GOLDMAN SACHS TRUST, 497, 1995-09-27

GOLDMAN SACHS TRUST
497, 1995-09-27

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<PAGE>

GOLDMAN SACHS TRUST

GS Short-Term Government Agency Fund
Institutional Shares
Administration Shares
Service Shares
dated March 1, 1995

Supplement dated September 29, 1995 to the above Prospectus

The following is inserted after the third full paragraph on page 15 of the
Prospectus:

Futures Contracts and Options on Futures Contracts. To hedge against changes in
interest rates or securities prices or to seek to increase total return, the
Fund may purchase and sell various kinds of futures contracts, and purchase and
write call and put options on any of such futures contracts. The Fund will
engage in futures and related options transactions only for bona fide hedging
purposes as defined in regulations of the Commodity Futures Trading Commission
or to seek to increase total return to the extent permitted by such regulations.

The Fund may not purchase or sell futures contracts or purchase or sell
related options to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial margin
deposits and premiums paid on the Fund's outstanding positions in futures and
related options entered into for the purpose of seeking to increase total return
would exceed 5% of the market value of the Fund's net assets. Transactions in
futures contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Fund to
purchase securities, require the Fund to segregate cash and liquid, high-grade
debt securities with a value equal to the amount of the Fund's obligations.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while the Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates or securities prices may result in a poorer overall performance for the
Fund than if it had not entered into any futures contracts or options
transactions. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
<PAGE>

The use of futures may increase the volatility of the Fund's net asset
value. The profitability of the Fund's trading in futures to increase total
return will depend on the Investment Adviser's ability to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to the Fund. Further, futures trading
may be illiquid, and exchanges may limit fluctuations in futures contract prices
during a single day.

In the event of an imperfect correlation between a futures position and a
portfolio position which is intended to be protected, the desired protection may
not be obtained and the Fund may be exposed to risk of loss. Perfect
correlation between the Fund's futures positions and portfolio positions will be
impossible to achieve. The Fund's transactions in options and futures contracts
may be limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company.

Risks of Derivative Transactions. The Fund's transactions in interest
rate swaps, caps, floors, options, futures and options on futures involve
certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets being hedged, the
potential illiquidity of the markets for derivative instruments, the risks
arising from the margin requirements and related leverage factors associated
with such transactions. The use of these management techniques to increase
total return involves the risk of loss if the Investment Adviser is incorrect in
its expectation of fluctuations in securities prices or interest rates.
<PAGE>

GS SHORT-TERM
GOVERNMENT AGENCY FUND
INSTITUTIONAL SHARES

MANAGED BY

GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
AN AFFILIATE OF
GOLDMAN, SACHS & CO.

------------

GS Short-Term Government Agency Fund (the "Fund") is one fund in a family of
funds advised by Goldman Sachs Funds Management, L.P. (the "Investment
Adviser") or its affiliates, Goldman Sachs Asset Management and Goldman Sachs
Asset Management International. The Fund is organized as a separate diversified
portfolio of Goldman Sachs Trust (the "Trust"), an open-end, management
investment company.

The Fund's objective is to achieve a high level of current income.
Secondarily, the Fund may, in seeking current income, also consider the
potential for capital gain. The Fund pursues its objectives through investment
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements pertaining thereto. These
securities may include mortgage pass-through securities and other securities
representing an interest in or collateralized by mortgages. Under normal
circumstances, substantially all of the Fund's assets will be invested in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

Goldman Sachs Funds Management, L.P., New York, New York, an affiliate of
Goldman, Sachs & Co., serves as the Fund's investment adviser. Goldman, Sachs &
Co. serves as the Fund's distributor and transfer agent. The Trust's custodian
is State Street Bank and Trust Company.

This Prospectus, which sets forth concisely the information about the Trust
and the Fund that a prospective investor ought to know before investing in
Institutional Shares, should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated March 1, 1995,
containing further information about the Trust and the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission, is incorporated herein by reference in its entirety, and may be
obtained without charge from Goldman, Sachs & Co. by calling the telephone
number, or writing to one of the addresses, listed below.

INSTITUTIONAL SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN INSTITUTIONAL
SHARES OF THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

GOLDMAN SACHS TRUST GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
4900 SEARS TOWER INVESTMENT ADVISER
CHICAGO, ILLINOIS 60606 ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO. GOLDMAN, SACHS & CO.
DISTRIBUTOR TRANSFER AGENT
85 BROAD STREET 4900 SEARS TOWER
NEW YORK, NEW YORK 10004 CHICAGO, ILLINOIS 60606

TOLL FREE (IN U.S.).................. 800-621-2550

The date of this Prospectus is March 1, 1995.
<PAGE>

SUMMARY

INTRODUCTION

INVESTMENT OBJECTIVE AND POLICIES

The Fund's objective is to achieve a high level of current income.
Secondarily, the Fund may, in seeking current income, also consider the
potential for capital gain. The Fund invests exclusively in (a) securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities") deemed to have
remaining maturities or (in the case of mortgage-related securities) estimated
average lives of 6 years or less, and (b) repurchase agreements pertaining
thereto. The Fund will invest, under normal market conditions, at least 65% of
its total assets in securities issued by U.S. Government agencies or
instrumentalities and in repurchase agreements pertaining to U.S. Government
securities. The U.S. Government securities in which the Fund may invest include
mortgage-related securities. Under normal circumstances, substantially all of
the Fund's assets will be invested in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.

The Fund may employ certain active management techniques to hedge the
interest rate risks associated with the Fund's portfolio securities, to enhance
its return and to seek to reduce fluctuation in its net asset value. These
include, but are not limited to, mortgage and interest rate swaps and interest
rate floors, caps and collars. The Fund may also utilize portfolio securities
lending, mortgage dollar rolls and repurchase agreements in an attempt to
enhance the return achieved by the Fund. See "Investment Objective and
Policies" and "Other Investments and Practices." There can be no assurance that
the Fund will achieve its investment objective.

The Fund may, for temporary defensive purposes, hold or invest more than 35%
of its total assets in cash, U.S. Treasury securities or high quality money
market instruments, including commercial paper, bankers' acceptances,
repurchase agreements or other debt obligations with a remaining maturity of
one year or less. The Fund will maintain a dollar weighted average portfolio
maturity (as defined below) of 3 years or less.

INVESTMENT ADVISER

Pursuant to an Investment Advisory Agreement, Goldman Sachs Funds Management,
L.P., an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the
Fund's investment adviser. In this capacity, the Investment Adviser provides
investment advisory and administrative services and receives from the Fund a
monthly fee equal on an annual basis to 0.50% of the Fund's average daily net
assets. Goldman Sachs Funds Management, L.P. is registered with the Securities
and Exchange Commission (the "SEC") as an investment adviser. See "Investment
Adviser" and "Management--Investment Adviser."

2
<PAGE>

PURCHASE AND REDEMPTION OF INSTITUTIONAL SHARES

The minimum initial investment is $50,000 in Institutional Shares of the Fund
alone or in combination with Institutional Shares of any other mutual fund
sponsored by Goldman Sachs and designated as an eligible fund for this purpose
and the relevant class of any portfolio of Goldman Sachs Money Market Trust.
Institutional Shares of the Fund may be purchased through Goldman Sachs at the
current net asset value per share without the imposition of a sales load. See
"Purchase of Institutional Shares." The Fund will redeem its Institutional
Shares upon request of a shareholder on any Business Day at the net asset value
next determined after receipt of such request in proper form. See "Redemption
of Institutional Shares."

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs serves as the distributor to and transfer agent for the Fund.
Under the Distribution Agreement with the Fund, Goldman Sachs acts as exclusive
agent for the Fund in the sale of shares. Under the Transfer Agency Agreement
with the Fund, Goldman Sachs provides transfer agency services and responds to
shareholder inquiries. See "Management--Distributor and Transfer Agent."

RISK FACTORS

INVESTMENT IN MORTGAGE-BACKED SECURITIES GENERALLY. The Fund's investments in
mortgage pass-through securities and other securities representing an interest
in or collateralized by adjustable-rate and fixed-rate mortgage loans
("Mortgage-Backed Securities") entail certain risks. These risks include the
failure of an issuer or guarantor to meet its obligations, adverse interest
rate changes, adverse economic, real estate or unemployment trends, failures in
connection with processing of transactions and the effects of prepayments on
mortgage cash flows. The Fund's policy of investing in securities issued by
U.S. Government agencies or instrumentalities is designed, however, to minimize
credit and performance related risks otherwise associated with Mortgage-Backed
Securities.

The securities in the Fund's portfolio will tend to decrease in value when
interest rates rise and increase in value when interest rates fall. Because the
Fund's investments are interest rate sensitive, the Fund's performance will
depend in large part upon the ability of the Fund to respond to fluctuations in
market interest rates and to utilize appropriate strategies to maximize returns
to the Fund, while attempting to minimize the associated risks to its invested
capital. Operating results will also depend upon the availability of
opportunities for the investment of the Fund's assets, including purchases and
sales of suitable securities.

YIELD CHARACTERISTICS AND MARKET RISKS. The yield characteristics of the
Mortgage-Backed Securities in which the Fund may invest differ from those of
traditional fixed-income securities. The major differences typically include
more frequent interest and principal payments (usually monthly) on Mortgage-
Backed Securities, the adjustability of interest rates and the possibility that
prepayments of principal may be made at any time.

