GOLDMAN SACHS TRUST, 497, 1995-03-08

GOLDMAN SACHS TRUST
497, 1995-03-08

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<PAGE>

OAKMARK UNITS

GS SHORT DURATION TAX-FREE FUND

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

GS Short Duration Tax-Free Fund (the "Fund") is organized as a separate,
diversified portfolio of Goldman Sachs Trust (the "Trust"), a no-load open-
end, management investment company. This Prospectus relates to the offering of
Service Units of the Fund ("Oakmark Units") through Harris Associates, L.P.
("Harris Associates") in its capacity as a Service Organization for the Fund.

The Fund seeks to provide investors with a high level of current income,
consistent with relatively low volatility of principal, that is exempt from
regular federal income tax. The Fund will seek to achieve its objective
primarily through investments in fixed income municipal securities. All of
such securities will have remaining effective maturities of five years or
less. The Fund will maintain an average portfolio duration of two to three
years. The Fund's investments in municipal securities at the time of
investment will be rated at least A by Standard & Poor's Ratings Group
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's") or their
equivalent ratings or, if unrated by such rating organizations, determined by
the Fund's Investment Adviser to be of comparable credit quality. THE FUND'S
WEIGHTED AVERAGE PORTFOLIO MATURITY WILL, UNDER NORMAL CIRCUMSTANCES, BE
SIGNIFICANTLY LONGER THAN THE FUND'S AVERAGE PORTFOLIO DURATION OF TWO TO
THREE YEARS.

Goldman Sachs Asset Management, New York, New York, a separate operating
division of Goldman, Sachs & Co., serves as the Fund's investment adviser.
Goldman, Sachs & Co. serves as the Fund's distributor and transfer agent.
Harris Associates or its designee will act as nominee and recordholder of the
Oakmark Units. Investors should be aware that Oakmark Units of the Fund may be
purchased only through Harris Associates or its designee. Harris Associates is
not the distributor of the Fund. The Trust's custodian is State Street Bank
and Trust Company.

This Prospectus, which sets forth concisely information about the Trust and
the Fund that a prospective investor ought to know before investing in Oakmark
Units, should be retained for future reference. A Statement of Additional
Information (the "Additional Statement"), dated March 1, 1995, as amended or
supplemented from time to time, 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 by calling The Oakmark Funds at
1-800-OAKMARK (1-800-625-6275) or by writing The Oakmark Funds at Two North
LaSalle Street, Chicago, Illinois 60602.

SERVICE UNITS 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 SERVICE UNITS 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.

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

SUMMARY
INTRODUCTION
GS Short Duration Tax-Free Fund (the "Fund") is one fund in a family of funds
advised by Goldman Sachs Asset Management or its affiliates, Goldman Sachs
Funds Management, L.P. and Goldman Sachs Asset Management International. The
Fund is organized as a separate diversified portfolio of Goldman Sachs Trust
(the "Trust"), a no-load open-end, management investment company. This
Prospectus relates to the offering of Service Units ("Oakmark Units") of the
Fund through Harris Associates, L.P. ("Harris Associates") in its capacity as a
Service Organization for the Fund.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide investors with a high level of
current income, consistent with relatively low volatility of principal, that is
exempt from regular federal income tax. The Fund will seek to achieve its
objective primarily through investments in fixed income securities ("Tax-Free
Securities") issued by or on behalf of states, territories and possessions of
the United States (including the District of Columbia) and their political
subdivisions, agencies and instrumentalities, the interest on which is exempt
from regular federal income tax and is not an item of tax preference under the
federal alternative minimum tax. In addition, Tax-Free Securities include
certain participation interests and other securities described under "Municipal
Securities and Other Investments" the interest on which is exempt from such
taxes.

Under normal market conditions, the Fund will invest at least 80% of its net
assets in Tax-Free Securities. Although it does not expect to do so, the Fund
may invest up to 20% of its net assets in private activity bonds that may
subject certain investors to the federal alternative minimum tax. Tax-Free
Securities and private activity bonds are referred to herein as "Municipal
Securities." The Fund, although it is not expected to do so, may also invest up
to 20% of its net assets in taxable investments which are obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities and
repurchase agreements collateralized by U.S. Government securities ("Taxable
Investments"). Except as set forth below, at no time will the Fund's
investments in private activity bonds and Taxable Investments exceed, in the
aggregate, 20% of the Fund's net assets. For temporary defensive purposes, the
Fund may invest more than 20% of its net assets in Taxable Investments. The
Fund may generate capital gains that are taxable. See "Taxation."

The Fund will maintain an average portfolio duration, as defined under
"Investment Objectives and Policies," of two to three years. The individual
Municipal Securities in which the Fund invests will have remaining effective
maturities of five years or less. The effective maturity of a Municipal
Security, unlike its stated maturity, is the period remaining until the
principal can be recovered through a mandatory redemption provision or the
exercise of a put or demand feature by the holder of the Municipal Security or
the period until the next scheduled auction date for an auction rate Municipal
Security. Since the Fund uses duration as a criteria, there are no maximum
limitations as to average weighted portfolio maturity or permissible stated
maturity with respect to individual securities.

The Fund's investments in Municipal Securities at the time of investment will
be rated at least A by Standard & Poor's or Moody's or their equivalent ratings
or, if unrated by such rating organizations, determined by the Fund's
Investment Adviser to be of comparable credit quality.

2
<PAGE>

The Fund seeks to provide investors with a higher level of current income
than they could receive from a tax-exempt money market fund investment;
however, the Fund is not subject to the more stringent quality and maturity
limitations imposed on tax-exempt money market funds. Although the Fund's net
asset value per unit will fluctuate more than that of a money market fund,
which attempts to maintain a stable net asset value per unit, the Fund will
attempt to maintain limited fluctuation in net asset value per unit relative to
longer-term municipal bond funds, but is not expected to generate as high a
level of income as such funds. In periods of falling interest rates the Fund
may experience a lower total return than a longer-term, fixed rate municipal
bond fund; however, it is expected that the Fund will have less interest rate
risk and net asset value fluctuation than such funds, but more than those of a
money market fund. There can be no assurance that the Fund will achieve its
investment objective.

INVESTMENT ADVISER

Pursuant to an Investment Advisory Agreement, Goldman Sachs Asset Management
(the "Investment Adviser"), a separate operating division 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 0.40% of the Fund's average daily net assets. Goldman Sachs is
registered with the Securities and Exchange Commission (the "SEC") as an
investment adviser. See "Investment Adviser" and "Management -- Investment
Adviser."

PURCHASE AND REDEMPTION OF OAKMARK UNITS

The customer may purchase Oakmark Units of the Fund by check, by wire, by
electronic transfer or by exchange through State Street Bank and Trust Company
as agent for Harris Associates ("Oakmark"). There are no sales commissions or
underwriting discounts. The minimum initial investment is $2,500. Minimum
subsequent investments are $100, except for reinvestments of dividends and
capital gains distributions. See "How To Purchase Units." A unitholder may
redeem Oakmark Units on any Business Day at the net asset value determined on
the day of receipt of such request in proper form. See "How to Redeem Units."

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs serves as the distributor of units of the Trust pursuant to a
Distribution Agreement with the Trust. The distributor will assist in the sale
of units of the Fund upon the terms described herein. Goldman Sachs also serves
as the transfer agent of the Trust. See "Management -- Distributor and Transfer
Agent."

RISK FACTORS

The Fund's investments in Municipal Securities entail certain risks,
including adverse income and principal value fluctuation associated with
general economic conditions affecting the Municipal Securities markets, the
issuers and guarantors of Municipal Securities and the facilities financed by
Municipal Securities as well as adverse interest rate changes and volatility of
yields of short and intermediate term Municipal Securities. See "Risk Factors."
In addition, the Fund's yield will be subject to risks associated with
particular issues in which it invests, including potential defaults by issuers
and guarantors and the size and rating of an issue.

