 422,559
Shares repurchased (47,875,174) (4,893,286)
-------------------------------------
(3,882,495) (398,645)
-------------------------------------
Administration Shares:
Shares sold 326,101 33,251
Reinvestment of dividends and distributions 2,032 207
Shares repurchased (77,312) (7,921)
-------------------------------------
250,821 25,537
-------------------------------------
Service Shares:
Shares sold 1,837,702 188,134
Reinvestment of dividends and distributions 14,743 1,508
Shares repurchased (40,626) (4,150)
-------------------------------------
1,811,819 185,492
-------------------------------------
Total $ (1,819,855) (187,616)
=====================================
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 20,777,050 2,085,253
Reinvestment of dividends and distributions 1,383,351 139,126
Shares repurchased (45,664,878) (4,601,865)
-------------------------------------
(23,504,477) (2,377,486)
-------------------------------------
Administration Shares:
Shares sold 105,302 10,672
Reinvestment of dividends and distributions 2,017 203
Shares repurchased (105,478) (10,644)
-------------------------------------
1,841 231
-------------------------------------
Service Shares:
Shares sold $ 1,366,332 137,557
Reinvestment of dividends and distributions 16,124 1,621
Shares repurchased (1,148,044) (115,450)
-------------------------------------
234,412 23,728
-------------------------------------
Total $ (23,268,224) (2,353,527)
=====================================
GS Core Fixed Income Fund
Institutional Shares:
Shares sold $ 20,524,422 2,094,833
Reinvestment of dividends and distributions 4,292,533 436,903
Shares repurchased (7,431,360) (769,104)
-------------------------------------
17,385,595 1,762,632
-------------------------------------
Administration Shares:
Shares sold 1,029,912 106,074
Reinvestment of dividends and distributions 17,883 1,847
Shares repurchased (358,284) (36,681)
-------------------------------------
689,511 71,240
-------------------------------------
Service Shares:
Shares sold 422,233 43,525
Reinvestment of dividends and distributions 5,332 549
Shares repurchased (50,931) (5,292)
-------------------------------------
376,634 38,782
-------------------------------------
Total $ 18,451,740 1,872,654
=====================================
</TABLE>
- --------------------------------------------------------------------------------
Share activity for the year ended October 31, 1995 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund Dollars Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C>
GS Adjustable Rate Government Fund
Institutional Shares:
Shares sold $ 445,293,934 45,635,666
Shares exchanged in reorganization 18,823,725 1,926,438
Reinvestment of dividends and distributions 20,730,137 2,125,494
Shares repurchased (771,265,543) (79,186,935)
-------------------------------------
(286,417,747) (29,499,337)
-------------------------------------
Administration Shares:
Shares sold 648,042 66,628
Shares exchanged in reorganization 1,561,584 159,814
Reinvestment of dividends and distributions 124,368 12,743
Shares repurchased (5,731,937) (588,307)
-------------------------------------
(3,397,943) (349,122)
-------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund Dollars Shares
============================================================================================
<S> <C> <C>
Class A Shares:
Shares sold 10,820,993 1,106,877
Shares exchanged in reorganization 17,208,471 1,756,917
Reinvestment of dividends and distributions 419,180 42,880
Shares repurchased (13,214,046) (1,350,373)
-------------------------------------
15,234,598 1,556,301
-------------------------------------
Total $(274,581,092) (28,292,158)
=====================================
GS Short Duration Government Fund
Institutional Shares:
Shares sold $ 49,032,419 5,071,865
Reinvestment of dividends and distributions 4,993,225 516,155
Shares repurchased (145,260,300) (15,059,774)
-------------------------------------
(91,234,656) (9,471,754)
-------------------------------------
Administration Shares:
Shares sold 1,604 165
Reinvestment of dividends and distributions 218 23
Shares repurchased (728,374) (75,889)
-------------------------------------
(726,552) (75,701)
-------------------------------------
Total $ (91,961,208) (9,547,455)
=====================================
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 18,780,011 1,920,432
Reinvestment of dividends and distributions 1,860,104 189,624
Shares repurchased (46,762,899) (4,787,105)
-------------------------------------
(26,122,784) (2,677,049)
-------------------------------------
Administration Shares:
Shares sold -- --
Reinvestment of dividends and distributions 2,483 246
Shares repurchased (3,800,930) (390,639)
-------------------------------------
(3,798,447) (390,393)
-------------------------------------
Service Shares:
Shares sold 17,688,889 1,812,950
Reinvestment of dividends and distributions 10,567 1,072
Shares repurchased (17,301,340) (1,772,550)
-------------------------------------
398,116 41,472
-------------------------------------
Total $(29,523,115) (3,025,970)
=====================================
</TABLE>
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 in the customer-only account of State Street
Bank & Trust Co., the Fund's custodian, or at subcustodians. GSFM and GSAM
monitor the market value of the underlying securities by pricing them daily.
8. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having
advisory agreements with GSFM and GSAM or their affiliates, transfer uninvested
cash balances into a joint account, 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 obligations and mortgage-related
securities issued by the U.S. Government, its agencies or instrumentalities. As
of October 31, 1996, the GS Adjustable Rate Government, GS Short Duration
Government and GS Core Fixed Income Funds had an .49%, .04% and .52%,
respectively, undivided interest in the repurchase agreements in the following
joint account which equaled $13,000,000, $1,000,000 and $13,900,000,
respectively, in principal amount.
- --------------------------------------------------------------------------------
39
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
- --------------------------------------------------------------------------------
As of October 31, 1996, the repurchase agreement in the 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 10/31/96, repurchase price $700,108,500 (FNMA:
$555,290,445, 5.5%--8.50%, 2.1.09-6/1/26; FHLMC: $165,859,789, 5.50%--8.50%,
9/1/98--8/1/26)
$700,000,000 5.58% 11/01/96 $700,000,000
Lehman Brothers, Inc. dated 10/31/96, repurchase price $924,843,329 (U.S. Treasury
Notes: $942,903,967, 4.38%--8.50%, 11/15/96--8/15/03)
924,700,000 5.58 11/01/96 924,700,000
Nomura Securities International, Inc. dated 10/31/96, repurchase price
$700,108,500 (FNMA: $256,600,142, 5.50%--8.00%, 2/1/02-10/1/26; FHLMC:
$464,523,981, 6.00%--9.00%, 9/1/1-10/1/26)
700,000,000 5.58 11/01/96 700,000,000
Smith Barney, Inc. dated 10/31/96, repurchase price $170,026,161 (U.S. Treasury
Interest Only Stripped Securities: $11,653,277, 2/15/98--5/15/02; U.S. Treasury
Notes: $85,997,728, 5.25%--7.75%, 5/15/97-10/15/06; U.S. Treasury Principal
Only Stripped Securities: $33,993,571, 5/15/97--5/15/05; U.S. Treasury Bills:
$41,756,285, 12/12/96--3/20/97)
170,000,000 5.54 11/01/96 170,000,000
Union Bank of Switzerland, Inc. dated 10/31/96, repurchase price
$175,026,979
(Treasury Notes: $178,528,739, 6.88%--7.75%, 8/31/99-1/31/00)
175,000,000 5.55 11/01/96 175,000,000
- --------------------------------------------------------------------------------
Total Joint Repurchase Agreement $2,669,700,000
================================================================================
</TABLE>
9. Administration and Service Plans
The Funds have adopted Administration and Service Plans. These plans allow
for Administration shares and Service shares, respectively, to compensate
service organizations for providing varying levels of account administration and
shareholder liaison services to their customers who are beneficial owners of
such shares. The Administration and Service Plans provide for compensation to
the service organizations in an amount up to .25% and .50% (on an annualized
basis), respectively, of the average daily net asset value of the respective
shares.
