<PAGE>
The Goldman Sachs
FIXED INCOME FUNDS
Goldman Sachs Government Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Municipal Income Fund
Goldman Sachs High Yield Fund
ANNUAL REPORT Goldman Sachs
October 31, 1997
<PAGE>
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LETTER TO SHAREHOLDERS
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DEAR SHAREHOLDERS:
We are pleased to present the annual report for the Goldman Sachs Fixed
Income Funds for the fiscal year ended October 31, 1997. In addition to
reviewing the performance and activity of the Goldman Sachs Fixed Income Funds
during this period, we will also provide a brief overview of the economy and
bond market to help put their performance in perspective. Though the U.S.
economy continued to grow at a healthy pace, inflation remained subdued and the
fixed income markets achieved favorable results.
ECONOMIC REVIEW
The U.S. economy was strong throughout the period under review, but during
the summer and fall, growth cooled slightly from the torrid pace of earlier in
the year. Annualized real Gross Domestic Product (GDP) climbed 3.8% for the
fourth quarter of 1996 and a dramatic 4.9% for the first quarter of 1997,
fueled by a sharp increase in retail sales, rising factory orders and buoyant
construction outlays. To curb potential overheating, the Federal Reserve raised
the Federal funds rate a quarter-percentage point to 5.50% at the end of March.
During the second quarter, real GDP moderated to a 3.3% rate (annualized) when
an unusually cool spring impacted weather-sensitive sectors such as retail
sales and construction. Though consumer consumption picked up significantly
during the summer, overall economic growth was somewhat restrained because of
weaker export growth and a slower rate of inventory accumulation. As a result,
third-quarter GDP expanded at a 3.3% annual rate, the same pace as the prior
quarter. In October, the pattern of economic activity remained robust, as
retail sales held firm, consumer confidence remained high and the unemployment
rate sank to a 24-year low. Despite continued economic strength, consumer
inflation shrank to 2.1% over the 12-month period, its lowest level since 1986.
FIXED INCOME MARKET REVIEW
When the Funds' fiscal year began in November 1996, bonds rallied on
expectations of a continuation of the slow-growth, low-inflation environment.
However, this optimistic view quickly soured when a steady flow of stronger-
than-expected economic data revived inflation fears. From December through
March, bond yields climbed as investors feared that the acceleration would
prompt the Fed to raise rates. When the Fed eventually increased the Federal
funds rate, the move was perceived as the first in a series of hikes.
During the second quarter of 1997, prospects for the bond market brightened
due to slowing economic growth. As the threat of inflation receded, the need
for additional rate hikes subsided and bonds began to recoup their earlier
losses. However, fixed income investors remained wary of reports suggesting
that the economy was reaccelerating. In this skittish environment, the bond
market came under renewed pressure when signs of strengthening activity emerged
during the summer. The decline proved to be short-lived: Bonds quickly
recovered on the back of reassuring inflation data and a surge of buying
interest. Treasury prices continued to rise sharply through the end of the
period, when demand soared as investors sought a safe haven in the wake of
steep sell-offs in global equity markets. By the end of October, Treasury
yields fell to 20-month lows.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Market Overview 1
Goldman Sachs Government Income Fund 3
Goldman Sachs Global Income Fund 11
Goldman Sachs Municipal Income Fund 20
</TABLE>
<TABLE>
<S> <C>
Goldman Sachs High Yield Fund 29
Financial Statements 38
Notes to Financial Statements 42
Financial Highlights 51
</TABLE>
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1
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THE YIELD CURVE SHIFTED LOWER FOR MOST MATURITIES
During the period under review, the yield on six-month Treasury bills rose
from 5.26% on October 31, 1996 to approximately 5.31% on October 31, 1997. For
the same period, the yield on the 30-year U.S. Treasury bond fell from 6.64% to
6.15%.
HISTORICAL TREASURY YIELD CURVE
[GRAPH]
10/31/96 10/31/97
3-Month 0.0514 0.0519
6-Month 0.0526 0.0531
1-Year 0.054 0.0535
2-Year 0.0573 0.0561
3-Year 0.0586 0.0568
5-Year 0.0607 0.0572
10-Year 0.0634 0.0583
30-Year 0.0664 0.0615
Source: Bloomberg, L.P.
The one- to 30-year portion of the yield curve shifted downward while the short
end of the curve rose slightly.
OUTLOOK: FED IS LIKELY TO REMAIN ON HOLD WHILE IT ASSESSES THE IMPACT OF THE
ASIAN FINANCIAL CRISIS
Uncertainty regarding the U.S. economic and financial outlook has climbed
sharply recently, as the tug-of-war between a strong domestic economy and the
expected trade drag from emerging market economies has intensified. Though most
domestic economic indicators continue to point toward considerable forward
momentum, Federal Reserve officials are likely to defer any rate hikes until
they can assess the potential impact of Asia's financial crisis on U.S.
economic activity. If evidence mounts that the repercussions from the recent
turmoil will be insufficient to slow U.S. growth to a sustainable long-term
pace, Goldman Sachs' economists expect the Fed to resume tightening in 1998.
We thank you for your investment in the Goldman Sachs Fixed Income Funds, and
we look forward to continuing to help you achieve your investment goals 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 28, 1997
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2
<PAGE>
Letter to Shareholders
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GOLDMAN SACHS GOVERNMENT INCOME FUND
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INVESTMENT OBJECTIVE
The Goldman Sachs Government Income Fund seeks to provide shareholders with a
high level of current income consistent with safety of principal. Under normal
conditions, at least 65% of the portfolio's total assets will be invested in
U.S. government securities and in repurchase agreements collateralized by such
securities. The fund may also invest in securities of nongovernmental issuers,
including asset-backed securities, privately issued mortgage-backed securities
and corporate debt obligations. Such securities will be rated triple-A at the
time of investment or, if unrated, deemed to be of comparable quality by
Goldman Sachs Asset Management, the fund's investment adviser. The fund's
interest rate sensitivity is expected to be comparable to that of a five-year
bond.
NEW SHARE CLASSES
To accommodate different clients' needs and preferences, the fund added three
new share classes as of August 15, 1997: Class C, Institutional and Service
shares.
MORTGAGE-BACKED SECURITIES PERFORMED WELL, BUOYED BY LOW VOLATILITY AND STRONG
INVESTOR DEMAND
Mortgage-backed securities (MBS) performed well throughout the 12-month
period under review, supported by an accommodative interest rate environment.
During most of the period, rates remained within a generally narrow range,
which reassured investors that the pace of mortgage refinancing was likely to
remain subdued. (In contrast, declining interest rates tend to accelerate the
pace of mortgage refinancing, which depresses MBS prices.) As a result, the MBS
sector enjoyed strong demand from a wide range of investors, who viewed these
securities as a yield-enhanced alternative to Treasuries. Most of the MBS
sector's gains were achieved during the first half of the period, when yield
spreads relative to Treasuries narrowed significantly. Although the sector's
outperformance slowed during the balance of the period, spreads remained firm
due to low volatility and MBS's continued attractiveness relative to Treasuries
and agencies.
PERFORMANCE REVIEW
The fund's strongest performers during the period under review were its
investments in collateralized mortgage obligations (CMOs), which benefited
along with other mortgage-backed securities in the favorable interest rate
environment.
We are pleased to report that the fund performed well relative to its peers.
For the 12-month period ended October 31, 1997, the fund's Class A shares
ranked within
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C* INSTITUTIONAL* SERVICE*
(10/31/96- (10/31/96- (8/15/97- (8/15/97- (8/15/97-
10/31/97) 10/31/97) 10/31/97) 10/ 31/97) 10/31/97)
---------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Total Return (based on 8.72% 7.96% 2.72% 2.94% 2.85%
net asset value [NAV])
Return From Monthly 7.04% 6.22% 1.19% 1.40%
Distributions 1.31%
Return From Price 1.68% 1.74% 1.53% 1.54% 1.54%
Appreciation
Total Return of Lehman
Brothers Government /
Mortgage Index 8.82% 8.82% 2.93% 2.93% 2.93%
NAV (as of 10/31/97) $14.59 $14.61 $14.60 $14.59 $14.59
NAV Change +$0.23 +$0.24 +$0.22 +$0.22 +$0.22
Total Distributions Paid
Per Share+ $0.97 $0.86 $0.17 $0.20 $0.19
</TABLE>
* New share class opened during the period. Performance and NAV change are
cumulative from inception date.
+ Dividends are declared daily and paid on a monthly basis. The fund
distributes substantially all of its taxable income, as is required for all
investment companies.
The fund's NAV and yield are not guaranteed by the U.S. government or by its
agencies, instrumentalities or sponsored enterprises. All performance figures
represent past performance and in no way guarantee future results, which will
fluctuate as market conditions change. The investment return and principal
value of an investment in the fund will fluctuate, and therefore an investor's
shares when redeemed may be worth more or less than their original cost.
Goldman, Sachs & Co., the distributor of the fund, is not a bank, and fund
shares distributed by Goldman, Sachs & Co. are not deposits or obligations of,
or endorsed or guaranteed by, any bank or depository institution, nor are they
insured by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other government agency.
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3
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the top 20% of intermediate U.S. government income funds (16th out of 123)
based on total return, according to Lipper Analytical Services, Inc. In
addition, the fund's Class B shares were ranked in the top third of its
category, 39th out of 123 funds, for the same period. (Please note that Lipper
rankings do not take sales charges into account and that past performance is
not a guarantee of future results. Class C, Institutional and Service shares
were not ranked for this period because they have been in existence less than
12 months.)
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
During the period, we adhered to our strategy of focusing on securities that
we believed would fare well relative to the overall market regardless of the
direction of interest rates. Our investment philosophy is to match the fund's
duration (4.2 years as of October 31) to that of its benchmark and seek excess
return over the benchmark through sector weightings and specific security
selection.
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1997*
[PIE CHART]
Fixed Rate Mortgage Pass-Throughs 29.6%
U.S. Treasuries 22.7%
CMOs 18.6%
Asset-Backed Securities 17.9%
U.S. Government Agency Obligations 8.2%
Municipal Bonds 2.7%
Repos/Cash Equivalents 0.3%
* 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.
. Fixed Rate Mortgage Pass-Throughs. As of October 31, fixed rate mortgage
pass-throughs represented 29.6% of the portfolio, compared with 40.4% a year
earlier. After yield spreads between pass-throughs and Treasuries narrowed
during the period due to the favorable market environment and strong investor
demand, we reduced the fund's allocation to the sector in favor of more
attractively valued securities.
We also used mortgage dollar rolls during the period, which helped the
portfolio to benefit from short-term supply and demand imbalances in the
mortgage settlement process. (Mortgage dollar rolls refer to transactions that
involve selling mortgage securities owned by the fund and simultaneously
contracting to buy back similar mortgage securities with the same coupon on a
specified future date--usually one month forward.) At all times, we "cover" the
mortgage dollar rolls by keeping cash or high-grade liquid assets equal to the
dollar amount of the forward commitment in a segregated account with the fund's
custodian.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. The portfolio
held a 22.7% allocation in U.S. Treasuries as of October 31, up from 16.2% a
year earlier. We added to the fund's holdings in Treasuries as we trimmed its
exposure to alternative sectors, such as pass-throughs, that had become more
fully valued and appeared to have limited potential for further outperformance.
The fund's repurchase agreement/cash equivalent holdings, which accounted for
1.1% of the portfolio a year ago, represented a scant 0.3% by the end of the
period.
. CMOs. CMO securities performed well during the period as the sector benefited
from the same favorable influences as other mortgage-backed securities. During
the period, we trimmed the CMO allocation to 18.6%, down from 22.0% last
October, as these securities became more fully valued. Within the sector,
planned amortization class (PAC) CMOs were 9.0% of the portfolio, sequential-
pay/support CMOs were 7.1% of the portfolio and the remainder was invested in a
variety of other CMO structures, discussed below.
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4
<PAGE>
Letter to Shareholders
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GOLDMAN SACHS GOVERNMENT INCOME FUND (continued)
- --------------------------------------- ---------------------------------------
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. Asset-Backed Securities (ABS). As of October 31, 17.9% of the portfolio was
invested in asset-backed securities. ABSs continued to perform well during the
period, but heavy issuance during the second half of the period caused yield
spreads to widen and restrained the sector's relative performance.
. U.S. Government Agency Obligations. During the period, the fund's allocation
to agency obligations was raised to 8.2%, up from 0.4% a year ago, as we added
securities backed by Small Business Administration (SBA) loans. These
securities are guaranteed by the U.S. government and offer nearly twice the
yield spread of conventional (i.e., GNMA, FNMA, FHLMC) agencies.
. Municipal Bonds. We added a small position in municipal bonds (2.7% as of
October 31) to take advantage of seasonal supply imbalances in the municipal
sector. We expect to "unwind" this trade when equilibrium is restored.
. Issuer Composition. The portfolio composition of the fund's mortgage-backed
security holdings by issuer was 16.5% in Federal National Mortgage Association
(FNMA) issues, 11.5% in Federal Home Loan Mortgage Corporation (FHLMC) issues
and 10.6% in Government National Mortgage Association (GNMA) issues.
. Credit Quality. As of October 31, 69.5% of the portfolio was invested in U.S.
government and agency securities, 27.5% of the portfolio was invested in
triple-A-rated securities, 2.7% was invested in municipal bond issues and 0.3%
was invested in repurchase agreements/cash equivalents.
. Prudent Use of Derivatives. As noted, the portfolio held PAC CMOs and
sequential-pay/support CMOs, which are generally considered to be lower risk
derivative instruments. The portfolio also had small positions in higher risk
derivative securities, which we used in seeking to enhance return without
incurring undue risk. These included inverse floaters, interest-only (IO) CMOs
and principal-only (PO) CMOs, and their combined position accounted for 2.5% of
the portfolio as of the end of the period. In addition, we used futures in
seeking to manage the duration to approximate that of the benchmark.
MARKET OUTLOOK
We believe Federal Reserve officials are likely to keep monetary policy on
hold until the first half of 1998, when tight labor markets may generate
sufficient wage pressures to prompt the Fed to raise rates.
In terms of individual fixed income sectors, the recent turmoil in the
financial markets caused the spreads of mortgage pass-throughs to widen
relative to Treasuries. Lower coupon pass-throughs underperformed higher coupon
pass-throughs during this volatile period and, as a result, currently represent
a more attractive risk/return trade-off. In the CMO sector, liquidity is poor
in the wake of the recent gyrations in the financial markets, largely due to
investor attention being diverted elsewhere rather than sector-specific
reasons. Similarly, the ABS sector also came under pressure at the end of the
period due to supply pressures and general uncertainty related to the Asian
financial crisis. Although investors have been buying selectively at these
wider yield spread levels, we believe the sector may remain soft through year-
end.
/s/ Jonathan A. Beinner
Jonathan A. Beinner
/s/ Erica Adelberg
Erica Adelberg
/s/ James B. Clark
James B. Clark
Portfolio Managers
Goldman Sachs Government Income Fund
November 28, 1997
5
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
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GOLDMAN SACHS GOVERNMENT INCOME FUND
October 31, 1997
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In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1997. The
performance for each class of the Goldman Sachs Government Income Fund
(assuming both the maximum sales charge of 4.5% and no sales charge for Class A
shares and the appropriate redemption fee and no redemption fee for the Class B
and Class C shares), is compared with its benchmarks--the Lehman Brothers
Mutual Fund Government/Mortgage Index ("Lehman Gov't/MBS Index") and the Lehman
Brothers Mutual Fund General U.S. Government Index ("Lehman U.S. Gov't Index").
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.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class A Shares (a) Class A Shares (a) Lehman Gov't/MBS Lehman U.S. Gov't
(No Sales Charge) (W/Sales Charge) Index Index
<S> <C> <C> <C> <C>
3/1/93 10000 9550 10000 10000
10/31/93 10506 10033 10584 10699
10/31/94 10192 9734 10267 10220
10/31/95 11710 11183 11819 11792
10/31/96 12392 11834 12500 12395
10/31/97 13472 12866 13603 13468
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class B Shares Class B Shares Lehman Gov't/MBS Lehman U.S. Gov't
(W/out redempt. charge) (W/redempt. charge) Index Index
<S> <C> <C> <C> <C>
5/1/96 10000 10000 10000 10000
10/31/96 10485 10485 10512 10508
10/31/97 11319 10919 11439 11418
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class C Shares Class C Shares Lehman Gov't/MBS Lehman U.S. Gov't
(W/out redempt. charge) (W/redempt. charge) Index Index
<S> <C> <C> <C> <C>
8/15/97 10000 10000 10000 10000
10/31/97 10272 10172 10293 10326
</TABLE>
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6
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
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GOLDMAN SACHS GOVERNMENT INCOME FUND
October 31, 1997
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Institutional Shares Lehman Gov't/MBS Index Lehman U.S. Gov't
8/15/97 50000 50000 50000
10/31/97 51470 51465 51630
[GRAPH APPEARS HERE]
Service Shares Lehman Gov't/MBS Index Lehman U.S. Gov't
8/15/97 50000 50000 50000
10/31/97 51425 51465 51630
------------------------
<TABLE>
<CAPTION>
Average Annual Total
Return
------------------------
Since
One Year Inception(b)
<S> <C> <C>
Class A Shares, excluding sales
charge 8.72% 7.14%
--------------------------------------------------
Class A Shares, including sales
charge 2.45% 6.06%
--------------------------------------------------
Class B Shares, excluding
redemption charge 7.96% 8.59%
--------------------------------------------------
Class B Shares, including
redemption charge 3.19% 4.59%
--------------------------------------------------
Class C Shares, excluding
redemption charge N/A 2.72%(c)
--------------------------------------------------
Class C Shares, including
redemption charge N/A 1.72%(c)
--------------------------------------------------
Institutional Shares N/A 2.94%(c)
--------------------------------------------------
Service Shares N/A 2.85%(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) Class A, Class B, Class C, Institutional and Service shares commenced
operations February 10, 1993, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, respectively.
(c) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Class C, Institutional and Service had not
completed a full twelve months of operations.