3
<PAGE>

While the Fund will seek to provide investors with a high level of current
income, consistent with low volatility of principal, that is exempt from
regular federal income tax, the Fund's current income and net asset value will
fluctuate. If the Fund invests in Taxable Investments, as permitted,
distributions of any income earned on such Taxable Investments will result in
taxable income to unitholders. If the Fund acquires Municipal Securities or
Taxable Investments at a market discount, distributions from accrued market
discount income will also be taxable to unitholders. If the Fund invests in
private activity bonds, distributions attributable to the interest on such
securities may be a tax preference item subject to the federal alternative
minimum tax. A reduction in federal income tax rates would reduce the tax
equivalent yield of the Fund and would tend to reduce the value of Municipal
Securities held in the Fund's portfolio. Conversely, an increase in federal
income tax rates would increase the taxable equivalent yield of the Fund. In
addition, changes in federal law adversely affecting the tax-exempt status of
income derived from Municipal Securities could significantly affect both the
supply of and demand for Municipal Securities, which in turn could affect the
Fund's ability to acquire and dispose of Municipal Securities at favorable
prices. Unitholders may be subject to state and local taxes on income received
from the Fund. Although over the long term it is expected that the volatility
of the Fund will be low in relation to longer-term bond funds, the inherent
volatility risk is such that, during any particular period, there may be a loss
of principal.

The Fund may engage in short-term trading to benefit from yield disparities
among different issues of Municipal Securities, to seek short-term profits
during periods of fluctuating interest rates or for other reasons. Such trading
will increase the Fund's portfolio turnover rate and may therefore increase the
incidence of short-term capital gains (distributions of which are taxable to
shareholders as ordinary income).

The Fund may enter into transactions in certain derivative instruments
including futures, options on futures, options on securities and securities
indices and interest rate swaps, floors, caps and collars. The Fund may enter
into these transactions for hedging purposes and to seek to increase total
return. The Fund's use of such investment practices and derivative instruments
involves certain risks. These include the risk of loss if the Investment
Adviser is incorrect in its expectation of fluctuations in securities prices or
interest rates in connection with transactions to increase total return. In
addition, in the case of hedging transactions, there may be a possible lack of
correlation between changes in the value of the hedging instruments and the
portfolio assets being hedged. The Fund could also be exposed to risk of loss
if it is unable to close out its derivative positions because of an illiquid
secondary market. Distributions of any net income or net realized capital gains
from such derivative transactions are taxable to shareholders.

CONFLICT 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

4
<PAGE>

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 an
economic a return of capital, a portion of which may nevertheless be taxable as
ordinary income. The Fund also intends that 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. Recordholders of
Oakmark Units will receive dividends in additional Oakmark Units or may elect
to receive cash. For further information concerning dividends, see "Dividends."

TAXATION

The Fund has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and it intends to continue to qualify for such treatment. The
Fund will distribute the tax-exempt interest it receives from Municipal
Securities as "exempt-interest dividends." As a regulated investment company,
the Fund will not be required to pay federal income tax on taxable and tax-
exempt income or capital gains that it distributes to its unitholders in
accordance with the timing requirements of the Code. Unitholders may treat the
exempt-interest dividends they receive from the Fund as interest exempt from
regular federal income tax, although a portion of such dividends may be subject
to the federal alternative minimum tax for some unitholders. Distributions from
the Fund's taxable income or capital gain, if any, generally will be taxable.
See "Taxation."

ADDITIONAL SERVICES

The Trust, on behalf of the Fund, has adopted a Service Plan with respect to
the Service Units of the Fund which authorizes the Fund to compensate Service
Organizations, including Harris Associates, for providing account
administration and unitholder liaison services to their customers who are the
beneficial owners of such Units. The Trust, on behalf of the Fund, will enter
into agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Units of the
Fund attributable to or held in the name of the Service Organization for its
customers. See "Additional Services."

FEES AND EXPENSES
(OAKMARK UNITS)*

<TABLE>
<S> <C>
UNITHOLDER 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..................................................... 0.40%
Service Fees........................................................ 0.50%**
Other Expenses (after expense limitation)........................... 0.05%***
----
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE LIMITATION)........... 0.95%***
====
</TABLE>

5
<PAGE>

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>
$10 $30 $53 $117
</TABLE>
- --------
* The information set forth in the foregoing table and hypothetical example
relates only to Oakmark Units. See "Units of the Trust." The Oakmark Units
are Service Units sold through Harris Associates. Institutional Units and
Administration Units of the Fund are subject to different fees and expenses.
Institutional Units are not subject to any administration or service fees.
Administration Units are subject to an administration fee of up to 0.25% of
average daily net assets. All other expenses related to Institutional Units
and Administration Units are the same as for Oakmark Units.

** Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Service Units in connection
with their customer accounts. See "Additional Services."

*** The Investment Adviser voluntarily agreed to reduce or limit certain "Other
Expenses" of the Fund (excluding advisory fees, payments to Service
Organizations, 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. If the
Investment Adviser had not agreed to reduce or otherwise limit certain
"Other Expenses" of the Fund, the Fund's other expenses and total operating
expenses attributable to Oakmark Units of the Fund would have been 0.21%
and 1.11%, respectively, on an annualized basis. The foregoing table and
example also reflect current operating expenses that will be applicable on
an ongoing basis. See "Management -- Investment Adviser."

The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of the Fund that an investor in the Fund will
bear directly or indirectly. The costs and expenses 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" and "Additional Services." Investors should be aware
that, due to the service fees, a long-term unitholder in the Fund may pay over
time more than the economic equivalent of the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.

6
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to Institutional Units, Administration Units
and Service Units 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 unitholders 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 either of the addresses on the inside cover of this Prospectus.

DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS TO SHAREHOLDERS FROM
------------------------------------------ -----------------------
TOTAL
NET ASSET NET REALIZED INCOME (LOSS) NET ASSET
VALUE AT NET AND UNREALIZED FROM NET NET REALIZED VALUE AT
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT GAIN ON END OF TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN(C)
--------- ---------- -------------- ------------- -------- ------------ --------- ---------
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994-
Institutional
shares.......... $10.23 $0.3787(a) $(0.3575)(a) $0.0212 (a) $(0.3787) $(0.0825) $9.79 0.17%
1994-Administration
shares.......... 10.23 0.3537(a) (0.3575)(a) (0.0038)(a) (0.3537) (0.0825) 9.79 (0.11)
1994-Service
shares (b)...... 9.86 0.0475(a) (0.0700)(a) (0.0225)(a) (0.0475) -- 9.79 (0.32)(d)
1993-
Institutional
shares.......... 9.93 0.3834 0.3000 0.6834 (0.3834) -- 10.23 7.03
1993-Administration
shares (b)...... 10.16 0.1555 0.0720 0.2275 (0.1555) -- 10.23 2.28 (d)
<CAPTION>
FOR THE PERIOD OCTOBER 1, 1992 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992-
Institutional
shares.......... 10.00 0.0341 (0.0700) (0.0359) (0.0341) -- 9.93 (0.34)(d)
<CAPTION>
RATIOS
ASSUMING NO WAIVER
OF ADVISORY FEES
OR EXPENSE LIMITATIONS
-------------------------
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT NET ASSETS RATIO OF INVESTMENT
EXPENSES TO INCOME TO PORTFOLIO AT END OF EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET TURNOVER PERIOD AVERAGE AVERAGE NET
ASSETS ASSETS RATIO (IN 000'S) NET ASSETS ASSETS
------------ ------------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994-
Institutional
shares.......... 0.45% 3.74% 354.00% $83,704 0.61% 3.58%
1994-Administration
shares.......... 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
shares (b)...... 0.95(e) 4.30(e) 354.00 44 1.11(e) 4.14(e)
1993-
Institutional
shares.......... 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administration
shares (b)...... 0.70(e) 3.32(e) 404.60 911 1.07(e) 2.95(e)
<CAPTION>
FOR THE PERIOD OCTOBER 1, 1992 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1992-
Institutional
shares.......... 0.05(e) 4.58(e) 31.19(d) 14,601 2.68(e) 1.95(e)
</TABLE>
- ----------
(a) Calculated based on the average shares outstanding methodology.
(b) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(c) 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.
(d) Not annualized.
(e) Annualized.

7
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide investors with a high level of
current income, consistent with relatively low volatility of principal, that is
exempt from regular federal income tax. The Fund will seek to achieve its
objective primarily through investments in fixed income securities ("Tax-Free
Securities") issued by or on behalf of states, territories and possessions of
the United States (including the District of Columbia) and their political
subdivisions, agencies and instrumentalities, the interest on which is exempt
from regular federal income tax and is not a tax preference item under the
federal alternative minimum tax. Tax-Free Securities are also defined to
include certain participation interests in such securities the interest on
which is, in the opinion of counsel, exempt from such taxes. In addition, the
definition of Tax-Free Securities includes general obligation and revenue bonds
and other obligations described under "Municipal Securities and Other
Investments."