10. Other Matters
On April 28, 1995, the GS Adjustable Rate Government Fund acquired the
assets of GS Government Agency Portfolio (For Financial Institutions) in
exchange solely for (i) the issuance of Institutional shares and Administration
shares of beneficial interest of the GS Adjustable Rate Government Fund and
(ii) the assumption by GS Adjustable Rate Government Fund of the liabilities of
GS Government Agency Portfolio (For Financial Institutions). Following this
transfer, GS Government Agency Portfolio (For Financial Institutions) was
liquidated and GS Adjustable Rate Government Fund's Institutional and
Administration shares were distributed to the former shareholders of GS
Government Agency Portfolio (For Financial Institutions).
The Reorganization was accomplished by a tax-free transfer of assets whereby
each shareholder of GS Government Agency Portfolio (For Financial Institutions)
received a number of full and fractional shares of GS Adjustable Rate Government
Fund having a total net asset value of their shares of GS Government Agency
Portfolio (For Financial Institutions) held on April 28, 1995. The net assets,
including $370,489 of unrealized depreciation for the GS Government Agency
Portfolio (For Financial Institutions), net asset values per share and shares
outstanding as of April 28, 1995 were:
================================================================================
GS Government
Agency
Portfolio
(For Financial GS Adjustable GS Adjustable
Institutions Rate Government Rate Government
(Pre- Fund (Pre- Fund (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
Net Assets $20,385,309 $673,292,455 $693,677,764
Shares Outstanding
Institutional Shares 1,912,506 68,506,367 70,432,805
Administration Shares 158,661 401,122 560,936
Net Asset Value Per Share
Institutional Shares 9.84 9.77 9.77
Administration Shares 9.84 9.77 9.77
================================================================================
On May 11, 1995, shareholders of the GS Adjustable Rate Mortgage Fund
approved a Plan of Reorganization (the Plan) which was completed on May 12,
1995. Under the Plan, GS Adjustable Rate Mortgage Fund was reorganized as a
separate class (Class A) of the GS
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Adjustable Rate Government Fund. GS Adjustable Rate Mortgage Fund's assets were
acquired by GS Adjustable Rate Government Fund in exchange solely for (i) the
issuance of Class A shares of beneficial interest of GS Adjustable Rate
Government Fund and (ii) the assumption by GS Adjustable Rate Government Fund of
the liabilities of GS Adjustable Rate Mortgage Fund. Following this transfer, GS
Adjustable Rate Mortgage Fund was liquidated and GS Adjustable Rate Government
Fund Class A shares were distributed to the former shareholders of GS Adjustable
Rate Mortgage Fund.
The Reorganization was accomplished by a tax-free transfer of assets
whereby each shareholder of GS Adjustable Rate Mortgage Fund received a number
of Class A full and fractional shares of GS Adjustable Rate Government Fund
having a total net asset value of their shares of GS Adjustable Rate Mortgage
Fund held as of May 12, 1995. The net assets, including $45,684 of net
unrealized depreciation for the GS Adjustable Rate Mortgage Fund, net asset
values per share and shares outstanding as of May 12, 1995 were:
================================================================================
<TABLE>
<CAPTION>
GS Adjustable
Rate Mortgage GS Adjustable GS Adjustable
Fund Rate Government Rate Government
(Pre- Fund (Pre- Fund (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Assets $17,208,471 $727,300,372 $744,508,843
Shares Outstanding
Institutional Shares -- 73,743,084 73,743,084
Administration Shares -- 561,352 561,352
Class A Shares 3,552,167 -- 1,756,917
Net Asset Value Per Share
Institutions Shares -- 9.79 9.79
Administration Shares -- 9.79 9.79
Class A Shares 4.84 -- 9.79
</TABLE>
================================================================================
The total amount of capital loss carryforward brought on to the books of
the GS Adjustable Rate Government Fund due to these reorganization was
approximately $3,154,000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of October 31, 1996, the Goldman, Sachs & Co. Employees Profit Sharing
and Retirement Income Plan was beneficial owner of approximately 29% of the
outstanding shares of the GS Short Duration Government Fund.
