<PAGE>
Goldman Sachs Funds
REAL ESTATE SECURITIES FUND Annual Report December 31, 1998
Long-term growth of capital
and dividend income through
a diversified porfolio of REITs.
Goldman
Sachs [LOGO]
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Fund Basics
as of December 31, 1998
Assests Under Management
- ------------------------
$6.7 Million
Number of Holdings
- ------------------
42
- --------------------
. NOT FDIC
INSURED
. May Lose Value
. No Bank
Guarantee
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PERFORMANCE REVIEW
- ----------------------------------------------------------------------------------------------------------------
July 27, 1998-December 31, 1998 Fund Total Return (based on NAV)(1) Wilshire Real Estate Securities Index(2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A -6.53% -10.43%
Class B -6.88% -10.43%
Class C -6.85% -10.43%
Institutional -6.37% -10.43%
Service -6.56% -10.43%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares. The Fund's performance reflects the
investment of dividends and other distributions.
(2) The Wilshire Real Estate Securities Index is a market
capitalization-weighted index comprised of publicly traded real estate
investment trusts (REITS) and real estate operating companies.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SEC RETURNS
- ----------------------------------------------------------------------------------------------------------------
For the period ended 12/31/98 Class A Class B Class C Institutional Service
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception(3) -11.66%(3) -11.54%(3) -7.78% -6.37% -6.56%
(7/27/98)
</TABLE>
(3) The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering price
for specified periods, assuming reinvestment of all distributions at NAV.
The total return calculation reflects a maximum initial sales charge of 5.5%
for Class A shares, the assumed deferred sales charge for Class B shares
(5.0% maximum declining to 0% after six years) and the assumed deferred
sales charge for Class C shares (1.0% if redeemed within 12 months of
purchase). The public offering price of the Class A shares on 12/31/98 was
$9.74 and represents the NAV per share divided by 1.0 minus the maximum
sales charge of 5.5%.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOP 10 HOLDINGS AS OF 12/31/98(4)
- ----------------------------------------------------------------------------------------------------------------
Holding % of Portfolio Line of Business
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Starwood Hotels & Resorts 4.9% Hotel Ownership/Management
Equity Office Properties Trust 3.3% Office
Host Marriott Corp. 3.1% Hotel Ownership/Management
Trizec Hahn Corp. 2.9% Office
Mack-Cali Realty Corp. 2.9% Office
Catellus Development Corp. 2.8% Mixed/Development
Simon Property Group, Inc. 2.7% Retail/Regional Malls
Equity Residential Properties Trust 2.7% Multifamily
Public Storage, Inc. 2.6% Self-Storage
Spieker Properties, Inc. 2.6% Office
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(4) The top 10 holdings may not be representative of the Fund's future
investments.
Total return figures represent past performance and do not indicate future
results, which will vary. The investment return and principal value of an
investment will fluctuate and, therefore, an investor's shares, when
redeemed, may be worth more or less than their original cost. Performance
reflects fee waivers and expense limitations in effect.
In their absence, performance would be reduced.
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Market Overview
Dear Shareholder,
In 1998, events that began in Asia in 1997 roiled financial markets around the
world. U.S. financial markets were not immune to the turmoil,as they fluctuated
along with investor confidence.
Overview
.Equity Market -- Early in the year, the U.S. stock market generated
strong performance, though not without an increase in overall market
volatility. The mantle of market leadership was assumed by the largest
and most liquid stocks in the S&P 500 Index as several factors,
including ongoing Asian market turbulence, benign inflation and concern
in the face of a mature bull market, conspired to make them the
investment of choice among U.S. investors. In the second half of the
year, political and economic woes in Indonesia, Russia and Brazil
dampened overall U.S. equity market performance. By period end, however,
stocks rebounded on renewed confidence that concerted action from the
G-7 (the U.S., Japan, Germany, France, Italy, Great Britain and Canada)
would help avert a global financial meltdown.