The Fund's investments in Municipal Securities will at the time of investment
be rated at least A by Standard & Poor's or Moody's or their respective
equivalent ratings or, if unrated by such rating organizations, determined by
the Investment Adviser to be of comparable credit quality. A security will be
deemed to have met this requirement if it receives the minimum required rating
from at least one such rating organization even if it has been rated below the
minimum rating by one or more other rating organizations. The credit rating
assigned to Municipal Securities by these rating organizations or by the
Investment Adviser may reflect the existence of guarantees, letters of credit
or other credit enhancement features available to the issuers or holders of
such Municipal Securities.

Although the Fund is not expected to do so, the Fund may invest as much as
20% of its net assets in taxable investments, which are defined as obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
and repurchase agreements collateralized by U.S. Government securities
("Taxable Investments"). Except as set forth below, at no time will the Fund's
investments in private activity bonds and Taxable Investments exceed, in the
aggregate, 20% of the Fund's net assets. The Fund may for temporary defensive
purposes depart from its stated investment objective and invest more than 20%
of its net assets in Taxable Investments. The Fund's investments in Municipal
Securities and Taxable Investments may also generate taxable capital gains. See
"Taxation."

The individual Municipal Securities in which the Fund invests will have
effective maturities of five years or less. The effective maturity of a
Municipal Security is defined as the period remaining until the earliest date
when the Fund can recover the principal amount of such security through
mandatory redemption or prepayment by the issuer, the exercise by the Fund of a
put option, demand feature or tender option granted by the issuer or a third
party or the payment of the principal on the stated maturity date. The
effective maturity of an auction rate Municipal Security is defined as the
period remaining until the next scheduled auction date. Thus, the effective
maturity of a Municipal Security may be substantially shorter than its final
stated maturity.

The Fund will maintain an average portfolio duration in a range of two to
three years. The maturity of a security focuses on the time at which the final
payment is made. Maturity does not, however, take into account payments which
are made prior to the final payment, such as periodic coupon payments.

8
<PAGE>

Duration, on the other hand, takes into account all such interim payments by
measuring the value weighted average maturity of all principal and interest
payments over time. For this purpose, the maturity of principal payments will
be determined in the same manner as the effective maturity of individual
Municipal Securities. The duration of the Fund's portfolio will be shortened by
the acquisition of Municipal Securities at a premium, the sale of futures
contracts and investments in variable and floating rate securities, auction
rate securities, tender option bonds, participations and other Municipal
Securities that are subject to put, demand, tender, auction or mandatory
redemption features and pre-refunded Municipal Securities. The duration of the
Fund's portfolio will be lengthened by the acquisition of Municipal Securities
at a discount, the purchase of futures contracts and the purchase of when-
issued or forward commitment securities, zero coupon, deferred interest and
capital appreciation bonds and inverse floating rate instruments. Since the
Fund uses duration as a criterion, there are no maximum limitations as to
average weighted portfolio maturity or permissible stated maturity with respect
to individual securities.

Within this context, duration is a significant indicator of the sensitivity
of the Fund's net asset value to changes in market interest rates. However, the
computation of duration involves a greater degree of judgment and less
certainty than the computation of weighted average portfolio maturity based on
the stated maturities of portfolio investments. The Fund's weighted average
portfolio maturity will, under normal circumstances, be significantly longer
than the Fund's average portfolio duration of two to three years.

Except as otherwise stated under "Investment Restrictions," and except for
the Fund's policy to invest under normal market conditions, 80% of its net
assets in Tax-Free Securities, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of unitholders. If there is a
change in the Fund's investment objective, unitholders should consider whether
the Fund remains an appropriate investment in light of their then current
financial positions and needs. There can be no assurance that the Fund will
achieve its investment objective.

INVESTMENT ADVISER

The Fund's investment adviser is Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs. The management services provided by the
Investment Adviser are subject to the general supervisor 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, 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'
research analysts, economists and portfolio strategists are available to the
Investment Adviser.

9
<PAGE>

MUNICIPAL SECURITIES AND OTHER INVESTMENTS

MUNICIPAL SECURITIES

Municipal Securities consist of bonds, notes and other instruments issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agencies
or instrumentalities, the interest on which is, in the opinion of bond counsel
for the issuers or counsel selected by the Investment Adviser, is exempt from
regular federal income tax (i.e., excluded from gross income for federal income
tax purposes but not necessarily exempt from the federal alternative minimum
tax or from state or local taxes). In addition, Municipal Securities include
participation interests in such securities the interest on which is, in the
opinion of bond counsel for the issuers or counsel selected by the Investment
Adviser, exempt from regular federal income tax. The definition of Municipal
Securities includes other types of securities that currently exist or may be
developed in the future and that pay interest that is, or will be, in the
opinion of counsel, as described above, exempt from regular federal income tax,
provided that investing in such securities is consistent with the Fund's
investment objective and policies. The Fund will reflect any such change in its
definition of Municipal Securities in its Prospectus.

Municipal Securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which Municipal Securities
may be issued include refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal Securities also include "private
activity" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately-operated housing facilities,
airport, mass transit or port facilities, sewage disposal, solid waste disposal
or hazardous waste treatment or disposal facilities and certain local
facilities for water supply, gas or electricity. In addition, proceeds of
certain industrial development bonds are used for constructing, equipping,
repairing or improving privately operated industrial or commercial facilities.
The interest income from private activity bonds may subject certain investors
to the federal alternative minimum tax.

The two principal classifications of Municipal Securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest, although the characteristics and enforcement of general obligations
may vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer, and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer of a
revenue obligation may be backed by a letter of credit, guarantee or insurance.
General obligations and revenue obligations may be issued in a variety of
forms, including commercial paper, variable and floating rate securities,
tender option bonds, auction rate bonds, zero coupon, deferred interest and
capital appreciation bonds.

MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. The Fund may invest in
municipal leases and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or installment purchase
which is issued by a state or local government to acquire equipment and

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facilities. Interest income from such obligations is generally exempt from
state and local taxes in the state of issuance. Municipal leases frequently
involve special risks not normally associated with general obligations or
revenue bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that relieve the governmental issuer of any
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject
to the temporary abatement of payments in the event the issuer is prevented
from maintaining occupancy of the leased premises or utilizing the leased
equipment. Although the obligations may be secured by the leased equipment or
facilities, the disposition of the property in the event of nonappropriation or
foreclosure might prove difficult, time consuming and costly, and result in an
unsatisfactory or delayed recoupment of the Fund's original investment.

Certificates of participation represent undivided interests in municipal
leases, installment purchase agreements or other instruments. The certificates
are typically issued by a trust or other entity which has received an
assignment of the payments to be made by the state or political subdivision
under such leases or installment purchase agreements.

Certain municipal lease obligations and certificates of participation may be
deemed illiquid for the purpose of the Fund's 15% limitation on investments in
illiquid securities. Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the Investment Adviser,
pursuant to guidelines adopted by the Trustees of the Trust, to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and certificates of participation, the Investment
Adviser will consider a variety of factors including: (1) the willingness of
dealers to bid for the security; (2) the number of dealers willing to purchase
or sell the obligation and the number of other potential buyers; (3) the
frequency of trades or quotes for the obligation; and (4) the nature of the
marketplace trades. In addition, the Investment Adviser will consider factors
unique to particular lease obligations and certificates of participation
affecting the marketability thereof. These include the general creditworthiness
of the issuer, the importance of the property covered by the lease to the
issuer and the likelihood that the marketability of the obligation will be
maintained throughout the time the obligation is held by the Fund.

The Fund may also purchase participations in Municipal Securities held by a
commercial bank or other financial institution. Such participations provide the
Fund with the right to a pro rata undivided interest in the underlying
Municipal Securities. In addition, such participations generally provide the
Fund with the right to demand payment, on not more than seven days notice, of
all or any part of the Fund's participation interest in the underlying
Municipal Security, plus accrued interest. These demand features will be taken
into consideration in determining the effective maturity of such participations
and the average portfolio duration of the Fund. The Fund will only invest in
such participations if, in the opinion of bond counsel for the issuers or
counsel selected by the Investment Adviser, the interest from such
participations is exempt from regular federal income tax.