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7
<PAGE>
Statement of Investments
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GOLDMAN SACHS GOVERNMENT INCOME FUND
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS--47.3%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)--5.0%
$ 1,000,000 7.00% TBA-15 Yr(a) $ 1,014,060
2,000,000 6.50 TBA-15 Yr(a) 1,999,360
1,000,000 7.50 TBA-30 Yr(a) 1,022,180
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$ 4,035,600
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FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--13.7%
$ 493,919 6.50% 08/01/25 $ 488,051
273,298 6.50 09/01/25 269,712
319,238 6.50 10/01/25 315,050
376,084 6.50 11/01/25 371,150
69,575 6.50 12/01/25 68,510
405,889 6.50 12/01/25 400,478
2,000,000 6.50 TBA-7 Yr(a) 2,004,360
1,000,000 7.50 TBA-15 Yr(a) 1,025,620
6,000,000 7.00 TBA-30 Yr(a) 6,018,720
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$10,961,651
- ----------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--10.3%
$ 216,326 9.00% 10/15/19 $ 234,443
92,691 9.00 12/15/19 100,338
290,474 7.50 04/15/23 297,916
306,387 7.00 05/15/23 308,970
330,300 7.00 06/15/23 333,084
330,759 7.00 07/15/23 333,547
521,822 7.50 07/15/23 535,191
161,311 8.00 12/15/26 167,410
470,106 8.00 12/15/26 487,881
330,803 8.00 12/15/26 343,209
1,000,000 7.00 TBA-30 Yr(a) 1,005,620
3,000,000 7.50 TBA-30 Yr(a) 3,067,500
1,000,000 8.00 TBA-30 Yr(a) 1,037,810
- ----------------------------------------------------------------------------------------------
$ 8,252,919
- ----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--18.3%
INTEREST ONLY--0.2%
FNMA Interest-Only Stripped Security, Series 151, Class 2
$ 574,420 9.50%(b) 07/25/22 $ 163,164
- ----------------------------------------------------------------------------------------------
$ 163,164
- ----------------------------------------------------------------------------------------------
INVERSE FLOATER--1.8%
FHLMC Series 1666, Class SB
$ 1,082,875 6.24%(c) 01/15/24 $ 1,030,984
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
INVERSE FLOATER (CONTINUED)
FNMA Remic Trust, Series 1992-62, Class S
$ 404,038 9.42%(c) 05/25/99 $ 410,220
- ------------------------------------------------------------------------------------------------
$ 1,441,204
- ------------------------------------------------------------------------------------------------
NON-AGENCY COMMERCIAL MBS--1.9%
First Union--Lehman Brothers Commercial Mortgage Services
Series 1997-C1, Class A2
$ 400,000 7.30% 12/18/06 $ 422,469
JP Morgan Commercial Mortgage Finance Corp., Series 1997-C4
500,000 7.32 12/26/28 522,813
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1
500,000 7.46 05/15/06 524,063
- ------------------------------------------------------------------------------------------------
$ 1,469,345
- ------------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS--8.9%
FHLMC Series 1919, Class D
$ 3,000,000 6.50% 06/15/22 $ 3,007,020
FHLMC Series 1985, Class PC
1,000,000 6.35 05/17/18 1,005,310
FNMA Remic Trust, Series 1997-9, Class B
1,000,000 6.50 10/25/22 1,005,580
GE Capital Mortgage Services, Inc. Series 1997-8, Class A13
2,000,000 7.25 10/25/27 2,054,000
- ------------------------------------------------------------------------------------------------
$ 7,071,910
- ------------------------------------------------------------------------------------------------
PRINCIPAL ONLY--0.5%
FNMA Remic Trust, Series G-35, Class N
$ 521,085 6.30%(d) 10/25/21 $ 423,595
- ------------------------------------------------------------------------------------------------
$ 423,595
- ------------------------------------------------------------------------------------------------
SEQUENTIAL FIXED RATE CMOS--2.1%
Citicorp Mortgage Securities Inc. Series 1993-11, Class A6
$ 743,151 6.25% 09/25/08 $ 737,005
GE Capital Mortgage Services, Inc., Series 1994-10, Class A22
996,703 6.50 03/25/24 932,196
- ------------------------------------------------------------------------------------------------
$ 1,669,201
- ------------------------------------------------------------------------------------------------
SUPPORT--2.9%
Housing Securities, Inc., Series 1994-1, Class A13
$ 1,455,585 6.50% 03/25/09 $ 1,415,105
</TABLE>
---------------------------------------
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The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
Statement of Investments
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GOLDMAN SACHS GOVERNMENT INCOME FUND (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Salomon Brothers Mortgage Securities
$ 1,000,000 6.00% 09/30/08 $ 959,490
- --------------------------------------------------------------------------------------------------
$ 2,374,595
- --------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $14,613,014
- --------------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS (COST $37,315,183) $37,863,184
- --------------------------------------------------------------------------------------------------
AGENCY DEBENTURES--2.9%
Sri Lanka Aid
$ 2,375,000 5.84% 02/21/16 $ 2,356,000
- --------------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $2,339,375) $ 2,356,000
- --------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--17.4%
AESOP Funding Series 1997-1, Class A2(g)
$ 1,350,000 6.40% 10/20/03 $ 1,364,573
AFC Series 1997-1, Class A
1,307,028 5.88 07/25/27 1,302,532
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
720,000 6.23 06/15/03 723,370
CPS Auto Grantor Trust
737,835 6.30 08/15/02 740,115
Fasco Auto Trust, Series 1996-1
940,730 6.65 11/15/01 953,693
Fingerhut Master Trust, Series 1996-1, Class A
590,000 6.45 02/20/02 594,053
First Merchants Auto Trust Series 1996-B, Class A1
846,804 5.74 03/15/00 846,279
First USA Credit Card Master Trust Series 1997-6, Class A
1,600,000 6.42 03/17/05 1,616,992
Ford Credit Auto Loan Master Trust, Series 1996-1, Class A
650,000 5.50 02/15/03 636,591
Merrill Lynch Mortgage Investments, Inc. Series 1997-FF2, Class A
2,240,134 5.93 08/25/28 2,240,134
Mid-State Trust Series 4, Class A
1,138,418 8.33 04/01/30 1,227,977
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
313,954 6.85 06/15/01 318,912
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Premier Auto Trust, Series 1993-6, Class A2
$ 159,891 4.65% 11/02/99 $ 158,692
Premier Auto Trust, Series 1994-1, Class A3
65,058 4.75 02/02/00 64,935
Prudential Securities, Series 1995-2, Class A
630,842 6.02 11/15/15 632,817
Sears Credit Account Master Trust, Series 1995-2, Class A
460,000 8.10 06/15/04 475,953
- -----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $13,870,581) $13,897,618
- -----------------------------------------------------------------------------------------------
INSURED REVENUE BONDS--2.7%
New Jersey Economic Development Authority Series A
$ 2,000,000 7.43% 02/15/29 $ 2,171,840
- -----------------------------------------------------------------------------------------------
TOTAL INSURED REVENUE BONDS
(COST $2,000,000) $ 2,171,840
- -----------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--5.0%
Small Business Administration
$ 1,676,696 7.15% 03/01/17 $ 1,737,543
1,380,207 7.50 04/01/17 1,456,022
800,000 7.30 05/01/17 834,128
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $3,856,903) $ 4,027,693
- -----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--22.0%
United States Treasury Bonds
$ 450,000 7.50% 11/15/16 $ 514,899
2,120,000 8.75 05/15/20 2,763,950
700,000 7.88 02/15/21 840,112
100,000(e) 8.13 05/15/21 123,187
690,000 7.63 02/15/25 817,001
United States Treasury Notes
3,400,000 6.00 08/15/99 3,419,652
2,310,000(e) 6.88 08/31/99 2,358,371
3,900,000 5.63 11/30/00 3,888,417
1,750,000 6.63 07/31/01 1,800,855
United States Treasury Principal Only Stripped Securities(d)
950,000 5.93 11/15/04 630,069
1,850,000 5.96 05/15/20 450,826
- -----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $17,086,592) $17,607,339
- -----------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--25.3%
Joint Repurchase Agreement Account(e)
$20,200,000 5.76% 11/03/97 $20,200,000
- -------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $20,200,000) $20,200,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $96,668,634(F)) $98,123,674
- -------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Unrealized
Type Long (Short)(h) Settlement Month Gain (Loss)
- --------------------------- --------------- ---------------- -----------
<S> <C> <C> <C>
5 Year U.S. Treasury Notes 31 December 1997 $ 24,594
10 Year U.S. Treasury Notes (21) December 1997 (20,938)
U.S. 20 Year Long Term Bond 9 December 1997 55,162
----------
$ 58,818
- --------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $1,557,196
Gross unrealized loss for investments in which cost
exceeds value (102,858)
- --------------------------------------------------------------------------
Net unrealized gain $1,454,338
- --------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(a) TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + / -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(b) Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due to
the amortization of related premiums.
(c) Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1997.
(d) The interest rate disclosed for these securities represents effective
yields to maturity.
(e) Portions of these securities are being segregated for open TBA purchases,
open futures contracts and futures margin requirements.
(f) The aggregate cost for Federal income tax purposes is $96,669,336.
(g) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold, normally to qualified institutional
buyers in transactions exempt from registration. Total market value of the
Rule 144A securities amounted to $1,364,573 as of October 31, 1997.
(h) Each 5-Year and 10-Year U.S. Treasury Note and each U.S. Long 20-Year Term
Bond contract represents $100,000 in notional par value. The total notional
amount and market value at risk are $6,100,000 and $3,412,969,
respectively. The determination of notional amounts as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
INVESTMENT OBJECTIVE
The Goldman Sachs Global Income Fund seeks high total return, composed of
both current income and capital appreciation. All securities purchased by the
fund will be rated, at the time of investment, at least BBB by S&P or Baa by
Moody's. The fund will invest at least 50% of its total assets in securities
rated AAA by S&P or Aaa by Moody's, at the time of investment. The maximum
duration of the fund is 7.5 years and its approximate interest rate sensitivity
is comparable to that of a six-year bond. Under normal market conditions, the
fund's neutral position is to be fully hedged into U.S. dollars to best serve
the needs of U.S. shareholders. However, the fund may engage in currency
transactions, both to hedge exchange rate risk and to seek to enhance returns.
NEW SHARE CLASSES
To accommodate different clients' needs and preferences, the fund added
Service shares on March 12, 1997 and Class C shares on August 15, 1997.
MOST GLOBAL BONDS PERFORMED WELL, SUPPORTED BY FAVORABLE ECONOMIC CONDITIONS
AND EMU-RELATED YIELD CONVERGENCE
Global bonds performed well during the period under review. Though fears of
rising inflation impacted several major markets during the first quarter of
1997, most of these bonds subsequently rebounded. Government bonds in the U.S.
and Europe closed the period on a particularly strong note. Demand for these
securities surged when they were perceived as a safe haven in the wake of the
spreading Asian financial crisis.
In Europe, the U.K. and the higher yielding markets (e.g., Spain and Italy)
significantly outperformed the "core" and "near core" markets (e.g., Germany,
France and the Netherlands). The U.K. was the strongest European performer
during the fiscal year under review, which was particularly notable because it
trailed most other markets early in the period. Within continental Europe,
Spain and Italy achieved the best returns as their markets were buoyed by weak
economic growth and low inflation. In addition, these markets benefited from
convergence trades triggered by rising optimism regarding their inclusion in
the European Monetary Union (EMU). However, "core" European markets lagged, as
a rebound in German manufacturing and production toward the end of the period
led the Bundesbank to increase interest rates in a preemptive strike against
inflation.
The dollar bloc achieved positive returns, but performance varied widely.
Australia posted the strongest performance of the major global bond markets, as
lower-than-expected wage and inflation data prompted the Reserve Bank to
continue to cut interest rates. In contrast, the U.S. trailed all other bond
markets. Though Treasuries performed well during the latter half of the period,
their 12-month return suffered because of their weak performance during the
first quarter of 1997, when accelerating growth pushed yields higher. In Japan,
Japanese Governments Bonds (JGBs) rallied as poor economic conditions--
including weak production, a buildup in inventories and anemic domestic
demand--made interest rate hikes increasingly unlikely. As a result, JGBs fared
better than Treasuries and several European bonds.
PERFORMANCE REVIEW: COUNTRY ALLOCATIONS CONTRIBUTED TO PERFORMANCE
During the period under review, the fund underperformed its benchmark, the
J.P. Morgan Global Government Bond Index (hedged into U.S. dollars) (the
"Index"). The Index covers 14 major bond markets and reflects their currency
exposures. The largest contributors to the fund's performance included its
overweighted positions in the U.K. and Italy, two of the strongest markets
during the period. However, the fund's underweightings in Canada and Japan
proved to be a drag on its performance relative to the benchmark when those
markets performed well.
However, we are pleased to report that the fund fared well relative to its
peers. For the three-year period ended October 31, 1997, Morningstar, Inc., an
independent
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
rating agency, rated the fund's Class A shares five stars (in a universe of
1,338 taxable bond funds), its highest rating./1/
The fund also performed well compared with its peers in Lipper Analytical
Services, Inc.'s global income category. For the 12-month period ended October
31, the Institutional, Class A and Class B shares ranked 6th, 10th and 14th,
respectively, out of 137 global income funds based on total return. For the
five-year period ended October 31, 1997, the fund's Class A shares ranked
within the top quartile (10th out of 48 funds) of its category. (Please note
that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. Class C and Service shares
were not ranked for these periods because they were in existence less than 12
months.)
Though the portfolio is typically fully hedged into U.S. dollars, we
successfully employed several currency strategies during the period. For
example, the fund held long U.S. dollar positions against the yen and several
European currencies, which benefited performance when continued weakness in
Japanese and European economies was reflected in their exchange rates.
- ------------------------
/1/ Source: (C)1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
10/31/97. The ratings are subject to change every month. Past performance is no
guarantee of future results. Morningstar ratings are calculated from a fund's
three-, five-, and 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 fund's Class A shares received four stars for the
five-year period and were rated among 732 taxable bond funds. The Morningstar
ratings apply only to the fund's Class A shares; the fund's Class B, Class C,
Institutional and Service shares have not been rated. Class B, Class C,
Institutional and Service shares are subject to additional fees and expenses,
which may have the effect of lowering performance and may affect any future
Morningstar rating. Morningstar rates each fund against its peers in the same
category. In all, there are four Morningstar categories (domestic equity,
international equity, taxable bond and municipal). Morningstar ratings range
from five stars (highest) to one star (lowest). Funds with five-star ratings
are in the top 10% of their category, four-star ratings in the next 22.5%,
three stars the next 35%, two stars the next 22.5% and one star the lowest 10%
of their categories.
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C* INSTITUTIONAL SERVICE*
(10/31/96 - (10/31/96 - (8/15/97 - (10/31/96 - (3/12/97 -
10/31/97) 10/31/97) 10/31/97) 10/31/97) 10/31/97)
----------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Total Return (based on
net asset value [NAV]) 9.66% 9.04% 3.03% 10.26% 6.42%
Return From Monthly
Distributions 5.62% 5.15% 1.27% 6.21% 0.22%
Return From Price
Appreciation 4.04% 3.89% 1.76% 4.05% 6.20%
Total Return of J.P.
Morgan Global
Government Bond Index 10.58% 10.58% 3.01% 10.58% 7.41%
NAV (as of 10/31/97) $15.10 $15.08 $15.06 $15.09 $15.09
NAV Change +$0.57 +$0.55 +$0.26 +$0.57 +$0.40
Total Distributions Paid
Per Share+ $0.79 $0.73 $0.19 $0.87 $0.52
</TABLE>
* New share class opened during the period. Performance and NAV change are
cumulative from inception date.
+ The fund declares and pays dividends on a monthly basis. The fund distributes
substantially all of its taxable income, as is required for all investment
companies.
The fund's foreign investments and active management techniques entail risks in
addition to those customarily associated with investing in dollar-denominated
securities of U.S. issuers. Compared with U.S. securities markets, foreign
markets may be less liquid, more volatile and less subject to governmental
regulation, and may make available less public information about issuers. The
fund may incur losses because of changes in securities prices expressed in
local currencies, movements in exchange rates or both. All performance figures
represent past performance and in no way guarantee future results, which will
fluctuate as market conditions change. The investment return and principal
value of an investment in the fund will fluctuate, and therefore an investor's
shares when redeemed may be worth more or less than their original cost.
Goldman, Sachs & Co., the distributor of the fund, is not a bank, and fund
shares distributed by Goldman, Sachs & Co. are not deposits or obligations of,
or endorsed or guaranteed by, any bank or depository institution, nor are they
insured by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other government agency.
---------------------------------------
- ---------------------------------------
12
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND (continued)
- --------------------------------------- ---------------------------------------
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1997*
[PIE CHART]
U.S. 31.5%
U.K. 14.1%
Japan 12.1%
Italy 11.1%
Germany 11.0%
New Zealand 7.4%
Spain 4.0%
Cash 3.5%
France 3.0%
Sweden 1.3%
Australia 1.0%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
. Dollar Bloc. As of October 31, 1997, 39.9% of the fund was invested in the
dollar bloc countries (e.g., the U.S., Australia and New Zealand) compared with
43.8% for the Index. Though the fund was underweighted in the dollar bloc in
terms of market positions, the sector represented a neutral allocation relative
to the benchmark on a duration-weighted basis.
U.S. As noted, the U.S. lagged other major bond markets. The fund was
underweighted in U.S. Treasuries relative to the Index (31.5% versus 39.6% as
of October 31), which worked in its favor when Treasuries came under pressure
during the first quarter of 1997 amid accelerating growth and a Federal Reserve
rate hike. When Treasuries later rallied, however, the underweighting detracted
from the fund's performance relative to the benchmark.
Other Dollar Bloc Countries. In June, we initiated a position in New Zealand
(7.4% of the portfolio as of October 31), in the expectation that economic
weakness would push interest rates lower (and bond prices higher). When yield
spreads between the U.S. and New Zealand narrowed, the allocation contributed
to performance. The portfolio also held an overweighted position in Australian
bonds during the first half of the period, which we then sold at a profit after
that market rallied. Toward the end of the period, we reestablished a neutral
weighting in Australia (1.0% as of October 31). The fund briefly held a
position in Canada, but was not invested in that market during most of the
period because Canada's strengthening economy indicated an unattractive
risk/return trade-off.
. Europe. The fund was overweighted in Europe compared with the Index, 44.5%
versus 41.7%. This strategy worked to the fund's advantage because most
European bonds performed well due to favorable bond market conditions
throughout the region.
U.K. During the first half of the period, the U.K. gilt sold off when a surge
in consumer spending contributed to a sharp acceleration in growth and fueled
fears of inflation. However, later in the year, gilts rebounded dramatically.
Fixed income investors were encouraged when the newly independent Bank of
England demonstrated its determination to fight inflation by initiating a
series of rate hikes. In January, we increased the fund's U.K. allocation to an
overweighting when our analysis indicated that the gilt market had become
oversold. When the U.K. market recovered, this strategy significantly
contributed to the fund's performance. The fund continued to overweight the
U.K. at the end of the period, 14.1% compared with 6.9% for the benchmark.
Germany and France. Within the "core" European markets, weak economic
activity in Germany and France helped support their bond markets during the
first half of the period. During the summer, however, the performance of these
markets began to deteriorate when accelerating growth in Germany rekindled
inflationary fears. In early October, these concerns prompted the Bundesbank to
raise its repo rate, and other "core" markets, such as France, quickly followed
with their own rate hikes. As of the end of the period, the fund was
overweighted in Germany (11.0% versus 8.6% for the Index) and underweighted in
France (3.0% versus 8.0%).
- --------------------------------------- ---------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
Italy, Spain and Sweden. In the higher yielding markets, the portfolio
benefited from a significant overweighting in Italy (11.1% versus 5.6% for the
Index as of October 31) and a slight overweighting in Spain (4.0% versus 3.2%).
Both of these markets performed extremely well as yield spreads relative to
other European markets narrowed significantly in anticipation of their
participation in EMU. The fund held a neutral weighting in Sweden during most
of the period, which we then reduced to an under-weighting (1.3% versus 1.8%)
because its accelerating economy is likely to trigger rising bond yields.
. Japan. During the first half of the period, the fund significantly
underweighted Japan. This strategy detracted from performance, since JGBs
performed well as investors focused on the fragility of Japan's banking system.
When Japan's economy deteriorated during the latter half of the period, we
increased the portfolio's duration-weighted exposure in the expectation that
interest rates would need to remain at historically low levels in the absence
of fiscal stimulus. As of October 31, the fund held a 12.1% allocation in
Japan.
. Cash Equivalents. As of October 31, 3.5% of the fund was in cash equivalents.
We reduced this position from 15.4% a year ago as we identified attractive
investment opportunities.
. Duration. The fund's duration was slightly longer than that of the Index as
of October 31, 5.6 years versus 5.3 years, primarily due to overweightings in
U.K. and Italy. (Duration is a measurement of the fund's sensitivity to
interest rate movements; the shorter the duration, the less the fund's NAV
should move in relation to interest rate fluctuations.)
FUND OUTLOOK
In the near term, the outlook for global bond markets will be heavily
dependent on the fortunes of global equity markets. If uncertainty related to
the Asian financial crisis continues to impact equities, we expect bonds will
continue to benefit from investor demand for lower risk assets.
In the U.S., inflationary pressures remain in place with tight labor market
conditions, strong consumer confidence, robust growth and solid corporate
earnings. Though the deflationary impact of the Asian situation will help
offset these domestic influences, we expect Treasury prices to decline if
investors regain confidence in global equity markets and begin to reduce their
Treasury holdings. In other dollar bloc countries, we are neutral on Australia,
which has experienced significant spread contraction in recent months; positive
on New Zealand, which is attractively valued following a recent sell-off; and
remain negative on Canada, which is vulnerable to the rising risks of an
overheating economy.