3
<PAGE>

principal prepayments in a declining interest rate environment and to a lesser
rate of principal prepayments in an increasing interest rate environment. Under
certain interest rate and prepayment scenarios, the Fund may fail to recoup
fully its investment in some of the Mortgage-Backed Securities it holds
notwithstanding a direct or indirect governmental or agency guarantee. The Fund
intends to use hedging techniques to control this risk. See "Investment
Objective and Policies" and "Other Investments and Practices." When the Fund
reinvests amounts representing scheduled payments and unscheduled prepayments
of principal, it may receive a rate of interest that is lower than the rate on
its existing portfolio of mortgage pass-through securities. Thus, Mortgage-
Backed Securities, and adjustable rate mortgage pass-through securities in
particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.

OTHER INVESTMENTS AND PRACTICES. The Fund may invest in other instruments,
including direct obligations of the United States, and notes, bonds and
discount notes of U.S. Government agencies or instrumentalities. The Fund may
engage in certain other investment practices that also involve special risks.
These include, but are not limited to, the use of mortgage and interest rate
swaps and interest rate floors, caps and collars, making forward commitments,
lending portfolio securities, entering into mortgage dollar rolls and
repurchase agreements. See "Other Investments and Practices."

CONFLICTS OF INTEREST. The involvement of Goldman Sachs, its divisions and
affiliates (including the Investment Adviser), partners and officers, in the
investment activities and business operations of the Fund may present certain
conflicts of interest, as described under "Management--Investment Adviser."

DIVIDEND POLICY

The Fund intends that substantially all of its net investment income will be
declared as a dividend daily to shareholders of record as of 3:00 p.m. Chicago
time on that day and will be paid monthly. Over the course of the fiscal year,
dividends accrued and paid will constitute all or substantially all of the
Fund's net investment income. From time to time a portion of such dividends may
constitute a return of capital. The Fund also intends that any net realized
capital gains, if any, after offset by any available capital loss carryforwards
from prior taxable years, will be declared as a dividend at least annually.
Shareholders will receive dividends in additional Institutional Shares of the
Fund or may elect to receive cash as described under "Dividends."

4
<PAGE>

FEES AND EXPENSES
(INSTITUTIONAL SHARES)*

<TABLE>
<CAPTION>
GS SHORT-TERM
GOVERNMENT AGENCY FUND
----------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases............. None
Maximum Sales Load Imposed on Reinvested Dividends.. None
Redemption Fees..................................... None
Exchange Fees....................................... None
ANNUAL FUND OPERATING EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waiver)...................... 0.40%**
Distribution (Rule 12b-1) Fees...................... None
Other Expenses (after expense limitation)........... 0.05%**
----
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE
LIMITATION).................................... 0.45%**
====
</TABLE>

EXAMPLE:

You would pay the following expenses on a hypothetical $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$5 $14 $25 $57
</TABLE>
- --------
* The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Fund. See "Shares of the Trust."
Administration Shares and Service Shares of the Fund are subject to
different fees and expenses. Administration Shares are subject to an
administration fee of up to 0.25% of average daily net assets. Service
Shares are subject to a service fee of up to 0.50% of average daily net
assets. All other expenses related to Administration Shares and Service
Shares are the same as for Institutional Shares.
** The Investment Adviser agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on the Fund and that it would reduce
or limit certain "Other Expenses" of the Fund (excluding advisory fees,
payments to Service Organizations (as defined below), taxes, interest and
brokerage and litigation, indemnification and other extraordinary expenses)
to the extent such expenses exceeded 0.05% per annum of the Fund's average
net assets. Had the reduction of the advisory fee and the expense
limitation not been reflected in the above table, the management fees,
other expenses and total operating expenses attributable to Institutional
Shares of the Fund would have been 0.50%, 0.09% and 0.59%, respectively.
The foregoing table and example also reflect current operating expenses
that will be applicable on an ongoing basis. See "Management--Investment
Adviser."

5
<PAGE>

included in the table and hypothetical example above should not be considered
as representative of past or future expenses. Actual fees and expenses may be
greater or less than those indicated. Moreover, while the example assumes a 5%
annual return, the Fund's actual performance will vary and may result in an
actual return greater or less than 5%. See "Management--Investment Adviser."

6
<PAGE>

FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to Institutional Shares and Administration
Shares of the Fund outstanding during the periods indicated has been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report incorporated by reference and attached to the Additional Statement from
the Fund's annual report to shareholders for the fiscal year ended October 31,
1994 (the "Annual Report"). This information should be read in conjunction
with the financial statements and related notes incorporated by reference and
attached to the Additional Statement. The Annual Report also contains
performance information and is available upon request and without charge by
writing to any of the addresses on the cover of this Prospectus.

<TABLE>
<CAPTION>
DISTRIBUTIONS TO
INCOME FROM INVESTMENT OPERATIONS SHAREHOLDERS
------------------------------------- ----------------------------------------
IN
NET TOTAL EXCESS FROM NET
NET ASSET NET REALIZED AND INCOME FROM NET OF NET NET REALIZED ASSET
VALUE AT INVEST- UNREALIZED FROM INVEST- INVEST- GAIN ON FROM VALUE AT
BEGINNING MENT GAIN (LOSS) INVESTMENT MENT MENT INVESTMENT PAID-IN END TOTAL
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME TRANSACTIONS CAPITAL OF PERIOD RETURN(B)
--------- ------- -------------- ---------- -------- ------- ------------ -------- --------- ---------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994-
Institutional
shares.......... $10.14 $0.5628(f) $(0.4592)(f) $0.1036(f) $(0.5598) -- $(0.0438) -- $9.64 0.99%
1994-
Administration
shares.......... 10.14 0.5329(f) (0.4539)(f) 0.0790(f) (0.5352) -- (0.0438) -- 9.64 0.73
1993-Institu-
tional shares... 10.16 0.5627 (0.0135)(a) 0.5492 (0.5627) (0.0065) -- -- 10.14 5.55
1993-
Administration
shares(d)....... 10.23 0.2725 (0.0900)(a) 0.1825 (0.2725) -- -- -- 10.14 1.74
1992-Institu-
tional shares... 10.22 0.6703 (0.0600)(a) 0.6103 (0.6703) -- -- -- 10.16 6.24
1991-Institu-
tional shares... 10.00 0.8020 0.2200 (a) 1.0220 (0.8020) -- -- -- 10.22 10.93
1990-Institu-
tional shares... 10.07 0.8300 (0.0700)(a) 0.7600 (0.8300) -- -- -- 10.00 8.23
1989-Institu-
tional shares... 10.10 0.8800 -- 0.8800 (0.8800) -- -- (0.0300) 10.07 9.08
<CAPTION>
FOR THE PERIOD AUGUST 15, 1988 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988-Institu-
tional Shares... 10.00 0.1800 0.1000 0.2800 (0.1800) -- -- -- 10.10 3.30
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES OR
EXPENSE LIMITATION
------------------------
RATIO OF NET
NET ASSETS AT RATIO OF RATIO OF NET
RATIO OF NET INVESTMENT END EXPENSES TO INVESTMENT
EXPENSES TO INCOME TO PORTFOLIO OF PERIOD AVERAGE INCOME TO
AVERAGE NET AVERAGE TURNOVER (IN NET AVERAGE NET
ASSETS NET ASSETS RATE(C) 000'S) ASSETS ASSETS
------------ ---------- ----------- --------- ----------- ------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994-
Institutional
shares.......... 0.45% 5.69% 289.79% $193,095 0.59% 5.55%
1994-
Administration
shares.......... 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional shares... 0.45 5.46 411.66 359,708 0.64 5.31
1993-
Administration
shares(d)....... 0.70(e) 4.84(e) 411.66 16,490 0.80(e) 4.74(e)
1992-Institu-
tional shares... 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional shares... 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional shares... 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional shares... 0.46 8.71 137.37 31,015 1.39 7.78
<CAPTION>
FOR THE PERIOD AUGUST 15, 1988 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988-Institu-
tional Shares... 0.55(e) 8.55(e) 167.00(e) 39,052 1.42(e) 7.68(e)
</TABLE>
- ----
(a) Includes 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 and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes effect of mortgage dollar roll transactions.
(d) Administration share activity commenced on April 15, 1993.
(e) Annualized.
(f) Calculated based on the average shares outstanding methodology.

7
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund seeks to achieve a high level of current income. Secondarily, the
Fund may, in seeking current income, also consider the potential for capital
gain. There can be no assurance that the objective of the Fund will be
realized.

SELECTION OF PORTFOLIO INVESTMENTS. The Fund invests exclusively in (a)
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities")
deemed to have remaining maturities or (in the case of mortgage-related
securities) estimated average lives of six years or less and (b) repurchase
agreements collateralized by U.S. Government Securities. Under normal market
conditions, the Fund will invest at least 65% of its total assets in securities
issued by U.S. Government agencies or instrumentalities and in repurchase
agreements pertaining to U.S. Government securities. Under normal
circumstances, substantially all of the Fund's assets will be invested in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The Fund may, for temporary defensive purposes, hold or
invest more than 35% of its total assets in cash, U.S. Treasury securities or
high quality money market instruments, including commercial paper, bankers'
acceptances, repurchase agreements or other debt obligations with a remaining
maturity of one year or less.