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MUNICIPAL NOTES. The Fund may invest in municipal notes. Municipal Securities
in the form of notes generally are used to provide for short-term capital needs
in anticipation of an issuer's receipt of other revenues or financing, and
typically have maturities of up to three years. Such instruments may include
Tax Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Tax and Revenue Anticipation Notes and Construction Loan Notes. Tax
Anticipation Notes are issued to finance the working capital needs of
governments. Generally, they are issued in anticipation of various tax
revenues, such as income, sales, property, use and business taxes, and are
payable from these specific future taxes. Revenue Anticipation Notes are issued
in expectation of receipt of other kinds of revenue, such as federal revenues
available under Federal Revenue Sharing programs. Bond Anticipation Notes are
issued to provide interim financing until long-term bond financing can be
arranged. In most cases, the long-term bonds then provide the funds needed for
repayment of the Notes. Tax and Revenue Anticipation Notes combine the funding
sources of both Tax Anticipation Notes and Revenue Anticipation Notes.
Construction Loan Notes are sold to provide construction financing. These notes
are secured by mortgage notes insured by the Federal Housing Authority;
however, the proceeds from the issuance may be less than the economic
equivalent of the payment of principal and interest on the mortgage note if
there has been a default. The obligations of an issuer of municipal notes are
generally secured by the anticipated revenues from taxes, grants or bond
financing. An investment in such instruments, however, presents a risk that the
anticipated revenues will not be received or that such revenues will be
insufficient to satisfy the issuer's payment obligations under the notes or
that refinancing will be otherwise unavailable.

TAX-EXEMPT COMMERCIAL PAPER. The Fund may invest in tax-exempt commercial
paper. Commercial paper is a type of short-term, unsecured, negotiable
promissory note. These obligations are issued by state and local governments
and their agencies to finance working capital needs of municipalities or to
provide interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, tax-exempt
commercial paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions.

PRE-REFUNDED MUNICIPAL SECURITIES. The Fund may invest in pre-refunded
Municipal Securities. The principal of and interest on pre-refunded Municipal
Securities are no longer paid from the original revenue source for such
securities. Instead, the source of such payments is typically an escrow fund
consisting of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The assets in the escrow fund are derived from
the proceeds of refunding bonds issued by the same issuer as the pre-refunded
Municipal Securities, but usually on terms more favorable to the issuer.
Issuers of Municipal Securities use this advance refunding technique to obtain
more favorable terms with respect to Municipal Securities that are not yet
subject to call or redemption by the issuer. For example, advance refunding
enables an issuer to refinance debt at lower market interest rates, restructure
debt to improve cash flow or eliminate restrictive covenants in the indenture
or other governing instrument for the pre-refunded Municipal Securities.
However, except for a change in the revenue source from which principal and
interest payments are made, the pre-refunded Municipal Securities remain
outstanding on their original terms until they mature or are redeemed by the
issuer. The effective maturity of pre-refunded Municipal Securities will be the
redemption date if the issuer has assumed an obligation or indicated its
intention to redeem such securities on the redemption date. Pre-refunded
Municipal Securities are usually purchased at a price which represents a
premium over their face value.

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VARIABLE AND FLOATING RATE SECURITIES. The interest rates payable on certain
securities in which the Fund may invest, which generally are expected to be
revenue obligations, are not fixed and may fluctuate based upon changes in
market rates. A variable rate obligation has an interest rate which is
adjusted at predesignated periods in response to changes in the market rate of
interest on which the obligation's interest rate is based. Unlike fixed rate
instruments, variable and floating rate obligations do not lock in a
particular yield in a changing interest rate environment. Nevertheless, such
obligations may fluctuate in value in response to interest rate changes if a
change in market interest rates does not coincide with the interest reset date
for an obligation. Variable or floating rate obligations generally permit the
holders of such obligations to demand payment of principal from the issuer or
a third party at any time or at stated intervals. The Fund will take demand
features into consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual Municipal Securities. In
addition, the absence of an unconditional demand feature exercisable within
seven days, and the failure of the issuer or a third party to honor its
obligations under a demand or put feature will, require a variable or floating
rate obligation to be treated as illiquid for purposes of the Fund's 15%
limitation on illiquid investments.

TENDER OPTION BONDS. The Fund may invest in tender option bonds. A tender
option bond is a Municipal Security (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax-exempt rates. The
bond is typically issued in conjunction with the agreement of a third party,
such as a bank, broker-dealer or other financial institution which grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal
to the difference between the bond's fixed coupon rate and the rate, as
determined by a remarketing or similar agent at or near the commencement of
such period, that would cause the securities, coupled with the tender option,
to trade at par on the date of such determination. Thus, after payment of this
fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term tax-exempt rate. However, an institution
will not be obligated to accept tendered bonds in the event of certain
defaults or a significant downgrading in the credit rating assigned to the
issuer of the bond. Although the Fund intends to invest in tender option bonds
the interest on which will, in the opinion of bond counsel for the issuer of
interests therein or counsel selected by the Investment Adviser, be exempt
from regular federal income tax, there is a risk that the Fund will not be
considered the owner of such tender option bonds and thus will not be entitled
to treat such interest as exempt from such tax.

AUCTION RATE SECURITIES. The Fund may invest in auction rate securities.
Provided that the auction mechanism is successful, auction rate securities
permit the holder to sell the securities in an auction at par value at
specified intervals. The dividend or interest rate is reset by "Dutch" auction
in which bids are made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The rate set by the auction
is the lowest interest or dividend rate that covers all securities offered for
sale. While this process is designed to permit auction rate securities to be
traded at par value, there is the risk that an auction will fail due to
insufficient demand for the securities. The Fund will take the next scheduled
auction date of auction rate securities into consideration in determining the
average portfolio maturity of the Fund.

ZERO COUPON, DEFERRED INTEREST AND CAPITAL APPRECIATION BONDS. The Fund may
invest in zero coupon, deferred interest and capital appreciation bonds. Zero
coupon, deferred interest and capital

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<PAGE>

appreciation bonds are debt securities issued or sold at a discount from their
face value that do not entitle the holder to any payment of interest prior to
maturity or a specified commencement or redemption date (or cash payment date).
The amount of the discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, the liquidity of the
security and the perceived credit quality of the issuer. These securities also
may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves or receipts or certificates
representing interests in such stripped debt obligations or coupons. A portion
of the discount with respect to stripped tax-exempt securities or their coupons
may be taxable. The market prices of zero coupon, deferred interest and capital
appreciation bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. The Fund's investments in zero coupon, deferred
interest and capital appreciation bonds or 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.

INSURED BONDS. The Fund may invest in "insured" Municipal Securities. Insured
Municipal Securities are those for which scheduled payments of interest and
principal are guaranteed by a private (nongovernmental) insurance company. The
insurance only entitles the Fund to receive the face or par value of the
securities held by the Fund. The insurance does not guarantee the market value
of the Municipal Securities or the value of the units of the Fund.

INVERSE FLOATING RATE INSTRUMENTS. The Fund may invest in "leveraged" inverse
floating rate debt instruments ("inverse floaters"). Investments in inverse
floaters will not exceed 25% of the Fund's net assets. 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 the degree of leverage of an inverse floater the greater
the volatility of its market value.

OTHER INVESTMENTS AND PRACTICES

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 contracts to purchase securities for a fixed
price at a future date beyond the 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 will 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.

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<PAGE>

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 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 the value of
its net assets in securities which are illiquid, including repurchase
agreements providing for settlement in more than seven days after notice,
interest rate swaps, caps, floors and collars, certain over-the-counter
options, certain municipal leases and participations in Municipal Securities
which do not include a right to demand payment of the Fund's interest in the
underlying Municipal Securities and securities offered in the United States
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 in accordance with 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 limitations described
above, the Fund may acquire Municipal Securities or illiquid 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 investment in these
securities, focusing on such important factors, among other, 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.

INTEREST RATE SWAPS, CAPS, FLOORS AND COLLARS

The Fund may enter into interest rate swaps for hedging purposes and to
increase total return. The Fund may also enter into other types of interest
rate swap agreements 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, such as an exchange of fixed rate
payments for floating rate payments. 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

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<PAGE>

that a specified index falls below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling the
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, 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 or collar positions
entered into for hedging purposes.

The Fund will enter into interest rate 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. The Fund will
maintain in a segregated account with the Fund's custodian cash and liquid high
grade debt securities equal to the net amount, if any, of the excess of the
Fund's obligations over its entitlements with respect to swap transactions.
Interest rate swaps do not involve the delivery of securities, other underlying
assets or principal. Accordingly, the risk of loss with respect to interest
rate swaps is limited to the net amount of interest payments that the Fund is
contractually obligated to make. If the other party to an interest rate swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. To the extent that
the net amount of an interest rate swap is held in a segregated account
consisting of cash and liquid, high grade debt securities, the Fund and the
Investment Adviser believe that interest rate swaps do not constitute senior
securities under the Investment Company 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, 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 or Aa or P-1 or better by Moody's or, if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser.