11. Certain Reclassifications
In accordance with Statement of Position 93-2, the GS Adjustable Rate
Government Fund, GS Short Duration Tax-Free Fund, and GS Core Fixed Income Fund
have reclassified $20,849, $36,587, $22,735, and $24,162, respectively, from
paid-in capital to accumulated undistributed net investment income. These
reclassifications have no impact on the net asset value of the Fund and are
designed to present the Fund's capital accounts on a tax basis.
- --------------------------------------------------------------------------------
41
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Financial Highlights (continued)
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, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
================================================================================================================
GS ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
=======================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional
Shares............ $9.77 $0.5759(a) $0.0772(a) -- $0.6531 $ (0.5725) -- $ (0.0206)
1996-Administration
Shares............ 9.77 0.5489(a) 0.0797(a) -- 0.6286 (0.5489) -- (0.0198)
1996-Class A
Shares............ 9.77 0.5481(a) 0.0806(a) -- 0.6287 (0.5489) -- (0.0198)
1995-Institutional
Shares............ 9.74 0.5630(a) 0.0717(a) -- 0.6347 (0.5759) -- (0.0287)
1995-Administration
Shares............ 9.74 0.5366(a) 0.0737(a) -- 0.6103 (0.5528) -- (0.0275)
1995-Class A
Shares(c)......... 9.79 0.2721(a) (0.0090)(a) -- 0.2631 (0.2697) -- (0.0134)
1994-Institutional
Shares............ 10.00 0.4341(a) (0.2455)(a) -- 0.1886 (0.4486) -- --
1994-Administration
Shares............ 10.00 0.4211(a) (0.2572)(a) -- 0.1639 (0.4239) -- --
1993-Institutional
Shares............ 10.04 0.4397 (0.0376)(d) -- 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares(e)......... 10.02 0.2146 (0.0173)(d) -- 0.1973 (0.2146) -- (0.0027)
1992-Institutional
Shares............ 10.03 0.5599 (0.0029)(d) -- 0.5570 (0.5470) -- --
For the Period July 17, 1991(g) through October 31,
===================================================
1991-Institutional
Shares............ 10.00 0.1531 0.0322(d) -- 0.1853 (0.1553) -- --
</TABLE>
<TABLE>
<CAPTION>
Distributions to shareholders
=========================================
In excess of
net realized Net
gain on increase Ratio of
investment, From Total (decrease) Net asset net
option and paid distributions in net value at expenses
futures in to asset end of Total to average
transactions capital shareholders value period return(k) net assets
==============================================================================================================
GS ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
=======================================
<S> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional
Shares............ -- -- $(0.5931) $0.0600 $9.83 6.86% 0.45%
1996-Administration
Shares............ -- -- (0.5687) 0.0600 9.83 6.60 0.70
1996-Class A
Shares............ -- -- (0.5687) 0.0600 9.83 6.60 0.70
1995-Institutional
Shares............ -- -- (0.6046) 0.0301 9.77 6.75 0.46
1995-Administration
Shares............ -- -- (0.5803) 0.0300 9.77 6.48 0.71
1995-Class A
Shares(c)......... -- -- (0.2831) (0.0200) 9.77 2.74(f) 0.69(b)
1994-Institutional
Shares............ -- -- (0.4486) (0.2600) 9.74 1.88 0.46
1994-Administration
Shares............ -- -- (0.4239) (0.2600) 9.74 1.63 0.71
1993-Institutional
Shares............ -- -- (0.4421) (0.0400) 10.00 4.13 0.45
1993-Administration
Shares(e)......... -- -- (0.2173) (0.0200) 10.00 2.01(f) 0.70(b)
1992-Institutional
Shares............ -- -- (0.5470) 0.0100 10.04 6.12 0.42
For the Period July 17, 1991(g) through October 31,
===================================================
1991-Institutional
Shares............ -- -- (0.1553) 0.0300 10.03 2.14(f) 0.20(b)
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
=============================
Ratio of Ratio of
net Net net
investment assets investment
income at end Ratio of income
(loss) Portfolio of expenses (loss)
to average turnover period to average to average