PORTFOLIO DURATION. The Fund will maintain an option-adjusted duration of not
more than 3 years, however, its actual option-adjusted duration is expected to
be approximately 2 years under normal interest rate conditions. The Fund's
duration is a measure of the price sensitivity of the portfolio, including
expected cash flow and mortgage prepayments under a wide range of interest rate
scenarios. Maturity measures only the time until final payment is due on a bond
or other debt security; it takes no account of the pattern of a security's cash
flows over time, including how cash flow is affected by prepayments and by
changes in interest rates. In computing the duration of its portfolio, the Fund
will have to estimate the duration of obligations that are subject to
prepayment or redemption by the issuer taking into account the influence of
interest rates on prepayments and coupon flows. This method of computing
duration is known as option-adjusted duration. The Fund may use various
techniques to shorten or lengthen the option-adjusted duration of its
portfolio, including the acquisition of debt obligations at a premium or
discount, mortgage and interest rate swaps and interest rate floors, caps and
collars.

OTHER INVESTMENT POLICIES. The Fund may also employ certain active management
techniques to hedge the interest rate risks associated with the Fund's
portfolio securities, to enhance its return and to seek to reduce fluctuation
in its net asset value. These techniques include, but are not limited to,
mortgage and interest rate swaps and interest rate floors, caps and collars.
The Fund may also employ other investment techniques to enhance returns, such
as loans of portfolio securities, mortgage dollar rolls, forward commitments
and repurchase agreements.

When interest rates decline, the value of a portfolio invested in fixed-rate
debt securities can be expected to rise. Conversely, when interest rates rise,
the value of a portfolio invested in fixed-rate debt securities can be expected
to decline. In contrast, since interest rates on adjustable-rate mortgage loans
are reset periodically, yields of portfolio securities representing interests
in such loans will gradually align themselves to reflect changes in market
interest rates, causing the value of such adjustable-rate securities to
fluctuate less dramatically in response to interest rate fluctuations than
would fixed-rate debt securities. The Investment Adviser expects the Fund's net
asset value to be relatively stable during normal market conditions. This is
because the Fund will maintain a maximum option-adjusted duration of not more
than 3 years and will utilize certain interest rate hedging techniques.
However, a sudden and extreme increase

8
<PAGE>

in prevailing interest rates may cause a decline in the Fund's net asset value.
Conversely, a sudden and extreme decline in interest rates could result in an
increase in the Fund's net asset value.

The Fund's investment objective of seeking to achieve a high level of current
income and the policies specified under "Investment Restrictions" may only be
changed with the approval of the holders of a majority of the outstanding
shares of the Fund. All other policies described herein may be changed by a
vote of the Trustees. There can be no assurance that the Fund will be
successful in achieving its investment objective. An investment in shares of
the Fund does not constitute a complete investment program. Investors may wish
to complement an investment in the Fund with other types of investments.

INVESTMENT ADVISER

The Fund's investment adviser is Goldman Sachs Funds Management, L.P., an
affiliate of Goldman Sachs. The management services provided by the Investment
Adviser are subject to the general supervision of the Trust's Board of
Trustees. The Investment Adviser and its affiliates serve a wide range of
clients including private and public pension funds, endowments, foundations,
banks, thrifts, insurance companies, corporations, and private investors and
family groups.

Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in virtually
every field of investing and financing, participating in financial markets
worldwide and serving individuals, institutions, corporations and governments.
Goldman Sachs is headquartered in New York and has offices throughout the
United States and in Beijing, Frankfurt, George Town, Hong Kong, London,
Madrid, Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich.

The Investment Adviser is able to draw on the research and market expertise
of Goldman Sachs, whose investment research effort is one of the largest in the
industry. The in-depth information and analyses generated by Goldman Sachs's
research analysts, economists and portfolio strategists are available to the
Investment Adviser.

SPECIAL INVESTMENT METHODS

U.S. GOVERNMENT SECURITIES

U.S. Government securities include several different kinds of obligations.
Such securities include a variety of United States Treasury obligations,
including bills and notes, which principally differ only in their interest
rates, maturities and times of issuance, and obligations issued or guaranteed
by United States Government agencies or instrumentalities which are supported
by (a) the full faith and credit of the United States Treasury (such as
securities of the Government National Mortgage Association ("Ginnie Mae")), (b)
the authority of the United States Government to purchase certain obligations
of the issuer (such as securities of the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac")),
(c) the limited authority of the issuer to borrow from the United States
Treasury (such as securities of the Student Loan Marketing Association) or (d)
only the credit of the issuer. No assurance can be given that the United States
Government will provide financial support to United States Government agencies
or instrumentalities described in clauses (b), (c) or (d) above in the future,
other than as set forth above, since it is not obligated to do so by law. U.S.
Government securities also include securities related to pools of mortgages as
discussed below.

9
<PAGE>

CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities are securities that directly or indirectly
represent participations in, or are collateralized by and payable from,
mortgage loans secured by real property. The investment characteristics of
adjustable and fixed rate Mortgage-Backed Securities differ from those of
traditional fixed income securities. The major differences include the payment
of interest and principal on Mortgage-Backed Securities on a more frequent
(usually monthly) schedule, and the possibility that principal may be prepaid
at any time due to prepayments on the underlying mortgage loans or other
assets. These differences can result in significantly greater price and yield
volatility than is the case with traditional fixed income securities. As a
result, if the Fund purchases Mortgage-Backed Securities at a premium, a faster
than expected prepayment rate will reduce both the market value and the yield
to maturity from those which were anticipated. A prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity and
market value. Conversely, if the Fund purchases Mortgage-Backed Securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity and market value. The
Investment Adviser will seek to manage these potential risks and benefits by
investing in a variety of Mortgage-Backed Securities and by using certain
hedging techniques. See "Other Investments and Practices."

Prepayments on a pool of mortgage loans are influenced by a variety of
factors, including economic conditions, changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties
and servicing decisions. The timing and level of prepayments cannot be
predicted. Generally, however, prepayments on adjustable rate mortgage loans
and fixed rate mortgage loans will increase during a period of falling mortgage
interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, the amounts of prepayments available for reinvestment by the Fund
are likely to be greater during a period of declining mortgage interest rates.
If general interest rates also decline, such prepayments are likely to be
reinvested at lower interest rates than the Fund was earning on the Mortgage-
Backed Securities that were prepaid.

GUARANTEED MORTGAGE-BACKED SECURITIES IN WHICH THE FUND INVESTS. All of the
Fund's investments in Mortgage-Backed Securities will be issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities, including
but not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae
securities are backed by the full faith and credit of the U.S. Government,
which means that the U.S. Government guarantees that the interest and principal
will be paid when due. Fannie Mae securities and Freddie Mac securities are not
backed by the full faith and credit of the U.S. Government; however, the
ability of these agencies to borrow from the U.S. Treasury makes their
securities high quality securities with minimal credit risks. There are several
types of guaranteed Mortgage-Backed Securities currently available, including
guaranteed mortgage pass-through certificates and multiple-class securities,
which include guaranteed Real Estate Mortgage Investment Conduit ("REMIC")
pass-through certificates and stripped Mortgage Backed-Securities. The Fund
will be permitted to invest in other types of Mortgage-Backed Securities that
may be available in the future to the extent investment in such securities is
consistent with its investment objective and policies.

MULTIPLE CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Fund may invest in multiple class securities issued by U.S.
Government agencies and instrumentalities such as Fannie Mae or Freddie Mac,
including guaranteed collateralized mortgage obligations ("CMOs") and REMIC
pass-through or participation certificates. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code"), and invests in certain mortgages principally secured by interests in
real property and other permitted investments.

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CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae and Freddie Mac are types of multiple class pass-through
securities. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests or "residual" interests. The Fund does not intend
to purchase residual interests in CMOs or REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage
pass-through certificates (the "Mortgage Assets"). The obligations of Fannie
Mae or Freddie Mac under their respective guaranty of the REMIC Certificates
are obligations solely of Fannie Mae or Freddie Mac, respectively.

Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.

For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment
of interest, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal on certain PCs.

CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs and REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final scheduled distribution date. Principal prepayments on the
underlying mortgage loans or the Mortgage Assets underlying the CMOs or REMIC
Certificates may cause some or all of the classes of CMOs or REMIC Certificates
to be retired substantially earlier than their final distribution dates.
Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.

The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets
generally are applied to the classes of CMOs or REMIC Certificates in the order
of their respective final distribution dates. Thus, no payment of principal
will be made on any class of sequential pay CMOs or REMIC Certificates until
all other classes having an earlier final distribution date have been paid in
full.

Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.

A wide variety of REMIC Certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be

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applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments
of the Mortgage Assets are then required to be applied to one or more other
classes of the Certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created that absorb
most of the volatility in the underlying mortgage assets. These tranches tend
to have market prices and yields that are much more volatile than the PAC
classes.

STRIPPED MORTGAGE-BACKED SECURITIES. The Fund may invest in stripped
mortgage-backed securities ("SMBS"), which are derivative multiple class
mortgage-backed securities. The Fund may only invest in SMBS issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.

SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of Mortgage
Assets. A common type of SMBS will have one class receiving all of the interest
from the Mortgage Assets, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. Although
the market for such securities is increasingly liquid, certain SMBS may not be
readily marketable and will be considered illiquid for purposes of the Fund's
limitation on investments in illiquid securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from Mortgage Assets are generally higher
than prevailing market yields on other Mortgage-Backed Securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. The Investment Adviser will seek
to manage these risks (and potential benefits) by investing in a variety of
such securities and by using certain hedging techniques. See "Other Investments
and Practices."

ZERO COUPON BONDS

The Fund may invest in zero coupon securities, zero coupon U.S. Treasury
securities (which are Treasury notes and bonds that have been stripped of their
unmatured interest coupons), the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations. A zero
coupon security pays no interest to its holder during its life and its value
consists of the difference between its face value at maturity and its cost. The
market prices of zero coupon securities generally are more volatile than market
prices of securities that pay interest periodically and are likely to respond
to a greater degree to changes in interest rates than interest bearing
securities having similar maturities and credit qualities. The Fund's
investments in zero coupon securities or other stripped securities may require
the Fund to sell certain of its portfolio securities to generate sufficient
cash to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.

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YIELD, MARKET VALUE AND RISK CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES

The Fund may invest in certain Mortgage-Backed Securities, such as interest-
only and principal-only SMBS, that are extremely sensitive to changes in
prepayments and interest rates. Even though such securities have been issued or
guaranteed by an agency or instrumentality of the U.S. Government, under
certain interest rate or prepayment rate scenarios, the Fund may fail to fully
recover its investment in such securities.

The investment characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
include more frequent interest and principal payments, usually monthly, and the
possibility that unscheduled prepayments of principal may be made at any time.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Adjustable rate mortgage loans may be subject to a
greater prepayment rate in a declining interest rate environment. The yields to
maturity of the Mortgage-Backed Securities in which the Fund may invest will be
affected by the actual rate of payment (including prepayments) of principal of
the underlying mortgage loans. The mortgage loans underlying such securities
generally may be prepaid at any time without penalty. In a fluctuating interest
rate environment, a predominant factor affecting the prepayment rate on a pool
of mortgage loans is the difference between the interest rates on the mortgage
loans and prevailing mortgage loan interest rates (giving consideration to the
cost of any refinancing). In general, if interest rates on new mortgage loans
fall sufficiently below the interest rates on existing fixed rate mortgage
loans underlying mortgage pass-through securities, the rate of prepayment would
be expected to increase. Conversely, if mortgage loan interest rates rise above
the interest rates on the fixed rate mortgage loans underlying the mortgage
pass-through securities, the rate of prepayment may be expected to decrease.

The rate of principal prepayments with respect to adjustable rate mortgages
has fluctuated in recent years. As is the case with fixed rate mortgage loans,
adjustable rate mortgages may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if
prevailing interest rates fall significantly, mortgages could be subject to
higher prepayment rates than if prevailing interest rates remain constant
because the availability of fixed rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their mortgages to "lock-in" a
lower fixed interest rate. Conversely, if prevailing interest rates rise
significantly, adjustable rate mortgages may prepay at lower rates than if
prevailing rates remain at or below those in effect at the time such mortgages
were originated due, for example, to the unavailability of lower rate
alternatives. There can be no certainty as to the rate of prepayments on the
mortgages in either stable or changing interest rate environments. In addition,
there can be no certainty as to whether increases in the principal balances of
adjustable rate mortgages due to the addition of deferred interest may result
in a default rate higher than that on mortgages that do not provide for
negative amortization. Other factors affecting prepayment of mortgages include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgage properties and servicing decisions.

The Fund's reinvestment of principal payments and prepayments received on a
mortgage pass-through security may be made at rates higher or lower than the
rate payable on such security, thus affecting the return realized by the Fund.
In addition, the receipt of interest payments monthly rather than semi-annually
by the Fund has a compounding effect that may increase the yield to the Fund
relative to debt obligations that pay interest semi-annually. Due to these
factors, Mortgage-Backed Securities may also be less effective than U.S.
Treasury securities of similar maturity at maintaining yields during periods

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of changing interest rates. Prepayments may have a disproportionate effect on
certain Mortgage-Backed Securities such as SMBS and certain other multiple
class pass-through securities. The Fund may purchase Mortgage-Backed Securities
at a premium or at a discount.

RISKS ASSOCIATED WITH DERIVATIVE MORTGAGE-BACKED SECURITIES. Derivative
Mortgage-Backed Securities are subject to different combinations of interest
rate and/or prepayment risks. In addition, particular derivative securities may
be leveraged such that their exposure (i.e., price sensitivity) to interest
rate and/or prepayment risk is magnified. The Investment Adviser may use
derivative Mortgage-Backed Securities and other derivative securities
consistent with the Fund's investment objective for a variety of purposes
including adjusting the average duration or interest rate sensitivity of the
Fund's portfolio or attempting to enhance the Fund's total return. The
Investment Adviser manages the risks and benefits of derivative Mortgage-Backed
Securities and other derivative securities by prudent analysis, selection and
monitoring of such securities included in the Fund's portfolio.

The risk of faster than anticipated prepayments generally adversely affects
interest-only securities (IOs), super floaters and premium priced Mortgage-
Backed Securities. The risk of slower than anticipated prepayments generally
adversely affects principal-only securities (POs), floating rate securities
subject to interest rate caps, support tranches and discount priced Mortgage-
Backed Securities.

RISKS ASSOCIATED WITH OTHER DERIVATIVE FLOATING RATE SECURITIES. Other types
of floating rate derivative securities present more complex types of interest
rate risks. For example, range floaters are subject to the risk that the coupon
will be reduced to below market rates if a designated interest rate floats
outside of a specified interest rate band or collar. Dual index or yield curve
floaters are subject to lower prices in the event of an unfavorable change in
the spread between two designated interest rates.

OTHER INVESTMENTS AND PRACTICES

INVERSE FLOATING RATE SECURITIES. The Fund may invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with the greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS. The Fund may
enter into interest rate swaps and mortgage swaps for hedging purposes and to
increase total return. The Fund may also enter into other types of interest
rate swap arrangements such as caps, floors and collars. Interest rate swaps
involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. Mortgage swaps are similar to interest rate
swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payment of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payment of interest on a notional principal

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amount from the party selling such interest rate floor. An interest rate collar
is the combination of a cap and a floor that preserves a certain return within
a predetermined range of interest rates. Since interest rate swaps, mortgage
swaps, caps, floors and collars are individually negotiated, the Fund expects
to achieve an acceptable degree of correlation between its portfolio
investments and its swap, cap, floor and collar positions entered into for
hedging purposes.

The Fund will enter into interest rate swaps and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps and mortgage swaps is limited to the net
amount of payments that the Fund is contractually obligated to make. If the
other party to an interest rate swap or mortgage swap defaults, the Fund's risk
of loss consists of the net amount of payments that the Fund is contractually
entitled to receive, if any. To the extent the net amount of an interest rate
swap or mortgage swap is held in a segregated account, consisting of cash and
liquid, high grade debt securities, the Fund and the Investment Adviser believe
that swaps do not constitute senior securities under the Investment Company Act
of 1940, as amended (the "Act") and, accordingly, will not treat them as being
subject to the Fund's borrowing restriction.

The Fund will not enter into any interest rate swap, mortgage swap, or
interest rate cap, floor or collar transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party is rated either
AA or A-1 or better by Standard & Poor's Ratings Group ("S&P") or Aa or P-1 or
better by Moody's Investors Service, Inc. ("Moody's"), or, if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser.

The use of interest rate and mortgage swaps as well as interest rate caps,
floors and collars, is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Investment Adviser is incorrect in its
forecasts of market values and interest rates, the investment performance of
the Fund would be less favorable than it would have been if these investment
techniques were not used. The staff of the SEC considers interest rate swaps
and mortgage swaps, as well as interest rate floors and collars, to be illiquid
securities for purposes of the Fund's 15% limitation on illiquid investments.

LENDING OF PORTFOLIO SECURITIES. The Fund may also seek to increase its
income by lending portfolio securities. Under present regulatory policies, such
loans may be made to institutions, such as broker-dealers, and are required to
be secured continuously by collateral in cash, cash equivalents or U.S.
Government securities maintained on a current basis in an amount at least equal
to the market value of the securities loaned. Cash collateral may be invested
in cash equivalents. If the Investment Adviser determines to make securities
loans, the value of the securities loaned may not exceed 33 1/3% of the value
of the total assets of the Fund. See "Investment Restrictions" in the
Additional Statement. The Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase
securities on a when-issued basis. When-issued transactions arise when
securities are purchased by the Fund with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous price
and yield to the Fund at the time of entering into the transaction. The Fund
may also purchase securities on a forward commitment basis. In a forward
commitment transaction, the Fund

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contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. The Fund is required to hold and maintain in a
segregated account until the settlement date cash or liquid, high grade debt
obligations in an amount sufficient to meet the purchase price. Alternatively,
the Fund may enter into offsetting contracts for the forward sale of other
securities that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although the Fund would
generally purchase securities on a when-issued or forward commitment basis with
the intention of actually acquiring securities for its portfolio, the Fund may
dispose of a when-issued security or forward commitment prior to settlement if
the Investment Adviser deems it appropriate to do so.