The use of interest rate swaps, 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 currently takes the position that swaps, caps, floors and collars are
illiquid and thus subject to the Fund's 15% limitation on illiquid securities.

OPTIONS ON SECURITIES AND SECURITIES INDICES

WRITING COVERED OPTIONS. The Fund may write (sell) covered call and put
options on any securities in which it may invest. All call options written by
the Fund are covered, which means that the Fund will own the securities subject
to the option so long as the option is outstanding. All put options written by
the Fund are covered, which means that the Fund would have deposited with its
custodian cash and liquid, high grade debt securities with a value equal to the
exercise price of the put option. Call and put options written by the Fund will
also be considered to be covered to the extent that the Fund's liabilities
under such options are wholly or partially offset by its rights under call and
put options

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<PAGE>

purchased by the Fund. The Fund may also write call and put options on a
securities index composed of securities in which it may invest. In addition,
the Fund may purchase put and call options on any securities in which it may
invest or options on any securities index composed of securities in which it
may invest.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options 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. The
successful use of puts for hedging purposes depends in part on the ability of
the Investment Adviser to predict future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its determination of the correlation between the
securities or indices on which the options are written and purchased and the
securities in the Fund's investment portfolio, the investment performance of
the Fund will be less favorable than it would have been in the absence of such
option transactions. The writing of options could significantly increase the
Fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads.

FUTURES CONTRACTS AND RELATED OPTIONS. 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 may also enter
into closing purchase and sale transactions with respect to any of such
contracts or options. The futures contracts may be based on various securities
(such as U.S. Government securities), securities indices and other financial
instruments and indices. The Fund will engage in futures or related option
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 Related Options" in
the Additional Statement. Thus, while the Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates 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.

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

17
<PAGE>

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 Code for qualification as
a regulated investment company.

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 certain 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.

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 any 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.

RISK FACTORS

An investment in the Fund presents certain risk factors, in addition to
those described above, including the following:

NET ASSET VALUE VOLATILITY. The net asset value of the Fund's units will
change with changes in the value of its portfolio securities. Because, under
normal market conditions, the Fund invests primarily in fixed income Municipal
Securities, the net asset value of the units of the Fund can be expected to

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<PAGE>

change as general levels of interest rates fluctuate. Volatility may be greater
during periods of general economic uncertainty and interest rate fluctuation.
The volatility of Municipal Securities may differ from that of other fixed
income securities.

YIELDS AND MARKET VALUES OF MUNICIPAL SECURITIES. The yields and market
values of Municipal Securities are determined primarily by the general level of
interest rates, the supply of and demand for Municipal Securities, the
creditworthiness of the issuers of Municipal Securities and economic and
political conditions affecting such issuers. Due to their tax-exempt status,
the yields and market values of Municipal Securities may be adversely affected
by certain factors, such as changes in tax rates and policies, which may have
less of an effect on the taxable fixed income markets. In addition, the yields
of short or intermediate term Municipal Securities are generally more volatile
than the yields of longer term Municipal Securities. Moreover, certain types of
Municipal Securities, such as housing revenue bonds, which are based on
mortgage revenues, involve prepayment risks which could affect the yields of
such Municipal Securities.

When interest rates decline, the value of a portfolio of Municipal Securities
(with the exception of variable and floating rate securities) can be expected
to rise. Conversely, when interest rates rise, the value of a portfolio of
Municipal Securities can be expected to decline. In general, the yields on
short and intermediate term Municipal Securities are lower than the yields on
long term Municipal Securities. Because of the shorter maturities of short and
intermediate term Municipal Securities, however, the market values of such
Municipal Securities can be expected to fluctuate to a lesser extent as a
result of changes in interest rates. Nevertheless, a sudden and extreme
increase in interest rates may cause a decline in the Fund's net asset value,
while a sudden and extreme decline in interest rates could result in an
increase in the Fund's net asset value.

The ability of the Fund to achieve its investment objective will therefore
depend in part on the extent to which the Fund is able to anticipate and
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. While short or intermediate term
Municipal Securities are generally less susceptible to fluctuations in value as
a result of changes in interest rates (as compared to longer term Municipal
Securities), certain types of instruments in which the Fund will invest, such
as zero coupon bonds, deferred interest and capital appreciation bonds, are
more susceptible to fluctuations as a result of movements in interest rates. As
a result, a sudden and extreme rise in interest rates could result in a
substantial decline in the value of such portfolio securities. The ability of
the Fund to achieve, in accordance with its investment objective, relatively
low volatility of principal therefore depends in part on the extent to which
the Fund is able to anticipate and respond to fluctuations in market interest
rates and to utilize appropriate strategies to maximize returns to the Fund.

DEFAULT RISK. Investments in Municipal Securities, including both general
obligations and revenue obligations, are subject to the risk that the issuer
could default on its obligations, and the Fund could sustain losses on such
investments. Such a default could result from the inadequacy of the sources or
revenues from which interest and principal payments are to be made or the
assets collateralizing such obligations. Revenue obligations, including private
activity bonds, municipal leases, certificates of participation and certain
other types of instruments in which the Fund may invest, are backed only by
specific assets or revenue sources and not by the full faith and credit of the
governmental issuer.

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TAX CONSEQUENCES. While the Fund will, under normal market conditions, invest
substantially all of its assets in Municipal Securities, the recognition of
accrued market discount income (if the Fund acquires Municipal Securities or
other obligations at a market discount) and income and/or capital gains from
certain types of instruments in which the Fund is permitted to invest,
including U.S. Government securities, options and futures contracts and related
options, interest rate swaps, caps, floors and collars, securities loans, the
disposition of when-issued securities or forward commitments prior to
settlement and repurchase agreements, will result in taxable income,
distributions of which will be taxable to unitholders. In addition, the Fund's
investments in private activity bonds subject to the federal alternative
minimum tax could result in income the distribution of which could cause or
increase alternative minimum tax liability for some unitholders. The Fund may
also generate capital gains from the disposition of its investments and its
distributions of such capital gains will be taxable to unitholders. Unitholders
may be subject to state, local or foreign taxes on certain income received from
the Fund. See "Taxation."

Because interest income from Municipal Securities is not subject to regular
federal income taxation, the attractiveness of Municipal Securities in relation
to other investment alternatives will be affected by any changes in federal
income tax rates applicable to, or the continuing federal income tax-exempt
status of, such interest income. Any proposed or actual changes in such rates
or exempt status, therefore, can significantly affect both the supply of and
demand for Municipal Securities, which could in turn affect the Fund's ability
to acquire and dispose of Municipal Securities at desirable yield and price
levels.

CALL RISK AND REINVESTMENT RISK. The Municipal Securities in which the Fund
will invest may include "call" provisions which permit the issuers of such
securities, at any time or after a specified period, to redeem the securities
prior to their stated maturity. In the event that Municipal Securities held in
the Fund's portfolio are called prior to maturity, the Fund will be required to
reinvest the proceeds received on such securities at an earlier date and may be
able to do so only at lower yields, thereby reducing the Fund's return on its
portfolio securities. There is a risk that the proceeds of housing revenue
bonds will be in excess of demand for mortgages which would result in early
retirement of the bonds by the issuer. Moreover, such housing revenue bonds
depend for their repayment upon the cash flow from the underlying mortgages,
which cannot be precisely predicted when the bonds are issued. Any difference
in the actual cash flow from such mortgages from the assumed cash flow could
have an adverse impact upon the ability of the issuer to make scheduled
payments of principal and interest on the bonds, or could result in early
retirement of the bonds.

COUNTERPARTY CREDIT RISK. When the Fund enters into certain transactions,
including repurchase agreements, stand-by commitments (described in the
Additional Statement) over-the-counter options, interest rate swaps, caps,
floors and collars and securities lending transactions, it assumes the risk
that its counterparty will default on its obligations to the Fund, which could
result in losses.