net assets rate(d) (in 000s) net assets net assets
========================================================================
GS ADJUSTABLE RATE GOVERNMENT FUND
------------------------------------------------------------------------
For the Year Ended October 31,
=======================================
<S> <C> <C> <C> <C> <C>
1996-Institutional
Shares............ 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administration
Shares............ 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares............ 5.59 52.36 10,728 1.01 5.28
1995-Institutional
Shares............ 5.77 24.12 657,358 0.53 5.70
1995-Administration
Shares............ 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)......... 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institutional
Shares............ 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares............ 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares............ 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
Shares(e)......... 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institutional
Shares............ 5.61 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991(g) through October 31,
===================================================
1991-Institutional
Shares............ 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights (continued)
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 transactions operations income transactions
-------------------------------------------------------------------------------------------------------------------
GS SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31,
- -------------------------------------------------------
1996-Institutional
Shares ........... $9.82 $0.6290/(a)/ $0.0136/(a)/ -- $0.6426 $(0.6326) --
1996-Administration
Shares/(h)/ ...... 9.86 0.3837/(a)/ 0.0003/(a)/ -- 0.3840 (0.3940) --
1996-Service
Shares/(i)/ ...... 9.72 0.3134/(a)/ 0.1018/(a)/ -- 0.4152 (0.3152) --
1995-Institutional
Shares ........... 9.64 0.6652/(a)/ 0.1666/(a)/ -- 0.8318 (0.6518) --
1995-Administration
Shares ........... 9.64 0.2384/(a)/ (0.0433)/(a)/ -- 0.1951 (0.2051) --
1994-Institutional
Shares ........... 10.14 0.5628/(a)/ (0.4592)/(a)/ -- 0.1036 (0.5598) (0.0438)
1994-Administration
Shares ........... 10.14 0.5329/(a)/ (0.4539)/(a)/ -- 0.0790 (0.5352) (0.0438)
1993-Institutional
Shares ........... 10.16 0.5627 (0.0135)/(d)/ -- 0.5492 (0.5627) --
1993-Administration
Shares/(e)/ ...... 10.23 0.2725 (0.0900)/(d)/ -- 0.1825 (0.2725) --
1992-Institutional
Shares ........... 10.22 0.6703 (0.0600)/(d) -- 0.6103 (0.6703) --
1991-Institutional
Shares ........... 10.00 0.8020 0.2200/(d)/ -- 1.0220 (0.8020) --
1990-Institutional
Shares ........... 10.07 0.8300 (0.0700)/(d) -- 0.7600 (0.8300) --
1989-Institutional
Shares ........... 10.10 0.8800 -- -- 0.8800 (0.8800) --
For the Period August 15, 1988/(g)/ through October 31,
- -------------------------------------------------------
1988-Institutional
Shares ........... 10.00 0.1800 0.1000/(d)/ -- 0.2800 (0.1800) --
<CAPTION>
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
income transactions capital shareholders value period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31,
1996-Institutional
Shares ............ -- -- -- $(0.6326) $0.0100 $9.83
1996-Administration
Shares/(h)/ ....... -- -- -- (0.3940) (0.0100) 9.85
1996-Service
Shares/(i)/ ....... -- -- -- (0.3152) 0.1000 9.82
1995-Institutional
Shares ............ -- -- -- (0.6518) 0.1800 9.82
1995-Administration
Shares ............ -- -- -- (0.2051) (0.0100) 9.63/(h)/
1994-Institutional
Shares ............ -- -- -- (0.6036) (0.5000) 9.64
1994-Administration
Shares ............ -- -- -- (0.5790) (0.5000) 9.64
1993-Institutional
Shares ............ (0.0065) -- -- (0.5692) (0.0200) 10.14
1993-Administration
Shares/(e)/ ....... -- -- -- (0.2725) (0.9000) 10.14
1992-Institutional
Shares ............ -- -- -- (0.6703) (0.0600) 10.16
1991-Institutional
Shares ............ -- -- -- (0.8020) 0.2200 10.22
1990-Institutional
Shares ............ -- -- -- (0.8300) (0.0700) 10.00