MORTGAGE DOLLAR ROLLS. The Fund may enter into mortgage "dollar rolls" in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity), but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the 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. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. 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 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. The Fund does not currently intend
to enter into mortgage dollar rolls that are accounted for as a financing.

Mortgage dollar rolls involve certain risks including the following: if the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which the Fund is
required to repurchase may be worth less than an instrument which the Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Investment Adviser's ability to manage its interest rate and mortgage
prepayments exposure. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
dealers in U.S. Government securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. In a repurchase agreement, the Fund
purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date (ordinarily a
week or less). The resale price generally exceeds the purchase price by an
amount which reflects an agreed-upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults, the
Fund might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund in connection with
the related repurchase agreement are less than the repurchase price. Repurchase
agreements maturing in more than seven days are considered by the Fund to be
illiquid. In

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addition, the Fund, together with other registered investment companies having
advisory agreements with the Investment Adviser or any of its affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.

ILLIQUID SECURITIES. The Fund will not invest more than 15% of its net assets
in securities which are illiquid, including securities that are not readily
marketable, repurchase agreements maturing in more than seven days, interest
rate and mortgage swaps, interest rate caps, floors and collars, certain SMBS
and securities that are restricted as to resale. However, a restricted security
is not considered to be illiquid if the Trustees of the Trust determine, based
upon the Investment Adviser's continuing review of the trading markets for the
specific restricted security, under guidelines adopted by the Trustees of the
Trust and subject to the Trustees' oversight and ultimate responsibility, that
such restricted security eligible for resale under Rule 144A under the
Securities Act of 1933 is liquid. In addition, a repurchase agreement which by
its terms can be liquidated before its nominal fixed term on seven days or less
notice is regarded as a liquid instrument. Subject to the 15% limitation on
illiquid securities investments, the Fund may acquire U.S. Government
securities in a private placement.

Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Trustees will carefully monitor the Fund's investments in these
securities, focusing on such important factors, among others, as valuation,
credit quality, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.

OTHER INVESTMENT COMPANIES. The Fund reserves the right to invest up to 10%
of its total assets, calculated at the time of purchase, in the securities of
other investment companies, including business development companies and small
business investment companies. The Fund may not invest more than 5% of its
total assets in the securities of any one investment company or acquire more
than 3% of the voting securities of any other investment company. Pursuant to
an exemptive order obtained from the SEC, other investment companies in which
the Fund may invest include money market funds for which the Investment Adviser
or any of its affiliates serves as investment adviser. The Fund will indirectly
bear its proportionate share of any management fees and other expenses paid by
investment companies in which it invests in addition to the advisory fees paid
by the Fund. However, to the extent that the Fund invests in a money market
fund for which the Investment Adviser or any of its affiliates acts as adviser,
the advisory fees payable by the Fund to the Investment Adviser will be reduced
by an amount equal to the Fund's proportionate share of the advisory fees paid
by such money market fund to the Investment Adviser or any of its affiliates.

INSTRUMENT MATURITY. The Mortgage-Backed Securities in which the Fund invests
will have an estimated average life, as determined by the Investment Adviser,
of six years or less. Average life estimates are based upon anticipated
prepayment patterns which, in turn, are based upon past prepayment patterns,
prevailing interest rates and other factors. Due to actual prepayment
experience, however, the remaining estimated average life of an investment
after purchase by the Fund may increase to more than six years or may decrease
at a rate faster than anticipated. The Fund's other securities generally will
have remaining maturities of 6 years or less and repurchase agreements will
have remaining maturities of less than one year.

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The Fund may purchase securities with variable or floating interest rates. In
calculating average portfolio duration or maturity, such securities will
generally be treated as having a maturity equal to the time remaining until
their interest rate is next reset, unless the Investment Adviser believes some
other treatment to be more appropriate, for example, because of the market
price impact of interest rate caps, floors and collars. In addition, the Fund
also may purchase securities that have demand or put features. In calculating
average portfolio duration or maturity, these securities generally will be
treated as having a maturity equal to the period remaining until the Fund can
obtain the principal amount through exercise of such feature.

OTHER INFORMATION. The Investment Adviser seeks to enhance the Fund's income
by taking advantage of yield disparities or other factors (such as anticipated
changes in relative value which have not yet occurred) that occur or are
expected to occur in the securities markets. The Fund may dispose of any
security prior to its maturity if such disposition and reinvestment of the
proceeds are expected to enhance income consistent with the Investment
Adviser's judgment as to a desirable maturity structure or if such disposition
is believed to be advisable due to other circumstances or considerations.

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which, as described in
more detail in the Additional Statement, are fundamental policies that cannot
be changed without the approval of a majority of the outstanding shares of the
Fund. Among other restrictions, as a diversified Fund, the Fund may not, with
respect to 75% of its total assets, purchase the securities of any one issuer
(except U.S. Government securities) if more than 5% of the value of the Fund's
assets would be invested in such issuer. The Fund has the authority to borrow
money but only (a) as a temporary measure, and then only in amounts not
exceeding 5% of the value of the Fund's net assets (excluding any amount
borrowed) or (b) from banks, provided that immediately after any such borrowing
all borrowings of the Fund do not exceed one-third of the Fund's net assets
(excluding any amount borrowed). The Fund does not intend to borrow for
investment leverage purposes but solely for extraordinary or emergency purposes
or to facilitate management of the Fund by enabling it to meet redemption
requests when the liquidation of portfolio instruments is deemed to be
disadvantageous or not possible. The Fund may not purchase securities while
such borrowings exceed 5% of the value of the Fund's total assets.

PORTFOLIO TURNOVER

It is anticipated that the portfolio turnover rate of the Fund will vary from
year to year. The portfolio turnover rate is computed by dividing the lesser of
the amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by the Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for
the Fund consistent with the Fund's investment objective and portfolio
management policies. A higher rate of portfolio turnover results in increased
transaction costs to the Fund. The portfolio turnover rate includes the effect
of entering into mortgage dollar rolls.

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MANAGEMENT

TRUSTEES AND OFFICERS

The Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Investment Adviser, distributor and
transfer agent. The officers of the Trust conduct and supervise the Fund's
daily business operations. The Additional Statement contains information as to
the identity of, and other information about, the Trustees and officers of the
Trust.

INVESTMENT ADVISER

Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York,
10004, a Delaware limited partnership which is an affiliate of Goldman Sachs,
acts as the investment adviser of the Fund. Goldman Sachs Funds Management,
L.P. was registered as an investment adviser in 1990. As of January 31, 1995,
the Investment Adviser, together with its affiliates, acted as investment
adviser, administrator or distributor for approximately $48.7 billion in
assets.

Under its Investment Advisory Agreement with the Fund, Goldman Sachs Funds
Management, L.P., subject to the general supervision of the Board of Trustees,
manages the Fund's portfolio and provides for the administration of all of the
Fund's other affairs. It is the responsibility of the Investment Adviser to
make investment decisions for the Fund and to place purchase and sale orders
for the Fund's portfolio transactions. Such orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Goldman Sachs or its affiliates. Goldman Sachs has agreed to permit the Fund to
use the name "Goldman Sachs" or a derivative thereof as part of the Fund's name
for as long as the Investment Advisory Agreement is in effect.

The Fund's portfolio managers are Jonathan A. Beinner and Theodore T. Sotir.
Mr. Beinner specializes in investing in a particular type of security the Fund
may hold. Mr. Sotir helps with overall portfolio strategy and is a member of
the Investment Adviser's risk control team. Mr. Beinner joined the Investment
Adviser in 1990 and is currently a Vice President, after working in the trading
and arbitrage group of Franklin Savings Association. Mr. Sotir joined the
Investment Adviser in 1993 and is currently a Vice President, after working as
a portfolio manager at Fidelity Management Trust Company. Prior to joining
Fidelity, Mr. Sotir worked for Goldman Sachs in the mortgage securities
department for six years.

As compensation for the services rendered to the Fund by the Investment
Adviser pursuant to the Investment Advisory Agreement, and the assumption by
the Investment Adviser of the expenses related thereto, the Fund pays the
Investment Adviser a fee, computed daily and payable monthly, at an annual rate
equal to 0.50% of the Fund's average daily net assets. For the fiscal year
ended October 31, 1994, the Fund paid an advisory fee to the Investment Adviser
at the annual rate of 0.40% of the Fund's average daily net assets.