Within Europe, we believe yields in several countries reflect an overly
pessimistic view of future interest rate increases. As a result, we expect
these markets to offer attractive returns as current steep yield curves
flatten. We are particularly positive on the U.K., which we expect to continue
to benefit from the Bank of England's proactive stance toward monetary policy,
and Italy, which we believe will experience further spread contraction as the
likelihood of its participation in EMU increases. In Japan, we expect that bond
yields will remain near their current levels with the economy remaining very
weak and concerns rising over the extent of Japanese banks' exposure to other
Asian markets.
/s/ Stephen C. Fitzgerald
Stephen C. Fitzgerald
Portfolio Manager, Fixed Income Investments
/s/ Andrew F. Wilson
Andrew F. Wilson
Portfolio Manager, Fixed Income Investments
/s/ Gareth I. Evans
Gareth I. Evans
Portfolio Manager, Currency
Goldman Sachs Global Income Fund
London, November 28, 1997
- --------------------------------------- ---------------------------------------
14
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND
October 31, 1997
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1997. The
performance for each class of the Goldman Sachs Global Income Fund (assuming
both the maximum sales charge of 4.5% and no sales charge for the Class A
shares and the appropriate redemption fee and no redemption fee for the Class B
and Class C shares) is compared with its benchmark--the J.P. Morgan Global
Government Bond Index hedged to U.S. Dollars ("J.P. Morgan GGB Index-$
Hedged"). 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.
Class A Shares (a) Class A Shares (a) JP Morgan GGB Index - $
(No Sales Charge) (W/Sales Charge) Hedged
9/1/91 10000 9550 10000
10/31/91 10145 9688 10263
10/31/92 11034 10538 11156
10/31/93 12220 11670 12509
10/31/94 11672 11146 12051
10/31/95 13432 12827 13903
10/31/96 14921 14250 15306
10/31/97 16362 15627 16925
Class B Shares Class B Shares JP Morgan GGB Index
(w/out redempt. charge) (w/redempt. charge) $ Hedged
5/1/96 10000 10000 10000
10/31/96 10624 10624 10653
10/31/97 11584 11184 11780
Class C Shares Class C Shares JP Morgan GGB Index
(w/out redempt. charge) (w/redempt. charge) $ Hedged
8/15/97 10000 10000 10000
10/31/97 10303 10203 10301
- --------------------------------------- ---------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Institutional Shares JP Morgan GGB Index - $ Hedged
8/1/95 10000 10000
10/31/95 10442 10351
10/31/96 11651 11395
10/31/97 l2846 12601
Service Shares JP Morgan GGB Index - $ Hedged
3/12/97 10000 10000
10/31/97 10642 10741
------------------------------------
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------------
Since
One Year Five Year Inception(b)
<S> <C> <C> <C>
Class A Shares, excluding sales charge 9.66% 8.19% 8.28%
-------------------------------------------------------------------------
Class A Shares, including sales charge 3.26% 7.36% 7.48%
-------------------------------------------------------------------------
Class B Shares, excluding redemption
charge 9.04% N/A 10.27%
-------------------------------------------------------------------------
Class B Shares, including redemption
charge 4.33% N/A 6.27%
-------------------------------------------------------------------------
Class C Shares, excluding redemption
charge N/A N/A 3.03%(c)
-------------------------------------------------------------------------
Class C Shares, including redemption
charge N/A N/A 2.03%(c)
-------------------------------------------------------------------------
Institutional Shares 10.26% N/A 11.75%
-------------------------------------------------------------------------
Service Shares N/A N/A 6.42%(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 of
Class A, Class C and Service shares.
(b) The Class A, Class B, Institutional, Service and Class C shares commenced
operations August 2, 1991, May 1, 1996, August 1, 1995, March 12, 1997 and
August 15, 1997, respectively.
(c) An aggregate total return (not annualized) is shown instead of an average
annual total return since Class C and Service had not completed a full
twelve months of operations.
- --------------------------------------- ---------------------------------------
16
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount(a) Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS--79.4%
AUSTRALIAN DOLLAR--1.0%
Commonwealth of Australia
AUD 2,500,000 10.00% 02/15/06 $ 2,223,818
- -----------------------------------------------------------------------------------------------
BRITISH POUND STERLING--13.9%
United Kingdom Treasury
BPS 17,000,000 8.50% 07/16/07 $ 32,283,075
- -----------------------------------------------------------------------------------------------
DEUTSCHEMARK--10.8%
Federal Republic of Germany
DEM 13,500,000 8.00% 07/22/02 $ 8,783,066
2,000,000 6.50 10/14/05 1,233,670
7,000,000 6.25 04/26/06 4,251,247
13,000,000 6.00 01/04/07 7,752,640
Treuhandanstalt
5,000,000 6.38 07/01/99 2,996,287
- -----------------------------------------------------------------------------------------------
$ 25,016,910
- -----------------------------------------------------------------------------------------------
FRENCH FRANC--3.0%
Government of France
FRF 40,000,000 4.75% 03/12/02 $ 6,862,393
- -----------------------------------------------------------------------------------------------
ITALIAN LIRA--10.8%
Republic of Italy
ITL 26,000,000,000 9.50% 05/01/01 $ 17,180,272
13,000,000,000 6.75 07/01/07 8,000,413
- -----------------------------------------------------------------------------------------------
$ 25,180,685
- -----------------------------------------------------------------------------------------------
JAPANESE YEN--12.1%
Asian Development Bank
JPY 350,000,000 5.63% 02/18/02 $ 3,449,834
Federal National Mortgage Association
740,000,000 2.22 10/09/07 6,256,950
Government of Japan
850,000,000 2.50 06/20/07 7,477,245
Kingdom of Spain
600,000,000 3.10 09/20/06 5,490,237
Republic of Italy
550,000,000 5.13 07/29/03 5,472,580
- -----------------------------------------------------------------------------------------------
$ 28,146,846
- -----------------------------------------------------------------------------------------------
NEW ZEALAND DOLLAR--7.4%
Federal National Mortgage Association
NZD 8,500,000 7.00% 09/26/00 $ 5,257,964
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount(a) Rate Date Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS (CONTINUED)
NEW ZEALAND DOLLAR (CONTINUED)
Government of New Zealand
NZD 9,700,000 8.00% 02/15/01 $ 6,245,054
International Bank for Reconstruction & Development
9,000,000 7.00 09/18/00 5,575,830
- ----------------------------------------------------------------------------------------------
$ 17,078,848
- ----------------------------------------------------------------------------------------------
SPANISH PESETA--3.9%
Kingdom of Spain
ESP 1,100,000,000 10.30% 06/15/02 $ 9,026,397
- ----------------------------------------------------------------------------------------------
SWEDISH KRONA--1.2%
Kingdom of Sweden
SEK 22,000,000 6.00% 02/09/05 $ 2,899,398
- ----------------------------------------------------------------------------------------------
UNITED STATES DOLLAR--15.3%
International Bank for Reconstruction & Development
USD 8,000,000 6.63% 08/21/06 $ 8,217,600
United States Treasury Bonds
5,100,000 7.50 11/15/16 5,835,522
3,250,000 7.63 02/15/25 3,848,195
6,000,000 6.75 08/15/26 6,448,140
United States Treasury Notes
2,050,000 7.00 07/15/06 2,199,589
8,600,000 6.50 10/15/06 8,945,376
- ----------------------------------------------------------------------------------------------
$ 35,494,422
- ----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $180,581,438) $184,212,792
- ----------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.9%
AESOP Funding Series 1997-1, Class A2(c)
USD 1,250,000 6.40% 10/20/03 $ 1,263,494
AFC Series 1997-1, Class A(b)
1,307,028 5.85 07/25/27 1,302,532
ALAC Automobile Receivable Series 1997-1, Class A
431,466 6.29 12/15/02 431,970
Cit RV Trust Series 1995-B, Class A
252,266 6.50 04/15/11 254,142
EQCC Home Equity Loan Trust Series 1997-3, Class A
890,097 5.80 11/15/28 890,097
First Chicago Mortgage Trust Series 1992-E, Class A
750,000 6.25 08/15/99 748,823
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount(a) Rate Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
First USA Credit Card Master Trust Series 1997-6, Class A
USD 900,000 6.42% 03/17/05 $ 909,558
Ford Motor Credit Trust Series 1993-B, Class A
51,114 4.30 07/15/98 51,066
MBNA Master Card Series 1992-1, Class A
666,667 7.25 06/15/99 665,833
Navistar Financial Corp. Series 1994-A, Class A
634,284 5.93 10/15/99 634,372
Nissan Auto Receivables Series 1995-A, Class A
986,455 6.10 08/15/01 986,760
Premier Auto Trust Series 1994-3, Class A
811,060 6.85 03/02/99 813,087
- ------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $8,924,066) $ 8,951,734
- ------------------------------------------------------------------------------------------------
CORPORATE BONDS--5.7%
BankAmerica Corp.
USD 900,000 7.75% 07/15/02 $ 953,586
Bayerische Landesbank Girozent
10,000,000 6.63 06/25/07 10,388,200
Beneficial Corp.
500,000 6.43 04/10/02 500,325
Capital One Bank
1,000,000 7.35 06/20/00 996,800
Countrywide Funding Corp.
450,000 6.38 10/08/02 453,830
- ------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $12,884,606) $ 13,292,741
- ------------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS--7.1%
Asset Securitization Corp. Series 1997-D5, Class A1
USD 450,000 6.73% 02/14/41 $ 452,385
CMC Series 1997-2, Class A
2,000,000 6.60 11/25/27 2,010,488
Countrywide Funding Corp. Series 1994-2, Class A
1,000,000 6.50 02/25/09 988,120
Countrywide Funding Corp. Series 1994-I, Class A
2,000,000 6.25 07/25/09 1,998,120
FHLMC Series 1985, Class PC
2,000,000 6.35 05/17/18 2,010,620
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount(a) Rate Date Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (CONTINUED)
General Electric Capital Mortgage Services Series 1994-2,
Class A
USD 564,879 4.82% 01/25/09 $ 491,772
968,367 6.69 01/25/09 997,737
General Motors Acceptance Corp. Series 1997-C1, Class A
450,000 6.85 09/15/06 464,702
Government National Mortgage Association (GNMA)
270,468 9.00 03/15/05 287,540
217,927 9.00 02/15/06 231,833
737,597 9.00 02/15/10 795,245
710,845 7.50 01/15/23 729,057
153,476 7.50 04/15/23 157,408
134,544 7.50 05/15/23 137,991
685,072 7.00 07/15/23 690,848
103,932 7.00 07/15/23 104,808
254,393 7.00 08/15/23 256,537
532,123 7.00 08/15/23 536,609
255,536 7.50 08/15/23 262,083
213,908 7.00 09/15/23 215,711
325,641 7.00 09/15/23 328,387
358,388 7.00 10/15/23 361,409
211,500 7.00 10/15/23 213,283
316,425 7.00 11/15/23 319,093
481,311 7.50 12/15/23 493,642
257,886 7.50 12/15/23 264,733
Morgan Stanley Capital Commercial Mortgage, Inc.
Series 1997-C1
650,000 7.46 05/15/06 681,280
- -------------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $16,322,630) $ 16,481,441
- -------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--9.4%
State Street Bank & Trust Euro-Time Deposit
USD 21,901,526 5.66% 11/03/97 $ 21,901,526
- -------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $21,901,526) $ 21,901,526
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $240,614,266(B)) $244,840,234
- -------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 5,500,234
Gross unrealized loss for investments in which
cost exceeds value (1,274,266)
- --------------------------------------------------------------------------------------------------
Net unrealized gain $ 4,225,968
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
AUD = Australian JPY = Japanese Yen
Dollar NZD = New Zealand Dollar
BPS = British ESP = Spanish Peseta
Pound Sterling SEK = Swedish Krona
DEM = Deutschemark USD = United States Dollar
FRF = French Franc
ITL = Italian Lira
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold, normally to qualified institutional
buyers in transactions exempt from registration. Total market value of the
Rule 144A securities amounted to $2,566,026.
(c) The amount stated also represents aggregate cost for Federal income tax
purposes.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND
- --------------------------------------- ---------------------------------------
INVESTMENT OBJECTIVE
The Goldman Sachs Municipal Income Fund seeks to provide a high level of
current income that is exempt from regular federal income tax, consistent with
the preservation of capital. In pursuit of its objective, the fund invests in a
diversified portfolio of municipal securities with a weighted average credit
quality of double-A or better. The fund buys only investment-grade securities
or, if unrated, securities deemed to be of comparable quality. Under normal
interest rate conditions, the fund's duration is expected to be within one year
of its benchmark, the Lehman Brothers 15-Year Municipal Bond Index. The fund's
approximate interest rate sensitivity is comparable to that of a 15-year bond.
NEW SHARE CLASSES ADDED
On August 15, 1997, the fund added Class C, Institutional Class and Service
Class shares.
MUNICIPAL BOND MARKET SHOWS SIGNS OF STRENGTH AND STABILITY
The municipal market remained at relatively strong levels compared with the
taxable market for much of the year, including four consecutive months of
rallying from April through July. A typical August slowdown, some rallying in
September, and mixed performance for municipals during October, capped off a
year that saw overall municipal prices rise. The average price of a 15-year
municipal bond (as calculated from data provided by Municipal Market Data, an
independent municipal market information provider) increased, while yields fell
from 5.30% on October 31, 1996 to 4.98% on October 31, 1997.
New issue supply increased during 1997 vs. 1996, up a solid 5% through
October, versus the first ten months of 1996. The 1997 new issue supply has
followed historical early-month patterns, with January and February supply well
below annual averages (slightly more than $10 billion each month) and March and
April supply closer to normal levels ($13 to $14 billion). Spikes in new issue
supply to $21.9 billion in June and $20.6 billion in September were
approximately 50% greater than the monthly average for the rest of 1997, and
contributed significantly to the year's overall supply increase. Heavy June and
July coupon and principal payments flooded the market with enough reinvestment
cash to absorb most of the new issue supply during the summer, but heavy fall
supply has weakened the municipal market relative to treasuries.
Demand from individual investors, who control approximately two-thirds of
municipal bond ownership either through mutual funds or direct investment,
continued to dominate the market, though municipal rates below the
psychologically key 6% level may have discouraged some investors. The budget
bill, passed in August, was favorable to municipals both on the demand side--an
exemption allowing corporations with outstanding debt to invest in the
municipal market was left intact--as well as on the supply side, where
restrictions on the amount that private universities can issue were loosened.
MUNICIPAL BOND YIELD CURVE
[GRAPH]
10/31/97 10/31/96
1998 3.70% 3.90%
1999 3.85 4.15
2000 3.95 4.30
2001 4.05 4.40
2002 4.15 4.50
2003 4.25 4.60
2004 4.35 4.70
2005 4.45 4.80
2006 4.50 4.90
2007 4.55 5.00
2008 4.65 5.10
2009 4.75 5.20
2010 4.85 5.25
2011 4.93 5.30
2012 4.98 5.35
2013 5.03 5.40
2014 5.08 5.40
2015 5.13 5.45
2016 5.15 5.45
2017 5.15 5.45
2018 5.18 5.50
2019 5.18 5.50
2020 5.20 5.50
2021 5.20 5.50
2022 5.20 5.50
2023 5.20 5.50
2024 5.20 5.50
2025 5.23 5.50
2026 5.23 5.50
2027 5.23 5.50
The yield curve experienced a downward parallel shift in contrast to one year
ago.
Source: Municipal Market Data
PERFORMANCE REVIEW: POSITIVE PERFORMANCE RELATIVE TO PEERS
We are pleased to report that the fund's Class A and B shares outperformed
most of their peers, for the one-year period ended October 31, 1997. Class A
shares ranked in the top 10% of general municipal debt funds (22 out of 231)
based on total return, according to Lipper
- --------------------------------------- ---------------------------------------
20
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)
- --------------------------------------- ---------------------------------------
Analytical Services, Inc. The fund's Class B shares ranked in the top one-third
of all general municipal debt funds for the period (73 out of 231). Class C,
Institutional and Service shares did not exist for the entire period and were
not ranked by Lipper. (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 positive performance during the period can be attributed to our
term structure management, sector weightings and specific security selections.
As always, we did not make any bets on the direction of interest rates, but
rather kept the fund's duration in line with the Index, occasionally using
municipal and Treasury futures contracts to manage sector allocation and
duration.
.The ratio of credit upgrades to credit downgrades in the municipal market
increased during the year, reflected in a tightening of spreads between higher-
and lower-rated securities. We have maintained a "credit-barbell" in the
portfolio, emphasizing high-quality bonds with maturities of 20 to 30 years on
the long end of the yield curve, as we do not feel there is adequate
compensation in more volatile, lower-quality, long-term bonds. The portfolio's
concentration of lower quality--though still investment-grade--bonds is on the
less volatile, short end of the yield curve in the four- to 10-year maturity
range. This strategy is intended to allow us to extract extra yield from the
shorter end of the market while maintaining higher quality on the more
interest-rate-sensitive long end of the market. We regularly adjusted the
credit and term structure in seeking to take advantage of changing market
conditions.
.During the period, we employed several strategies using municipal and/or
treasury futures contracts. These trades are designed to exploit relative
pricing discrepancies between different markets, and are not designed to incur
additional interest rate risk. The fund stood at a 100% municipal bond
weighting at the end of the reporting period, indicating attractive
opportunities across the entire length of the municipal yield curve. Also, we
were able to take advantage of the municipal market's tendency to overvalue
callable discount bonds
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C* INSTITUTIONAL* SERVICE*
(10/31/96 - (10/31/96 - (8/15/97 - (8/15/97 - (8/15/97 -
10/31/97) 10/31/97) 10/31/97) 10/31/97) 10/31/97)
----------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Total Return (based on
net asset value) 9.23% 8.48% 1.75% 2.10% 1.93%
Return From Monthly
Distributions 4.81% 4.16% 0.81% 1.02% 0.91%
Return From Price
Appreciation 4.42% 4.32% 0.94% 1.08% 1.02%
Lehman Brothers 15-Year
Municipal Bond Index 9.62% 9.62% 1.94% 1.94% 1.94%
NAV (as of 10/31/97) $14.99 $15.00 $14.99 $15.00 $14.99
NAV Change +$0.62 +$0.63 +$0.14 +$0.16 +$0.15
Total Distributions Paid
Per Share+ $0.68 $0.56 $0.12 $0.15 $0.14
</TABLE>
* New share class opened during the period. Performance and NAV change are
cumulative from inception date.
+ Dividends are declared daily and paid on a monthly basis. The fund intends to
distribute substantially all of its investment company tax-exempt and taxable
income, as required by tax law.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by a bank or other insured depository institution, and are not insured
by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other government agency, and an investment in a Fund involves risk,
including possible loss of principal. All performance figures represent past
performance and in no way guarantee future results, which will fluctuate as
market conditions change. The investment return and principal value of an
investment in a Fund will fluctuate and, therefore, an investor's shares when
redeemed, may be worth more or less than their original cost. The Fund may
invest up to 20% in private activity bonds the interest from which is subject
to the alternative minimum tax (AMT).
---------------------------------------
- ---------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
and undervalue callable par or premium bonds by strategically trading between
the two.
The fund's performance also benefited from our extensive credit analysis. Our
research helped identify specific investment opportunities, such as "story"
bonds. These securities are often misunderstood or incorrectly valued, but can
have unique security structures and attractive yield potential. One "story"
bond in the portfolio is the Cleveland-Cuyahoga County Port Authority bonds for
the Rock 'n Roll Hall of Fame. Rated BBB by Fitch Investors Service, L.P., our
research analysis conservatively indicated that the anticipated combination of
admission receipts, sponsorship fees, and a county-wide hotel tax (benefiting
from the overall emergence of downtown Cleveland as a tourist destination), as
well as an additional debt service reserve, would make this an attractive
addition to the portfolio. As of October 31, 1997, the Fund owned approximately
0.9% of the outstanding issue.
PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES:EMPHASIS ON REVENUE BONDS
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1997*
[PIE CHART]
Insured Revenue Bonds 45.3%
Revenue Bonds 28.6%
Insured General Obligations 15.7%
General Obligations 6.6%
Variable Rate Demand Notes 3.8%
* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
. Revenue Bonds. We emphasized revenue bonds over general obligation bonds
because the sector offers higher yields and better price appreciation
potential. As of October 31, the fund held a 73.9% position in a combination of
insured and uninsured revenue bonds, overweight compared with the Index
(55.8%). (Revenue bonds pay interest and principal out of a specific revenue
stream, such as sales taxes, hospital charges, tolls, electric rates and
airport fees.)
. General Obligation (GO) Bonds. As of October 31, the fund's GO holdings,
which are backed by the general taxing power of a municipality, were reduced to
22.3% of the portfolio from 29.8% one year ago, and is underweighted relative
to the Index (43.4%).
. Variable Rate Demand Notes (VRDNs). VRDNs, which are high-quality cash
equivalents, were used to manage the portfolio's excess liquidity. VRDNs fell
to 3.8% from 7.6% of the portfolio one year ago. The Index has no VRDNs.
. Credit Quality. As of October 31, 69.6% of the fund was invested in triple-A-
rated securities, down slightly from 70.5% one year ago. Double-A-securities
were basically unchanged, to 9.0% from 9.3%, while single-A-rated securities
were increased to 9.9% from 1.8%. We continued to maintain a position in
triple-B-rated securities (the lowest credit category for investment-grade
securities), which accounted for 11.5% of the portfolio, down from 18.4%. We
used extensive credit research to identify specific securities that offered
unique value within the universe of triple-B-rated securities, but still were
believed to be of sound credit quality. The triple-B-rated position benefited
the fund's performance during the period by enabling us to lock in above-market
yields and provide greater price appreciation potential relative to the market.
Each of these positions is monitored carefully, and we will remain vigilant for
any changes in their credit quality.
22
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)
- --------------------------------------- ---------------------------------------
MARKET OUTLOOK
Our long-term outlook for municipal bonds is essentially bullish. With
municipals escaping unscathed from the federal budget accord, we do not see any
near-term fundamental problems for tax-exempts, and are left with technical
forces as the key driver in relative market performance. The recent cheapening
of the market was more related to the heavy seasonal new issue supply and
weaker demand than from the global volatility that affected the taxable
sectors; we do not feel that municipals are at risk to cheapen much more. In
anticipation of near-term outperformance, we feel that municipals are
attractive enough to warrant an allocation from investors who do not currently
benefit from tax-exempt income.
We value your investment in the Goldman Sachs Municipal Income Fund and we
look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Benjamin S. Thompson
Benjamin S. Thompson
/s/ Elisabeth Schupf Lonsdale
Elisabeth Schupf Lonsdale
Portfolio Managers
Goldman Sachs Municipal Income Fund
November 28, 1997
- --------------------------------------- ---------------------------------------
23
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND
October 31, 1997
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1997. The
performance for each class of the Goldman Sachs Municipal Income Fund (assuming
both the maximum sales charge of 4.5% and no sales charge for Class A shares
and the appropriate redemption fee and no redemption fee for the Class B and
Class C shares) is compared with its benchmark--the Lehman Brothers 15-Year
Municipal Bond Index ("Lehman 15-Year Muni 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.
Class A Shares (a) Class A Shares (a) Lehman 15 - Year Muni
(No Sales Charge) (W/Sales Charge) Index
8/1/93 10000 9550 10000
10/31/93 10455 9984 10385
10/31/94 9878 9434 9860
10/31/95 11241 10735 11414
10/31/96 11933 11395 12100
10/31/97 13034 12447 13264
Class B Shares Class B Shares Lehman 15 - Year Muni
(w/out redempt charge) (w/redempt. charge) Index
5/1/96 10000 10000 10000
10/31/96 10440 10440 10480
10/31/97 11325 10925 11489
Class C Shares Class C Shares Lehman 15 - Year Muni
(w/out redempt. charge) (w/redempt. charge) Index
8/15/97 10000 10000 10000
10/31/97 10175 10075 10194
- --------------------------------------- ---------------------------------------
24
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND
October 31, 1997
- --------------------------------------------------------------------------------
Institutional Shares Lehman 15 - Year Muni Index
8/15/97 10000 10000
10/31/97 10210 10194
Service Shares Lehman 15 - Year Muni Index
8/15/97 10000 10000
10/31/97 10193 10194
------------------------
<TABLE>
<CAPTION>
Average Annual Total
Return
------------------------
Since
One Year Inception(b)
<S> <C> <C>
Class A Shares, excluding sales
charge 9.23% 6.18%
--------------------------------------------------
Class A Shares, including sales
charge 2.98% 5.12%
--------------------------------------------------
Class B Shares, excluding
redemption charge 8.48% 8.63%
--------------------------------------------------
Class B Shares, including
redemption charge 3.69% 4.63%
--------------------------------------------------
Class C Shares, excluding
redemption charge N/A 1.75%(c)
--------------------------------------------------
Class C Shares, including
redemption charge N/A 0.75%(c)
--------------------------------------------------
Institutional Shares N/A 2.10%(c)
--------------------------------------------------
Service Shares N/A 1.93%(c)
</TABLE>
(a) For comparative purposes, Class A, Class C, Institutional and Service
shares initial investment is assumed to be made on the first day of the
month following the Fund's commencement of operations.
(b) Class A, Class B, Class C, Institutional and Service commenced operations
July 20, 1993, May 1, 1996, August 15, 1997, August 15, 1997 and August 15,
1997, respectively.
(c) An aggregate total return (not annualized) is shown instead of an average
annual total return since Class C, Institutional and Service had not
completed a full twelve months of operations.
- --------------------------------------- ---------------------------------------
25
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS--97.4%
ARIZONA--6.9%
Maricopa County MFH IDA (A)
$1,795,000 5.85% 01/01/08 $ 1,898,966
Maricopa County Unifed School District No. 41 GO (FSA) (AAA)
2,500,000 6.25 07/01/15 2,711,475
- -------------------------------------------------------------------------------------------------
$ 4,610,441
- -------------------------------------------------------------------------------------------------
CONNECTICUT--3.3%
Mashantucket Western Pequot Tribe RB (BBB/Baa)
$2,000,000 6.50% 09/01/05 $ 2,205,900
- -------------------------------------------------------------------------------------------------
FLORIDA--6.2%
Escambia County Housing Authority, Single Family Multi-County Progress
(FNMA/GNMA) (Aaa)
$1,390,000 6.80% 10/01/15 $ 1,509,290
Santa Rosa Bay Bridge Authority RB (BBB-)
2,500,000 6.25 07/01/28 2,611,425
- -------------------------------------------------------------------------------------------------
$ 4,120,715
- -------------------------------------------------------------------------------------------------
HAWAII--3.3%
Hawaii GO Bond Series CA (FGIC) (AAA)
$2,000,000 6.00% 01/01/09 $ 2,193,700
- -------------------------------------------------------------------------------------------------
ILLINOIS--9.6%
Chicago Midway Airport RB (MBIA) (AAA/Aaa)
$2,500,000 5.50% 01/01/10 $ 2,598,225
Lake County Unified School District No. 116 GO (FSA)(AAA)
1,000,000 7.60 02/01/13 1,264,960
2,000,000 7.60 02/01/14 2,552,660
- -------------------------------------------------------------------------------------------------
$ 6,415,845
- -------------------------------------------------------------------------------------------------
INDIANA--6.4%
Indiana Bond Bank for Hendricks County RB (AA-)
$1,420,000 6.00% 02/01/12 $ 1,505,399
Indiana Transportation Airport Series A RB (AAA/Aaa)
2,500,000 6.00 11/01/11 2,743,625
- -------------------------------------------------------------------------------------------------
$ 4,249,024
- -------------------------------------------------------------------------------------------------
KENTUCKY--1.6%
Nelson County Industrial Building Mabex Universal Corp. Project (AMT)
(A3)
$1,000,000 6.50% 04/01/05 $ 1,088,640
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS (CONTINUED)
LOUISIANA--3.2%
Orleans Levee District Improvement Bonds (AAA/Aaa)
$2,000,000 5.95% 11/01/15 $ 2,125,940
- -------------------------------------------------------------------------------------------------
MAINE--1.1%
Maine Educational Loan Authority RB Series A-1 (AMT) (Aaa)(a)
$ 675,000 6.80% 12/01/07 $ 734,029
- -------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.5%
Massachusetts Bay Transportation Authority General Transportation System
Bonds Series A (A+/A1)
$1,000,000 5.63% 03/01/26 $ 1,019,460
- -------------------------------------------------------------------------------------------------
MICHIGAN--1.5%
Detroit Self Insurance Series A (BBB-)
$1,000,000 5.60% 05/01/01 $ 1,027,990
- -------------------------------------------------------------------------------------------------
MISSOURI--3.2%
St. Louis Municipal Finance Leasehold RB Series A (A/Aa3)
$2,100,000 5.30% 07/15/02 $ 2,170,287
- -------------------------------------------------------------------------------------------------
NEVADA--2.9%
Washoe County GO (MBIA) (AAA/Aaa)
$2,000,000 5.00% 06/01/17 $ 1,939,100
- -------------------------------------------------------------------------------------------------
NEW MEXICO--5.0%
Santa Fe County Correctional System RB (AAA/Aaa)
$3,000,000 6.00% 02/01/27 $ 3,311,100
- -------------------------------------------------------------------------------------------------
NEW YORK--4.5%
New York City Municipal Water Finance Authority Series B (MBIA) (AAA/Aaa)
$3,000,000 5.50% 06/15/27 $ 3,015,210
- -------------------------------------------------------------------------------------------------
NORTH DAKOTA--3.2%
Mercer County PCRB for Basin Electric & Power 2nd Series (AMBAC) (AAA/Aaa)
$2,000,000 6.05% 01/01/19 $ 2,125,920
- -------------------------------------------------------------------------------------------------
OHIO--2.4%
Butler County Transportation Improvement District Series 1997-A (FSA)
(AAA/Aaa)(b)
$1,000,000 5.13% 04/01/17 $ 972,900
Cleveland-Cuyahoga County Port Authority Bonds for Rock & Roll Hall of
Fame RB
600,000 5.45 12/01/05 610,236
- -------------------------------------------------------------------------------------------------
$ 1,583,136
- -------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
26
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS (CONTINUED)
OKLAHOMA--3.6%
Holdenville IDA RB (BBB/Baa)
$1,245,000 5.95% 07/01/02 $ 1,305,619
Tulsa County Public Facilities RB (A-)
1,000,000 6.60 11/01/08 1,100,580
- -------------------------------------------------------------------------------------------------
$ 2,406,199
- -------------------------------------------------------------------------------------------------
RHODE ISLAND--4.6%
Rhode Island Clean Water Finance Authority Waste Water Treatment System
Bonds (MBIA) (AAA/Aaa)
$3,000,000 5.80% 09/01/22 $ 3,055,140
- -------------------------------------------------------------------------------------------------
TENNESSEE--6.0%
McMinnville Housing Authority RB (A2)
$1,510,000 6.00% 10/01/09 $ 1,578,599
Metropolitian Government of Nashville and Davidson County GO Refunding
Bonds (AA/Aa2)
2,500,000 5.13 05/15/25 2,430,300
- -------------------------------------------------------------------------------------------------
$ 4,008,899
- -------------------------------------------------------------------------------------------------
TEXAS--9.4%
East Texas Criminal Justice Facilities Financing Corp. RB (AMBAC)
(AAA/Aaa)
$2,000,000 5.75% 11/01/09 $ 2,112,820
Lago Vista Independent School District Refunding Bonds Series 1997 (Aaa)
1,000,000 5.50 08/15/27 1,003,910
Tarrant County Health Facilities Development Corp. RB (MBIA) (AAA/Aaa)
3,000,000 5.75 02/15/15 3,193,200
- -------------------------------------------------------------------------------------------------
$ 6,309,930
- -------------------------------------------------------------------------------------------------
WASHINGTON--8.0%
Chelan County Public Utility RB (MBIA) (AAA/Aaa)
$2,500,000 6.35% 07/01/28 $ 2,713,650
Washington State Public Power Supply System RB Series A (AMBAC) (AAA/Aaa)
2,500,000 5.70 07/01/11 2,604,175
- -------------------------------------------------------------------------------------------------
$ 5,317,825
- -------------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $62,618,455) $65,034,430
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.5%
CALIFORNIA--3.3%
California GO Bond Series 23 (VMIG1)(c)
$2,200,000 5.25% 11/01/97 $ 2,200,000
- -------------------------------------------------------------------------------------------------
GEORGIA--0.2%
Monroe County Development Authority PCRB (A2)(c)
$ 100,000 3.20% 11/01/97 $ 100,000
- -------------------------------------------------------------------------------------------------
NEVADA--0.4%
Clark County Industrial Development Revenue, Cogeneration Associates
Project I (VMIG1)(c)
$ 300,000 3.70% 11/01/97 $ 300,000
- -------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS (COST $2,600,000) $ 2,600,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $65,218,455)(D) $67,634,430
- -------------------------------------------------------------------------------------------------
</TABLE>
Futures contract open at October 31, 1997:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type (Short)(e) Month Gain
- --------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
U.S. 20 Year Long Term Bond (27) March 1998 $23,625
- --------------------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX INFORMATION:
<TABLE>
<S> <C> <C> <C>
Gross unrealized
gain for
investments in
which value
exceeds cost $2,417,645
Gross unrealized
loss for
investments in
which cost
exceeds value (1,670)
- -----------------------------
Net unrealized
gain $2,415,975
- -----------------------------
</TABLE>
(a) Portion of this security is segregated for a when-issued security and an
open futures contract.
(b) When-issued security.
(c) Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
(e) Each U.S. 20 Year Long Term Bond contract represents $100,000 in notional
par value. The total notional amount and market value at risk are
$2,700,000 and $3,191,063, respectively. The determination of notional
amounts as presented here are indicative only of volume of activity and not
a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
INVESTMENT ABBREVIATIONS:
AMBAC--Insured by American Municipal Bond Assurance Corp.
AMT--Alternative Minimum Tax
FGIC--Insured by Financial Guaranty Insurance Co.
FNMA--Insured by Federal National Mortgage Association
FSA--Financial Security Assurance Co.
GNMA--Insured by Government National Mortgage Association
GO--General Obligation
IDA--Industrial Development Authority
MBIA--Insured by Municipal Bond Investors Assurance
MFH--Multi-Family Housing
PCRB--Pollution Control Revenue Bond
RB--Revenue Bond
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
28
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder
in the Goldman Sachs High Yield Fund. In the future, we will be sending you
annual and semiannual reports that describe the fund's performance, as well as
information regarding specific holdings. This annual report covers the
abbreviated period from August 1, 1997, when the fund's Class A, B,
Institutional and Service shares began operations, through October 31, 1997.
(The fund's Class C shares were added on August 15, 1997.)
INVESTMENT OBJECTIVE
The Goldman Sachs High Yield Fund seeks to provide shareholders with a high
level of current income and secondarily, capital appreciation. Under normal
conditions, at least 65% of the portfolio's total assets will be invested in
high-yield, fixed income securities rated, at the time of investment, below
investment grade. The fund may invest in all types of fixed income securities,
including senior and subordinated debt obligations, convertible and
nonconvertible corporate debt obligations, and preferred stock. Under normal
interest rate conditions, the fund's duration is expected to be equal to that
of the fund's benchmark, the Lehman Brothers High Yield Bond Index, plus or
minus 2.5 years.
INVESTMENT STRATEGY AND APPROACH
Our investment process employs a combination of bottom-up company research
and fundamental economic analysis. Bottom-up research is critical to identify
attractive investments in the high-yield market, since market values of
individual securities tend to reflect developments within a company to a
greater extent than higher rated corporate debt. To determine a company's
creditworthiness, we conduct an in-depth analysis of each issue considered for
the fund. Among the factors we evaluate are a company's competitive position,
the strength of its balance sheet and its ability to generate ample cash flow
to service its debt. We then diversify the portfolio among different sectors
and industries on a global basis in an effort to reduce overall portfolio risk.
THE HIGH YIELD MARKET FARED WELL RELATIVE TO OTHER ASSET CLASSES
During the period under review, the high-yield market benefited from
favorable economic conditions. Buoyant economic activity enabled many companies
to achieve strong growth in cash flows and earnings, which in turn kept default
rates extremely low relative to historical averages. As a result, the spread,
or difference in yield, between high-yield bonds and similar-duration
Treasuries was very tight during most of the period. During October, however,
the high-yield market came under pressure when the financial crisis in
Southeast Asia impacted U.S. markets. Though the yield spread widened sharply
as a result, the high-yield sector proved to be resilient--high-yield bonds
weathered the market turbulence very well relative to other asset classes. For
the period under review, the Lehman Brothers High Yield Bond Index returned
1.84%, outperforming the U.S. equity market's -3.76% return (as measured by the
S&P 500 stock index) and modestly trailing the 2.07% return of the broad Lehman
Brothers Aggregate Bond Index.
PERFORMANCE REVIEW
From its inception on August 1, 1997 through October 31, 1997, the fund
underperformed its benchmark due to the weak performance of its investments in
emerging market debt. Though this sector represented only a small portion of
the portfolio (7.0% as of October 31) and the majority of the allocation was to
Latin American securities, it nonetheless proved to be a drag on performance
when the turmoil in Southeast Asian markets spread across all regions. However,
investors should remember that a period of only three months is obviously too
short a time frame to measure performance meaningfully.
29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
PORTFOLIO COMPOSITION
As of October 31, the portfolio was well diversified with 129 issues. We
maintained this relatively broad allocation because of low credit differentials
among sectors and individual issues. In addition, demand has outstripped the
supply of bonds issued by industrial companies, which has made it difficult to
build up sizable positions in individual issues at attractive levels.
The fund's largest holding as of the end of the period was PRINTPACK, INC., a
packaging manufacturer with strong market positions in nearly all of the niches
it serves. Printpack has had difficulties integrating its acquisition of James
River's flexible packaging operations, but once completed, the merger is
expected to provide substantial opportunities for cost savings and help to
deleverage the company. Other significant positions were INTERTEK, a global
testing company, and ALLIED WASTE INDUSTRIES, INC., a solid waste management
company.
We also invested in bonds issued by several non-U.S. companies that offered
attractive risk-adjusted returns relative to U.S. debt. For example, as of the
end of the period, our fourth-largest holding was Germany-based GEBERIT
INTERNATIONAL, one of the largest suppliers of plumbing-based sanitary systems.
Geberit has
operations throughout Europe, and is well positioned to benefit from the
ongoing home improvement trend.
CREDIT QUALITY
As of October 31, the portfolio primarily consisted of single-B-rated and
double-B-rated securities (82.7% and 13.1%, respectively). The remainder of the
fund was invested in triple-C-rated securities (2.6%), triple-B-rated
securities (0.4%) and repurchase agreements/cash equivalents (1.2%).
PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1997*
[PIE CHART]
U.S. High-Yield Corporates 84.2%
Foreign Debt 7.6%
Other Foreign Debt (Emerging Markets) 7.0%
Repos/Cash Equivalents 1.2%
* 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.
PERFORMANCE SUMMARY**
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C INSTITUTIONAL SERVICE
(8/1/97 - (8/1/97 - (8/15/97 - (8/1/97 - (8/1/97 -
10/31/97) 10/31/97) 10/31/97) 10/31/97) 10/31/97)
--------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Total Return (based on
net asset value [NAV]) 1.50% 1.31% 1.46% 1.58% 1.46%
Return From Monthly
Distributions 1.80% 1.61% 1.46% 1.88% 1.76%
Return From Price
Depreciation -0.30% -0.30% 0.00% -0.30% -0.30%
Total Return of Lehman
Brothers High Yield
Bond Index 1.84% 1.84% 2.07% 1.84% 1.84%
NAV (as of 10/31/97) $9.97 $9.97 $9.97 $9.97 $9.97
NAV Change -$0.03 -$0.03 $0.00 -$0.03 -$0.03
Total Distributions Paid
Per Share+ $0.18 $0.16 $0.15 $0.19 $0.18
</TABLE>
**
Performance and NAV change are cumulative from each class's inception date.