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

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<PAGE>

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 units of the
Fund. Among other restrictions, the Fund may not, with respect to 75% of its
total assets, purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if more than 5% of its total assets would be invested in such issuer. Less than
25% of the Fund's total assets may be invested in the securities of issuers in
any one industry. For the purposes of this restriction, state and municipal
governments and their agencies and instrumentalities are not deemed to be
industries with respect to tax-exempt securities of these issuers. Thus, the
Fund may invest 25% or more of the value of its total assets in Municipal
Securities which are related in such a way that an economic, business or
political development or change affecting one Municipal Security would also
affect the other Municipal Securities. For example, the Fund may so invest in
(a) Municipal Securities the interest on which is paid solely from revenues of
similar projects such as hospitals, electric utility systems, multi-family
housing, nursing homes, commercial facilities (including hotels), steel
companies or life care facilities, (b) Municipal Securities whose issuers are
in the same state, or (c) industrial development obligations. The Fund may not
borrow money, except from banks for temporary or short-term purposes, in
connection with redemptions and failed settlements and to finance certain
additional purchases of securities, provided that the Fund maintains asset
coverage of 300% for all such borrowings. As a matter of non-fundamental
policy, the Fund may not purchase securities while such borrowings exceeds 5%
of the value of the Fund's assets.

PORTFOLIO TURNOVER

The Fund may engage in active short-term trading to benefit from yield
disparities among different issues of Municipal Securities, to seek short-term
profits during periods of fluctuating interest rates or for other reasons. Such
trading will increase the Fund's portfolio turnover rate and may therefore
increase the incidence of short-term capital gain (distributions of which are
taxable to unitholders as ordinary income). A high rate of portfolio turnover
(100% or higher) involves correspondingly greater expenses which must be borne
by the Fund and its unitholders and may under certain circumstances make it
more difficult for the Fund to qualify as a regulated investment company under
the Internal Revenue Code. The portfolio turnover rate is calculated by
dividing the lesser of the dollar amount of sales or purchases of portfolio
securities by the average monthly value of the Fund's portfolio securities,
excluding securities having a maturity at the date of purchase of one year or
less.

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.

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<PAGE>

INVESTMENT ADVISER

Goldman Sachs Asset Management, One New York Plaza, New York, New York 10004,
a separate operating division of Goldman Sachs, acts as the investment adviser
of the Fund. Goldman Sachs was registered as an investment adviser in 1981. 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 Asset
Management, 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 Mark Muller and Theodore T. Sotir. Mr.
Muller joined Goldman Sachs Asset Management in 1991 and is currently a Vice
President. Prior to 1991, he was a senior portfolio manager for Van Kampen
Merritt Investment Advisory Corporation, where he was responsible for actively
managing a wide variety of municipal securities portfolios. Mr. Sotir helps
with overall portfolio strategy and is a member of the risk control team. Mr.
Sotir joined Goldman Sachs Asset Management 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 0.40% 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
equal on an annual basis to 0.40% of the Fund's average daily net assets.

The Investment Adviser has voluntarily agreed 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 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 and 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

22
<PAGE>

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 units. Goldman Sachs, 4900 Sears Tower, Chicago,
Illinois, also serves as the Fund's transfer agent (the "Transfer Agent").
Unitholders 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
inside front cover page of this Prospectus.

DIVIDENDS

The Fund intends to declare a daily dividend determined with the objective of
distributing the majority of net investment income while enhancing the
stability of principal. Such dividend will accrue to unitholders of record as
of 4:00 p.m. eastern time, and will be paid to Harris Associates monthly for
distribution to unitholders of Oakmark Units. 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 an economic return of capital, a portion of which may
nevertheless be taxable as ordinary income. 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,
realized capital losses including any available capital loss carryovers from
prior years will be offset against capital gains realized.

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 4:00 p.m. eastern
time. On days on which net asset value is not calculated, such determination is
made as of 4:00 p.m. eastern time.

Payment of dividends from net investment income will be made on the last
calendar day of each month in additional Oakmark Units 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 Oakmark Units of the Fund at the net asset value on the payment
date, unless cash distributions are

23
<PAGE>

elected. This election to receive dividends in cash is initially made on the
New Account Purchase Application and may be changed upon written notice to
Oakmark 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 units of the Fund a portion of the
net asset value per unit may be represented by undistributed income of the Fund
or unrealized appreciation of the Fund's portfolio securities. Therefore,
subsequent distributions (or portions thereof) of taxable income or realized
appreciation on such units may be taxable to the investor even if the net asset
value of the units is, as a result of the distributions, reduced below the
costs of such units and the distributions (or portions thereof) represent a
return of a portion of the purchase price.

NET ASSET VALUE

The net asset value per unit is calculated by the Fund's custodian as of the
close of regular trading on the New York Stock Exchange (4:00 p.m. eastern
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 unit of each class is calculated by
determining the net assets attributable to each class and dividing by the
number of outstanding units of that class.

Portfolio securities are valued based on market quotations or, if accurate
quotations are not readily available, at fair value as determined in good faith
under procedures established by the Trust's Board of Trustees.

PERFORMANCE INFORMATION

From time to time the Fund may publish yield, tax equivalent yield and
average annual total return in advertisements and communications to unitholders
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 units
outstanding and entitled to receive dividends during the period and the net
asset value per unit 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 unit 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.

Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Fund's tax-free yield. Tax equivalent yield is
calculated by dividing the Fund's tax-exempt yield by one minus a stated
federal and/or state tax rate.

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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 a 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
unitholder reports, the Fund may, in its discretion, from time to time make a
list of its holdings available to investors upon request.

Yield, total return and distribution rate will be calculated separately for
each class of units in existence. Because each class of units may be subject to
different expenses, the yield, total return and distribution rate calculations
with respect to each class of units 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 Units
will always be higher than that of the Oakmark Units and the Administration
Units and the investment performance of the Administration Units will always be
higher than that of the Oakmark Units. See "Units of the Trust" below.

UNITS 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 units of beneficial interest, $.001
par value per unit. 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 units of beneficial
interest in separate series, without further action by unitholders. As of the
date of this Prospectus, the Trustees have authorized units 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 units into
one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of three classes of the Fund. These classes are: Institutional Units,
Administration Units and Service Units. As of October 31, 1994, no Service
Units of the Fund were outstanding. The Oakmark Units are Service Units.

Each Institutional Unit, Administration Unit and Service Unit 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 account administration and service fees
relating to a particular class will be borne exclusively by that class. It is
contemplated that most Administration Units and Service Units will be held in
accounts of which the record owner is a bank

25
<PAGE>

or other institution acting, directly or through an agent, as nominee for its
customers who are the beneficial owners of the units or another organization
designated by such bank or institution. Administration Units and Service Units
will each be marketed only to such institutional investors, at net asset value
with no sales load. Institutional Units 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 Units 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 Units. Administration Units 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 Units. Service Units may be purchased for
accounts held in the name of an institution that provides certain account
administration and unitholder liaison services to its customers, including
maintenance of account records and processing orders to purchase, redeem or
exchange Service Units, responding to customer inquiries and assisting
customers with investment procedures. Service Units bear the cost of service
fees at the annual rate of up to 0.50% of the average daily net assets of such
Service Units. (Institutions, such as Harris Associates, that provide services
to holders of Administration or Service Units are referred to in this
Prospectus as "Service Organizations").

It is possible that an institution or its affiliate may offer different
classes of units (i.e., Institutional, Administration and Service Units) to its
customers and thus receive different compensation with respect to different
classes of units of the Fund. Administration Units and Service Units may each
have certain exclusive voting rights on matters relating to their respective
plans. Units of each class may be exchanged only for units 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 units will be calculated in the same manner, at
the same time and on the same day and will be in the same amount, except for
differences caused by the fact that the respective account administration and
service fees relating to a particular class will be borne exclusively by that
class. Similarly, the net asset value per unit will vary depending on the class
of units purchased. Certain aspects of the units may be altered, after advance
notice to unitholders, if it is deemed necessary in order to satisfy certain
tax regulatory requirements.

When issued, units are fully paid and non-assessable. In the event of
liquidation, unitholders are entitled to share pro rata in the net assets of
the Fund available for distribution to such unitholders. All units entitle
their holders to one vote per unit, are freely transferable and have no
preemptive, subscription or appraisal rights. In the interest of economy and
convenience, the Trust does not issue unit certificates.

As of February 17, 1995, MGIC, Attn: James A. McGinnis, P.O. Box 297,
Milwaukee, WI 53201 owned beneficially and of record (28.85%) of the Fund.

Under Massachusetts law, there is a remote possibility that unitholders 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 unitholder charged or held personally liable for
obligations or liabilities of the Trust solely by reason of being or having
been a unitholder of the Trust and not because of such unitholder's acts or
omissions or for some other reason. Thus, the risk of a unitholder incurring
financial loss on account of unitholder 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 unitholders. As a result, unitholders may
not consider each year the election of Trustees or

26
<PAGE>

the appointment of independent accountants. Unitholders may remove a Trustee by
the affirmative vote of at least two-thirds of the Trust's outstanding units
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 units of the Trust. Unitholders may, under certain circumstances,
communicate with other unitholders in connection with requesting a special
meeting of unitholders. 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 unitholders.