.Fixed Income Market -- For most of the period, market sentiment (and
interest rates) vacillated between optimism that the Asian ordeal was
well in hand and fear that global market turmoil would spread. At period
end, this touch-and-go global anxiety culminated in a powerful Treasury
rally. The catalyst for the rally included investors' wholesale
preference for Treasuries -- exacerbated by the ruble devaluation and
Russia's defacto default -- and technical imbalances (forced
liquidations by heavily leveraged players combined with seasonal supply
pressures).
Outlook
.Equity Market -- We are generally bullish on the U.S. economy. Over the
last decade, global communication has increased, resulting from
significant technological advances as well as a generally stable world
political environment. We believe that this trend, combined with
favorable demographic trends, will benefit U.S. companies over the long
term.
.Fixed Income Market -- The fixed income environment is likely to remain
challenging over the coming months. Although we believe current spreads
reflect attractive fundamental value, uncertainty regarding the
direction of the domestic economy and the stability of global financial
markets may heighten volatility and create pockets of illiquidity in
selected sectors. Nonetheless, we are optimistic. Fixed income
securities should, in general, perform well as gross domestic product
growth moderates and interest rates stabilize (or quite possibly
decline).
We encourage you to maintain your long-term investment program, and look
forward to serving your investment needs in the years ahead.
<TABLE>
<S> <C>
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Goldman Sachs Asset Management Co-Head, Goldman Sachs Asset Management
January 29, 1999
</TABLE>
1
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Performance Overview
Dear Shareholder,
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder in
the Goldman Sachs Real Estate Securities Fund ("the Fund"). In the future, we
will be sending you both annual and semi-annual reports that describe your
Fund's performance. This annual report covers the period from July 27, 1998, the
Fund's inception, through December 31, 1998.
REIT Market Review
The REIT sector dramatically underperformed the broad U.S. equity market
as a catalyst failed to materialize to move REIT shares toward what we
believe to be fair value. The sector continues to be undervalued on both
an absolute and relative basis with a historically high yield spread to
Treasuries.
The summer's credit crunch has had lingering effects in the property
markets as lenders apply stricter underwriting criteria, limiting new
construction across many property types and improving growth prospects
beyond 1999.
Performance Review
The period under review was a difficult one for the REIT market, as
evidenced by the declines in returns of all the Fund's share classes and
its benchmark, the Wilshire Real Estate Securities Index. On a relative
basis, however, the Fund's share classes significantly outperformed the
10.43% loss of its benchmark.
The Fund's outperformance was due in large part to the hotel and office
holdings in the portfolio. In the hotel sector, individual stock
selection significantly enhanced returns during late October and
November in particular. In the office sector, the Fund was helped by
both a sector overweighting relative to its benchmark and by individual
stock selection.
Portfolio Positioning
In general, throughout the period under review, we focused on purchasing
stocks with strong real estate fundamentals, in terms of both assets and
geographic market exposure, and with managements capable of success in a
decelerating growth environment.
We established overweight positions in the office, hotel and industrial
sectors and underweight positions in the retail and multifamily sectors.
Based on the strong performance of some of our favored hotel stocks, we
have adjusted our target hotel weighting downward, but remain moderately
overweight. Values remain attractively low for a handful of companies
with strong growth prospects.
Within the office sector, despite positive returns, solid balance sheets
and above average projected earnings growth, the sector's aggregate
price earnings multiple continues to be in line with REITs as a whole.
This presents a continued buying opportunity. Specific markets continue
to present risks due to above-average construction or specific industry
stresses (e.g., the petrochemical business in Houston), but these risks
are quantifiable and avoidable. We intend to maintain our overweight
position in both of these sectors.
2
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
In retail, we maintained an underweight position throughout the period.
However, we have slightly increased this weighting near the end of the
period in order to position the Fund to benefit from strong year-end
retail sales. These sales results should allow focused management teams
with well-positioned regional mall assets to generate better-than-
expected rental rate increases on new leases to small store retailers.