The Investment Adviser has voluntarily agreed not to impose a portion of its
advisory fee (equal to 0.10% of the Fund's average daily net assets) and to
reduce or otherwise limit certain expenses of the Fund (excluding advisory
fees, payments to Service Organizations (as defined below), taxes, interest and
brokerage and litigation, indemnification and other extraordinary expenses) to
the extent such expenses exceed 0.05% annually of the Fund's average net
assets. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the Investment Adviser
at its

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<PAGE>

discretion at any time. The Investment Adviser has also agreed to reduce its
fees payable (to the extent of such fees) by the amount the Fund's expenses
would, absent the fee reduction, exceed the applicable expense limitations
imposed by state securities administrators. See "Management--Expenses" in the
Additional Statement.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts and
other activities of Goldman Sachs may present conflicts of interest with
respect to the Fund or limit its investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Fund and/or which engage in
and compete for transactions in the same types of securities and instruments as
the Fund. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strategies,
or the activities or strategies used for other accounts managed by them, for
the benefit of the management of the Fund and it is not anticipated that the
Investment Adviser will have access to proprietary information for the purpose
of managing the Fund. The results of the Fund's investment activities,
therefore, may differ from those of Goldman Sachs and its affiliates and it is
possible that the Fund could sustain losses during periods in which Goldman
Sachs and its affiliates and other accounts achieve significant profits on
their trading for proprietary or other accounts. From time to time, the Fund's
activities may be limited because of regulatory restrictions applicable to
Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. See "Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 85 Broad Street, New York, New York, serves as the exclusive
distributor of the Fund's shares. Goldman Sachs, 4900 Sears Tower, Chicago,
Illinois, also serves as the Fund's transfer agent (the "Transfer Agent").
Shareholders of record with inquiries regarding the Fund should contact Goldman
Sachs (as Transfer Agent) at the address or the telephone number set forth on
the cover page of this Prospectus.

DIVIDENDS

The Fund intends that all or substantially all of its net investment income
will be declared as a dividend on each day to shareholders of record as of 3:00
p.m. Chicago time on that day. Over the course of the fiscal year, dividends
accrued and paid will constitute all or substantially all of the Fund's net
investment income. From time to time a portion of such dividends may constitute
a return of capital. The Fund also intends that all net realized long-term and
short-term capital gains will be declared as a dividend at least annually. In
determining amounts of capital gains to be distributed, capital losses
including any available capital loss carryovers from prior years will be offset
against capital gains.

The Fund's net investment income is determined on a daily basis. On days on
which net asset value is calculated, such determination is made immediately
prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago
time. On days on which net asset value is not calculated, such determination is
made as of 3:00 p.m. Chicago time.

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<PAGE>

Payment of dividends from net investment income will be made on the last
calendar day of each month in additional shares of the Fund at the net asset
value on such day, unless cash distributions are elected, in which case payment
will be made on the first Business Day of the succeeding month. Payment of
dividends with respect to capital gains, if any, when declared will be made in
additional shares of the Fund at the net asset value on the payment date,
unless cash distributions are elected. This election to receive dividends in
cash is initially made on the Account Information Form and may be changed upon
written notice to the Transfer Agent at any time prior to the record date for a
particular dividend or distribution. If cash dividends are elected with respect
to the Fund's monthly net investment income dividends then cash dividends must
also be elected with respect to the non-long term capital gains component, if
any, of the Fund's annual dividend.

At the time of an investor's purchase of shares of the Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or unrealized appreciation of the Fund's portfolio securities. Therefore,
subsequent distributions (or portions thereof) on such shares may be taxable to
the investor even if the net asset value of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.

NET ASSET VALUE

The net asset value per share is calculated by the Fund's custodian as of the
close of regular trading on the New York Stock Exchange (normally 3:00 p.m.
Chicago time, 4:00 p.m. New York time), immediately after determination of the
income to be declared as a dividend on each Business Day (as such term is
defined under "Additional Information"). Net asset value per share of each
class is calculated by determining the net assets attributable to each class
and dividing by the number of outstanding shares of that class.

Investments in U.S. Government Securities, including Mortgage-Backed
Securities, and other debt obligations are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trust's Board of Trustees. Other portfolio securities for
which accurate market quotations are readily available are valued on the basis
of quotations furnished by pricing services or provided by dealers in such
securities. Portfolio securities for which accurate market quotations are not
readily available are valued in accordance with the Trust's valuation
procedures. Debt obligations with a remaining maturity of 60 days or less are
valued at amortized cost. The Board of Trustees has determined that the
amortized cost of such securities approximates fair market value.

PERFORMANCE INFORMATION

From time to time the Fund may publish yield and average annual total return
in advertisements and communications to shareholders or prospective investors.

Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the net
asset value per share on the last day of the relevant period. The results are
compounded on a bond equivalent (semi-annual) basis and then annualized. Net
investment income per share is equal to the dividends and interest earned
during the period, reduced by accrued expenses for the period. The calculation
of net investment income for these purposes may differ from the net investment
income determined for accounting purposes.

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<PAGE>

Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (i.e., net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all dividends and distributions at
net asset value. The total return calculation assumes a complete redemption of
the investment at the end of the relevant period. The Fund may also from time
to time advertise total return on an cumulative, average, year-by-year or other
basis for various specified periods by means of quotations, charts, graphs or
schedules. In addition to the above, the Fund may from time to time advertise
its performance relative to certain performance rankings and indices.

Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the ending net asset value for the
period for which the distribution rates are being calculated.

The investment results of the Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided in
shareholder reports, the Fund may, in its discretion, from time to time make a
list of the Fund's holdings available to investors upon request.

Yield, total return and distribution rate will be calculated separately for
each class of shares in existence. Because each class of shares may be subject
to different expenses, the yield, total return and distribution rate
calculations with respect to each class of shares of the Fund for the same
period will differ. Due to the fees payable under the Service Plan and the
Administration Plan, the investment performance, for any period, of the
Institutional Shares will always be higher than that of the Service Shares and
the Administration Shares and the investment performance of the Administration
Shares will always be higher than that of the Service Shares. See "Shares of
the Trust" below.

SHARES OF THE TRUST

The Fund is a series of Goldman Sachs Trust, which was organized under the
laws of The Commonwealth of Massachusetts on September 24, 1987 as a
Massachusetts business trust under an Agreement and Declaration of Trust, as
amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are
authorized to issue an unlimited number of shares of beneficial interest, $.001
par value per share. The Trustees of the Trust are responsible for the overall
management and supervision of its affairs. The Trustees of the Trust have
authority under the Trust Agreement to create and classify shares of beneficial
interest in separate series, without further action by shareholders. As of the
date of this Prospectus, the Trustees have authorized shares of the Fund and
ten other series. Additional series may be added in the future. The Trustees
also have authority to classify or reclassify any series or portfolio of shares
into one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of three classes of shares of the Fund. These classes are:
Institutional Shares, Administration Shares and Service Shares. As of October
31, 1994, no Service Shares of the Fund were outstanding.

Each Institutional Share, Administration Share and Service Share of the Fund
represents an equal proportionate interest in the assets belonging to the Fund.
All Fund expenses are based on a percentage of the Fund's aggregate average net
assets, except that the respective administration and service fees relating to
a particular class will be borne exclusively by that class. It is contemplated
that most Administration Shares and Service Shares will be held in accounts of
which the record owner is a bank or other institution acting, directly or
through an agent, as nominee for its customers who are the beneficial

22
<PAGE>

owners of the shares or another organization designated by such bank or
institution. Administration Shares and Service Shares will each be marketed
only to such institutional investors, at net asset value with no sales load.
Institutional Shares may be purchased for accounts in the name of an investor
or institution that is not compensated by the Fund for services provided to the
institution's customers. Administration Shares may be purchased for accounts
held in the name of an institution that provides certain account administration
services to its customers, including maintenance of account records and
processing orders to purchase, redeem or exchange Administration Shares.
Administration Shares bear the cost of account administration fees at the
annual rate of up to 0.25% of the average daily net assets of such
Administration Shares. Service Shares may be purchased for accounts held in the
name of an institution that provides certain account administration and
shareholder liaison services to its customers, including maintenance of account
records and processing orders to purchase, redeem or exchange Service Shares,
responding to customer inquiries and assisting customers with investment
procedures. Service Shares bear the cost of service fees at the annual rate of
up to 0.50% of the average daily net assets of such Service Shares.
(Institutions that provide services to holders of Administration or Service
Shares are referred to in this Prospectus as "Service Organizations").

It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration and Service Shares) to
its customers and thus receive different compensation with respect to different
classes of shares of the Fund. Administration Shares and Service Shares may
each have certain exclusive voting rights on matters relating to their
respective plans. Shares of each class may be exchanged only for shares of the
same class in another fund and certain money market funds sponsored by Goldman
Sachs. The Fund may amend such policy in the future. Dividends paid by the
Fund, if any, with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be in the same amount,
except for differences caused by the fact that the respective fees under
Administration and Service Plans relating to a particular class will be borne
exclusively by that class. Similarly, the net asset value per share will vary
depending on the class of shares purchased.

Certain aspects of the shares may be altered, after advance notice to
shareholders, if it is deemed necessary in order to satisfy certain tax
regulatory requirements.

When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to such shareholders. All shares entitle
their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.

Under Massachusetts law, there is a remote possibility that shareholders of a
business trust could, under certain circumstances, be held personally liable as
partners for the obligations of such trust. The Trust Agreement contains
provisions intended to limit such liability and to provide indemnification out
of Trust property of any shareholder charged or held personally liable for
obligations or liabilities of the Trust solely by reason of being or having
been a shareholder of the Trust and not because of such shareholder's acts or
omissions or for some other reason. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations.

Unless otherwise required by the Act, ordinarily it will not be necessary for
the Trust to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of Trustees or the appointment of
independent accountants. Shareholders may remove a Trustee by the affirmative

23
<PAGE>

vote of at least two-thirds of the Trust's outstanding shares and the Trustees
must promptly call a meeting for such purpose when requested to do so in
writing by the recordholders of not less than 10% of the outstanding shares of
the Trust. Shareholders may, under certain circumstances, communicate with
other shareholders in connection with requesting a special meeting of
shareholders. The Board of Trustees, however, will call a special meeting for
the purpose of electing Trustees if, at any time, less than a majority of
Trustees holding office at the time were elected by shareholders.