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 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 unitholders. 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 unitholders in accordance with certain timing
requirements of the Code.

The Fund intends to qualify to pay "exempt-interest dividends," as defined in
the Code. If it so qualifies, dividends paid by the Fund which are attributable
to interest on Municipal Securities and designated by the Fund as exempt-
interest dividends in a written notice mailed to the Fund unitholders within
sixty days after the close of its taxable year may be treated by unitholders
for all purposes as items of interest excludable from their gross income under
Section 103(a) of the Code. The recipient of tax-exempt income is required to
report such income on his federal income tax return. However, a unitholder is
advised to consult his tax adviser with respect to whether exempt-interest
dividends retain the exclusion under Section 103(a) if such unitholder would be
treated as a "substantial user" under Section 147(a)(1) with respect to some or
all of the tax-exempt obligations held by the Fund. The Code provides that
interest on indebtedness incurred or continued to purchase or carry units of
the Fund is not deductible to the extent attributable to exempt-interest
dividends.

Dividends paid by the Fund from any taxable net investment income, the excess
of net short-term capital gain over net long-term capital loss and taxable
original issue discount or market discount income will be taxable to
unitholders 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 unitholders have held their
units. These tax consequences will apply regardless of whether distributions
are received in cash or reinvested in units. Certain distributions paid by the
Fund in January of a given year may be taxable to unitholders as if received
the prior December 31. Unitholders will be informed annually about the amount
and character of distributions received from the Fund for federal income tax
purposes, including any distributions that may constitute a tax preference item
under the federal alternative minimum tax.

Investors should consider the tax implications of buying units immediately
prior to a distribution. Investors who purchase units shortly before the record
date for a distribution will pay a per unit price that includes the value of
the anticipated distribution and will be taxed on the distribution (unless it
is exempt from tax) even though the distribution represents a return of a
portion of the purchase price.

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<PAGE>

Redemptions and exchanges of units are taxable events on which a unitholder
may recognize a gain or loss. Any loss realized upon the redemption of units
with a tax holding period of six months or less is disallowed to the extent of
any tax-exempt dividends received with respect to such units and, to the extent
not disallowed, is treated as a long-term capital loss to the extent of any
distributions treated as long-term capital gains with respect to such shares.
Any loss realized on the redemption of units of the Fund may be disallowed if
units of the Fund are purchased within a 61-day period beginning 30 days before
and ending 30 days after such redemption.

Although all or a substantial portion of the dividends paid by the Fund may
be excluded by unitholders of the Fund from their gross income for federal
income tax purposes, the Fund may purchase specified private activity bonds,
the interest from which may be a preference item for purposes of the federal
alternative minimum tax (individual and corporate). All exempt-interest
dividends from the Fund will be considered in computing the "adjusted current
earnings" preference item for purposes of the corporate federal alternative
minimum tax, the corporate environmental tax, and the extent, if any, to which
a unitholder's Social Security or certain railroad retirement benefits are
taxable.

Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on taxable 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 unitholders
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.

OTHER TAXES

In addition to federal taxes, a unitholder 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 intangible taxes, the value of its assets is attributable to) certain
U.S. Government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied.

UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
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 UNITS OF THE FUND.

ADDITIONAL INFORMATION

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

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<PAGE>

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, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Thanksgiving 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.

ADDITIONAL SERVICES

The Trust, on behalf of the Fund, has adopted a Service Plan with respect to
the Service Units which authorizes the Fund to compensate Service
Organizations, including Harris Associates, for providing account
administration and personal and account maintenance services to their customers
who are beneficial owners of such Units. The Trust, on behalf of the Fund, will
enter into agreements with Service Organizations which purchase Service Units
on behalf of their customers ("Service Agreements"). The Service Agreements
will provide for compensation to the Service Organizations in an amount up to
0.50 of 1% (on an annualized basis) of the average daily net assets of the
Service Units of the Fund attributable to or held in the name of the Service
Organization for its customers; provided, however, that the fee paid for
personal and account maintenance services shall not exceed .25% of such average
daily net assets. The services provided by the Service Organizations include
acting, directly or through an agent, as the sole unitholder of record,
maintaining account records for customers, processing orders to purchase,
redeem or exchange Service Units for customers, responding to inquiries from
prospective and existing unitholders and assisting customers with investment
procedures.

For the fiscal year ended October 31, 1994, the Trust on behalf of the Fund
paid the Service Organizations fees at an annual rate of 0.50% of the Fund's
average daily net assets attributable to Service Units of the Fund.

Holders of Service Units of the Fund will bear all expenses and fees paid to
Service Organizations for their services with respect to such Units as well as
any other expenses which are directly attributable to such Units.

Service Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of Service Units in connection
with their customer accounts. These fees would be in addition to any amounts
received by the Service Organization under a Service Agreement and may affect
the return earned on an investment in the Fund. The Trust, on behalf of the
Fund, will accrue payments made pursuant to a Service Agreement daily.

UNITHOLDER SERVICES

REPORTING TO UNITHOLDERS

You will receive a confirmation statement from Oakmark reflecting each of
your purchases and redemptions of Oakmark Units, as well as periodic statements
detailing distributions made by the Fund. In addition, Oakmark will send you
semiannual and annual reports showing the Fund's holdings and will provide you
annually with tax information.

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SPECIAL WAYS TO INVEST OR REDEEM

In addition to the ways to purchase or redeem Oakmark Units described above,
the New Account Purchase Application offers you the following additional
investment and redemption options:

AUTOMATIC INVESTMENTS--purchase Oakmark Units each month with payment by
electronic transfer from your bank account ($100-$50,000 per transaction).

TELEPHONE INVESTMENTS--purchase Oakmark Units by placing a telephone order
and paying for them by electronic transfer from your bank account ($100-$50,000
per transaction).

SYSTEMATIC WITHDRAWALS--redeem a fixed dollar amount of Oakmark Units each
month or quarter and have the proceeds sent by check to you or deposited by
electronic transfer into your bank account (up to $50,000 per transaction for
electronic transfers).

HOW TO PURCHASE UNITS

You may purchase Oakmark Units of the Fund by check, by wire, by electronic
transfer or by exchange through Oakmark. There are no sales commissions or
underwriting discounts. The minimum initial investment is $2,500. Minimum
subsequent investments are $100, except for reinvestments of dividends and
capital gains distributions.

BY CHECK

To make an initial purchase of units, complete and sign the New Account
Purchase Application and mail it to The Oakmark Funds Family, P.O. Box 8510,
Boston, Massachusetts 02266-8510, together with a check for the total purchase
amount payable to State Street Bank and Trust Company.

You may make subsequent investments by submitting a check along with either
the stub from your Fund account confirmation statement or a note indicating the
amount of the purchase, your account number, and the name in which your account
is registered. Each individual check submitted for purchase must be at least
$100. Oakmark will not accept cash, drafts, third party checks or checks drawn
on banks outside of the United States. If your order to purchase Oakmark Units
of the Fund is cancelled because your check does not clear, you will be
responsible for any resulting loss incurred by Oakmark.

BY WIRE

You may also pay for Oakmark Units by instructing your bank to wire money to
Oakmark. Your bank may charge you a fee for sending the wire. IF YOU ARE
OPENING A NEW ACCOUNT BY WIRE TRANSFER, YOU MUST FIRST TELEPHONE OAKMARK AT 1-
800-626-9392 TO REQUEST AN ACCOUNT NUMBER AND FURNISH YOUR SOCIAL SECURITY OR
OTHER TAX IDENTIFICATION NUMBER. Neither the Fund nor Oakmark will be
responsible for the consequences of delays, including delays in the banking or
Federal Reserve wire systems.

BY ELECTRONIC TRANSFER

If you have an established Fund account you may make subsequent investments
by an electronic transfer of funds from your bank account. Electronic transfer
allows you to make purchases at your request by calling 1-800-626-9392 or at
pre-scheduled intervals. (See "Unitholder Services.") Electronic

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transfer purchases are subject to a $100 minimum and a $50,000 maximum. You may
not open a new account through electronic transfer.