+The fund declares and pays dividends on a monthly basis. The fund distributes
substantially all of its taxable income, as is required for all investment
companies.
The fund invests primarily in high-yield, fixed income securities rated below
investment grade that are considered speculative and generally involve greater
price volatility and greater risk of loss of principal and interest than
investments in higher rated fixed income securities. All performance figures
represent past performance and in no way guarantee future results, which will
fluctuate as market conditions change. The investment return and principal
value of an investment in the fund will fluctuate, and therefore an investor's
shares when redeemed may be worth more or less than their original cost.
Goldman, Sachs & Co., the distributor of the fund, is not a bank, and fund
shares distributed by Goldman, Sachs & Co. are not deposits or obligations of,
or endorsed or guaranteed by, any bank or depository institution, nor are they
insured by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other government agency.
---------------------------------------
- ---------------------------------------
30
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND (continued)
- --------------------------------------- ---------------------------------------
TOP 10 HOLDINGS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
CORPORATE PERCENTAGE OF
COMPANY (LINE OF BUSINESS) RATING TOTAL NET ASSETS
- ---------------- --------- ----------------
<S> <C> <C>
Printpack, Inc. BB 2.4%
Packaging
Intertek Finance BB- 2.3
PIC
Financial
Services
Geberit BB 2.1
International
Building
Products
Tekni-Plex Inc. B+ 1.6
Packaging
Jitney-Jungle B+ 1.6
Stores of
America, Inc.
Grocery
International B+ 1.6
Wire Group
Manufacturing
ITC Deltacom, B+ 1.6
Inc.
Telecommunications
Newport News BB 1.5
Shipbuilding
Inc.
Defense
Viasystems, Inc. B- 1.5
Fresenius BB 1.5
Medical Care
Healthcare
</TABLE>
MARKET OUTLOOK
We continue to have a positive view of the high-yield market, which we expect
to benefit from continued strength in mergers and acquisition activity as well
as other favorable fundamental factors. In addition, in the wake of the October
market turmoil, there is greater credit differential within the high-yield
market than in previous months. As bonds with attractive upside potential
become more readily available, we intend to trim the number of portfolio
holdings to concentrate on fewer issues. Finally, we believe that fundamentals
remain sound in most of the emerging markets in which the fund has invested.
Given a period of recovery and stability in global equity markets, we expect
yield spreads in the sector to recover from their recent slide.
Sincerely,
/s/ Andrew R. Jessop
Andrew R. Jessop
/s/ Michael L. Pasternak
Michael L. Pasternak
/s/ Richard H. Buckholz
Richard H. Buckholz
Portfolio Managers
Goldman Sachs High Yield Fund
November 28, 1997
- --------------------------------------- ---------------------------------------
31
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND
October 31, 1997
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1997. The
performance for each class of the Goldman Sachs High Yield Fund (assuming both
the maximum sales charge of 4.5% and no sales charge for the Class A shares and
the appropriate redemption fee and no redemption fee for the Class B and Class
C shares) is compared with its benchmark--the Lehman High Yield Bond Index. All
performance data shown represents past performance and should not be considered
indicative 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.
Class A Shares Class A Shares Lehman High Yield Bond
(No Sales Charge) (W/Sales Charge) Index
8/1/97 10000 9550 10000
10/31/97 10150 9693 10184
Class B Shares Class B Shares Lehman High Yield Bond
(w/out redempt. charge) (w/redempt. charge) Index
8/1/97 10000 10000 10000
10/31/97 10131 9631 10184
Class C Shares Class C Shares Lehman High Yield Bond
(w/out redempt. charge) (w/redempt. charge) Index
8/15/97 10000 10000 10000
10/31/97 10146 10046 10207
- --------------------------------------- ---------------------------------------
32
<PAGE>
Goldman Sachs Trust--Fixed Income Trust
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND (continued)
October 31, 1997
- --------------------------------------------------------------------------------
Institutional Shares Lehman High Yield Bond Index
8/1/97 10000 10000
10/31/97 10158 10184
Service Shares Lehman Gov't/MBS Index
8/1/97 10000 10000
10/31/97 10146 10184
-----------------------
<TABLE>
<CAPTION>
Average Annual Total
Return
-------------------------
Since
One Year Inception(a)
<S> <C> <C>
Class A Shares, excluding sales
charge N/A 1.50% (b)
---------------------------------------------------
Class A Shares, including sales
charge N/A (2.32%)(b)
---------------------------------------------------
Class B Shares, excluding
redemption charge N/A 1.31% (b)
---------------------------------------------------
Class B Shares, including
redemption charge N/A (3.64%)(b)
---------------------------------------------------
Class C Shares, excluding
redemption charge N/A 1.46% (b)
---------------------------------------------------
Class C Shares, including
redemption charge N/A 0.46% (b)
---------------------------------------------------
Institutional Shares N/A 1.58% (b)
---------------------------------------------------
Service Shares N/A 1.46% (b)
</TABLE>
(a) The Fund commenced operations on August 1, 1997 except for Class C which
commenced on August 15, 1997.
(b) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Fund has not completed a full twelve months
of operations.
- -------------------------------------- ---------------------------------------
33
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS--80.8%
Adelphia Communications Co.(d)
$ 3,000,000 9.25% 10/01/02 $ 2,985,000
Advanced Accessory Systems(d)
2,000,000 9.75 10/01/07 1,965,000
Allied Waste Industries, Inc.(d)
7,000,000 0.00/11.30(a) 06/01/07 4,760,000
Allied Waste North America
2,000,000 10.25 12/01/06 2,170,020
Ameriserv Food Distributors
3,000,000 8.88 10/15/06 3,000,000
Amtrol, Inc.
3,000,000 10.63 12/31/06 3,060,000
Anker Coal Group, Inc.(d)
2,000,000 9.75 10/01/07 2,015,000
Argo-tech Corp.(d)
5,000,000 8.62 10/01/07 4,975,000
Aurora Foods, Inc.
3,750,000 9.88 02/15/07 3,862,500
Axiohm Transaction Solutions(d)
3,000,000 9.75 10/01/07 3,045,000
B&G Foods, Inc.(d)
4,000,000 9.63 08/01/07 4,020,000
Benton Oil & Gas Co.(b)
4,000,000 9.38 11/01/07 3,990,000
Brooks Fiber Properties, Inc.
$3,000,000 0.00/11.87(a) 11/01/06 2,340,000
Burke Industries, Inc.(d)
2,000,000 10.00 08/15/07 2,070,000
Cabot Safety Acquisition Corp.
2,000,000 12.50 07/15/05 2,260,000
Cellnet Data Systems, Inc.(d)
3,000,000 0.00/14.00(a) 10/01/07 1,500,000
Central European Media Enterprises
2,000,000 9.38 08/15/04 1,960,000
Colt Telecom
5,500,000 0.00/12.00(a) 12/15/06 4,097,500
Communications Instruments, Inc.(d)
3,500,000 10.00 09/15/04 3,517,500
Cross Timbers Oil Co.
2,750,000 8.75 11/01/09 2,746,563
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Decisionone Holdings Corp.
$ 2,000,000 9.75% 08/01/07 $ 2,060,000
4,500,000 0.00/11.50(a) 08/01/08 2,902,500
Delta Mills, Inc.(d)
3,000,000 9.63 09/01/07 3,030,000
Doskocil Manufacturing(d)
2,000,000 10.13 09/15/07 2,060,000
Econophone, Inc.(d)
2,000,000 13.50 07/15/07 2,190,000
Falcon Building Products, Inc.
2,000,000 0.00/10.50(a) 06/15/07 1,280,000
Fleming Companies, Inc.(d)
3,000,000 10.50 12/01/04 3,120,000
Fresenius Medical Care
5,000,000 9.00 12/01/06 5,100,000
Frontiervision Holdings LP(d)
2,500,000 0.00/11.87(a) 09/15/07 1,700,000
GCI, Inc.
2,000,000 9.75 08/01/07 2,050,000
Gensis Eldercare
2,000,000 9.00 08/01/07 1,960,000
General Chemical Corp.
2,000,000 9.25 08/15/03 2,050,000
Globalstar LP
2,000,000 10.75 11/01/04 1,905,000
Graphic Controls Corp.
2,805,000 12.00 09/15/05 3,120,563
Greyhound Lines, Inc.
2,000,000 11.50 04/15/07 2,165,000
GST Equipment Funding, Inc.
2,000,000 13.25 05/01/07 2,250,000
Hawk Corp.
3,000,000 10.25 12/01/03 3,135,000
Hayes Wheels International Inc.(d)
3,000,000 9.13 07/15/07 3,090,000
Hermes Europe Railtel B.V.
2,000,000 11.50 08/15/07 2,180,000
Hyperion Telecommunications
2,000,000 12.25 09/01/04 2,130,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
34
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
ICN Pharmaceutical, Inc.(d)
$ 2,000,000 9.25% 08/15/05 $ 2,100,000
Integrated Health Services, Inc.
5,000,000 9.25 01/15/08 5,075,000
Intermedia Communications Inc(d)
2,000,000 0.00/11.25(a) 07/15/07 1,315,000
2,250,000 8.88 11/01/07 2,199,375
International Wire Group
5,000,000 11.75 06/01/05 5,440,625
Intertek Finance PLC
7,500,000 10.25 11/01/06 7,800,000
Iridium LLC
3,000,000 11.25 07/15/05 2,835,000
ISP Holdings, Inc.
4,000,000 9.75 02/15/02 4,230,000
ITC Deltacom, Inc.(d)
5,000,000 11.00 06/01/07 5,300,000
James Cable Partners(d)
2,000,000 10.75 08/15/04 2,090,000
Jitney-Jungle Stores America(d)
3,000,000 12.00 03/01/06 3,367,500
2,000,000 10.38 09/15/07 2,080,000
Johnstown American Industries, Inc.(d)
2,000,000 11.75 08/15/05 2,140,000
K&F Industries, Inc.
3,000,000 9.25 10/15/07 3,015,000
Kabelmedia Holdings
5,500,000 0.00/13.63(a) 08/01/06 3,987,500
Kinetic Concepts, Inc.(b)
1,750,000 9.63 11/01/07 1,750,000
Knology Holdings, Inc.
1,750,000 0.00/11.88(a) 10/15/07 892,500
Microcell Telecommunications
3,000,000 0.00/14.00(a) 06/01/06 1,980,000
Millicom International Cellular
4,000,000 0.00/13.50(a) 06/01/06 3,000,000
Mettler Toledo, Inc.
2,125,000 9.75 10/01/06 2,385,313
Newport News Shipbuilding
5,000,000 9.25 12/01/06 5,200,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Nextel Communications, Inc.(d)
$ 3,750,000 0.00/9.75%(a) 08/15/04 $ 3,206,250
1,000,000 0.00/10.65(a) 09/15/07 567,500
Nextlink Communications, Inc.
2,000,000 9.63 10/01/07 2,005,000
Nortek, Inc.(d)
2,000,000 9.88 03/01/04 2,030,000
2,000,000 9.13 09/01/07 2,010,000
NTL, Inc.
1,000,000 10.00 02/15/07 1,042,500
Omnipoint Corp.
1,500,000 11.63 08/15/06 1,560,000
Oxford Automotive, Inc.(d)
3,000,000 10.13 06/15/07 3,120,000
Packard Bioscience, Inc.
5,000,000 9.38 03/01/07 5,025,000
Pathmark Stores, Inc.
3,000,000 9.63 05/01/03 2,835,000
PCI Chemicals Canada, Inc.
4,000,000 9.25 10/15/07 3,920,000
Physician Sales And Services, Inc.
2,500,000 8.50 10/01/07 2,450,000
Prime Succession, Inc.
420,000 10.75 08/15/04 464,100
Printpack, Inc.
7,500,000 10.63 08/15/06 7,950,000
Randalls Food Markets, Inc.(d)
2,000,000 9.38 07/01/07 2,010,000
Red Roof Inns, Inc.
2,000,000 9.63 12/15/03 2,030,000
Revlon Consumer Products Corp.
1,500,000 10.50 02/15/03 1,582,500
Rogers Cantel, Inc.
3,500,000 8.80 10/01/07 3,465,000
RSL Communications Ltd.
3,225,000 12.25 11/15/06 3,483,000
Rutherford Moran Oil Corp.(d)
2,000,000 10.75 10/01/04 1,980,000
SD Warren Co.
3,000,000 12.00 12/15/04 3,375,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Southern Foods Group LP
$ 5,000,000 9.88% 09/01/07 $ 5,150,000
Southwest Royalties, Inc.
1,000,000 10.50 10/15/04 992,500
Sovereign Specialty Chemicals(d)
4,000,000 9.50 08/01/07 4,070,000
Sun World International, Inc.(d)
1,000,000 11.25 04/15/04 1,072,500
Tekni-Plex, Inc.(d)
5,000,000 11.25 04/01/07 5,462,500
Telesystem International Wireless(d)
2,000,000 0.00/13.25(a) 06/30/07 1,200,000
Telewest PLC
4,000,000 0.00/11.00(a) 10/01/07 3,000,000
United Defense Industries, Inc.(d)
1,250,000 8.75 11/15/07 1,250,000
Venture Holdings Trust(d)
3,750,000 9.50 07/01/05 3,684,375
Viasystems, Inc.(d)
5,000,000 9.75 06/01/07 5,125,000
Williams Scotsman, Inc.(d)
3,000,000 9.88 06/01/07 3,090,000
Young Broadcasting, Inc.
5,000,000 8.75 06/15/07 4,850,000
- --------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $273,633,612) $ 273,057,684
- --------------------------------------------------------------------------------------------
EMERGING MARKET DEBT--6.6%
Abril SA
$ 1,500,000 12.00% 10/25/03 $ 1,662,315
Acindar Industries
670,000 11.75 11/12/98 694,757
Argentina Bontes
950,000 8.75 05/09/02 869,250
Asia Pulp and Paper International Finance Co.
900,000 8.53(c) 06/28/99 887,013
390,000 10.25 10/01/00 401,111
Axa S.A de C.V.
1,000,000 9.00 08/04/04 940,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT (CONTINUED)
Banco Nacional de Obras
$ 860,000 9.63% 11/15/03 $ 866,450
Bridas Corp.
750,000 12.50 06/10/03 922,440
Groupo Iusacell S.A. de C.V.
1,000,000 10.00 07/15/04 1,048,980
Grupo Industrial Durango
2,030,000 12.63 08/01/03 2,355,957
Grupo Televisa
4,250,000 0.00/13.25(a) 05/15/08 3,022,813
Impsa Industrias Metal
2,000,000 9.50 05/31/02 2,029,080
Indah Kiat Paper & Pulp(b)
40,000 8.88 11/01/00 38,900
Ministry of Finance Russia
2,180,000 10.00 06/26/07 2,350,934
MRS Logistica S.A.(d)
120,000 10.63 08/15/05 111,600
Polysindo Eka Perkasa
1,000,000 15.45 07/15/98 910,200
Poland Communications, Inc.
700,000 9.88 11/01/03 705,250
Providence of Tucuman
1,000,000 9.45 08/01/04 1,007,250
Republic of Argentina
1,000,000 9.75 09/19/27 797,500
Trikem S.A.
500,000 10.00 05/08/98 476,100
United Mexican States Global Bond
300,000 11.50 05/15/26 373,584
- -----------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT (COST $22,805,541) $ 22,471,484
- -----------------------------------------------------------------------------------------------
FOREIGN BONDS(E)--6.7%
DEUTSCHEMARK--5.4%
Central European Media Enterprises
DEM 3,000,000 8.13% 08/15/04 $ 1,653,324
Exide Holdings(d)
8,000,000 9.13 04/15/04 4,640,910
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
36
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS HIGH YIELD FUND (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN BONDS (CONTINUED)
DEUTSCHEMARK (CONTINUED)
Geberit International S.A.
DEM 11,600,000 10.13% 04/16/07 $ 7,183,548
ITT Promedia CVA
8,000,000 9.13 09/15/07 4,687,319
- ------------------------------------------------------------------------------------------------
$ 18,165,101
- ------------------------------------------------------------------------------------------------
FRENCH FRANC--1.3%
Financiere Neopost(d)
FRF 25,000,000 5.88 09/30/07 4,334,070
- ------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST 21,956,882) $ 22,499,171
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--2.1%
Joint Repurchase Agreement Account(f)
$ 7,200,000 5.76% 11/3/97 $ 7,200,000
- ------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $7,200,000) $ 7,200,000
- ------------------------------------------------------------------------------------------------
<CAPTION>
Maturity
Shares Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK--1.9%
Cablevision Systems Corp. Series H, 11.75%(g)
45,975 10/01/02 $ 5,218,163
Intermedia Communications, Inc. Series B, 13.50%(g)
1,000 03/31/09 1,150,000
- ------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(COST $6,399,047) $ 6,368,163
- ------------------------------------------------------------------------------------------------
WARRANTS--0.0%
RSL Communications Ltd., expiring July 7, 2077*
725 $ 68,875
- ------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(COST $36,250) $ 68,875
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $332,031,332(H)) $331,665,377
- ------------------------------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX INFORMATION:
<TABLE>
<S> <C>
Gross unrealized
gain for
investments in
which value
exceeds cost $ 2,965,536
Gross unrealized
loss for
investments in
which cost
exceeds value (3,303,595)
- ------------------------------
Net unrealized
gain $ (338,059)
- ------------------------------
</TABLE>
* Non-income producing security.
(a) These securities are issued with a zero coupon which increases to the
stated rate at a set date in the future.
(b) When-issued security.
(c) Variable rate security. Coupon rate declared is that which is in effect at
October 31, 1997.
(d) Securities are exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total market
value of Rule 144A securities amounted to $115,599,080 as of October 31,
1997.
(e) The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
DEM=Deutsche Mark
FRF=French Franc
(f) Portions of this security is being segregated for when-issued securities
and forwards.
(g) Pay-in-kind security.
(h) The amount stated also represents aggregate cost for federal income tax
purposes.
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.