1989-Institutional
Shares ............ -- -- (0.0300) (0.9100) (0.0300) 10.07
For the Period August 15, 1988/(g)/ through October 31,
- -------------------------------------------------------
1988-Institutional
Shares ............ -- -- -- (0.1800) 0.1000 10.10
<CAPTION>
Ratios assuming
not voluntary waiver
of fees or
expense limitations
--------------------------
Ratio of Ratio of
net Net net
Ratio of investment assets investment
net income at end Ratio of income
expenses (loss) Portfolio of expenses (loss)
Total to average to average turnover period to average to average
return/(k)/ net assets net assets rate/(d)/ (in 000s) net assets net assets
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
1996-Institutional
Shares ............ 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administration
Shares/(h)/ ....... 4.00/(f)/ 0.70%/(b)/ 5.97/(b)/ 115.45 252 0.96/(b)/ 5.71/(b)/
1996-Service
Shares/(i)/ ....... 4.35/(f)/ 0.95/(b)/ 6.05/(b) 115.45 1,822 1.21/(b)/ 5.79/(b)/
1995-Institutional
Shares ............ 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares ............ 2.10 0.70/(b)/ 7.91/(b)/ 292.56 -- 0.90/(b)/ 7.71/(b)/
1994-Institutional
Shares ............ 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares ............ 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares ............ 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
Shares/(e)/ ....... 1.74 0.70/(b)/ 4.84/(b)/ 411.66 16,490 0.80/(b)/ 4.74/(b)/
1992-Institutional
Shares ............ 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares ............ 10.93 0.45 8.25 155.44 158,948 0.79 7.91
1990-Institutional
Shares ............ 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
Shares ............ 9.03 0.46 8.71 137.37 31,015 1.39 7.78
For the Period August 15, 1988/(g)/ through October 31,
- -------------------------------------------------------
1988-Institutional
Shares ............ 3.30/(f)/ 0.55/(b)/ 8.55/(b)/ 167.00/(b)/ 39,052 1.42/(b)/ 7.68/(b)/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Financial Highlights (continued)
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 transactions operations income transactions
===============================================================================================
GS SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... $9.94 $0.4192/(a)/ $0.0200/(a)/ -- $0.4392 $(0.4192) --
1996-Administration Shares.......... 9.94 0.3944/(a)/ 0.0200/(a)/ -- 0.4144 (0.3944) --
1996-Service Shares................. 9.95 0.3697/(a)/ 0.0200/(a)/ -- 0.3897 (0.3697) --
1995-Institutional Shares........... 9.79 0.4235/(a)/ 0.1500/(a)/ -- 0.5735 (0.4235) --
1995-Administration Shares.......... 9.79 0.3989/(a)/ 0.1500/(a)/ -- 0.5489 (0.3989) --
1995-Service Shares................. 9.79 0.3744/(a)/ 0.1600/(a)/ -- 0.5344 (0.3744) --
1994-Institutional Shares........... 10.23 0.3787/(a)/ (0.3575)/(a)/ -- 0.0212 (0.3787) (0.0825)
1994-Administration Shares.......... 10.23 0.3537/(a)/ (0.3575)/(a)/ -- (0.0038) (0.3537) (0.0825)
1994-Service Shares/(j)/............ 9.86 0.0475/(a)/ (0.0700)/(a)/ -- (0.0225) (0.0475) --
1993-Institutional Shares........... 9.93 0.3834 0.3000/(d)/ -- 0.6834 (0.3834) --
1993-Administration Shares/(j)/..... 10.16 0.1555 0.0720/(d)/ -- 0.2275 (0.1555) --
For the Period October 1, 1992/(g)/ through October 31,
- ----------------------------------------------------
1992-Institutional Shares........... 10.00 0.0341 (0.0700)/(d)/ -- (0.0359) (0.0341) --
</TABLE>
<TABLE>
<CAPTION>
Distributions to shareholders
==================================
In excess of
net realized Net
gain on increase Ratio of
In excess investment, From Total (decrease) Net asset net
of net option and paid distributions in net value at expenses
investment futures in to asset end of Total to average
income transactions capital shareholders value period return/(k)/ net assets
==================================================================================================
GS SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