In the interest of economy and convenience, the Trust does not issue share
certificates. Instead, the Transfer Agent maintains a record of each
shareholder's ownership. Each shareholder receives confirmation of purchase and
redemption orders from the Transfer Agent. Shares and any dividends and
distributions paid by the Fund are reflected in account statements from the
Transfer Agent.

TAXATION

FEDERAL TAXES

The Fund is treated as a separate entity for tax purposes. The Fund has
qualified and elected to be treated as a regulated investment company under
Subchapter M of the Code, and it intends to continue to qualify for such
treatment. To qualify for treatment as a regulated investment company, the Fund
must satisfy certain requirements relating to the sources of its income,
diversification of its assets and distribution of its income to shareholders.
As a regulated investment company, the Fund will not be subject to federal
income or excise tax on any net investment income and net realized capital
gains that are distributed to its shareholders in accordance with certain
timing requirements of the Code.

Dividends paid by the Fund from net investment income, the excess of net
short-term capital gain over net long-term capital loss and original issue
discount or certain market discount income will be taxable to shareholders as
ordinary income. Dividends paid by the Fund from the excess of net long-term
capital gain over net short-term capital loss will be taxable as long-term
capital gains regardless of how long the shareholders have held their shares.
These tax consequences will apply regardless of whether distributions are
received in cash or reinvested in shares. Certain distributions paid by the
Fund in January of a given year may be taxable to shareholders as if received
the prior December 31. Shareholders will be informed annually about the amount
and character of distributions received from the Fund for federal income tax
purposes.

Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.

Redemptions and exchanges of shares are taxable events on which a shareholder
may recognize a gain or loss.

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish the Fund with their correct taxpayer
identification number and certain certifications or if they are otherwise
subject to backup withholding. Individuals, corporations and other shareholders
that are not U.S. persons under the Code are subject to different tax rules and
may be subject to nonresident alien withholding at the rate of 30% (or a lower
rate provided by an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund.

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<PAGE>

OTHER TAXES

In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on payments received from the Fund. A state income (and possibly
local income and/or intangible property) tax exemption is generally available
to the extent the Fund's distributions are derived from interest on (or, in the
case of intangibles taxes, the value of its assets is attributable to) certain
U.S. Government obligations, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.

Shareholders should consult their own tax advisors regarding specific
questions as to United States federal, state, local and foreign tax
consequences of investing in the Fund in their particular circumstances. See
the Additional Statement for a further discussion of certain tax consequences
of investing in shares of the Fund.

ADDITIONAL INFORMATION

The term "majority of the outstanding shares" of the Fund means the vote of
the lesser of (i) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.

As used in this Prospectus, the term "Business Day" refers to those days when
the Investment Adviser, The Northern Trust Company, State Street Bank and Trust
Company and the Federal Reserve Bank of New York are open for business, which
is Monday through Friday except for holidays. Such holidays currently are: New
Year's Day (observed), Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus Day,
Thanksgiving Day and Christmas. On those days when one or more of such
organizations close early as a result of such day being a partial holiday or
otherwise, the right is reserved to advance the time on that day by which
purchase and redemption requests must be received.

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<PAGE>

REPORTS TO SHAREHOLDERS

Institutional Shareholders will receive an annual report containing audited
financial statements and a semi-annual report. Each Institutional Shareholder
will also be provided with a printed confirmation for each transaction in the
shareholder's account and an individual monthly statement. A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.

SUB-ACCOUNTING SERVICE

The Fund has designed special procedures to assist banks and other
institutional investors desiring to establish multiple accounts (master
accounts and their sub-accounts). Sub-accounts may be established with
registration by name and/or number. Institutions will not normally be charged
for this service unless otherwise agreed upon. Upon request, master accounts
will be provided with a monthly summary report which sets forth in order by
account number (or name) the share balance at month end and the income, if any,
together with the total share balance and income, if any, for the master
account.

PURCHASE OF INSTITUTIONAL SHARES

Institutional Shares of the Fund may be purchased through Goldman Sachs at
the net asset value per share next determined after receipt of an order without
the imposition of a sales load. If, by 3:00 p.m. Chicago time (4:00 p.m. New
York time), an order, a check or a Federal Reserve draft is received by Goldman
Sachs, the price per share will be the net asset value per share computed on
the day the purchase order or such form of payment is received. See "Net Asset
Value."

PURCHASE PROCEDURES

Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring Federal Funds to The Northern
Trust Company ("Northern") as subcustodian for State Street Bank and Trust
Company ("State Street") on the next Business Day or initiating an ACH transfer
to ensure receipt by Northern on the next Business Day. Purchases may also be
made by check (except that a check drawn on a foreign bank will not be
accepted) or Federal Reserve draft made payable to "Goldman Sachs Trust--GS
Short-Term Government Agency Fund" and should be directed to Goldman Sachs
Trust--GS Short-Term Government Agency Fund, c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606. Payment of the proceeds of
redemption of shares purchased by check may be delayed for a period of time as
described under "Redemption of Institutional Shares."

In order to make an initial investment in the Fund, an investor must
establish an account with the Fund by furnishing necessary information to the
Fund or Goldman Sachs. An Account Information Form, a copy of which is attached
to this Prospectus, should be used to establish such an account. Subsequent
purchases of Institutional Shares may be made in the manner set forth in the
preceding paragraph.

The minimum initial investment is $50,000 in Institutional Shares of the Fund
alone or in combination with Institutional Shares of any other mutual fund
sponsored by Goldman Sachs and designated as an eligible fund for this purpose
and the relevant class of any portfolio of Goldman Sachs Money Market Trust.
The minimum investment requirement may be waived for current and former
officers, partners, directors or employees of Goldman Sachs or any of its
affiliates or for other investors at the discretion of the Trust's officers. No
minimum amount is required for subsequent investments. The Fund reserves the

26
<PAGE>

right to redeem the Institutional Shares of any Institutional Shareholder whose
account balance is less than $100 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of an Institutional
Shareholder's account falls below the minimum account balance solely as a
result of market conditions. The Trust will give sixty (60) days prior written
notice to Institutional Shareholders whose Institutional Shares are being
redeemed to allow them to purchase sufficient additional Institutional Shares
of the Fund to avoid such redemption.

OTHER PURCHASE INFORMATION

PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received by Goldman Sachs by 3:00 p.m. Chicago time, the purchased shares will
be issued and dividends will begin on such shares on the next Business Day,
provided that a Federal Funds wire or an ACH transfer is received by Northern
on such day.

PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase check or Federal
Reserve draft is received by Goldman Sachs by 3:00 p.m. Chicago time, the
purchased shares will be issued and dividends will begin on such shares on the
next Business Day after the check or Federal Reserve draft is received by
Goldman Sachs.

Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.

The Fund and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). The Fund or Goldman
Sachs may reject or restrict purchases or exchanges of Institutional Shares by
a particular purchaser or group, for example, when a pattern of frequent
purchases and sales or exchanges of Institutional Shares of the Fund is
evident, or if the purchase, sale or exchange orders are, or a subsequent
abrupt redemption might be, of a size that would disrupt management of the
Fund.

EXCHANGE PRIVILEGE

Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the relevant class of any portfolio of
Goldman Sachs Money Market Trust at the net asset value next determined either
by writing to Goldman Sachs, Attention: Goldman Sachs Trust--GS Short-Term
Government Agency Fund, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares or units and consider its investment objective,
policies and applicable fees before making an exchange. Under the telephone
exchange privilege, Institutional Shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer identification
numbers only if the exchange request is in writing and is received in
accordance with the procedures set forth under "Redemption of Institutional
Shares."

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<PAGE>

In times of drastic economic or market changes the telephone exchange
privilege may be difficult to implement. In an effort to prevent unauthorized
or fraudulent exchanges by telephone, Goldman Sachs employs reasonable
procedures as set forth under "Redemption of Institutional Shares" to confirm
that such instructions are genuine. For federal income tax purposes, an
exchange is treated as a sale of the Institutional Shares surrendered in the
exchange, on which an investor may realize a gain or loss, followed by a
purchase of Institutional Shares, or the relevant class of any portfolio of
Goldman Sachs Money Market Trust received in the exchange. Shareholders should
consult their own tax advisers concerning the tax consequences of an exchange.

All exchanges which represent an initial investment in a fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of such fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be modified or
withdrawn at any time on sixty (60) days' written notice to Institutional
Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."

REDEMPTION OF INSTITUTIONAL SHARES

The Fund will redeem its Institutional Shares upon request of an
Institutional Shareholder on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value." If Institutional Shares to be redeemed were
recently purchased by check, the Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling the
Transfer Agent at the address or telephone number set forth on the cover page
of this Prospectus. An Institutional Shareholder may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Information Form accompanying this Prospectus. It may be difficult to
implement redemptions by telephone in times of drastic economic or market
changes.

In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time. If reasonable procedures are not implemented, the Trust may
be liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither the Fund, the Trust nor Goldman Sachs will be responsible
for the authenticity of redemption or exchange instructions received by
telephone.