Portfolio Highlights
.Starwood Hotels & Resorts -- We consider Starwood, an owner and operator
of hotels worldwide with a market capitalization of $4.8 billion at year
end, to be one of the best long-term investment opportunities available.
The quality of senior management, the opportunity for margin improvement
in its existing asset base and its prospects for international growth
position the company as one of the strongest in its sector. The company
is attractively priced given business fundamentals and historical
earnings multiple ranges.
.Catellus Development -- Catellus is one of the largest owners of
strategically located, undeveloped, undervalued land west of the
Mississippi River, particularly California. After nearly a decade of
work, final approvals have just been received for Mission Bay, a 300-
acre development south of San Francisco, one of the strongest apartment
and office markets in the country. The development is projected to
create over 4,500 new apartments, 5 million square feet of office space,
a hotel and retail shopping space. Land availability as well as zoning
and environmental controls will greatly restrict competing projects. We
believe that the value inherent in assets under development is
underestimated by current stock pricing.
.Kimco Realty -- Kimco is the largest owner and operator of grocery and
discount retail-anchored shopping centers in the U.S. It generated a
total return of 18% against a benchmark which lost 17.4% for the year
and continues to trade at a premium to its peers. Despite this premium
and a mixed outlook for discount centers in the year ahead, management's
ability to exploit opportunities in difficult capital and real estate
markets leave us optimistic about the company's return potential.
Portfolio Outlook
.We expect inflows into the portfolio in January and will continue to
stay as fully invested as possible. Our view continues to be that the
REIT sector is undervalued on both an absolute and relative basis and
that our research-intensive stock selection process should generate the
potential for strong performance in the year ahead.
We thank you for your investment and look forward to your continued
confidence.
Goldman Sachs Real Estate Securities Investment Team
January 29, 1999
3
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
The Goldman Sachs Advantage
Founded in 1869, Goldman, Sachs & Co. is a premier financial services firm
traditionally known on Wall Street and around the world for its
institutional expertise.
Today, the firm's Asset Management Division provides individual
investors the opportunity to tap the resources of a global institutional
powerhouse -- and put this expertise to work in their individual
portfolios.
What Sets Goldman Sachs Funds Apart?
Risk Management
In this, our institutional heritage is clear. Institutions, as well as
many individual investors, often look to us to manage the risks of
global investing and deliver consistent performance over time.
Research Expertise
Our portfolio management teams make on-site visits to hundreds of
companies each month, then construct selective portfolios with an
emphasis on their best ideas. Our teams also have access to Goldman,
Sachs & Co.'s Global Investment Research Department.
Focused Portfolios
Our portfolios tend to be focused, with clear investment objectives.
Wealso make every effort to ensure that our fund styles do not drift
away from their stated objectives -- so an investor can be confident
that they know what they own. As a result, our Funds can be particularly
effective tools for implementing asset allocation strategies.
To learn more about the Goldman Sachs Family of Funds, call your investment
professional today.