====================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... -- -- -- $(0.4192) $0.0300 $9.96 4.50% 0.45%
1996-Administration Shares.......... -- -- -- (0.3944) 0.0300 9.96 4.24 0.70
1996-Service Shares................. -- -- -- (0.3697) 0.0200 9.97 3.98 0.95
1995-Institutional Shares........... -- -- -- (0.4235) 0.1500 9.94 5.98 0.45
1995-Administration Shares.......... -- -- -- (0.3989) 0.1500 9.94 5.76 0.70
1995-Service Shares................. -- -- -- (0.3744) 0.1600 9.95 5.59 0.95
1994-Institutional Shares........... -- -- -- (0.4612) (0.4400) 9.79 0.17 0.45
1994-Administration Shares.......... -- -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70
1994-Service Shares/(j)/............ -- -- -- (0.0475) (0.0700) 9.79 (0.32)/(f)/ 0.95/(b)/
1993-Institutional Shares........... -- -- -- (0.3834) 0.3000 10.23 7.03 0.41
1993-Administration Shares/(j)/..... -- -- -- (0.1555) 0.0720 10.23 2.28/(f)/ 0.70/(b)/
For the Period October 1, 1992/(g)/ through October 31,
- -----------------------------------------------------
1992-Institutional Shares........... -- -- -- (0.0341) (0.0700) 9.93 (0.34)/(f)/ 0.05/(b)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
==================================
Ratio of Ratio of
net Net net
investment assets investment
income at end Ratio of income
(loss) Portfolio of expenses (loss)
to average turnover period to average to average
net assets rate/(d)/ (in 000s) net assets net assets
==========================================================
GS SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996-Institutional Shares........... 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administration Shares.......... 3.96 231.65 48 1.26 3.40
1996-Service Shares................. 3.74 231.65 695 1.51 3.18
1995-Institutional Shares........... 4.31 259.52 58,389 0.77 3.99
1995-Administration Shares.......... 4.14 259.52 46 1.02 3.82
1995-Service Shares................. 3.87 259.52 454 1.27 3.55
1994-Institutional Shares........... 3.74 354.00 83,704 0.61 3.58
1994-Administration Shares.......... 3.51 354.00 3,866 0.86 3.35
1994-Service Shares/(j)/............ 4.30/(b)/ 354.00 440 1.11/(b)/ 4.14/(b)/
1993-Institutional Shares........... 3.70 404.60 115,803 1.06 3.05
1993-Administration Shares/(j)/..... 3.32/(b)/ 404.60 911 1.07/(b)/ 2.95/(b)/
For the Period October 1, 1992/(g)/ through October 31,
- -----------------------------------------------------
1992-Institutional Shares........... 4.58/(b)/ 31.19/(f)/ 14,601 2.68/(b)/ 1.95/(b)/
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
----------------------------------------------------- ------------------------------
Net realized
Net realized and From net
and unrealized unrealized Total realized gain
gain (loss) gain (loss) income on
Net asset on investment, on foreign (loss) investment,
value at Net option and currency from From net option
beginning investment futures related investment investment and futures
of period income transactions transactions operations income transactions
-----------------------------------------------------------------------------------------------
GS CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... $10.00 $0.6448 $(0.0704) -- $0.5744 $(0.6438) $(0.0806)
1996-Administrative Shares(l)....... 9.91 0.4083 (0.0703) -- 0.3380 (0.4080) --
1996-Service Shares(l).............. 9.77 0.3756 0.0898 -- 0.4654 (0.3754) --
1995-Institutional Shares........... 9.24 0.6423 0.7610 -- 1.4033 (0.6433) --
For the Period January 5, 1994(g)through October 31,
- ----------------------------------------------------
1994-Institutional Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) --
</TABLE>
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------------------
In excess of
net realized Net
gain on increase Ratio of
In excess investment, From Total (decrease) Net asset net
of net option and paid distributions in net value at expenses
investment futures in to asset end of Total to average
income transactions capital shareholders value period return(k) net assets
--------------------------------------------------------------------------------------------------