37
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT GLOBAL MUNICIPAL HIGH
INCOME INCOME INCOME YIELD
FUND FUND FUND FUND
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value
(cost $96,668,634,
$240,614,266,
$65,218,455 and
$332,031,332) $ 98,123,674 $244,840,234 $67,634,430 $331,665,377
Cash, at value 36,283 -- 94,347 94,291
Receivables:
Investment securities
sold 8,052,214 11,752,792 -- 12,169,433
Interest 665,287 4,225,594 1,095,616 6,052,483
Forward foreign currency
exchange contracts -- 1,997,772 -- 3,864
Fund shares sold 1,068,545 2,954,399 172,672 5,758,585
Variation margin 5,624 -- -- --
Foreign tax withheld -- 206,286 -- --
Deferred organization
expenses, net 5,201 -- 12,545 33,236
Other assets 188,250 67,675 152,755 146,170
- -------------------------------------------------------------------------------
Total assets 108,145,078 266,044,752 69,162,365 355,923,439
- -------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities
purchased 27,847,701 20,519,286 1,972,669 15,735,687
Income distribution 106,752 15,591 97,593 599,767
Forward foreign currency
exchange contracts -- 7,755,584 -- 1,049,541
Fund shares repurchased 44,691 5,256,750 171,019 18,476
Management fees 16,011 116,948 30,844 183,745
Authorized dealer
service fees 43,807 113,348 38,493 156,715
Distribution fees 15,662 96,969 455 11,312
Accrued expenses and
other liabilities 78,620 33,276 64,941 153,940
- -------------------------------------------------------------------------------
Total Liabilities 28,153,244 33,907,752 2,376,014 17,909,183
- -------------------------------------------------------------------------------
NET ASSETS:
Paid in capital 78,059,005 217,234,970 64,172,166 338,613,072
Accumulated undistributed
(distributions in excess
of) net investment
income 134,310 16,021,332 69,879 (131,443)
Accumulated net realized
gain on investment
transactions 284,661 3,266,230 104,706 931,960
Accumulated net realized
foreign currency gain
(loss) -- (4,042,742) -- 3,863
Net unrealized gain
(loss) on investments
and futures 1,513,858 3,116,981 2,439,600 (1,424,443)
Net unrealized gain
(loss) on translation of
assets and liabilities
denominated in foreign
currencies -- (3,459,771) -- 21,247
- -------------------------------------------------------------------------------
Net assets $ 79,991,834 $232,137,000 $66,786,351 $338,014,256
- -------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SHARE:(A)
Class A $14.59 $15.10 $14.99 $9.97
Class B $14.61 $15.08 $15.00 $9.97
Class C $14.60 $15.06 $14.99 $9.97
Institutional $14.59 $15.09 $15.00 $9.97
Service $14.59 $15.09 $14.99 $9.97
- -------------------------------------------------------------------------------
SHARES OUTSTANDING:
Class A 4,717,984 11,066,854 4,305,257 32,686,166
Class B 550,353 229,899 116,684 1,033,828
Class C 81,888 32,914 8,681 179,625
Institutional 129,772 4,038,267 23,435 153
Service 105 9,985 102 153
- -------------------------------------------------------------------------------
Total shares outstanding,
$.001 par value
(unlimited number of
shares authorized) 5,480,102 15,377,919 4,454,159 33,899,925
- -------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share X 1.0471) for Class
A shares is $15.27, $15.81, $15.70 and $10.44 for Government Income, Global
Income, Municipal Income, and High Yield, respectively. At redemption,
Class B and Class C shares may be subject to a contingent deferred sales
charge, assessed on the amount equal to the lesser of the current net asset
value or the original purchase price of the shares.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
38
<PAGE>
Goldman Sachs Trust -- Fixed Income Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT GLOBAL MUNICIPAL HIGH
INCOME INCOME INCOME YIELD
FUND FUND FUND FUND(B)
-----------------------------------------
<S> <C> <C> <C> <C>
Interest(a) $3,706,833 $15,271,687 $3,181,789 $5,023,956
- --------------------------------------------------------------------------------
TOTAL INCOME 3,706,833 15,271,687 3,181,789 5,023,956
- --------------------------------------------------------------------------------
EXPENSES:
Management fees 350,034 2,158,925 320,868 438,819
Authorized dealer service fees 134,563 458,477 145,949 156,715
Distribution fees 152,194 465,887 150,412 164,257
Custodian fees 74,488 169,209 48,385 36,261
Transfer agent fees 163,181 106,886 152,152 27,280
Professional fees 61,189 82,286 59,477 28,781
Registration fees 26,633 56,758 29,284 130,000
Amortization of deferred
organization expenses 18,797 -- 17,545 1,764
Trustee fees 669 4,686 1,116 982
Other 21,348 64,044 22,916 8,580
- --------------------------------------------------------------------------------
TOTAL EXPENSES 1,003,096 3,567,158 948,104 993,439
LESS--EXPENSES REIMBURSABLE
AND FEES WAIVED BY GOLDMAN
SACHS (706,060) (1,040,703) (443,596) (384,387)
- --------------------------------------------------------------------------------
NET EXPENSES 297,036 2,526,455 504,508 609,052
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,409,797 12,745,232 2,677,281 4,414,904
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT, FUTURES
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain from:
Investment transactions 445,057 7,902,917 985,727 931,960
Futures transactions 44,614 -- 143,869 --
Foreign currency related
transactions -- 5,653,361 -- 62,153
Net change in unrealized gain
(loss) on:
Investments 1,378,438 (1,747,881) 1,424,846 (1,424,443)
Futures (15,782) -- 23,625 --
Translation of assets and
liabilities denominated in
foreign currencies -- (2,249,013) -- 21,247
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT,
FUTURES AND FOREIGN
CURRENCY TRANSACTIONS 1,852,327 9,559,384 2,578,067 (409,083)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $5,262,124 $22,304,616 $5,255,348 $4,005,821
- --------------------------------------------------------------------------------
</TABLE>
(a) Net of $104,329 and $2,652 in foreign withholding tax for the Global Income
and High Yield Funds, respectively.
(b) Commencement of operations was August 1, 1997 for all classes except Class
C which commenced operations on August 15, 1997.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
39
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT GLOBAL MUNICIPAL HIGH
INCOME INCOME INCOME YIELD
FUND FUND FUND FUND(A)
------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,409,797 $ 12,745,232 $ 2,677,281 $ 4,414,904
Net realized gain from
investment transactions 489,671 7,902,917 1,129,596 931,960
Net realized gain from
foreign currency
related transactions -- 5,653,361 -- 62,153
Net change in unrealized
gain on investments and
futures 1,362,656 (1,747,881) 1,448,471 (1,424,443)
Net change in unrealized
loss on translation of
assets and liabilities
denominated in foreign
currencies -- (2,249,013) -- 21,247
- ---------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 5,262,124 22,304,616 5,255,348 4,005,821
- ---------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (3,152,235) (9,752,023) (2,651,661) (4,377,263)
Class B (186,284) (74,972) (33,375) (85,036)
Class C (5,823) (2,823) (172) (10,842)
Institutional Class (2,853) (3,332,259) (56) (27)
Service Class (20) (5,785) (14) (26)
In excess of net
investment income
Class A -- -- -- (126,302)
Class B -- -- -- (4,386)
Class C -- -- -- (755)
Institutional Class -- -- -- (1)
Service Class -- -- -- (1)
Net realized gain on
investment
transactions -- -- -- --
Class A (157,471) -- -- --
Class B (1,780) -- -- --
Class C -- -- -- --
Institutional -- -- -- --
Service -- -- -- --
- ---------------------------------------------------------------------------------
Total distributions to
shareholders (3,506,466) (13,167,862) (2,685,278) (4,604,637)
- ---------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales
of shares 69,513,073 56,787,564 21,242,873 344,880,814
Reinvestment of
dividends and
distributions 2,614,489 9,138,023 1,598,487 3,439,274
Cost of shares
repurchased (24,728,808) (96,100,786) (11,147,479) (9,707,016)
- ---------------------------------------------------------------------------------
Net increase
(decrease) in net
assets resulting from
share transactions 47,398,754 (30,175,199) 11,693,881 338,613,072
- ---------------------------------------------------------------------------------
Total increase
(decrease) 49,154,412 (21,038,445) 14,263,951 338,014,256
NET ASSETS:
Beginning of period 30,837,422 253,175,445 52,522,400 --
- ---------------------------------------------------------------------------------
End of period $ 79,991,834 $232,137,000 $ 66,786,351 $338,014,256
- ---------------------------------------------------------------------------------
Accumulated
undistributed
(distributions in
excess of) net
investment income $ 134,310 $ 16,036,268 $ 69,879 $ (131,443)
- ---------------------------------------------------------------------------------
SUMMARY OF SHARE
TRANSACTIONS:
Shares sold 4,877,554 3,836,511 1,451,690 34,524,040
Reinvestment of
dividends and
distributions 182,774 620,219 109,016 343,632
Shares repurchased (1,728,010) (6,501,935) (761,762) (967,747)
- ---------------------------------------------------------------------------------
Net increase (decrease)
in shares outstanding 3,332,318 (2,045,205) 798,944 33,899,925
- ---------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was August 1, 1997 for all classes except Class
C which commenced operations August 15, 1997.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
40
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
-------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,900,328 $ 15,455,369 $ 2,420,375
Net realized gain from
investment transactions 47,581 9,268,666 1,239,690
Net realized loss from foreign
currency related transactions -- (2,192,328) --
Net change in unrealized gain
(loss) on investments and
futures (257,605) 54,149 (513,085)
Net change in unrealized loss on
translation of assets and
liabilities denominated in
foreign currencies -- 4,948,769 --
- -----------------------------------------------------------------------------
Net increase in net assets
resulting from operations 1,690,304 27,534,625 3,146,980
- -----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income
Class A (1,898,372) (22,455,377) (2,418,570)
Class B (3,324) (3,052) (1,805)
Institutional Class -- (4,050,770) --
- -----------------------------------------------------------------------------
Total distributions to
shareholders (1,901,696) (26,509,199) (2,420,375)
- -----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of
shares 8,922,548 39,747,372 6,389,765
Reinvestment of dividends and
distributions 1,614,587 16,968,046 1,484,778
Cost of shares repurchased (8,990,920) (82,019,748) (9,875,982)
- -----------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from share
transactions 1,546,215 (25,304,330) (2,001,439)
- -----------------------------------------------------------------------------
Total increase (decrease) 1,334,823 (24,278,904) (1,274,834)
NET ASSETS:
Beginning of year 29,502,599 277,454,349 53,797,234
- -----------------------------------------------------------------------------
End of year $30,837,422 $253,175,445 $52,522,400
- -----------------------------------------------------------------------------
Accumulated undistributed net
investment income $ 53,331 $ 6,704,225 $ 60,331
- -----------------------------------------------------------------------------
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 624,626 2,811,314 449,496
Reinvestment of dividends and
distributions 112,977 1,198,568 104,201
Shares repurchased (628,175) (5,784,097) (694,794)
- -----------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding 109,428 (1,774,215) (141,097)
- -----------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
41
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered under
the Investment Company Act of 1940 (as amended) as an open-end, management
investment company. Included in this report are the financial statements for
the Goldman Sachs Government Income Fund (Government Income), the Goldman Sachs
Global Income Fund (Global Income), the Goldman Sachs Municipal Income Fund
(Municipal Income) and the Goldman Sachs High Yield Fund (High Yield),
collectively, "the Funds" or individually a "Fund." Government Income,
Municipal Income and High Yield are diversified portfolios whereas Global
Income is a non-diversified portfolio. The Funds currently offer Class A
shares, Class B shares, Class C shares, Institutional shares and Service
shares. Effective May 1, 1997, the Trust was reorganized from a Massachusetts
business trust to a Delaware business trust and various operational changes
were approved, including updating certain investment restrictions and amending
the management contracts.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund's 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
Portfolio securities for which accurate market quotations are readily available
are valued on the basis of quotations furnished by a pricing service or
provided by dealers in such securities. Portfolio securities for which accurate
market quotations are not readily available are valued based on yield
equivalents, pricing matrix or other sources, under valuation procedures
established by the Trust's Board of Trustees. Short-term debt obligations
maturing in sixty days or less are valued at amortized cost.
B. Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains and losses
on sales of portfolio securities are calculated on the identified cost basis.
Interest income is recorded on the basis of interest accrued. Premiums on
interest-only securities and on collateralized mortgage obligations with
nominal principal amounts are amortized, on an effective yield basis, over the
expected lives of the respective securities, taking into account principal
prepayment experience and estimates of future principal prepayments. Certain
mortgage security paydown gains and losses are taxable as ordinary income. Such
paydown gains and losses increase or decrease taxable ordinary income available
for distribution and are classified as interest income in the accompanying
Statements of Operations. Original issue discounts ("OID") on debt securities
are amortized to interest income over the life of the security with a
corresponding increase in the cost basis of that security. OID amortization on
mortgage backed REMIC securities is initially recorded based on estimates of
principal paydowns using the most recent OID factors available from the issuer.
Recorded amortization amounts are adjusted when actual OID factors are
received. For Municipal Income, market premiums on other long-term debt
securities are amortized to interest income while for Global Income, market
discounts on other long-term debt securities are accreted to interest income.
C. Foreign Currency Translations
Amounts denominated in foreign currencies are translated into U.S. dollars on
the following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S.
42
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
interest recorded and the amounts actually received.
D. Forward Foreign Currency Exchange Contracts
The Global Income and High Yield Funds may enter into forward foreign exchange
contracts for the purchase or sale of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. Global Income and High Yield may also
purchase and sell forward contracts to seek to increase total return. All
commitments are "marked-to-market" daily at the applicable translation rates
and any resulting unrealized gains or losses are recorded in the Fund's
financial statements. The Fund records realized gains or losses at the time the
forward contract is offset by entry into a closing transaction or extinguished
by delivery of the currency. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
E. Mortgage Dollar Rolls
Government Income and Global Income may enter into mortgage "dollar rolls" in
which the Fund sells securities in the current month for delivery and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund loses the right to receive principal and interest paid on the
securities sold but benefits to the extent of any price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. The Fund will hold and maintain in a segregated account, until the
settlement date, cash or liquid, high grade debt securities in an amount equal
to the forward purchase price. For financial reporting and tax reporting
purposes, the Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving a
sale.
F. Option Accounting Principles
The Funds may purchase or write call and put options to hedge against changes
in security prices. When call or put options are written, an amount equal to
the premium received is recorded as a liability in the Statement of Assets and
Liabilities which is subsequently marked-to-market to reflect the current value
of the written option. Upon the purchase of a call option or a protective put
option, the premium paid is recorded as an investment, and subsequently marked-
to-market to reflect the current market value of the option. If a closing
transaction has been entered into, a gain or loss may be realized on the
written or purchased option. When options expire, the premium received from a
written option is treated as a realized gain while the cost of a purchased
option is treated as a realized loss. If an option is exercised, the premium
paid or received will be offset against the proceeds on the sale or the
purchase cost of the underlying security to determine realized gains or losses.
Gains and losses are reported in the Statement of Operations.
Certain risks arise upon entering into options contracts. The risk in writing
a call option is that the Fund gives up the opportunity to profit if the
underlying security's market value increases beyond the exercise price and the
option is exercised. The risk in writing a put option is that the Fund may
realize a loss if the market price of an underlying security declines and the
option is exercised. A premium must be paid for purchased options regardless of
whether or not the
43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
option is exercised. The Fund also has the risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.
G. Futures Contracts
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices, currency exchange rates (in the case of
Global Income and High Yield) or to seek to increase total return.
Upon entering into a futures contract, the Funds are required to deposit with
a broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Payments
for futures contracts ("variation margin") are paid or received by the Funds
daily, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes, as unrealized gains or losses.
When contracts are closed, the Funds realize a gain or loss equal to the
difference between the value of the futures contract to sell and the value of
the futures contract to buy. Gains and losses are reported in the Statement of
Operations.
The use of futures contracts involve, to varying degrees, elements of market
and counterparty risk which may exceed the amounts recognized in the Statements
of Assets and Liabilities. Changes in the value of the futures contract may not
directly correlate with changes in the value of the underlying securities
decreasing the effectiveness of the Funds' hedging strategies potentially
resulting in a loss.
H. Federal Taxes
It is each Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all investment company tax-exempt and taxable income to its
shareholders each year. Accordingly, no federal tax provisions are required.
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of a portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital,
depending on the type of book/tax differences that may exist.
The Municipal Income Fund, at its most recent tax year-end of December 31,
had approximately the following amount of capital loss carryforward for U.S.
federal tax purposes:
<TABLE>
- --------------------------------------
<CAPTION>
YEAR OF
FUND AMOUNT EXPIRATION
- --------------------------------------
<S> <C> <C>
Municipal Income $641,973 2004
- --------------------------------------
</TABLE>
I. Deferred Organization Expenses
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
J. Expenses
Expenses incurred by the Trust that do not specifically relate to an individual
portfolio of the Trust are generally allocated to the portfolios based on each
portfolio's relative average net assets for the period.
Class A, Class B and Class C shareholders of the Funds bear all expenses and
fees relating to their respective distribution and authorized dealer service
plans as well as other expenses which are directly attributable to such shares.
Transfer agent fees are subject to separate arrangements for each class.
Shareholders of Service shares bear all expenses and fees paid to service
organizations for their services with respect to such shares as well as other
expenses (subject to expense limitations) which are directly attributable to
such shares.
3. AGREEMENTS
As of May 1, 1997 each Fund's advisory and administration agreements were
combined into a single management agreement encompassing the same services and
fee structure. The investment adviser for Global Income changed from GSAM to
GSAM International, an affiliate of GSAM.
44
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Under the Agreement, GSAM and GSAM International (GSAM), subject to the general
supervision of the Trust's Board of Trustees, manage the Funds' portfolios. As
compensation for the services rendered pursuant to the Agreement and the
assumption of the expenses related thereto and administering the Fund's
business affairs, including providing facilities, GSAM is entitled to a fee,
computed daily and payable monthly at an annual rate equal to .65%, .90%, .55%
and .70% of average daily net assets of Government Income, Global Income,
Municipal Income and High Yield Funds, respectively.
Goldman Sachs has voluntarily agreed to limit certain of the Funds' expenses
(excluding management, service, distribution and authorized dealer service
fees, taxes, interest, brokerage, litigation, indemnification and other
extraordinary expenses and with respect to the Global Income and High Yield
Funds, transfer agent fees) to the extent such expenses exceed .00%, .06%, .05%
and .01% per annum of Government Income, Global Income, Municipal Income and
High Yield Funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to a
Distribution Agreement and as such may receive a portion of the sales load
imposed on the sale of Fund shares. During the period ended October 31, 1997,
Goldman Sachs retained approximately $193,000, $176,000, $57,000 and $3,194,000
of sales loads related to sales of Government Income, Global Income, Municipal
Income and High Yield Funds, respectively.
The Trust, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of each Fund's
average daily net assets attributable to Class A, Class B and Class C shares,
respectively. The Trust, on behalf of each Fund, has adopted an Authorized
Dealer Service Plan (the "Service Plan") pursuant to which Goldman Sachs and
Authorized Dealers are compensated for providing personal and account
maintenance services. Each Fund pays a fee under its Service Plan equal, on an
annual basis, up to .25% of the average daily net assets attributable to the
Class A, Class B and Class C shares. Goldman Sachs also serves as the Transfer
Agent of the Funds for a fee.
For the year ended October 31, 1997, the Managers and Distributor have
voluntarily agreed to waive certain fees and reimburse other expenses as
follows (in thousands):
Waivers
<TABLE>
<CAPTION>
------------------------------ ---
Reimburse-
Class A Reimburse- ment
Fund Management 12b-1 ment Outstanding
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government
Income $215 $126 $365 $ 139
Global
Income 744 73 224 56
Municipal Income -- 144 300 113
High Yield 31 153 200 146
</TABLE>
The Manager and Distributor may discontinue or modify such waivers and
limitations in the future at their discretion.
For the year ended October 31, 1997, Government Income and Municipal Income
Funds incurred commissions expense of approximately $2,400 and $1,800
respectively, in connection with futures contracts entered into with Goldman
Sachs. At October 31, 1997, Goldman Sachs owes approximately $5,600 to
Government Income related to variation margin on futures contracts.
4. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, Global Income and High Yield Funds participate
in a $50,000,000 committed, unsecured revolving line of credit facility. Both
facilities are to be used solely for temporary or emergency purposes. Under the
most restrictive arrangement, each Fund must own securities having a market
value in excess of 300% of the total bank borrowings. The interest rate on
borrowings is based on the federal funds rate. The committed facility also
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
requires a fee to be paid based on the amount of the commitment which has not
been utilized. For the year ended October 31, 1997, the Funds did not have any
borrowings under these facilities.
5. INVESTMENT TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1997, were as follows:
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
GOVERNMENT GLOBAL MUNICIPAL HIGH
FUND INCOME INCOME INCOME YIELD
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of U.S.