4
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Investments
December 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 87.1%
<C> <S> <C>
36,300 Alexandria Real Estate Equities, Inc. $ 1,123,031
68,600 AMB Property Corp. 1,509,200
50,900 Apartment Investment & Management Co. 1,892,844
34,800 AvalonBay Communities, Inc. 1,191,900
55,200 Boston Properties, Inc. 1,683,600
110,000 Brandywine Realty Trust 1,966,250
21,300 Camden Property Trust 553,800
149,900 Catellus Development Corp.* 2,145,444
33,400 Centerpoint Properties Corp. 1,129,338
74,400 Corporate Office Properties Trust 530,100
53,000 Cousins Properties, Inc. 1,709,250
24,800 Crescent Real Estate Equities Co. 570,400
14,470 Crestline Capital Corp.* 211,624
97,800 Developers Diversified Realty Corp. 1,735,950
72,800 Duke Realty Investors, Inc. 1,692,600
102,400 Equity Office Properties Trust 2,457,600
49,900 Equity Residential Properties Trust 2,017,831
50,400 Felcor Suites Hotels, Inc. 1,162,350
30,100 General Growth Properties 1,140,038
33,700 Highwood Properties, Inc. 867,775
44,100 Home Properties of New York, Inc. 1,135,575
168,400 Host Marriott Corp. 2,326,025
36,800 Kimco Realty Corp. 1,460,500
52,600 Liberty Property Trust 1,295,275
32,800 Macerich Co. 840,500
69,800 Mack-Cali Realty Corp. 2,155,075
33,700 Manufactured Home Communities, Inc. 844,606
18,100 Marriott International, Inc. 524,900
61,300 Meristar Hospitality Corp. 1,137,881
24,100 Parkway Properties, Inc. 753,125
78,800 Prentiss Properties Trust, Inc. 1,758,225
93,100 Prime Retail, Inc. 913,544
10,300 Promus Hotel Corp.* 333,463
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
73,700 Public Storage, Inc. $ 1,994,506
68,650 Reckson Associates Realty Corp. 1,523,172
31,050 Rouse Co. 853,875
71,200 Simon Property Group, Inc. 2,029,200
57,600 Spieker Properties, Inc. 1,994,400
163,100 Starwood Hotels & Resorts Worldwide 3,700,330
107,900 TrizecHahn Corp. 2,211,950
50,800 Vornado Realty Trust 1,714,500
----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $58,521,556) $58,791,552
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
REPURCHASE AGREEMENT - 24.7%
<C> <S> <C> <C>
Joint Repurchase Agreement Accounts
$16,700,000 4.89% 01/04/1999 $16,700,000
-----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $16,700,000) $16,700,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $75,221,556)(A) $75,491,552
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 994,663
Gross unrealized loss for investments in which
cost exceeds value (743,401)
------------------------------------------------------------
Net unrealized gain $ 251,262
------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $75,240,290.
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.
5
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Assets and Liabilities
December 31, 1998
ASSETS:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$75,221,556) $75,491,552
Cash 439,404
Receivables:
Dividends and interest 578,531
Fund shares sold 8,706,939
Reimbursement from adviser 49,642
-----------------------------------------------------------------------------
TOTAL ASSETS 85,266,068
-----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 16,450,080
Fund shares repurchased 1,188,528
Amounts owed to affiliates 31,976
Accrued expenses and other liabilities 114,231
-----------------------------------------------------------------------------
TOTAL LIABILITIES 17,784,815
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 67,305,769
Accumulated undistributed net investment income 178,403
Accumulated net realized loss on investment transactions (272,915)
Net unrealized gain on investments 269,996
-----------------------------------------------------------------------------
NET ASSETS $67,481,253
-----------------------------------------------------------------------------
Net asset value:(a)
Class A $9.20
Class B $9.27
Class C $9.21
Institutional $9.21
Service $9.21
-----------------------------------------------------------------------------
Shares outstanding:
Class A 2,169,365
Class B 189
Class C 163
Institutional 5,157,134
Service 163
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 7,327,014
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $9.74 (NAV
per share / 1- maximum sales charge of 5.5%). At redemption, Class B and
Class C shares are subject to a contingent deferred sales charge,
assessed on the amount equal to the lesser of the current net asset value
or the original purchase price of the shares.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Operations
For the Period Ended December 31, 1998(a)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(b) $ 821,555
Interest 24,584
----------------------------------------------------------------------------
TOTAL INCOME 846,139
----------------------------------------------------------------------------
EXPENSES:
Management fees 82,560
Distribution and service fees(c) 3,000
Registration fees 75,162
Professional fees 28,995
Printing fees 20,000
Custodian fees 17,990
Transfer agent fees 4,197
Trustee fees 3,117
Other 6,064
----------------------------------------------------------------------------
TOTAL EXPENSES 241,085
----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (151,035)
----------------------------------------------------------------------------
NET EXPENSES 90,050
----------------------------------------------------------------------------
NET INVESTMENT INCOME 756,089
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS:
Net realized loss from:
Investment transactions (272,915)
Net change in unrealized gain on:
Investments 269,996
----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS: (2,919)
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 753,170
----------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was July 27, 1998 for all classes.