GS CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... -- -- -- $(0.7244) $(0.1500) $9.85 5.98% 0.45%
1996-Administrative Shares(l)....... -- -- -- (0.4080) (0.0700) 9.84 3.56(f) 0.70(b)
1996-Service Shares(l).............. -- -- -- (0.3754) 0.0900 9.86 4.90(f) 0.95(b)
1995-Institutional Shares........... -- -- -- (0.6433) 0.7600 10.00 15.72 0.45
For the Period January 5, 1994(g)through October 31,
- ----------------------------------------------------
1994-Institutional Shares........... -- -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45(b)
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-------------------------
Ratio of Ratio of
net Net net
investment assets investment
income at end Ratio of income
(loss) Portfolio of expenses (loss)
to average turnover period to average to average
net assets rate(d) (in 000s) net assets net assets
------------------------------------------------------------
GS CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996-Institutional Shares........... 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administrative Shares(l)....... 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service Shares(l).............. 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institutional Shares........... 6.56 383.26 55,502 0.96 6.05
For the Period January 5, 1994(g)through October 31,
- ----------------------------------------------------
1994-Institutional Shares........... 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
</TABLE>
- ------------------
(a)Calculated based on the average shares outstanding methodology.
(b)Annualized.
(c)Class A share activity commenced on May 15, 1995.
(d)Includes the effect of mortgage dollar roll transactions.
(e)Administration share activity commenced on April 15, 1993.
(f)Not annualized.
(g)Commencement of operations.
(h)GS Short Duration Government Fund Administration shares were redeemed in
full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i)Service share activity commenced on April 10, 1996.
(j)Administration and service share activity commenced on May 20, 1993 and
September 20, 1994 respectively.
(k)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of the
investment at the net asset value at the end of the period and not sales
charges. For Class A shares only, total return would be reduced if a sales
charge were taken into account.
(l)Administration and Service share activity commenced on February 28, 1996 and
March 13, 1996 respectively.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund and GS
Core Fixed Income Fund:
We have audited the accompanying statements of assets and liabilities of the
GS Adjustable Rate Government Fund, GS Short Duration Government Fund, GS Short
Duration Tax-Free Fund and GS Core Fixed Income Fund (portfolios of Goldman
Sachs Trust, a Massachusetts Business Trust) including the statements of
investments, as of October 31, 1996, and the related statements of operations,
the statements of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the GS Adjustable Rate Government Fund, GS Short Duration Government
Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund as of
October 31, 1996, the results of their operations and the changes in their net
assets and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 12, 1996
<PAGE>
Goldman Sachs
1 New York Plaza
New York, NY 10004
Trustees
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
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, Administrator,
Distributor and Transfer Agent
The Goldman Sachs
Fixed Income Funds
-------------------------------------------------------------------
Annual Report
October 31, 1996
GS Adjustable Rate Government Fund
GS Short Duration Government Fund
GS Short Duration Tax-Free Fund
GS Core Fixed Income Fund
Goldman
Sachs
GST/AR/1096(INST)
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust Prospectus which contains
facts concerning each Fund's objectives and policies, management, expenses and
other information.
- --------------------------------------------------------------------------------
