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notes฀to฀consolidated฀financial฀statements
GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 8 3
CREDIT฀CONCENTRATIONS
Credit concentrations may arise from trading, underwriting and
securities borrowing activities and may be impacted by changes
in economic, industry or political factors. As of November 2004
and November 2003, the firm held U.S. government and federal
agency obligations that represented 5% and 6% of the firm’s
total assets, respectively. In addition, most of the firm’s securi-
ties purchased under agreements to resell are collateralized by
U.S. government, federal agency and other sovereign obliga-
tions. As of November 2004 and November 2003, the firm did
not have credit exposure to any other counterparty that
exceeded 5% of the firm’s total assets.
DERIVATIVE฀ ACTIVITIES฀
Derivative contracts are instruments, such as futures, forwards,
swaps or option contracts, which derive their value from
underlying assets, indices, reference rates or a combination of
these factors. Derivative instruments may be privately negoti-
ated contracts, which are often referred to as OTC derivatives,
or they may be listed and traded on an exchange. Derivatives
may involve future commitments to purchase or sell financial
instruments or commodities, or to exchange currency or inter-
est payment streams. The amounts exchanged are based on the
specific terms of the contract with reference to specified rates,
securities, commodities, currencies or indices.
Certain cash instruments, such as mortgage-backed securities,
interest-only and principal-only obligations, and indexed debt
instruments, are not considered derivatives even though their
values or contractually required cash flows are derived from the
price of some other security or index. However, certain com-
modity-related contracts are included in the firm’s derivatives
disclosure, as these contracts may be settled in cash or are
readily convertible into cash.
Substantially all of the firm’s derivative transactions are entered
into for trading purposes, in order to facilitate customer trans-
actions, to take proprietary positions or as a means of risk
management. Risk exposures are managed through diversifica-
tion, by controlling position sizes and by establishing hedges in
related securities or derivatives. For example, the firm may
hedge a portfolio of common stock by taking an offsetting
position in a related equity-index futures contract. Gains and
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
BPX/S10829฀•฀Flow฀16฀•฀Proof฀11฀•฀2/4/05฀•฀RUSH
NOTE฀3
Financial Instruments
FAIR฀VALUE฀OF฀FINANCIAL฀INSTRUMENTS
The following table sets forth the firm’s financial instruments owned, including those pledged as collateral, at fair value, and
financial instruments sold, but not yet purchased, at fair value:
฀ ฀ AS฀OF฀NOVEMBER฀
฀ ฀ 2004฀฀ 2003
(IN฀MILLIONS)฀ ASSETS฀ LIABILITIES฀ ASSETS฀ LIABILITIES
Commercial paper, certificates of deposit, time deposits
and other money market instruments $฀฀฀฀7,386(1) $฀฀฀฀฀฀฀฀฀—฀ $฀฀฀฀4,987(1)฀ $฀฀฀฀฀฀฀฀฀—
U.S. government, federal agency and sovereign obligations 46,777 40,866฀ 36,634฀ 34,003
Corporate and other debt obligations
Mortgage whole loans and collateralized debt obligations 18,346 671฀ 11,768฀ 363
Investment-grade corporate bonds 11,783 5,163฀ 9,862฀ 4,641
Bank loans 8,900 428฀ 6,706฀ 264
High-yield securities 6,057 1,725฀ 4,817฀ 1,394
Preferred stock 4,792 109฀ 3,822฀ 163
Other 885 248฀ 569฀ 157
50,763 8,344฀ 37,544฀ 6,982
Equities and convertible debentures 42,263 18,766฀ 35,006฀ 19,651
State, municipal and provincial obligations 1,308 —฀ 459฀ —
Derivative contracts 62,495 64,001฀ 45,733฀ 41,886
Physical commodities 812 120฀ 356฀ 177
Total $211,804 $132,097฀ $160,719฀ $102,699
(1)฀฀Includes฀$5.04฀billion฀and฀$4.32฀billion,฀as฀of฀November฀2004฀and฀November฀2003,฀respectively,฀of฀money฀market฀instruments฀held฀by฀William฀Street฀Funding฀
Corporation฀to฀support฀the฀William฀Street฀credit฀extension฀program.