(b) Taxes withheld on dividends were $385.
(c) Class A, Class B and Class C had distribution and service fees of $2,963,
$31 and $6, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Statement of Changes in Net Assets
For the Period Ended December 31, 1998(a)
<TABLE>
<S> <C>
FROM OPERATIONS:
Net investment income $ 756,089
Net realized loss on investment transactions (272,915)
Net change in unrealized gain on investments 269,996
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 753,170
---------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (142,487)
Class B shares (6)
Class C shares (17)
Institutional shares (435,155)
Service shares (21)
---------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (577,686)
---------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 68,339,282
Reinvestment of dividends and distributions 377,842
Cost of shares repurchased (1,411,355)
---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 67,305,769
---------------------------------------------------------------------------
TOTAL INCREASE 67,481,253
---------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
---------------------------------------------------------------------------
End of period $67,481,253
---------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME $ 178,403
---------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was July 27, 1998 for all classes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end management
investment company. The Trust includes the Goldman Sachs Real Estate Securi-
ties Fund (the "Fund"). The Fund is a diversified portfolio offering five
classes of shares -- Class A, Class B, Class C, Institutional and Service.
The Fund invests primarily in securities of issuers that are engaged in or
related to the real estate industry, and does have a policy of concentrating
its investments in the real estate industry. Therefore, an investment in the
Fund is subject to certain risks associated with the direct ownership of real
estate and with the real estate industry in general.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. Investment Valuation -- Investments in securities traded on a U.S. or for-
eign securities exchange or the NASDAQ system are valued daily at their last
sale or closing price on the principal exchange on which they are traded or
NASDAQ. If no sale occurs, securities traded on a U.S. exchange or NASDAQ are
valued at the mean between the closing bid and asked price, and securities
traded on a foreign exchange will be valued at the official bid price. Un-
listed equity and debt securities for which market quotations are available
are valued at the mean between the most recent bid and asked prices. Short-
term debt obligations maturing in sixty days or less are valued at amortized
cost. Restricted securities, and other securities for which quotations are
not readily available, are valued at fair value using methods approved by the
Board of Trustees of the Trust.
B. Securities Transactions and Investment Income -- Securities transactions
are recorded as of the trade date. Realized gains and losses on sales of in-
vestments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. This amount is also used as an estimate of
the fair value of the stock received. Interest income is determined on the
basis of interest accrued.
C. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code (the "Code") applicable to regulated investment
companies and to distribute each year substantially all of its investment
company taxable income and capital gains to its shareholders. Accordingly, no
federal tax provision is required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of the Fund's distributions may be shown in the accompanying fi-
nancial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from capital, depending on
the type of book/tax differences that may exist. In addition, distributions
paid by the Fund's REIT investments often include a "return of capital" which
is recorded by the Fund as a reduction of the cost basis of the securities
held. The Code requires a REIT to distribute at least 95% of its taxable in-
come to investors. In many cases, however, because of "non-cash" expenses
such as property depreciation, an equity REIT's cash flow will exceed its
taxable income. The REIT may distribute this excess cash to offer a more com-
petitive yield. This portion of the distribution is deemed a return of capi-
tal, and is generally not taxable to shareholders.
The Fund, at its most recent tax year-end of December 31, 1998 had approxi-
mately $254,182 capital loss carryforwards expiring in 2006 for U.S. tax pur-
poses. This amount is available to be carried forward to offset future
capital gains to the extent permitted by applicable laws or regulations.
9
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
December 31, 1998
D. EXPENSES -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are allocated to the funds based on
the nature of the expense.