Written requests for redemptions must be signed by each Institutional
Shareholder, whose signature has been guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative

28
<PAGE>

bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent. If
Goldman Sachs receives a redemption request by 3:00 p.m. Chicago time, the
Institutional Shares to be redeemed earn dividends with respect to the day the
request is received.

The Fund will arrange for the proceeds of redemptions effected by any means
to be wired as Federal Funds to the bank account designated in the
Institutional Shareholder's Account Information Form. Redemption proceeds will
normally be wired on the next Business Day in Federal Funds (for a total one-
day delay), but may be paid up to seven (7) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. In order to change the bank
designated on the Account Information Form to receive redemption proceeds, a
written request must be received by the Transfer Agent. This request must be
signature guaranteed as set forth above. Further documentation may be required
for executors, trustees or corporations. Once wire transfer instructions have
been given by Goldman Sachs, neither the Fund, the Trust nor Goldman Sachs
assumes any further responsibility for the performance of intermediaries or the
Institutional Shareholder's bank in the transfer process. If a problem with
such performance arises, the Institutional Shareholder should deal directly
with such intermediaries or bank.

Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.

Except with respect to Institutional Shareholders whose account balances are
less than $100, Institutional Shares are not redeemable at the option of the
Fund unless the Board of Trustees of the Trust determines in its sole
discretion that failure to so redeem may have material adverse consequences to
the shareholders of the Fund. The Fund, however, assumes no responsibility to
compel redemptions.

----------------

29
<PAGE>

APPENDIX A

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the Federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.

Any tax withheld may be credited against taxes owed on your federal income
tax return.

If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal Revenue
Service (IRS). Backup withholding could apply to payments relating to your
account while you are awaiting receipt of a TIN.

Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.

If you have been notified by the IRS that you are subject to backup
withholding because you failed to report your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.

If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.

If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid withholding on certain
payments. Other payments to you may be subject to nonresident alien withholding
of up to 30%.

For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.

A-1
<PAGE>

THIS ACCOUNT INFORMATION FORM SHOULD BE FORWARDED PROMPTLY TO GOLDMAN, SACHS &
CO.
NO REDEMPTION CAN BE MADE PRIOR TO ITS RECEIPT
GOLDMAN, SACHS & CO.--INSTITUTIONAL FUNDS
ACCOUNT INFORMATION FORM
-----------------------------
SEND TO: GOLDMAN, SACHS & CO. INSTITUTIONAL FUNDS MASTER NO. ________________
4900 SEARS TOWER FUND USE ONLY
CHICAGO, ILLINOIS 60606 -----------------------------
1-800-621-2550 DATE: _______________________

INITIAL INVESTMENT:

( ) GOLDMAN SACHS MONEY MARKET TRUST ( ) GS--ADJUSTABLE RATE GOVERNMENT AGENCY
Fill in Portfolio(s): FUND
( ) OTHER FUND (Please write name of ( ) GS--CORE FIXED INCOME FUND
Fund in the space provided ( ) GS--SHORT DURATION TAX-FREE FUND
below): ( ) GS--SHORT-TERM GOVERNMENT AGENCY FUND
( ) GS--GOVERNMENT AGENCY PORTFOLIO (FOR
________________________________ FINANCIAL INSTITUTIONS)

________________________________________________________________________________
A. ACCOUNT RECORD

_________________________________ __________________________________
NAME OF ACCOUNT TELEPHONE NUMBER

_________________________________
STREET OR P.O. BOX U.S. CITIZEN OR RESIDENT?
YES [_] NO [_]
_________________________________ IF NO IS CHECKED, FILL IN
CITY STATE ZIP COUNTRY OF TAX RESIDENCE:

_________________________________ _____________________________
ATTENTION
________________________________________________________________________________

B. DIVIDENDS AND DISTRIBUTIONS--CHECK APPROPRIATE BOX (SEE "DIVIDENDS")
1. DIVIDENDS (INCLUDING NET SHORT TERM [_] CASH [_] UNITS/SHARES
CAPITAL GAINS)--
2. NET LONG-TERM CAPITAL GAINS [_] CASH [_] UNITS/SHARES
DISTRIBUTIONS--
3. DIVIDENDS AND CAPITAL GAINS REINVESTED [_] UNITS/SHARES
IN ANOTHER GOLDMAN SACHS PORTFOLIO ACCOUNT:
(SEE PROSPECTUS REGARDING LIMITATIONS ON THIS PRIVILEGE.)

FUND NAME_________________________ ACCOUNT NUMBER__________________________
(IF NO BOX IS CHECKED, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS WILL BE
REINVESTED.)
________________________________________________________________________________
C. SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
TAXPAYER IDENTIFICATION NUMBER: _____________________________________________
UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) THE NUMBER SHOWN ON THIS FORM
IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER
TO BE ISSUED TO ME), AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE
I AM EXEMPT FROM BACKUP WITHHOLDING OR I HAVE NOT BEEN NOTIFIED BY THE
INTERNAL REVENUE SERVICE (IRS) THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. SEE THE
"GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER" ON ACCOUNT
INFORMATION FORM, CONTAINED IN THE APPENDIX TO THE ACCOMPANYING PROSPECTUS.

SIGNATURE DATE NAME (PRINT) AND TITLE (IF ANY)
SIGN
HERE ________________________________ ______________________________________

________________________________ ______________________________________
________________________________________________________________________________

D. OPTIONAL TELEPHONE EXCHANGE (SEE "EXCHANGE PRIVILEGE")
[_] GOLDMAN, SACHS & CO. IS HEREBY AUTHORIZED TO ACCEPT AND ACT UPON
TELEPHONE INSTRUCTIONS FROM THE UNDERSIGNED OR ANY OTHER PERSON FOR THE
EXCHANGE OF SHARES/UNITS OF THE FUND INTO ANY FUND DESCRIBED IN THE
ACCOMPANYING PROSPECTUS. THE UNDERSIGNED UNDERSTANDS AND AGREES THAT NEITHER
THE APPLICABLE FUND NOR GOLDMAN, SACHS & CO. WILL BE LIABLE FOR ANY LOSS,
EXPENSE, OR COST ARISING OUT OF ANY TELEPHONE REQUEST EFFECTED HEREUNDER.
<PAGE>

- --------------------------------------------------------------------------------

E. OPTIONAL REDEMPTION PLANS--CHECK APPROPRIATE BOX (SEE "REDEMPTION OF
UNITS/SHARES")
[_] 1. I AUTHORIZE GOLDMAN, SACHS & CO. TO HONOR TELEPHONE, TELEGRAPHIC, OR
OTHER INSTRUCTIONS WITHOUT SIGNATURE GUARANTEE, FROM ANY PERSON FOR THE
REDEMPTION OF SHARES FOR THE ABOVE ACCOUNT PROVIDED THAT THE PROCEEDS ARE
TRANSMITTED TO THE FOLLOWING BANK ACCOUNT(S) ONLY. I UNDERSTAND ANY CHANGES
TO THE FOLLOWING INFORMATION MUST BE MADE IN WRITING TO GOLDMAN, SACHS & CO.,
MUST CONTAIN THE APPROPRIATE NUMBER OF SIGNATURES LISTED BELOW AND ALL
SIGNATURES MUST BE SIGNATURE GUARANTEED. ABSENT ITS OWN GROSS NEGLIGENCE,
NEITHER THE APPLICABLE FUND NOR GOLDMAN, SACHS & CO. SHALL BE LIABLE FOR SUCH
REDEMPTIONS OR FOR PAYMENTS MADE TO ANY UNAUTHORIZED ACCOUNT.
OR
[_] 2. I HAVE FURNISHED GOLDMAN, SACHS & CO. WITH A SIGNATURE GUARANTEE (SEE
SECTION G). I AUTHORIZE GOLDMAN, SACHS & CO. TO HONOR TELEPHONE, TELEGRAPHIC,
OR OTHER INSTRUCTIONS, FROM ANY PERSON FOR THE REDEMPTION OF SHARES FOR THE
ABOVE ACCOUNT PROVIDED THAT THE PROCEEDS ARE TRANSMITTED TO THE FOLLOWING
BANK ACCOUNT(S) ONLY. ANY CHANGES TO THE FOLLOWING INFORMATION MUST BE MADE
IN WRITING TO GOLDMAN, SACHS & CO. (BUT WITHOUT SIGNATURE GUARANTEE) AND
CONTAIN THE APPROPRIATE NUMBER OF SIGNATURES LISTED BELOW. ABSENT ITS OWN
GROSS NEGLIGENCE, NEITHER THE APPLICABLE FUND NOR GOLDMAN, SACHS & CO. SHALL
BE LIABLE FOR SUCH REDEMPTIONS OR FOR PAYMENTS MADE TO ANY UNAUTHORIZED
ACCOUNT.

PLEASE COMPLETE THE FOLLOWING BANK ACCOUNT INFORMATION AND PLACE A LINE THROUGH
THE UNUSED PORTION. ADDITIONAL INSTRUCTIONS MAY BE ADDED ON SEPARATE PAGES, IF
NECESSARY.

- --------------------------------------------------------------------------------
BANK NAME BANK ROUTING NO.

- --------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP

- --------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NO.

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