Government and agency
obligations $233,289,609 $141,309,917 -- --
- -------------------------------------------------------------------------------
Purchases (excluding
U.S. Government and agency
obligations) 17,622,785 678,102,464 $97,409,474 $439,712,607
- -------------------------------------------------------------------------------
Sales or maturities of
U.S. Government and agency
obligations 199,313,496 183,217,390 -- --
- -------------------------------------------------------------------------------
Sales or maturities
(excluding U.S. Government
and agency obligations) 5,883,622 619,012,989 88,394,031 117,559,082
- -------------------------------------------------------------------------------
</TABLE>
At October 31, 1997, Global Income had outstanding forward foreign currency
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
DEUTSCHE MARK
Expiring 01/09/98 $ 5,646,960 $ 5,761,656 $114,696
SWEDISH KRONA
Expiring 12/12/97 8,268,563 8,399,403 130,840
- -----------------------------------------------------------------------------
Total Foreign Currency Purchase Contracts $13,915,523 $14,161,059 $245,536
- -----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
SALE CONTRACTS DATE VALUE GAIN/(LOSS)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR Expiring 12/18/97 $ 2,382,288 $ 2,259,392 $ 122,896
BRITISH POUND STERLING Expiring
11/17/97 30,871,825 32,890,869 (2,019,044)
Expiring 01/26/98 7,043,389 7,087,943 (44,554)
DEUTSCHE MARK Expiring 11/21/97 12,767,425 13,026,336 (258,911)
Expiring 12/12/97 11,185,084 11,537,531 (352,447)
FRENCH FRANC Expiring 01/23/98 18,369,370 19,024,538 (655,168)
ITALIAN LIRA Expiring 11/13/97 17,068,610 18,122,461 (1,053,851)
JAPANESE YEN Expiring 11/21/97 6,820,529 6,869,362 (48,833)
Expiring 01/22/98 27,706,724 27,929,410 (222,686)
NEW ZEALAND DOLLAR Expiring 12/19/97 22,897,566 22,466,145 431,421
SPANISH PESETA Expiring 12/11/97 8,628,088 9,059,096 (431,008)
- -----------------------------------------------------------------------------
Total Foreign Currency Sale Contracts $165,740,898 $170,273,083 ($4,532,185)
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
FOREIGN CURRENCY PURCHASE SALE
CROSS CONTRACTS CURRENT CURRENT UNREALIZED
(PURCHASE/SALE) VALUE VALUE LOSS
- --------------------------------------------------------------
<S> <C> <C> <C>
DEUTSCHE MARK/SWISS FRANC
Expiring 11/28/97 $11,863,004 $12,029,122 $(166,118)
DEUTSCHE MARK/IRISH PUNT
Expiring 01/08/98 11,823,233 11,972,652 (149,419)
- --------------------------------------------------------------
Total Foreign Currency
Cross Contracts $23,686,237 $24,001,774 $ (315,537)
- --------------------------------------------------------------
</TABLE>
46
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
At October 31, 1997, High Yield had outstanding forward foreign currency
exchange contracts to sell foreign currencies as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
SALE CONTRACTS DATE VALUE LOSS
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
DEUTSCHE MARK
Expiring 02/17/98 $ 65,605 $ 69,174 ($3,569)
Expiring 03/16/98 212,345 220,490 (8,145)
Expiring 04/15/98 726,400 761,732 (35,332)
Expiring 08/17/98 1,604,606 1,688,221 (83,615)
Expiring 09/15/98 4,756,625 4,931,914 (175,289)
Expiring 10/15/98 11,692,647 12,250,676 (558,029)
FRENCH FRANC
Expiring 05/04/98 4,362,210 4,547,772 (185,562)
- ---------------------------------------------------------------------------
Total Foreign Currency Sale Contracts $23,420,438 $24,469,979 $(1,049,541)
- ---------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
At October 31, 1997, Global Income and High Yield Funds had sufficient cash
and/or securities to cover any commitments under these contracts.
Global Income has recorded a "Receivable for forward foreign currency
exchange contracts" and "Payable for forward foreign currency exchange
contracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $1,997,772 and $7,755,584 respectively, in the
accompanying Statement of Assets and Liabilities. High Yield has recorded
$3,864 and $1,049,541 respectively. Included in the Global Income "Receivable
and Payable for forward foreign currency exchange contracts" are $718,874 and
$1,874,502 respectively, related to forward contracts closed but not settled as
of October 31, 1997. High Yield has recorded a "Receivable for forward currency
exchange contracts" of $3,864, related to forward contracts closed but not
settled as of October 31, 1997.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
7. SERVICE PLAN
The Funds have adopted a Service Plan. This plan allows for Service shares to
compensate service organizations for providing varying levels of account
administration and shareholder liaison services to their customers who are
beneficial owners of such shares. The Service Plan provides for compensation to
the service organizations in an amount up to .50% (on an annualized basis), of
the average daily net asset value of the Service shares.
47
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
8. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having advisory
agreements with GSAM, transfer uninvested cash balances into joint accounts,
the daily aggregate balance of which is invested in one or more repurchase
agreements. The underlying securities for the repurchase agreements are U.S.
Treasury and agency obligations. At October 31, 1997, Government Income and
High Yield Funds had an undivided interest in the repurchase agreement in the
following joint account which equaled $20,200,000 and $7,200,000, respectively
in principal amount. At October 31, the repurchase agreements held in this
joint account, along with the corresponding underlying securities (including
the type of security, market value, interest rate and maturity date) were as
follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns & Co., dated October 31, 1997, repurchase price $300,144,250
(total collateral value $309,849,518 consisting of FHLMC: 6.50%, 12/01/23;
FNMA: 6.00%, 6/01/11; GNMA: 7.00%-8.00%, 2/15/25-10/15/27)
$300,000,000 5.77% 11/03/97 $ 300,000,000
Lehman Brothers, Inc., dated October 31, 1997, repurchase price $241,215,728
(total collateral value $245,922,019 consisting of FHLMC: 6.50%-10.25%,
3/01/01-10/01/27; FNMA: 6.00%-11.25%, 11/01/01-10/01/27)
241,100,000 5.76 11/03/97 241,100,000
Nomura Securities International, Inc., dated October 31, 1997, repurchase
price $200,096,167 (total collateral value $204,000,900 consisting of
FHLMC: 6.02%-7.53%, 9/25/00-8/21/07; FNMA: 6.11%-7.73%, 6/22/99-2/07/07;
U.S. Treasury Note: 5.75%-9.00%, 5/15/98-2/15/07; U.S. Treasury Principal
Only Stripped Security: 5/15/00)
200,000,000 5.77 11/03/97 200,000,000
Nomura Securities International, Inc., dated October 31, 1997, repurchase
price $100,047,500 (total collateral value $102,000,449 consisting of
FHLMC: 6.02%-7.53%, 9/25/00-8/21/07; FNMA: 6.11%-7.73%, 6/22/99-2/07/07;
U.S. Treasury Note: 5.75%-9.00%, 5/15/98-2/15/07; U.S. Treasury Principal
Only Stripped Security: 5/15/00)
$100,000,000 5.70% 11/03/97 $ 100,000,000
- -------------------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $ 841,100,000
- -------------------------------------------------------------------------------------------------
</TABLE>
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Government Income and
Municipal Income Funds have reclassified $18,397 and $17,545, respectively,
from paid-in capital to accumulated undistributed net investment income.
Additionally, the Global Income Fund and the High Yield Fund have reclassified
$9,739,737 and $58,290, respectively from accumulated net realized gain to
accumulated undistributed net investment income. These reclassifications have
no impact on net asset values of the Funds and are designed to present the
Funds' capital accounts on a tax basis.
10. OTHER
As of October 31, 1997, the Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 16% of the
outstanding shares of Global Income.
48
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1997
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
11. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1997 is as follows:
<TABLE>
<CAPTION>
Government Income Global Income Municipal Income High Yield(a)
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 4,037,141 $57,488,835 3,015,583 $ 44,585,997 1,303,279 $19,055,213 33,312,862 $332,722,875
Reinvestment of
dividends and
distributions 171,093 2,446,417 467,859 6,894,169 107,716 1,579,312 337,850 3,381,418
Shares repurchased (1,621,717) (23,201,046) (6,086,858) (89,969,794) (743,175) (10,871,802) (964,546) (9,674,791)
---------------------------------------------------------------------------------------------------
2,586,517 36,734,206 (2,603,416) (38,489,628) 667,820 9,762,723 32,686,166 326,429,502
---------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 616,145 8,785,642 234,541 3,469,609 116,039 1,702,581 1,031,591 10,350,661
Reinvestment of
dividends and
distributions 11,108 159,730 3,715 55,069 1,286 18,970 4,944 49,476
Shares repurchased (93,217) (1,338,822) (25,960) (383,982) (18,419) (273,177) (2,707) (27,285)
---------------------------------------------------------------------------------------------------
534,036 7,606,550 212,296 3,140,696 98,906 1,448,374 1,033,828 10,372,852
---------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 94,585 1,365,823 39,328 589,195 8,837 132,078 179,285 1,804,260
Reinvestment of
dividends and
distributions 379 5,517 183 2,750 12 176 834 8,342
Shares repurchased (13,076) (188,940) (6,597) (98,680) (168) (2,500) (494) (4,940)
---------------------------------------------------------------------------------------------------
81,888 1,182,400 32,914 493,265 8,681 129,754 179,625 1,807,662
---------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 129,579 1,871,267 520,054 7,743,275 23,434 351,500 150 1,501
Reinvestment of
dividends and
distributions 193 2,806 148,072 2,180,251 1 15 3 28
Shares repurchased -- -- (365,110) (5,385,751) -- -- -- --
---------------------------------------------------------------------------------------------------
129,772 1,874,073 303,016 4,537,775 23,435 351,515 153 1,529
---------------------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 104 1,506 27,005 399,488 101 1,501 152 1,517
Reinvestment of
dividends and
distributions 1 19 390 5,784 1 14 1 10
Shares repurchased -- -- (17,410) (262,579) -- -- -- --
---------------------------------------------------------------------------------------------------
105 1,525 9,985 142,693 102 1,515 153 1,527
---------------------------------------------------------------------------------------------------
Net increase
(decrease) 3,332,318 $47,398,754 (2,045,205) $(30,175,199) 798,944 $11,693,881 33,899,925 $338,613,072
===================================================================================================
</TABLE>
(a) Commencement of operations was August 1, 1997 for all classes except Class
C which commenced operations August 15, 1997.
49
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Share activity for the year ended October 31, 1996 is as follows:
<TABLE>
<CAPTION>
Government Income Global Income Municipal Income
- ------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 607,156 $ 8,675,868 1,089,521 $ 15,545,777 431,736 $ 6,139,212
Reinvestment of
dividends and
distributions 112,752 1,611,387 947,846 13,419,614 104,074 1,482,976
Shares repurchased (626,797) (8,971,389) (5,376,065) (76,216,894) (694,685) (9,874,431)
----------------------------------------------------------------------
93,111 1,315,866 (3,338,698) (47,251,503) (158,875) (2,252,243)
----------------------------------------------------------------------
CLASS B SHARES
Shares sold 17,470 246,680 18,628 265,053 17,760 250,553
Reinvestment of
dividends and
distributions 225 3,200 119 1,708 127 1,802
Shares repurchased (1,378) (19,531) (1,144) (16,373) (109) (1,551)
----------------------------------------------------------------------
16,317 230,349 17,603 250,388 17,778 250,804
----------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold -- -- 1,703,165 23,936,542 -- --
Reinvestment of
dividends and
distributions -- -- 250,603 3,546,724 -- --
Shares repurchased -- -- (406,888) (5,786,481) -- --
----------------------------------------------------------------------
-- -- 1,546,880 21,696,785 -- --
----------------------------------------------------------------------
Net increase (decrease) 109,428 $ 1,546,215 (1,774,215) $(25,304,330) (141,097) $(2,001,439)
======================================================================
</TABLE>
50
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations
----------------------------------------------------
Net realized Net realized
and unrealized and unrealized Total
gain (loss) on gain (loss) income
Net asset investment, on foreign (loss)
value, Net option and currency from
beginning investment futures related investment
of period income transactions(a) transactions operations
-----------------------------------------------------------------
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------------------------
1997-Class A Shares $14.36 $0.91 $0.29 -- $1.20
1997-Class B Shares 14.37 0.80 0.30 -- 1.10
1997-Class C Shares(j) 14.38 0.17 0.22 -- 0.39
1997-Institutional
Shares(j) 14.37 0.20 0.22 -- 0.42
1997-Service Shares(j) 14.37 0.20 0.21 -- 0.41
1996-Class A shares 14.47 0.92 (0.11) -- 0.81
1996-Class B shares(c) 14.11 0.41 0.26 -- 0.67
1995-Class A shares 13.47 0.94 1.00 -- 1.94
1994-Class A shares 14.90 0.85 (1.28) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(D) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A shares 14.32 0.56 0.58 -- 1.14
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------------
1997-Class A shares $14.53 $0.59 $0.50 $0.27 $1.36
1997-Class B shares 14.53 0.72 0.36 0.20 1.28
1997-Class C shares(j) 14.80 0.16 0.19 0.10 0.45
1997-Institutional
Shares 14.52 0.88 0.37 0.19 1.44
1997-Service Shares(i) 14.69 0.53 0.25 0.14 0.92
1996-Class A shares 14.45 0.71 0.62 0.18 1.51
1996-Class B shares(c) 14.03 0.34 0.41 0.11 0.86
1996-Institutional
shares 14.45 1.15 0.32 0.10 1.57
1995-Class A shares 13.43 0.89 0.92 0.15 1.96
1995-Institutional
shares(f) 14.09 0.22 0.34 0.06 0.62
1994-Class A shares 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A shares 14.69 0.85 1.07 (0.42) 1.50
1992-Class A shares 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD AUGUST 2, 1991(D) THROUGH OCTOBER 31,
- -------------------------------------
1991-Class A shares 14.55 0.25 0.23 (0.19) 0.29
- --------------------------------------------------------------------------------
<CAPTION>
Distributions to shareholders
---------------------------------------------------------------------
From In excess of
net realized net realized
gain on gain on
From investment, In excess investment, Total
net option and of net option and From distributions
investment futures investment futures paid in to
income transactions income transactions capital shareholders
-----------------------------------------------------------------
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------------------------
1997-Class A Shares $(0.90) $(0.07) -- -- -- $(0.97)
1997-Class B Shares (0.79) (0.07) -- -- -- (0.86)
1997-Class C Shares(j) (0.17) -- -- -- -- (0.17)
1997-Institutional
Shares(j) (0.20) -- -- -- -- (0.20)
1997-Service Shares(j) (0.19) -- -- -- -- (0.19)
1996-Class A shares (0.92) -- -- -- -- (0.92)
1996-Class B shares(c) (0.41) -- -- -- -- (0.41)
1995-Class A shares (0.94) -- -- -- -- (0.94)
1994-Class A shares (0.85) (0.12) (0.02) (0.01) -- (1.00)
FOR THE PERIOD FEBRUARY 10, 1993(D) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A shares (0.56) -- -- -- -- (0.56)
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------------
1997-Class A shares $(0.79) -- -- -- -- $(0.79)
1997-Class B shares (0.73) -- -- -- -- (0.73)
1997-Class C shares(j) (0.19) -- -- -- -- (0.19)
1997-Institutional
Shares (0.87) -- -- -- -- (0.87)
1997-Service Shares(i) (0.52) -- -- -- -- (0.52)
1996-Class A shares (1.43) -- -- -- -- (1.43)
1996-Class B shares(c) (0.36) -- -- -- -- (0.36)
1996-Institutional
shares (1.50) -- -- -- -- (1.50)
1995-Class A shares (0.94) -- -- -- -- (0.94)
1995-Institutional
shares(f) (0.26) -- -- -- -- (0.26)
1994-Class A shares (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A shares (0.85) (0.27) -- -- -- (1.12)
1992-Class A shares (1.14) -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(D) THROUGH OCTOBER 31,
- -------------------------------------
1991-Class A shares (0.24) -- -- -- -- (0.24)
- --------------------------------------------------------------------------------
<CAPTION>
Net Ratio of
increase net
(decrease) Net asset Ratio of investment Net assets
in net value at net expenses income Portfolio at end of
asset end of Total to average to average turnover period
value period return(b) net assets net assets rate(h) (in 000s)
-----------------------------------------------------------------
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------------------------
1997-Class A Shares $0.23 $14.59 8.72% 0.50% 6.38% 395.75% $ 68,859
1997-Class B Shares 0.24 14.61 7.96 1.25 5.59 395.75 8,041
1997-Class C Shares(j) 0.22 14.60 2.72(g) 1.25(e) 5.45(e) 395.75(g) 1,196
1997-Institutional
Shares(j) 0.22 14.59 2.94(g) 0.25(e) 7.03(e) 395.75(g) 1,894
1997-Service Shares(j) 0.22 14.59 2.85(g) 0.50(e) 6.49(e) 395.75(g) 2
1996-Class A shares (0.11) 14.36 5.80 0.50 6.42 485.09 30,603
1996-Class B shares(c) 0.26 14.37 4.85(g) 1.25(e) 5.65(e) 485.09 234
1995-Class A shares 1.00 14.47 14.90 0.47 6.67 449.53 29,503
1994-Class A shares (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452
FOR THE PERIOD FEBRUARY 10, 1993(D) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A shares 0.58 14.90 8.03(g) 0.00(e) 4.87(e) 725.41(g) 12,860
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------------
1997-Class A shares $0.57 $15.10 9.66% 1.17% 5.19% 383.72% $167,096
1997-Class B shares 0.55 15.08 9.04 1.71 4.76 383.72 3,465
1997-Class C shares(j) 0.26 15.06 3.03(g) 1.71(e) 4.98(e) 383.72(g) 496
1997-Institutional
Shares 0.57 15.09 10.26 0.65 5.72 383.72 60,929
1997-Service Shares(i) 0.40 15.09 6.42(g) 1.15(e) 5.33(e) 383.72(g) 151
1996-Class A shares 0.08 14.53 11.05 1.16 5.81 232.15 198,665
1996-Class B shares(c) 0.50 14.53 6.24(g) 1.70(e) 5.16(e) 232.15(g) 256
1996-Institutional
shares 0.07 14.52 11.55 0.65 6.35 232.15 54,254
1995-Class A shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835
1995-Institutional
shares(f) 0.36 14.45 4.42(g) 0.65(e) 6.01(e) 265.86(g) 31,619
1994-Class A shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584
1993-Class A shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662
1992-Class A shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893
FOR THE PERIOD AUGUST 2, 1991(D) THROUGH OCTOBER 31,
- -------------------------------------
1991-Class A shares 0.05 14.60 2.00(g) 0.38(g) 1.72(g) 34.22(g) 388,744
- --------------------------------------------------------------------------------
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------------
Ratio of net
Ratio of investment
expenses income
to average to average
net assets net assets
--------------------------------------------------------------
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------------------------
1997-Class A Shares 1.82% 5.06%
1997-Class B Shares 2.32 4.52
1997-Class C Shares(j) 2.32(e) 4.38(e)
1997-Institutional
Shares(j) 1.57(e) 5.42(e)
1997-Service Shares(j) 1.82(e) 5.17(e)
1996-Class A shares 1.89 5.03
1996-Class B shares(c) 2.39(e) 4.51(e)
1995-Class A shares 2.34 4.80
1994-Class A shares 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(D) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A shares 4.00(e) 0.87(e)
GLOBAL INCOME FUND
- ----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------------
1997-Class A shares 1.60% 4.76%
1997-Class B shares 2.10 4.37
1997-Class C shares(j) 2.10(e) 4.59(e)