Class A, Class B and Class C shares bear all expenses and fees relating to
the Distribution and Service Plans as well as other expenses which are di-
rectly attributable to such shares. Each class of shares separately bears its
respective class-specific transfer agency fees. Shareholders of Service
shares bear all expenses and fees paid to service organizations for their
services with respect to such shares.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser pursuant
to an Investment Management Agreement (the "Agreement"). Under the Agreement,
GSAM, subject to the general supervision of the Trust's Board of Trustees,
manages the Fund's portfolio. As compensation for the services rendered under
the Agreement, the assumption of the expenses related thereto and administer-
ing the Fund's business affairs, including providing facilities, GSAM is en-
titled to a fee, computed daily and payable monthly, at an annual rate equal
to 1.00% of the average daily net assets of the Fund.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other Ex-
penses" for the Fund (excluding management fees, Service share fees, distri-
bution and service fees, litigation and indemnification costs, taxes,
interest, brokerage commissions, transfer agent fees and extraordinary ex-
penses) until further notice to the extent such expenses exceed .00% of the
average daily net assets of the Fund. For the period ended December 31, 1998,
Goldman Sachs has agreed to reimburse approximately $150,000.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C Contingent deferred sales charges and has
advised the Fund that it retained approximately $125,000 for the period ended
December 31, 1998.
The Trust, on behalf of the Fund, has adopted Distribution and Service
plans. Under the Distribution and Service plans, Goldman Sachs and/or Autho-
rized Dealers are entitled to a monthly fee for distribution and shareholder
maintenance services equal, on an annual basis, to .50%, 1.00% and 1.00% of
the average daily net assets attributable to Class A, Class B and Class C
shares, respectively. Effective December 10, 1998, the Distributor has volun-
tarily agreed to waive approximately $1,000 attributable to the Class A
shares. The Distributor may discontinue or modify this waiver in the future
at its discretion.
The Trust, on behalf of the Fund, has adopted a Service Plan. This Plan al-
lows for Service shares to compensate service organizations for providing va-
rying 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.
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee cal-
culated daily and payable monthly at an annual rate as follows: .19% of the
average daily net assets for Class A, Class B and Class C shares and .04% of
the average daily net assets for Institutional and Service class shares.
At December 31, 1998, the Fund owed approximately $27,000, $2,000 and
$3,000 for management, distribution and service and transfer agent fees, re-
spectively.
10
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments) for the period ended December 31, 1998, were $60,276,878
and $1,392,544, respectively.
For the period ended December 31, 1998, Goldman Sachs earned approximately
$6,000 of brokerage commissions from portfolio transactions.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfers uninvested cash into joint
accounts, the daily aggregate balance of which is invested in one or more re-
purchase agreements. At December 31, 1998, the Fund had an undivided inter-
est in the repurchase agreements in the following joint account which equaled
$16,700,000 in principal amount. At December 31, 1998, the repurchase agree-
ments held in this joint account were fully collateralized by Federal Agency
obligations.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
REPURCHASE AGREEMENTS AMOUNT RATE DATE COST
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN/AMRO, INC. $120,000,000 5.15% 01/04/1999 $ 120,000,000
-------------------------------------------------------------------------------
DEUTSCHE BANK 77,300,000 5.07 01/04/1999 77,300,000
-------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE,
INC. 150,000,000 4.95 01/04/1999 150,000,000
-------------------------------------------------------------------------------
JP MORGAN SECURITIES, INC. 700,000,000 4.75 01/04/1999 700,000,000
-------------------------------------------------------------------------------
MORGAN STANLEY & CO. 200,000,000 4.95 01/04/1999 200,000,000
-------------------------------------------------------------------------------
NATIONSBANC MONTGOMERY SE-
CURITIES LLC 125,000,000 5.15 01/04/1999 125,000,000
-------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,372,300,000
-------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Notes to Financial Statements (continued)
December 31, 1998
7. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. This facility is to be used solely for temporary or emer-
gency purposes. Under the most restrictive arrangement, the Fund must own se-
curities having a market value in excess of 300% of the total bank
borrowings. The interest rate on the borrowings is based on the Federal Funds
rate. During the period ended December 31, 1998, the Fund did not have any
borrowings under this facility.