BY EXCHANGE

You may purchase Oakmark Units of the Fund by exchange of Oakmark Units from
the Government Portfolio or the Tax-Exempt Diversified Portfolio or shares from
The Oakmark Fund or The Oakmark International Fund either by phone or by mail.
AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE FOR FEDERAL INCOME TAX PURPOSES
AND MAY RESULT IN CAPITAL GAIN OR LOSS. Restrictions apply and there is a
charge (currently $5) for each exchange from The Oakmark Fund or The Oakmark
International Fund into the Fund, the Government Portfolio or the Tax-Exempt
Diversified Portfolio. Please review the information under "How to Redeem
Units--By Exchange."

PURCHASE PRICE AND EFFECTIVE DATE

Each purchase of Oakmark Units of the Fund is made at the Fund's net asset
value (see "Net Asset Value") next determined as follows:

A purchase by check or wire transfer is made at the net asset value
determined that business day if Oakmark receives your check, wire transfer of
funds or exchange order before 4:00 p.m. eastern time. If a purchase order is
received by Oakmark by 4:00 p.m. eastern time, the purchased shares will be
issued and dividends will begin on such shares on the next business day.

GENERAL

Each purchase order for Oakmark Units must be accepted by Oakmark. Once your
purchase order has been accepted, you may not cancel or revoke it; however, you
may redeem the Oakmark Units. Oakmark reserves the right not to accept any
purchase order that it determines not to be in the best interest of the Trust
or of the Fund's unitholders. Oakmark uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If Oakmark does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Oakmark will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

HOW TO REDEEM UNITS

BY MAIL

You may redeem all or any part of your Oakmark Units of the Fund upon your
written request delivered to The Oakmark Funds Family, P.O. Box 8510, Boston,
Massachusetts 02266-8510.

Your redemption request must:

(1) identify the Fund and give your account number;

(2) specify the number of units or dollar amount to be redeemed;

(3) be signed in ink by all owners exactly as their names appear on the
account; and

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(4) for redemptions greater than $50,000 or redemptions payable to other
than the unitholder address of record, include an ink-stamped guarantee by
an "eligible guarantor institution" as defined in the Securities Exchange
Act of 1934 (including a bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association, but not a notary public) for each signature on the
redemption request (the guarantee must use the phrase "signature
guaranteed" and must include the name of the guarantor bank or firm and an
authorized signature).

Special rules apply to redemptions by corporations, trusts and partnerships.
In the case of a corporation, the request must be signed in the name of the
corporation by an officer whose title must be stated, and must be accompanied
by a bylaw provision or resolution of the board of directors, certified within
60 days, authorizing the officer to so act. A redemption request from a
partnership or a trust must be signed in the name of the partnership or trust
by a general partner or a trustee and include a signature guarantee. If the
trustee is not named in the account registration, a redemption request by a
trust must also include evidence of the trustee's appointment as such (e.g., a
certified copy of the relevant portions of the trust instrument). Under certain
circumstances, before Oakmark Units can be redeemed, additional documents may
be required in order to verify the authority of the person seeking to redeem.

BY EXCHANGE

You may redeem all or any portion of your Oakmark Units of the Fund and use
the proceeds to purchase Oakmark Units of the Government Portfolio or the Tax-
Exempt Diversified Portfolio or shares of The Oakmark Fund or The Oakmark
International Fund ("The Oakmark Funds") if your signed, properly completed New
Account Purchase Application is on file. AN EXCHANGE TRANSACTION IS A SALE AND
PURCHASE FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR
LOSS. Before exchanging, you should obtain a prospectus from The Oakmark Funds
and read it carefully. The exchange privilege is not an offering or
recommendation of shares of The Oakmark Funds. The registration of the account
to which you are making an exchange must be exactly the same as that of the
account from which the exchange is made and the amount you exchange must meet
any applicable minimum investment of the fund being purchased. An exchange may
be made by following the redemption procedure described above under "By Mail"
and indicating the fund to be purchased, except that a signature guarantee
normally is not required. (See also the discussion below of the Telephone
Exchange Privilege.)

SPECIAL REDEMPTION PRIVILEGES

The Telephone Exchange and Telephone Redemption Privileges will be
established automatically when you open your account unless you elect on your
New Account Purchase Application to decline these Privileges. Other Privileges
must be specifically elected. A signature guarantee may be required to
establish a Privilege after you open your account.

TELEPHONE EXCHANGE PRIVILEGE

You may use the Telephone Exchange Privilege to exchange among The Oakmark
Funds and the Fund by calling 1-800-626-9392. The general redemption policies
apply to redemptions by Telephone Exchange. (See "General Redemption
Policies.")

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Oakmark reserves the right at any time without prior notice to suspend or
terminate the use of the Telephone Exchange Privilege by any person or class of
persons. Oakmark believes that use of the Telephone Exchange Privilege by
investors utilizing market-timing strategies adversely affects the Fund.
THEREFORE, OAKMARK GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY
UNITHOLDERS IDENTIFIED BY OAKMARK AS "MARKET-TIMERS." Moreover, Oakmark
reserves the right at any time without prior notice to suspend, limit, modify,
or terminate the Telephone Exchange Privilege in its entirety. Because such a
step would be taken only if it would be in the best interest of the Fund,
Oakmark expects that it would provide unitholders with prior written notice of
any such action unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the Telephone Exchange Privilege
would adversely affect the Fund. IF OAKMARK WERE TO SUSPEND, LIMIT, MODIFY, OR
TERMINATE THE TELEPHONE EXCHANGE PRIVILEGE, YOU MIGHT FIND THAT AN EXCHANGE
COULD NOT BE PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. See "How to Redeem Units--By Exchange."

During periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone; you may wish to consider placing
your exchange by mail during such periods.

TELEPHONE REDEMPTION PRIVILEGE

You may use the Telephone Redemption Privilege to redeem units having a value
of up to $50,000 per day from your account by calling 1-800-626-9392. The
proceeds may be sent by check to your registered address or you may request
payment by electronic transfer to a bank account previously designated by you
at a bank that is a member of the Automated Clearing House. If you request a
redemption by electronic transfer before the Fund's redemption cut-off time and
the proceeds are to be sent to your pre-established designated bank account,
the proceeds will be transferred to your bank account on the next business day.
REDEMPTION BY TELEPHONE IS SUBJECT TO A $50,000 MAXIMUM. The Telephone
Redemption Privilege is not available for 60 days after Oakmark receives notice
from you of a change of address.

GENERAL REDEMPTION POLICIES

You may not cancel or revoke your redemption order once instructions have
been received and accepted. PLEASE TELEPHONE OAKMARK BY CALLING 1-800-626-9392
IF YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION BEFORE SUBMITTING
YOUR REQUEST. Oakmark reserves the right to require a properly completed New
Account Purchase Application before making payment for Oakmark Units redeemed.

If your redemption order is received in proper form before 4:00 p.m. eastern
time, the price at which your redemption order will be executed is the net
asset value determined that business day. See "Net Asset Value." Dividends are
earned on the day that units are redeemed.

Oakmark will generally mail payment for Oakmark Units redeemed within seven
days after proper instructions are received. If you attempt to redeem Oakmark
Units within 15 days after they have been purchased by check or electronic
transfer, Oakmark may delay payment of the redemption proceeds to you until it
can verify that payment for the purchase of those Oakmark Units has been (or
will be) collected. To reduce such delays, Oakmark recommends that your
purchase be made by Federal Funds wire

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through your bank. If you so request, the proceeds of your redemption may be
paid by wire, but the cost of the wire (currently $5) will be deducted from the
redemption proceeds.

Oakmark reserves the right at any time without prior notice to suspend,
limit, modify, or terminate any privilege or its use in any manner by any
person or class.

Use of any Special Redemption Privilege authorizes Oakmark to tape-record all
instructions to redeem. Oakmark uses procedures designed to give reasonable
assurance that telephone instructions are genuine, including recording
telephone calls, testing a caller's identity and sending written confirmation
of telephone transactions. If Oakmark does not follow such procedures, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
Oakmark will not be liable for acting upon instructions communicated by
telephone that it reasonably believes to be genuine.

Oakmark reserves the right to redeem Oakmark Units in any account and send
the proceeds to the owner if the Oakmark Units in the account do not have a
value of at least $1,000.

Oakmark Units in any account you maintain with the Fund may be redeemed to
the extent necessary to reimburse Oakmark for any loss it sustains that is
caused by you (such as losses from uncollected checks and electronic transfers
or any liability under the Internal Revenue Code provisions on backup
withholding relating to your account.