1997-Institutional Shares 1.04 5.33
1997-Service Shares(i) 1.54(e) 4.94(e)
1996-Class A shares 1.64 5.33
1996-Class B shares(c) 2.14(e) 4.72(e)
1996-Institutional shares 1.11 5.89
1995-Class A shares 1.58 5.94
1995-Institutional
shares(f) 1.08(e) 5.58(e)
1994-Class A shares 1.53 5.48
1993-Class A shares 1.55 5.53
1992-Class A shares 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(D) THROUGH OCTOBER 31,
- -------------------------------------
1991-Class A shares 0.44(g) 1.66(g)
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
Goldman Sachs Trust--Fixed Income Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations
----------------------------------------------------
Net realized Net realized
and unrealized and unrealized Total
gain (loss) on gain (loss) income
Net asset investment, on foreign (loss)
value, Net option and currency from
beginning investment futures related investment
of period income transactions(a) transactions operations
---------------------------------------------------------------------
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ------------------------------------
1997-Class A Shares $14.37 $0.67 $0.62 -- $1.29
1997-Class B Shares 14.37 0.56 0.63 -- 1.19
1997-Class C Shares(j) 14.85 0.12 0.14 -- 0.26
1997-Institutional
Shares(j) 14.84 0.15 0.16 -- 0.31
1997-Service Shares(j) 14.84 0.14 0.15 -- 0.29
1996-Class A shares 14.17 0.65 0.20 -- 0.85
1996-Class B shares(c) 14.03 0.27 0.34 -- 0.61
1995-Class A shares 13.08 0.67 1.09 -- 1.76
1994-Class A shares 14.64 0.73 (1.51) -- (0.78)
FOR THE PERIOD JULY 20, 1993(D) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A shares 14.32 0.22 0.32 -- 0.54
HIGH YIELD FUND
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(D) THROUGH OCTOBER 31,
- ------------------------------------
1997-Class A Shares $10.00 $0.17 $(0.03) 0.01 $0.15
1997-Class B Shares 10.00 0.15 (0.03) 0.01 0.13
1997-Class C Shares(j) 9.97 0.14 -- 0.01 0.12
1997-Institutional
Shares 10.00 0.18 (0.03) 0.01 0.16
1997-Service Shares 10.00 0.17 (0.03) 0.01 0.15
<CAPTION>
Distributions to shareholders
---------------------------------------------------------------------
From In excess of
net realized net realized
gain on gain on
From investment, In excess investment, Total
net option and of net option and From distributions
investment futures investment futures paid in to
income transactions income transactions capital shareholders
------------------------------------------------------------------------
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- --------------------------
1997-Class A Shares $(0.67) -- -- -- -- $(0.67)
1997-Class B Shares (0.56) -- -- -- -- (0.56)
1997-Class C Shares(j) (0.12) -- -- -- -- (0.12)
1997-Institutional
Shares(j) (0.15) -- -- -- -- (0.15)
1997-Service Shares(j) (0.14) -- -- -- -- (0.14)
1996-Class A shares (0.65) -- -- -- -- (0.65)
1996-Class B shares(c) (0.27) -- -- -- -- (0.27)
1995-Class A shares (0.67) -- -- -- -- (0.67)
1994-Class A shares (0.73) (0.05) -- -- -- (0.78)
FOR THE PERIOD JULY 20, 1993(D) THROUGH OCTOBER 31,
- --------------------------
1993-Class A shares (0.22) -- -- -- -- (0.22)
HIGH YIELD FUND
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(D) THROUGH OCTOBER 31,
- --------------------------
1997-Class A Shares $(0.17) -- $(0.01) -- -- $(0.18)
1997-Class B Shares (0.15) -- (0.01) -- -- (0.16)
1997-Class C Shares(j) (0.14) -- (0.01) -- -- (0.15)
1997-Institutional
Shares (0.18) -- (0.01) -- -- (0.19)
1997-Service Shares (0.17) -- (0.01) -- -- (0.18)
<CAPTION>
Net Ratio of
increase net
(decrease) Net asset Ratio of investment Net assets
in net value at net expenses income Portfolio at end of
asset end of Total to average to average turnover period
value period return(b) net assets net assets rate(h) (in 000s)
------------------------------------------------------------------------
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- --------------------------
1997-Class A Shares $0.62 $14.99 9.23% 0.85% 4.60% 153.12% $64,553
1997-Class B Shares 0.63 15.00 8.48 1.60 3.74 153.12 1,750
1997-Class C Shares(j) 0.14 14.99 1.75(g) 1.60(e) 3.24(e) 153.12(g) 130
1997-Institutional
Shares(j) 0.16 15.00 2.10(g) 0.60(e) 4.41(e) 153.12(g) 351
1997-Service Shares(j) 0.15 14.99 1.93(g) 1.10(e) 4.24(e) 153.12(g) 2
1996-Class A shares 0.20 14.37 6.13 0.85 4.58 344.13 52,267
1996-Class B shares(c) 0.34 14.37 4.40(g) 1.60(e) 3.55(e) 344.13(g) 255
1995-Class A shares 1.09 14.17 13.79 0.76 4.93 335.55 53,797
1994-Class A shares (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373
FOR THE PERIOD JULY 20, 1993(D) THROUGH OCTOBER 31,
- --------------------------
1993-Class A shares 0.32 14.64 3.73(g) 0.00(e) 5.15(e) 99.99(g) 30,166
HIGH YIELD FUND
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(D) THROUGH OCTOBER 31,
- --------------------------
1997-Class A Shares $(0.03) $9.97 1.50%(g) 0.95%(e) 7.06%(e) 44.80%(g) $325,911
1997-Class B Shares (0.03) 9.97 1.31(g) 1.70(e) 6.28(e) 44.80(g) 10.308
1997-Class C Shares(j) (0.03) 9.97 1.46(g) 1.70(e) 6.17(e) 44.80(g) 1,791
1997-Institutional
Shares (0.03) 9.97 1.58(g) 0.70(e) 7.16(e) 44.80(g) 2
1997-Service Shares (0.03) 9.97 1.46(g) 1.20(e) 6.69(e) 44.80(g) 2
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------------
Ratio of net
Ratio of investment
expenses income
to average to average
net assets net assets
-------------------------------------------------------------------
MUNICIPAL INCOME FUND
- -------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ------------------------------------
1997-Class A Shares 1.62% 3.83%
1997-Class B Shares 2.12 3.22
1997-Class C Shares(j) 2.12(e) 2.72(e)
1997-Institutional Shares(j) 1.12(e) 3.89(e)
1997-Service Shares(j) 1.62(e) 3.72(e)
1996-Class A shares 1.55 3.88
1996-Class B shares(c) 2.05(e) 3.10(e)
1995-Class A shares 1.49 4.20
1994-Class A shares 1.55 4.18
FOR THE PERIOD JULY 20, 1993(D) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A shares 2.42(e) 2.73(e)
HIGH YIELD FUND
- -------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(D) THROUGH OCTOBER 31,
- ------------------------------------
1997-Class A Shares 1.57%(e) 6.44%(e)
1997-Class B Shares 2.07(e) 5.91(e)
1997-Class C Shares(j) 2.07(e) 5.80(e)
1997-Institutional Shares 1.07(e) 6.79(e)
1997-Service Shares 1.57(e) 6.32(e)
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales charge for Class A shares or a
contingent deferred sales charge for Class B and Class C shares were taken
into account.
(c) Class B shares commenced operations on May 1, 1996.
(d) Commencement of operations.
(e) Annualized.
(f) Institutional shares commenced operations on June 1, 1995.
(g) Not annualized.
(h) Includes the effect of mortgage dollar roll transactions for the Government
Income Fund.
(i) Service Class shares commenced operations on March 12, 1997.
(j) Commenced operations on August 15, 1997.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
To the Shareholders and Board of Trustees of the Goldman Sachs Government
Income Fund, Goldman Sachs Global Income Fund, Goldman Sachs Municipal Income
Fund and Goldman Sachs High Yield Fund:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund, Goldman
Sachs Municipal Income Fund and Goldman Sachs High Yield Fund: (portfolios of
Goldman Sachs Trust, a Delaware Business Trust), including the statements of
investments, as of October 31, 1997, 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, 1997 by correspondence with the custodian and brokers. 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 Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund,
Goldman Sachs Municipal Income Fund and Goldman Sachs High Yield Fund as of
October 31, 1997, 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, 1997
53
<PAGE>
VOTING RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
The proposals described below were submitted to a vote of shareholders of
Goldman Sachs Trust (the "Company") at a Special Meeting of Shareholders held
on April 1, 1997 (the "Meeting"):
- --------------------------------------------------------------------------------
PROPOSAL NO. 1--ELECTION OF NINE TRUSTEES:
- --------------------------------------------------------------------------------
At the Meeting, Ashok Bakhru, David B. Ford, Douglas Grip, John McNulty, Mary
McPherson, Richard Strubel, Alan Shuch, Jackson Smart and William Springer were
elected to the Company's Board of Trustees. In electing the Trustees, the
Company's shareholders voted as follows:
<TABLE>
<CAPTION>
TRUSTEE FOR AGAINST ABSTAIN BROKER NON-VOTES
------- --------------- ------- -------------- ----------------
<S> <C> <C> <C> <C>
Ashok Bakhru............ 59,699,988.0890 0 993,484.8850 0
David B. Ford........... 59,362,764.7000 0 1,330,708.2740 0
Douglas Grip............ 59,477,956.3930 0 1,215,516.5810 0
John McNulty............ 59,362,764.7000 0 1,330,708.2740 0
Mary McPherson.......... 59,705,150.0290 0 988,322.9450 0
Richard Strubel......... 59,727,715.4610 0 965,757.5130 0
Alan Shuch.............. 59,362,764.7000 0 1,330,708.2740 0
Jackson Smart........... 59,706,199.9810 0 987,272.9930 0
William Springer........ 59,729,198.2540 0 964,274.7200 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 2--RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT ACCOUNTANTS OF THE TRUST OR THE CORPORATION FOR THE
FISCAL YEARS ENDING OCTOBER 31, 1997 AND JANUARY 31, 1998,
RESPECTIVELY:
- --------------------------------------------------------------------------------
At the Meeting, the Company's shareholders approved Proposal No. 2 as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
- --------------- -------------- -------------- ----------------
<S> <C> <C> <C>
55,747,113.1630 37,028.3220 4,909,331.4890 0
- --------------------------------------------------------------------------------
PROPOSAL NO. 4(B)--APPROVAL OF AN AMENDMENT TO THE TRUST'S DECLARATION OF TRUST
TO PERMIT INVESTMENT OF EACH FUND'S ASSETS IN ANOTHER OPEN-END
INVESTMENT COMPANY:
- --------------------------------------------------------------------------------
At the Meeting, the Company's shareholders approved Proposal No. 4(B) as
follows:
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
- --------------- -------------- -------------- ----------------
<S> <C> <C> <C>
52,375,742.4380 1,978,971.9450 6,267,663.5910 71,095.0000
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 3--APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each of the Company's portfolios (each, a
"Fund" and collectively, the "Funds") approved Proposal No. 3 as follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,256,266.2380 249,187.0120 0 0
G.S. Adjustable Rate
Government............. 30,840,046.7270 205,007.3510 4,029,816.1740 64,115.0000
G.S. Short Duration Tax
Free................... 2,017,550.0780 16,321.0250 527.7150 0
G.S. Core Fixed Income.. 4,761,964.9270 1,055.6280 0 0
G.S. Global Income...... 7,475,140.0900 216,569.4820 1,108,286.2630 0
G.S. Government Income.. 1,419,426.1060 19,927.7870 2,736.8010 6,980.0000
G.S. Municipal Income... 1,871,247.5330 13,820.1290 117,480.9080 0
</TABLE>
54
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 4(A)--APPROVAL OF AN AMENDMENT TO THE FUND'S INVESTMENT
RESTRICTIONS TO PERMIT EACH FUND TO INVEST ALL ITS ASSETS IN
ANOTHER OPEN-END INVESTMENT COMPANY:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 4(A) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 255,529.1270 0 0
G.S. Adjustable Rate
Government............. 29,300,183.4090 738,971.8930 5,035,714.9500 64,115.0000
G.S. Short Duration Tax
Free................... 1,707,256.5030 326,614.6000 527.7150 0
G.S. Core Fixed Income.. 4,761,964.9270 1,055.6280 0 0
G.S. Global Income...... 7,338,642.1730 350,819.2200 1,110,534.4420 0
G.S. Government Income.. 1,409,107.5260 30,246.3670 2,736.8010 6,980.0000
G.S. Municipal Income... 1,850,690.6070 29,828.2390 122,029.7240 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(A)--INVESTMENT POLICY ON ISSUER DIVERSIFICATION:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(A) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 249,187.0120 6,342.1150 0
G.S. Adjustable Rate
Government............. 29,997,087.3250 43,548.7280 5,034,234.1990 64,115.0000
G.S. Short Duration Tax
Free................... 2,023,592.0760 1,190.2710 9,616.4710 0
G.S. Core Fixed Income.. 4,763,020.5550 0 0 0
G.S. Global Income...... 7,302,111.2200 337,094.6510 1,160,789.9640 0
G.S. Government Income.. 1,432,220.1140 3,231.1630 6,639.4170 6,980.0000
G.S. Municipal Income... 1,872,473.5900 16,237.5860 113,837.3940 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(B)--INVESTMENT POLICY ON INDUSTRY CONCENTRATION:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(B) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 249,187.0120 6,342.1150 0
G.S. Adjustable Rate
Government............. 29,717,448.6200 48,100.0560 5,309,321.5760 64,115.0000
G.S. Short Duration Tax
Free................... 2,023,592.0760 1,190.2710 9,616.4710 0
G.S. Core Fixed Income.. 4,763,020.5550 0 0 0
G.S. Global Income...... 7,308,203.5950 364,153.7540 1,127,638.4860 0
G.S. Government Income.. 1,435,859.2330 3,462.0620 2,769.3990 6,980.0000
G.S. Municipal Income... 1,869,373.6660 12,600.7210 120,574.1830 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(C)--INVESTMENT POLICIES ON BORROWING, MARGIN PURCHASES AND
PLEDGING ASSETS:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(C) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 249,187.0120 6,342.1150 0
G.S. Adjustable Rate
Government............. 29,536,226.5180 496,829.5350 5,041,814.1990 64,115.0000
G.S. Short Duration Tax
Free................... 2,024,782.3470 0 9,616.4710 0
G.S. Core Fixed Income.. 4,761,964.9270 1,055.6280 0 0
G.S. Global Income...... 7,216,046.8580 429,048.0000 1,154,900.9770 0
G.S. Government Income.. 1,382,429.7560 55,980.6910 3,680.2470 6,980.0000
G.S. Municipal Income... 1,852,339.5570 25,565.3640 124,643.6490 0
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(D)--INVESTMENT POLICY ON LOANS:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(D) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 249,187.0120 6,342.1150 0
G.S. Adjustable Rate
Government............. 29,791,225.9940 241,830.0590 5,041,814.1990 64,115.0000
G.S. Short Duration Tax
Free................... 2,024,782.3470 0 9,616.4710 0
G.S. Core Fixed Income.. 4,761,964.9270 1,055.6280 0 0
G.S. Global Income...... 7,246,088.4970 387,925.7060 1,165,981.6320 0
G.S. Government Income.. 1,418,199.0540 16,793.6490 7,097.9910 6,980.0000
G.S. Municipal Income... 1,855,997.7160 18,603.7770 127,947.0770 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(E)--INVESTMENT POLICY ON UNDERWRITING:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(E) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,499,008.6670 102.4680 6,342.1150 0
G.S. Adjustable Rate
Government............. 24,563,621.2260 203,940.9210 10,307,308.1050 64,115.0000
G.S. Short Duration Tax
Free................... 2,024,782.3470 0 9,616.4710 0
G.S. Core Fixed Income.. 4,763,020.5550 0 0 0
G.S. Global Income...... 7,277,794.5270 358,843.4350 1,163,357.8730 0
G.S. Government Income.. 1,430,965.7480 7,444.6990 3,680.2470 6,980.0000
G.S. Municipal Income... 1,848,511.9770 12,976.0140 141,060.5790 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(F)--INVESTMENT POLICY ON REAL ESTATE AND OIL AND GAS:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(F) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 249,187.0120 6,342.1150 0
G.S. Adjustable Rate
Government............. 24,526,695.5880 240,866.5590 10,307,308.1050 64,115.0000
G.S. Short Duration Tax
Free................... 1,990,762.3590 34,019.9880 9,616.4710 0
G.S. Core Fixed Income.. 1,125,872.4290 0 3,637,148.1260 0
G.S. Global Income...... 7,327,402.6000 291,544.8020 1,181,048.4330 0
G.S. Government Income.. 1,432,561.1600 5,849.2870 3,680.2470 6,980.0000
G.S. Municipal Income... 1,867,044.1890 15,154.4890 120,349.8920 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(G)--INVESTMENT POLICY ON COMMODITIES:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(G) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,256,266.2380 102.4680 249,084.5440 0
G.S. Adjustable Rate
Government............. 24,259,310.5330 258,550.2170 10,557,009.5020 64,115.0000
G.S. Short Duration Tax
Free................... 1,999,851.1150 34,019.9880 527.7150 0
G.S. Core Fixed Income.. 4,761,964.9270 0 1,055.6280 0
G.S. Global Income...... 7,242,067.7760 391,426.1320 1,166,501.9270 0
G.S. Government Income.. 1,402,158.5440 35,125.1420 4,807.0080 6,980.0000
G.S. Municipal Income... 1,864,355.0900 15,677.0190 122,516.4610 0
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(H)--INVESTMENT POLICY ON SENIOR SECURITIES:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(H) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,296.2850 7,072.4210 249,084.5440 0
G.S. Adjustable Rate
Government............. 24,588,889.6270 204,058.5000 10,281,922.1250 64,115.0000
G.S. Short Duration Tax
Free................... 2,032,680.8320 1,190.2710 527.7150 0
G.S. Core Fixed Income.. 4,763,020.5550 0 0 0
G.S. Global Income...... 7,317,507.8520 317,794.9290 1,164,693.0540 0
G.S. Government Income.. 1,369,235.2830 67,017.8840 5,837.5270 6,980.0000
G.S. Municipal Income... 1,861,721.6030 14,498.0260 126,328.9410 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(I)--INVESTMENT POLICY CONCERNING SHORT SALES OF SECURITIES:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 5(I) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,243,445.2950 12,923.4110 249,084.5440 0
G.S. Adjustable Rate
Government............. 29,554,106.4250 236,098.2310 5,284,665.5960 64,115.0000
G.S. Short Duration Tax
Free................... 1,994,403.9380 39,467.1650 527.7150 0
G.S. Core Fixed Income.. 4,761,964.9270 0 1,055.6280 0
G.S. Global Income...... 7,221,712.5330 412,993.5060 1,165,289.7960 0
G.S. Government Income.. 1,365,080.4460 68,785.4960 8,224.7520 6,980.0000
G.S. Municipal Income... 1,839,955.6770 27,482.8450 135,110.0480 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(J)--GS SHORT DURATION GOVERNMENT FUND'S POLICY ON OPTIONS:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of GS Short Duration Government approved
Proposal No. 5(J) as follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- -------------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1230 102.4680 255,426.6590 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(K)--GS SHORT DURATION GOVERNMENT FUND'S POLICY ON INVESTMENTS TO
EXERCISE CONTROL:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of GS Short Duration Fund approved Proposal
No. 5(K) as follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- -------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
G.S. Short Duration Gov-
ernment................ 6,249,924.1030 6,444.5830 249,084.5440 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 6--APPROVAL OF AMENDED AND RESTATED MANAGEMENT AGREEMENTS:
- --------------------------------------------------------------------------------
At the Meeting, the Shareholders of each Fund approved Proposal No. 6 as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
G.S. Global Income...... 7,767,511.0190 285,099.7120 747,385.1040 0
G.S. Government Income.. 1,417,140.3790 20,595.5810 4,354.7340 6,980.0000
G.S. Municipal Income... 1,868,303.5900 12,832.0000 121,412.9800 0
</TABLE>
57
<PAGE>
This page is intentionally left blank
- --------------------------------------------------------------------------------
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 the Fund's objectives and policies, management, expenses and
other information.
- --------------------------------------------------------------------------------
<PAGE>
TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
James A. Fitzpatrick, Vice President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Goldman Sachs Funds
One New York Plaza, 41st Floor Goldman Sachs
New York, NY 10004
FIARRET