8. OTHER MATTERS
As of December 31, 1998, Goldman, Sachs & Co., the Goldman Sachs Income
Strategy Portfolio, Goldman Sachs Growth and Income Strategy Portfolio,
Goldman Sachs Growth Strategy Portfolio and Goldman Sachs Aggressive Growth
Strategy Portfolio were the beneficial owners of approximately 10%, 3%, 13%,
11% and 5%, respectively, of the outstanding shares of the Fund.
12
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended December 31, 1998(a):
<TABLE>
<CAPTION>
SHARES DOLLARS
--------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
Shares sold 2,290,778 $21,057,481
Reinvestment of dividends and distributions 15,406 140,082
Shares repurchased (136,819) (1,259,100)
-------------------
2,169,365 19,938,463
--------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,365 30,562
Reinvestment of dividends and distributions 1 6
Shares repurchased (3,177) (29,200)
-------------------
189 1,368
--------------------------------------------------------------------
CLASS C SHARES
Shares sold 161 1,600
Reinvestment of dividends and distributions 2 16
Shares repurchased -- --
-------------------
163 1,616
--------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 5,144,538 47,248,039
Reinvestment of dividends and distributions 25,915 237,717
Shares repurchased (13,319) (123,055)
-------------------
5,157,134 47,362,701
--------------------------------------------------------------------
SERVICE SHARES
Shares sold 161 1,600
Reinvestment of dividends and distributions 2 21
Shares repurchased -- --
-------------------
163 1,621
--------------------------------------------------------------------
NET INCREASE 7,327,014 $67,305,769
--------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was July 27, 1998 for all classes.
13
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED IN EXCESS REALIZED GAIN
VALUE, NET GAIN (LOSS) ON FROM NET OF NET ON INVESTMENT
BEGINNING INVESTMENT INVESTMENT INVESTMENT INVESTMENT AND OPTIONS
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares
(commenced July 27) $10.00 $0.15 $(0.80) $(0.15) $ -- $ --
1998 - Class B Shares
(commenced July 27) 10.00 0.14(e) (0.83)(e) (0.04) -- --
1998 - Class C Shares
(commenced July 27) 10.00 0.22(e) (0.91)(e) (0.10) -- --
1998 - Institutional
Shares (commenced July
27) 10.00 0.31(e) (0.95)(e) (0.15) -- --
1998 - Service Shares
(commenced July 27) 10.00 0.25(e) (0.91)(e) (0.13) -- --
-------------------------------------------------------------------------------------------------
</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 dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET DECREASE NET ASSET AT END OF NET EXPENSES INCOME TO EXPENSES TO INCOME PORTFOLIO
IN NET ASSET VALUE, END TOTAL PERIOD TO AVERAGE AVERAGE AVERAGE NET TO AVERAGE TURNOVER
VALUE OF PERIOD RETURN(B) (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.80) $9.20 (6.53)%(d) $19,961 1.47%(c) 23.52%(c) 3.52%(c) 21.47%(c) 6.03%(d)
(0.73) 9.27 (6.88)(d) 2 2.19(c) 3.60(c) 4.02(c) 1.77(c) 6.03(d)
(0.79) 9.21 (6.85)(d) 1 2.19(c) 5.49(c) 4.02(c) 3.66(c) 6.03(d)
(0.79) 9.21 (6.37)(d) 47,516 1.04(c) 8.05(c) 2.87(c) 6.22(c) 6.03(d)
(0.79) 9.21 (6.56)(d) 1 1.54(c) 6.29(c) 3.37(c) 4.46(c) 6.03(d)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Real Es-
tate Securities Fund:
We have audited the accompanying statement of assets and liabilities of the
Goldman Sachs Real Estate Securities Fund, one of the portfolios constituting
Goldman Sachs Trust (a Delaware Business Trust), including the statement of
investments, as of December 31, 1998, and the related statement of operations
and the statement of changes in net assets and the financial highlights for
the period presented. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to ex-
press an opinion on these financial statements and the financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements and financial highlights. Our procedures included confirma-
tion of securities owned as of December 31, 1998 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting prin-
ciples used and significant estimates made by management, as well as evaluat-
ing the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Real Estate Securities Fund as of December 31, 1998,
the results of its operations and the changes in its net assets and the fi-
nancial highlights for the period presented, in conformity with generally ac-
cepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 16, 1999
16
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs Real Estate Securities Fund
Four professionals with more than 60 years of combined experience manage the
Goldman Sachs Real Estate Securities Fund. The team draws on Goldman, Sachs
& Co.'s global real estate capabilities:
Global Network
Presence in the Americas, Europe and Asia, including more than 100 asset
managers with local and regional market expertise.
Research Expertise
The firm's Equity Research Department provides coverage of more than 80 real
estate related companies.
History of Strength
The firm has been a leading presence in the real estate finance business for
more than 20 years and is one of the most active underwriters of real estate
equity and debt offerings.
An Investment Idea for the Long Term
Over the long term, real estate investment trusts (REITs) have
historically outperformed many traditional investments, such as fixed
income securities, while seeking to provide competitive total returns
against the broad equity market./1/
Goldman Sachs Real Estate Securities Fund ("the Fund") seeks to provide
investors access to the benefits associated with equity investing. The
Fund seeks long-term growth of capital and dividend income primarily
through investments in equity securities of issuers engaged in or
related to the real estate industry.
Target Your Needs
The Goldman Sachs Real Estate Securities Fund has a distinct investment
objective and a defined place on the risk/return spectrum. As your
investment objectives change, you can exchange shares within the Goldman
Sachs Family of Funds without an additional charge./2/ (Please note: in
general, greater returns are associated with greater risk.)
[CHART APPEARS HERE]
Goldman Sachs Funds
Higher Risk/Return
___
| International Equity A
| S
| S
| E
| T S
| Domestic Equity P
| A E .Goldman Sachs
| L C Real Estate
| L I Securities Fund
| O A
| Fixed Income C L
| A T
| T Y
| I
| O
| Money Market N
___
Lower Risk/Return
For More Information
To learn more about the Goldman Sachs Real Estate Securities Fund and
other Goldman Sachs Funds, please call your investment professional
today.
/1/ An investment in real estate securities is subject to greater price
volatility and the special risks associated with the direct
ownership of real estate.
/2/ The exchange privilege is subject to termination and its terms are
subject to change.
<PAGE>
<TABLE>
<S> <C>
GOLDMAN SACHS ASSET MANAGEMENT ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 1004
TRUSTEES OFFICERS
Ashok N. Bakhru, Chairman Douglas C. Grip, President
David B. Ford Jesse H. Cole, Vice President
Douglas C. Grip James A. Fitzpatrick, Vice President
John P. McNutty Anne E. Marcel, Vice President
Mary P. McPherson Nancy L. Mucker, Vice President
Alan A. Shuch John M. Perlowski, Treasurer
Jackson W. Smart, Jr. Philip V. Giuca, Jr., Assistant Treasurer
William H. Springer Micheal J. Richman, Secretary
Richard P. Strubel Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Scretary
GOLDMAN, SACHS & CO. GOLDMAN SACHS ASSET MANAGEMENT
Distributor and Transfer Agent Investment Advisor
</TABLE>
Visit our internet address: www.gs.com/funds
This material is not authorized for distributing to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
Goldman, Sachs & Co., distributor of the Fund, is not a bank, and Fund shares
distributed by it are neither bank deposits nor obligations of, nor endorsed,
nor guaranteed by any bank or other insured depository institution, nor are they
insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve
Board or any other government agency. Investment in the Fund involves risks,
including possible loss of the principal amount invested.
An investment in the Real Estate Securities Fund is subject to certain risks
associated with the direct ownership of real estate and with concentrating its
investments in the real estate industry in general and may be suitable only for
those investors who are financially able to assume greater risk and share price
volatility than presented by funds that do not concentrate in the real estate
industry.
Copyright 1999 Goldman, Sachs & Co. REITAR/7.5K/2-99
All rights reserved. Date of first use:
February 28, 1999
